UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number 811-5896
SCUDDER TARGET FUND
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(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza Chicago, Illinois 60606
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
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Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
Date of fiscal year end: 7/31
Date of reporting period: 7/31/04
ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
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Annual Report to Shareholders |
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July 31, 2004 |
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Contents |
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<Click Here> Performance Summary <Click Here> Information About Your Fund's Expenses <Click Here> Portfolio Management Review <Click Here> Portfolio Summary <Click Here> Investment Portfolio <Click Here> Financial Statements <Click Here> Financial Highlights <Click Here> Notes to Financial Statements <Click Here> Report of Independent Registered Public Accounting Firm <Click Here> Tax Information <Click Here> Trustees and Officers <Click Here> Account Management Resources |
This report must be preceded by a prospectus. The prospectus contains the fund's objectives, risks, charges and expenses, and other important information about the fund.
Investments in mutual funds involve risk. Some funds have more risk than others. Because the fund provides investment protection only on the maturity date to investors who reinvest all dividends and do not redeem their shares before the maturity date, the principal value of the fund is subject to market fluctuation prior to and after the maturity date. This fund is subject to stock market risk, meaning stocks in the fund may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, the fund invests in individual bonds whose yields and market values fluctuate so that your investment may be worth more or less than its original cost. Please read this fund's prospectus for specific details regarding its investments and risk profile. This fund is closed to new investors. Please refer to the prospectus for more details.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
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All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the product's most recent month-end performance.
The maximum sales charge for the Fund is 5.0%. Unadjusted returns do not reflect sales charges and would have been lower if they had.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
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Average Annual Total Returns (Unadjusted for Sales Charge) as of 7/31/04 |
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1-Year |
3-Year |
5-Year |
10-Year |
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Scudder Target 2010 Fund
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5.39% |
3.74% |
4.71% |
9.56% |
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S&P 500 Index+ |
13.17% |
-1.48% |
-2.24% |
11.09% |
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Lehman Brothers Government Bond
Index++ |
3.86% |
5.61% |
6.95% |
7.06% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
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Net Asset Value and Distribution Information |
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Net Asset Value:
7/31/04 |
$ 9.52 |
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7/31/03 |
$ 9.35 |
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Distribution Information:
Twelve Months: Income Dividends as of 7/31/04 |
$ .33 |
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Lipper Rankings - Balanced Target Maturity Funds Category as of 7/31/04 |
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Period |
Rank |
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Number of Funds Tracked |
Percentile Ranking |
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1-Year |
19 |
of |
75 |
25 |
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3-Year |
1 |
of |
19 |
5 |
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5-Year |
2 |
of |
9 |
20 |
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10-Year |
1 |
of |
6 |
15 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total returns unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable.
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Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
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[] Scudder Target 2010 Fund [] S&P 500 Index+[] Lehman Brothers Government Bond Index++ |
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Yearly periods ended July 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.0%. This results in a net initial investment of $9,500.
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Comparative Results (Adjusted for Maximum Sales Charge) as of 7/31/04 |
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1-Year |
3-Year |
5-Year |
10-Year |
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Scudder Target 2010 Fund |
Growth of $10,000 |
$10,012 |
$10,606 |
$11,958 |
$23,677 |
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Average annual total return |
.12% |
1.98% |
3.64% |
9.00% |
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S&P 500 Index+
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Growth of $10,000 |
$11,317 |
$9,563 |
$8,928 |
$28,630 |
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Average annual total return |
13.17% |
-1.48% |
-2.24% |
11.09% |
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Lehman Brothers
Government Bond
Index++
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Growth of $10,000 |
$10,386 |
$11,779 |
$13,995 |
$19,787 |
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Average annual total return |
3.86% |
5.61% |
6.95% |
7.06% |
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The growth of $10,000 is cumulative.
+ The Standard & Poor's (S&P) 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.++ The Lehman Brothers Government Bond Index is a market-value-weighted index of US Treasury and government agency securities (other than mortgage securities) with maturities of one year or more.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
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As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section and which would result in higher total expenses. The following table is intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The table is based on an investment of $1,000 made at the beginning of the six-month period ended July 31, 2004.
The table illustrates your Fund's expenses in two ways:
• Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs, such as sales charges (loads) or redemption fees. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.
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Annualized Expense Ratio
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Scudder Target 2010 Fund |
1.07% |
For more information, please refer to the Fund's prospectus.
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Scudder Target 2010 Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder Target 2010 Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Gregory S. Adams, CFA
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of the fund.
• Joined Deutsche Asset Management in 1999 and the fund in 2002.
• Head of Deutsche Asset Management's global portfolio selection team for US Large Cap Core Equity.
• Over 17 years of investment industry experience.
• Previously managed Chase Vista Growth & Income Fund, Chase Vista Large Cap Equity Fund, Chase Vista Balanced Fund and other equity portfolios for Chase Asset Management.
Andrew Brudenell, CFA
Vice President of Deutsche Asset Management and Portfolio Manager of the fund.
• Joined Deutsche Asset Management in 1997 and the fund in 2002.
• Portfolio Manager for US Large Cap Core Equity: New York.
• MS, London School of Economics.
Jan Faller, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
• Joined Deutsche Asset Management in 1999 and the fund in 2003.
• Over 14 years of investment industry experience.
• MBA, Amos Tuck School, Dartmouth College.
In the following interview, Lead Portfolio Manager Gregory S. Adams addresses the economy, the management team's approach and the resulting performance of Scudder Target 2010 Fund for the annual period ended July 31, 2004.
Q: How would you characterize the investment environment during the annual period?
A: The fiscal-year period can be divided into two distinct parts: the first, driven by economic recovery and equity market strength; the second, marred by investor concern and rising interest rates.
During the last five months of 2003, positive leading economic indicators (those suggesting the direction of the economy) and significant earnings leverage in pro-cyclical, or economically sensitive, companies prompted strong moves in materials, energy, technology and industrial stocks. The Federal Reserve Board kept short-term interest rates at historic lows, which further supported equity market strength. Longer-dated maturities saw yields fluctuate in a narrow but volatile range, as improving economic indicators, including rising commodities prices, fueled investor concerns about rising rates in 2004.
As the new year began, this economic momentum and earnings recovery became well discounted in the market. By early spring, the Fed shifted its bias toward raising short-term interest rates, the first boost occurring in late June. The move, together with lackluster employment data, heightened investor concern about the strength and sustainability of the economic recovery. The continued turmoil in Iraq and the pending US presidential race exacerbated negative investor sentiment, resulting in a more-volatile equity market with a downward bias. Investors took profits in those pro-cyclical industry sectors that had surged during the first part of the period, moving instead into more-defensive industries. Technology was hit particularly hard. Energy stocks, however, continued to be fueled by a spike in crude oil, far outpacing the market for the annual period.
Q: How did the fund perform amid these challenges?
A: Scudder Target 2010 Fund gained 5.39% for the year ended July 31, 2004. (Returns are unadjusted for maximum sales charges. If sales charges were included, returns would have been lower. Past performance is no guarantee of future results.) The fund outpaced the 3.39% average total return of its peers to rank in the top quartile of the Balanced Target Maturity category, as tracked by Lipper Inc., for the same period.1 This compares with the 13.17% total return of the Standard & Poor's 500 index (S&P 500) - the fund's equity benchmark - and the 3.86% total return of the Lehman Brothers Government Bond Index (the fund's fixed-income benchmark) for the same period.2 (Please see pages 3 through 4 for more complete performance and ranking information.)
1 The Balanced Target Maturity category, as tracked by Lipper Inc., includes those funds that invest to provide a guaranteed return of investment at maturity (targeted periods). Some of the assets are invested in zero-coupon US Treasury securities, while the remainder is in equity securities for long-term growth of capital and income.
2 The Standard & Poor's (S&P) 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Lehman Brothers Government Bond Index is a market-value-weighted index of US Treasury and government agency securities (other than mortgage securities) with maturities of one year or more.
Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The equity portion of the fund was challenged by a trend that favored lower-quality, higher-risk, primarily smaller capitalization stocks throughout much of the period. Consistent with the fund's design, the fixed-income portion of the portfolio helped mitigate volatility. Given these challenges, we are quite pleased with the results. Further, we are encouraged by what appeared to be a return to higher-quality, larger-cap names later in the period.
Q: Which investment strategies or individual holdings contributed most to performance?
A: The industrial sector was the leading contributor to the portfolio's performance over the period. We were overweight to take advantage of the improving economy, and the sector trailed only in energy in the S&P 500 over the period. Solid stock selection led by United Technologies Corp. and Parker Hanifan also boosted performance. The telecommunications sector yielded the portfolio's strongest contributor: AT&T Wireless Services, Inc., a provider of wireless voice and data services and products. During the period, AT&T Wireless agreed to be acquired by Cingular Wireless LLC at a substantial premium. This, of course, was beneficial for the fund.
Stock selection also was key among consumer staples. While the group was not a particularly strong performer overall, select holdings, including Avon Products Inc. and Hershey Foods Corp., substantially outperformed their peers and the broader market. Avon saw strong growth in revenues and net income based on increased sales of its beauty products overseas. Hershey's efforts to reduce supply-chain costs and introduce new products resulted in increased revenues and net profits.
Q: Which investment strategies or individual holdings detracted from performance?
A: Because interest rates, despite volatility within the period, ended essentially unchanged, the portfolio's fixed-income holdings neither contributed to nor detracted from performance meaningfully. Within the equity portion of the portfolio, the financial and consumer discretionary sectors detracted most from overall performance:
• In the financial sector, we were surprised by Bank of America's bid for FleetBoston, which it ultimately acquired at a premium. As a result, Bank of America, one of our top 10 holdings, trailed the banking industry and the market's performance over the period. At the same time, smaller commercial and regional banks, in which the portfolio held a relative underweight, outperformed on speculation that they too would be acquired.
• Within the consumer discretionary space, we sought exposure to media stocks with the assumption that the Olympics and presidential election would drive advertising sales. We established an overweight position early on, hoping to be ahead of the curve. While the strategy proved successful in the short run, advertising spending did not recover as anticipated, and concerns over potential shifts in how advertisers view traditional media weighed on valuations. As a result of that environment, Viacom Inc. was a particularly poor performer.
• Investments in the communications equipment subsector of technology also detracted. The portfolio was underweight in these companies, which tend not to meet the portfolio's investment criteria. Though together they represent a relatively small component of the benchmark, the group's robust performance negatively affected relative results.
Q: Will you describe your stock selection process?
A: We employ a three-step investment process to build a well-diversified portfolio of large-capitalization stocks. First, we use a quantitative screen to sort through a universe of 1,000 stocks to find those with attractive valuations: low price-to-earnings, low price-to-cash flow and other measures, such as the direction of earnings revisions.3 Next, a team of in-house equity analysts looks at each of the stocks that passed the quantitative screen to determine its intrinsic value. The analysts search for companies in which improving fundamentals, such as positive trends in earnings and sales growth, have not yet been recognized by the market. If the analysts' findings warrant further investigation, we will meet with company management and, in some cases, make on-site visits to gain a better understanding of the business objectives and strategies of our potential buy candidates. Finally, we employ a variety of risk management techniques to manage the fund's volatility versus the fund's equity benchmark - the S&P 500.
3 Price-to-earnings ratio (P/E) is the most common measure of how expensive a stock is. P/E is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period. Price-to-cash flow (P/C) is equal to a stock's capitalization divided by its cash flow for the latest fiscal year.
Q: Will you explain what zero-coupon bonds are and how they work?
A: Zero-coupon bonds are a type of US Treasury bond. They are issued by the federal government and sold at a considerable discount to their face value at maturity, which is guaranteed. This means that investors can purchase the bond at a fraction of what it will be worth on a future date.
The trade-off, so to speak, is that the bondholders receive no coupon, or periodic interest payments, as they would with most other types of bonds. More important, should a bondholder choose to redeem that investment prior to maturity, he or she would forfeit not only the opportunity to receive the bond's full face value but the guarantee of the original investment as well. Zero-coupon bonds can be volatile. Their principal value - the original dollar amount invested by a bondholder - tends to fluctuate with interest rates. Therefore, the bondholder's original investment may be worth more or less at the time of early redemption.
Q: How have you positioned the portfolio for the future?
A: When the market paused early in 2004, we increased the portfolio's equity holdings in utilities, which are traditionally considered defensive stocks. Utilities have tended to generate steady income, providing a cushion in the event of a market downturn. We have added specifically to electric utilities. Many of these were struggling for some time after the California power crisis in 2000. More recent restructuring efforts have helped improve these companies on a fundamental basis and have enabled them to set rates regionally, ensuring more stable earnings going forward.
We have not, however, lost faith in the sustainability of the current economic recovery. Therefore, we continue to maintain a modest pro-cyclical tilt. While we pared back holdings on strength in both the industrial and technology sectors to capture profits for shareholders, we maintained the fund's overweight positions there. For example, 3M was among the fund's largest holdings for some time. We had established a meaningful overweight in the stock, which we believed would benefit from global GDP (gross domestic product) growth. Our contention proved correct; the stock logged strong gains. When it reached our price target, we significantly reduced the position. We then were able to add to smaller positions in industrial names that, in our view, had greater upside potential.
Within technology, we reduced exposure to semiconductor names, which had performed well in 2003. In particular, we pared back companies with greater exposure to the PC business, which tends to be more cyclical. We have focused instead on semiconductor companies that serve the wireless communications industry, which we believe offers outstanding structural growth potential.
And we have increased our holdings in materials, expanding our position in the paper industry, which recently has become more disciplined. Notably, we initiated a position in Georgia-Pacific Corp., a company with solid fundamental attributes and pricing power among its peers.
Finally, because we believe energy prices may still go higher, we have added incrementally to oil services companies. Notably, we purchased Baker Hughes Inc., which supplies oil field drilling products, technology and services worldwide. At the time of purchase, the company was attractively valued relative to its peers. It also had more international presence, which we believe is extremely important given our belief that there are greater opportunities overseas than in the Americas.
Q: Do you have any closing comments for shareholders?
A: Our outlook for the near term is positive. We believe that the economic recovery will continue at a moderate pace, allowing the Federal Reserve to raise interest rates gradually, with short-term rates rising somewhat more than long-term rates. In our view, once corporate management gains greater confidence in the economy, the outcome of the presidential election becomes known and energy prices stabilize, we should see a resurgence in consumer demand and corporate reinvestment. It is our opinion that the portfolio is well-positioned to benefit.
As always, the team remains focused on enhancing the fund's well-diversified portfolio. We continue to employ a blend of quantitative models, fundamental research and rigorous risk analysis to uncover those stocks we believe are most likely to outperform the broader market.
We thank our shareholders for their commitment to the fund. We look forward to continuing to help them accomplish their long-term financial goals.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
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Asset Allocation |
7/31/04 |
7/31/03 |
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US Government Backed
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75% |
77% |
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Common Stocks
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25% |
23% |
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100% |
100% |
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Sector Diversification |
7/31/04 |
7/31/03 |
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Information Technology
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19% |
19% |
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Financials
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19% |
20% |
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Industrials
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13% |
13% |
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Health Care
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13% |
15% |
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Consumer Discretionary
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11% |
13% |
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Consumer Staples
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8% |
9% |
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Energy
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7% |
4% |
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Telecommunication Services
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4% |
4% |
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Materials
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3% |
2% |
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Utilities
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3% |
1% |
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100% |
100% |
Asset allocation and sector diversification are subject to change.
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Ten Largest Equity Holdings at July 31, 2004 (5.6% of Portfolio) |
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1. ExxonMobil Corp.
Explorer and producer of oil and gas |
0.8% |
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2. Microsoft Corp.
Developer of computer software |
0.8% |
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3. General Electric Co.
Industrial conglomerate |
0.7% |
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4. Citigroup, Inc.
Provider of diversified financial services |
0.6% |
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5. Pfizer, Inc.
Manufacturer of prescription pharmaceuticals and non-prescription self-medications |
0.6% |
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6. Cisco Systems, Inc.
Developer of computer network products |
0.5% |
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7. Morgan Stanley
Provider of investment banking and brokerage services |
0.4% |
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8. Bank of America Corp.
Provider of commercial banking services |
0.4% |
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9. Johnson & Johnson
Provider of health care products |
0.4% |
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10. United Technologies Corp.
Manufacturer of aerospace equipment, climate control systems and elevators |
0.4% |
Portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 17. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end is available upon request on the 16th of the following month. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. This form is available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
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Value ($) |
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Common Stocks 18.9% |
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Consumer Discretionary 2.0%
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Media 1.0% |
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Comcast Corp. "A"*
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5,700 |
152,760 |
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Interpublic Group of Companies, Inc.*
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9,500 |
121,505 |
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Time Warner, Inc.*
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17,700 |
294,705 |
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Viacom, Inc. "B"
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7,210 |
242,184 |
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811,154 |
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Multiline Retail 0.4% |
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Dollar General Corp.
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5,000 |
96,500 |
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Target Corp.
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4,800 |
209,280 |
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305,780 |
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Specialty Retail 0.6% |
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Sherwin-Williams Co.
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2,900 |
117,102 |
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Staples, Inc.
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8,800 |
254,144 |
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The Gap, Inc.
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7,400 |
167,980 |
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539,226 |
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Consumer Staples 1.5%
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Beverages 0.4% |
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Anheuser-Busch Companies, Inc.
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3,000 |
155,700 |
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PepsiCo, Inc.
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4,000 |
200,000 |
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355,700 |
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Food & Drug Retailing 0.4% |
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Safeway, Inc.*
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4,300 |
90,859 |
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Wal-Mart Stores, Inc.
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4,300 |
227,943 |
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318,802 |
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Food Products 0.3% |
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Dean Foods Co.*
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3,100 |
114,638 |
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Hershey Foods Corp.
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3,200 |
155,008 |
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269,646 |
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Personal Products 0.4% |
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Avon Products, Inc.
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7,100 |
305,371 |
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Energy 1.3%
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Energy Equipment & Services 0.2% |
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Baker Hughes, Inc.
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3,300 |
132,990 |
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Oil & Gas 1.1% |
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ChevronTexaco Corp.
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2,000 |
191,300 |
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Devon Energy Corp.
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1,600 |
111,184 |
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ExxonMobil Corp.
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13,676 |
633,199 |
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935,683 |
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Financials 3.5%
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Banks 0.8% |
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Bank of America Corp.
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4,000 |
340,040 |
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US Bancorp.
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4,300 |
121,690 |
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Wachovia Corp.
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5,500 |
243,705 |
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705,435 |
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Capital Markets 0.7% |
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Lehman Brothers Holdings, Inc.
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2,600 |
182,260 |
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Morgan Stanley
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7,500 |
369,975 |
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552,235 |
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Diversified Financial Services 1.0% |
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Citigroup, Inc.
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11,466 |
505,536 |
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Fannie Mae
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1,600 |
113,536 |
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JPMorgan Chase & Co.
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5,100 |
190,383 |
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809,455 |
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Insurance 1.0% |
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AMBAC Financial Group, Inc.
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1,900 |
135,109 |
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American International Group, Inc.
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4,075 |
287,899 |
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Hartford Financial Services Group, Inc.
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3,100 |
201,810 |
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MetLife, Inc.
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5,600 |
199,752 |
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824,570 |
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Health Care 2.5%
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Biotechnology 0.4% |
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Amgen, Inc.*
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5,000 |
284,400 |
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Health Care Equipment & Supplies 0.4% |
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Biomet, Inc.
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5,100 |
224,349 |
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Guidant Corp.
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2,400 |
132,768 |
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357,117 |
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Health Care Providers & Services 0.3% |
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Anthem, Inc.*
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1,000 |
82,470 |
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Caremark Rx, Inc.*
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5,100 |
155,550 |
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238,020 |
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Pharmaceuticals 1.4% |
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Allergan, Inc.
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1,200 |
90,768 |
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Eli Lilly & Co.
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2,300 |
146,556 |
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Johnson & Johnson
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5,934 |
327,972 |
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Pfizer, Inc.
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15,375 |
491,385 |
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Wyeth
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2,300 |
81,420 |
|
|
1,138,101 |
|
|
Industrials 2.5%
|
||
|
Aerospace & Defense 0.7% |
||
|
Honeywell International, Inc.
|
6,800 |
255,748 |
|
United Technologies Corp.
|
3,400 |
317,900 |
|
|
573,648 |
|
|
Industrial Conglomerates 1.3% |
||
|
3M Co.
|
2,400 |
197,664 |
|
General Electric Co.
|
18,550 |
616,787 |
|
Tyco International Ltd.
|
7,300 |
226,300 |
|
|
1,040,751 |
|
|
Machinery 0.5% |
||
|
Deere & Co.
|
2,900 |
182,149 |
|
Parker-Hannifin Corp.
|
4,600 |
263,948 |
|
|
446,097 |
|
|
Information Technology 3.6%
|
||
|
Communications Equipment 0.6% |
||
|
Cisco Systems, Inc.*
|
18,100 |
377,566 |
|
Motorola, Inc.
|
8,500 |
135,405 |
|
|
512,971 |
|
|
Computers & Peripherals 0.9% |
||
|
Dell, Inc.*
|
5,400 |
191,538 |
|
EMC Corp.*
|
16,400 |
179,908 |
|
Hewlett-Packard Co.
|
6,900 |
139,035 |
|
International Business Machines Corp.
|
2,400 |
208,968 |
|
|
719,449 |
|
|
Internet Software & Services 0.2% |
||
|
IAC/ InterActiveCorp.*
|
2,500 |
68,250 |
|
Yahoo!, Inc.*
|
3,500 |
107,800 |
|
|
176,050 |
|
|
IT Consulting & Services 0.1% |
||
|
Accenture Ltd. "A"*
|
3,200 |
78,816 |
|
Semiconductors & Semiconductor Equipment 0.5% |
||
|
Altera Corp.*
|
6,900 |
143,658 |
|
Analog Devices, Inc.
|
2,500 |
99,250 |
|
Texas Instruments, Inc.
|
8,700 |
185,571 |
|
|
428,479 |
|
|
Software 1.3% |
||
|
Microsoft Corp.
|
21,800 |
620,428 |
|
Oracle Corp.*
|
18,700 |
196,537 |
|
Symantec Corp.*
|
2,500 |
116,900 |
|
VERITAS Software Corp.*
|
4,800 |
91,488 |
|
|
1,025,353 |
|
|
Materials 0.7%
|
||
|
Chemicals 0.3% |
||
|
E.I. du Pont de Nemours & Co.
|
2,900 |
124,323 |
|
Monsanto Co.
|
3,900 |
141,414 |
|
|
265,737 |
|
|
Metals & Mining 0.2% |
||
|
Alcoa, Inc.
|
3,900 |
124,917 |
|
Paper & Forest Products 0.2% |
||
|
Georgia-Pacific Corp.
|
4,600 |
154,561 |
|
Telecommunication Services 0.7%
|
||
|
Diversified Telecommunication Services 0.4% |
||
|
ALLTEL Corp.
|
3,000 |
156,000 |
|
Verizon Communications, Inc.
|
5,500 |
211,970 |
|
|
367,970 |
|
|
Wireless Telecommunication Services 0.3% |
||
|
AT&T Wireless Services, Inc.*
|
14,600 |
210,824 |
|
Utilities 0.6%
|
||
|
Electric Utilities |
||
|
Entergy Corp.
|
2,200 |
126,500 |
|
Exelon Corp.
|
5,900 |
205,910 |
|
PG&E Corp.*
|
4,400 |
125,576 |
|
|
457,986 |
|
|
Total Common Stocks (Cost $13,562,512)
|
15,467,294 |
|
|
|
Principal Amount ($) |
Value ($) |
|
|
|
|
|
US Government Backed 58.1% |
||
|
US Treasury STRIPs, Principal Only, 4.095%**, 11/15/2010 (c)
(Cost $41,402,766)
|
61,270,000 |
47,473,221 |
|
|
|
Value ($) |
|
|
|
|
|
Securities Lending Collateral 22.8% |
||
|
Daily Assets Fund Institutional, 1.30% (d) (e)
(Cost $18,667,004)
|
18,667,004 |
18,667,004 |
|
|
||
|
Cash Equivalents 0.2% |
||
|
Scudder Cash Management QP Trust, 1.38% (b)
(Cost $187,972)
|
187,972 |
187,972 |
|
Total Investment Portfolio - 100.0% (Cost $73,820,254) (a)
|
81,795,491 |
|
* Non-income producing security.
** Bond equivalent yield to maturity; not a coupon rate.
(a) The cost for federal income tax purposes was $73,904,411. At July 31, 2004, net unrealized appreciation for all securities based on tax cost was $7,891,080. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $8,481,048 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $589,968.
(b) Scudder Cash Management QP Trust is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at July 31, 2004 amounted to $18,306,665, which is 29.1% of total net assets.
(d) Represents collateral held in connection with securities lending.
(e) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of the financial statements.
|
|
|
Statement of Assets and Liabilities as of July 31, 2004 |
|
|
Assets
|
|
|
Investments: Investments in securities, at value (cost $54,965,278) - including $18,306,665 of securities loaned |
$ 62,940,515 |
|
Investment in Scudder Cash Management QP Trust (cost $187,972) |
187,972 |
|
Investment in Daily Assets Fund Institutional (cost $18,667,004) |
18,667,004 |
|
Total investments in securities, at value (cost $73,820,254) |
81,795,491 |
|
Cash |
2,473 |
|
Dividends receivable |
8,008 |
|
Interest receivable |
2,588 |
|
Other assets |
3,373 |
|
Total assets |
81,811,933 |
|
Liabilities
|
|
|
Payable upon return of securities loaned |
18,667,004 |
|
Payable for Fund shares redeemed |
2,180 |
|
Accrued management fee |
27,623 |
|
Other accrued expenses and payables |
104,267 |
|
Total liabilities |
18,801,074 |
|
Net assets, at value
|
$ 63,010,859 |
|
Net Assets
|
|
|
Net assets consist of: Undistributed net investment income (loss) |
2,137,413 |
|
Net unrealized appreciation (depreciation) on investments |
7,975,237 |
|
Accumulated net realized gain (loss) |
(1,527,686) |
|
Paid-in capital |
54,425,895 |
|
Net assets, at value
|
$ 63,010,859 |
|
Net Asset Value
|
|
|
Net Asset Value and redemption price per share ($63,010,859 / 6,620,278
outstanding shares of beneficial interest, $.01 par value, unlimited
number of shares authorized) |
$ 9.52 |
The accompanying notes are an integral part of the financial statements.
|
Statement of Operations for the year ended July 31, 2004 |
|
|
Investment Income
|
|
|
Income: Dividends (net of foreign taxes withheld of $419) |
$ 229,220 |
|
Interest |
2,689,355 |
|
Securities lending income |
2,403 |
|
Interest - Scudder Cash Management QP Trust |
1,935 |
|
Total Income |
2,922,913 |
|
Expenses: Management fee |
333,919 |
|
Distribution service fees |
153,603 |
|
Services to shareholders |
80,859 |
|
Administrative fee |
22,629 |
|
Custodian fees |
6,793 |
|
Auditing |
24,400 |
|
Legal |
3,574 |
|
Trustees' fees and expenses |
38,070 |
|
Reports to shareholders |
11,850 |
|
Registration fees |
10,522 |
|
Other |
4,044 |
|
Total expenses, before expense reductions |
690,263 |
|
Expense reductions |
(406) |
|
Total expenses, after expense reductions |
689,857 |
|
Net investment income (loss)
|
2,233,056 |
|
Realized and Unrealized Gain (Loss) on Investment Transactions
|
|
|
Net realized gain (loss) from investments |
1,482,881 |
|
Net unrealized appreciation (depreciation) during the period on
investments |
(117,847) |
|
Net gain (loss) on investment transactions
|
1,365,034 |
|
Net increase (decrease) in net assets resulting from operations
|
$ 3,598,090 |
The accompanying notes are an integral part of the financial statements.
|
Statement of Changes in Net Assets |
||
|
Increase (Decrease) in Net Assets
|
Years Ended July 31, |
|
|
2004 |
2003 |
|
|
Operations: Net investment income (loss) |
$ 2,233,056 | $ 2,347,754 |
|
Net realized gain (loss) on investment transactions |
1,482,881 | (842,427) |
|
Net unrealized appreciation (depreciation) on
investment transactions during the period |
(117,847) | 2,924,883 |
|
Net increase (decrease) in net assets resulting from
operations |
3,598,090 | 4,430,210 |
|
Distributions to shareholders from: Net investment income |
(2,292,879) | (2,421,061) |
|
Fund share transactions: Reinvestment of distributions |
2,218,909 | 2,335,993 |
|
Cost of shares redeemed |
(7,644,160) | (6,444,034) |
|
Net increase (decrease) in net assets from Fund share
transactions |
(5,425,251) | (4,108,041) |
|
Increase (decrease) in net assets
|
(4,120,040) | (2,098,892) |
|
Net assets at beginning of period |
67,130,899 | 69,229,791 |
|
Net assets at end of period (including undistributed
net investment income of $2,137,413 and $2,197,236,
respectively) |
$ 63,010,859 |
$ 67,130,899 |
|
Other Information
|
||
|
Shares outstanding at beginning of period |
7,180,362 | 7,611,210 |
|
Shares issued to shareholders in reinvestment of
distributions |
236,054 | 258,121 |
|
Shares redeemed |
(796,138) | (688,969) |
|
Net increase (decrease) in Fund shares |
(560,084) | (430,848) |
|
Shares outstanding at end of period |
6,620,278 |
7,180,362 |
The accompanying notes are an integral part of the financial statements.
|
|
|
Years Ended July 31, |
2004 |
2003 |
2002 |
2001 |
2000 |
Selected Per Share Data |
|||||
|
Net asset value, beginning of period
|
$ 9.35 |
$ 9.10 |
$ 9.49 |
$ 11.34 |
$ 10.96 |
|
Income (loss) from investment operations: Net investment income (loss)a |
.32 | .32 | .31 | .31 | .30 |
|
Net realized and unrealized gain (loss)
on investment transactions
|
.18 | .26 | (.37) | (.16) | .87 |
|
Total from investment operations |
.50 | .58 | (.06) | .15 | 1.17 |
|
Less distributions from: Net investment income |
(.33) | (.33) | (.20) | (.28) | (.36) |
|
Net realized gains on investment
transactions
|
- | - | (.13) | (1.72) | (.43) |
|
Total distributions |
(.33) | (.33) | (.33) | (2.00) | (.79) |
|
Net asset value, end of period
|
$ 9.52 |
$ 9.35 |
$ 9.10 |
$ 9.49 |
$ 11.34 |
|
Total Return (%)b |
5.39 | 6.49 | (.53) | 1.24 | 11.49 |
|
Ratios to Average Net Assets and Supplemental Data
|
|||||
|
Net assets, end of period ($ millions) |
63 | 67 | 69 | 78 | 85 |
|
Ratio of expenses before expense
reductions (%) |
1.03 | .96 | .96 | 1.01c | 1.06 |
|
Ratio of expenses after expense
reductions (%) |
1.03 | .96 | .96 | 1.01c | 1.05 |
|
Ratio of net investment income (loss) (%) |
3.35 | 3.38 | 3.39 | 2.98 | 2.77 |
|
Portfolio turnover rate (%) |
7 | 9 | 33 | 42 | 97 |
|
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charge. c The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .98% and .98%, respectively. |
|||||
|
|
A. Significant Accounting Policies
Scudder Target 2010 Fund (the "Fund") is a diversified series of Scudder Target Fund (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 objective of the Fund is to provide a guaranteed return of investment on the Maturity Date (November 15, 2010) to investors who reinvest all dividends and hold their shares to the Maturity Date, and to provide long-term growth of capital.
The assurance that investors who reinvest all dividends and hold their shares until the Maturity Date will receive at least their original investment on the Maturity Date is provided by the principal amount of the zero coupon US Treasury obligations in the Fund's portfolio. This assurance is further backed by an agreement entered into by Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Fund's investment manager. Fund shares were sold during limited offering periods, and are redeemable on a continuous basis.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Debt securities are valued by independent pricing services approved by the Trustees of the Fund. If the pricing services are unable to provide valuations, the securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investments companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Securities Lending. The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund in the form of cash and/or government securities equal to 102 percent of the value of domestic securities and 105 percent of the value of securities denominated in foreign currencies on loan. The Fund may invest the cash collateral in an affiliated money market fund. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to lending agent. Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
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 July 31, 2004 the Fund had a net tax basis capital loss carryforward of approximately $1,441,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until July 31, 2010 ($816,000) and July 31, 2011 ($625,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Distributions of net investment income, if any, are made annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. 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.
At July 31, 2004, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:
|
Undistributed ordinary income* |
$ 2,156,099 |
|
Undistributed net long-term capital gains |
$ - |
|
Capital loss carryforwards |
$ (1,441,000) |
|
Unrealized appreciation (depreciation) on investments |
$ 7,891,080 |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
|
|
Years Ended July 31, |
|
|
2004 |
2003 |
|
|
Distributions from ordinary income* |
$ 2,292,879 | $ 2,421,061 |
*For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Expenses. Expenses of the Trust arising in connection with a specific Fund are allocated to that Fund. Other Trust expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Trust.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended July 31, 2004, purchases and sales of investment securities (excluding short-term investments) aggregated $4,523,053 and $12,535,809, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investments Management Americas Inc. ("DeIM" or the "Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor 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 Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.50% of average daily net assets, computed and accrued daily and payable monthly.
For the year ended July 31, 2004, the Advisor has agreed to reimburse the Fund $399 for expenses.
Administrative Fee. Under the Administrative Agreement, the Advisor provided or paid others (affiliated and non-affiliated) to provide substantially all of the administrative services required by the Fund (other than those provided by the Advisor under its Management Agreement with the Fund, as described above) such as transfer agent, custody, legal and audit, in exchange for the payment by the Fund of an administrative service fee (the "Administrative Fee") of 0.20% of average daily net assets, computed and accrued daily and payable monthly.
The Administrative Agreement between the Advisor and the Fund terminated September 30, 2003, and effective October 1, 2003, the Fund directly bears the cost of those expenses formerly covered under the Administrative Agreement.
For the period from August 1, 2003 through September 30, 2003, the Administrative Fee was $22,629.
Effective October 1, 2003 through September 30, 2005, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain operating expenses at 1.00% of average daily net assets (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or service fees, trustee and trustee counsel fees, organizational and offering expenses).
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the Fund's transfer, dividend-paying agent and shareholder service agent. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC, not by the Fund. For the period October 1, 2003 through July 31, 2004, the amount charged to the Fund by SISC aggregated $72,563, of which $31,085 is unpaid at July 31, 2004.
Prior to September 30, 2003, the service provider fees outlined above were paid by the Advisor in accordance with the Administrative Agreement.
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), a subsidiary of the Advisor, provides information and administrative services ("Service Fee") to shareholders at an annual rate of up to 0.25% of average daily net assets. SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended July 31, 2004, the Service Fee was $153,603, of which $15,626 is unpaid at July 31, 2004. Accordingly, for the year ended July 31, 2004, the Service Fee was equivalent to an annual effective rate of 0.23% of the Fund's average daily net assets.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. For the year ended July 31, 2004, the custodian fees were reduced by $7 for custodian credits earned.
E. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank 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, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
F. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect its ability to perform under its investment management agreements with the Scudder funds.
|
|
To the Trustees and Shareholders of Scudder Target 2010 Fund:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Scudder Target 2010 Fund (the "Fund"), one of a series of the Scudder Target Fund, as of July 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Scudder Target 2010 Fund of the Scudder Target Fund at July 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
|
Boston, Massachusetts September 22, 2004 |
/s/ Ernst & Young LLP
|
|
|
For corporate shareholders, 10% of the income dividends paid during the Fund's fiscal year ended July 31, 2004, qualified for the dividends received deductions.
For federal income tax purposes, the Fund designates $250,000 or the maximum amount allowable under tax law, as qualified dividend income.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-SCUDDER.
|
|
The following table presents certain information regarding the Trustees and Officers of the fund as of July 31, 2004. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois, 60606. Each Trustee's term of office extends until the next shareholder's meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
|
Independent Trustees |
||
|
Name, Year of
Birth, Position(s)
Held with the
Fund and Length
of Time Served1
|
Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Number
of Funds
in Fund
Complex
Overseen
|
|
Shirley D.
Peterson (1941) Chairman, 2004-present Trustee, 1995-present |
Retired; formerly, President, Hood College (1995-2000); prior
thereto, Partner, Steptoe & Johnson (law firm); Commissioner,
Internal Revenue Service; Assistant Attorney General (Tax),
US Department of Justice. Directorships: Federal Mogul Corp.
(supplier of automotive components and subsystems); AK Steel
(steel production); Goodyear Tire & Rubber Co.; Trustee, Bryn
Mawr College. Former Directorship: Bethlehem Steel Corp. |
81 |
|
John W.
Ballantine (1946) Trustee, 1999-present |
Retired; formerly, Executive Vice President and Chief Risk
Management Officer, First Chicago NBD Corporation/The First
National Bank of Chicago (1996-1998); Executive Vice President
and Head of International Banking (1995-1996). Directorships:
Enron Corporation (energy trading firm) (effective May 30,
2002); First Oak Brook Bancshares, Inc.; Oak Brook Bank;
American Healthways, Inc. (provider of disease and care
management services); Portland General Electric (utility
company). |
81 |
|
Lewis A.
Burnham (1933) Trustee, 1977-present |
Retired; formerly, Director of Management Consulting,
McNulty & Company (1990-1998); prior thereto, Executive Vice
President, Anchor Glass Container Corporation. |
81 |
|
Donald L.
Dunaway (1937) Trustee, 1980-present |
Retired; formerly, Executive Vice President, A.O. Smith
Corporation (diversified manufacturer) (1963-1994). |
81 |
|
James R. Edgar
(1946) Trustee, 1999-present |
Distinguished Fellow, University of Illinois, Institute of
Government and Public Affairs (1999-present); formerly,
Governor, State of Illinois (1991-1999). Directorships: Kemper
Insurance Companies; John B. Sanfilippo & Son, Inc.
(processor/packager/marketer of nuts, snacks and candy
products); Horizon Group Properties, Inc.; Youbet.com (online
wagering platform); Alberto-Culver Company (manufactures,
distributes and markets health and beauty care products). |
81 |
|
Paul K. Freeman
(1950) Trustee, 2002-present |
President, Cook Street Holdings (consulting); Senior Visiting
Research Scholar, Graduate School of International Studies,
University of Denver; Consultant, World Bank/Inter-American
Development Bank; formerly, Project Leader, International
Institute for Applied Systems Analysis (1998-2001); Chief
Executive Officer, The Eric Group, Inc. (environmental
insurance) (1986-1998). |
81 |
|
Robert B.
Hoffman (1936) Trustee, 1981-present |
Retired; formerly, Chairman, Harnischfeger Industries, Inc.
(machinery for the mining and paper industries) (1999-2000);
prior thereto, Vice Chairman and Chief Financial Officer,
Monsanto Company (agricultural, pharmaceutical and
nutritional/food products) (1994-1999). Directorships: RCP
Advisors, LLC (a private equity investment advisory firm). |
81 |
|
Fred B. Renwick
(1930) Trustee, 1988-present |
Retired; Professor Emeritus of Finance, New York University,
Stern School of Business (2001-present); formerly, Professor,
New York University Stern School of Business (1965-2001).
Directorships: The Wartburg Foundation; Chairman, Finance
Committee of Morehouse College Board of Trustees; formerly,
Director of Board of Pensions, Evangelical Lutheran Church in
America; member of the Investment Committee of Atlanta
University Board of Trustees; Chair of the Investment
Committee, American Bible Society Board of Trustees. |
81 |
|
John G. Weithers
(1933) Trustee, 1993-present |
Retired; formerly, Chairman of the Board and Chief Executive
Officer, Chicago Stock Exchange. Directorships: Federal Life
Insurance Company; Chairman of the Members of the
Corporation and Trustee, DePaul University; formerly,
International Federation of Stock Exchanges; Records
Management Systems. |
81 |
|
Interested Trustee and Officers2 |
||
|
Name, Year of
Birth, Position(s)
Held with the
Fund and Length
of Time Served1
|
Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Number
of Funds
in Fund
Complex
Overseen
|
|
William N.
Shiebler3 (1942) Trustee, 2004-present |
Chief Executive Officer in the Americas for Deutsche Asset
Management ("DeAM") and a member of the DeAM Global
Executive Committee (since 2002); Vice Chairman of Putnam
Investments, Inc. (1999); Director and Senior Managing Director
of Putnam Investments, Inc. and President, Chief Executive
Officer, and Director of Putnam Mutual Funds Inc. (1990-1999) |
147 |
|
Julian F. Sluyters4
(1960) Chief Executive Officer, 2004-present |
Managing Director, Deutsche Asset Management (since May
2004); President and Chief Executive Officer of The Germany
Fund, Inc., The New Germany Fund, Inc., The Central Europe
and Russia Fund, Inc., The Brazil Fund, Inc., The Korea Fund,
Inc., Scudder Global High Income Fund, Inc. and Scudder New
Asia Fund, Inc. (since May 2004); President and Chief Executive
Officer, UBS Fund Services (2001-2003); Chief Administrative
Officer (1998-2001) and Senior Vice President and Director of
Mutual Fund Operations (1991-1998) UBS Global Asset
Management |
n/a |
|
Brenda Lyons5
(1963) President, 2003-present |
Managing Director, Deutsche Asset Management |
n/a |
|
Philip J. Collora
(1945) Vice President and Assistant Secretary, 1986-present |
Director, Deutsche Asset Management |
n/a |
|
Kenneth
Murphy5 (1963) Vice President, 2002-present |
Vice President, Deutsche Asset Management (2000-present);
formerly, Director, John Hancock Signature Services
(1992-2000) |
n/a |
|
Charles A. Rizzo5
(1957) Treasurer and Chief Financial Officer, 2002-present |
Managing Director, Deutsche Asset Management (April
2004-present); formerly, Director, Deutsche Asset Management
(April 2000-March 2004); Vice President and Department Head,
BT Alex. Brown Incorporated (now Deutsche Bank Securities
Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P.
(now PricewaterhouseCoopers LLP) (1993-1998) |
n/a |
|
John Millette5
(1962) Secretary, 2001-present |
Director, Deutsche Asset Management |
n/a |
|
Lisa Hertz4
(1970) Assistant Secretary, 2003-present |
Assistant Vice President, Deutsche Asset Management |
n/a |
|
Daniel O. Hirsch6
(1954) Assistant Secretary, 2002-present |
Managing Director, Deutsche Asset Management
(2002-present) and Director, Deutsche Global Funds Ltd.
(2002-present); formerly, Director, Deutsche Asset
Management (1999-2002); Principal, BT Alex. Brown
Incorporated (now Deutsche Bank Securities Inc.) (1998-1999);
Assistant General Counsel, United States Securities and
Exchange Commission (1993-1998) |
n/a |
|
Caroline
Pearson5 (1962) Assistant Secretary, 1998-present |
Managing Director, Deutsche Asset Management |
n/a |
|
Kevin M. Gay5
(1959) Assistant Treasurer, 2004-present |
Vice President, Deutsche Asset Management |
n/a |
|
Salvatore
Schiavone5
(1965) Assistant Treasurer, 2003-present |
Director, Deutsche Asset Management |
n/a |
|
Kathleen
Sullivan
D'Eramo5 (1957) Assistant Treasurer, 2003-present |
Director, Deutsche Asset Management |
n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each Officer was first elected to serve as an Officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Address: 280 Park Avenue, New York, New York
4 Address: 345 Park Avenue, New York, New York
5 Address: Two International Place, Boston, Massachusetts
6 Address: One South Street, Baltimore, Maryland
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
|
|
|
Automated Information Lines |
ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
|
Web Site |
scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
|
For More Information |
(800) 621-1048 To speak with a Scudder service representative. |
|
Written Correspondence |
Scudder Investments PO Box 219356Kansas City, MO 64121-9356 |
|
Proxy Voting |
A description of the fund's policies and procedures for voting
proxies for portfolio securities and information about how the
fund voted proxies related to its portfolio securities during the
12-month period ended June 30 is available on our Web site -
scudder.com (type "proxy voting" in the search field) - or on the
SEC's Web site - www.sec.gov. To obtain a written copy of the
fund's policies and procedures without charge, upon request, call
us toll free at (800) 621-1048. |
|
Principal Underwriter |
If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
|
Nasdaq Symbol |
KRFAX |
|
CUSIP Number |
81123E-101 |
|
Fund Number |
50 |
|
Notes |
|
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|
Notes |
|
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|
Notes |
|
|
|
Notes |
|
|
ITEM 2. CODE OF ETHICS.
As of the end of the period, July 31, 2004, Scudder Target Fund has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to its
Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Donald L. Dunaway. This audit committee member is "independent," meaning that he
is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SCUDDER TARGET 2010 FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP
("E&Y"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with E&Y entered into on or after May 6, 2003,
the Audit Committee approved in advance all audit services and non-audit
services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund's Auditor Billed to the Fund
--------------------------------------------------------------------------------
Fiscal Year Audit Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed Fees Billed
July 31, to Fund to Fund to Fund to Fund
--------------------------------------------------------------------------------
2004 $27,288 $0 $4,815 $0
--------------------------------------------------------------------------------
2003 $25,308 $0 $4,380 $0
--------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
Services that the Fund's Auditor Billed to the Adviser and
Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
--------------------------------------------------------------------------------
Audit-Related Tax Fees All
Fiscal Fees Billed to Billed to Other Fees Billed
Year Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
July 31, Service Providers Service Providers Service Providers
--------------------------------------------------------------------------------
2004 $133,500 $0 $0
--------------------------------------------------------------------------------
2003 $325,700 $0 $0
--------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls and additional related procedures.
1
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the
Fund's last two fiscal years for non-audit services. For engagements entered
into on or after May 6, 2003, the Audit Committee pre-approved all non-audit
services that E&Y provided to the Adviser and any Affiliated Fund Service
Provider that related directly to the Fund's operations and financial reporting.
The Audit Committee requested and received information from E&Y about any
non-audit services that E&Y rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating E&Y's independence.
--------------------------------------------------------------------------------
Total Non-Audit
Fees billed to
Adviser and
Affiliated Fund Total
Service Providers Non-Audit Fees
(engagements billed to
related Adviser and
directly to the Affiliated Fund
Total operations Service
Fiscal Non-Audit and financial Providers
Year Fees Billed reporting (all other Total of
Ended to Fund of the Fund) engagements) (A), (B)
July 31, (A) (B) (C) and (C)
--------------------------------------------------------------------------------
2004 $4,815 $0 $681,000 $685,815
--------------------------------------------------------------------------------
2003 $4,380 $0 $4,152,492 $4,156,872
--------------------------------------------------------------------------------
All other engagement fees were billed for services in connection with risk
management and process improvement initiatives for DeIM and other related
entities that provide support for the operations of the fund.
2
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The primary function of the Nominating and Governance Committee is to identify
and recommend individuals for membership on the Board and oversee the
administration of the Board Governance Procedures and Guidelines. Shareholders
may recommend candidates for Board positions by forwarding their correspondence
by U.S. mail or courier service to the Fund's Secretary for the attention of the
Chairman of the Nominating and Governance Committee, Two International Place,
Boston, MA 02110. Suggestions for candidates must include a resume of the
candidate.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
Fund management has previously identified a significant deficiency relating to
the overall fund expense payment and accrual process. This matter relates
primarily to a bill payment processing issue. There was no material impact to
shareholders, fund net asset value, fund performance or the accuracy of any
fund's financial statements. Fund management discussed this matter with the
Registrant's Audit Committee and auditors, instituted additional procedures to
enhance its internal controls and will continue to develop additional controls
and redesign work flow to strengthen the overall control environment associated
with the processing and recording of fund expenses.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder Target 2010 Fund
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: October 1, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder Target 2010 Fund
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: October 1, 2004
By: /s/Paul Schubert
---------------------------
Paul Schubert
Chief Financial Officer
Date: October 1, 2004