SCUDDER FUNDS TRUST, N-30D, 1998-02-27

SCUDDER FUNDS TRUST
N-30D, 1998-02-27

Previous: GALLAGHER ARTHUR J & CO, 10-K405, 1998-02-27

Next: SCUDDER FUNDS TRUST, N-30D, 1998-02-27

Scudder
Short Term
Bond Fund

Annual Report
December 31, 1997

Pure No-Load(TM) Funds

Seeks to provide a high level of income consistent with a high degree of
principal stability.

A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.

SCUDDER (logo)

<PAGE>

Scudder Short Term Bond Fund
- --------------------------------------------------------------------------------
Date of Inception: 4/24/84 Total Net Assets as of Ticker Symbol: SCSTX
12/31/97: $1,165.5 million
- --------------------------------------------------------------------------------

o The Fund ended the year with a total return of 6.17%, which nearly matched the
6.19% return of the average short term bond fund, as tracked by Lipper
Analytical Services. The Fund's 30-day net annualized SEC yield at the end of
December was 6.06%, compared with 5.12% on average for the taxable money market
funds tracked by IBC/Donoghue.

o Throughout the year, the Fund continued to hold a diversified mix of
short-maturity alternatives to U.S. Treasuries to meet the goals of high current
income with minimum share-price fluctuation.

o A relatively neutral position was maintained with respect to interest rate
risk over the period, keeping overall portfolio duration within a range of 1.6
to 1.8 years.

o The Fund maintained its high quality orientation, with over 66% of portfolio
holdings rated AA or better by Standard & Poor's and/or Moody's at the end of
December.

Table of Contents

3 Letter from the Fund's President 19 Financial Highlights
4 Performance Update 20 Notes to Financial Statements
5 Portfolio Summary 24 Report of Independent Accountants
6 Portfolio Management Discussion 25 Shareholder Meeting Results
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
16 Financial Statements 30 Scudder Solutions

2 - Scudder Short Term Bond Fund

<PAGE>
Letter from the Fund's President

Dear Shareholders,

The U.S. economy -- buoyed by moderate growth, declining unemployment, low
inflation, and healthy corporate profits -- continued to enjoy a strong
performance during Scudder Short Term Bond Fund's 1997 fiscal year. In fact, the
U.S. economy can now lay claim to one of the longest expansions on record -- 6
1/2 years -- a growth trend which shows few signs of ending soon.

Throughout the period, stocks were on an upward climb thanks to strong
positive fundamentals in the U.S. economy. On the fixed-income front, markets
benefited from several positive forces, including declining inflation, lower
federal deficits and a strong dollar.

Although inflation remains under control, there is still a chance that the
Federal Reserve Board could raise interest rates in the coming months, which
would quickly affect market returns. This conclusion is based on the belief that
the Federal Reserve Board could view the tight labor market as a potential
inflation danger (unemployment levels are at a 25-year low) and that the
economy's underlying strength may lead to even stronger growth.

Rest assured, however, that your Fund is managed for a high degree of
principal stability -- as well as high current income -- no matter what the
market conditions. In fact, the Fund's focus on short-maturity alternatives to
U.S. Treasuries helped lead to a competitive 6.17% total return while helping to
shield it from significant share-price volatility.

Finally, as you may know, the Fund's investment adviser has changed its
name to Scudder Kemper Investments, Inc., from Scudder, Stevens & Clark, Inc.,
pursuant to the acquisition of a majority interest in Scudder, Stevens & Clark
by Zurich Insurance Company, and the combining of Scudder's business with that
of Zurich Kemper Investments, Inc. In addition, the Fund has a new management
team as of January 1, 1998, Stephen A. Wohler and Robert S. Cessine. We are
pleased that they are bringing their extensive knowledge and expertise to the
Fund.

Thank you for choosing Scudder Short Term Bond Fund to help meet your
investment needs. If you should have any questions regarding your investment, or
any of the Scudder Funds, please do not hesitate to call Investor Relations at
1-800-225-2470, or visit our Web site at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce

Daniel Pierce
President,
Scudder Short Term Bond Fund

3 - Scudder Short Term Bond Fund

<PAGE>

PERFORMANCE UPDATE as of December 31, 1997
- -----------------------------------------------------------------
FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/97 $10,000 Cumulative Annual
- ---------------------------------------
SCUDDER SHORT TERM BOND FUND
- ---------------------------------------
1 Year $ 10,617 6.17% 6.67%
5 Year $ 12,830 28.30% 5.11%
10 Year* $ 20,474 104.74% 7.43%

- ---------------------------------------
SALOMON BROTHERS INC. BROAD INVESTMENT
GRADE BOND INDEX (1-3 YEARS)
- ---------------------------------------
1 Year $ 10,667 6.67% 6.67%
5 Year $ 13,219 32.19% 5.74%
10 Year* $ 20,376 103.76% 7.37%
- ---------------------------------------

- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Yearly periods ended December 31

SCUDDER SHORT TERM BOND FUND
Year Amount
- ----------------------
'87 $10,000
'88 $10,631
'89 $12,042
'90 $13,233
'91 $15,135
'92 $15,957
'93 $17,263
'94 $16,767
'95 $18,569
'96 $19,285
'97 $20,474

SALOMON BROTHERS INC. TREASURY/GOVERNMENT
SPONSORED CORPORATE INDEX (1-3 YEARS)
Year Amount
- ----------------------
'87 $10,000
'88 $10,639
'89 $11,801
'90 $12,948
'91 $14,481
'92 $15,415
'93 $16,281
'94 $16,380
'95 $18,164
'96 $19,103
'97 $20,376

Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1-3 years)
is composed of Treasury, Government Sponsored Agency, and Corporate securities
with maturities of one to three years. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.

- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods Ended December 31
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 11.19 $ 11.71 $ 11.72 $ 12.25 $ 11.93 $ 12.01 $ 10.91 $ 11.35 $ 11.05 $ 11.04
INCOME DIVIDENDS.. $ .73 $ .83 $ 1.09 $ 1.08 $ .96 $ .80 $ .76 $ .71 $ .72 $ .67
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .09 $ -- $ -- $ -- $ .07 $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 6.10 13.20 9.88 14.38 5.43 8.18 -2.87 10.74 3.86 6.17
INDEX TOTAL
RETURN (%)........ 6.40 10.93 9.70 11.85 6.44 5.63 .60 10.89 5.16 6.67
</TABLE>

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Returns may be higher due to the
Adviser's maintenance of the Fund's expenses. See Financial Highlights on page
19.
*The Fund, with its current name and objective, commenced operations on July 3,
1989. Performance figures include the performance of its predecessor, the
General 1994 Portfolio of Scudder Target Fund. Since adopting its current
objective, the cumulative and average annual returns are 78.64% and 7.06%,
respectively.

4 - Scudder Short Term Bond Fund

<PAGE>

PORTFOLIO SUMMARY as of December 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Asset-Backed Securities 24%
Collateralized Mortgage Obligations 20%
Corporate Bonds 19%
Gov't National Mortgage Association 17%
U.S. Gov't Agency Pass-throughs 11%
U.S. Gov't Obligations 6%
Cash Equivalents 3%
- -------------------------------------------
100%
- -------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Mortgage-backed securities and
corporate issues were significant
contributors to Fund performance.
- ---------------------------------------------------------------------------
QUALITY
- ---------------------------------------------------------------------------
U.S. Gov't & Agencies 36%
AAA* 28%
AA 2%
A 3%
BBB 30%
Not Rated 1%
- -------------------------------------------
100%
- -------------------------------------------
Weighted average quality: AA
*Category includes cash equivalents

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Issues that were believed to have the
potential for future credit rating
upgrades were emphasized.

- ---------------------------------------------------------------------------
EFFECTIVE MATURITY
- ---------------------------------------------------------------------------
Under 1 year 10%
1 - 5 years 70%
5 - 8 years 14%
8 years or greater 6%
- -------------------------------------------
100%
- -------------------------------------------
Weighted average effective maturity: 2.65 years

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

The Fund maintained a relatively
neutral position on maturities,
with a portfolio duration range
of 1.6 to 1.8 years during the
period.

For more complete details about the Fund's investment portfolio,
see page 10. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.

5 - Scudder Short Term Bond Fund

<PAGE>
Portfolio Management Discussion

We asked Scudder Short Term Bond Fund's portfolio management team, Thomas Poor,
Scott Dolan, and Susan Martland, to discuss fund strategy and market conditions
over the fiscal year.

Q: How did Scudder Short Term Bond Fund perform in 1997?

A: Throughout the period, Scudder Short Term Bond Fund continued to provide
investors with a competitive, high-yielding alternative for their short-term
cash reserves.

The Fund's 30-day net annualized SEC yield at the end of December was 6.06%,
compared with 5.10% on average for the taxable money market funds tracked by
IBC/Donoghue, an independent research firm. Scudder Short Term Bond Fund
historically has maintained a comfortable yield advantage over taxable money
market funds. Of course, money market funds seek to maintain a stable principal
value, whereas your Fund's net asset value will fluctuate with changing market
conditions.

The Fund ended the year with a total return of 6.17%, which nearly matched the
6.19% return of the average short term bond fund, as tracked by Lipper
Analytical Services, an independent ranking service. The Fund's benchmark, the
unmanaged Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1
to 3 years), returned 6.67% for the same period.

Q: How would you describe the investment climate over the past 12 months?

A: Interest rates in general dropped during the period -- yields on 2-year and
30-year Treasuries fell almost a quarter of a percentage point and
three-quarters of a percentage point, respectively -- with the yield curve
flattening. At year-end, rates for short-term and long-term Treasuries differed
by only 28 basis points.

Several factors were at the heart of the interest rate drop. Inflation remained
in check throughout the year, and shows no sign of staging a comeback. In fact,
consensus economic forecasts for 1998 estimate consumer price inflation at
around 1.8%. The financial crisis in Southeast Asia during the latter part of
the year -- with its prospects for lowering inflation and restraining economic
growth in 1998 -- also helped to push rates lower. Finally, the declining
government budget deficit -- which is currently at a 20-year low -- as well as
prospects for future deficit reductions and, indeed, talks of a possible
government surplus, also contributed to lower rates.

Encouraged by declining interest rates and a low inflation environment, the bond
market pushed interest rates lower over the past 12 months, although it
contended with some volatility earlier in the year. This was in response to
strong economic activity and a rise in the federal funds rate -- a key
short-term interest rate -- in March.

Q: How was the portfolio structured during the year?

A: Throughout the Fund's fiscal year, we continued to hold a diversified
mix of short-maturity alternatives to U.S. Treasuries to meet the goals of high
current income with minimum share-price fluctuation.

Over the past 12 months, relatively few changes were made to the portfolio's
structure. We maintained a heavy weighting (28% of portfolio assets at year end)

6 - Scudder Short Term Bond Fund

<PAGE>

in mortgage-backed securities, which performed particularly well and contributed
a high level of income to the portfolio. In addition, 20% of portfolio assets
was invested in collateralized mortgage obligations as of December 31, 1997.

The Fund's corporate issues, which currently represent nearly 20% of portfolio
assets, also contributed positively to performance. Corporate bonds generally
perform well versus other fixed income instruments during times of solid
economic growth, because the credit quality of issuing corporations benefits
from increased earnings and cash flow. As always, we emphasized credit issuers
we believe had the potential for future credit rating upgrades.

Within the corporate sector, the Fund maintained a high concentration -- more
than 10% of portfolio assets -- in corporate bonds issued by real estate
investment trusts. Thanks to booming real estate and mortgage markets -- the
result of an improving U.S. economy -- property values were on the rise while
mortgage default rates were declining. While performance trailed off in the
fourth quarter, these issues benefited from upgrades in credit quality during
the period.

At year end, the remainder of portfolio assets were spread across asset-backed
securities (24%) and U.S. Treasury securities (6%). As always, the Fund
maintained its high quality orientation, with over 66% of portfolio holdings
rated AA or better by Standard & Poor's and/or Moody's independent bond rating
services.

Q: What about the Fund's duration?

A: Duration, which measures a portfolio's sensitivity to interest rate changes,
is adjusted by altering the mix of securities. The shorter a portfolio's
duration, the less its net asset value will be adversely affected by an increase
in interest rates. Remember, as interest rates rise, bond prices fall.
Conversely, a short duration means that a portfolio will reap fewer rewards from
a decline in interest rates.

Because we believed that interest rates would remain relatively unchanged
throughout the period, we maintained a relatively neutral position, keeping
overall portfolio duration within a range of 1.6 to 1.8 years. (As a short-term
bond fund, the Fund's duration will not exceed that of a 3-year Treasury note --
about 2.5 years.)

Q: What is your outlook for the coming months?

A: Consensus predictions for the U.S. economy overall are a modest 2.5% growth
in gross domestic product. The meltdown in many smaller Asian economies and
growing problems in Japan are what many economists predict will hold back growth
in the U.S. to a degree. Weaker markets for exports and competition from cheaper
foreign goods sold in devalued currencies will be hard to fight in the near
term. In fact, Southeast Asia's problems may reverberate throughout the world
for some time, bringing volatility to both the stock and bond markets.

Were it not for the difficulties in Asia, it seems likely that the Federal
Reserve (the "FED") would be inclined to raise interest rates to curb
inflationary pressures. It is not surprising in light of the lowest unemployment

7 - Scudder Short Term Bond Fund

<PAGE>

rate in 24 years that wage costs have begun to rise in the past few months. The
Fed is understandably reluctant to act when the world markets are fragile, but
remains poised to raise rates if necessary.

In light of all this, we are cautiously optimistic about the near-term future of
the bond market. The U.S. economy continues to travel along a smooth road of
moderate growth, relatively stable rates and modest inflation. But, no one can
predict how long this near-perfect economic environment will last.

In an uncertain investment environment such as this, your Fund offers a
relatively "safe haven" for your financial assets. In fact, we continue to view
Scudder Short Term Bond Fund as an important enhancement to a traditional
short-term portfolio.

In the months ahead, the Fund's portfolio management team will continue to
collect economic data and carefully monitor the investment climate. As we enter
into 1998, we believe that bond sector allocations and individual bond selection
may well resume their primary importance, as the markets as a whole become less
sensitive to the continuing economic euphoria. Scudder Short Term Bond Fund will
continue to look for opportunities to offer you the highest yield consistent
with your goals of price stability and liquidity.

Scudder Short Term
Bond Fund:
A Team Approach to Investing

Scudder Short Term Bond Fund is managed by a team of Scudder Kemper
Investments, Inc. (SKI) professionals who each play an important role in the
Fund's management process. Team members work together to develop investment
strategies and select securities for the Fund. They are supported by a large
staff of economists, research analysts, traders, and other investment
specialists who work in our offices across the United States and abroad. We
believe our team approach benefits Scudder Short Term Bond Fund investors by
bringing together many disciplines and leveraging SKI's extensive resources.

Since Scudder Short Term Bond was introduced in 1989, Lead Portfolio Manager
Thomas M. Poor has had responsibility for the Fund's day-to-day operation.
Tom, who joined SKI in 1970, sets the Fund's general investment strategies.
Scott E. Dolan, Portfolio Manager, joined SKI in 1989 and the Fund's portfolio
management team in 1993. Scott has six years of experience in the investment
industry and is responsible for implementing investment strategy. Susan R.
Martland, Portfolio Manager, joined the team in 1997. Susan, who helps set the
Fund's investment strategy, joined Scudder in 1982 and has over nine years of
experience as a portfolio manager.

8 - Scudder Short Term Bond Fund

<PAGE>
Glossary of Investment Terms

COUPON The interest rate on a bond the issuer (a
corporation or government entity) promises to
pay to the holder of the bond until maturity,
expressed as an annual percentage of face
value. As an example, a bond with a 10%
coupon will pay $100 of $1,000 of the face
amount each year.

DEFAULT Occurs when the issuer of a bond fails to
make timely payment of principal and/or
interest. In the event of default,
bondholders may make claims against the
assets of the issuing corporation.

DURATION Gauges the price sensitivity of a bond or
bond portfolio to changes in market interest
rate levels. A fixed income portfolio with an
overall duration of five years can be
expected to increase 5% for every 1% decrease
in interest rates (and decline 5% for every
1% increase in rates).

INVESTMENT GRADE BOND A bond that has a quality rating of BBB or
higher.

SECTOR A similar group of bonds or stocks. Some
examples of sectors that could be found in a
fund that invests in corporate bonds include
airlines, financial services companies, and
pharmaceutical firms.

30-DAY SEC YIELD The standard yield reference for bond funds
since the SEC required all bond funds to
quote yields based on a prescribed formula.
This yield calculation reflects the 30-day
average of the annualized income earnings
capability of every holding in a given fund's
portfolio, assuming each is held to maturity,
net of expenses.

TOTAL RETURN The most common yardstick to measure the
performance of a mutual fund. Total return is
based on a combination of changes in share
price plus income and capital gain
distributions, if any, expressed as a
percentage gain or loss in value.

YIELD SPREAD The difference in yield between various types
of bonds. A corporate bond's yield is
generally measured against the yield of a
Treasury bond of similar maturity as a market
yardstick. If yield spreads are "narrow," for
example, it often means that corporate bond
yields have been declining, and prices
rising, compared with Treasury bonds of
similar maturity.

(Sources: SKI; Barron's Dictionary of Finance and Investment Terms)

9 - Scudder Short Term Bond Fund

<PAGE>

Investment Portfolio as of December 31, 1997

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement 2.7%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/97 at 6.5%,
to be repurchased at $31,282,292 on 1/2/98, collateralized by a $25,115,000 -------------
U.S. Treasury Bond, 10.75%, 2/15/03 (Cost $31,271,000) ................................ 31,271,000 31,271,000
-------------
U.S. Government Obligations 6.0%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 6.125%, 9/30/00 ..................................................... 50,000,000 50,523,500
U.S. Treasury Note, 6.25%, 6/30/02 ...................................................... 20,000,000 20,396,800
- ------------------------------------------------------------------------------------------------------------------------------
Total U. S. Government Obligations (Cost $70,925,000) 70,920,300
- ------------------------------------------------------------------------------------------------------------------------------

Government National Mortgage Association 16.7%
- ------------------------------------------------------------------------------------------------------------------------------
8%, with various maturities to 12/15/10 ................................................. 30,381,321 31,511,559
11.5%, with various maturities to 7/20/20 ............................................... 15,947,799 18,349,829
11%, with various maturities to 10/20/20 ................................................ 1,934,293 2,206,632
9%, with various maturities to 12/15/21 (b) ............................................. 83,696,908 90,864,052
10%, with various maturities to 2/15/25 (b) ............................................. 37,635,810 41,849,176
7.13%, with various maturities to 9/20/25 (b) ........................................... 11,360,138 11,569,591
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $191,739,504) 196,350,839
- ------------------------------------------------------------------------------------------------------------------------------

U.S. Government Agency Pass-throughs 10.9%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 9.5%, with various maturities to 8/1/16 ............... 6,444,112 6,976,203
Federal Home Loan Mortgage Corp., 7.8%, with various maturities to 9/1/24 ............... 7,674,012 8,022,585
Federal National Mortgage Association, 10%, 9/1/17 ...................................... 3,352,083 3,677,135
Federal National Mortgage Association, 8.5%, with various maturities to 8/1/22 .......... 17,179,693 18,103,625
Federal National Mortgage Association, 8.5%, with various maturities to 5/1/02 .......... 10,428,641 10,701,036
Federal National Mortgage Association, ARM, 7.6%, with various maturities to
10/1/23 ............................................................................... 5,764,019 5,953,889
Federal National Mortgage Association, ARM, 7.4%, with various maturities to
12/1/22 ............................................................................... 8,016,275 8,324,785
Federal National Mortgage Association, ARM, 6.2%, with various maturities to
11/1/35 (b) ........................................................................... 66,445,603 66,425,007
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $127,542,633) 128,184,265
- ------------------------------------------------------------------------------------------------------------------------------

Collateralized Mortgage Obligations 20.4%
- ------------------------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp., Series 1993-I2 A3, 7.25%, 7/25/24 (b) ..................... 8,498,592 8,511,871
Chemical Mortgage Securities Inc., Series 1993-1 A4, 7.45%, 2/25/23 ..................... 4,175,000 4,208,922
Citicorp Mortgage Securities Inc., Series 1997-3, 7%, 8/25/27 ........................... 40,030,215 40,142,800
Countrywide Funding Corp., Series 1994-2 A8, 6.5%, 2/25/09 .............................. 1,900,000 1,894,359
Daiwa Mortgage Acceptance Corp., Series 1991A, 8.625%, 4/15/10 .......................... 467,610 487,045
Federal Home Loan Mortgage Corp., Series 1719-C Principal only, 4/15/99 (b) ............. 27,398,894 26,183,068
Federal Home Loan Mortgage Corp., Series 1250-F, 7%, 4/15/19 ............................ 1,838,934 1,842,943
</TABLE>

The accompanying notes are an integral part of the financial statements.

10 - Scudder Short Term Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Bank System Inc. Series 1993-F, 7.178%, 11/25/24 (b) .............................. 20,469,000 20,596,931
General Electric Capital Mortgage Services, Inc. Series 1993-2F, 7%, 6/25/07 ............ 325,339 327,372
General Electric Capital Mortgage Services, Inc., Series 1994-19 A1, 7.5%,
6/25/24 ............................................................................... 6,388,381 6,392,342
General Electric Capital Mortgage Services, Inc., Series 1994-27 A1, 6.5%,
7/25/24 ............................................................................... 7,190,306 7,167,836
Norwest Asset Security Corp., Series 1996-5 AB, 7.5%, 11/25/26 .......................... 9,366,453 9,509,877
Paine Webber Mortgage Acceptance Corp., Series 1993-6, 6.9%, 8/25/08 .................... 1,702,927 1,715,699
Prudential Home Mortgage Securities Co., Series 1992-47 A7, 7.5%, 1/25/23 ............... 413,674 412,379
Prudential Home Mortgage Securities Co., Series 1993-43-A1, 5.4%, 10/25/23 .............. 702,021 693,681
Residential Asset Securitization Trust, Series 1997-A6, 7.25%, 9/25/12 .................. 2,791,000 2,815,421
Residential Funding Mortgage Securities, Series 1996-A17, 7.75%, 1/25/07 ................ 8,388,398 8,598,108
Residential Funding Mortgage Securities, Series 1993-A2, 6.84%, 9/25/23 ................. 3,220,000 3,229,056
Residential Funding Mortgage Securities, Series 1993-S35, 7.087%, 10/25/23 (b) .......... 19,500,000 19,524,375
Residential Funding Mortgage Securities I Inc., Series 1997-S19 A6, 6.5%,
12/25/12 .............................................................................. 33,026,000 32,943,435
Residential Funding Mortgage Securities I Inc., Series 1997-S13 A8, 7.1%,
9/25/27 ............................................................................... 33,315,669 33,482,247
Resolution Trust Corp., Series 1992-12 A2A, 7.5%, 8/25/23 ............................... 1,193,846 1,201,681
Ryland Acceptance Corp. Four, Series 97-H, 8.95%, 8/20/19 ............................... 3,151,420 3,190,813
Ryland Mortgage Securities Corp., 8%, 8/25/25 ........................................... 3,396,875 3,494,536
- ------------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost $240,021,654) 238,566,797
- ------------------------------------------------------------------------------------------------------------------------------

Asset Backed Securities 24.4%
- ------------------------------------------------------------------------------------------------------------------------------
Service Industries 0.6%
GE Capital Mtg Services, Inc., 7%, 1/25/08 .............................................. 6,500,000 6,546,670
-------------
Miscellaneous 2.3%
Bally's Health & Tennis Master Trust, 8.43%, 8/15/02 .................................... 13,000,000 13,054,844
Mortgage Index Amortizing Trust, 6.682%, 8/25/04 ........................................ 14,000,000 14,068,906
-------------
27,123,750
-------------
Credit Card Receivables 2.0%
Advanta Corp., Series 1997-2 A3, 7.3%, 10/25/22 ......................................... 10,500,000 10,759,216
Advanta Corp., Series 1997-1 A4, 7.65%, 5/25/27 ......................................... 4,435,000 4,601,313
First USA Bank, Series 1994-1, 7.45%, 4/15/99 ........................................... 7,547,170 7,544,906
-------------
22,905,435
-------------
Home Equity Loans 6.3%
AFC Home Equity Loan Trust, Series 1990-3A, 9.6%, 7/26/05 ............................... 1,218,097 1,225,330
AFC Home Equity Loan Trust, Series 1992-3A, 7.05%, 8/15/07 .............................. 546,374 543,301
CTS Home Equity Loan Trust, Series 1991-1A, 8.8%, 1/15/06 ............................... 853,645 852,842
Contimortgage Home Equity Loan Trust, Series 1991-1, 9.52%, 4/15/06 ..................... 553,607 559,143
</TABLE>

The accompanying notes are an integral part of the financial statements.

11 - Scudder Short Term Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contimortgage Home Equity Loan Trust, Series 1996-4 A6, 6.71%, 6/15/14 .................. 6,200,000 6,240,672
Contimortgage Home Equity Loan Trust, Series 1996-4 A7, 6.99%, 3/15/21 .................. 3,000,000 3,041,250
Contimortgage Home Equity Loan Trust, Series 1997-3 M1-F, 7.31%, 8/15/28 ................ 18,500,000 18,870,000
Contimortgage Net Interest Margin Notes, Series 1997-3, 7.23% 7/16/28 ................... 10,143,043 10,138,289
Fleet Financial Home Equity Trust, Series 1991-2A, 6.7%, 10/15/06 ....................... 695,334 696,855
Green Tree Financial Corp. Home Equity Loan, Series 1997-B A5, 7.15%, 4/15/27 ........... 9,600,000 9,810,000
Green Tree Home Improvement Loan Trust, Series 1995-C B1, 7.2%, 7/15/20 ................. 1,950,000 1,960,664
Green Tree Home Improvement Loan Trust, Series 1995-F B2, 7.1%, 1/15/21 ................. 2,000,000 1,990,391
Green Tree Home Improvement Loan Trust, Series 1995-D A3, 6.45%, 9/15/25 ................ 695,000 696,515
Green Tree Home Improvement Loan Trust, Series 1995-D B1, 7.05%, 9/15/25 ................ 750,000 748,358
Green Tree Home Improvement Loan Trust, 6.95%, 3/15/27 .................................. 4,000,000 4,048,594
Household Finance Corp., Home Equity Loan, Series 1992-2 A3, 5.25%, 10/20/07 ............ 65,551 65,284
Mid-State Homes IV, Series 1, 8.33%, 4/1/30 ............................................. 1,678,112 1,843,760
Old Stone Credit Corp., Series 1991-2, 8.42%, 8/15/03 ................................... 1,047,024 1,054,876
Old Stone Credit Corp., Home Equity Loan, Series 1992-2, 6.95%, 5/15/07 ................. 3,348,391 3,361,985
Old Stone Credit Corp., Home Equity Loan Series 1993-1, 5.85%, 3/15/08 .................. 793,750 781,224
Security Pacific Home Equity Trust, Series 1991-A B, 10.5%, 3/10/06 ..................... 4,892,471 4,936,809
TMS Home Equity Loan Trust, Series 1994-A A3, 5.525%, 9/15/18 ........................... 675,116 663,407
-------------
74,129,549
-------------
Manufactured Housing Receivables 13.2%
Associated Manufactured Housing Corp., Series 1997-1 B1, 7.6%, 6/15/28 .................. 8,000,000 8,373,750
Chemical Financial Acceptance Corp. Housing Trust, Series 1989 A, Participating
Certificate, 9.25%, 5/15/98 ........................................................... 2,684,446 2,699,533
Green Tree Financial Corp., 7.3%, 12/15/26 .............................................. 9,500,000 9,717,090
Green Tree Financial Corp., Securitized NIM, Series 1994-A, 6.9%, 2/15/04 ............... 14,990,601 14,941,998
Green Tree Financial Corp., Securitized NIM, Series 1994-B, 7.85%, 7/15/04 .............. 12,512,505 12,722,840
Green Tree Financial Corp., Series 1993-2 B, 8%, 7/15/18 ................................ 8,637,000 9,138,351
Green Tree Financial Corp., Series 1995-1 B2, 9.2%, 6/15/25 ............................. 5,715,000 6,232,475
Green Tree Financial Corp., Series 1995-3 B2, 8.1%, 8/15/25 ............................. 20,636,400 21,431,224
Green Tree Financial Corp., Series 1995-6 B2, 8%, 9/15/26 ............................... 12,059,720 12,481,339
Green Tree Financial Corp., Series 1995-5 B2, 7.65%, 9/15/26 ............................ 9,000,000 9,188,438
Green Tree Financial Corp., Series 1995-6 B1, 7.7%, 9/15/26 ............................. 3,925,000 4,009,623
Green Tree Financial Corp., Series 1995-10 B1, 7.05%, 2/15/27 ........................... 4,000,000 3,986,563
Green Tree Financial Corp., Series 1996-5 B2, 8.45%, 7/15/27 ............................ 10,000,000 10,620,703
Green Tree Financial Corp., Series 1997-A, 7.58%, 8/15/23 ............................... 1,250,000 1,261,713
Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/28 ............................ 4,000,000 4,165,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

12 - Scudder Short Term Bond Fund
<PAGE>

Corporate Bonds 18.9%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.5%
Federated Department Stores, Inc., 6.79%, 7/15/27 ....................................... 6,115,000 6,278,699
Consumer Staples 0.5%
J. Seagram & Sons Inc., 8.375%, 2/15/07 ................................................. 4,775,000 5,367,434
Financial 13.4%
American Health Properties, Inc. (REIT), 7.05%, 1/15/02 ................................. 2,200,000 2,239,490
Colonial Realty LP (REIT), 7.5%, 7/15/01 ................................................ 4,000,000 4,142,800
ERP Operating L.P. (REIT), 8.5%, 5/15/99 ................................................ 4,100,000 4,214,923
Health Care Properties Investors Inc. (REIT), 6%, 11/8/00 ............................... 5,225,000 5,120,500
MBNA American Bank, 7.25%, 9/15/02 ...................................................... 6,100,000 6,266,469
Oasis Residential Inc. (REIT), 6.75%, 11/15/01 (b) ...................................... 13,400,000 13,544,050
Oasis Residential Inc. (REIT), 7, 11/15/03 (b) .......................................... 14,900,000 15,212,006
Spieker Properties, Inc. (REIT), 6.65%, 12/15/00 ........................................ 15,000,000 15,060,900
Spieker Properties, Inc. (REIT), 6.8%, 12/15/01 ......................................... 5,500,000 5,570,950
Spieker Properties, Inc. (REIT), 6.95%, 12/15/02 ........................................ 3,500,000 3,559,360
Spieker Properties, Inc. (REIT), 8%, 7/19/05 ............................................ 500,000 538,375
Spieker Properties, Inc. (REIT), 7.125%, 12/1/06 ........................................ 3,425,000 3,499,597
Sun Communities, Inc. (REIT), 7.625%, 5/1/03 ............................................ 5,850,000 6,117,638
Susa Partnership LP (REIT), 7.125%, 11/1/03 ............................................. 5,400,000 5,497,524
Taubman Realty Group LP (REIT), Medium Term Note, 7%, 10/1/03 ........................... 3,595,000 3,629,548
Taubman Realty Group LP (REIT), Medium Term Note, 8%, 6/15/99 ........................... 4,755,000 4,861,512
Taubman Realty Group LP (REIT), Medium Term Note, 7.4%, 6/10/02 ......................... 3,300,000 3,386,625
</TABLE>

The accompanying notes are an integral part of the financial statements.

13 - Scudder Short Term Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taubman Realty Group LP (REIT), Medium Term Note, 7.5%, 6/15/02 ......................... 19,150,000 19,724,500
The Money Store Inc., 7.63%, 4/15/98 .................................................... 9,500,000 9,488,125
United Dominion Realty Trust Inc. (REIT), Medium Term Note, 7.02%, 11/15/05 ............. 10,000,000 10,248,700
World Omni Automobile Lease Securitization Trust Series 1996-B, 6.85%, 11/15/02 ......... 15,038,970 15,175,260
-------------
157,098,852
-------------
Media 1.4%
Comcast Cable Communications, 8.125%, 5/1/04 ............................................ 15,000,000 16,185,600
-------------
Energy 1.3%
Lyondell Petrochemical Co. Global Note, 9.125%, 3/15/02 ................................. 8,900,000 9,765,525
Lyondell Petrochemical Co., 9.75%, 9/4/03 ............................................... 4,600,000 5,336,000
-------------
15,101,525
-------------
Metals & Minerals 1.3%
Alcan Aluminium Ltd., 9.625%, 7/15/19 ................................................... 14,000,000 15,131,620
-------------
Transportation 0.5%
Continental Airlines Inc. Pass-thru Trust, 7.42%, 4/1/07 ................................ 6,295,000 6,528,922
-------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $217,354,551) 221,692,652
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $1,160,070,253) (a) 1,172,795,908
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) The cost for federal income tax purposes was $1,160,070,253. At December
31, 1997, net unrealized appreciation for all securities based on tax cost
was $12,725,655. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $16,056,848 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,331,193. Included in the portfolio are investments in mortgage or
asset-backed securities which are interests in separate pools of mortgages
or assets. Effective maturities of these investments will be shorter than
stated maturities due to prepayments. All separate investments in each of
the Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association and the Government National Mortgage Association issues which
have similar coupon rates have been aggregated for presentation purposes
in the investment portfolio.
(b) At December 31, 1997 these securities, in whole or in part, have been
pledged to cover initial margin requirements for open futures contracts.
At December 31, 1997, open future contracts sold short were as follows:

<TABLE>
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
5 Year U.S.
Treasury Note March 20, 1998 1,892 204,857,839 205,518,500
----------- -----------

Total net unrealized depreciation on open futures contracts sold short ...... (660,661)
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

14 - Scudder Short Term Bond Fund
<PAGE>

Transactions in written options for the year ended December 31, 1997 are
summarized as follows:

Over-the-Counter-Options
------------------------------------
NZD Premiums
----------------- -----------------
Beginning of Period ....... 88,000,000 $ 431,200
Written ................... (86,600,000) (428,670)
Closed .................... (88,000,000) (431,200)
Exercised ................. -- --
Expired ................... 86,600,000 428,670
-------------- -----------
End of Period ............. -- --
============== ===========

Currency abbreviations and other acronyms used in this portfolio:
NIM Net Interest Margin
REIT Real Estate Investment Trust
NZD New Zealand Dollars
ARM Adjustable Rate Mortgage

The accompanying notes are an integral part of the financial statements.

15 - Scudder Short Term Bond Fund
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of December 31, 1997

<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $1,160,070,253) ............. $1,172,795,908
Cash ................................................................ 981,138
Receivable for investments sold ..................................... 16,625,482
Interest receivable ................................................. 8,491,787
Receivable for Fund shares sold ..................................... 911,652
Other assets ........................................................ 20,866
-----------------
Total assets ........................................................ 1,199,826,833
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................... 1,429,237
Payable for Fund shares redeemed .................................... 5,372,038
Payable for investments purchased ................................... 25,649,339
Payable for daily variation margin on open futures contracts ........ 423,394
Accrued management fee .............................................. 524,624
Other payables and accrued expenses ................................. 897,039
-----------------
Total liabilities ................................................... 34,295,671
--------------------------------------------------------------------------------------------
Net assets, at market value $1,165,531,162
--------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................. 379,071
Net unrealized appreciation (depreciation) on:
Investment securities ............................................ 12,725,655
Futures .......................................................... (660,661)
Accumulated net realized loss ....................................... (138,594,958)
Paid-in capital ..................................................... 1,291,682,055
--------------------------------------------------------------------------------------------
Net assets, at market value $1,165,531,162
--------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($1,165,531,162 / 105,576,081 outstanding shares of
beneficial interest, $.01 par value, unlimited number -----------------
of shares authorized) ............................................ $11.04
-----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

16 - Scudder Short Term Bond Fund
<PAGE>

Statement of Operations
year ended December 31, 1997

<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest ............................................................ $ 96,118,860
-----------------
Expenses:
Management fee ...................................................... 6,769,577
Services to shareholders ............................................ 3,388,908
Custodian and accounting fees ....................................... 329,241
Trustees' fees and expenses ......................................... 27,001
Reports to shareholders ............................................. 290,987
Auditing ............................................................ 61,737
Legal ............................................................... 33,262
Registration fees ................................................... 41,998
Other ............................................................... 59,990
-----------------
Total expenses ...................................................... 11,002,701
--------------------------------------------------------------------------------------------
Net investment income 85,116,159
--------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investment securities ............................................... (8,363,157)
Futures ............................................................. (10,668,459)
Options ............................................................. (1,194,518)
Foreign currency related transactions ............................... (428,293)
-----------------
(20,654,427)
-----------------
Net unrealized appreciation (depreciation) during the period on:
Investment securities ............................................... 12,201,221
Futures ............................................................. (660,661)
Options ............................................................. (54,384)
-----------------
11,486,176
--------------------------------------------------------------------------------------------
Net loss on investment transactions (9,168,251)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 75,947,908
--------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 - Scudder Short Term Bond Fund
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 85,116,159 $ 107,842,813
Net realized loss from investment transactions ............... (20,654,427) (33,115,928)
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................ 11,486,176 (17,329,463)
---------------- -----------------
Net increase in net assets resulting from operations ......... 75,947,908 57,397,422
---------------- -----------------
Distributions to shareholders from:
Net investment income ........................................ (78,060,393) (104,839,251)
---------------- -----------------
Fund share transactions:
Proceeds from shares sold .................................... 225,970,263 349,361,957
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 58,987,223 79,869,940

Cost of shares redeemed ...................................... (585,484,724) (736,440,233)
---------------- -----------------
Net decrease in net assets from Fund share transactions ...... (300,527,238) (307,208,336)
---------------- -----------------
Decrease in net assets ....................................... (302,639,723) (354,650,165)
Net assets at beginning of period ............................ 1,468,170,885 1,822,821,050
Net assets at end of period (including undistributed net ---------------- -----------------
investment income of $379,071 for 1997) ................... $1,165,531,162 $1,468,170,885
---------------- -----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 132,860,852 160,534,389
---------------- -----------------
Shares sold .................................................. 20,508,345 31,416,978
Shares issued to shareholders in reinvestment of
distributions ............................................. 5,352,697 7,197,179
Shares redeemed .............................................. (53,145,813) (66,287,694)
---------------- -----------------
Net decrease in Fund shares .................................. (27,284,771) (27,673,537)
---------------- -----------------
Shares outstanding at end of period .......................... 105,576,081 132,860,852
---------------- -----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

18 - Scudder Short Term Bond Fund
<PAGE>

Financial Highlights

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years
Ended
December
31,
1997(a) 1996(a) 1995 1994 1993(a) 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, -------------------------------------------------------------------------------------------------
beginning of period ......... $11.05 $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23
-------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ....... .73 .74 .71 .81 .87 .97 1.08 1.09 .83 .73
Net realized and unrealized
gain (loss) on
investments ............... (.07) (.32) .44 (1.15) .08 (.33) .53 .01 .61 (.04)
Total from investment -------------------------------------------------------------------------------------------------
transactions ................ .66 .42 1.15 (.34) .95 .64 1.61 1.10 1.44 .69
-------------------------------------------------------------------------------------------------
Less distributions:
From net investment income .. (.67) (.72) (.43) (.64) (.80) (.96) (1.08) (1.09) (.83) (.73)
From net realized gains ..... -- -- -- -- (.03) -- -- -- (.09) --
In excess of gains .......... -- -- -- -- (.04) -- -- -- -- --
From tax return of capital .. -- -- (.28) (.12) -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Total distributions ............ (.67) (.72) (.71) (.76) (.87) (.96) (1.08) (1.09) (.92) (.73)
-------------------------------------------------------------------------------------------------
Net asset value, -------------------------------------------------------------------------------------------------
end of period ............... $11.04 $11.05 $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............... 6.17 3.86 10.74 (2.87) 8.18 5.43 14.38 9.88 13.20 6.10
Ratios and Supplemental Data
Net assets, end of period
($ millions) ................ 1,166 1,468 1,823 2,136 3,190 2,862 2,247 340 72 10
Ratio of operating expenses net,
to average daily net assets
(%) ......................... .86 .80 .75 .73 .68 .75 .44 .16 .36 1.50
Ratio of operating expenses
before expense reductions, to
average daily net
assets (%) .................. .86 .80 .75 .73 .68 .78 1.00 1.19 2.06 1.86
Ratio of net investment income
to average daily net assets
(%) ......................... 6.64 6.66 6.37 6.93 7.21 8.01 8.96 9.36 7.97 6.48
Portfolio turnover rate (%) .... 39.4 61.8 101.1 65.3 66.1 83.7 41.0 52.9 40.0 23.5
</TABLE>

(a) Per share amounts have been calculated using weighted average shares
outstanding. On July 3, 1989, the Fund adopted its present name and
objective. Prior to that date, the Fund was known as the General 1994
Portfolio of Scudder Target Fund and its objectives were current income,
capital preservation, and possible capital appreciation. Financial
information prior to July 3, 1989 should not be considered representative
of the present Fund.

19 - Scudder Short Term Bond Fund
<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

Scudder Short Term Bond Fund (the "Fund") is a diversified series of Scudder
Funds Trust (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end, management investment company.

The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.

Security Valuation. Portfolio debt securities purchased with original maturities
greater than sixty days are valued by pricing agents approved by the officers of
the Fund, which quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.

Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
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, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.

Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund sold interest rate futures to hedge against declines in the value of
portfolio securities.

Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.

Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.

Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During

20 - Scudder Short Term Bond Fund
<PAGE>

the period, the Fund purchased put options and wrote call options on currencies
and other financial instruments as a hedge against potential adverse price
movements in the value of portfolio assets.

If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchases an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.

The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.

The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.

When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.

Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:

(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and

(ii) purchases and sales of investment securities, interest income and certain
expenses at the rates of exchange prevailing on the respective dates of
such transactions.

The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on interest and
foreign withholding taxes.

21 - Scudder Short Term Bond Fund
<PAGE>

Federal Income Taxes. It is the Fund's policy to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no
provision for federal income taxes was required.

At December 31, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $134,629,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2002 ($27,264,000), December 31, 2003 ($60,090,000), December 31, 2004
($27,896,000) and December 31, 2005 ($19,379,000), the respective expiration
dates.

Distribution of Income and Gains. Substantially all of the net investment income
of the Fund is declared as a dividend to shareholders of record as of the close
of business each day and is paid to shareholders monthly. During any particular
year, net realized gains from investment transactions, in excess of available
capital loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax. Distributions of net realized capital gains to shareholders are
recorded on the ex-dividend date.

The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
primarily relate to investments in futures, options, mortgage-backed securities,
foreign currency contracts, and foreign currency denominated investments. As a
result, net investment income and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.

The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.

Other. Investment security transactions are accounted for on a trade date basis.
Interest income is recorded on the accrual basis. All original issue discounts
are accreted for both tax and financial reporting purposes.

B. Purchases and Sales of Securities

For the year ended December 31, 1997, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $368,541,965 and $763,861,290, respectively. Purchases and sales of
U.S. Government obligations aggregated $125,395,859 and $54,104,587,
respectively.

The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1997 was $1,947,545,924 and $1,742,688,085, respectively.

C. Related Parties

Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder

22 - Scudder Short Term Bond Fund
<PAGE>

and Zurich resulted in the termination of the Fund's Investment Management
Agreement with Scudder. However, a new Investment Management Agreement (the
"Management Agreement") between the Fund and Scudder Kemper was approved by the
Fund's Board of Trustees and by the Fund's Shareholders. The Management
Agreement, which is effective December 31, 1997, is the same in all material
respects as the corresponding previous Investment Management Agreement, except
that Scudder Kemper is the new investment adviser to the Fund.

Under the Management Agreement with Scudder Kemper, 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 Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of 0.60% on the first $500,000,000 of average daily net assets, 0.50% on the
next $500,000,000 of such net assets, 0.45% on the next $500,000,000 of such net
assets, 0.40% on the next $500,000,000 of such net assets, 0.375% on the next
$1,000,000,000 of such net assets and 0.35% on such net assets in excess of
$3,000,000,000, computed and accrued daily and payable monthly. For the year
ended December 31, 1997, the fee pursuant to these agreements amounted to
$6,769,577, which was equivalent to an annualized effective rate of 0.53% of the
Fund's average daily net assets.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $1,966,378 charged to the Fund by SSC for the
year ended December 31, 1997, of which $144,271 is unpaid at December 31, 1997.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended December 31,
1997, the amount charged to the Fund by STC aggregated $611,127, of which
$48,871 is unpaid at December 31, 1997.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
December 31, 1997, the amount charged to the Fund by SFAC aggregated $173,925,
of which $13,765 is unpaid at December 31, 1997.

The Trust pays each of its Trustees not affiliated with the Adviser an annual
retainer, divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the year ended December 31, 1997,
Trustees' fees and expenses aggregated $27,001.

23 - Scudder Short Term Bond Fund
<PAGE>

Report of Independent Accountants

To the Trustees of Scudder Funds Trust and to the Shareholders of Scudder Short
Term Bond Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
Short Term Bond Fund as of December 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the ten 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 generally accepted auditing
standards. 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. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. 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
Scudder Short Term Bond Fund as of December 31, 1997, 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 ten years in the period then ended in conformity with generally accepted
accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 18, 1998

24 - Scudder Short Term Bond Fund

<PAGE>
Shareholder Meeting Results

A Special Meeting of Shareholders (the "Meeting") of Scudder Short Term Bond
Fund (the "Fund") was held on October 27, 1997, at the offices of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), 25th Floor, 345
Park Avenue (at 51st Street), New York, New York 10154. At the Meeting, as
adjourned and reconvened, the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below). With
regard to certain proposals, it was recommended that the Meeting be reconvened
in order to provide shareholders with an additional opportunity to return their
proxies. The date of the reconvened meeting at which the matters were decided is
noted after the proposed matter.

1. To elect Trustees.

Number of Votes:
----------------

Trustee For Withheld
------- --- --------

Henry P. Becton, Jr. 60,858,733 2,700,647

Dawn-Marie Driscoll 60,878,989 2,680,391

Peter B. Freeman 60,886,012 2,673,368

George M. Lovejoy, Jr. 60,898,294 2,661,086

Dr. Wesley W. Marple, Jr. 60,827,783 2,731,597

Daniel Pierce 60,910,864 2,648,516

Kathryn L. Quirk 60,871,016 2,688,364

Jean C. Tempel 60,861,283 2,698,097

2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

59,255,623 2,408,043 1,895,714 3,353,880

3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

59,751,392 4,539,155 3,344,571 3,059,903

25 - Scudder Short Term Bond Fund

<PAGE>

4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

60,332,109 3,880,266 3,422,743 3,059,903

5. To approve the revision of certain fundamental investment policies.

<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------

5.1 Diversification 53,783,780 3,287,948 3,133,772 3,353,880

5.2 Borrowing 53,448,694 3,626,595 3,130,211 3,353,880

5.3 Senior securities 53,757,956 3,310,976 3,136,568 3,353,880

5.4 Concentration 53,642,583 3,425,144 3,137,773 3,353,880

5.5 Underwriting of securities 53,706,538 2,973,638 3,525,324 3,353,880

5.6 Investment in real estate 53,638,227 3,034,462 3,532,811 3,353,880

5.7 Purchase of physical commodities 53,567,959 3,095,970 3,541,571 3,353,880

5.8 Lending 53,465,580 3,221,414 3,518,505 3,353,880
</TABLE>

6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.

Number of Votes:
----------------

For Against Abstain
--- ------- -------

60,158,592 1,134,158 2,266,630

* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.

26 - Short Term Bond Fund

<PAGE>

This Page
intentionally
left blank.

27 - Scudder Short Term Bond Fund

<PAGE>

Officers and Trustees

Daniel Pierce*
President and Trustee

Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation

Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates

Peter B. Freeman
Trustee; Corporate Director and
Trustee

George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates

Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University

Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary

Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President, Treasurer and
Secretary

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

*Scudder Kemper Investments, Inc.

28 - Scudder Short Term Bond Fund

<PAGE>
Investment Products and Services

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*

Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**

Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)

Education Accounts
- ------------------
Education IRA
UGMA/UTMA

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.

29 - Scudder Short Term Bond Fund

<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy

A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).

Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.

Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.

Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell

You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.

DistributionsDirect

Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.

30 - Scudder Short Term Bond Fund
<PAGE>

Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.

Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.

For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

</TABLE>

31 - Scudder Short Term Bond Fund
<PAGE>
About the Fund's Adviser

Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.

Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.

Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.

This information must be preceded or accompanied by a
current prospectus.

Portfolio changes should not be considered recommendations
for action by individual investors.

SCUDDER

[LOGO]