SCUDDER FUNDS TRUST, N-14/A, 1998-11-18

SCUDDER FUNDS TRUST
N-14/A, 1998-11-18

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1998.

SECURITIES ACT FILE NO. 02-73371
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. 1 [X]

POST-EFFECTIVE AMENDMENT NO. [ ]
SCUDDER FUNDS TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

TWO INTERNATIONAL PLACE, BOSTON, MA 02110-4103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(617) 295-2567
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)

WITH COPIES TO:

<TABLE>
<S> <C>
CAROLINE PEARSON, ESQ. SHELDON A. JONES, ESQ.
SCUDDER KEMPER INVESTMENTS, INC. DECHERT PRICE & RHOADS
TWO INTERNATIONAL PLACE TEN POST OFFICE SQUARE -- SOUTH
BOSTON, MA 02110-4103 BOSTON, MA 02109-4603
</TABLE>

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Registration Statement becomes effective.

TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.01 par value)
of Short Term Bond Fund, a Series of the Registrant
------------------------

The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith because of reliance upon
Section 24(f).

This registration statement shall hereafter become effective in accordance
with the provisions of Section 8(a) of the Securities Act of 1933. It is
proposed that this filing will become effective on November 18, 1998 pursuant to
Section 8(a) under the Securities Act of 1933.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

CROSS REFERENCE SHEET

PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
ITEM OF FORM N-14 LOCATION IN THE PROSPECTUS
----------------------------------------------- ------------------------------------------
<C> <S> <C>
PART A
1. Beginning of Registration Statement and Cross Reference Sheet; Notice of Special
Outside Front Cover Page of Prospectus Meeting of Shareholders
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information, and Risk Synopsis -- Fees and Expenses; Special
Factors Considerations and Risk Factors
4. Information About the Transactions Synopsis -- The Proposed Reorganization
5. Information About the Registrant Synopsis; Special Considerations and Risk
Factors; Additional Information
6. Information About the Company Being Synopsis; Special Considerations and Risk
Acquired Factors; Additional Information
7. Voting Information Notice of Special Meeting of Shareholders;
Introduction
8. Interest of Certain Persons and Experts Special Considerations and Risk Factors
9. Additional Information Required for (Not Applicable)
Reoffering by Persons Deemed to be
Underwriters

PART B
10. Cover Page Statement of Additional Information
Caption
Outside Cover Page
11. Table of Contents Table of Contents
12. Additional Information about the Incorporation of Documents by Reference in
Registrant Statement of Additional Information
13. Additional Information about the Company Not Applicable
Being Acquired
14. Financial Statements Exhibits to Statement of Additional
Information

PART C
15 -- 17 Information required to be included in
Part C is set forth under the appropriate
Item, so numbered, in Part C of this
Registration Statement.
</TABLE>

<PAGE> 3

PART A

INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE> 4

November 18, 1998

SCUDDER FUNDS TRUST

IMPORTANT NEWS

FOR SCUDDER FUND SHAREHOLDERS
LOGO

While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.

Q & A: QUESTIONS AND ANSWERS

Q: WHAT IS HAPPENING?

A: You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of the Scudder Zero Coupon
2000 Fund, a series of Scudder Funds Trust, would be transferred in a tax-
free reorganization to the Scudder Short Term Bond Fund, another series of
Scudder Funds Trust, in exchange for shares of beneficial interest of the
Scudder Short Term Bond Fund. If the Agreement and Plan of Reorganization is
approved and consummated, you would no longer be a shareholder of the
Scudder Zero Coupon 2000 Fund, but would become a shareholder of Scudder
Short Term Bond Fund, which has similar investment objectives and policies
to your Fund, except as described in the Proxy Statement/ Prospectus, and is
managed by your Fund's investment manager, Scudder Kemper Investments, Inc.
("Scudder Kemper"). The Board members of your Fund believe that you will
benefit from the proposed reorganization, in part, because the Scudder Short
Term Bond Fund offers the opportunity for higher annual income, higher total
return and lower fees and expenses than your Fund. The following pages give
you additional information on the proposed reorganization and two other
matters on which you are being asked to vote. THE BOARD MEMBERS OF YOUR
FUND, INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE FUND OR SCUDDER
KEMPER, RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION.

Q: WHAT ELSE AM I BEING ASKED TO VOTE ON?

A: Zurich Insurance Company ("Zurich"), which is the majority owner of your
Fund's investment manager, Scudder Kemper, has combined its businesses with
the financial services businesses of B.A.T Industries p.l.c. ("B.A.T"). The
resulting company, Zurich Financial Services ("Zurich Financial Services"),
has become Zurich's parent company. Although this transaction
<PAGE> 5

will have virtually no effect on the operations of Scudder Kemper or your
Fund, we are asking the Fund's shareholders to approve a new investment
management agreement to assure that there is no interruption in the services
Scudder Kemper provides to your Fund. The following pages give you
additional information about Zurich Financial Services, the new investment
management agreement and certain other matters. You are being asked to vote
on the new investment management agreement and the other matters in case the
proposed reorganization is not approved. THE BOARD MEMBERS OF YOUR FUND,
INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE FUND, SCUDDER KEMPER OR
ZURICH, RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE NEW INVESTMENT
MANAGEMENT AGREEMENT.

Q: WHY AM I BEING ASKED TO VOTE ON THE NEW INVESTMENT MANAGEMENT AGREEMENT?

A: As a result of the Zurich-B.A.T transaction, the former shareholders of
B.A.T indirectly own a 43% interest in Zurich through a new holding company,
Allied Zurich p.l.c. This change in ownership of Zurich may be deemed to
have caused a "change in control" of Scudder Kemper, even though Scudder
Kemper's operations will not change as a result. The Investment Company Act
of 1940, which regulates investment companies such as your Fund, requires
that fund shareholders approve a new investment management agreement
whenever there is a change in control of a fund's investment manager (even
in the most technical sense). Pursuant to an exemptive order issued by the
Securities and Exchange Commission, your Fund entered into a new investment
management agreement, subject to receipt of shareholder approval within 150
days. Accordingly, we are seeking shareholder approval of the new investment
management agreement with your Fund.

Q: HOW WILL THE ZURICH-B.A.T TRANSACTION AFFECT ME AS A FUND SHAREHOLDER?

A: We do not expect the transaction to affect you as a Fund shareholder. Your
Fund and your Fund's investment objectives will not change as a result of
the transaction. You will still own the same shares in the same Fund. The
new investment management agreement is substantially identical to the former
investment management agreement, except for the dates of execution and
termination. Similarly, the other service arrangements between your Fund and
Scudder Kemper or affiliates of Scudder Kemper will not be affected by the
transaction. If shareholders do not approve the new invest-

(continues on inside back cover)

<PAGE> 6

ment management agreement, the agreement will terminate and the Board
members of your Fund will take such action as they deem to be in the best
interests of your Fund and its shareholders. If the proposed reorganization
is approved, however, your Fund and your Fund's investment objectives will
change as described more fully in the Proxy Statement/Prospectus.

Q: WILL THE INVESTMENT MANAGEMENT FEES INCREASE?

A: No, the investment management fee rates paid by your Fund will not change as
a result of the Zurich-B.A.T transaction. If the proposed reorganization is
approved, however, the investment management fee rates will change as
described more fully in this Proxy Statement/Prospectus.

Q: WHAT OTHER MATTERS AM I BEING ASKED TO VOTE ON?

A: In order to save your Fund the expense of a subsequent meeting, a vote is
also being sought for a revision of your Fund's fundamental lending policy
to give the Board of your Fund discretionary authority to permit your Fund
to enter into interfund lending arrangements, subject to Securities and
Exchange Commission approval.

Q: HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?

A: After careful consideration, the Board members of your Fund, including those
who are not affiliated with the Fund, Scudder Kemper or Zurich, recommend
that you vote FOR the Proposals on the enclosed proxy card(s).

Q: WILL THE FUND PAY FOR THIS PROXY SOLICITATION?

A: No, Zurich or its affiliates will bear these costs.

Q: WHOM DO I CALL FOR MORE INFORMATION?

A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-248-2681.
<PAGE> 7

LOGO

For more information, please call Shareholder Communications Corporation, your
Fund's information agent, at 1-800-248-2681.

SFT

<PAGE> 8

SCUDDER FUNDS TRUST

Two International Place
Boston, Massachusetts 02110

November 18, 1998

Dear Shareholders:

You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of the Scudder Zero Coupon 2000
Fund would be transferred in a tax-free reorganization to the Scudder Short Term
Bond Fund, a series of Scudder Funds Trust, in exchange for shares of beneficial
interest of the Scudder Short Term Bond Fund. If the Agreement and Plan of
Reorganization is approved and consummated, you would no longer be a shareholder
of the Scudder Zero Coupon 2000 Fund, but would become a shareholder of Scudder
Short Term Bond Fund, which has similar investment objectives and policies to
your Fund, except as described in the Proxy Statement/Prospectus.

In addition, Zurich Insurance Company, the majority owner of Scudder Kemper
Investments, Inc., has combined its businesses with the financial services
businesses of B.A.T Industries p.l.c. The resulting company, Zurich Financial
Services, has become the parent company of Zurich and the majority owner of
Scudder Kemper. As a result of this transaction, we are asking the shareholders
of the funds for which Scudder Kemper acts as investment manager, including your
Fund, to approve a new investment management agreement with Scudder Kemper.

The Zurich-B.A.T transaction should not affect you as a Fund shareholder.
Your Fund shares will not change, the advisory fee rates and expenses paid by
your Fund will not increase, the investment objectives of your Fund will remain
the same, and, as is now the case, you will not pay sales loads on purchases of
shares of your Fund. If the proposed reorganization is approved, however, your
Fund shares, the advisory fees and expenses paid by your Fund, and the
investment objectives of your Fund will change as described more fully in the
Proxy Statement/Prospectus.

Shareholders are also being asked to approve certain other matters that
have been set forth in the Notice of Meeting. AFTER CAREFUL REVIEW, THE MEMBERS
OF YOUR FUND'S BOARD HAVE APPROVED THE PROPOSED NEW INVESTMENT MANAGEMENT
AGREEMENT. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT EACH OF THE PROPOSALS SET
FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND RECOMMEND THAT YOU
READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR ALL PROPOSALS.

Because all of the funds for which Scudder Kemper acts as investment
manager are holding shareholder meetings, if you own shares of more than one
<PAGE> 9

fund, you will receive more than one proxy card. Please sign and return each
proxy card you receive.

Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If we do not receive
your executed proxy card(s) after a reasonable amount of time, you may receive a
telephone call from our proxy solicitor, Shareholder Communications Corporation,
reminding you to vote.

Respectfully,

/s/ Daniel Pierce
Daniel Pierce
President
Scudder Funds Trust

WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
<PAGE> 10

SCUDDER FUNDS TRUST

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Scudder Funds Trust (the "Trust"), on behalf of its series, the
Scudder Zero Coupon 2000 Fund (the "Fund"), will be held at the offices of
Scudder Kemper Investments, Inc., 13th Floor, Two International Place, Boston,
Massachusetts 02110, on December 15, 1998, at 11:00 a.m., Eastern time, for the
following purposes:

PROPOSAL 1: To approve an Agreement and Plan of Reorganization for
the Fund;

PROPOSAL 2: To approve a new investment management agreement for the
Fund with Scudder Kemper Investments, Inc.; and

PROPOSAL 3: To approve the revision of the Fund's fundamental lending
policy.

The appointed proxies will vote in their discretion on any other business
as may properly come before the Special Meeting or any adjournments thereof.

Holders of record of shares of the Fund at the close of business on October
19, 1998 are entitled to vote at the Special Meeting and at any adjournments
thereof.

In the event that the necessary quorum to transact business or the vote
required to approve a Proposal is not obtained at the Special Meeting, the
persons named as proxies may propose one or more adjournments of the Special
Meeting in accordance with applicable law, to permit further solicitation of
proxies. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Fund's shares present in person or by proxy
at the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
<PAGE> 11

Proposals and will vote against any such adjournment those proxies to be voted
against the Proposals.

By Order of the Board of Trustees

/s/ Thomas F. McDonough
Thomas F. McDonough,
Secretary

November 18, 1998

IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS INTENDED
FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) MAY SAVE
THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM AT THE
SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND WISH TO VOTE YOUR
SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE> 12

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
PROPOSAL 1: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION FOR
THE FUND........................................... 4
SYNOPSIS............................................. 5

PRINCIPAL RISK FACTORS............................... 11

THE PROPOSED TRANSACTION............................. 17

ADDITIONAL INFORMATION............................... 25

PROPOSAL 2: APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT...... 25

PROPOSAL 3: APPROVAL OF THE REVISION OF THE FUND'S FUNDAMENTAL
LENDING POLICY..................................... 39

ADDITIONAL INFORMATION............................................ 42
</TABLE>

<PAGE> 13

PROXY STATEMENT/PROSPECTUS

NOVEMBER 18, 1998

RELATING TO THE ACQUISITION BY
SCUDDER SHORT TERM BOND FUND ("SHORT TERM BOND"),
A SERIES OF SCUDDER FUNDS TRUST (THE "TRUST")

Two International Place
Boston, MA 02110-4103
(800) 225-2470

OF THE ASSETS OF
SCUDDER ZERO COUPON 2000 FUND ("ZERO COUPON"),
A SERIES OF THE TRUST

GENERAL

This Proxy Statement/Prospectus is furnished to shareholders of Zero Coupon
in connection with a proposed reorganization in which all or substantially all
of the assets of Zero Coupon would be acquired by Short Term Bond, in exchange
solely for voting shares of beneficial interest of Short Term Bond and the
assumption by Short Term Bond of all of the liabilities of Zero Coupon (the
"Reorganization"). Shares of Short Term Bond thereby received would then be
distributed to the shareholders of Zero Coupon in complete liquidation of Zero
Coupon, and Zero Coupon would be abolished as a series of the Trust. As a result
of the Reorganization, each shareholder of Zero Coupon would receive that number
of full and fractional shares of Short Term Bond having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's shares of
Zero Coupon held as of the close of business on the business day preceding the
closing of the Reorganization. Shareholders of Zero Coupon are being asked to
vote on an Agreement and Plan of Reorganization pursuant to which such
transactions, as described more fully below, would be consummated.

This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about Short Term Bond that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
Short Term Bond, see the prospectus for Short Term Bond dated May 1, 1998, as
supplemented from time to time, which is included herewith and incorporated
herein by reference. This Proxy Statement/Prospectus is also accompanied by
Short

------------------------

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE> 14

Term Bond's annual report to shareholders for the fiscal year ended December 31,
1997. For a more detailed discussion of the investment objectives, policies,
restrictions and risks of Zero Coupon, see the prospectus for Zero Coupon dated
May 1, 1998, which is incorporated herein by reference and a copy of which may
be obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103, or by calling toll-free (800)
225-2470. A Statement of Additional Information of the Trust dated November 18,
1998 containing additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission (the "SEC" or
the "Commission") and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional Information is
available upon request and without charge by writing to Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110-4103, or by calling
(800) 225-2470. Shareholder inquiries regarding Zero Coupon or regarding Short
Term Bond may be made by calling (800) 225-2470. The information contained
herein concerning Zero Coupon has been provided by, and is included herein in
reliance upon, Zero Coupon. The information contained herein concerning Short
Term Bond has been provided by, and is included herein in reliance upon, Short
Term Bond.

Short Term Bond and Zero Coupon is each a diversified series of shares of
beneficial interest of the Trust, an open-end management investment company
organized as a Massachusetts business trust. The principal investment objective
of Short Term Bond is to provide a high level of income consistent with a high
degree of principal stability by investing primarily in high-quality, short-term
bonds. The principal investment objective of Zero Coupon is to provide as high
an investment return over a selected period as is consistent with investment in
U.S. Government securities and the minimization of investment risk.
------------------------

In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean investment companies or series thereof in general, and not Zero
Coupon whose proxy statement this is. In addition, in this Proxy Statement/
Prospectus, for simplicity, actions are described as being taken by either Zero
Coupon or Short Term Bond (each a "Fund" and collectively the "Funds"), each of
which is a series of the Trust, although all actions are actually taken by the
Trust on behalf of the applicable series.

This Proxy Statement/Prospectus also is furnished to shareholders of Zero
Coupon in connection with a transaction in which Zurich Insurance Company
("Zurich"), the majority owner of Scudder Kemper Investments, Inc. ("Scudder
Kemper" or the "Investment Manager"), has agreed to combine its businesses with
the financial services businesses of B.A.T Industries p.l.c. The resulting
company, to be called Zurich Financial Services Group, will become the parent
company of Zurich and the indirect parent of Scudder Kemper. As a result of the
proposed alliance, there will be a change in ownership in Zero

2
<PAGE> 15

Coupon's investment manager, Scudder Kemper. In order for Scudder Kemper to
continue to serve as investment manager of Zero Coupon, it is necessary for Zero
Coupon's shareholders to approve a new investment management agreement. A vote
is also being sought for the approval of a revision to Zero Coupon's fundamental
lending policy, as discussed below. Shareholders are being asked to vote on
these additional matters in case the Reorganization is not approved.

This Proxy Statement/Prospectus, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about November 18,
1998 or as soon as practicable thereafter. Any Zero Coupon shareholder giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Scudder Zero Coupon 2000 Fund, c/o Scudder Kemper
Investments, Inc., at the address for the Trust shown at the beginning of this
Proxy Statement/Prospectus) or in person at the Special Meeting, by executing a
superseding proxy or by submitting a notice of revocation to the Fund. All
properly executed proxies received in time for the Special Meeting will be voted
as specified in the proxy or, if no specification is made, in favor of the
Proposals referred to in the Proxy Statement.

The presence at any shareholders' meeting, in person or by proxy, of the
holders of a majority of the shares of Zero Coupon entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Special Meeting, the persons
named as proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies with
respect to the Proposal that did not receive the vote necessary for its passage
or to obtain a quorum. Any such adjournment as to a matter will require the
affirmative vote of the holders of a majority of Zero Coupon's shares present in
person or by proxy at the Special Meeting. The persons named as proxies will
vote in favor of such adjournment those proxies which they are entitled to vote
in favor of that Proposal and will vote against any such adjournment those
proxies to be voted against that Proposal. For purposes of determining the
presence of a quorum for transacting business at the Special Meeting,
abstentions and broker "non-votes" will be treated as shares that are present
but which have not been voted. Broker non-votes are proxies received by Zero
Coupon from brokers or nominees when the broker or nominee has neither received
instructions from the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter. Accordingly, shareholders
are urged to forward their voting instructions promptly.

Proposal 1 requires the affirmative vote of the holders of a majority of
Zero Coupon's shares outstanding and entitled to vote thereon. Proposals 2 and 3
each requires the affirmative vote of a "majority of the outstanding voting
securities" of Zero Coupon. The term "majority of the outstanding voting

3
<PAGE> 16

securities" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), and as used in this Proxy Statement/Prospectus, means: the
affirmative vote of the lesser of (1) 67% of the voting securities of the Fund
present at the meeting if more than 50% of the outstanding voting securities of
the Fund are present in person or by proxy or (2) more than 50% of the
outstanding voting securities of the Fund.

Abstentions will have the effect of a "no" vote on each Proposal. Broker
non-votes will have the effect of a "no" vote on each of Proposals 2 and 3, each
of which requires the approval of a specified percentage of the outstanding
shares of the Fund, if such vote is determined on the basis of obtaining the
affirmative vote of more than 50% of the outstanding voting securities of the
Fund. Broker non-votes will not constitute "yes" or "no" votes, and will be
disregarded in determining the voting securities "present" if such vote is
determined on the basis of the affirmative vote of 67% of the voting securities
of the Fund present at the Special Meeting with respect to each of Proposals 2
and 3. Broker non-votes will not be counted in favor of, but will have no other
effect on, the vote for Proposal 1, which requires the affirmative vote of the
holders of a majority of Zero Coupon's shares outstanding and entitled to vote
thereon.

Holders of record of the shares of Zero Coupon at the close of business on
October 19, 1998 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. As of June 30, 1998, there were 1,597,607.292 shares of Zero
Coupon outstanding.

To the best of the Trust's knowledge, as of June 30, 1998, no person owned
beneficially more than 5% of Zero Coupon's outstanding shares.

Appendix 1 hereto sets forth the number of shares of Zero Coupon owned
directly or beneficially by the Trustees of the Trust.

Each Fund provides periodic reports to all of its shareholders which
highlight relevant information, including investment results and a review of
portfolio changes. You may receive an additional copy of the most recent annual
report for each Fund and a copy of any more recent semi-annual report, without
charge, by calling 800-225-2470 or writing the Fund, c/o Scudder Kemper
Investments, Inc., at the address for the Fund shown at the beginning of this
Proxy Statement/ Prospectus.

PROPOSAL 1: APPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION

The Board of Trustees of the Trust, including all of the Trustees who are
not "interested persons" of the Trust (as defined in the 1940 Act) (the "Non-
Interested Trustees" or "Non-Interested Board Members"), approved on Sep-

4
<PAGE> 17

tember 29, 1998, an Agreement and Plan of Reorganization dated as of November 9,
1998 (the "Plan"). Subject to its approval by the shareholders of Zero Coupon,
the Plan provides for (a) the transfer of all or substantially all of the assets
and all of the liabilities of Zero Coupon to Short Term Bond, a series of shares
of beneficial interest of the Trust, in exchange solely for voting shares of
Short Term Bond; (b) the distribution of such Short Term Bond shares to the
shareholders of Zero Coupon in complete liquidation of Zero Coupon; and (c) the
abolition of Zero Coupon as a series of the Trust (the "Reorganization"). As a
result of the Reorganization, each shareholder of Zero Coupon will become a
shareholder of Short Term Bond and will hold, immediately after the closing of
the Reorganization (the "Closing"), that number of full and fractional shares of
Short Term Bond having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in Zero Coupon as of the close of
business on the business day preceding the Closing (the "Valuation Date"). The
Closing is expected to occur on December 18, 1998, or on such later date as the
parties may agree in writing (the "Closing Date").

SYNOPSIS

The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus, the
Prospectus of Short Term Bond, the Prospectus of Zero Coupon, and the Plan, the
Form of which is attached to this Proxy Statement/Prospectus as Exhibit C.
Shareholders should read this entire Proxy Statement/Prospectus carefully.

INTRODUCTION

The Investment Manager is the investment manager of both Funds. Both Funds
also have the same custodian, fund accounting agent and transfer agent. If the
Plan is consummated, Zero Coupon shareholders will continue to enjoy the same
shareholder privileges, such as the ability to buy, exchange and sell shares
without paying a sales commission, access to professional service
representatives, and automatic dividend reinvestment, as shareholders of Short
Term Bond. As a shareholder of Short Term Bond, you will be able to redeem
shares by check using the free "Write-A-Check" option, which is not available
with Zero Coupon. Dividends are declared daily and paid monthly on Short Term
Bond shares. Zero Coupon distributes its net investment income annually. It is a
condition of the Reorganization that the Trust receive an opinion of independent
legal counsel that the Reorganization will be tax-free. This means that
shareholders will not realize any capital gain or loss as a direct result of the
Reorganization.

5
<PAGE> 18

PROPOSED TRANSACTION

The aggregate net asset value of Short Term Bond voting shares ("Shares")
issued in exchange for the assets and liabilities of Zero Coupon will be equal
to the net asset value of Zero Coupon as of the Valuation Date. Immediately
following the transfer of Shares to the Trust, the Shares received by Zero
Coupon will be distributed pro rata to the shareholders of record of Zero Coupon
on the Closing Date and the shares of Zero Coupon will be canceled.

For the reasons described below under "The Proposed Transaction-Reasons for
the Proposed Transaction," the Board of Trustees of the Trust, including the
Non-Interested Trustees, has concluded the following:

- the Reorganization is in the best interests of Zero Coupon and its
shareholders; and

- the interests of the existing shareholders of Zero Coupon will not be
diluted as a result of the Reorganization.

Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, Zero Coupon will continue in existence until its maturity date,
December 22, 2000, unless other action is taken by the Trustees; such other
action may include termination and liquidation of Zero Coupon.

INVESTMENT OBJECTIVE AND POLICIES OF SCUDDER SHORT TERM BOND FUND

Short Term Bond seeks to provide a high level of income consistent with a
high degree of principal stability by investing primarily in high-quality,
short-term bonds. The dollar-weighted average effective maturity of Short Term
Bond's portfolio may not exceed three years. Within this limitation, Short Term
Bond may purchase individual securities with effective maturities greater than
three years.

Short Term Bond invests at least 65% of its net assets in (1) obligations
of the U.S. Government, its agencies, or instrumentalities, and (2) debt
securities (including corporate obligations, mortgage-backed securities and
other asset-backed securities) rated, at the time of purchase, in one of two
highest categories of Standard & Poor's Corporation ("S&P") (AAA or AA) or
Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa), or if not rated, judged
to be of comparable quality by the Investment Manager. Short Term Bond will not
invest in any debt securities rated lower than BBB by S&P or Baa by Moody's, or
of equivalent quality as determined by the Investment Manager.

Short Term Bond may also invest up to 35% of its net assets in (i) money
market instruments, which comprise commercial paper, bank obligations and
repurchase agreements; (ii) privately-placed securities; and (iii) foreign
securities, including non-U.S. dollar-denominated securities and U.S.
dollar-denomi-

6
<PAGE> 19

nated debt securities issued by foreign issuers and foreign branches of U.S.
banks.

Short Term Bond may invest in when-issued securities and may write (sell)
covered call and put options on securities in which it may invest, purchase and
sell call and put options on securities and securities-indices and may purchase
and sell put and call options on currencies. Short Term Bond may enter into
interest-rate, securities-indices and currency futures contracts and may
purchase and sell put and call options on these contracts. Short Term Bond may
enter into forward foreign currency exchange contracts.

INVESTMENT OBJECTIVE AND POLICIES OF SCUDDER ZERO COUPON 2000 FUND

Zero Coupon seeks to provide as high an investment return over a selected
period as is consistent with investment in U.S. Government securities and the
minimization of reinvestment risk.

At least 80% of the net assets of Zero Coupon will be invested in zero
coupon securities. These include U.S. Treasury notes and bonds which have no
coupons and are not entitled to income, U.S. Treasury bills, individual interest
coupons which trade separately, and evidences of receipt of such securities. At
least 50% of the net assets of Zero Coupon will be invested in zero coupon
securities maturing within two years of the Fund's target date, December 22,
2000. Up to 20% may be invested in interest-paying U.S. Treasury notes and
bonds, and in repurchase agreements with respect to such securities. These
interest-paying securities provide income for expenses, redemption payments, and
cash dividends of Zero Coupon.

The average duration of Zero Coupon will be maintained within 12 months of
the Fund's target date. Duration is a measure of the length of an investment
which takes into account, through present value analysis, the timing and amount
of any interest payments as well as the amount of the principal repayment.
Duration is commonly used by professional investment managers to help identify
and control reinvestment risk. Since Zero Coupon will not be invested entirely
in securities maturing on the target date, there will be some reinvestment risk.
By balancing investments with slightly longer and shorter durations, the
Investment Manager believes it can maintain the Fund's average duration within
12 months of the Fund's target date and thereby reduce its reinvestment risk.

INVESTMENT MANAGEMENT FEES AND EXPENSES

Zero Coupon and Short Term Bond each retains the investment management firm
of Scudder Kemper Investments, Inc., a Delaware corporation, pursuant to
separate contracts, to manage the daily investment and business affairs of Zero
Coupon and Short Term Bond subject to the policies established

7
<PAGE> 20

by the Trustees. The expenses of each of Zero Coupon and Short Term Bond are
paid out of gross investment income. Shareholders pay no direct charges or fees
for investment services. The Investment Manager is located at Two International
Place, Boston, Massachusetts 02110-4103.

SCUDDER SHORT TERM BOND FUND

The Investment Manager receives an investment management fee as
compensation for its services on behalf of Short Term Bond. For these services,
Short Term Bond pays the Investment Manager a fee at an annual rate of 0.60% of
the first $500 million of average daily net assets, 0.50% of the next $500
million of such assets, 0.45% of the next $500 million of such assets, 0.40% of
the next $500 million of such assets, 0.375% of the next $1 billion of such
assets and 0.35% of such assets in excess of $3 billion. The fee is graduated so
that increases in Short Term Bond's net assets may result in a lower annual fee
rate and decreases in its net assets may result in a higher annual fee rate. The
fee is payable monthly, provided that Short Term Bond will make such interim
payments as may be requested by the Investment Manager not to exceed 75% of the
amount of the fee then accrued on the books of Short Term Bond and unpaid. As of
June 30, 1998, Short Term Bond had total net assets of $1,062,013,885. The total
investment management fees incurred and paid by Short Term Bond for the six
months ended June 30, 1998 were $2,994,960.

For the six months ended June 30, 1998, Short Term Bond's total expense
ratio (total annual operating expenses as a percentage of average net assets)
was 0.86%. The Investment Manager projects that if the proposed Reorganization
is effected, the expense ratio of Short Term Bond will be approximately 0.86%
for the fiscal year ending December 31, 1998. The actual expense ratio for Short
Term Bond for the fiscal year ending December 31, 1998 may be higher or lower
than 0.86%, depending upon Short Term Bond's performance, general bond market
and economic conditions, sales and redemptions of Short Term Bond shares
(including redemptions by former Zero Coupon shareholders), and other factors.

SCUDDER ZERO COUPON 2000 FUND

The Investment Manager receives an investment management fee as
compensation for its services on behalf of Zero Coupon. For these services, Zero
Coupon pays the Investment Manager a fee at an annual rate of 0.60% of average
daily net assets. The fee is payable monthly, provided that Zero Coupon will
make such interim payments as may be requested by the Investment Manager not to
exceed 75% of the amount of the fee then accrued on the books of Zero Coupon and
unpaid. As of June 30,1998, Zero Coupon had total net assets of $18,788,083. The
total investment management fees incurred by Zero

8
<PAGE> 21

Coupon for the six months ended June 30, 1998 were $58,057, none of which was
imposed.

For the six months ended June 30, 1998, Zero Coupon's annualized total
expense ratio (total annual operating expenses as a percentage of average net
assets) was 1.00%, including waivers and reimbursements. The Investment Manager
has voluntarily agreed, with respect to Zero Coupon, not to impose all or a
portion of its management fee and to maintain the annualized expenses of Zero
Coupon at not more than 1.00% of the Fund's average daily net assets until April
30, 1999. The Investment Manager retains the ability to be repaid by the Fund if
expenses fall below the specified limit prior to the end of the fiscal year.
These expense limitation arrangements can decrease the Fund's expenses and
improve its performance. If the Investment Manager had not agreed to waive its
fee and reimburse other expenses, it is estimated that the annualized expenses
of Zero Coupon would be: investment management fee .60%, other expenses 1.31%
and total operating expenses 1.91%, for the six months ended June 30, 1998. The
Investment Manager is not obligated to continue its fee waivers and expense
reimbursements after April 30, 1999. As demonstrated by the table below,
shareholders of Zero Coupon may experience a decrease in expenses with respect
to the Short Term Bond Shares received pursuant to the Reorganization,
regardless of whether the Investment Manager would elect to continue its fee
waivers and expense reimbursements after April 30, 1999.

The expenses of each Fund for the fiscal year ended December 31, 1997 and
pro forma expenses following the proposed restructuring are outlined below:

ANNUAL FUND OPERATING EXPENSES

(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
ZERO COUPON(1) SHORT TERM BOND PRO FORMA
-------------- --------------- ---------
<S> <C> <C> <C>
Investment Management
Fee..................... 0.00% 0.53% 0.53%
12b-1 Fees................ NONE NONE NONE
Other Expenses............ 1.00% 0.33% 0.33%
Total Fund Operating
Expenses................ 1.00% 0.86% 0.86%
</TABLE>

- ------------------------------

(1) Until April 30, 1999, the Adviser has agreed to waive and/or reimburse all
or a portion of its management fee and expenses to the extent necessary so
that annualized expenses of the Fund do not exceed 1.00% of average daily
net assets. If the Adviser had not agreed to waive a portion of its fee and
other expenses, Fund expenses would have been: investment management fee
0.60%, other expenses 1.16%, and total Fund operating expenses 1.76% for the
year ended December 31, 1997.

9
<PAGE> 22

Example. Based on the level of total operating expenses for each of the
Funds listed in the table above for the fiscal year ended December 31, 1997, the
total expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to stockholders. Actual expenses may be greater or less than
those shown. Federal regulations require the example to assume a 5% annual
return, but actual annual return will vary.

<TABLE>
<CAPTION>
ZERO COUPON SHORT TERM BOND PRO FORMA
----------- --------------- ---------
<S> <C> <C> <C>
1 Year................... $ 10 $ 9 $ 9
3 Years.................. $ 32 $ 27 $ 27
5 Years.................. $ 55 $ 48 $ 48
10 Years................. $122 $106 $106
</TABLE>

This example assumes reinvestment of all dividends and distributions and that
the percentage amounts listed above under "Total Fund Operating Expenses" remain
the same each year. This example should not be considered a representation of
past or future expenses. Actual Fund expenses can vary from year to year and may
be higher or lower than those shown.

DISTRIBUTION OF SHARES AND OTHER SERVICES

Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of both Zero Coupon and Short Term Bond. SIS charges no direct fees
whatsoever in connection with the distribution of shares of the Funds. Scudder
Service Corporation ("SSC"), also a subsidiary of the Investment Manager, is the
transfer and dividend-paying agent for the Funds. Scudder Fund Accounting
Corporation ("SFAC"), also a subsidiary of the Investment Manager, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of each Fund. State Street Bank and Trust Company
is each Fund's custodian. Scudder Trust Company ("STC"), an affiliate of the
Investment Manager, is trustee or custodian for certain tax-advantaged
retirement plans designed for use with each Fund and is paid an annual fee for
some of those plans.

PURCHASE, REDEMPTION AND EXCHANGE INFORMATION

The purchase, redemption and exchange procedures and privileges with
respect to Zero Coupon are identical to those of Short Term Bond. Additionally,
Short Term Bond offers a "Write-A-Check" option pursuant to which shareholders
can redeem shares by writing checks against their account balance. Both funds
are pure no-load(TM), imposing no front-end or back-end sales charges, and no
12b-1 fees.

10
<PAGE> 23

DIVIDENDS AND OTHER DISTRIBUTIONS

Each Fund intends to distribute dividends from its net investment income
and any net realized capital gains after utilization of capital loss
carryforwards, if any, in December to prevent application of a federal excise
tax. An additional distribution may be made if necessary. Any dividends or
capital gains distributions declared in October, November or December with a
record date in such a month and paid during the following January will be
treated by shareholders for federal income tax purposes as if received on
December 31 of the calendar year in which it is declared. Dividends and
distributions of each Fund will be invested in additional shares of the Fund at
net asset value and credited to the shareholder's account on the payment date
or, at the shareholder's election, paid in cash.

If the Plan is approved by Zero Coupon's shareholders, then as soon as
practicable before the Closing Date, Zero Coupon will pay its shareholders a
cash distribution of all undistributed 1998 net investment income and
undistributed realized net capital gains.

TAX CONSEQUENCES

Short Term Bond and Zero Coupon will have received an opinion of Dechert
Price & Rhoads, counsel to the Funds and the Trust in connection with the
Reorganization, to the effect that, based upon certain facts, assumptions and
representations, the Reorganization will constitute a tax-free reorganization
within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Reorganization constitutes a tax-free
reorganization, no gain or loss will be recognized by Zero Coupon or its
shareholders as a result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Consequences."

PRINCIPAL RISK FACTORS

Short Term Bond may invest in a much wider variety of debt obligations than
Zero Coupon and may engage in several investment techniques that Zero Coupon
cannot. In addition, unlike Zero Coupon, Short Term Bond is not targeted to a
maturity date.

Zero Coupon invests at least 80% of net assets in U.S. Government zero
coupon securities and privately stripped coupons on and receipts for U.S.
Government securities, and up to 20% of net assets in interest-paying U.S.
Treasury notes and bonds and repurchase agreements. Short Term Bond may invest,
however, in a wide range of debt obligations, most of which are not guaranteed
as to payment of interest and principal. Corporate debt securities expose Short
Term Bond to the economic conditions affecting the issuer's industry.
Mortgage-backed securities bear the risk of unscheduled or early
11
<PAGE> 24

payments on the underlying mortgages which will shorten the securities'
effective maturities and lessen their growth potential. This prepayment risk is
greater in a period of declining interest rates. Foreign securities bear special
considerations, including higher brokerage costs, currency risk and a greater
likelihood of delayed settlement.

An investment in Short Term Bond may entail higher credit risk than an
investment in Zero Coupon. Short Term Bond must invest at least 65% of its
assets in securities rated in the top two ratings categories by S&P or Moody's
(or the equivalent, if unrated), versus an 80% minimum for Zero Coupon. Also
Short Term Bond, unlike Zero Coupon, may invest up to 35% of its net assets in
securities rated A or BBB by S&P, or A or Baa by Moody's (or the equivalent if
unrelated). Securities rated BBB by S&P or Baa by Moody's are neither highly
protected nor poorly secured. These securities normally pay higher yields but
involve potentially greater price variability than higher-quality securities.
These securities are regarded as having adequate capacity to repay principal and
pay interest, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to do so. Such securities may have
speculative elements as well as investment-grade characteristics.

Zero coupon securities generally pay no interest until maturity and,
therefore, do not bear the risk of reinvestment of periodic interest in lower
yielding securities when interest rates are declining. Zero Coupon has a
relatively low portfolio turnover rate (6.93% annualized for the six months
ended June 30, 1998), and, therefore, may be affected less than Short Term Bond
by the need to purchase securities when interest rates are declining. On the
other hand, the market value of zero coupon securities is more volatile in
response to fluctuations in interest rates than those of interest-paying
securities of similar maturities.

Short Term Bond maintains a dollar-weighted average effective maturity no
greater than three years, although individual securities may have effective
maturities of greater than three years. The market value of longer term
securities generally is more susceptible to changes in economic and market
conditions than those of shorter term securities. The average duration of Zero
Coupon's portfolio will be within twelve months of the Fund's target date of
December 22, 2000. Because the securities held by Zero Coupon will have matured
by its maturity date, such securities should provide a predictable amount upon
maturity equal to their face value. The value of securities held in the Short
Term Bond Fund portfolio, however, will depend upon a number of factors, the
principal one being then current interest rates. Therefore, a shareholder who
redeems shares of Short Term Bond may be exposed to greater risk of fluctuation
in the value of the redeemed shares than a shareholder in Zero Coupon who held
his or her shares to Zero Coupon's target date.

Finally, Short Term Bond may write covered options to enhance income and
engage in various hedging strategies involving options on indices, futures
12
<PAGE> 25

contracts and currency transactions. These investment techniques entail
transaction costs and may provide no benefit (or may cause Short Term Bond to
incur a loss) if securities or currency prices or interest rates move in an
unanticipated manner.

PRINCIPAL INVESTMENTS OF SCUDDER SHORT TERM BOND FUND

Short Term Bond is a diversified fund designed for investors seeking a
higher and more stable level of income than normally provided by money market
investments, and more price stability than investments in intermediate- and
long-term bonds. The Fund invests at least 65% of its net assets in a managed
portfolio of bonds consisting of U.S. Government securities, including bonds,
notes and bills issued by the U.S. Treasury, and securities issued by agencies
and instrumentalities of the U.S. Government; corporate debt securities, such as
bonds, notes and debentures; mortgage-backed securities; and other asset-backed
securities. Other eligible investments for the Fund are as follows: money market
instruments which consist of commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances) and repurchase agreements;
privately-placed securities (including restricted securities); and foreign
securities, including non-U.S. dollar-denominated securities and U.S. dollar
denominated debt securities issued by foreign issuers and foreign branches of
U.S. banks.

Short Term Bond invests at least 65% of its net assets in (1) obligations
of the U.S. Government, its agencies, or instrumentalities, and in (2) debt
securities rated, at the time of purchase, in one of two highest categories of
S&P or Moody's, or if not rated, judged to be of comparable quality by the
Investment Manager. Short Term Bond will not invest in any debt securities rated
lower than BBB by S&P or Baa by Moody's, or of equivalent quality as determined
by the Investment Manager.

To meet the Fund's objective, the Investment Manager actively manages the
Fund's portfolio. Investment decisions are based on general economic and
financial trends, such as domestic and international economic developments, the
outlook for the securities markets, the level of interest rates and inflation,
the supply and demand of debt securities, and other factors. The composition of
the Fund's portfolio is also determined by individual security analysis. The
Investment Manager attempts to reduce principal fluctuation through, among other
methods, diversification, credit analysis and security selection, and the
adjust-
13
<PAGE> 26

ment of the Fund's average portfolio maturity. In periods of rising interest
rates and falling bond prices, the Investment Manager may shorten the Fund's
average maturity to minimize the effect of declining bond values on the Fund's
net asset value. Conversely, during times of falling rates and rising prices, a
longer average maturity of up to three years may be sought. When the Investment
Manager believes economic or other conditions warrant, for temporary defensive
purposes the Fund may invest more than 35% of its assets in money market
instruments.

The Fund may invest in mortgage-backed securities which are securities
representing interests in pools of mortgage loans. The securities provide
shareholders with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are paid off. A decline in interest
rates may lead to a faster rate of repayment of the underlying mortgages, and
expose the Fund to a lower rate of return upon reinvestment. When interest rates
rise, mortgage prepayment rates tend to decline, thus lengthening the life of
mortgage-related securities and increasing their price volatility, affecting the
price volatility of the Fund. Because principal may be prepaid at any time,
mortgage-backed securities may involve significantly greater price and yield
volatility than traditional debt securities.

The Fund may also invest in other asset-backed securities including
securities representing interests in pools of certain other consumer loans, such
as automobile loans and credit card receivables.

The Fund may enter into dollar roll transactions with selected banks and
broker-dealers. Dollar roll transactions are treated as reverse repurchase
agreements for purposes of the Fund's borrowing restrictions and consist of the
sale by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date at the same
price. In addition, the Fund is paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed after cash settlement
and initially involve only a firm commitment agreement by the Fund to buy a
security. If the broker-dealer to whom the Fund sells the security underlying a
dollar roll transaction becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security which the Fund is
required to repurchase may be worth less than a security which the Fund
originally held; and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.

While the Fund generally emphasizes investments in U.S. Government
securities and companies domiciled in the United States, it may invest in
foreign securities that meet the same criteria as the Fund's domestic holdings
when the anticipated performance of foreign securities is believed by the
Investment Manager to offer more potential than domestic alternatives in keeping
with the
14
<PAGE> 27

investment objective of the Fund. Foreign securities may be denominated in
either U.S. dollars or foreign currencies. Purchases of foreign securities are
usually made in foreign currencies and, as a result, the Fund may incur currency
conversion costs and may be affected favorably or unfavorably by changes in the
value of foreign currencies against the U.S. dollar. Investing in securities of
foreign issuers involves certain special considerations due to limited
information, higher brokerage costs, different accounting standards, thinner
trading markets as compared to domestic markets and the likely impact of foreign
taxes on the income from securities. Such investments may also entail other
risks, such as the possibility of one or more of the following: imposition of
dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization or other adverse political
or economic developments; less governmental supervision and regulation of
securities exchanges, brokers and listed companies; and the difficulty of
enforcing obligations in other countries.

In addition, the Fund may use investment techniques such as purchasing
securities on a when-issued or forward delivery basis; entering into
interest-rate, securities-index, and currency futures contracts, and purchasing
and selling options thereon; purchasing and selling options on securities and
currencies, and entering into forward contracts. These transactions have risks
associated with them, including possible default by the other party to the
transaction, illiquidity and, to the extent the Investment Manager's view as to
certain market movements is incorrect, the risk that the use of such
transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale of
portfolio securities at inopportune times or for prices higher than (in the case
of put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its investments
or cause the Fund to hold a security it might otherwise sell. The variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund creates the possibility
that losses on the hedging instrument may be greater than gains in the value of
the Fund's position. In addition, futures and options markets may not be liquid
in all circumstances and certain over-the-counter options may have no markets.
As a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of

15
<PAGE> 28

hedging transactions would reduce net asset value, and possible income, and such
losses can be greater than if such transactions had not been utilized.

PRINCIPAL INVESTMENTS OF SCUDDER ZERO COUPON 2000 FUND

Zero Coupon seeks to provide as high an investment return over a selected
period as is consistent with investment in U.S. Government securities and the
minimization of reinvestment risk.

Zero Coupon will invest in zero coupon securities, including both U.S.
Government securities and privately stripped coupons and receipts for U.S.
Government securities, which are rated AAA or AA by S&P, or Aaa or Aa by
Moody's, Inc., or judged by the Investment Manager to be of equivalent quality.
Zero Coupon's Treasury obligations, including those underlying zero coupon
receipts, are backed by the full faith and credit of the U.S. Government. Should
the rating of a portfolio security be downgraded after being purchased by the
Fund, the Investment Manager will determine whether it is in the best interest
of the Fund to retain or dispose of the security. In addition, Zero Coupon may
enter into repurchase agreements with respect to such securities with selected
banks and broker/dealers.

By pursuing its objectives, Zero Coupon seeks to return to investors a
reasonably assured targeted dollar amount, predictable at the time of
investment, on a specific target date in the future.

INVESTMENT PRACTICES OF ZERO COUPON AND SHORT TERM BOND

Zero Coupon and Short Term Bond may engage in certain investments and
investment techniques that are substantially the same. The following is a brief
description of these investment practices. Short Term Bond may invest in a
variety of additional investment practices, as described above, and a more
complete description is contained in the prospectus of Short Term Bond dated May
1, 1998, as supplemented from time to time, a copy of which is included
herewith, and in the Statement of Additional Information of the Trust dated

16
<PAGE> 29

November 18, 1998 (relating to the proposed Reorganization) which is
incorporated herein by reference.

Zero coupon securities. Each Fund may invest in zero coupon securities
which pay no cash income and are sold at substantial discounts from their value
at maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Because they do not pay interest until maturity, zero
coupon securities tend to be subject to greater interim fluctuation of market
value in response to changes in interest rates than interest-paying securities
of similar maturities.

When-issued securities. Each Fund may purchase securities on a when-
issued or forward delivery basis, for payment and delivery at a later date. The
price and yield of these securities are generally fixed on the date of
commitment to purchase. During the period between purchase and settlement, no
interest accrues to a Fund. At the time of settlement, the market value of the
security may be more or less than the purchase price.

Repurchase agreements. As a means of earning income for periods as short
as overnight, each Fund may enter into repurchase agreements with selected banks
and broker-dealers. Under a repurchase agreement, a Fund acquires securities,
subject to the seller's agreement to repurchase the securities at a specified
time and price. If the seller under a repurchase agreement becomes insolvent,
the Fund's right to dispose of the securities may be restricted, or the value of
the securities may decline before the Fund is able to dispose of them. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the securities before repurchase of the securities under a
repurchase agreement, the Fund may encounter delays and incur costs, including a
decline in the value of the securities, before being able to sell the
securities.

Illiquid securities. Each Fund may invest in securities for which there is
not an active trading market, or which have resale restrictions. These types of
securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price.

INVESTMENT RESTRICTIONS

Zero Coupon's investment restrictions are identical to Short Term Bond's
investment restrictions. Investment restrictions of each Fund which are
fundamental policies may not be changed without the approval of Fund
shareholders. Investors should refer to the respective Statements of Additional
Information of Zero Coupon and Short Term Bond for a fuller description of each
Fund's investment policies and restrictions.

17
<PAGE> 30

THE PROPOSED TRANSACTION

Description of the Plan. As stated above, the Plan provides for the
transfer of all or substantially all of the assets of Zero Coupon to Short Term
Bond in exchange for that number of full and fractional shares of Short Term
Bond having an aggregate net asset value equal to the aggregate net asset value
of each Zero Coupon shareholder's shares held in Zero Coupon as of the close of
business on the business day preceding the date of the Closing. Short Term Bond
will assume all of the liabilities of Zero Coupon. In connection with the
Closing, Zero Coupon will distribute the shares of beneficial interest of Short
Term Bond received in the exchange to the shareholders of Zero Coupon in
complete liquidation of Zero Coupon. Zero Coupon will be abolished as a series
of the Trust.

Upon completion of the Reorganization, each shareholder of Zero Coupon will
own that number of full and fractional shares of Short Term Bond having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares held in Zero Coupon immediately as of the close of business
on the business day preceding the Closing. Each Zero Coupon shareholder's
account with the Trust as a Short Term Bond shareholder will be identical in all
material respects to the accounts currently maintained by the Trust for such
shareholder, except as noted above. In the interest of economy and convenience,
shares of Zero Coupon generally are not represented by physical certificates,
and shares of Short Term Bond issued to Zero Coupon shareholders similarly will
be in uncertificated form.

Until the Closing, shareholders of Zero Coupon will, of course, continue to
be able to redeem their shares at the net asset value next determined after
receipt by Zero Coupon's Transfer Agent of a redemption request in proper form.
Redemption requests received by the Transfer Agent thereafter will be treated as
requests received for the redemption of shares of Short Term Bond received by
the shareholder in connection with the Reorganization.

The obligations of the Trust on behalf of each of Zero Coupon and Short
Term Bond under the Plan are subject to various conditions, as stated therein.
Among other things, the Plan requires that all filings be made with, and all
authority be received from, the SEC and state securities commissions as may be
necessary in the opinion of counsel to permit the parties to carry out the
transactions contemplated by the Plan. Zero Coupon and Short Term Bond are in
the process of making the necessary filings. To provide against unforeseen
events, the Plan may be terminated or amended at any time prior to the Closing
by action of the Trustees of the Trust, notwithstanding the approval of the Plan
by the shareholders of Zero Coupon. However, no amendment may be made that
materially adversely affects the interests of the shareholders of Zero Coupon
without obtaining the approval of Zero Coupon shareholders. Zero Coupon and
Short Term Bond may at any time waive compliance with certain of the
18
<PAGE> 31

covenants and conditions contained in the Plan. For a complete description of
the terms and conditions of the Reorganization, see the Plan at Exhibit C

Scudder Kemper will assume and pay all of the expenses that are solely and
directly related to the Reorganization, within the meaning of Revenue Ruling
73-54, which expenses are estimated to be approximately $50,000. Accordingly,
Zero Coupon will not bear any expenses relating to the Reorganization. Zero
Coupon shareholders will pay their own expenses, if any, incurred in connection
with the reorganization. Shareholders have no rights of appraisal.

REASONS FOR THE PROPOSED TRANSACTION

The proposed Reorganization was presented to the Board of Trustees of the
Trust for consideration and approval at a special meeting on September 29, 1998.
All of the Trustees were present at the meeting. For the reasons discussed
below, the Board of Trustees of the Trust, including all of the Non-Interested
Trustees, has determined that the interests of the shareholders of Zero Coupon
will not be diluted as a result of the proposed Reorganization, and that the
proposed Reorganization is in the best interests of Zero Coupon and its
shareholders.

The proposed combination of Zero Coupon and Short Term Bond will allow the
shareholders of Zero Coupon to participate in a professionally-managed portfolio
consisting primarily of high quality, short-term bonds and to earn a high level
of monthly income consistent with a high degree of principal stability. The
Trustees of the Trust believe that Zero Coupon shareholders will benefit from
the proposed Reorganization because Short Term Bond, while guided by similar
investment objectives and policies, offers the following benefits:

OPPORTUNITY FOR HIGHER ANNUAL INCOME. It is anticipated that Short Term
Bond would normally distribute a higher level of dividends over a year's time
than Zero Coupon. This would occur for two key reasons. First, Short Term Bond
has the flexibility to invest in longer-term, lower quality bonds than Zero
Coupon in pursuit of its investment objective, which may generate higher income.
Second, as discussed in detail below, the management fees and total operating
expenses of Short Term Bond are projected to be lower than the corresponding
fees and expenses to be incurred by Zero Coupon. See "Capitalization and
Performance" below.

OPPORTUNITY FOR HIGHER TOTAL RETURN. Although Short Term Bond may entail
more overall risk, the Investment Manager believes the Fund offers more total
return potential than Zero Coupon.

INCREASED SHARE LIQUIDITY. Zero Coupon offers shareholders the opportunity
to redeem by mail, phone and exchange. In addition to these options, Short Term
Bond allows shareholders to redeem by writing checks against their

19
<PAGE> 32

account balance. There is no limit on the amount of checks that can be written,
but each check must be for $100 or more and not more than $5 million.

Potential deferral of capital gain and tax liabilities through extended
life of investment. Currently, Zero Coupon will mature and terminate in
December, 2000. At that time, shareholders may be forced to realize a capital
gain and thus may face tax liability at the federal and state levels. If the
Reorganization is approved, current shareholders of Zero Coupon will become
shareholders of Short Term Bond without capital gain recognition. Moreover, they
will be able to postpone, indefinitely, realization of any capital gains in
connection with their investments in Short Term Bond (except to the extent Short
Term Bond distributes capital gains) by retaining their investment in Short Term
Bond, which has no fixed maturity date. Shareholders should be aware, however,
that the transaction described herein may prevent certain shareholders from
recognizing a capital loss in 2000, unless they individually dispose of their
Short Term Bond Shares at such time.

LOWER FEES AND EXPENSES. If the proposed transaction is approved, Zero
Coupon shareholders may benefit from both lower advisory fees and lower total
fund expenses. Please refer to "Investment Management Fees and Expenses" set
forth above.

Short Term Bond's expenses could be even lower as a result of economies of
scale achieved through the proposed combination of Short Term Bond and Zero
Coupon. Some of the fixed expenses currently paid by Short Term Bond, such as
accounting, legal and printing costs, would be spread over a larger asset base.
Other things being equal, shareholders benefit from economies of scale through
lower expense ratios and higher net income distributions.

The total expenses of Zero Coupon were maintained at 1.00% for the fiscal
year ended December 31, 1997, and, without subsidy by the Investment Manager,
would have been 1.76% during that same period. By way of comparison, the total
expenses of Short Term Bond were 0.86% for the fiscal year ended December 31,
1997. Short Term Bond's net expense ratio is estimated to total 0.86% for the
fiscal year ending December 31, 1998.

Due to a combination of factors, including the small size of Zero Coupon,
past and prospective sales of Zero Coupon, current market conditions and the
approach of Zero Coupon's target date, the Trustees and management of the Trust
believe Zero Coupon and its shareholders would benefit from a tax-free
reorganization with a larger fund with similar investment objectives and
policies. Accordingly, it is recommended that the Zero Coupon shareholders
approve the Reorganization with Short Term Bond.

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<PAGE> 33

The Board of Trustees of the Trust, in recommending the proposed
transaction, considered a number of factors, including the following:

(1) the compatibility of Short Term Bond's investment objectives,
policies and restrictions with those of Zero Coupon;

(2) the tax-free nature of the Reorganization;

(3) the current and projected income levels and expense ratios of Zero
Coupon and Short Term Bond;

(4) the terms and conditions of the Reorganization and whether it will
result in a dilution of Zero Coupon shareholder interests;

(5) the costs to Zero Coupon of the proposed Reorganization; and

(6) the continuing capabilities and resources of the Investment Manager
and its affiliates in the areas of marketing, investment management,
administration, and shareholder service.

DESCRIPTION OF THE SECURITIES TO BE ISSUED

Short Term Bond is a series of the Trust, a Massachusetts business trust
established under a Declaration of Trust dated July 24, 1981, as amended. On
July 3, 1989, the General 1994 Portfolio of the Trust changed its name to
Scudder Short Term Bond Fund and that Fund assumed its current investment
objectives. Also on July 3, 1989, the name of the Trust was changed from Scudder
Target Fund.

The Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trustees are authorized to
divide the shares into separate series. Short Term Bond and Zero Coupon is each
a series of the Trust. Each share of each series represents an interest in that
series that is equal to and proportionate with each other share of that series.
Shareholders are entitled to one vote per share (and a proportionate fractional
vote per each fractional share) held on matters on which they are entitled to
vote. The Trust is not required to hold shareholder meetings annually, although
shareholder meetings may be called for purposes such as electing or removing
Trustees, changing fundamental policies or approving an investment management
contract. In the event that shareholders of the Trust wish to communicate with
other shareholders concerning the removal of any Trustee, such shareholders
shall be assisted in communicating with other shareholders for the purpose of
obtaining signatures to request a meeting of shareholders, all in the manner
provided in Section 16(c) of the 1940 Act as if Section 16(c) were applicable.

21
<PAGE> 34

FEDERAL INCOME TAX CONSEQUENCES

The Reorganization is conditioned upon the receipt by the Trust, on behalf
of Zero Coupon and Short Term Bond, of an opinion from Dechert Price & Rhoads,
substantially to the effect that, based upon certain facts, assumptions and
representations of the parties, for federal income tax purposes: (i) the
transfer to Short Term Bond of all or substantially all of the assets of Zero
Coupon in exchange solely for Short Term Bond Shares and the assumption by Short
Term Bond of all of the liabilities of Zero Coupon, followed by the distribution
of such shares to Zero Coupon shareholders in exchange for their shares of Zero
Coupon in complete liquidation of Zero Coupon, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and Short
Term Bond and Zero Coupon will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by Zero Coupon upon the transfer of all or substantially all of its assets to
Short Term Bond in exchange solely for Short Term Bond Shares and the assumption
by Short Term Bond of all of the liabilities of Zero Coupon; (iii) the basis of
the assets of Zero Coupon in the hands of Short Term Bond will be the same as
the basis of such assets of Zero Coupon immediately prior to the transfer; (iv)
the holding period of the assets of Zero Coupon in the hands of Short Term Bond
will include the period during which such assets were held by Zero Coupon; (v)
no gain or loss will be recognized by Short Term Bond upon the receipt of the
assets of Zero Coupon in exchange for Short Term Bond Shares and the assumption
by Short Term Bond of all of the liabilities of Zero Coupon; (vi) no gain or
loss will be recognized by the shareholders of Zero Coupon upon the receipt of
Short Term Bond Shares solely in exchange for their shares of Zero Coupon as
part of the transaction; (vii) the basis of Short Term Bond Shares received by
the shareholders of Zero Coupon will be the same as the basis of the shares of
Zero Coupon exchanged therefor; and (viii) the holding period of Short Term Bond
Shares received by the shareholders of Zero Coupon will include the holding
period during which the shares of Zero Coupon exchanged therefor were held,
provided that at the time of the exchange the shares of Zero Coupon were held as
capital assets in the hands of the shareholders of Zero Coupon.

While the Trust is not aware of any adverse state or local tax consequences
of the proposed Reorganization, it has not requested any ruling or opinion with
respect to such consequences and shareholders may wish to consult their own tax
adviser with respect to such matters.

LIQUIDATION AND ABOLITION OF SERIES

If the Reorganization is effected, Zero Coupon will be liquidated and
abolished as a series of the Trust.

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<PAGE> 35

PORTFOLIO TURNOVER

The average annual portfolio turnover rate for Short Term Bond, i.e., the
ratio of the lesser of annual sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less), for the fiscal
year ended December 31, 1997 and the annualized portfolio turnover rate for the
six months ended June 30, 1998, was 39.4% and 152.2%, respectively. The average
annual portfolio turnover rate for Zero Coupon for the fiscal year ended
December 31, 1997 and the annualized portfolio turnover rate for the six months
ended June 30, 1998, was 5.74% and 6.93%, respectively.

CAPITALIZATION AND PERFORMANCE

The following table shows on an unaudited basis the capitalization of Zero
Coupon and Short Term Bond as of June 30, 1998, and, on a pro forma basis, as of
that date giving effect to the Reorganization:

<TABLE>
<CAPTION>
PRO FORMA
ZERO COUPON SHORT TERM BOND COMBINED
----------- --------------- --------------
<S> <C> <C> <C>
Net Assets........... $18,788,083 $1,062,013,885 $1,080,801,968
Net Asset Value Per
Share.............. $11.75 $10.92 $10.92
Shares Outstanding... 1,598,631 97,291,906 99,012,426
</TABLE>

Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redeemable value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value per
share on the last trading day of the period; and (3) dividing this account value
for the hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total return may be
stated with or without giving effect to any expense limitations in effect for a
fund.

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<PAGE> 36

The following table reflects the average annual total return for the 1, 5
and 10 year periods ending June 30, 1998, and 30-day effective yield of Zero
Coupon and Short Term Bond as of June 30, 1998:

<TABLE>
<CAPTION>
ZERO COUPON* SHORT TERM BOND
------------ ---------------
<S> <C> <C>
Average Annual Total Return:
1-year........................... 7.45% 5.25%
5-year........................... 4.49% 4.44%
10-year.......................... 9.15% 7.19%**
30-day Yield....................... 4.55% 5.46%
</TABLE>

- ------------------------------
* If the Investment Manager had not temporarily maintained expenses, the
cumulative total return for the one year, five year and ten year periods would
have been lower. **Short Term Bond, with its current name and objective,
commenced operations on July 3, 1989. (The foregoing average annual total
return includes the period prior to July 3, 1989, during which the Fund
operated under the investment objective and policies of Scudder Target Fund
General 1994 Portfolio. Average annual total return figures for the periods
prior to July 3, 1989 should not be considered representative of the current
Fund.) Past performance is not a guarantee of future performance.

INVESTMENT MANAGER

Scudder Kemper is the investment manager for Short Term Bond pursuant to an
Investment Management Agreement with the Trust, on behalf of Short Term Bond,
substantially similar in all material respects to that currently in place for
Zero Coupon, except for the management fee rates payable thereunder.

Shareholders of Short Term Bond are being asked to approve a new investment
management agreement with Scudder Kemper in connection with the transactions
described more fully in Proposal 2 below. If approved, the new investment
management agreement between Short Term Bond and Scudder Kemper is not expected
to have a material effect on the operations of Short Term Bond or on its
shareholders. The new investment management agreement is substantially identical
to the former investment management agreement, except for the dates of execution
and termination. No material change in Short Term Bond's investment philosophy,
objectives or strategies is currently envisioned, except that Short Term Bond
shareholders are being asked to approve a revision to Short Term Bond's
fundamental lending policy, which is the same revision as Zero Coupon
shareholders are being asked to approve with respect to Zero Coupon in the event
the Reorganization is not approved.

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<PAGE> 37

ADDITIONAL INFORMATION ABOUT SHORT TERM BOND
AND ZERO COUPON

As noted above, additional information about the Trust, the Funds and the
Reorganization has been filed with the SEC and may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103, or by calling (800) 225-2470.

The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about each of the Funds with the
Securities and Exchange Commission.

Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.

INTERESTS OF CERTAIN PERSONS

The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its management fee under its Investment Management
Agreement with Short Term Bond will increase as the amount of Short Term Bond's
assets increases: the amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- Fees and Expenses." SIS, SSC, SFAC and STC is
each a subsidiary or affiliate of the Investment Manager and a service provider
to Short Term Bond as well as Zero Coupon. The fees paid by Short Term Bond to
SIS, SSC, SFAC and STC will increase from the addition to Short Term Bond of new
accounts.

THE BOARD MEMBERS OF THE TRUST RECOMMEND THAT THE SHAREHOLDERS OF THE

FUND VOTE IN FAVOR OF THIS PROPOSAL 1.

PROPOSAL 2: APPROVAL OF NEW
INVESTMENT MANAGEMENT AGREEMENT

INTRODUCTION

Scudder Kemper acts as the investment manager to Zero Coupon (as used in
this Proposal 2, and Proposal 3 below, the "Fund") pursuant to an investment
management agreement entered into by the Fund and Scudder Kemper. The investment
management agreement in effect between the Fund and Scudder Kemper prior to the
consummation of the transaction between Zurich Insurance Company ("Zurich") and
B.A.T Industries p.l.c. ("B.A.T") (the "Zurich-B.A.T Transaction" or the
"Transaction"), which is described below, is referred to in this Proxy Statement
as the "Former Investment Management Agreement." The investment management
agreement currently in effect between the Fund and

25
<PAGE> 38

Scudder Kemper, which is also described below, was executed as of the
consummation of the Zurich-B.A.T Transaction and is referred to in this Proxy
Statement/Prospectus as the "New Investment Management Agreement" and together
with the Former Investment Management Agreement, the "Investment Management
Agreements." (Scudder Kemper is sometimes referred to in this Proxy
Statement/Prospectus as the "Investment Manager.") The information set forth in
this Proxy Statement/Prospectus and the accompanying materials concerning the
Transaction, Scudder Kemper, Zurich, B.A.T and their respective affiliates has
been provided to the Fund by Scudder Kemper based upon information that Scudder
Kemper received for Zurich and its affiliates.

On June 26, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") entered into
an agreement with Zurich pursuant to which Scudder and Zurich agreed to form an
alliance. On December 31, 1997, Zurich acquired a majority interest in Scudder,
and Zurich Kemper Investments, Inc. ("Kemper"), a Zurich subsidiary, became part
of Scudder. Scudder's name was changed to Scudder Kemper Investments, Inc. The
transaction between Scudder and Zurich (the "Scudder-Zurich Transaction")
resulted in the termination of the Fund's investment management agreement with
Scudder. Consequently, the Former Investment Management Agreement between the
Fund and Scudder Kemper was approved by the Trust's Board and by the Fund's
shareholders.

The Zurich-B.A.T Transaction. On December 22, 1997, Zurich and B.A.T
entered into a definitive agreement (the "Merger Agreement") pursuant to which
businesses of Zurich (including Zurich's almost 70% ownership interest in
Scudder Kemper) were to be combined with the financial services businesses of
B.A.T. On October 12, 1997, Zurich and B.A.T had confirmed that they were
engaged in discussions concerning a possible business combination; on October
16, 1997, Zurich and B.A.T announced that they had entered into an Agreement in
Principle, dated as of October 15, 1997 (the "Agreement in Principle"), to merge
B.A.T's financial services businesses with Zurich's businesses. The Merger
Agreement superseded the Agreement in Principle.

In order to effect this combination, Zurich and B.A.T first reorganized
their respective operations. Zurich became a subsidiary of a new Swiss holding
company, Zurich Allied AG and Zurich shareholders became Zurich Allied AG
shareholders. At the same time, B.A.T separated its financial services business
from its tobacco-related businesses by spinning off to its shareholders a new
British company, Allied Zurich p.l.c., 22 Arlington Street, London, England SW1A
1RW, United Kingdom, which held B.A.T's financial services businesses.

Zurich Allied AG then contributed its interest in Zurich, and Allied Zurich
p.l.c. contributed the B.A.T financial services businesses, to a jointly owned
company, Zurich Financial Services ("Zurich Financial Services"), in each case
in exchange for shares of Zurich Financial Services. These transactions were
completed on September 7, 1998. As a result, upon the completion of the
Transaction, the former Zurich shareholders became the owners (through
26
<PAGE> 39

Zurich Allied AG) of 57% of the voting stock of Zurich Financial Services, and
former B.A.T shareholders initially became the owners (through Allied Zurich
p.l.c.) of 43% of the voting stock of Zurich Financial Services. Zurich
Financial Services now owns Zurich and the financial services businesses
previously owned by B.A.T.

Below is a simplified chart showing the corporate structure of Zurich
Financial Services after these transactions:

[ZURICH FINANCIAL SERVICES FLOW CHART]

27
<PAGE> 40

Corporate Governance. At the closing of the Zurich-B.A.T Transaction, the
parties entered into a Governing Agreement that establishes the corporate
governance structure for Zurich Allied AG, Allied Zurich p.l.c. and Zurich
Financial Services.

The Board of Directors of Zurich Financial Services consists of ten
members, five of whom were initially selected by Zurich and five by B.A.T. Mr.
Rolf Huppi, Zurich's Chairman and Chief Executive Officer, became Chairman and
Chief Executive Officer of Zurich Financial Services. In addition to his vote by
virtue of his position on the Board of Directors, as Chairman, Mr. Huppi will
have a tie-breaking vote on all matters except recommendations of the Audit
Committee, recommendations of the Remuneration Committee in respect of the
remuneration of the Chairman and the CEO, appointment and removal of the
Chairman and CEO, appointments to the Nominations, Audit and Remuneration
Committees and nominations to the Board of Directors not made through the
Nominations Committee.

The Group Management Board of Zurich Financial Services has been given
responsibility by the Board of Directors for the executive management of Zurich
Financial Services and has wide authority for such purpose. Of the 11 initial
members of the Group Management Board, eight were members of the Corporate
Executive Board of Zurich (including Mr. Edmond D. Villani, CEO of Scudder
Kemper, who is responsible for Global Asset Management for Zurich Financial
Services), and three were B.A.T executives.

The Board of Directors of Zurich Allied AG initially consists of 11
members, eight of whom were Zurich directors and three of whom were proposed by
B.A.T. The Board of Directors of Allied Zurich p.l.c. also initially consists of
11 members, eight of whom were B.A.T directors and three of whom were proposed
by Zurich. The parties have agreed that, as soon as possible, the Boards of
Directors of Zurich Financial Services, Zurich Allied AG and Allied Zurich
p.l.c. will have identical membership.

Shareholder resolutions of Zurich Financial Services in general require
approval by at least 58% of all shares outstanding.

The Governing Agreement also contains provisions relating to dividend
equalization and provisions intended to ensure equal treatment of Zurich Allied
AG and Allied Zurich p.l.c. shareholders in the event of a takeover bid for
either company.

The B.A.T financial services businesses, which, since the closing of the
Transaction, are owned by Zurich Financial Services, include: the Farmers Group
of Insurance companies; Eagle Star Reinsurance Company Ltd., U.K.("Eagle Star")
(which Zurich Financial Services has agreed to sell to GE Capital); Allied-
Dunbar, one of the leading U.K. unit-linked life insurance and pensions
companies; and Threadneedle Asset Management, which was formed initially to

28
<PAGE> 41

manage the investment assets of Eagle Star and Allied-Dunbar, and which, at
December 31, 1997, had $58.8 billion under management. Overall, at year-end
1997, the financial services businesses of B.A.T had $79 billion in assets under
management, including $18 billion in third party assets.

Zurich has informed the Fund that the financial services businesses of
B.A.T do not include any of B.A.T's tobacco businesses and that, after careful
review, Zurich has concluded that the tobacco-related liabilities connected with
B.A.T's tobacco business should not adversely affect Zurich or the present
Zurich subsidiaries, including Scudder Kemper.

Governance arrangements that were put in place at the time of the
acquisition of Zurich's 70% interest in Scudder Kemper (which are discussed
below under "Investment Manager") remain unaffected by the Transaction. These
arrangements preclude the making of certain major decisions affecting Scudder
Kemper without the approval of Scudder Kemper directors elected by the
non-Zurich shareholders of Scudder Kemper.

Consummation of the Zurich-B.A.T Transaction may be deemed to have
constituted an "assignment," as that term is defined in the 1940 Act, of the
Fund's Former Investment Management Agreement with Scudder Kemper. As required
by the 1940 Act, the Former Investment Management Agreement provided for its
automatic termination in the event of its assignment. Accordingly, a New
Investment Management Agreement between the Fund and Scudder Kemper was approved
by the Board members of the Fund and is now being proposed for approval by
shareholders of the Fund. Scudder Kemper has received an exemptive order from
the SEC permitting the Fund to obtain shareholder approval of its New Investment
Management Agreement within 150 days after the consummation of the Transaction,
which occurred on September 7, 1998 (and, consequently, within 150 days after
the termination of its Former Investment Management Agreement), instead of
before the consummation of the Transaction. Pursuant to the exemptive order, the
Fund's investment management fees are being held in escrow until the earlier of
shareholder approval of the Fund's New Investment Management Agreement or the
expiration of the 150 day period. A copy of the Form of the New Investment
Management Agreement is attached hereto as Exhibit A. THE NEW INVESTMENT
MANAGEMENT AGREEMENT FOR THE FUND IS SUBSTANTIALLY IDENTICAL TO THE FORMER
INVESTMENT MANAGEMENT AGREEMENT, EXCEPT FOR THE DATES OF EXECUTION AND
TERMINATION. In addition, the portfolio managers for the Fund will not change as
a result of the Transaction. The material terms of the Investment Management
Agreement are described under "Description of the Investment Management
Agreement" below.

29
<PAGE> 42

BOARD'S RECOMMENDATION

On August 6, 1998, the Board of the Trust met and the Board members of the
Trust, including the Board members who are not parties to such agreement or
"interested persons" (as defined in the 1940 Act) (the "Non-Interested Trustees"
or "Non-Interested Board members") of any such party, voted to approve the New
Investment Management Agreement and to recommend approval to the shareholders of
the Fund.

For information about the Board's deliberations and the reasons for its
recommendation, please see "Board's Evaluation" below.

BOARD'S EVALUATION

The Non-Interested Board members of the Trust have been aware of the
proposed Zurich-B.A.T Transaction since the announcement of the Agreement in
Principle on October 16, 1997. The Board members of the Trust were kept informed
by Scudder Kemper of significant subsequent developments regarding the
Transaction, including the execution of the Merger Agreement on December 22,
1997 and the receipt of necessary regulatory approvals.

In the course of the annual review by the Non-Interested Board members of
the continuance of the investment management agreement between the Fund and
Scudder Kemper, Scudder Kemper furnished the Board members with detailed
information regarding the proposed Transaction, including information provided
to the shareholders of Zurich and B.A.T and information regarding the structure
of the Transaction, the resulting ownership and governance arrangements of
Zurich and the investment management business of B.A.T expected to be acquired
by Scudder Kemper following completion of the Transaction. The Non-Interested
Board members had the opportunity to consider this information with the
assistance of their independent counsel and to ask questions of Scudder Kemper
representatives. In the course of these deliberations, Scudder Kemper advised
the Non-Interested Board members that the proposed Transaction would not have a
material effect on the operations of the Fund or on its shareholders.

During the course of their deliberations, the Non-Interested Trustees
considered a variety of factors, including the nature, quality and extent of the
services furnished by Scudder Kemper to the Fund; the necessity of Scudder
Kemper's maintaining and enhancing its ability to retain and attract capable
personnel to serve the Fund; the increased complexity of the domestic and
international securities markets; the investment record of Scudder Kemper in
managing the Fund; Scudder Kemper's profitability with respect to the Fund and
the other investment companies managed by Scudder Kemper before marketing
expenses paid by Scudder Kemper; possible economies of scale; comparative data
as to investment performance, advisory fees and expense ratios; Scudder

30
<PAGE> 43

Kemper's expenditures in developing worthwhile and innovative shareholder
services for the Fund; improvements in the quality and scope of the shareholder
services provided to the Fund's shareholders; the advantages and possible
disadvantages to the Fund of having an adviser of the Fund which also serves
other investment companies as well as other accounts; possible benefits to
Scudder Kemper from serving as adviser and from affiliates of Scudder Kemper
from serving as principal underwriter, transfer agent and fund accounting agent
of the Fund; current and developing conditions in the financial services
industry, including the entry into the industry of large and well capitalized
companies which are spending and appear to be prepared to continue to spend
substantial sums to engage personnel and to provide services to competing
investment companies; the financial resources of Scudder Kemper and the
continuance of appropriate incentives to assure that Scudder Kemper will
continue to furnish high quality services to the Fund; and various other
factors. The Non-Interested Board members of the Trust considered the foregoing
factors with respect to the Fund.

The Board of the Trust was advised that Zurich intends to rely on Section
15(f) of the 1940 Act, which provides a non-exclusive safe harbor for an
investment adviser to an investment company or any of the investment adviser's
affiliated persons (as defined in the 1940 Act) to receive any amount or benefit
in connection with a change in control of the investment adviser so long as two
conditions are met. First, for a period of three years after the transaction, at
least 75% of the board members of the investment company must not be "interested
persons" of the investment company's investment adviser or its predecessor
adviser. On or prior to the consummation of the Transaction, the Board was in
compliance with this provision of Section 15(f). Second, an "unfair burden" must
not be imposed upon the investment company as a result of such transaction or
any express or implied terms, conditions or understandings applicable thereto.
The term "unfair burden" is defined in Section 15(f) to include any arrangement
during the two-year period after the transaction whereby the investment adviser,
or any interested person of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). No such compensation agreements are contemplated in
connection with the Transaction. Zurich or its affiliates will pay the costs of
preparing and distributing proxy materials to, and of holding the meeting of,
the Fund's shareholders as well as other fees and expenses in connection with
the Transaction, including the fees and expenses of legal counsel and
consultants to the Fund and the Non-Interested Trustees.

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<PAGE> 44

In addition to the foregoing factors, the Non-Interested Trustees gave
careful consideration to the likely impact of the Transaction on the Scudder
Kemper organization. In this regard, the Non-Interested Trustees considered,
among other things, the fact that the Transaction does not appear to alter in
any material respect the substantial autonomy afforded to Scudder Kemper
executives over Scudder Kemper's operations, the equity participation and
incentives for many Scudder Kemper employees, or Zurich's strategy for the
development of its asset management business through Scudder Kemper. Based on
the foregoing, the Non-Interested Trustees concluded that the Transaction should
cause no reduction in the quality of services provided to the Fund and believe
that the Transaction should enhance Scudder Kemper's capabilities and strengths.

DESCRIPTION OF THE INVESTMENT MANAGEMENT AGREEMENTS

Except as disclosed below, the Former and New Investment Management
Agreement are substantially identical. Under the Investment Management
Agreements, Scudder Kemper provides the Fund with continuing investment
management services. The Investment Manager also determines which securities
should be purchased, held, or sold, and what portion of the Fund's assets should
be held uninvested, subject to the Trust's Declaration of Trust, By-Laws,
investment policies and restrictions, the provisions of the 1940 Act, and such
policies and instructions as the Trustees may have determined.

Each Investment Management Agreement provides that the Investment Manager
will provide portfolio management services, place portfolio transactions in
accordance with policies expressed in the Fund's registration statement, pay the
Fund's office rent, and render significant administrative services on behalf of
the Fund (not otherwise provided by third parties) necessary for the Fund's
operating as an open-end investment company, including, but not limited to,
preparing reports to and meeting materials for the Trust's Board and reports and
notices to Fund shareholders; supervising, negotiating contractual arrangements
with, to the extent appropriate, and monitoring the performance of various
third-party and affiliated service providers to the Fund (such as the Fund's
transfer and pricing agents, fund accounting agent, custodian, accountants and
others) and other persons in any capacity deemed necessary or desirable to Fund
operations; preparing and making filings with the SEC and other regulatory and
self-regulatory organizations, including but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the Registration
Statement, semi-annual reports on Form N-SAR and notices pursuant to Rule 24f-2
under the 1940 Act; overseeing the tabulation of proxies by the Fund's transfer
agent; assisting in the preparation and filing of the Fund's federal, state and
local tax returns; preparing and filing the Fund's federal excise tax returns
pursuant to Section 4982 of the Internal Revenue Code of 1986, as amended;
providing assistance with investor and public relations matters; moni-
32
<PAGE> 45

toring the valuation of portfolio securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing accounting policies of the Fund; assisting in
the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and other agents as necessary in connection therewith; establishing and
monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Fund in the conduct of its
business, subject to the direction and control of the Trust's Board.

Each Investment Management Agreement also provides that the Investment
Manager is not required to pay any expenses of any activity primarily intended
to result in the sale of Fund securities if and to the extent that (i) the
expenses are to be borne by a principal underwriter acting as the distributor;
or (ii) the Fund has adopted a Rule 12b-1 Plan providing for the assumption of
some or all of those expenses. Under each Investment Management Agreement, the
Fund is responsible for other expenses, including organizational expenses
(including out-of-pocket expenses, but not including the Investment Manager's
overhead or employee costs); brokers' commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; legal, auditing and
accounting expenses; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; taxes and
governmental fees; the fees and expenses of the Fund's transfer agent; expenses
of preparing share certificates and any other expenses, including clerical
expenses, of issuance, offering, distribution, sale, redemption or repurchase of
shares; the expenses of and fees for registering or qualifying securities for
sale; the fees and expenses of Non-Interested Trustees; the cost of printing and
distributing reports, notices and dividends to current shareholders; and the
fees and expenses of the Fund's custodians, subcustodians, accounting agent,
dividend disbursing agents and registrars. The Fund may arrange to have third
parties assume all or part of the expenses of sale, underwriting and
distribution of shares of the Fund. The Fund is also responsible for expenses of
shareholders' and other meetings, and its expenses incurred in connection with
litigation and the legal obligation it may have to indemnify officers and
Trustees of the Trust with respect thereto. The

33
<PAGE> 46

Fund is also responsible for the maintenance of books and records which are
required to be maintained by the Fund's custodian or other agents of the Trust;
telephone, telex, facsimile, postage and other communications expenses; any
fees, dues and expenses incurred by the Fund in connection with membership in
investment company trade organizations; expenses of printing and mailing
prospectuses and statements of additional information of the Fund and
supplements thereto to current shareholders; costs of stationery; fees payable
to the Investment Manager and to any other Fund advisors or consultants;
expenses relating to investor and public relations; interest charges, bond
premiums and other insurance expense; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; and other
expenses.

The Investment Manager is responsible for the payment of the compensation
and expenses of all Trustees, officers and executive employees of the Fund
(including the Fund's share of payroll taxes) affiliated with the Investment
Manager and making available, without expense to the Fund, the services of such
Trustees, officers and employees as may duly be elected officers of the Trust,
subject to their individual consent to serve and to any limitations imposed by
law. The Fund is responsible for the fees and expenses (specifically including
travel expenses relating to Fund business) of Trustees not affiliated with the
Investment Manager. Under each Investment Management Agreement, the Investment
Manager also pays the Fund's share of payroll taxes, as well as expenses, such
as travel expenses (or an appropriate portion thereof), of Trustees and officers
of the Trust who are directors, officers or employees of the Investment Manager,
except to the extent that such expenses relate to attendance at meetings of the
Board of the Trust, or any committees thereof or advisers thereto, held outside
Boston, Massachusetts or New York, New York. During the Fund's most recent
fiscal year, no compensation, direct or otherwise (other than through fees paid
to the Investment Manager), was paid or became payable by the Trust to any of
its officers or Trustees who were affiliated with the Investment Manager.

In return for the services provided by the Investment Manager as investment
manager and the expenses it assumes under each Investment Management Agreement,
the Fund pays the Investment Manager a management fee which is accrued daily and
payable monthly. The annual management fee rate for the Fund under the
Investment Management Agreements is 0.60% of average daily net assets. As of the
end of the Fund's last fiscal year, the Fund had net assets of $20,453,972 and
incurred an aggregate management fee to the Investment Manager of $129,600, none
of which was imposed.

Each Investment Management Agreement further provides that the Investment
Manager shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with matters to which such agreement
relates, except a loss resulting from willful misfeasance, bad faith or

34
<PAGE> 47

gross negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard by the Investment Manager of its obligations
and duties under such agreement. Each Investment Management Agreement also
provides that purchase and sale opportunities, which are suitable for more than
one client of the Investment Manager, will be allocated by the Investment
Manager in an equitable manner. In addition, each Investment Management
Agreement identifies Scudder Kemper as the exclusive licensee of the rights to
use and sublicense the names "Scudder," "Scudder Kemper Investments, Inc.," and
"Scudder, Stevens & Clark, Inc." (together the "Scudder Marks"). Under this
license, the Trust, with respect to the Fund, has the non-exclusive right to use
and sublicense the Scudder name and marks as part of its name, and to use the
Scudder Marks in the Trust's investment products and services. This license
continues only as long as the Investment Management Agreement or any other
investment advisory agreement is in place, and only as long as Scudder Kemper
continued to be a licensee of the Scudder Marks from Scudder Trust Company,
which is the owner and licensor of the Scudder Marks. As a condition of the
license, the Trust, on behalf of the Fund, undertakes certain responsibilities
and agrees to certain restrictions, such as agreeing not to challenge the
validity of the Scudder Marks or ownership by Scudder Trust Company and the
obligation to use the name within commercially reasonable standards of quality.
In the event the agreement is terminated, the Trust, on behalf the Fund, must
not use a name likely to be confused with those associated with the Scudder
Marks. Lastly, each Investment Management Agreement contains a provision stating
that it supersedes all prior agreements.

Each Investment Management Agreement may be terminated without penalty upon
sixty (60) days' written notice by either party. The Fund may agree to terminate
its Investment Management Agreement either by the vote of a majority of the
outstanding voting securities of the Fund, or by a vote of the Board. As stated
above, each Investment Management Agreement automatically terminates in the
event of its assignment.

Scudder Kemper or one of its predecessors has acted as the Investment
Manager for the Fund since the Fund commenced operations on February 4, 1986.
The Former Investment Management Agreement is dated December 31, 1997. The
Former Investment Management Agreement was last approved by the shareholders of
the Fund on October 27, 1997. The New Investment Management Agreement was last
approved by the Trustees of the Fund on August 6, 1998. The New Investment
Management Agreement was last continued to September 30, 1999. The Former
Investment Management Agreement was last submitted to shareholders prior to its
becoming effective, as required by the 1940 Act, in connection with the
Scudder-Zurich Transaction.

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<PAGE> 48

THE NEW INVESTMENT MANAGEMENT AGREEMENTS

The New Investment Management Agreement for the Fund, which is currently in
effect, is dated the date of the consummation of the Transaction, which occurred
on September 7, 1998. The New Investment Management Agreement will be in effect
for an initial term ending on September 30, 1999, and may continue thereafter
from year to year only if specifically approved at least annually by the vote of
"a majority of the outstanding voting securities" of the Fund, or by the Board
and, in either event, the vote of a majority of the Non-Interested Trustees,
cast in person at a meeting called for such purpose. In the event that
shareholders of the Fund do not approve the New Investment Management Agreement,
it will terminate. In such event, the Board will take such action as it deems to
be in the best interests of the Fund and its shareholders.

DIFFERENCES BETWEEN THE FORMER AND NEW INVESTMENT MANAGEMENT AGREEMENT

The New Investment Management Agreement is substantially identical to the
Former Investment Management Agreement, except for the dates of execution and
termination.

INVESTMENT MANAGER

Scudder Kemper, which resulted from the combination of the businesses of
Scudder and Kemper in connection with the Scudder-Zurich Transaction, is one of
the largest and most experienced investment counsel firms in the United States.
Scudder was established in 1919 as a partnership and was restructured as a
Delaware corporation in 1985. Scudder launched its first fund in 1928. Kemper
launched its first fund in 1948. Since December 31, 1997, Scudder Kemper has
served as investment adviser to both Scudder and Kemper funds. As of August 31,
1998, Scudder Kemper has more than $241.1 billion in assets under management.
The principal source of Scudder Kemper's income is professional fees received
from providing continuing investment advice. Scudder Kemper provides investment
counsel for many individuals and institutions, including insurance companies,
endowments, industrial corporations and financial and banking organizations.

Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office (and the home offices of Zuirch
Financial Services and Zurich Allied AG) is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

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<PAGE> 49

Zurich owns approximately 70% of the Investment Manager, with the balance
owned by the Investment Manager's officers and employees.

As stated above, Scudder Kemper is a Delaware corporation. Rolf Huppi(*) is
the Chairman of the Board and Director, Edmond D. Villani(#) is the President,
Chief Executive Officer and Director, Stephen R. Beckwith(#) is the Treasurer
and Chief Financial Officer, Kathryn L. Quirk(#) is the General Counsel, Chief
Compliance Officer and Secretary, Lynn S. Birdsong(#) is a Corporate Vice
President and Director, Cornelia M. Small(#) is a Corporate Vice President and
Director, Laurence Cheng(*) is a Director, and, effective November 1, 1998, each
of Gunther Gose(*) and William H. Bolinder(+) is a Director of the Investment
Manager. The principal occupation of each of Edmond D. Villani, Stephen R.
Beckwith, Kathryn L. Quirk, Lynn S. Birdsong and Cornelia M. Small is serving as
a Managing Director of the Investment Manager; the principal occupation of Rolf
Huppi is serving as an officer of Zurich; the principal occupation of Laurence
Cheng is serving as a senior partner of Capital Z Partners, an investment fund;
the principal occupation of Gunther Gose is serving as the Chief Financial
Officer of Zurich Financial Services; the principal occupation of William H.
Bolinder is serving as a member of the Group Executive Board of Zurich Financial
Services. Appendix 2 includes information regarding each Trustee and Officer of
the Trust who is associated with Scudder Kemper.

The outstanding voting securities of the Investment Manager are held of
record 36.63% by Zurich Holding Company of America ("ZHCA"), a subsidiary of
Zurich; 32.85% by ZKI Holding Corp. ("ZKIH"), a subsidiary of Zurich; 20.86% by
Stephen R. Beckwith, Lynn S. Birdsong, Kathryn L. Quirk, Cornelia M. Small and
Edmond D. Villani, in their capacity as representatives (the "Management
Representatives") of the Investment Manager's management holders and retiree
holders pursuant to a Second Amended and Restated Security Holders Agreement
(the "Security Holders Agreement") among the Investment Manager, Zurich, ZHCA,
ZKIH, the Management Representatives, the management holders, the retiree
holders and Edmond D. Villani, as trustee of Scudder Kemper Investments, Inc.
Executive Defined Contribution Plan Trust (the "Plan Trust"); and 9.66% by the
Plan Trust. There are no outstanding non-voting securities of the Investment
Manager.

In connection with the Scudder-Zurich Transaction (described above),
pursuant to which Zurich acquired a two-thirds interest in Scudder for $866.7
million in cash in December, 1997, Daniel Pierce, a Trustee of the Trust, sold
85.4% of his holdings in Scudder to Zurich for cash.

- ------------------------------

(*) Mythenquai 2, Zurich, Switzerland

(#) 345 Park Avenue, New York, New York

(+) 1400 American Lane, Schaumburg, Illinois

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<PAGE> 50

Pursuant to the Security Holders Agreement (which was entered into in
connection with the Scudder-Zurich Transaction), the Board of Directors of the
Investment Manager consists of four directors designated by ZHCA and ZKIH and
three directors designated by Management Representatives.

The Security Holders Agreement requires the approval of a majority of the
Scudder-designated directors for certain decisions, including changing the name
of Scudder Kemper, effecting an initial public offering before April 15, 2005,
causing Scudder Kemper to engage substantially in non-investment management and
related business, making material acquisitions or divestitures, making material
changes in Scudder Kemper's capital structure, dissolving or liquidating Scudder
Kemper, or entering into certain affiliated transactions with Zurich. The
Security Holders Agreement also provides for various put and call rights with
respect to Scudder Kemper stock held by persons who were employees of Scudder at
the time of the Scudder-Zurich Transaction, limitations on Zurich's ability to
purchase other asset management companies outside of Scudder Kemper, rights of
Zurich to repurchase Scudder Kemper stock upon termination of employment of
Scudder Kemper personnel, and registration rights for stock held by stockholders
of Scudder continuing after the Scudder-Zurich Transaction.

Directors, officers and employees of Scudder Kemper from time to time may
enter into transactions with various banks, including the Fund's custodian bank.
It is Scudder Kemper's opinion that the terms and conditions of those
transactions will not be influenced by existing or potential custodial or other
Fund relationships.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder
Kemper, computes net asset value for the Fund. Scudder Service Corporation
("SSC"), also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Fund. Scudder Trust
Company ("STC"), an affiliate of Scudder Kemper, provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. The fees paid to SFAC, SSC and STC during the last
fiscal year of the Fund were $15,288, $26,984 and $4,960, respectively.

SFAC, SSC and STC will continue to provide fund accounting, transfer
agency, subaccounting and recordkeeping services to the Fund, as described
above, under the current arrangements if the New Investment Management Agreement
is approved.

Exhibit B sets forth (as of each fund's last fiscal year unless otherwise
noted) the fees and other information regarding investment companies advised by
Scudder Kemper that have similar investment objectives to the Fund. (See above
for information regarding the management fee rate, net assets and aggregate
management fee paid for the Fund.)

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<PAGE> 51

BROKERAGE COMMISSIONS ON PORTFOLIO TRANSACTIONS

To the maximum extent feasible, Scudder Kemper places orders for portfolio
transactions through Scudder Investor Services, Inc. ("SIS"), Two International
Place, Boston, Massachusetts 02110, which in turn places orders on behalf of the
Fund with issuers, underwriters or other brokers and dealers. SIS is a
corporation registered as a broker/dealer and a subsidiary of Scudder Kemper.
SIS does not receive any commissions, fees or other remuneration from the Fund
for this service. When it can be done consistently with the policy of obtaining
the most favorable net results, Scudder Kemper may place such orders with
brokers and dealers who supply research, market and statistical information to
the Fund or to Scudder Kemper. In selecting brokers and dealers with which to
place portfolio transactions for the Fund, Scudder Kemper will not consider
sales of shares of funds currently advised by Scudder Kemper as a
decision-making factor, although it may place such transactions with brokers and
dealers that sell shares of funds currently advised by Scudder Kemper.
Allocation of portfolio transactions is supervised by Scudder Kemper.

THE BOARD MEMBERS OF THE TRUST RECOMMEND THAT THE SHAREHOLDERS OF THE
FUND VOTE IN FAVOR OF THIS PROPOSAL 2.

PROPOSAL 3: APPROVAL OF THE
REVISION OF THE FUND'S FUNDAMENTAL LENDING POLICY

This Proposal seeks shareholder approval of a change to the Fund's
fundamental lending policy. The 1940 Act requires an investment company to adopt
policies with respect to certain activities, including the making of loans by
the Fund, which can be changed only by a shareholder vote (i.e., "fundamental"
policies). The proposed change would permit the Fund to engage in lending in a
manner and to the extent permitted by applicable law. The proposed change would,
therefore, permit the Fund, subject to the receipt of any necessary regulatory
approval and Board authorization, to enter into lending arrangements, including
lending agreements under which the funds advised by Scudder Kemper could for
temporary purposes lend money directly to and borrow money directly from each
other through a credit facility ("Interfund Lending Arrangements"). The Board
has no present intention to engage in lending other than that permitted under
the Fund's current fundamental lending policy. The Fund believes that the
flexibility provided by this policy change could possibly reduce substantially
the Fund's borrowing costs and enhance its ability to earn higher rates of
interest on short-term lendings in the event that the Board determines that such
arrangements are warranted in light of the Fund's circumstances. Certain other
fund groups have obtained the exemptive relief necessary to permit the funds to
engage in lending and borrowing among the funds advised by the same adviser.
Approval of the revision to the Fund's lending policy requires the affirmative
vote of a majority of the outstanding voting securities, as defined above, of
the Fund. If the shareholders of the Fund fail to

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<PAGE> 52

approve the proposed fundamental policy, the Fund's current policy will remain
in effect. The Board members of the Trust recommend that the shareholders of the
Fund vote in favor of the Proposal. The proposed change to the Fund's
fundamental lending policy is discussed in detail below.

LENDING POLICY

The current policy of the Fund prohibits the making of loans, except loans
of portfolio securities and to the extent the entry into repurchase agreements
and the purchase of debt securities or interests in indebtedness in accordance
with the Fund's investment objectives and policies are deemed to be loans. The
proposed policy, unlike the current policy, does not specify the particular
types of lending in which the Fund is permitted to engage; instead, the proposed
policy permits the Fund to lend only in a manner and to an extent in accordance
with applicable law. Accordingly, the Fund's fundamental lending policy would be
revised as follows (with additions to the policy underscored and deletions to
the policy struck through):

As a matter of fundamental policy, the Fund may not make loans except
as permitted under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time. to other persons, except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in accordance
with the Fund's investment objectives and policies may be deemed to be
loans.

DISCUSSION

Management believes that there may be advantages to these Interfund Lending
Arrangements as compared with other arrangements currently in place for the
Fund. Currently, the Fund may, in effect, lend money to banks and broker-dealers
by entering into repurchase agreements or purchasing other short-term
instruments. The Fund may also borrow money from the same or other banks for
temporary purposes to satisfy redemption requests or to cover other
unanticipated cash shortfalls. The Fund has entered into uncommitted lines of
credit with banks under which the banks may, but are not required to, lend money
to the Fund to meet the Fund's temporary cash needs. If the Fund were to borrow
money from a bank under its current line of credit agreement, the Fund would pay
interest on the borrowed cash at a rate that would be significantly higher than
the rate that would be earned by other (non-borrowing) funds on investments in
repurchase agreements and other short-term instruments of the same maturity as
the bank loan. The Fund believes this differential represents the bank's profit
for serving as "middleman" between borrower and lender. Other bank loan
arrangements, such as committed lines of credit into which the Fund has entered,
require the Fund to pay substantial

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<PAGE> 53

commitment fees in addition to the interest rate to be paid by the Fund when
borrowing.

The 1940 Act generally prohibits one fund from lending money or other
property to or borrowing money or other property from another fund having the
same investment adviser (currently, in order to be able to participate in these
lending or borrowing arrangements, a fund must first receive an exemptive order
from the SEC). If the revised policy is adopted, the Board of the Trust would
have discretion to request an order from the SEC to permit the Fund to enter
into Interfund Lending Arrangements consistent with its investment objectives
and policies.

The Fund's current borrowing policy would permit the Fund to engage in the
contemplated Interfund Lending Arrangements; thus no corresponding revision of
that policy is being sought. The Fund currently has a non-fundamental policy,
which may be changed without a shareholder vote, limiting borrowings in certain
circumstances that, unless changed by Board action, restrict the Fund's ability
to borrow through Interfund Lending Arrangements. The Fund anticipates that the
Interfund Lending Arrangements may provide a borrowing Fund with savings when
the Fund's cash position is insufficient to meet temporary cash requirements
arising, for example, when redemptions exceed anticipated volumes. When the Fund
is forced to liquidate portfolio securities to meet redemption requests, the
proceeds of which are normally paid the next day after receipt of the request
immediately, the Fund often does not receive payment in settlement on a sale of
portfolio securities for up to three days (or longer, when the Fund sells
foreign securities). The Interfund Lending Arrangements would provide a source
of immediate, short-term liquidity pending settlement of the sale of portfolio
securities. In addition, in making short-term cash loans directly to other
funds, the Fund would earn interest at a higher rate than it otherwise could
obtain from investing its cash through repurchase agreements or otherwise.
Although Interfund Lending Arrangements may reduce the Fund's borrowing costs,
enhance its ability to earn higher rates of interest on short-term lendings, and
substantially reduce the Fund's need to borrow from banks, the Fund may also
continue to maintain uncommitted or committed lines of credit or other borrowing
arrangements with banks as an added measure of safety and liquidity.

THE BOARD MEMBERS OF THE TRUST RECOMMEND THAT THE SHAREHOLDERS OF THE
FUND VOTE IN FAVOR OF THIS PROPOSAL 3.

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<PAGE> 54

ADDITIONAL INFORMATION

GENERAL

The cost of preparing, printing and mailing the enclosed proxy card and
Proxy Statement/Prospectus and all other costs incurred in connection with the
solicitation of proxies, including any additional solicitation made by letter,
telephone or telegraph, will be paid by Zurich or its affiliates. In addition to
solicitation by mail, certain officers and representatives of the Trust,
officers and employees of Scudder Kemper and certain financial services firms
and their representatives, who will receive no extra compensation for their
services, may solicit proxies by telephone, telegram or personally.

Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies. As the Special Meeting date approaches, certain
shareholders of the Fund may receive a telephone call from a representative of
SCC if their votes have not yet been received. Authorization to permit SCC to
execute proxies may be obtained by telephonic or electronically transmitted
instructions from shareholders of the Fund. Proxies that are obtained
telephonically will be recorded in accordance with the procedures set forth
below. The Trustees believe that these procedures are reasonably designed to
ensure that the identity of the shareholder casting the vote is accurately
determined and that the voting instructions of the shareholder are accurately
determined.

In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card, and ask for the shareholder's instructions on
the Proposals. The SCC representative, although he or she is permitted to answer
questions about the process, is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. SCC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.

If a shareholder wishes to participate in the Special Meeting, but does not
wish to give a proxy by telephone, the shareholder may still submit the proxy
card originally sent with the Proxy Statement/Prospectus or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy cards, they may contact SCC toll-free at 1-800-248-2681.
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<PAGE> 55

Any proxy given by a shareholder, whether in writing or by telephone, is
revocable until voted at the Special Meeting.

PROPOSALS OF SHAREHOLDERS

Shareholders wishing to submit proposals for inclusion in a proxy statement
for a shareholder meeting subsequent to the Special Meeting, if any, should send
their written proposals to the Secretary of the Trust, c/o Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110, within
a reasonable time before the solicitation of proxies for such meeting. The
timely submission of a proposal does not guarantee its inclusion.

OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING

No Board member is aware of any matters that will be presented for action
at the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest of
the Trust and/or Zero Coupon.

PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.

By order of the Boards of Trustees,

/s/ Thomas F. McDonough
Thomas F. McDonough
Secretary

43
<PAGE> 56

INDEX OF EXHIBITS AND APPENDICES

<TABLE>
<S> <C>
Exhibit A: The New Investment Management Agreement
Exhibit B: Investment objectives and advisory fees for funds not
included in this proxy statement/prospectus and advised
by Scudder Kemper Investments, Inc.
Exhibit C: Form of Agreement and Plan of Reorganization
Appendix 1 Fund Shares Owned by Trustees
Appendix 2 Trustees and Officers Associated with Scudder Kemper
</TABLE>

<PAGE> 57

EXHIBIT A

SCUDDER FUNDS TRUST
TWO INTERNATIONAL PLACE
Boston, Massachusetts

September 7, 1998
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110

INVESTMENT MANAGEMENT AGREEMENT
SCUDDER ZERO COUPON 2000 FUND

Ladies and Gentlemen:

Scudder Funds Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including Scudder Zero Coupon 2000 Fund (the "Fund"). Series
may be abolished and dissolved, and additional series established, from time to
time by action of the Trustees.

The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:

1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:

(a) The Declaration dated December 21, 1987, as amended to date.

A-1
<PAGE> 58

(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").

(c) Resolutions of the Trustees of the Trust and the shareholders of
the Fund selecting you as investment manager and approving the form of this
Agreement.

(d) Establishment and Designation of Series of Shares of Beneficial
Interest dated June 30, 1986 relating to the Fund.

The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.

2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder," "Scudder Kemper
Investments, Inc." and "Scudder, Stevens & Clark, Inc." trademarks (together,
the "Scudder Marks"), you hereby grant the Trust a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Trust's name
(the "Fund Name"), and (ii) the Scudder Marks in connection with the Trust's
investment products and services, in each case only for so long as this
Agreement, any other investment management agreement between you and the Trust,
or any extension, renewal or amendment hereof or thereof remains in effect, and
only for so long as you are a licensee of the Scudder Marks, provided however,
that you agree to use your best efforts to maintain your license to use and
sublicense the Scudder Marks. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Scudder Marks, shall acquire no interest
in the Scudder Marks other than the rights granted herein, that all of the
Trust's uses of the Scudder Marks shall inure to the benefit of Scudder Trust
Company as owner and licensor of the Scudder Marks (the "Trademark Owner"), and
that the Trust shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Trust further agrees that all services
and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Trust rendered during the one-year period preceding
the date of this Agreement are acceptable. At your reasonable request, the Trust
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your successor) and the Trust, or you no longer are a
licensee of the Scudder Marks, the Trust shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with you (or

A-2
<PAGE> 59

any organization which shall have succeeded to your business as investment
manager) or the Trademark Owner. In no event shall the Trust use the Scudder
Marks or any other name or mark confusingly similar thereto (including, but not
limited to, any name or mark that includes the name "Scudder") if this Agreement
or any other investment advisory agreement between you (or your successor) and
the Fund is terminated.

3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.

You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.

You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.

A-3
<PAGE> 60

4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees. Nothing in this
Agreement shall be deemed to shift to you or to diminish the obligations of any
agent of the Fund or

A-4
<PAGE> 61

any other person not a party to this Agreement which is obligated to provide
services to the Fund.

5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.

You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers

A-5
<PAGE> 62

of the Trust who are directors, officers or employees of you to the extent that
such expenses relate to attendance at meetings of the Board of Trustees of the
Trust or any committees thereof or advisors thereto held outside of Boston,
Massachusetts or New York, New York.

You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.

6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you in United States Dollars on the last
day of each month the unpaid balance of a fee equal to the excess of 1/12 of
0.60 of 1 percent of the average daily net assets as defined below of the Fund
for such month over any compensation waived by you from time to time (as more
fully described below). You shall be entitled to receive during any month such
interim payments of your fee hereunder as you shall request, provided that no
such payment shall exceed 75 percent of the amount of your fee then accrued on
the books of the Fund and unpaid.

The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 6.

You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services.

A-6
<PAGE> 63

You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.

7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.

Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Trust. Whenever the Fund and
one or more other accounts or investment companies advised by the Manager have
available funds for investment, investments suitable and appropriate for each
shall be allocated in accordance with procedures believed by the Manager to be
equitable to each entity. Similarly, opportunities to sell securities shall be
allocated in a manner believed by the Manager to be equitable. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position that may be acquired or disposed of for the Fund.

8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.

9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 1999, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in

A-7
<PAGE> 64

person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder and any applicable SEC exemptive order therefrom.

This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.

10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.

11. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Scudder Funds
Trust" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.

You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.

12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person,"

A-8
<PAGE> 65

"assignment" and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such exemptions as may
be granted by the SEC by any rule, regulation or order.

This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.

This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.

If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.

Yours very truly,

SCUDDER FUNDS TRUST, on behalf of
Scudder Zero Coupon 2000 Fund

By:
------------------------------------------
President

The foregoing Agreement is hereby accepted as of the date hereof.

SCUDDER KEMPER INVESTMENTS, INC.

By:
------------------------------------------
Managing Director

A-9
<PAGE> 66

EXHIBIT B

INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS NOT INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS AND ADVISED BY SCUDDER
KEMPER INVESTMENTS, INC.

SCUDDER FUNDS(+)

<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE NET ASSETS
---- --------- -------- ----------
<S> <C> <C> <C>
U.S. INCOME
Scudder Corporate Bond Fund A high level of current income 0.650% of net assets N/A*
through investment primarily
in investment-grade corporate
debt securities.
Scudder GNMA Fund High current income primarily 0.650% to $200 million $ 392,444,820
from U.S. Government 0.600% next $300 million
guaranteed mortgage-backed 0.550% thereafter
Ginnie Mae securities.
Scudder Income Fund A high level of income, 0.650% to $200 million $ 695,255,717
consistent with the prudent 0.600% next $300 million
investment of capital, through 0.550% thereafter
a flexible investment program
emphasizing high-grade bonds.
CLOSED-END FUNDS
Montgomery Street Income High level of current income 0.500% to $150 million $ 207,315,702
Securities, Inc. consistent with prudent 0.450% next $50 million
investment risks through a 0.400% thereafter
diversified portfolio
primarily of debt securities.
INSURANCE PRODUCTS
Scudder Variable Life High level of income from a 0.475% of net assets $ 81,387,032
Investment Fund Bond high quality portfolio of
Portfolio bonds.
AARP FUNDS
AARP Bond Fund for Income High level of current income, 0.350% to $2 billion $ 58,324,146
consistent with greater share 0.330% next $2 billion
price stability than other 0.300% next $2 billion
long term bond mutual funds, 0.280% next $2 billion
through investment primarily 0.260% next $3 billion
in investment-grade debt 0.250% next $3 billion
securities. 0.240% thereafter++
INDIVIDUAL FUND FEE
0.280% of net assets
AARP High Quality Short Term High level of current income, 0.350% to $2 billion $ 454,869,518
Bond Fund consistent with greater share 0.330% next $2 billion
price stability than other 0.300% next $2 billion
short-term bond mutual funds, 0.280% next $2 billion
through investment primarily 0.260% next $3 billion
in a portfolio of high 0.250% next $3 billion
quality, short-term securities 0.240% thereafter
INDIVIDUAL FUND FEE
0.190% of net assets
</TABLE>

B-1
<PAGE> 67

<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE NET ASSETS
---- --------- -------- ----------
<S> <C> <C> <C>
INVESTORS FUND SERIES:
Kemper Government Securities High current income consistent 0.550% of net assets $ 86,682,000
Portfolio with preservation of capital
from a portfolio consisting
primarily of U.S. Government
securities.
Kemper Investment Grade Bond High current income by 0.600% of net assets $ 15,504,000
Portfolio investing primarily in a
diversified portfolio of
investment grade debt
securities.
KEMPER ADJUSTABLE RATE U.S. High current income consistent 0.550% to $250 million $ 81,967,000
GOVERNMENT FUND with low volatility of 0.520% next $750 million
principal. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
KEMPER INCOME AND CAPITAL As high a level of current 0.550% to $250 million $ 613,470,000
PRESERVATION FUND income as is consistent with 0.520% next $750 million
preservation of capital. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
KEMPER SHORT-INTERMEDIATE High current income and 0.550% to $250 million $ 171,400,000
GOVERNMENT FUND preservation of capital, with 0.520% next $750 million
equal emphasis, from a 0.500% next $1.5 billion
portfolio primarily consisting 0.480% next $2.5 billion
of short-and intermediate-term 0.450% next $2.5 billion
U.S. Government securities. 0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
KEMPER U.S. MORTGAGE FUND Maximum current return from 0.550% to $250 million $2,497,825,000
U.S. Government securities. 0.520% next $750 million
0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
KEMPER U.S. GOVERNMENT High current income, liquidity 0.450% to $250 million $3,642,027,000
SECURITIES FUND and security of principal. 0.430% next $750 million
0.410% next $1.5 billion
0.400% next $2.5 billion
0.380% next $2.5 billion
0.360% next $2.5 billion
0.340% next $2.5 billion
0.320% thereafter
</TABLE>

- ------------------------------
(+) The information provided below is shown as of the end of each Fund's last
fiscal year, unless otherwise noted.

(++) Subject to waivers and/or expense limitations.

* Net asset information is not available for Scudder Corporate Bond Fund,
which commenced operations on August 31, 1998.

B-2
<PAGE> 68

EXHIBIT C

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 9th day of November, 1998, by and between Scudder Funds Trust (the
"Trust"), a Massachusetts business trust with its principal place of business at
Two International Place, Boston, MA 02110-4103, on behalf of Scudder Short Term
Bond Fund, (the "Acquiring Fund"), a separate series of the Trust, and the
Trust, on behalf of Scudder Zero Coupon 2000 Fund (the "Acquired Fund"), a
separate series of the Trust.

This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest ($.01 par value per share) of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:

1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND

1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's assets, computed in the manner and as of the time and date set
forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the manner and as of the time and date set forth in section 2.2; and
(ii) to assume all of the liabilities of the Acquired Fund, as set forth in
section 1.3. Such transactions shall take place at the closing provided for in
section 3.1 (the "Closing").

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1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet. The assets shall constitute at least 90% of the fair market value of the
net assets, and at least 70% of the fair market value of the gross assets, held
by Acquired Fund immediately before the Closing (excluding for these purposes
assets used to pay the dividends and other distributions paid pursuant to
section 1.4).

1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.

1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.

1.5. Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), the Acquired Fund will distribute to the Acquired
Fund's shareholders of record, determined as of the Valuation Time (the
"Acquired Fund Shareholders"), on a pro rata basis, the Acquiring Fund Shares
received by the Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
the Acquired Fund shares owned by such shareholders as of the Valuation Time.
All issued and outstanding shares of the Acquired Fund will simultaneously be
cancelled on the books of the Acquired Fund, although share certificates
representing interests in shares of the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.

1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner

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described in the Acquiring Fund's then-current prospectus and statement of
additional information.

1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.

1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and after
the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the closing date.

2. VALUATION

2.1. The value of the Assets shall be computed as of the close of regular
trading on the New York Stock Exchange on the business day immediately preceding
the Closing Date, as defined in Section 3.1 (such time and date being
hereinafter called the "Valuation Time") after the declaration and payment of
any dividends and/or other distributions on that date, using the valuation
procedures set forth in the Acquiring Fund's Declaration of Trust, as amended,
and then-current prospectus or statement of additional information.

2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.

2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.

2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.

3. CLOSING AND CLOSING DATE

3.1. The Closing of the transactions contemplated by this Agreement shall
be December 18, 1998, or such later date as the parties may agree in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of 4:00 P.M., Eastern time, on the Closing

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Date, unless otherwise agreed to by the parties. The Closing shall be held at
the offices of Dechert Price & Rhoads or at such other place and time as the
parties may agree.

3.2. Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of assets.

3.3. State Street Bank and Trust Company, as custodian for the Acquired
Fund, shall (a) deliver at the Closing a certificate of an authorized officer
stating that the Assets shall have been delivered in proper form to State Street
Bank and Trust Company, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of the
Assets, including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made. Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by Custodian for Acquired Fund to Custodian for Acquiring
Fund for examination no later than five business days preceding the Closing Date
and transferred and delivered by the Acquired Fund as of the Closing Date by the
Acquired Fund for the account of Acquiring Fund duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof. Acquired
Fund's portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the 1940 Act, shall be delivered as
of the Closing Date by book entry in accordance with the customary practices of
such depositories and Custodian for Acquiring Fund. The cash to be transferred
by the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.

3.4. The Transfer Agent, on behalf of the Acquired Fund, shall deliver at
the Closing a certificate of an authorized officer stating that its records
contain the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership (to three decimal places) of outstanding Acquired Fund
Shares owned by each such shareholder immediately prior to the Closing. The
Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring
Fund Shares to be credited on the Closing Date to the Acquired Fund or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.

3.5. In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange or another primary trading market for portfolio securities
of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board
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<PAGE> 72

of Trustees of the Trust, accurate appraisal of the value of the net assets with
respect to the Acquiring Fund Shares or the Acquired Fund Shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.

4. REPRESENTATIONS AND WARRANTIES

4.1. The Trust, on behalf of the Acquired Fund, represents and warrants to
the Acquiring Fund as follows:

(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under the
Trust's Declaration of Trust, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;

(b) The Trust is registered with the Commission as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and such registration is in full force and
effect;

(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;

(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on
or prior to the Closing Date, the Trust is not, and the execution, delivery
and performance of this Agreement by the Trust will not result, in
violation of Massachusetts law or of the Trust's Declaration of Trust, as
amended, or By-Laws, or of any material agreement, indenture, instrument,
contract, lease or other undertaking known to counsel to which the Acquired
Fund is a party or by which it is bound, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to
which the Acquired Fund is a party or by which it is bound;

(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
properties or assets held by it. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of

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any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;

(f) The Statement of Assets and Liabilities, Operations, and Changes
in Net Assets, the Supplementary Information, and the Investment Portfolio
of the Acquired Fund at and for the fiscal year ended December 31, 1997,
has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, and is in accordance with GAAP consistently applied,
and such statement (a copy of which has been furnished to the Acquiring
Fund) presents fairly, in all material respects, the financial position of
the Acquired Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquired Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as
of such date not disclosed therein;

(g) Since December 31, 1997, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;

(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;

(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment
company and has elected to be treated as such, has been eligible to and has
computed its federal income tax under Section 852 of the Code, and will
have distributed all of its investment company taxable income and net
capital gain (as defined in the Code) that has accrued through the Closing
Date;

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(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquired Fund Shareholders, under certain circumstances, could be held
personally liable for obligations of the Acquired Fund), and (iii) will be
held at the time of the Closing by the persons and in the amounts set forth
in the records of the Transfer Agent, as provided in section 3.3. The
Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Acquired Fund shares, nor is
there outstanding any security convertible into any of the Acquired Fund
shares;

(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority
to sell, assign, transfer and deliver such assets hereunder free of any
liens or other encumbrances, except those liens or encumbrances as to which
the Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act, except those restrictions as to which the Acquiring Fund has received
notice and necessary documentation at or prior to the Closing;

(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of the Trust, and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of the Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;

(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto; and

(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable

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<PAGE> 75

requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and

(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.

4.2. The Trust, on behalf of the Acquiring Fund, represents and warrants
to the Acquired Fund as follows:

(b) The Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;

(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;

(d) The Trust is not, and the execution, delivery and performance of
this Agreement by the Trust will not result, in violation of Massachusetts
law or of the Trust's Declaration of Trust, as amended, or By-Laws, or of
any material agreement, indenture, instrument, contract, lease or other
undertaking known to counsel to which the Acquiring Fund is a party or by
which it is bound, and the execution, delivery and performance of this
Agreement by the Acquiring Fund will not result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquiring Fund is a party or by which it is bound;

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<PAGE> 76

(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;

(f) The Statement of Assets and Liabilities, Operations, and Changes
in Net Assets, the Supplementary Information, and the Investment Portfolio
of the Acquiring Fund at and for the fiscal year ended December 31, 1997
has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, and is in accordance with GAAP consistently applied,
and such statement (a copy of which has been furnished to the Acquired
Fund) presents fairly, in all material respects, the financial position of
the Acquiring Fund as of such date in accordance with GAAP, and there are
no known contingent liabilities of the Acquiring Fund required to be
reflected on a balance sheet (including the notes thereto) in accordance
with GAAP as of such date not disclosed therein;

(g) Since December 31, 1997, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the
Acquiring Fund due to declines in market values of securities in the
Acquiring Fund's portfolio, the discharge of Acquiring Fund liabilities, or
the redemption of Acquiring Fund shares by Acquiring Fund shareholders
shall not constitute a material adverse change;

(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;

(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a

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<PAGE> 77

regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;

(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquiring Fund Shareholders, under certain circumstances, could be held
personally liable for the obligations of the Acquired Fund). The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund shares, nor is there
outstanding any security convertible into any of the Acquiring Fund shares;

(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable (recognizing that, under Massachusetts law, Acquiring Fund
Shareholders, under certain circumstances, could be held personally liable
for the obligations of the Acquired Fund).

(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;

(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of the Trust and this Agreement will constitute
a valid and binding obligation of the Trust, on behalf of the Acquiring
Fund, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
equity principles;

(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material re-

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spects and shall comply in all material respects with federal securities
and other laws and regulations applicable thereto;

(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;

(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and

(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.

5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND

5.1. The Acquiring Fund and the Acquired Fund each covenants to operate
its business in the ordinary course between the date hereof and the Closing
Date, it being understood that (a) such ordinary course of business will include
(i) the declaration and payment of customary dividends and other distributions
and (ii) such changes as are contemplated by the Funds' normal operations; and
(b) each Fund shall retain exclusive control of the composition of its portfolio
until the Closing Date.

5.2. Upon reasonable notice, the Acquiring Fund's officers and agents
shall have reasonable access to the Acquired Fund's books and records necessary
to maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.

5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the

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transactions contemplated herein. Such meeting shall be scheduled for no later
than .

5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.

5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund Shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.

5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.

5.7. Each Fund covenants to prepare the Registration Statement on Form
N-14 (the "Registration Statement"), in compliance with the 1933 Act, the 1934
Act and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.

5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.

5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.

5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause

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<PAGE> 80

to be executed and delivered all such assignments, assumption agreements,
releases, and other instruments, and will take or cause to be taken such further
action, as the Acquired Fund may reasonably deem necessary or desirable in order
to (i) vest and confirm to the Acquired Fund title to and possession of all
Acquiring Fund shares to be transferred to Acquired Fund pursuant to this
Agreement and (ii) assume the assumed liabilities from the Acquired Fund.

5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.

5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND

The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:

6.1. All representations and warranties of the Trust, with respect to the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund, the Acquiring Fund or their advisers, directors, trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.

6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Trust, with respect to the Acquiring Fund, made in this Agreement are true
and correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquired Fund shall reasonably request;

C-13
<PAGE> 81

6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:

(a) The Trust has been duly formed and is an existing business trust;
(b) the Acquiring Fund has the power to carry on its business as presently
conducted in accordance with the description thereof in the Trust's
registration statement under the 1940 Act; (c) the Agreement has been duly
authorized, executed and delivered by the Trust, on behalf of the Acquiring
Fund, and constitutes a valid and legally binding obligation of the Trust,
on behalf of the Acquiring Fund, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or affecting
creditors' rights and to general equity principles; (d) the execution and
delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not,
violate the Acquiring Fund's Declaration of Trust, as amended, or By-laws;
and (e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of
the Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares, pursuant to the Agreement have been
obtained or made; and

6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND

The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:

7.1. All representations and warranties of the Trust, with respect to the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund, the Acquired Fund or their advisers, directors, trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquiring
Fund which the Acquiring Fund reasonably believes might result in such
litigation.

C-14
<PAGE> 82

7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund;

7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Trust with respect to the Acquired Fund made in this Agreement are true and
correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;

7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:

(a) The Trust has been duly formed and is an existing business trust;
(b) the Acquired Fund has the corporate power to carry on its business as
presently conducted in accordance with the description thereof in the
Trust's registration statement under the 1940 Act; (c) the Agreement has
been duly authorized, executed and delivered by the Trust, on behalf of the
Acquired Fund, and constitutes a valid and legally binding obligation of
the Trust, on behalf of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the
execution and delivery of the Agreement did not, and the exchange of the
Acquired Fund's assets for Acquiring Fund Shares pursuant to the Agreement
will not, violate the Trust's Declaration of Trust, as amended, or By-laws;
and (e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
the Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares, pursuant to the Agreement have been
obtained or made; and

7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.

8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND

If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other

C-15
<PAGE> 83

party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:

8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Trust's Declaration
of Trust, as amended, and By-Laws, applicable Massachusetts law and the 1940
Act, and certified copies of the resolutions evidencing such approval shall have
been delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1;

8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;

8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;

8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and

8.5. The parties shall have received an opinion of Dechert Price & Rhoads
addressed to the Trust substantially to the effect that, based upon certain
facts, assumptions and representations, the transaction contemplated by this
Agreement constitutes a tax-free reorganization for Federal income tax purposes.
The delivery of such opinion is conditioned upon receipt by Dechert Price &
Rhoads of representations it shall request of the Trust. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the condition set forth in this section 8.5.

9. INDEMNIFICATION

9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including,

C-16
<PAGE> 84

without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim damage
liability or expense (or actions with respect thereto) arises out of or is based
on any breach by the Acquiring Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.

9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim damage
liability or expense (or actions with respect thereto) arises out of or is based
on any breach by the Acquired Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.

10. FEES AND EXPENSES

10.1. The Trust on behalf of the Acquiring Fund, and the Trust, on behalf
of the Acquired Fund, represents and warrants to the other that it has no
obligations to pay any brokers or finders fees in connection with the
transactions provided for herein.

10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by Scudder Kemper Investments, Inc., the
investment adviser to the Acquiring Fund and the Acquired Fund. Any such
expenses which are so borne by Scudder Kemper Investments, Inc. will be solely
and directly related to the Reorganization within the meaning of Revenue Ruling
73-54, 1973-1 C.B. 187. The Acquired Fund shareholders will pay their own
expenses, if any, incurred in connection with the Reorganization.

11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.

11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.

The covenants to be performed after the Closing and the obligations of each
of the Acquired Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.

C-17
<PAGE> 85

12. TERMINATION

This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before March
31,1999, unless such date is extended by mutual agreement of the parties, or
(iii) by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors/trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.

13. AMENDMENTS

This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Acquired Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.

14. NOTICES

Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, 10 Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, 10 Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.

15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY

15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
C-18
<PAGE> 86

15.2. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.

15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.

15.4. The Trust is organized as a Massachusetts business trust, and
references in this Agreement to the Trust mean and refer to the Trustees from
time to time serving under its Declaration of Trust on file with the Secretary
of State of the Commonwealth of Massachusetts, as the same may be amended from
time to time, pursuant to which the Trust conducts its business. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents, or employees of the
Trust, the Acquiring Fund or the Acquired Fund personally, but bind only the
respective property of each of the Acquiring Fund and the Acquired Fund, as
provided in the Trust's Declaration of Trust. Moreover, no series of the Trust
other than the Acquiring Fund and the Acquired Fund shall be responsible for the
obligations of the Trust hereunder, and all persons shall look only to the
respective assets of each of the Acquiring Fund and the Acquired Fund to satisfy
the obligations of the Trust hereunder. The execution and the delivery of this
Agreement have been authorized by the Trust's Board of Trustees, on behalf of
each of the Acquiring Fund and the Acquired Fund, respectively, and this
Agreement has been signed by authorized officers of each of the Acquiring Fund
and the Acquired Fund acting as such, and neither such authorization by such
Trustees, nor such execution and delivery by such officers, shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the respective property of each of the
Acquiring Fund and the Acquired Fund, as provided in the Trust's Declaration of
Trust.

15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Massachusetts, without regard to its
principles of conflicts of laws.

C-19
<PAGE> 87

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.

Attest: Scudder Funds Trust
on behalf of Scudder Zero Coupon 2000
Fund

By:
-------------------------------------
Its:
-------------------------------------

Attest: Scudder Funds Trust
on behalf of Scudder Short Term
Bond Fund

By:
-------------------------------------
Its:
-------------------------------------

C-20
<PAGE> 88

EXHIBIT D

This prospectus sets forth concisely the information about Scudder Short
Term Bond Fund, a diversified series of Scudder Funds Trust, an open-end
management investment company, that a prospective investor should know before
investing. Please retain it for future reference.

If you require more detailed information, a Statement of Additional
Information dated May 1, 1998, as amended from time to time, may be obtained
without charge by writing Scudder Investor Services, Inc., Two International
Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Contents -- see page 4.

<TABLE>
<S> <C>
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

SCUDDER (logo)

Scudder
Short Term
Bond Fund
</TABLE>

Prospectus
May 1, 1998

A pure no-load(TM) (no sales charges) mutual fund which seeks to provide a
high level of income consistent with a high degree of principal stability.

D-1
<PAGE> 89

EXPENSE INFORMATION

HOW TO COMPARE A SCUDDER FAMILY OF FUNDS PURE NO-LOAD(TM) FUND

This information is designed to help you understand the various costs and
expenses of investing in Scudder Short Term Bond Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(TM) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

<TABLE>
<S> <C>
Sales commissions to purchase shares (sales load)....... NONE
Commissions to reinvest dividends....................... NONE
Redemption fees......................................... NONE*
Fees to exchange shares................................. NONE
</TABLE>

2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the Fund's
average daily net assets for the fiscal year ended December 31, 1997.

<TABLE>
<S> <C>
Investment management fee............................... 0.53%
12b-1 fees.............................................. NONE
Other expenses.......................................... 0.33%
----
Total Fund operating expenses........................... 0.86%
====
</TABLE>

EXAMPLE

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$9 $27 $48 $106
</TABLE>

- ------------------------------

* You may redeem by writing or calling the Fund or by "Write-A-Check." If you
wish to receive redemption proceeds via wire, there is a $5 wire service fee.
For additional information, please refer to "Transaction
information -- Redeeming shares."
D-2
<PAGE> 90

See "Fund organization -- Investment adviser" for further information about
the investment management fee. This example assumes reinvestment of all
dividends and distributions and that the percentage amounts listed under "Annual
Fund operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.

D-3
<PAGE> 91

FINANCIAL HIGHLIGHTS

The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
audited financial statements. If you would like more detailed information
concerning the Fund's performance, a complete portfolio listing and audited
financial statements are available in the Fund's Annual Report dated December
31, 1997, which may be obtained without charge by writing or calling Scudder
Investor Services, Inc.

<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.

D-4
<PAGE> 92

A message from the President

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

We offered America's first no-load mutual fund in 1928, and today the
Scudder Family of Funds includes over 50 no-load mutual fund portfolios or
classes of shares. We also manage the mutual funds in a special program for the
American Association of Retired Persons, as well as the fund options available
through Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise
The Japan Fund, and numerous other open- and closed-end funds that invest in
this country and other countries around the world.

The Scudder Family of Funds is designed to make investing easy and less
costly. It includes money market, tax free, income and growth funds as well as
IRAs, 401(k)s, Keoghs and other retirement plans.

Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.

Funds or fund classes in the Scudder Family of Funds are offered without
commissions to purchase or redeem shares or to exchange from one fund to
another. There are no 12b-1 fees either, which many other funds now charge to
support their marketing efforts. All of your investment goes to work for you. We
look forward to welcoming you as a shareholder.

/s/ EDMOND D. VILLANI

D-5
<PAGE> 93

SCUDDER SHORT TERM BOND FUND

INVESTMENT OBJECTIVE

- a high level of income consistent with a high degree of principal
stability

INVESTMENT CHARACTERISTICS

- designed to provide a higher and more stable level of income than
typically provided by money market investments, yet more price stability
than investments in intermediate- and long-term bonds

- invests primarily in high quality, short-term bonds

- dollar-weighted average portfolio effective maturity will not exceed
three years

- dividends declared daily and paid monthly

- daily liquidity at current net asset value

CONTENTS

<TABLE>
<S> <C>
Investment objective and policies........................... 5
Why invest in the Fund?..................................... 6
Additional information about policies and investments....... 7
Distribution and performance information.................... 11
Fund organization........................................... 12
Transaction information..................................... 13
Shareholder benefits........................................ 17
Purchases................................................... 20
Exchanges and redemptions................................... 21
Investment products and services............................ 23
How to contact Scudder.................................Back cover
</TABLE>

D-6
<PAGE> 94

INVESTMENT OBJECTIVE AND POLICIES

Scudder Short Term Bond Fund (the "Fund"), a diversified series of Scudder
Funds Trust (the "Trust"), is a pure no-load(TM) mutual fund designed for
investors seeking:

- a higher and more stable level of income than normally provided by money
market investments; and

- more price stability than investments in intermediate- and long-term
bonds.

The Fund's objective is to provide a high level of income consistent with a
high degree of principal stability by investing primarily in high quality,
short-term bonds. The dollar-weighted average effective maturity of the Fund's
portfolio may not exceed three years. Within this limitation, the Fund may
purchase individual securities with remaining stated maturities greater than
three years.

Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.

INVESTMENTS

The Fund invests at least 65% of its net assets in a managed portfolio of
bonds consisting of:

- U.S. Government securities, including bonds, notes and bills issued by
the U.S. Treasury, and securities issued by agencies and
instrumentalities of the U.S. Government;

- Corporate debt securities, such as bonds, notes and debentures;

- Mortgage-backed securities; and o Other asset-backed securities.

Other eligible investments for the Fund are as follows:

- Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;

- Privately placed obligations (including restricted securities); and

- Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by foreign issuers and
foreign branches of U.S. banks.

D-7
<PAGE> 95

In addition, the Fund may purchase indexed securities, zero coupon
securities, trust preferred securities, illiquid securities, securities on a
when-issued or forward delivery basis and may engage in currency transactions,
reverse repurchase agreements and dollar roll transactions and strategic
transactions. See "Additional information about policies and investments" for
more information.

To meet its objective, the Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Adviser"), actively manages the Fund's portfolio.
Investment decisions are based on general economic and financial trends, such as
domestic and international economic developments, the outlook for the securities
markets, the level of interest rates and inflation, the supply and demand of
debt securities, and other factors. The composition of the Fund's portfolio is
also determined by individual security analysis. The Adviser's team of
experienced credit analysts actively monitors the credit quality of the
investments of the Fund.

The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average maturity. The Adviser,
however, will attempt to reduce principal fluctuation through, among other
methods, diversification, credit analysis and security selection, and adjustment
of the Fund's average portfolio maturity. The Fund's share price tends to rise
as interest rates decline and decline as interest rates rise. In periods of
rising interest rates and falling bond prices, the Adviser may shorten the
Fund's average maturity to minimize the effect of declining bond values on the
Fund's net asset value. Conversely, during times of falling rates and rising
prices, a longer average maturity of up to three years may be sought. When the
Adviser believes economic or other conditions warrant, for temporary defensive
purposes the Fund may invest more than 35% of its assets in money market
instruments. It is impossible to accurately predict for how long such
alternative strategies may be utilized.

The Fund's securities generally offer less current yield than securities of
lower quality (rated below BBB/Baa) or longer maturity, but lower-quality
securities generally have less liquidity, and tend to have greater credit and
market risk, and consequently more price volatility.

It is against the Fund's policy to make changes in the portfolio for
short-term trading purposes. However, the Fund may take advantage of
opportunities provided by temporary dislocations in the market to maintain
principal stability or enhance income.

HIGH QUALITY SECURITIES

The Fund emphasizes high quality investments. At least 65% of the Fund's
net assets will be invested in (1) obligations of the U.S. Government, its

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agencies or instrumentalities, and (2) debt securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard & Poor's
Corporation ("S&P") (AAA or AA) or Moody's Investor Services, Inc. ("Moody's")
(Aaa or Aa) or, if not rated, judged to be of comparable quality by the Adviser.
In addition, the Fund will not invest in any debt security rated at the time of
purchase lower than BBB by S&P or Baa by Moody's, or of equivalent quality as
determined by the Adviser. Should the rating of a portfolio security be
downgraded after being purchased by the Fund, the Adviser will determine whether
it is in the best interest of the Fund to retain or dispose of the security.

The U.S. Government securities in which the Fund may invest include (1)
securities issued and backed by the full faith and credit of the U.S.
Government, such as U.S. Treasury bills, notes and bonds; (2) securities,
including mortgage-backed securities, issued by an agency or instrumentality of
the U.S. Government, including those backed by the full faith and credit of the
U.S. Government, such as securities of the Export-Import Bank of the United
States, the General Services Administration and the Government National Mortgage
Association, and those issued by agencies and instrumentalities, such as Federal
Home Loan Banks and the Federal Home Loan Mortgage Corporation which, while
neither direct obligations of nor guaranteed by the U.S. Government, are backed
by the credit of the issuer itself and may be supported as well by the issuer's
right to borrow from the U.S. Treasury; and (3) securities of the U.S.
Government, its agencies or instrumentalities on a when-issued or forward
delivery basis. In addition, the Fund may invest in repurchase agreements with
respect to U.S. Government securities.

WHY INVEST IN THE FUND?

Scudder Short Term Bond Fund is designed for individuals, institutions and
corporations seeking a high level of income compared to money market funds,
consistent with a high degree of principal stability for their investments
compared to that of longer-term fixed-income investments. Investors may choose
this Fund as a complement to money market funds. Money market funds are managed
for total price stability but generally tend to offer somewhat lower yields than
this Fund. Further, the Fund may appeal to investors favoring a more stable
investment and willing to accept somewhat lower yields than they might normally
expect from a longer-term bond fund.

Some investors may view the Fund as an alternative to a bank certificate of
deposit ("CD"). While an investment in the Fund is not federally insured and
there is no guarantee of price stability, an investment in the Fund--unlike a
CD--is not locked away for any period, may be redeemed at any time without
incurring early withdrawal penalties and may provide a higher yield. The Fund
may also be appropriate for IRAs, 401(k)s and other retirement plans where
income is compounded on a tax-deferred basis.
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Investors may also benefit from the convenience, cost-savings and
professional management of a no-load mutual fund. As of December 31, 1997, the
Adviser was responsible for managing more than $200 billion in assets globally.

ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS

INVESTMENT RESTRICTIONS

The Fund has certain investment restrictions which are designed to reduce
the Fund's investment risk. Fundamental investment restrictions may not be
changed without a vote of shareholders; non-fundamental investment restrictions
may be changed by a vote of the Trust's Board of Trustees.

As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes and by engaging in reverse repurchase
agreements and dollar rolls.

As a matter of fundamental policy, the Fund may not make loans except
through the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.

A complete description of these and other policies and restrictions is
contained under "Investment Restrictions" in the Fund's combined Statement of
Additional Information.

WHEN-ISSUED SECURITIES

The Fund may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield are
generally fixed on the date of commitment to purchase. During the period between
purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.

ILLIQUID SECURITIES

The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.

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REPURCHASE AGREEMENTS

As a means of earning income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and broker/dealers.
Under a repurchase agreement, the Fund acquires securities, subject to the
seller's agreement to repurchase at a specified time and price. The Fund may
enter into repurchase commitments with any party deemed creditworthy by the
Adviser, including foreign banks and broker/dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which the Fund may purchase.

MORTGAGE AND OTHER ASSET-BACKED SECURITIES

The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. These securities provide
shareholders with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are paid off.

The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of Fund shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. In addition, the Fund may invest in mortgage-backed
securities issued by other issuers, such as the Federal National Mortgage
Association (FNMA), which are not guaranteed by the U.S. Government. Moreover,
the Fund may invest in debt securities which are secured with collateral
consisting of mortgage-backed securities and in other types of mortgage-related
securities.

The Fund may also invest in securities representing interests in pools of
certain other consumer loans, such as automobile loans or credit card
receivables. In some cases, principal and interest payments are partially
guaranteed by a letter of credit from a financial institution.

DOLLAR ROLL TRANSACTIONS

The Fund may enter into dollar roll transactions with selected banks and
broker/dealers. Dollar roll transactions are treated as reverse repurchase
agreements for purposes of the Fund's borrowing restrictions and consist of the
sale by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date at the same
price. In addition, the Fund is paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed after cash settlement
and

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initially involve only a firm commitment agreement by the Fund to buy a
security.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities which may offer higher income
than the common stocks into which they are convertible. The convertible
securities in which the Fund may invest include bonds, notes, debentures and
preferred stocks which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. Prior to their
conversion, convertible securities may have characteristics similar to
nonconvertible securities.

FOREIGN SECURITIES

While the Fund generally emphasizes investments in U.S. Government
securities and companies domiciled in the U.S., it may invest in foreign
securities that meet the same criteria as the Fund's domestic holdings when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objective of the Fund. Foreign securities may be denominated either in U.S.
dollars or foreign currencies.

INDEXED SECURITIES

The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument.

STRATEGIC TRANSACTIONS AND DERIVATIVES

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

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Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund. Please refer to "Risk
factors -- Strategic Transactions and derivatives" for more information.

RISK FACTORS

The Fund's risks are determined by the nature of the securities held and
the portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.

Debt securities. Securities rated BBB by S&P or Baa by Moody's are neither
highly protected nor poorly secured. These securities normally pay higher yields
but involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to repay
principal and pay interest, although adverse economic conditions or changing
circumstances

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are more likely to lead to a weakened capacity to do so. Moody's considers
bonds it rates Baa to have speculative elements as well as investment-grade
characteristics.

Illiquid securities. The absence of a trading market can make it difficult
to ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.

Some repurchase commitment transactions may not provide the Fund with
collateral marked-to-market during the term of the commitment.

Mortgage-backed securities. Unscheduled or early payments on the
underlying mortgages may shorten the securities' effective maturities and lessen
their growth potential. The Fund may agree to purchase or sell these securities
with payment and delivery taking place at a future date. A decline in interest
rates may lead to a faster rate of repayment of the underlying mortgages, and
expose the Fund to a lower rate of return upon reinvestment. To the extent that
such mortgage-backed securities are held by the Fund, the prepayment right of
mortgagors may limit the increase in net asset value of the Fund because the
value of the mortgage-backed securities held by the Fund may not appreciate as
rapidly as the price of non-callable debt securities. Because principle may be
prepaid at any time, mortgage-backed securities may involve significantly
greater price and yield volatility than traditional debt securities.

Other asset-backed securities. In addition to prepayment risk, securities
representing pools of certain consumer loans present certain risks that are not
presented by mortgage-backed securities. These securities may not have the
benefit of any security interest in the underlying assets. Also, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.

Dollar roll transactions. If the broker/dealer to whom the Fund sells the
securities underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase or repurchase the securities may be restricted; the value of
the securities may change adversely over the term of the dollar roll; the
securities that the Fund is required to repurchase may be worth less than
securities that

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the Fund originally held, and the return earned by the Fund with the proceeds of
a dollar roll may not exceed transaction costs.

Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities generally entail less credit risk than the issuer's common stock.

Foreign securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the yield from debt securities. They
may also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less government supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.

Further, it may be more difficult for the Fund's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio securities. The
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets.

Indexed securities. Indexed securities may be positively or negatively
indexed, so that appreciation of the reference instrument may produce an
increase or a decrease in the interest rate or value at maturity of the
security. In addition, the change in the interest rate or value at maturity of
the security may be some multiple of the change in the value of the reference
instrument. Thus, in addition to the credit risk of the security's issuer, the
Fund will bear the market risk of the reference instrument.

Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current

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market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's combined
Statement of Additional Information.

DISTRIBUTION AND PERFORMANCE INFORMATION

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of a federal excise tax. An additional distribution may
be made, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund. If an investment is in the form of
a retirement plan, all dividends and capital gains distributions will be
reinvested into the shareholder's account.

Generally, dividends from net investment income are taxable to shareholders
as ordinary income. Long-term capital gains distributions, if any, are taxable

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to individual shareholders at a maximum 20% or 28% capital gains rate (depending
on the Fund's holding period for the assets giving rise to the gain), regardless
of the length of time shareholders have owned shares. Short-term capital gains
and any other taxable income distributions are taxable as ordinary income. It is
not expected that dividends will qualify for the dividends-received deduction
for corporations.

The Fund sends detailed tax information to its shareholders about the
amount and type of its distributions by January 31 of the following year.

PERFORMANCE INFORMATION

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance.

The "SEC yield" of the Fund is an annualized expression of the net income
generated by the Fund over a specified 30-day (one month) period, as a
percentage of the Fund's share price on the last day of that period. This yield
is calculated according to methods required by the Securities and Exchange
Commission (the "SEC"), and therefore may not equate to the level of income paid
to shareholders. "Total return" is the change in value of an investment in the
Fund for a specified period. The "average annual total return" of the Fund is
the average annual compound rate of return of an investment in the Fund assuming
the investment has been held for one year, five years and ten years as of a
stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Fund for various periods. All types of total
return calculations assume that all dividends and capital gains distributions
during the period were reinvested in shares of the Fund. Performance will vary
based upon, among other things, changes in market conditions and the level of
the Fund's expenses.

FUND ORGANIZATION

Scudder Short Term Bond Fund is a diversified series of Scudder Funds
Trust, an open-end management investment company registered under the Investment
Company Act of 1940 (the "1940 Act"). The Trust was organized as a Massachusetts
business trust in July 1981 and changed its name from Scudder Target Fund to its
current name effective July 3, 1989.

The Fund's name and investment objective also were changed to the current
ones effective July 3, 1989.

The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are

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entitled to vote. The Fund is not required to and has no current intention of
holding annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental investment
policies or approving an investment advisory contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Trustee as if Section 16(c) of the 1940 Act were applicable.

INVESTMENT ADVISER

The Fund retains the investment management firm of Scudder Kemper
Investments, Inc., a Delaware corporation formerly known as Scudder, Stevens &
Clark, Inc., to manage its daily investment and business affairs subject to the
policies established by the Board of Trustees.

The Trustees have overall responsibility for the management of the Fund
under Massachusetts law.

Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.

The Adviser receives an investment management fee for these services. The
fee is graduated so that increases in the Fund's net assets may result in a
lower annual fee rate and decreases in the Fund's net assets may result in a
higher annual fee rate.

The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.

For the year ended December 31, 1997 the Adviser received an investment
management fee of 0.53% of the Fund's average daily net assets on an annual
basis.

All of the Fund's expenses are paid out of gross investment income.
Shareholders pay no direct charges or fees for investment or administrative
services.

Scudder Kemper Investments, Inc. is located at Two International Place,
Boston, Massachusetts.

Like other mutual funds and financial and business organizations worldwide,
the Fund could be adversely affected if computer systems on which the Fund
relies, which primarily include those used by the Adviser, its affiliates or
other

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service providers, are unable to correctly process date-related information on
and after January 1, 2000. This risk is commonly called the Year 2000 Issue.
Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.

TRANSFER AGENT

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-
2291, a subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.

UNDERWRITER

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.

FUND ACCOUNTING AGENT

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of the Fund.

CUSTODIAN

State Street Bank and Trust Company is the Fund's custodian.

TRANSACTION INFORMATION

PURCHASING SHARES

Purchases are executed at the next calculated net asset value per share
after the Fund's transfer agent receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")

By check. If you purchase shares with a check that does not clear, your
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. Checks must be drawn on or payable through a U.S. bank. If
you purchase shares by check and redeem them within seven business days of

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purchase, the Fund may hold redemption proceeds until the purchase check has
cleared. If you purchase shares by federal funds wire, you may avoid this delay.
Redemption requests by telephone or by "Write-A-Check" prior to the expiration
of the seven-day period will not be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-
5163 to obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

Your wire instructions must also include: -- the name of the fund in which
the money is to be invested, -- the account number of the fund, and -- the
name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases may not be
for more than $250,000. Proceeds in the amount of your purchase will be
transferred from your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. "QuickBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.

If you purchase shares by "QuickBuy" and redeem them within seven days of
the purchase, the Fund may hold the redemption proceeds for a period of up to
seven business days. If you purchase shares and there are insufficient funds in
your bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not

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available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.

By exchange. The Fund may be exchanged for shares of other funds in the
Scudder Family of Funds unless otherwise determined by the Board of Trustees.
Your new account will have the same registration and address as your existing
account.

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

By telephone order. Certain financial institutions may call Scudder before
the close of regular trading on the Exchange, normally 4 p.m. eastern time, and
purchase shares at that day's price. Such purchased shares will begin to earn
dividends on the day on which the payment is received by the Fund. If payment by
check or wire is not received from the financial institution within three
business days, the order is subject to cancellation and the financial
institution will be responsible for any loss to the Fund resulting from this
cancellation. Please call 1-800-854-8525 for more information.

REDEEMING SHARES

The Fund allows you to redeem shares (i.e., sell them back to the Fund)
without redemption fees.

By telephone. This is the quickest and easiest way to sell Fund shares. If
you provided your banking information on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not include your banking information on your application, call 1-800-225-5163
for more information.

Redemption proceeds will be wired to your bank unless otherwise requested.
If your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.

You can also make redemptions from your Scudder fund account on SAIL by
calling 1-800-343-2890.

If you open an account by wire, you cannot redeem shares by telephone until
the Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.

D-21
<PAGE> 109

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

By "Write-A-Check." You may redeem shares by writing checks against your
account balance for at least $100. Your Fund investments will continue to earn
dividends until your check is presented to the Fund for payment.

Checks will be returned by the Fund's transfer agent if there are
insufficient shares to meet the withdrawal amount. You should not attempt to
close an account by check, because the exact balance at the time the check
clears will not be known when the check is written.

By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.

To redeem shares, call 1-800-225-5163. Redemptions must be for at least
$250. Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.

"QuickSell" transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.

Signature guarantees. For your protection and to prevent fraudulent
redemptions, on written redemption requests in excess of $100,000 we require an
original signature and an original signature guarantee for each person in whose
name the account is registered. (The Fund reserves the right, however, to
require a signature guarantee for all redemptions.) You can obtain a signature
guarantee from most banks, credit unions or savings associations, or from
broker/dealers, municipal securities broker/dealers, government securities
broker/dealers, national securities exchanges, registered securities
associations or clearing agencies deemed eligible by the Securities and Exchange
Commission. Signature guarantees by notaries public are not acceptable.
Redemption require-
D-22
<PAGE> 110

ments for corporations, other organizations, trusts, fiduciaries, agents,
institutional investors and retirement plans may be different from those for
regular accounts. For more information, please call 1-800-225-5163.

TELEPHONE TRANSACTIONS

Shareholders automatically receive the ability to exchange by telephone and
the right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

SHARE PRICE

Purchases and redemptions, including exchanges, are made at net asset
value. Scudder Fund Accounting Corporation determines net asset value per share
as of the close of regular trading on the Exchange, normally 4 p.m. eastern
time, on each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.

PROCESSING TIME

All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of trading that day. Purchase and redemption requests received after the
close of regular trading on the Exchange will be executed the following business
day. Purchases made by federal funds wire before noon eastern time will begin
earning income that day; all other purchases received before the close of
regular trading on the Exchange will begin earning income the next business day.
Redeemed shares will earn income on the day on which the redemption request is
executed.

If you wish to make a purchase of $500,000 or more, you should notify
Scudder Investor Relations by calling 1-800-225-5163.

The Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).

D-23
<PAGE> 111

PURCHASE RESTRICTIONS

The Fund and Scudder Investor Services, Inc. each reserves the right to
reject purchases of Fund shares (including exchanges) for any reason including
when a pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.

TAX INFORMATION

A redemption of shares, including an exchange into another Scudder fund, is
a sale of shares and may result in a gain or loss for income tax purposes.

TAX IDENTIFICATION NUMBER

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.

MINIMUM BALANCES

Shareholders should maintain a share balance worth at least $2,500, which
amount may be changed by the Board of Trustees. Scudder retirement plans and
certain other accounts have similar or lower minimum share balance requirements.
A shareholder may open an account with at least $1,000, if an automatic
investment plan of $100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an automatic investment plan, will be
assessed an annual $10.00 per fund charge with the fee to be paid to the Fund.
The $10.00 charge will not apply to shareholders with a combined household
account balance in any of the Scudder Funds of $25,000 or more. The Fund
reserves the right, following 60 days' written notice to shareholders, to redeem
all shares in accounts below $250, including accounts of new investors, where a
reduction in value has occurred due to a redemption or exchange out of the
account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not

D-24
<PAGE> 112

trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation. Please refer to "Exchanges and Redemptions -- Other Information" in
the Fund's combined Statement of Additional Information for more information.

THIRD PARTY TRANSACTIONS

If purchases and redemptions of Fund shares are arranged and settlement is
made at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.

SHAREHOLDER BENEFITS

EXPERIENCED PROFESSIONAL MANAGEMENT

Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.

A TEAM APPROACH TO INVESTING

Scudder Short Term Bond Fund is managed by a team of investment
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's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.

Stephen A. Wohler, Lead Portfolio Manager, is responsible for the Fund's
day-to-day operations and overall investment strategy. Mr. Wohler joined the
Adviser in 1979 and has over 17 years of experience managing fixed income
investments. Robert Cessine, Portfolio Manager, joined the team in 1998 and
helps set the Fund's investment strategy. Mr. Cessine joined the Adviser in 1993
and has over 15 years of investment and financial services industry experience.

SAIL(TM)-- SCUDDER AUTOMATED INFORMATION LINE

For personalized account information including fund prices, yields and
account balances, to perform transactions in existing Scudder fund accounts, or
to obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
D-25
<PAGE> 113

periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.

INVESTMENT FLEXIBILITY

Scudder offers toll-free telephone exchange between funds at current net
asset value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.

PERSONAL COUNSEL(SM) -- A MANAGED FUND PORTFOLIO PROGRAM

If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of no-load mutual funds with ongoing portfolio monitoring
and individualized service, for an annual fee of generally 1.25% or less of
assets. In addition, it draws upon the Adviser's more than 75-year heritage of
providing investment counsel to large corporate and private clients. If you have
$100,000 or more to invest initially and would like more information about
Personal Counsel, please call 1-800-700-0183.

DIVIDEND REINVESTMENT PLAN

You may have dividends and distributions automatically reinvested in
additional Fund shares. Please call 1-800-225-5163 to request this feature.

SHAREHOLDER STATEMENTS

You will receive a detailed statement summarizing account activity,
including dividend and capital gain reinvestment, purchases and redemptions. All
of your statements should be retained to help you keep track of account activity
and the cost of shares for tax purposes.

D-26
<PAGE> 114

SHAREHOLDER REPORTS

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

To reduce the volume of mail you receive, only one copy of most Fund
reports, such as the Fund's Annual Report, may be mailed to your household (same
surname, same address). Please call 1-800-225-5163 if you wish to receive
additional shareholder reports.

NEWSLETTERS

Four times a year, Scudder sends you Perspectives, an informative
newsletter covering economic and investment developments, service enhancements
and other topics of interest to Scudder fund investors.

SCUDDER INVESTOR CENTERS

As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.

T.D.D. SERVICE FOR THE HEARING IMPAIRED

Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.

PURCHASES

OPENING AN ACCOUNT

Minimum initial investment: $2,500; IRAs $1,000

Group retirement plans (401(k), 403(b), etc.) have similar or lower
minimums. See appropriate plan literature.

D-27
<PAGE> 115

MAKE CHECKS PAYABLE TO "THE SCUDDER FUNDS."

- - By Mail

Send your completed and signed application and check by regular mail to:

The Scudder Funds
P.O. Box 2291
Boston, MA
02107-2291

or by express, registered, or certified mail to:

The Scudder Funds
66 Brooks Drive
Braintree, MA 02184

- - By Wire

Please see Transaction information--Purchasing shares--By wire for details,
including the ABA wire transfer number. Then call 1-800-225-5163 for
instructions.

- - In Person

Visit one of our Investor Centers to complete your application with the help
of a Scudder representative. Investor Center locations are listed under
Shareholder benefits.

PURCHASING ADDITIONAL SHARES

Minimum additional investment: $100; IRAs $50. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums. See appropriate plan
literature.

MAKE CHECKS

- - By Mail

Send a check with a Scudder investment slip, or with a letter of payable to
"The instruction including your account number and the complete Scudder
Funds." Fund name, to the appropriate address listed above.

- - By Wire

Please see Transaction information--Purchasing shares--By wire for details,
including the ABA wire transfer number.

- - In Person

Visit one of our Investor Centers to make an additional investment in your
Scudder fund account. Investor Center locations are listed under Shareholder
benefits.

D-28
<PAGE> 116

- - By Telephone

Please see Transaction information --Purchasing shares --By QuickBuy or By
telephone order for more details.

- - By Automatic

You may arrange to make investments on a regular basis Investment Plan through
automatic deductions from your bank checking ($50 minimum) account. Please
call 1-800-225-5163 for more information and an enrollment form.

EXCHANGES AND REDEMPTIONS

EXCHANGING SHARES

Minimum investments:

$2,500 to establish a new account; $100 to exchange among existing accounts

- - By Telephone

To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(TM), Scudder's Automated Information Line,
call 1-800-343-2890 (24 hours a day).

- - By Mail or Fax

Print or type your instructions and include:

--the name of the Fund and the account number you are exchanging from;

--your name(s) and address as they appear on your account;

--the dollar amount or number of shares you wish to exchange;

--the name of the Fund you are exchanging into;

--your signature(s) as it appears on your account; and

--a daytime telephone number.

<TABLE>
<CAPTION>
Send your instructions or by express, registered,
by regular mail to: or certified mail to: or by fax to:
<S> <C> <C>
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
</TABLE>

D-29
<PAGE> 117

REDEEMING SHARES

- - By Telephone

To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(TM), Scudder's Automated Information Line,
call 1-800-343-2890 (24 hours a day). You may have redemption proceeds sent to
your predesignated bank account, or redemption proceeds of up to $100,000 sent
to your address of record.

- - By Mail or Fax

Send your instructions for redemption to the appropriate address or fax
number above and include:

--the name of the Fund and account number you are redeeming from;

--your name(s) and address as they appear on your account;

--the dollar amount or number of shares you wish to redeem;

--your signature(s) as it appears on your account; and

--a daytime telephone number.

A signature guarantee is required for redemptions over $100,000. See
Transaction information --Redeeming shares.

- - By Automatic Withdrawal Plan

You may arrange to receive automatic cash payments periodically.

Call 1-800-225-5163 for more information and an enrollment form.

SCUDDER TAX-ADVANTAGED RETIREMENT PLANS

Scudder offers a variety of tax-advantaged retirement plans for
individuals, businesses and non-profit organizations. These flexible plans are
designed for use with the Scudder Family of Funds (except Scudder tax-free
funds, which are inappropriate for such plans). Scudder Funds offer a broad
range of investment objectives and can be used to seek almost any investment
goal. Using Scudder's retirement plans can help shareholders save on current
taxes while building their retirement savings.

- Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of
their contributions from their taxable income, and all investment
earnings accrue on a tax-deferred basis. The Scudder No-Fee IRA charges
you no annual custodial fee.

D-30
<PAGE> 118

- Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many
respects, these retirement plans provide a unique opportunity for
qualifying individuals to accumulate investment earnings tax free. Unlike
a traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA.
The Scudder Roth IRA charges you no annual custodial fee.

- 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.

- Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.

- 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.

- SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.

- Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.

Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian
for some of these plans and is paid an annual fee for some of the above
retirement plans. For information about establishing a Scudder No-Fee IRA,
SEP-IRA, Profit Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon
Plan, please call 1-800-225-2470. For information about 401(k)s or 403(b)s
please call 1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and
most Profit Sharing or Pension Plan accounts, call 1-800-225-5163.

The variable annuity contract is provided by Charter National Life
Insurance Company (in New York State, Intramerica Life Insurance Company [S
1802]). The contract is offered by Scudder Insurance Agency, Inc. (in New York
State, Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL,
Inc. is the Principal Underwriter. Scudder Horizon Plan is not available in all
states.

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

D-31
<PAGE> 119

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
Scudder Real Estate Investment 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.

INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund

RETIREMENT PROGRAMS AND EDUCATION ACCOUNTS
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.

D-32
<PAGE> 120

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds or classes
thereof may not be available for purchase or exchange. +A portion of the income
from the tax-free funds may be subject to federal, state, and local taxes. *A
class of shares of the Fund. **Not available in all states. ***Only the Scudder
Shares of the Fund are part of the Scudder Family of Funds. +++ +++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 foreign stock exchanges.

D-33
<PAGE> 121

HOW TO CONTACT SCUDDER

ACCOUNT SERVICE AND INFORMATION:

For existing account service and transactions Scudder Investor Relations --
1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you

Scudder Electronic Account Services -- http://funds.scudder.com

For personalized information about your Scudder accounts, exchanges and
redemptions

Scudder Automated Information Line (SAIL) -- 1-800-343-2890

INVESTMENT INFORMATION:

For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470

[email protected]

Scudder's World Wide Web Site -- http://funds.scudder.com

For establishing 401(k) and 403(b) plans

Scudder Defined Contribution Services -- 1-800-323-6105

SCUDDER BROKERAGE SERVICES:

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

PERSONAL COUNSEL(SM) -- A MANAGED FUND PORTFOLIO PROGRAM:

To receive information about this mutual fund portfolio guidance and
management program

Personal Counsel from Scudder -- 1-800-700-0183

PLEASE ADDRESS ALL CORRESPONDENCE TO:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
<PAGE> 122

OR STOP BY A SCUDDER INVESTOR CENTER:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you -- they can be found in
the following cities:

<TABLE>
<S> <C> <C>
Boca Raton Chicago San Francisco
Boston New York
</TABLE>

Scudder Investor Relations and Scudder Investor Centers are services
provided through Scudder Investor Services, Inc., Distributor.
- ---------------
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
<PAGE> 123

EXHIBIT E
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> 124

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

- - 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.

- - 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.

- - 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.

- - 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

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

</TABLE>

2 - Scudder Short Term Bond Fund
<PAGE> 125

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> 126

PERFORMANCE UPDATE AS OF DECEMBER 31, 1997

FUND INDEX COMPARISONS

<TABLE>
<CAPTION>
TOTAL RETURN
PERIOD GROWTH ---------------------
ENDED OF AVERAGE
12/31/97 $10,000 CUMULATIVE ANNUAL
- -------- ------- ---------- -------
<S> <C> <C> <C>
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%
</TABLE>

SALOMON BROTHERS INC. BROAD INVESTMENT
GRADE BOND INDEX (1-3 YEARS)

*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> 127

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

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
'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
</TABLE>

SALOMON BROTHERS INC. TREASURY/GOVERNMENT
SPONSORED CORPORATE INDEX (1-3 YEARS)

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
'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
</TABLE>

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

5 - Scudder Short Term Bond Fund
<PAGE> 128

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.

PORTFOLIO SUMMARY AS OF DECEMBER 31, 1997

DIVERSIFICATION

<TABLE>
<S> <C>
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%
---
</TABLE>

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.

6 - Scudder Short Term Bond Fund
<PAGE> 129

QUALITY

<TABLE>
<S> <C>
U.S. Gov't & Agencies....................................... 36%
AAA*........................................................ 28%
AA.......................................................... 2%
A........................................................... 3%
BBB......................................................... 30%
Not Rated................................................... 1%
---
100%
---
</TABLE>

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

<TABLE>
<S> <C>
Under 1 year................................................ 10%
1 - 5 years................................................. 70%
5 - 8 years................................................. 14%
8 years or greater.......................................... 6%
---
100%
---
</TABLE>

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.

7 - Scudder Short Term Bond Fund
<PAGE> 130

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.

8 - Scudder Short Term Bond Fund
<PAGE> 131

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) 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,
9 - Scudder Short Term Bond Fund
<PAGE> 132

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 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.

10 - Scudder Short Term Bond Fund
<PAGE> 133

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.

11 - Scudder Short Term Bond Fund
<PAGE> 134

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)
12 - Scudder Short Term Bond Fund
<PAGE> 135

INVESTMENT PORTFOLIO AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 2.7%
- ----------------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------------
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
</TABLE>

The accompanying notes are an integral part of the financial statements.
13 - Scudder Short Term Bond Fund
<PAGE> 136

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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
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
-------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
14 - Scudder Short Term Bond Fund
<PAGE> 137

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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
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
</TABLE>

The accompanying notes are an integral part of the financial statements.
15 - Scudder Short Term Bond Fund
<PAGE> 138

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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
Merrill Lynch Mortgage Investors Inc., Series 1990-C, 9.7%,
6/15/10................................................... 855,654 873,297
Merrill Lynch Mortgage Investors Inc., Series 1990-H, 9.25%,
1/15/11................................................... 1,500,536 1,523,509
Merrill Lynch Mortgage Investors Inc., Series 1990-I, 10%,
1/15/11................................................... 1,730,452 1,752,082
Merrill Lynch Mortgage Investors Inc., Series 1991-B, 9.2%,
3/15/11................................................... 165,908 166,684
Merrill Lynch Mortgage Investors Inc., Series 1991-A, 9.25%,
4/15/11................................................... 1,307,660 1,332,584
Merrill Lynch Mortgage Investors Inc., Series 1991-G, 9.15%,
10/15/11.................................................. 5,060,766 5,242,600
Merrill Lynch Mortgage Investors Inc., Series 1992-B, 8.5%,
4/15/12................................................... 9,084,613 9,212,343
Merrill Lynch Mortgage Investors Inc., Series 1992-B A4,
7.85%, 4/15/12............................................ 1,716,906 1,726,022
Merrill Lynch Mortgage Investors Inc., Series 1992-D, 7.95%,
7/15/17................................................... 1,917,428 1,950,983
Security Pacific Acceptance Corp., Series 1992-2A2, 7.1%,
6/15/12................................................... 354,574 353,907
-------------
155,104,651
- ----------------------------------------------------------------------------------------
Total Asset Backed Securities (Cost $281,215,911) 285,810,055
- ----------------------------------------------------------------------------------------
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
</TABLE>

The accompanying notes are an integral part of the financial statements.
16 - Scudder Short Term Bond Fund
<PAGE> 139

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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
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
The accompanying notes are an integral part of the financial statements.
17 - Scudder Short Term Bond Fund
<PAGE> 140

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>

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

<TABLE>
<CAPTION>
OVER-THE-COUNTER-OPTIONS
------------------------
NZD PREMIUMS
----------- ---------
<S> <C> <C>
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................................. -- --
=========== =========
</TABLE>

Currency abbreviations and other acronyms used in this portfolio:

<TABLE>
<S> <C>
NIM Net Interest Margin
REIT Real Estate Investment Trust
NZD New Zealand Dollars
ARM Adjustable Rate Mortgage
</TABLE>

The accompanying notes are an integral part of the financial statements.
18 - Scudder Short Term Bond Fund
<PAGE> 141

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1997

<TABLE>
<S> <C>
ASSETS
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.
19 - Scudder Short Term Bond Fund
<PAGE> 142

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
INVESTMENT INCOME
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.
20 - Scudder Short Term Bond Fund
<PAGE> 143

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
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.
21 - Scudder Short Term Bond Fund
<PAGE> 144

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 .8 3 .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>

22 - Scudder Short Term Bond Fund
<PAGE> 145

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.

23 - Scudder Short Term Bond Fund
<PAGE> 146

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 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

24 - Scudder Short Term Bond Fund
<PAGE> 147

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.

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

25 - Scudder Short Term Bond Fund
<PAGE> 148

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 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

26 - Scudder Short Term Bond Fund
<PAGE> 149

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.

27 - Scudder Short Term Bond Fund
<PAGE> 150

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

28 - Scudder Short Term Bond Fund
<PAGE> 151

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.

<TABLE>
<CAPTION>
NUMBER OF VOTES:
-----------------------
TRUSTEE FOR WITHHELD
------- ---------- ---------
<S> <C> <C>
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
</TABLE>

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

<TABLE>
<CAPTION>
NUMBER OF VOTES:
--------------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
- --- --------- --------- -----------------
<S> <C> <C> <C>
59,255,623 2,408,043 1,895,714 3,353,880
</TABLE>

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.)

<TABLE>
<CAPTION>
NUMBER OF VOTES:
--------------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
- --- --------- --------- -----------------
<S> <C> <C> <C>
59,751,392 4,539,155 3,344,571 3,059,903
</TABLE>

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.

29 - Scudder Short Term Bond Fund
<PAGE> 152

<TABLE>
<CAPTION>
NUMBER OF VOTES:
--------------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
- --- --------- --------- -----------------
<S> <C> <C> <C>
60,332,109 3,880,266 3,422,743 3,059,903
</TABLE>

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

<TABLE>
<CAPTION>
NUMBER OF VOTES:
--------------------------------------------------
BROKER
FUNDAMENTAL POLICIES FOR AGAINST ABSTAIN NON-VOTES*
-------------------- ---------- --------- --------- ----------
<C> <S> <C> <C> <C> <C>
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.

<TABLE>
<CAPTION>
NUMBER OF VOTES:
--------------------
FOR AGAINST ABSTAIN
- --- --------- ---------
<S> <C> <C>
60,158,592 1,134,158 2,266,630
</TABLE>

* 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.

30 - Scudder Short Term Bond Fund
<PAGE> 153

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.
31 - Scudder Short Term Bond Fund
<PAGE> 154

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.

32 - Scudder Short Term Bond Fund
<PAGE> 155

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.

33 - Scudder Short Term Bond Fund
<PAGE> 156

SCUDDER SOLUTIONS

Convenient ways to invest, quickly and reliably:

<TABLE>
<CAPTION>
Automatic Investment Plan QuickBuy
------------------------- --------
<S> <C>

</TABLE>

<TABLE>
<CAPTION>
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
--------------------------- ------------------------------------
<S> <C>

</TABLE>

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) -- 1-800-343-2890

Scudder's Web Site -- http://funds.scudder.com

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.

34 - Scudder Short Term Bond Fund
<PAGE> 157

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

<TABLE>
<CAPTION>
Automatic Withdrawal Plan QuickSell
------------------------- ---------
<S> <C>

</TABLE>

DistributionsDirect

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

For more information about these services, call a Scudder representative at
1-800-225-5163

Mutual Funds and More -- Brokerage and Guidance Services:

Scudder Brokerage Services

Offers you access to a world of investments, including stocks, corporate
bonds, Treasuries, plus over 6,000 mutual funds from at least 150 mutual fund
companies. And Scudder Fund Folio(SM) provides investors with access to a
marketplace of more than 500 no-load funds from well-known companies--with no
transaction fees or commissions. Scudder shareholders can take advantage of a
Scudder Brokerage account already reserved for them, with no minimum investment.
For information about Scudder Brokerage Services, call 1-800-700-0820.

Scudder Portfolio Builder

A free service designed to help suggest ways investors like you can
diversify your portfolio among domestic and global, as well as equity,
fixed-income, and money market funds, using Scudder funds.

Personal Counsel from Scudder(SM)

Developed for investors who prefer the benefits of no-load Scudder funds
but want ongoing professional assistance in managing a portfolio. Personal
Counsel(SM) is a highly customized, fee-based asset management service for
individuals investing $100,000 or more.

35 - Scudder Short Term Bond Fund
<PAGE> 158

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 Scudder Investor
Relations--1-800-225-5163

For establishing 401(k) and 403(b) plans Scudder Defined Contribution
Services--1-800-323-6105

For information about The Scudder Funds, including additional applications
and prospectuses, or for answers to investment questions Scudder Investor
Relations--1-800-225-2470 [email protected]

Please address all written correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found in
the following cities:
Boca Raton Chicago San Francisco
Boston New York

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

36 - Scudder Short Term Bond Fund
<PAGE> 159

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)

37 - Scudder Short Term Bond Fund
<PAGE> 160

PART B

SCUDDER FUNDS TRUST

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 18, 1998

Acquisition of the Assets of By and in Exchange for Shares of Scudder Short
Term Scudder Zero Coupon Bond Fund (a Series of Scudder Funds Bond Fund (a
Series of Scudder Funds Trust) Trust) Two International Place, Boston, MA
02110-4103 Two International Place, Boston, MA 02110-4103.

This Statement of Additional Information is available to the Shareholders
of Scudder Zero Coupon Bond Fund ("Zero Coupon") in connection with a proposed
transaction whereby Scudder Short Term Bond Fund, a series of Scudder Funds
Trust, ("Short Term Bond") will acquire all or substantially all of the assets
of Zero Coupon, a series of Scudder Funds Trust, and all of Zero Coupon's
liabilities, in exchange for shares of Short Term Bond.

This Statement of Additional Information of Scudder Funds Trust consists of
this cover page and the following documents, each of which was filed
electronically with the Registrant's Registration Statement on Form N-14 on
October 6, 1998 and is incorporated by reference herein:

(1) The Statement of Additional Information of Short Term Bond dated
May 1, 1998, containing financial statements of the Fund for the
fiscal year ended December 31, 1997;

(2) The Statement of Additional Information of Zero Coupon dated May
1, 1998, containing the financial statements of the Fund for the
fiscal year ended December 31, 1997;

(3) Financial statements included in the June 30, 1998 Semi-Annual
Report of Zero Coupon.

(4) Financial statements included in the June 30, 1998 Semi-Annual
Report of Short Term Bond.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. A
PROSPECTUS/PROXY STATEMENT DATED NOVEMBER 18, 1998 RELATING TO THE
REORGANIZATION OF ZERO COUPON MAY BE OBTAINED BY WRITING ZERO COUPON AT TWO
INTERNATIONAL PLACE, BOSTON, MA 02110-4103 OR BY CALLING SCUDDER INVESTOR
SERVICES AT (800) 225-2470. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS/PROXY STATEMENT.

38 - Scudder Short Term Bond Fund
<PAGE> 161

TABLE OF CONTENTS FOR PART B

<TABLE>
<S> <C>
Combined Statement of Additional Information................
Scudder Short Term Bond Report
Fiscal Year Ended 12/31/97 Financial Statements...........
Scudder Zero Coupon 2000 Fund
Fiscal Year Ended 12/31/97 Financial Statements...........
Scudder Short Term Bond
Six Months Ended 6/30/98 Financial Statements.............
Scudder Zero Coupon 2000 Fund
Six Months Ended 6/30/98 Financial Statements.............
</TABLE>

39 - Scudder Short Term Bond Fund
<PAGE> 162

SCUDDER SHORT TERM BOND FUND

A PURE NO-LOAD(TM) (NO SALES CHARGE) DIVERSIFIED MUTUAL FUND
SERIES WHICH SEEKS TO PROVIDE A HIGH LEVEL OF INCOME
CONSISTENT WITH A HIGH DEGREE OF PRINCIPAL
STABILITY BY INVESTING PRIMARILY IN HIGH
QUALITY, SHORT-TERM BONDS

AND

SCUDDER ZERO COUPON 2000 FUND

A PURE NO-LOAD(TM) (NO SALES CHARGE) HIGH-QUALITY DIVERSIFIED MUTUAL FUND
SERIES WHICH SEEKS TO PROVIDE AS HIGH AN INVESTMENT RETURN OVER
A SELECTED PERIOD AS IS CONSISTENT WITH INVESTMENT IN
U.S. GOVERNMENT SECURITIES AND THE MINIMIZATION OF REINVESTMENT RISK

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998

This combined Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectuses of Scudder Short Term Bond
Fund and Scudder Zero Coupon 2000 Fund, each dated May 1, 1998, as amended from
time to time, copies of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
<PAGE> 163

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES............... 1
Investment Objective and Policies of Short Term Bond
Fund................................................... 1
High Quality Securities................................... 2
Investment Objective and Policies of Zero Coupon 2000
Fund................................................... 2
Management of Reinvestment Risk and Anticipated Growth of
Zero Coupon 2000 Fund.................................. 4
Liquidation and Distribution of Assets in Target Year of
Zero Coupon 2000 Fund.................................. 4
Management Strategies and Portfolio Turnover of Zero
Coupon 2000 Fund....................................... 5
Master/feeder structure................................... 6
Specialized Investment Techniques......................... 6
Investment Restrictions................................... 20
PURCHASES................................................... 21
Additional Information About Opening An Account........... 21
Additional Information About Making Subsequent
Investments............................................ 22
Additional Information About Making Subsequent Investments
by QuickBuy............................................ 22
Checks.................................................... 22
Wire Transfer of Federal Funds............................ 23
Share Price............................................... 23
Share Certificates........................................ 23
Other Information......................................... 23
EXCHANGES AND REDEMPTIONS................................... 24
Exchanges................................................. 24
Redemption by Telephone................................... 25
Redemption By QuickSell................................... 25
Redemption by Mail or Fax................................. 26
Redemption by "Write-A-Check"............................. 26
Other Information......................................... 26
FEATURES AND SERVICES OFFERED BY THE FUNDS.................. 27
The Pure No-Load(TM) Concept.............................. 27
Internet access........................................... 28
Dividend and Capital Gain Distribution Options............ 29
Diversification........................................... 29
Scudder Investor Centers.................................. 29
Reports to Shareholders................................... 29
Transaction Summaries..................................... 29
THE SCUDDER FAMILY OF FUNDS................................. 30
</TABLE>

i
<PAGE> 164

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECIAL PLAN ACCOUNTS....................................... 34
Scudder Retirement Plans: Profit-Sharing and Money
Purchase Pension Plans for Corporations and
Self-Employed Individuals.............................. 35
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for
Corporations and Self-Employed Individuals............. 35
Scudder IRA: Individual Retirement Account................ 35
Scudder Roth IRA: Individual Retirement Account........... 36
Scudder 403(b) Plan....................................... 37
Automatic Withdrawal Plan................................. 37
Group or Salary Deduction Plan............................ 37
Automatic Investment Plan................................. 37
Uniform Transfers/Gifts to Minors Act..................... 38
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS................... 38
PERFORMANCE INFORMATION..................................... 38
Average Annual Total Return............................... 39
Cumulative Total Return................................... 39
Total Return...................................... 40
SEC Yields................................................ 40
Comparison of Fund Performance............................ 40
ORGANIZATION OF THE FUNDS................................... 44
INVESTMENT ADVISER.......................................... 45
Personal Investments by Employees of the Adviser.......... 48
TRUSTEES AND OFFICERS....................................... 48
REMUNERATION................................................ 50
Responsibilities of the Board -- Board and Committee
Meetings............................................... 50
Compensation of Officers and Trustees..................... 51
DISTRIBUTOR................................................. 52
TAXES....................................................... 52
PORTFOLIO TRANSACTIONS...................................... 56
Brokerage Commissions..................................... 56
Portfolio Turnover........................................ 57
NET ASSET VALUE............................................. 57
ADDITIONAL INFORMATION...................................... 58
Experts................................................... 58
Shareholder Indemnification............................... 58
Other Information......................................... 58
FINANCIAL STATEMENTS........................................ 59
RATINGS OF CORPORATE BONDS.................................. 60
GLOSSARY.................................................... 61
</TABLE>

ii
<PAGE> 165

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

(SEE "INVESTMENT OBJECTIVE AND POLICIES" AND "ADDITIONAL INFORMATION ABOUT
POLICIES AND INVESTMENTS" IN A FUND'S PROSPECTUS.)

Scudder Funds Trust, a Massachusetts business trust of which Scudder Short
Term Bond Fund ("Short Term Bond Fund") and Scudder Zero Coupon 2000 Fund ("Zero
Coupon 2000 Fund") are diversified, pure no-load(TM) series, is referred to
herein as the "Trust." The Trust is an open-end management investment company
which continuously offers and redeems its shares at net asset value. Each Fund
is a company of the type commonly known as a mutual fund. Short Term Bond Fund
and Zero Coupon 2000 Fund are each diversified series of the Trust. These series
are sometimes referred to individually as a "Fund" and jointly as the "Funds."

Because of each Fund's investment considerations discussed herein and their
investment policies, investment in shares of a Fund is not intended to provide a
complete investment program for an investor. The value of each Fund's shares
when sold may be higher or lower than when purchased.

The following objectives and policies, except as otherwise stated, are not
fundamental and may be changed without a shareholder vote. There can be no
assurance that either Fund will achieve its investment objective.

INVESTMENT OBJECTIVE AND POLICIES OF SHORT TERM BOND FUND

Short Term Bond Fund seeks to provide a high level of income consistent
with a high degree of principal stability by investing primarily in high
quality, short-term bonds. The dollar-weighted average effective maturity of the
Fund's portfolio may not exceed three years. Within this limitation, the Fund
may purchase individual securities with remaining stated maturities greater than
three years.

The Fund invests at least 65% of its net assets in a managed portfolio of
bonds consisting of:

- U.S. Government securities, including bonds, notes and bills issued by
the U.S. Treasury, and securities issued by agencies and
instrumentalities of the U.S. Government;

- Corporate debt securities, such as bonds, notes and debentures;

- Mortgage-backed securities; and

- Other asset-backed securities.
<PAGE> 166

Other eligible investments for the Fund are as follows:

- Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;

- Privately placed obligations (including restricted securities); and

- Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by foreign issuers and
foreign branches of U.S. banks.

In addition, the Fund may purchase indexed securities, zero coupon
securities, illiquid securities, securities on a when-issued or forward delivery
basis and may engage in reverse repurchase agreements and dollar roll
transactions and strategic transactions. See "Specialized Investment Techniques"
and "Investment Restrictions" for more information.

The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average maturity. The Adviser,
however, will attempt to reduce principal fluctuation through, among other
things, diversification, credit analysis and security selection, and adjustment
of the Fund's average portfolio maturity. The Fund's share price tends to rise
as interest rates decline and decline as interest rates rise. In periods of
rising interest rates and falling bond prices, the Adviser may shorten the
Fund's average maturity to minimize the effect of declining bond values on the
Fund's net asset value. Conversely, during times of falling rates and rising
prices, a longer average maturity of up to three years may be sought. When the
Adviser believes economic or other conditions warrant, for temporary defensive
purposes the Fund may invest more than 35% of its assets in money market
instruments. It is impossible to accurately predict for how long such
alternative strategies will be utilized.

The Fund's securities generally offer less current yield than securities of
lower quality (rated below BBB/Baa) or longer maturity, but lower-quality

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securities generally have less liquidity, and tend to have greater credit and
market risk, and consequently more price volatility.

HIGH QUALITY SECURITIES

The Fund emphasizes high quality investments. At least 65% of the Fund's
net assets will be invested in (1) obligations of the U.S. Government, its
agencies or instrumentalities, and (2) debt securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard & Poor's
Corporation ("S&P") (AAA or AA) or Moody's Investors Service, Inc. ("Moody's")
(Aaa or Aa) or, if not rated, judged to be of comparable quality by the Adviser.
In addition, the Fund will not invest in any debt security rated at the time of
purchase lower than BBB by S&P or Baa by Moody's, or of equivalent quality as
determined by the Adviser. Should the rating of a portfolio security be
downgraded after being purchased by the Fund, the Adviser will determine whether
it is in the best interest of the Fund to retain or dispose of the security.

INVESTMENT OBJECTIVE AND POLICIES OF ZERO COUPON 2000 FUND

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment return
over a selected period as is consistent with investment in U.S. Government
securities and the minimization of reinvestment risk. The Fund invests primarily
in zero coupon securities and the Fund matures on a specified target date.

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<PAGE> 168

By pursuing its objective, the Fund seeks to return to investors a
reasonably assured targeted dollar amount, predictable at the time of
investment, on a specific target date in the future. As with any investment,
however, there can be no assurance that the Fund's objective will be met or the
targeted amount will be obtained.

In order to obtain the predicted return, investors should plan to hold
shares of the Fund until maturity and elect automatic reinvestment of dividends
and distributions. Since the Fund will be primarily invested in zero coupon
securities, investors who hold shares to maturity and reinvest dividends and
distributions will receive a return consisting primarily of the accretion of
discount on the underlying securities in the Fund. Of course, investors may
redeem their shares on any business day at the daily net asset value. However,
the net asset value of the Fund's shares increases or decreases with changes in
the market value of the Fund's investments which tends to vary inversely with
changes in prevailing interest rates. A shareholder who redeems prior to
maturity may receive a significantly different investment return than was
anticipated at the time of purchase.

The Fund matures on the third Friday of December 2000 (the "Target Date").
At that time, the Fund will be converted to cash and distributed to shareholders
or reinvested in another fund of their choice. The maturity date may coincide
with known financial needs in the future, such as a car purchase, children's
college education, the purchase of a home, or retirement.

Zero coupon securities, including U.S. Government securities and privately
stripped coupons on and receipts for U.S. Government securities, pay no cash
income but are issued at substantial discounts from their value at maturity.
When held to maturity, their entire return, which consists of the accretion of
discount, comes from the difference between their issue price and their maturity
value. This difference is known at the time of purchase, so investors holding
zero coupon securities until maturity know the amount of their investment return
at the time of their investment.

A portion of the total realized return from conventional interest-paying
bonds comes from the reinvestment of periodic interest. Since the rate to be
earned on these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the investment's
total return is uncertain, even for investors holding the security to its
maturity. This uncertainty is commonly referred to as reinvestment risk and can
have a significant impact on total realized investment return. With zero coupon
securities, however, there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon security to maturity.

The Fund is designed for investors seeking returns available on U.S.
Government securities and reasonable assurance that a specific targeted dollar
amount,

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<PAGE> 169

predictable at the time of their investment, will be paid to them on a specific
target date in the future.

Dividends and distributions will be automatically reinvested in additional
shares (unless investors make a specific written election to take them in cash)
because without such reinvestment investors are not likely to receive their
targeted dollar amount on maturity. Investors should also plan to hold shares in
this Fund until maturity because these shares are likely to have substantially
more price volatility than shares of funds investing in traditional fixed-income
investments.

At least 80% of the net assets of the Fund will be invested in zero coupon
securities. These include U.S. Treasury notes and bonds which have no coupons
and are not entitled to income, U.S. Treasury bills, individual interest coupons
which trade separately, and evidences of receipt of such securities. At least
50% of the net assets of the Fund will be invested in zero coupon securities
maturing within two years of the Fund's target date. Up to 20% may be invested
in interest-paying U.S. Treasury notes and bonds, and in repurchase agreements
with respect to such securities. These interest-paying securities provide income
for expenses, redemption payments, and cash dividends of the Fund.

The average duration of the Fund will be maintained within 12 months of the
Fund's target date. Duration is a measure of the length of an investment which
takes into account, through present value analysis, the timing and amount of any
interest payments as well as the amount of the principal repayment. Duration is
commonly used by professional investment managers to help identify and control
reinvestment risk. Since the Fund will not be invested entirely in securities
maturing on the target date, there will be some reinvestment risk. By balancing
investments with slightly longer and shorter durations, the Adviser believes it
can maintain the Fund's average duration within 12 months of the Fund's target
date and thereby reduce its reinvestment risk.

MANAGEMENT OF REINVESTMENT RISK AND ANTICIPATED GROWTH OF ZERO COUPON 2000 FUND

Reinvestment risk arises from the uncertainty as to the total return which
will be realized from conventional interest-paying bonds due to the fact that
periodic interest (cash) will be reinvested in the future at interest rates
unknown at the time of the original purchase. With zero coupon securities,
however, there are no cash distributions to reinvest, so investors bear no
reinvestment risk if they hold a zero coupon security to maturity.

For an investor who makes a direct investment in a zero coupon security
(not in a zero coupon fund) and holds it to its maturity, the return or yield to

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<PAGE> 170

maturity is certain regardless of whether interim reinvestment rates rise or
fall. (See table below.)

<TABLE>
<CAPTION>
TOTAL ENDING VALUE(1) ON A $1,000
INVESTMENT (REALIZED YIELD)
INITIAL IF REINVESTMENT RATES ARE(2):
COUPON YIELD TO ------------------------------------------
(INTEREST) MATURITY MATURITY 6% 8% 10% 12% 14%
---------- -------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
10%........... 10 years 10% $ 2345 $ 2490 $ 2655 $ 2841 $ 3052
(8.7%) (9.3%) (10%) (10.7%) (11.5%)
0%............ 10 years 10% $ 2655 $ 2655 $ 2655 $ 2655 $ 2655
(10%) (10%) (10%) (10%) (10%)
</TABLE>

Due to the nature of zero coupon securities, which comprise 80% or more of
the investments of the Fund, the reinvestment risk accompanying this Fund is
less than would be the case if this Fund were entirely invested in interest
(cash)-paying securities. Furthermore, the Fund's Adviser believes it can reduce
reinvestment risk by maintaining the Fund's average duration within twelve
months of the Fund's Target Date.

When held to maturity, an investor's investment return in the Fund will
consist primarily of the accretion of discount on the underlying securities in
the Fund (the difference between their issue price and their maturity value) and
will be realized on the specified Target Date. The anticipated growth rate for
the Fund is the annualized rate of growth investors may expect from the time
they purchase the Fund's shares until the Fund's Target Date. The Fund will
calculate its anticipated growth rate on each business day. Such a rate will
vary from day to day because of changes in interest rates and other factors
affecting the value of the Fund's investments, and is based on certain
assumptions such as reinvestment of dividends and distributions, a constant
expense ratio and portfolio composition. Furthermore, changes in the price among
securities with different maturities and shareholder redemptions can affect
investment return, as can the skill of the Adviser in managing the Fund.

LIQUIDATION AND DISTRIBUTION OF ASSETS IN TARGET YEAR OF ZERO COUPON 2000 FUND

As securities in the Fund mature or are sold throughout the Target Year,
the proceeds will be invested in eligible money market instruments. By December
of that year, substantially all of the assets of the Fund will consist of such
eligible money-market instruments and other then-maturing securities. These
instruments will be sold or allowed to mature, the liabilities of the Fund will
be discharged or provision made therefore, and the net assets will be
distributed pro rata to shareholders or reinvested at their direction. The
estimated expenses of terminating and liquidating the Fund will be accrued
ratably over its Target Year. These expenses, which are charged to income as are
all expenses, are not

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<PAGE> 171

expected to exceed significantly the ordinary annual expenses incurred by the
Fund, and, therefore, should have no effect on the maturity value of the Fund.
- ------------------------------
(1) See "Glossary."

(2) These results assume semiannual compounding. For illustration purposes only,
the table above assumed these reinvestment rates would remain constant over
the life of the bond. The actual reinvestment rates, and total returns of
coupon-paying bonds, will vary with changing market conditions.

If a shareholder does not complete an election form directing what should
be done with the liquidation proceeds, a check for the proceeds will be mailed
to the shareholder's address of record in complete discharge of the Fund's
obligation to the shareholder. In no event, however, will liquidation proceeds
be distributed unless all share certificates, if any, have been returned to, or
other arrangements have been made which are satisfactory to, the Trust or its
transfer agent, Scudder Service Corporation (the "Transfer Agent"). Retirement
plan participants who do not choose an option will receive their distribution as
a reinvestment into Scudder U.S. Treasury Money Fund. All distributions in
liquidation will be made subject to compliance with any applicable regulatory
positions.

The practice of declaring and paying dividends annually (see "DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS") may be changed, and dividend declarations and
payments may be withheld during the Maturity Year immediately preceding the
final distribution of the assets of the Fund, and the amounts so withheld
distributed in liquidation if the Trustees determine that it would be in the
best interest of the Fund's shareholders to do so.

MANAGEMENT STRATEGIES AND PORTFOLIO TURNOVER OF ZERO COUPON 2000 FUND

In pursuit of its investment objectives, the Fund purchases obligations
that it believes are attractive and competitive values in terms of quality,
yield and relationship of current price to maturity value. However, recognizing
the dynamics of bond prices in response to changes in general economic
conditions, fiscal and monetary policies, interest levels and market forces such
as supply and demand for various bond issues, the Adviser, subject to the
Trustees' review, manages the Fund, attempting to achieve as high an investment
return over selected periods as is consistent with investment in U.S. Government
securities and with the minimization of reinvestment risk. The primary
strategies employed in the management of the Fund are:

Emphasis on Quality. The Fund is a high quality portfolio of zero coupon
securities, which include U.S. Treasury notes and bonds which have no coupons
and are not entitled to income, U.S. Treasury bills, individual interest coupons
which trade separately and evidences of receipt of such securities. The ratings

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<PAGE> 172

assigned by Moody's and S&P represent their opinions as to the quality of the
securities which they undertake to rate, many of which may be purchased by the
Fund. The Fund will invest in zero coupon securities, including both U.S.
Government and privately stripped coupons and receipts for U.S. Government
securities, which are rated AAA or AA by S&P, or Aaa or Aa by Moody's. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Furthermore, even within the high-quality segment of the bond
market, relative credit standing and market perceptions thereof may shift.
Therefore, the Adviser believes that it should review continuously the quality
of debt obligations. The Fund's Adviser has over many years developed an
experienced staff to assign its own quality ratings which are considered in
making value judgments and in arriving at purchase or sale decisions. Through
the discipline of this procedure the Adviser attempts to discern variations in
credit rankings of the published services, and to anticipate changes in credit
ranking. Should the rating of a portfolio security be downgraded after being
purchased by the Fund, the Adviser will determine whether it is in the best
interest of the Fund to retain or dispose of the security. (See "RATINGS OF
CORPORATE BONDS.")

Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of bonds of the same or generally
similar maturity tend to change constantly in reaction to broad swings in
interest rates and factors affecting relative supply and demand. These temporary
disparities in normal yield relationships may afford opportunities to implement
a flexible policy of trading the Fund's holdings in order to invest in more
attractive market sectors or specific issues.

Market Trading Opportunities. In addition to the above, the Fund,
consistent with its investment policies, may engage in short-term trading
(selling securities held for brief periods of time, usually less than three
months) if the Adviser believes that such transactions, net of costs, would
further the attainment of the Fund's objective. The needs of different classes
of lenders and borrowers and their changing preferences and circumstances have
in the past caused market dislocations unrelated to fundamental creditworthiness
and trends in interest rates which have presented market trading opportunities.
There can be no assurance that such dislocations will occur in the future or
that the Fund will be able to take advantage of them. The Fund will limit its
voluntary short-term trading to the extent necessary to qualify as a "regulated
investment company" under the Internal Revenue Code. (See "TAXES.")

MASTER/FEEDER STRUCTURE

The Board of Trustees has the discretion to retain the current distribution
arrangement for each Fund while investing in a master fund in a master/feeder
fund structure as described below.

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<PAGE> 173

A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

SPECIALIZED INVESTMENT TECHNIQUES

Mortgage-Backed Securities and Mortgage Pass-Through Securities. Short
Term Bond Fund may also invest in mortgage-backed securities, which are
interests in pools of mortgage loans, including mortgage loans made by savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations as further described
below. The Fund may also invest in debt securities which are secured with
collateral consisting of mortgage-backed securities (see "Collateralized
Mortgage Obligations"), and in other types of mortgage-related securities.

A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of mortgage-related securities and increasing their
price volatility, affecting the price volatility of Fund's shares.

When interest rates rise, mortgage prepayment rates tend to decline, thus
lengthening the life of mortgage-related securities and increasing their price
volatility, affecting the price volatility of a Fund's shares.

Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the

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<PAGE> 174

monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Because principal may be prepared at any time, mortgage-backed
securities may involve significantly greater price and yield volatility than
traditional debt securities. Because principal may be prepaid at any time,
mortgage-backed securities involve significantly greater price and yield
volatility than traditional debt securities. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.

The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however, do not apply to the market value or yield
of mortgage-backed securities or to the value of Fund shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which

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<PAGE> 175

represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Adviser determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.

Collateralized Mortgage Obligations ("CMOs"). Short Term Bond Fund may
invest in CMOs which are hybrids between mortgage-backed bonds and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal

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<PAGE> 176

because of the sequential payments. The prices of certain CMOs, depending on
their structure and the rate of prepayments, can be volatile. Some CMOs may also
not be as liquid as other securities.

In a typical CMO transaction, a corporation issues multiple series, (e.g.,
A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

FHLMC Collateralized Mortgage Obligations. Short Term Bond Fund may invest
in FHLMC CMOs which are debt obligations of FHLMC issued in multiple classes
having different maturity dates and are secured by the pledge of a pool of
conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is
equal to approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event
of delinquencies and/or defaults.

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<PAGE> 177

Other Mortgage-Backed Securities. The Adviser expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. Short Term Bond Fund will limit its purchases of mortgage-backed
securities or any other assets which, in the opinion of the Adviser, are
illiquid, in accordance with the nonfundamental investment restriction on
securities which are not readily marketable discussed below. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective, policies and quality
standards, consider making investments in such new types of mortgage-related
securities.

Other Asset-Backed Securities. The securitization techniques used to
develop mortgage-backed securities are now being applied to a broad range of
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans, computer leases and credit card
receivables, are being securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a structure similar to
the CMO structure. Consistent with Short Term Bond Fund's investment objectives
and policies, the Fund may invest in these and other types of asset-backed
securities that may be developed in the future. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments with interest rate
fluctuations.

Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables(SM) ("CARS(SM)").
CARS(SM) represent undivided fractional interests in a trust ("Trust") whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARS(SM) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the Trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

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<PAGE> 178

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.

The Fund may also invest in residual interests in asset-backed securities.
In the case of asset-backed securities issued in a pass-through structure, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 (the "1933 Act") may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.

The availability of asset-backed securities may be affected by legislative
or regulatory developments. It is possible that such developments may require
the Fund to dispose of any then existing holdings of such securities.

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Convertible Securities. Short Term Bond Fund may invest in convertible
securities, that is, bonds, notes, debentures, preferred stocks and other
securities which are convertible into common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or income
through interest and dividend payments by virtue of their conversion or exchange
features.

The convertible securities in which Short Term Bond Fund may invest are
either fixed income or zero coupon debt securities which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.

Trust Preferred Securities. Short Term Bond Fund may invest in Trust
Preferred Securities, which are hybrid instruments issued by a special purpose
trust (the "Special Trust"), the entire equity interest of which is owned by a
single issuer. The proceeds of the issuance to the Fund of Trust Preferred
Securities are typically used to purchase a junior subordinated debenture, and
distributions from the Special Trust are funded by the payments of principal and
interest on the subordinated debenture.

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If payments on the underlying junior subordinated debentures held by the
Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Fund, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Fund receives any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Fund, to sell their holdings.

Zero Coupon Securities. Each Fund may invest in zero coupon securities
which pay no cash income and are sold at substantial discounts from their value
at maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities usually follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in

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custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act.

The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.

When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").

Indexed Securities. Short Term Bond Fund may invest in indexed securities,
the value of which is linked to currencies, interest rates, commodities, indices
or other financial indicators ("reference instruments"). Most indexed securities
have maturities of three years or less.

Indexed securities differ from other types of debt securities in which the
Fund may invest in several respects. First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as an interest rate compared with a fixed interest rate or the currency exchange

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rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

Dollar Roll Transactions. Short Term Bond Fund may enter into "dollar
roll" transactions, which consist of the sale by the Fund to a bank or
broker/dealer (the "counterparty") of GNMA certificates or other mortgage-
backed securities together with a commitment to purchase from the counterparty
similar, but not identical, securities at a future date, at the same price. The
counterparty receives all principal and interest payments, including
prepayments, made on the security while it is the holder. The Fund receives a
fee from the counterparty as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed over a period of several months with a
different purchase and repurchase price fixed and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction may
be preceded by a firm commitment agreement pursuant to which the Fund agrees to
buy a security on a future date.

The Fund will not use such transactions for leveraging purposes and,
accordingly, will segregate cash or other liquid assets in an amount sufficient
to meet its purchase obligations under the transactions. The Fund will also
maintain asset coverage of at least 300% for all outstanding firm commitments,
dollar rolls and other borrowings.

Dollar rolls are treated for purposes of the Investment Company Act of 1940
(the "1940 Act") as borrowings of the Fund because they involve the sale of a
security coupled with an agreement to repurchase. Like all borrowings, a dollar
roll involves costs to the Fund. For example, while the Fund receives a fee as
consideration for agreeing to repurchase the security, the Fund forgoes the
right to receive all principal and interest payments while the counterparty
holds the

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security. These payments to the counterparty may exceed the fee received by the
Fund, thereby effectively charging the Fund interest on its borrowing. Further,
although the Fund can estimate the amount of expected principal prepayment over
the term of the dollar roll, a variation in the actual amount of prepayment
could increase or decrease the cost of the Fund's borrowing.

The entry into dollar rolls involves potential risks of loss which are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security which the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.

The Trustees of the Trust, on behalf of Short Term Bond Fund, have adopted
guidelines to ensure that those securities received are substantially identical
to those sold. To reduce the risk of default, the Fund will engage in such
transactions only with banks and broker/dealers selected pursuant to such
guidelines.

Repurchase Agreements. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System or any domestic broker/dealer which
is recognized as a reporting government securities dealer if the
creditworthiness of the bank or broker/dealer has been determined by the Adviser
to be at least as high as that of other obligations a Fund may purchase or at
least equal to that of issuers of commercial paper rated within the two highest
grades assigned by Moody's or S&P.

A repurchase agreement provides a means for a Fund to earn income on funds
for periods as short as overnight. It is an arrangement under which a Fund
acquires a security ("Obligation") and the seller agrees, at the time of sale,
to repurchase the Obligation at a specified time and price. Obligations subject
to a repurchase agreement are held in a segregated account and the value of such
obligations is kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the Obligation. Obligations will be held by the Funds' custodian or in
the Federal Reserve Book Entry System.

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For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from a Fund to the seller of the Obligation subject to the repurchase agreement
and is therefore subject to a Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
Obligation before repurchase of the Obligation under a repurchase agreement, a
Fund may encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the Obligation.
If the court characterizes the transaction as a loan and a Fund has not
perfected a security interest in the Obligation, a Fund may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt obligation purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case a Fund
may incur a loss if the proceeds to that Fund of its sale of the securities
underlying the repurchase agreement to a third party are less than the
repurchase price. However, if the market value (including interest) of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), a Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional securities.

Short Term Bond Fund may enter into repurchase commitments with any party
deemed creditworthy by the Adviser, including foreign banks and broker/ dealers,
if the transaction is entered into for investment purposes and the
counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase. Such transactions may not provide the
Fund with collateral marked-to-market during the term of the commitment.

When-Issued Securities. Each Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. The price of such securities, which
is generally expressed in yield terms, is generally fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities take place at a later date. During the period
between purchase and settlement, no payment is made by a Fund to the issuer and
no interest on the when-issued or forward delivery security accrues to a Fund.
To the extent that assets of a Fund are not invested prior to the settlement of
a

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purchase of securities, a Fund will earn no income; however, it is intended that
a Fund will be fully invested to the extent practicable and subject to the
policies stated above. While when-issued or forward delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. The market value of when-issued or forward delivery securities may
be more or less than the purchase price. Each Fund does not believe that its net
asset value or income will be adversely affected by their purchase of securities
on a when-issued or forward delivery basis. Each Fund will establish a
segregated account for commitments for when-issued or forward delivery
securities as described above. For Zero Coupon 2000 Fund, such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.

Foreign Securities. Short Term Bond Fund may invest in securities of
foreign issuers. Investing in foreign issuers involves certain special
considerations, including those set forth below, which are not typically
associated with investing in United States issuers. As foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Volume and liquidity in most foreign bond
markets is less than in the United States and, at times, volatility of price can
be greater than in the United States. There is generally less government
supervision and regulation of brokers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. Securities issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political subdivisions, may
or may not be supported by the full faith and credit and taxing power of the
foreign government. The Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Further, it may be more difficult for
the Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. In addition, it may
be more difficult to obtain and enforce a judgment against a foreign issuer.
Foreign securities may be subject to foreign government taxes which will reduce
the yield on such securities. A shareholder of the Fund will not be entitled to
claim a credit or deduction for U.S. federal income tax

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purposes for his or her proportionate share of such foreign taxes paid by the
Fund.

Lending of Portfolio Securities. Short Term Bond Fund may seek to increase
its income by lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in cash
or liquid assets maintained on a current basis at an amount at least equal to
the market value and accrued interest of the securities loaned. The Fund has the
right to call a loan and obtain the securities loaned on no more than five days'
notice. During the existence of a loan, the Fund will continue to receive the
equivalent of any distributions paid by the issuer on the securities loaned and
will also receive compensation based on investment of the collateral. As with
other extensions of credit there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, the loans will be made only to firms deemed by the Adviser to be of
good standing. The value of the securities loaned will not exceed 5% of the
value of the Fund's total assets at the time any loan is made.

Strategic Transactions and Derivatives. Short Term Bond Fund may, but is
not required to, utilize various other investment strategies as described below
to hedge various market risks (such as interest rates, currency exchange rates,
and broad or specific equity or fixed-income market movements), to manage the
effective maturity or duration of the Fund's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to

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enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.

Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain over-the-
counter options may have no markets. As a result, in certain markets, the Fund
might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.

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General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Short Term Bond Fund assets in special
accounts, as described below under "Use of Segregated and Other Special
Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of

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the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from

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Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. Short Term Bond Fund may enter into
financial futures contracts or purchase or sell put and call options on such
futures as a hedge against anticipated interest rate, currency or equity market
changes, for duration management and for risk management purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale

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of a futures contract creates a firm obligation by the Fund, as seller, to
deliver to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position.

The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the in-
the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. Short Term Bond
Fund also may purchase and sell call and put options on securities indices and
other financial indices and in so doing can achieve many of the same objectives
it would achieve through the sale or purchase of options on individual
securities or other instruments. Options on securities indices and other
financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon

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exercise of the option, an amount of cash if the closing level of the index upon
which the option is based exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option (except if, in the case of
an OTC option, physical delivery is specified). This amount of cash is equal to
the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. Short Term Bond Fund may engage in currency
transactions with Counterparties in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations of which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.

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<PAGE> 193

The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions in which Short Term
Bond Fund may engage are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.

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<PAGE> 194

Combined Transactions. Short Term Bond Fund may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions ("component"
transactions), instead of a single Strategic Transaction, as part of a single or
combined strategy when, in the opinion of the Adviser, it is in the best
interests of the Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which Short Term Bond Fund may enter are interest rate, currency and index swaps
and the purchase or sale of related caps, floors and collars. The Fund expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser

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<PAGE> 195

and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. Short Term Bond Fund may make investments in
Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Fund might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in the
U.S., may not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities, currencies and other instruments. The value of such
positions also could be adversely affected by: (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in the Fund's ability
to act upon economic events occurring in foreign markets during non-business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S., and (v) lower
trading volume and liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash or
liquid assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities,

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<PAGE> 196

instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid securities at least equal to the
current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.

OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based

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<PAGE> 197

futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. (See "TAXES.")

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies and may not be changed
with respect to each of the Funds without the approval of a majority of the
outstanding voting securities of such Fund which, under the 1940 Act and the
rules thereunder and as used in this combined Statement of Additional
Information, means the lesser of (1) 67% or more of the voting securities of
such Fund present at such meeting, if the holders of more than 50% of the
outstanding voting securities of such Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of such Fund.

Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, a Fund.

Each Fund has elected to be classified as a non-diversified series of an
open-end investment company.

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<PAGE> 198

As a matter of fundamental policy, each Fund may not:

(1) borrow money, except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;

(2) issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;

(3) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;

(4) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;

(5) purchase physical commodities or contracts relating to physical
commodities;

(6) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's objective and policies
may be deemed to be loans; or

(7) concentrate its investments in a particular industry, as that term
is used in the 1940 Act, as amended, and as interpreted or modified
by regulatory authority having jurisdiction, from time to time.

As a matter of nonfundamental policy, each Fund may not:

(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;

(2) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may

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<PAGE> 199

obtain such short-term credits as may be necessary for the clearance
of securities transactions;

(3) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;

(4) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit;

(5) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and

(6) lend portfolio securities in an amount greater than 5% of its total
assets.

For Short Term Bond Fund, restrictions with respect to repurchase
agreements shall be construed to be for repurchase agreements entered into for
the investment of available cash consistent with the Fund's repurchase agreement
procedures, not repurchase commitments entered into for general investment
purposes. In addition, for Short Term Bond Fund's policy regarding its
investments in the securities of issuers having their principal business
activities in the same industry, collateralized mortgage obligations and
asset-backed securities are considered to be separate industries.

PURCHASES

(SEE "PURCHASES" AND "TRANSACTION INFORMATION" IN A FUND'S PROSPECTUS.)

ADDITIONAL INFORMATION ABOUT OPENING AN ACCOUNT

Clients having a regular investment counsel account with the Adviser or its
affiliates and members of their immediate families, officers and employees of
the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through

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<PAGE> 200

Scudder Investor Services, Inc. (the "Distributor") by letter, fax, TWX or
telephone.

Shareholders of other Scudder funds who have submitted an account
application and have a certified taxpayer identification number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02101, ABA Number 011000028, DDA
Account Number 9903-5552. The investor must give the Scudder fund name, account
name and new account number. Finally, the investor must send the completed and
signed application to a Fund promptly.

The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.

ADDITIONAL INFORMATION ABOUT MAKING SUBSEQUENT INVESTMENTS

For Zero Coupon 2000 Fund, subsequent purchase orders for shares in the
amount of $10,000 or more and for an amount not greater than four times the
value of the shareholder's account may be placed by telephone, fax, etc., by
members of the NASD, by banks, and by established shareholders (except by
Scudder Individual Retirement Account (IRA), Scudder Horizon Plan, Scudder
Profit Sharing and Money Purchase Pension Plans, Scudder 401(k) and Scudder
403(b) Plan holders). Orders placed in this manner may be directed to any office
of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
that Fund.

For Short Term Bond Fund, certain financial institutions may call Scudder
before the close of regular trading on the Exchange, normally 4 p.m. eastern

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<PAGE> 201

time, and purchase shares at that day's price. Such purchased shares will begin
to earn dividends on the day on which the payment is received by the Fund. If
payment by check or wire is not received from the financial institution within
three business days, the order is subject to cancellation and the financial
institution will be responsible for any loss to the Fund resulting from this
cancellation. Please call 1-800-854-8525 for more information.

ADDITIONAL INFORMATION ABOUT MAKING SUBSEQUENT INVESTMENTS BY QUICKBUY

Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickBuy program, may purchase shares of the Fund by telephone. Through this
service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the New York Stock Exchange (the "Exchange"), shares will be purchased at the
net asset value per share calculated at the close of trading on the day of your
call. QuickBuy requests received after the close of regular trading on the
Exchange will begin their processing and be purchased at the net asset value
calculated the following business day. If you purchase shares by QuickBuy and
redeem them within seven days of the purchase, the Fund may hold the redemption
proceeds for a period of up to seven business days. If you purchase shares and
there are insufficient funds in your bank account the purchase will be canceled
and you will be subject to any losses or fees incurred in the transaction.
QuickBuy transactions are not available for most retirement plan accounts.
However, QuickBuy transactions are available for Scudder IRA accounts.

In order to request purchases by QuickBuy, shareholders must have completed
and returned to the Transfer Agent the application, including the designation of
a bank account from which the purchase payment will be debited. New investors
wishing to establish QuickBuy may so indicate on the application. Existing
shareholders who wish to add QuickBuy to their account may do so by completing a
QuickBuy Enrollment Form. After sending in an enrollment form shareholders
should allow for 15 days for this service to be available.

Each Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Each Fund will not be liable for acting upon

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<PAGE> 202

instructions communicated by telephone that it reasonably believes to be
genuine.

CHECKS

A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.

If shares are purchased by a check which proves to be uncollectible, the
Trust reserves the right to cancel the purchase immediately and the purchaser
will be responsible for any loss incurred by the Trust or the principal
underwriter by reason of such cancellation. If the purchaser is a shareholder,
the Trust shall have the authority, as agent of the shareholder, to redeem
shares in the shareholder's account to reimburse a Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted, in placing future orders in any of the
Scudder funds.

WIRE TRANSFER OF FEDERAL FUNDS

To purchase shares of Short Term Bond Fund and obtain the same day dividend
you must have your bank forward federal funds by wire transfer and provide the
required account information so as to be available to the Fund prior to twelve
o'clock noon eastern time on that day. If you wish to make a purchase of
$500,000 or more you should notify the Transfer Agent of such a purchase by
calling 1-800-225-5163. If either the federal funds or the account information
is received after twelve o'clock noon eastern time, but both the funds and the
information are made available before the close of regular trading on the
Exchange (normally 4 p.m. eastern time) on any business day, shares will be
purchased at net asset value determined on that day but will not receive the
dividend; in such cases, dividends commence on the next business day.

To obtain the net asset value determined as of the close of regular trading
on the Exchange on a selected day for a Fund, your bank must forward federal
funds by wire transfer and provide the required account information so as to be
available to a Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).

The bank sending an investor's federal funds by bank wire may charge for
the service. Presently, the Distributor pays a fee for receipt by State Street
Bank and Trust Company (the "Custodian") of "wired funds," but the right to
charge investors for this service is reserved.

Boston banks are closed on certain holidays although the Exchange may be
open. These holidays are Columbus Day (the 2nd Monday in October) and Veterans
Day (November 11). Investors are not able to purchase shares by

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wiring federal funds on such holidays because the Custodian is not open to
receive such federal funds on behalf of a Fund.

SHARE PRICE

Purchases will be filled without sales charge at the net asset value next
computed after receipt of the application in good order. Net asset value per
share normally will be computed as of the close of regular trading on each day
during which the Exchange is open for trading. Orders received after the close
of regular trading on the Exchange will receive the next business day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than a
Fund, to forward the purchase order to the Fund's Transfer Agent by the close of
trading on the Exchange.

SHARE CERTIFICATES

Due to the desire of the Trust to afford ease of redemption, certificates
will not be issued to indicate ownership in a Fund.

OTHER INFORMATION

The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at that Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of a Fund at any time for any reason.

The Board of Trustees and the Distributor each has the right to limit the
amount of purchases by, and to refuse to sell to any person and each may suspend
or terminate the offering of shares of a Fund at any time.

The Tax Identification Number section of the application must be completed
when opening an account. Applications and purchase orders without a certified
tax identification number and certain other certified information (e.g.,

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from exempt organizations, certification of exempt status) will be returned to
the investor.

The Trust may issue shares of each Fund at net asset value in connection
with any merger or consolidation with, or acquisition of the assets of, any
investment company (or series thereof) or personal holding company, subject to
the requirements of the 1940 Act.

EXCHANGES AND REDEMPTIONS

(SEE "EXCHANGES AND REDEMPTIONS" AND "TRANSACTION
INFORMATION" IN A FUND'S PROSPECTUS.)

EXCHANGES

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information -- Redeeming shares --
Signature guarantees" in a Fund's prospectus.

Exchange orders received before the close of regular trading on the
Exchange on any business day will ordinarily be executed at respective net asset
values determined on that day. Exchange orders received after the close of
trading will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the telephone or in writing. Automatic Exchanges will continue
until the shareholder requests by telephone or in writing to have the feature
removed, or until the originating account is depleted. The Trust and the

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Transfer Agent each reserves the right to suspend or terminate the privilege of
the Automatic Exchange Program at any time.

No commission is charged to the shareholder for any exchange described
above. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder, and
the proceeds of such exchange may be subject to backup withholding. (See
"TAXES.")

Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Funds and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.

The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-225-5163.

Scudder retirement plans may have different exchange requirements. Please
refer to appropriate plan literature.

REDEMPTION BY TELEPHONE

Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $100,000 and have the proceeds mailed to
their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.

(a) NEW INVESTORS wishing to establish telephone redemption to a
designated bank account must complete the appropriate section on
the application.

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit-Sharing, Scudder 401(k) and Scudder

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<PAGE> 206

403(b) planholders) who wish to establish telephone redemption to
a designated bank account or who want to change the bank account
previously designated to receive redemption payments should either
return a Telephone Redemption Option Form (available upon request)
or send a letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly as
the shareholder's name(s) appears on the account. An original
signature and an original signature guarantee are required for
each person in whose name the account is registered.

Telephone redemption is not available with respect to shares represented by
share certificates or shares held in IRA accounts.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.

Note: Investors designating that a savings bank receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must
be wired through a commercial bank which is a correspondent of the
savings bank. As this may delay receipt by the shareholder's
account, it is suggested that investors wishing to use a savings
bank discuss wire procedures with their banks and submit any special
wire transfer information with the telephone redemption
authorization. If appropriate wire information is not supplied,
redemption proceeds will be mailed to the designated bank.

Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared.

REDEMPTION BY QUICKSELL

Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickSell program may sell shares of a Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading

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<PAGE> 207

on the Exchange will begin their processing and be redeemed at the net asset
value calculated the following business day. QuickSell transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

REDEMPTION BY MAIL OR FAX

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).

It is suggested that shareholders holding shares registered in other than
individual names contact the Transfer Agent prior to redemptions to ensure that
all necessary documents accompany the request. When shares are held in the name
of a corporation, trust, fiduciary agent, attorney or partnership, the Transfer
Agent requires, in addition to the stock power, certified evidence of authority
to sign. These procedures are for the protection of shareholders and should be
followed to ensure prompt payment. Redemption requests must not be conditional
as to date or price of the redemption. Proceeds of a redemption will be sent
within five business days after receipt by the Transfer Agent of a request for
redemption that complies with the above requirements. Delays in payment of more
than seven days of payment for shares tendered for redemption may result but
only until the purchase check has cleared.

The requirements for IRA redemptions are different from those for regular
accounts. For more information please call 1-800-225-5163.

REDEMPTION BY "WRITE-A-CHECK"

All new investors and existing shareholders of Short Term Bond Fund who
apply to the Custodian for checks may use them to pay any person, provided that
each check is for at least $100 and not more than $5 million. By using the
checks, the shareholder will receive daily dividend credit on his or her shares
until the check has cleared the banking system. Investors who purchased shares
by check may write checks against those shares only after they have been on
Short Term Bond Fund's books for seven business days. Shareholders who use

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this service may also use other redemption procedures. No shareholder may write
checks against certificated shares. Short Term Bond Fund pays the bank charges
for this service. However, the Fund will review the cost of operation
periodically and reserves the right to determine if direct charges to the
persons who avail themselves of this service would be appropriate. The Trust, on
behalf of Short Term Bond Fund, the Transfer Agent and the Custodian each
reserves the right at any time to suspend or terminate the "Write-A-Check"
procedure. Checks will be returned by the Custodian if there are insufficient
shares to meet the withdrawal amount. Potential fluctuations in the per share
value of Short Term Bond Fund should be considered in determining the amount of
the check. An investor should not attempt to close an account by check, because
the exact balance at the time the check clears will not be known when the check
is written.

OTHER INFORMATION

If the shareholder redeems all shares in the account after the record date
of a dividend, the shareholder will receive, in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
may be more or less than a shareholder's cost depending upon the net asset value
at the time the redemption is made. The Trust does not impose a redemption
charge, although a wire charge may be applicable for redemption proceeds wired
to an investor's bank account. Redemption of shares, including an exchange into
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder, and the proceeds of such redemptions may be subject to backup
withholding. (See "TAXES.")

Shareholders who wish to redeem shares from Special Plan Accounts should
contact the employer, trustee or custodian of the Plan for the requirements.

The determination of net asset value, and a shareholder's right to redeem
shares and to receive payment therefore may be suspended at times during which
(a) the Exchange is closed, other than customary weekend and holiday closings,
(b) trading on said Exchange is restricted, (c) an emergency exists as a result
of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, or (d) a governmental body having jurisdiction over
the Trust may by order permit such a suspension for the protection of the
Trust's shareholders; provided that applicable rules and regulations of the
Securities and Exchange Commission ("SEC") (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.

If transactions at any time reduce a shareholder's account balance to below
$2,500 in value, the Trust may notify the shareholder that, unless the account
balance is brought up to at least $2,500, the Trust may redeem all shares in a
Fund, close the account, and send redemption proceeds to the shareholder. The

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shareholder has sixty days to bring the account balance up to $2,500 before any
action will be taken. No transfer from an existing to a new Scudder fund account
should be for less than $2,500; otherwise the new account will be redeemed as
described above. (This policy applies to accounts of new shareholders, but does
not apply to certain Special Plan Accounts.) The Trustees have the authority to
change the minimum account size.

FEATURES AND SERVICES OFFERED BY THE FUNDS

(SEE "SHAREHOLDER BENEFITS" IN A FUND'S PROSPECTUS.)

THE PURE NO-LOAD(TM) CONCEPT

Investors are encouraged to be aware of the full ramifications of mutual
fund fee structures, and of how Scudder distinguishes its Scudder Family of
Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.

Load funds generally are defined as mutual funds that charge a fee for the
sale and distribution of fund shares. There are three types of loads: front-end
loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are distribution-
related fees charged against fund assets and are distinct from service fees,
which are charged for personal services and/or maintenance of shareholder
accounts. Asset-based sales charges and service fees are typically paid pursuant
to distribution plans adopted under 12b-1 under the 1940 Act.

A front-end load is a sales charge, which can be as high as 8.50% of the
amount invested. A back-end load is a contingent deferred sales charge, which
can be as high as 8.50% of either the amount invested or redeemed. The maximum
front-end or back-end load varies, and depends upon whether or not a fund also
charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.

A no-load fund does not charge a front-end or back-end load, but can charge
a small 12b-1 fee and/or service fee against fund assets. Under the NASD Rules
of Fair Practice, a mutual fund can call itself a "no-load" fund only if the
12b-1 fee and/or service fee does not exceed 0.25% of a fund's average annual
net assets.

Because funds in the Scudder Family of Funds do not pay any asset-based
sales charges or service fees, Scudder developed and trademarked the phrase pure
no-load(TM) to distinguish funds in the Scudder Family of Funds from other
no-load mutual funds. Scudder pioneered the no-load concept when it created

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the nation's first no-load fund in 1928, and later developed the nation's first
family of no-load mutual funds.

The following chart shows the potential long-term advantage of investing
$10,000 in a Scudder Family of Funds pure no-load fund over investing the same
amount in a load fund that collects an 8.50% front-end load, a load fund that
collects only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only
a 0.25% 12b-1 and/or service fee. The hypothetical figures in the chart show the
value of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.

<TABLE>
<CAPTION>
SCUDDER NO-LOAD FUND
PURE NO-LOAD(TM) 8.50% LOAD LOAD FUND WITH WITH 0.25%
YEARS FUND FUND 0.75% 12b-1 FEE 12b-1 FEE
- ----- ---------------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>

Investors are encouraged to review the fee tables on page 2 of a Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.

INTERNET ACCESS

World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.

The site is designed for interactivity, simplicity and maneuverability. A
section entitled "Planning Resources" provides information on asset allocation,
tuition, and retirement planning to users who fill out interactive "worksheets."
Investors can easily establish a "Personal Page," that presents price
information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.

Scudder has communicated with shareholders and other interested parties on
Prodigy since 1988 and has participated since 1994 in GALT's Networth "financial
marketplace" site on the Internet. The firm made Scudder Funds information
available on America Online in early 1996.

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<PAGE> 211

Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.

Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.

An Account Activity option reveals a financial history of transactions for
an account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.

A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.

DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS

Investors have freedom to choose whether to receive cash or to reinvest any
dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please include your account number with your written request. See "How to
contact Scudder" in a Fund's prospectus for the address.

Reinvestment is usually made at the closing net asset value determined on
the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the relevant Fund.

Investors may also have dividends and distributions automatically deposited
to their predesignated bank account through Scudder's DistributionsDirect
Program. Shareholders who elect to participate in the DistributionsDirect Pro-

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<PAGE> 212

gram, and whose predesignated checking account of record is with a member bank
of the Automated Clearing House Network (ACH) can have income and capital gain
distributions automatically deposited to their personal bank account usually
within three business days after a Fund pays its distribution. A
DistributionsDirect request form can be obtained by calling 1-800-225-5163.
Confirmation statements will be mailed to shareholders as notification that
distributions have been deposited.

Investors choosing to participate in Scudder's Automatic Withdrawal Plan
must reinvest any dividends or capital gains. For most retirement plan accounts,
the reinvestment of dividends and capital gains is also required.

DIVERSIFICATION

Your investment represents an interest in a large, diversified portfolio of
carefully selected securities. Diversification may protect you against the
possible risks associated with concentrating in fewer securities.

SCUDDER INVESTOR CENTERS

Investors may visit any of the Centers maintained by the Distributor listed
in a Fund's prospectus. The Centers are designed to provide individuals with
services during any business day. Investors may pick up literature or find
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
Contact Scudder" in a Fund's prospectus.

REPORTS TO SHAREHOLDERS

The Trust issues to the Funds' shareholders semiannual financial
statements, audited annually by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets and financial highlights for each Fund.

TRANSACTION SUMMARIES

Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-225-5163.

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<PAGE> 213

THE SCUDDER FAMILY OF FUNDS

(SEE "INVESTMENT PRODUCTS AND SERVICES" IN THE FUNDS' PROSPECTUSES.)

The Scudder Family of Funds is America's first family of mutual funds and
the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.

MONEY MARKET

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current income. The
Fund seeks to maintain a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible, and declares dividends daily.

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability of
capital and, consistent therewith, to maintain the liquidity of capital and to
provide current income. SCIT seeks to maintain a constant net asset value of
$1.00 per share, although in certain circumstances this may not be possible, and
declares dividends daily.

Scudder Money Market Series seeks to provide investors with as high a level
of current income as is consistent with its investment polices and with
preservation of capital and liquidity. The Fund seeks to maintain a constant net
asset value of $1.00 per share, but there is no assurance that it will be able
to do so. The institutional class of shares of this Fund is not within the
Scudder Family of Funds.

Scudder Government Money Market Series seeks to provide investors with as
high a level of current income as is consistent with its investment polices and
with preservation of capital and liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share, but there is no assurance that it
will be able to do so. The institutional class of shares of this Fund is not
within the Scudder Family of Funds.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt from
regular federal income tax and stability of principal through investments
primarily in municipal securities. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in extreme circumstances this may not be
possible.

Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal income tax by
reason of federal law as is consistent with its investment policies and with
preservation of capital and liquidity. The Fund seeks to maintain a constant net
asset value of $1.00 per share, but there is no assurance that it will be able
to do

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<PAGE> 214

so. The institutional class of shares of this Fund is not within the Scudder
Family of Funds.

Scudder California Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share while providing
California taxpayers income exempt from both California State personal and
regular federal income taxes. The Fund is a professionally managed portfolio of
high quality, short-term California municipal securities. There can be no
assurance that the stable net asset value will be maintained.

Scudder New York Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, while providing
New York taxpayers income exempt from New York State and New York City personal
income taxes and regular federal income tax. There can be no assurance that the
stable net asset value will be maintained.

TAX FREE

Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a high
degree of principal stability.

Scudder Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation. The
Fund will invest primarily in high-grade, intermediate-term bonds.

Scudder Managed Municipal Bonds seeks to provide income exempt from regular
federal income tax primarily through investments in high-grade, long-term
municipal securities.

Scudder High Yield Tax Free Fund seeks to provide a high level of interest
income, exempt from regular federal income tax, from an actively managed
portfolio consisting primarily of investment-grade municipal securities.

Scudder California Tax Free Fund seeks to provide California taxpayers with
income exempt from both California State personal income and regular federal
income tax. The Fund is a professionally managed portfolio consisting primarily
of California municipal securities.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from Massachu-

- ------------------------------

* These funds are not available for sale in all states. For information, contact
Scudder Investor Services, Inc.
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<PAGE> 215

setts personal income tax and regular federal income tax, as is consistent with
a high degree of price stability, through a professionally managed portfolio
consisting primarily of investment-grade municipal securities.

Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income tax and
regular federal income tax. The Fund is a professionally managed portfolio
consisting primarily of investment-grade municipal securities.

Scudder New York Tax Free Fund* seeks to provide New York taxpayers with
income exempt from New York State and New York City personal income taxes and
regular federal income tax. The Fund is a professionally managed portfolio
consisting primarily of New York municipal securities.

Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income tax. The
Fund is a professionally managed portfolio consisting primarily of
investment-grade municipal securities.

Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania taxpayers
with income exempt from both Pennsylvania personal income tax and regular
federal income tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.

U.S. INCOME

Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing primarily in
high quality short-term bonds.

Scudder GNMA Fund seeks to provide high current income primarily from U.S.
Government guaranteed mortgage-backed (Ginnie Mae) securities.

Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program emphasizing
high-grade bonds.

Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.

- ------------------------------

* These funds are not available for sale in all states. For information, contact
Scudder Investor Services, Inc.

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<PAGE> 216

GLOBAL INCOME

Scudder Global Bond Fund seeks to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in foreign
currencies and the U.S. dollar. As a secondary objective, the Fund will seek
capital appreciation.

Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As a
secondary objective, the Fund seeks protection and possible enhancement of
principal value by actively managing currency, bond market and maturity exposure
and by security selection.

Scudder Emerging Markets Income Fund seeks to provide high current income
and, secondarily, long-term capital appreciation through investments primarily
in high-yielding debt securities issued by governments and corporations in
emerging markets.

ASSET ALLOCATION

Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will have some
exposure to Scudder equity mutual funds.

Scudder Pathway Series: Balanced Portfolio seeks to provide investors with
a balance of growth and income by investing in a select mix of Scudder money
market, bond and equity mutual funds.

Scudder Pathway Series: Growth Portfolio seeks to provide investors with
long-term growth of capital. In pursuing this objective, the Portfolio will,
under normal market conditions, invest predominantly in a select mix of Scudder
equity mutual funds designed to provide long-term growth.

Scudder Pathway Series: International Portfolio seeks maximum total return
for investors. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests in a
select mix of established international and global Scudder funds.

U.S. GROWTH AND INCOME

Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund also seeks
long-term preservation of capital through a quality-oriented approach that is
designed to reduce risk.

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<PAGE> 217

Scudder Growth and Income Fund seeks long-term growth of capital, current
income, and growth of income.

Scudder S&P 500 Index Fund seeks to provide investment results that, before
expenses, correspond to the total return of common stocks publicly traded in the
United States, as represented by the Standard & Poor's 500 Composite Stock Price
Index.

Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies in the
real estate industry.

U.S. GROWTH

Value

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

Scudder Value Fund** seeks long-term growth of capital through investment
in undervalued equity securities.

Scudder Small Company Value Fund invests for long-term growth of capital by
seeking out undervalued stocks of small U.S. companies.

Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization ("micro-cap")
common stocks.

Growth

Scudder Classic Growth Fund** seeks to provide long-term growth of capital
with reduced share price volatility compared to other growth mutual funds.

Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.

Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.

Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies poised to be
leaders in the 21st century.

- ------------------------------

** Only the Scudder Shares are part of the Scudder Family of Funds.

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SCUDDER CHOICE SERIES

Scudder Financial Services Fund seeks long-term growth of capital primarily
through investment in equity securities of financial services companies.

Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related to the
treatment or prevention of diseases and other medical problems.

Scudder Technology Fund seeks long-term growth of capital primarily through
investment in securities of companies engaged in the development, production or
distribution of technology-related products or services.

GLOBAL GROWTH

Worldwide

Scudder Global Fund seeks long-term growth of capital through a diversified
portfolio of marketable securities, primarily equity securities, including
common stocks, preferred stocks and debt securities convertible into common
stocks.

Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities.

Scudder Global Discovery Fund** seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world.

Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the globe.

Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity securities and
gold.

Regional

Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European companies.

Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.

- ------------------------------

** Only the Scudder Shares are part of the Scudder Family of Funds.

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<PAGE> 219

Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.

The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts) of
Japanese companies.

The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.

SPECIAL PLAN ACCOUNTS

(SEE "SCUDDER TAX-ADVANTAGED RETIREMENT PLANS," "PURCHASES -- BY AUTOMATIC
INVESTMENT PLAN" AND "EXCHANGES AND REDEMPTIONS -- BY AUTOMATIC
WITHDRAWAL PLAN" IN THE FUND'S PROSPECTUS.)

Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.

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<PAGE> 220

Shares of the Fund may also be a permitted investment under profit sharing
and pension plans and IRAs other than those offered by the Fund's distributor
depending on the provisions of the relevant plan or IRA.

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

SCUDDER RETIREMENT PLANS: PROFIT-SHARING AND MONEY PURCHASE PENSION PLANS FOR
CORPORATIONS AND SELF-EMPLOYED INDIVIDUALS

Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder Profit-Sharing Plan (including a version of the Plan
which includes a cash-or-deferred feature) or a Scudder Money Purchase Pension
Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to Form.

SCUDDER 401(k): CASH OR DEFERRED PROFIT-SHARING PLAN FOR CORPORATIONS AND
SELF-EMPLOYED INDIVIDUALS

Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder 401(k) Plan adopted by a corporation, a self-employed
individual or a group of self-employed individuals (including sole proprietors
and partnerships), or other qualifying organization. This plan has been approved
as a prototype by the IRS.

SCUDDER IRA: INDIVIDUAL RETIREMENT ACCOUNT

Shares of the Funds may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.

A single individual who is not an active participant in an employer-
maintained retirement plan, a simplified employee pension plan, or a tax-
deferred annuity program (a "qualified plan"), and a married individual who is
not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to

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<PAGE> 221

make tax-deductible contributions to an IRA; the annual amount, if any, of the
contribution which such an individual will be eligible to deduct will be
determined by the amount of his, her, or their adjusted gross income for the
year. Whenever the adjusted gross income limitation prohibits an individual from
contributing what would otherwise be the maximum tax-deductible contribution he
or she could make, the individual will be eligible to contribute the difference
to an IRA in the form of nondeductible contributions.

An eligible individual may contribute as much as $2,000 of qualified income
(earned income or, under certain circumstances, alimony) to an IRA each year (up
to $2,000 per individual for married couples if only one spouse has earned
income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.

The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)

VALUE OF IRA AT AGE 65
ASSUMING $2,000 DEDUCTIBLE ANNUAL CONTRIBUTION

<TABLE>
<CAPTION>
STARTING ANNUAL RATE OF RETURN
AGE OF --------------------------------
CONTRIBUTIONS 5% 10% 15%
- ------------- -------- -------- ----------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>

This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)

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<PAGE> 222

VALUE OF A NON-IRA ACCOUNT AT
AGE 65 ASSUMING $1,380 ANNUAL CONTRIBUTIONS
(POST TAX, $2,000 PRETAX) AND A 31% TAX BRACKET

<TABLE>
<CAPTION>
STARTING ANNUAL RATE OF RETURN
AGE OF ------------------------------
CONTRIBUTIONS 5% 10% 15%
- ------------- -------- -------- --------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>

SCUDDER ROTH IRA: INDIVIDUAL RETIREMENT ACCOUNT

Shares of the Funds may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.

A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.

An eligible individual can contribute money to a traditional IRA and a Roth
IRA as long as the total contribution to all IRAs does not exceed $2,000. No tax
deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.

All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.

An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax

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<PAGE> 223

payments over a four-year period. After 1998, all taxes on such a rollover will
have to be paid in the tax year in which the rollover is made.

SCUDDER 403(b) PLAN

Shares of the Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.

AUTOMATIC WITHDRAWAL PLAN

Non-retirement plan shareholders may establish an Automatic Withdrawal Plan
to receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. The check amounts may be based on the
redemption of a fixed dollar amount, fixed share amount, percent of account
value or declining balance. The Plan provides for income dividends and capital
gains distributions, if any, to be reinvested in additional shares. Shares are
then liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment. Requests for increases in withdrawal amounts or to
change payee must be submitted in writing, signed exactly as the account is
registered and contain signature guarantee(s) as described under "Transaction
information -- Redeeming shares -- Signature guarantees" in the Fund's
prospectus. Any such requests must be received by the Fund's transfer agent ten
days prior to the date of the first automatic withdrawal. An Automatic
Withdrawal Plan may be terminated at any time by the shareholder, the Trust or
its agent on written notice, and will be terminated when all shares of the Fund
under the Plan have been liquidated or upon receipt by the Trust of notice of
death of the shareholder.

An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.

GROUP OR SALARY DEDUCTION PLAN

An investor may join a Group or Salary Deduction Plan where satisfactory
arrangements have been made with Scudder Investor Services, Inc. for forwarding
regular investments through a single source. The minimum annual investment is
$240 per investor which may be made in monthly, quarterly, semiannual or annual
payments. The minimum monthly deposit per investor is $20. Except
59
<PAGE> 224

for trustees or custodian fees for certain retirement plans, at present there is
no separate charge for maintaining group or salary deduction plans; however, the
[Trust, Corporation] and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.

The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

AUTOMATIC INVESTMENT PLAN

Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.

The Automatic Investment Plan involves an investment strategy called dollar
cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

UNIFORM TRANSFERS/GIFTS TO MINORS ACT

Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.

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<PAGE> 225

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(SEE "DISTRIBUTION AND PERFORMANCE INFORMATION -- DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS" IN A FUND'S PROSPECTUS.)

Each Fund intends to follow the practice of distributing substantially all
of its investment company taxable income (defined under "GLOSSARY") which
includes any excess of net realized short-term capital gains over net realized
long-term capital losses. A Fund may follow the practice of distributing the
entire excess of net realized long-term capital gains over net realized
short-term capital losses. However, a Fund may retain all or part of such gain
for reinvestment, after paying the related income taxes for which shareholders
may then be asked to claim a credit against their federal income tax liability.
(See "TAXES.") If a Fund does not distribute an amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, it may be subject to such a tax. (See "TAXES.") In certain circumstances,
a Fund may determine that it is in the interest of shareholders to distribute
less than such amount or less than substantially all of its investment company
taxable income.

With respect to Short Term Bond Fund, dividends will be declared daily and
distributions of net investment income will be made monthly. Distributions of
net realized capital gains, if any, will be made in November or December to
prevent application of a federal excise tax. An additional distribution may be
made, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. Both types
of distributions will be made in shares of the Fund and confirmations will be
mailed to each shareholder unless a shareholder has elected to receive cash, in
which case a check will be sent.

With respect to Zero Coupon 2000 Fund, the net investment income of the
Fund normally will be declared and distributed as a dividend in December.
Distributions of net realized capital gains, if any, will be made in November or
December to prevent application of a federal excise tax. An additional
distribution may be made within three months of the Fund's fiscal year end, if
necessary. Any dividends declared in October, November or December with a record
date in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. Checks will be mailed to shareholders electing to
take dividends in cash. Confirmations will be mailed to shareholders electing to
invest dividends in additional shares for the dividends declared during the
preceding period shortly after the end of the fiscal year.

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<PAGE> 226

PERFORMANCE INFORMATION

(SEE "DISTRIBUTION AND PERFORMANCE INFORMATION -- PERFORMANCE
INFORMATION" IN A FUND'S PROSPECTUS.)

From time to time, quotations of the Funds' performances may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:

AVERAGE ANNUAL TOTAL RETURN

Average annual total return is the average annual compounded rate of return
for the periods of one year, five years, and ten years, all ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment over such periods
according to the following formula (average annual total return is then
expressed as a percentage):

<TABLE>
<S> <C> <C>
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
</TABLE>

Average Annual Total Return for periods ended December 31, 1997

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
Short Term Bond Fund.................. 6.17% 5.11% 7.43%(1)
Zero Coupon 2000 Fund*................ 6.53% 6.40% 9.55%
</TABLE>

- ------------------------------
(1) The foregoing average annual total return includes the period prior to July
3, 1989, during which the Fund operated under the investment objective and
policies of Scudder Target Fund General 1994 Portfolio. Average annual total
return figures for the periods prior to July 3, 1989 should not be
considered representative of the present Fund.

* If the Adviser had not temporarily maintained expenses, the average annual
total return for the one year, five year and life periods of Fund would have
been lower.

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<PAGE> 227

CUMULATIVE TOTAL RETURN

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):

C = (ERV/P)-1

Where:

<TABLE>
<S> <C> <C>
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
</TABLE>

CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
Short Term Bond Fund................. 6.17% 28.30% 104.74%(1)
Zero Coupon 2000 Fund*............... 6.53% 36.38% 148.99%
</TABLE>

- ------------------------------
(1) The foregoing cumulative total return includes the period prior to July 3,
1989, during which the Fund operated under the investment objective and
policies of Scudder Target Fund General 1994 Portfolio. Cumulative total
return figures for the periods prior to July 3, 1989 should not be
considered representative of the present Fund.

* If the Adviser had not temporarily maintained expenses, the cumulative total
return for the one year, five year and life of Fund periods would have been
lower.

TOTAL RETURN

Total return is the rate of return on an investment for a specified period
of time calculated in the same manner as Cumulative Total Return.

SEC YIELDS

Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield, sometimes
referred to as the Fund's "SEC yield," is calculated by dividing the net invest-

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<PAGE> 228

ment income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:

(6)
YIELD = 2[((a-b) + 1) - 1]
-----
cd

Where:

<TABLE>
<S> <C> <C>
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
</TABLE>

The SEC net annualized yield for the 30-day period ended December 31, 1997
for Short Term Bond Fund was 6.06%.

The SEC net annualized yield for the 30-day period ended December 31, 1997
for Zero Coupon 2000 Fund was 4.86%.

Quotations of a Fund's performance are based on historical earnings and are
not intended to indicate future performance of a Fund. An investor's shares when
redeemed may be worth more or less than their original cost. Performance of a
Fund will vary based on changes in market conditions and the level of a Fund's
expenses. In periods of declining interest rates a Fund's quoted yield will tend
to be somewhat higher than prevailing market rates, and in periods of rising
interest rates a Fund's quoted yield will tend to be somewhat lower.

COMPARISON OF FUND PERFORMANCE

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's 500 Composite Stock Price Index (S&P
500), the Nasdaq OTC Composite Index, the Nasdaq Industrials Index, the Russell
2000 Index, and statistics published by the Small Business Administration.

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<PAGE> 229

From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Funds, the Funds' portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Funds. In addition, the amount of assets that the Adviser has under management
in various geographical areas may be quoted in advertising and marketing
materials.

The Funds may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

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Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
involve the loss of principal. However, all long-term investments, including
investments in bank products, may be subject to inflation risk, which is the
risk of erosion of the value of an investment as prices increase over a long
time period. The risks/returns associated with an investment in bond or equity
funds depend upon many factors. For bond funds these factors include, but are
not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.

Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.

Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Funds, including reprints of, or selections from, editorials or articles about
these Funds. Sources for Fund performance information and articles about the
Funds include the following:

American Association of Individual Investors' Journal, a monthly
publication of the AAII that includes articles on investment analysis
techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market
and bank CD interest rates, published on a weekly basis by Masterfund, Inc.
of Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

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<PAGE> 231

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.

CDA Investment Technologies, Inc., an organization which provides
performance and ranking information through examining the dollar results of
hypothetical mutual fund investments and comparing these results against
appropriate market indices.

Consumer Digest, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to
time articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign
equity market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds,
summarizing money market fund activity and including certain averages as
performance benchmarks, specifically "IBC's Money Fund Average," and "IBC's
Government Money Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research
and data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial,
economic, and business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

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<PAGE> 232

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

The New York Times, a nationally distributed newspaper which regularly
covers financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon
Jacobs, that includes mutual fund performance data and recommendations for
the mutual fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company,
Inc., that reports on mutual fund performance, rates funds and discusses
investment strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance
measures, yields, indices and portfolio holdings.

SmartMoney, a national personal finance magazine published monthly by Dow
Jones and Company, Inc. and The Hearst Corporation. Focus is placed on
ideas for investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter,
published by Babson United Investment Advisors, that includes mutual fund
performance data and reviews of mutual fund portfolios and investment
strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national news weekly that periodically
reports mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

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<PAGE> 233

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records and price ranges.

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication issued 10 times per year by Capital
Publishing Company, a subsidiary of Fidelity Investments. Focus is placed
on personal financial journalism.

ORGANIZATION OF THE FUNDS

(SEE "FUND ORGANIZATION" IN A FUND'S PROSPECTUS.)

Each Fund is a separate diversified series of Scudder Funds Trust, a
Massachusetts business trust established under a Declaration of Trust dated July
24, 1981, as amended. The name of the Trust was changed, effective July 3, 1989,
from Scudder Target Fund to Scudder Funds Trust. Prior to action taken by the
Trustees of the Trust on March 7, 1990, Scudder Zero Coupon 2000 Fund was named
2000 U.S. Government Zero Coupon Target Portfolio. On December 23, 1987 the par
value of the shares of beneficial interest of the Trust was changed from no par
value to $.01 par value per share. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $.01 par value, issued in
separate series. Each share of each series represents an equal proportionate
interest in that series with each other share of that series. Shareholders have
one vote for each share held on matters on which they are entitled to vote.

Effective as of July 3, 1989, two series of the Trust, the General 1990
Portfolio and U.S. Government 1990 Portfolio, sold their assets to another
series of the Trust, the General 1994 Portfolio, in exchange for shares of the
1994 Portfolio, as approved by shareholders on June 26, 1989. Effective as of
the same date, the General 1994 Portfolio changed its name to Scudder Short Term
Bond Fund and changed its investment objectives from current income, capital
preservation and possible capital appreciation to its current investment
objective.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are

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segregated on the books of account, and are to be charged with the liabilities
in respect to such series and with such a share of the general liabilities of
the Trust. If a series were unable to meet its obligations, the assets of all
other series may in some circumstances be available to creditors for that
purpose, in which case the assets of such other series could be used to meet
liabilities which are not otherwise properly chargeable to them. Expenses with
respect to any two or more series are to be allocated in proportion to the asset
value of the respective series except where allocations of direct expenses can
otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Additionally, approval of the
investment management agreement is a matter to be determined separately by each
series. Approval by the shareholders of one series is effective as to that
series whether or not enough votes are received from the shareholders of the
other series to approve such agreement as to the other series.

The Trustees have the authority to designate additional series and to
designate the relative rights and preferences as between the different series.
All shares issued and outstanding will be fully paid and non-assessable by the
Trust, and redeemable as described in this Statement of Additional Information
and in each Fund's prospectus.

The Trustees, in their discretion, may authorize the division of shares of
a Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution.

The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the Declaration of Trust
protects or indemnifies a

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Trustee or officer against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.

INVESTMENT ADVISER

(SEE "FUND ORGANIZATION -- INVESTMENT ADVISER" IN A FUND'S PROSPECTUS.)

Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Funds. This organization, the
predecessor of which is Scudder, Stevens & Clark, Inc., is one of the most
experienced investment counsel firms in the U. S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") entered into
an agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder
and Zurich agreed to form an alliance. On December 31, 1997, Zurich acquired a
majority interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of Scudder. Scudder's name has been changed to Scudder
Kemper Investments, Inc.

Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder Global High Income
Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional
Fund, Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money

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Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable
Life Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea
Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund, Inc. Some
of the foregoing companies or trusts have two or more series.

The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.

Pursuant to an Agreement between Scudder Kemper Investments, Inc. and AMA
Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"),
dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLink(SM)
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLink(SM) Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.

The Adviser maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Adviser utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Funds and for clients of the Adviser,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.

Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for the Funds and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one series or client or in
different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased

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or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other series or other clients of the Adviser in the interest of the
most favorable net results to that Fund.

The investment management agreements between each of Scudder Short Term
Bond Fund and Scudder Zero Coupon 2000 Fund and Scudder were last approved by
the Trust's Trustees on August 6, 1998. Because the transaction between Scudder
and Zurich resulted in the assignment of each Fund's investment management
agreement with Scudder, the agreements automatically terminated at the
consummation of the transaction. In anticipation of the transaction, however,
new investment management agreements (the "Agreements") between each of the
Funds and the Adviser were approved by the Trust's Trustees on August 14, 1997.
At the special meeting of the Funds' shareholders held on October 24, 1997, the
shareholders also approved the Agreements. The new Agreements became effective
as of December 31, 1997 and will be in effect for an initial term ending on
September 30, 1998. The Agreements are in all material respects on the same
terms as the previous investment management agreements which they supersede. The
Agreements incorporate conforming changes which promote consistency among all of
the funds advised by the Adviser and which permit ease of administration. The
Agreements will continue in effect from year to year thereafter only if their
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to the Agreements or interested persons of the Adviser or the
Trust, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees on behalf of the Funds or
of a majority of the outstanding voting securities of the Fund. The Agreements
may be terminated at any time without payment of penalty by either party on
sixty days' written notice and automatically terminates in the event of their
assignment.

Under each Agreement, the Adviser regularly provides a Fund with continuing
investment management for the Fund's portfolio consistent with a Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold, and what portion of a Fund's assets shall be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act, the Internal Revenue Code of 1986 and a Fund's
investment objectives, policies and restrictions, as each may be amended, and
subject further to such policies and instructions as the Trustees of the Trust
may from time to time establish. The Adviser also advises and assists the
officers of the Trust in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees and the appropriate committee of the
Trustees regarding the conduct of the business of the Trust.

Under each Agreement, the Adviser also renders significant administrative
services (not otherwise provided by third parties) necessary for a Fund's

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operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Funds (such as the Funds' transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of each Fund's federal, state and local tax returns; preparing and filing each
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining each Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies for each Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting a Fund in the conduct of its business, subject to the direction and
control of the Trustees.

The Adviser pays the compensation and expenses of the Trust except those
for attending Board and committee meetings outside New York, New York or Boston,
Massachusetts of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to a Fund, the
services of the Adviser's directors, officers and employees as may duly be
elected officers, subject to their individual consent to serve and to any
limitations imposed by law, and provides the Trust's office space and facilities
and provides investment advisory, research and statistical facilities and all
clerical services relating to research, statistical and investment work.

For these services, Short Term Bond Fund pays the Adviser a fee at an
annual rate of 0.60% of the first $500 million of average daily net assets,
0.50% of the next $500 million of such assets, 0.45% of the next $500 million of
such assets, 0.40% of the next $500 million of such assets, 0.375% of the next
$1 billion of such assets and 0.35% of such assets in excess of $3 billion. For
the fiscal years ended December 31, 1995, 1996 and 1997, the investment
management fees for Short Term Bond Fund amounted to $9,529,973, $8,232,708 and
$6,769,577, respectively.

For these services, Zero Coupon 2000 Fund pays the Adviser a fee at an
annual rate of 0.60% of the Fund's average daily net assets. For the fiscal year
ended December 31, 1995, the Adviser did not impose a portion of its management
fee which amounted to $129,399 and the portion imposed amounted to $31,783. For
the fiscal year ended December 31, 1996, the management fee aggregated $158,725,
of which $120,119 was not imposed. For the fiscal year ended December 31, 1997,
the management fee aggregated $129,600, all of which was not imposed.

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The fees are payable monthly, provided the Funds will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of a Fund and unpaid. The Adviser has
voluntarily agreed, with respect to Zero Coupon 2000 Fund, not to impose all or
a portion of its management fee and to maintain the annualized expenses at not
more than 1.00% of the average daily net assets until April 1, 1998. The Adviser
retains the ability to be repaid by the Fund if expenses fall below the
specified limit prior to the end of the fiscal year. These expense limitation
arrangements can decrease the Fund's expenses and improve its performance.

The yield on shares of a Fund will be increased to the extent that the
Adviser maintains a Fund's expenses, and thereafter will be reduced to the
extent that full payment by a Fund of the fee and expenses is instituted.

Under each Agreement, a Fund is responsible for all of its other expenses
including: fees and expenses incurred in connection with membership in
investment company organizations; brokerage commissions; legal, auditing or
accounting expenses; taxes or governmental fees; the fees and expenses of the
Transfer Agent; and any other expenses, including clerical expense, of issue,
redemption or repurchase of shares; the expenses of and fees for registering or
qualifying securities for sale; the fees and expenses of the Trustees, officers
and employees of the Trust who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to shareholders; and the fee or
disbursements of custodians. A Fund may arrange to have third parties assume all
or part of the expenses of sale, underwriting and distribution of shares of a
Fund. A Fund is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify officers and Trustees of the Trust with respect thereto.

The expense ratio, the ratio of operating expenses to average net assets,
for Short Term Bond Fund was 0.75%, 0.80% and 0.53% for the fiscal years ended
December 31, 1995, 1996 and 1997, respectively.

The expense ratio, the ratio of operating expenses to average net assets,
for Zero Coupon 2000 Fund was 1.00% for each fiscal year ended December 31,
1995, 1996 and 1997.

The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.

In reviewing the terms of the Agreements and in discussions with the
Adviser concerning the Agreements, Trustees who are not "interested persons"

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of the Trust or the Adviser are represented by independent counsel at the Funds'
expense.

Each Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with matters to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreements.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.

The Adviser may serve as adviser to other funds with investment objectives
and policies similar to those of the Funds that may have different distribution
arrangements or expenses, which may affect performance.

None of the Trustees or officers may have dealings with the Funds as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Funds.

PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

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TRUSTEES AND OFFICERS

(SEE "TRUSTEES AND OFFICERS" IN A FUND'S PROSPECTUS.)
TO BE UPDATED

<TABLE>
<CAPTION>
POSITION WITH
UNDERWRITER,
NAME, AGE POSITION PRINCIPAL SCUDDER INVESTOR
AND ADDRESS WITH TRUST OCCUPATION** SERVICES, INC.
- ----------- ------------- ----------------------- --------------------
<S> <C> <C> <C>
Daniel Pierce (64)*#+.......... President and Managing Director of Director, Vice
Trustee Scudder Kemper President and
Investments, Inc. Assistant Treasurer
Henry P. Becton, Jr. (54)...... Trustee President and General --
125 Western Ave. Manager, WGBH
Allston, MA 02134 Educational Foundation
Dawn-Marie Driscoll (51)....... Trustee Executive Fellow, --
4909 SW 9th Place Center for Business
Cape Coral, FL 33904 Ethics, Bentley
College; President,
Driscoll Associates
Peter B. Freeman (65).......... Trustee Director, The A.H. Belo --
100 Alumni Avenue Company; Trustee,
Providence, RI 02906 Eastern Utilities
Associates (public
utility holding
company); Director,
AMICA Life Insurance
Co.; Director, AMICA
Insurance Co.
George M. Lovejoy, Jr. (68).... Trustee President and Director, --
50 Congress Street Fifty Associates (real
Suite 543 estate investment
Boston, MA 02109 trust)
Wesley W. Marple, Jr. (66)..... Trustee Professor of Business --
Northeastern University Administration
413 Hayden Hall Northeastern
360 Huntington Ave. University, College of
Boston, MA 02115 Business Administration
Kathryn L. Quirk (45)*#++...... Trustee, Vice Managing Director of Director, Assistant
President and Scudder Kemper Treasurer and Senior
Assistant Investments, Inc. Vice President
Secretary
Jean C. Tempel (55)............ Trustee Managing Partner, --
Technology Equity Partners Technology Equity
Ten Post Office Square Partners
Suite 1325
Boston, MA 02109
John R. Hebble (39)+........... Assistant Senior Vice President --
Treasurer of Scudder Kemper
Investments, Inc.
Jerard K. Hartman (65)++....... Vice Managing Director of --
President Scudder Kemper
Investments, Inc.
Thomas W. Joseph (59)+......... Vice Senior Vice President Vice President,
President of Scudder Kemper Director, Treasurer
Investments, Inc. and Assistant Clerk
</TABLE>

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<PAGE> 242

- ------------------------------
* Mr. Pierce and Ms. Quirk are considered by the Trust and its counsel to be
Trustees who are "interested persons" of the Adviser or of the Trust, within
the meaning of the 1940 Act.

** Unless otherwise stated, all Officers and Trustees have been associated with
their respective company for more than five years but not necessarily in the
same capacity.

# Mr. Pierce and Ms. Quirk are members of the Executive Committee, which may
exercise all of the powers of the Trustees when the Trustees are not in
session.

+ Address: Two International Place, Boston, Massachusetts 02110

++ Address: 345 Park Avenue, New York, New York 10154

As of March 31, 1998, all Trustees and officers of Short Term Bond Fund as
a group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) less than 1% of the outstanding shares of the
Fund.

As of March 31, 1998, all Trustees and officers of Zero Coupon 2000 Fund as
a group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) 32,020 shares or, 1.90% of the outstanding
shares of the Fund.

Certain accounts for which the Adviser acts as investment adviser owned
6,736,079 shares of Short Term Bond Fund in the aggregate or 6.58% of the
outstanding shares on March 31, 1998. The Adviser may be deemed to be the
beneficial owner of such shares, but disclaims any beneficial interest in such
shares.

As of March 31, 1998, 173,906 shares in the aggregate or 10.33% of the
outstanding shares of Zero Coupon 2000 Fund, were held in the name of Charles
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership in them.

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To the knowledge of the Funds, as of March 31, 1998, no person owned
beneficially more than 5% of Short Term Bond Fund's outstanding shares or more
than 5% of Zero Coupon 2000 Fund's outstanding shares except as stated above.

The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.

REMUNERATION

RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS

The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. (the "Adviser"). These "Independent Trustees"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.

The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Trustees.

All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.

The Independent Trustees met two times during 1997, including Board and
Committee meetings and meetings to review each Fund's contractual arrangements
as described above.

COMPENSATION OF OFFICERS AND TRUSTEES

The Independent Trustees receive the following compensation from the Funds
of Scudder Funds Trust: an annual trustee's fee of $2,400 for a Fund in

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which assets do not exceed $100 million, $4,800 for assets which exceed $100
million, but not exceeding $1 billion, and $7,200 if assets exceed $1 billion; a
fee of $150 for attendance at each board meeting, audit committee meeting, or
other meeting held for the purposes of considering arrangements between the
Trust for the Funds and the Adviser or any affiliate of the Adviser; $75 for any
other committee meeting (although in some cases the Independent Trustees have
waived committee meeting fees); and reimbursement of expenses incurred for
travel to and from Board Meetings. No additional compensation is paid to any
Independent Trustee for travel time to meetings, attendance at directors'
educational seminars or conferences, service on industry or association
committees, participation as speakers at directors' conferences, service on
special trustee task forces or subcommittees or service as lead or liaison
trustee. Independent Trustees do not receive any employee benefits such as
pension, retirement or health insurance.

The Independent Trustees also serve in the same capacity for other funds
managed by Scudder. These funds differ broadly in type an complexity and in some
cases have substantially different Trustee fee schedules. The following table
shows the aggregate compensation received by each Independent Trustee during
1997 from the Trust and from all of Scudder funds as a group.

<TABLE>
<CAPTION>
NAME SCUDDER FUNDS TRUST* ALL SCUDDER FUNDS
- ---- -------------------- -------------------
<S> <C> <C>
Henry P. Becton, Jr.**........ $2,022 $113,974 (23 funds)
Dawn-Marie Driscoll**......... $2,022 $107,142 (23 funds)
Peter B. Freeman,**........... $9,215 $137,011 (42 funds)
George M. Lovejoy, Jr.**...... $2,022 $138,533 (21 funds)
Wesley Marple, Jr.**.......... $2,022 $120,549 (22 funds)
Jean C. Tempel**.............. $2,022 $121,924 (22 funds)
</TABLE>

- ------------------------------
* Scudder Funds Trust consists of two Funds: Scudder Short Term Bond Fund and
Scudder Zero Coupon 2000 Fund.

** Elected Trustee on October 24, 1997

Members of the Board of Trustees who are employees of the Adviser or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.

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DISTRIBUTOR

The Trust, on behalf of each Fund, has an underwriting agreement with
Scudder Investor Services, Inc. (the "Distributor"), a Massachusetts
corporation, which is a subsidiary of the Adviser, a Delaware corporation. The
Trust's underwriting agreement dated July 15, 1985 remains in effect from year
to year thereafter only if its continuance is approved annually by a majority of
the Trustees who are not parties to such agreement or interested persons of any
such party and either by vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Trust. The continuance of the underwriting
agreement was most recently approved by the Trustees on August 12, 1997 and will
continue in effect until September 30, 1998.

Under the underwriting agreement, the Trust is responsible for: the payment
of all fees and expenses in connection with the preparation and filing with the
SEC of the Trust's registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Trust as a broker/dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses (see below for expenses relating to prospectuses paid by
the Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of each Fund; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges and expenses of shareholder service
representatives; the cost of wiring funds for share purchases and redemption's
(unless paid by the shareholder who initiates the transaction); the cost of
printing and postage of business reply envelopes; and a portion of the cost of
computer terminals used by both the Trust and the Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of Fund shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of each Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
service representatives, a portion of the cost of computer terminals, and of any
activity which is primarily intended to result in the sale of shares issued by
the Trust.

Note: Although no Fund has a 12b-1 Plan and shareholder approval would be
required in order to adopt one, the underwriting agreement provides
that each Fund will also pay those fees and expenses permitted to be
paid or assumed by a Fund pursuant to a 12b-1 Plan, if any, adopted
by the Fund, notwithstanding any other provision to the contrary in
the underwriting agreement, and the
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Fund or a third party will pay those fees and expenses not
specifically allocated to the Distributor in the underwriting
agreement.

As agent, the Distributor currently offers each Fund's shares on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of a Fund.

TAXES

(SEE "DISTRIBUTION AND PERFORMANCE INFORMATION -- DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS" AND "TRANSACTION INFORMATION -- TAX INFORMATION,
TAX IDENTIFICATION NUMBER" IN A FUND'S PROSPECTUS.)

Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, or a predecessor statute and has qualified as such
since its inception. Each Fund intends to continue to qualify for such
treatment. Such qualification does not involve governmental supervision or
management of investment practices or policy.

A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment company taxable income and net realized capital gains in the manner
required under the Code.

Each Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of a Fund's ordinary income for the calendar year, at least 98% of the
excess of its capital gains over capital losses (adjusted for certain ordinary
losses) realized during the one-year period ending October 31 during such year,
and all ordinary income and capital gains for prior years that were not
previously distributed.

Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains taxable to
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individual shareholders at a maximum 20% or 28% capital gains rate (depending on
the Fund's holding period for the assets giving rise to the gain), will be able
to claim a proportionate share of federal income taxes paid by the Fund on such
gains as a credit against the shareholder's federal income tax liability, and
will be entitled to increase the adjusted tax basis of the shareholder's Fund
shares by the difference between the shareholder's pro rata share of such gains
and the shareholder's tax credit. If a Fund makes such an election, it may not
be treated as having met the excise tax distribution requirement.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

Dividends from domestic corporations are not expected to comprise a
substantial part of either of the Fund's gross income. If any such dividends
constitute a portion of a Fund's gross income, a portion of the income
distributions of a Fund may be eligible for the 70% deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law and is eliminated if
either those shares or the shares of a Fund are deemed to have been held by the
Fund or the shareholder, as the case may be, for less than 46 days during the
90-day period beginning 45 days before the shares become ex-dividend.

Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to individual shareholders at
a maximum 20% or 28% capital gains rate (depending on a Fund's holding period
for the assets giving rise to the gain), regardless of the length of time the
shares of a Fund have been held by such shareholders. Such distributions are not
eligible for the dividends-received deduction. Any loss realized upon the
redemption of shares held at the time of redemption for six months or less will
be treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.

All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for

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shares of another Scudder fund, may result in tax consequences (gain or loss) to
the shareholder and are also subject to these reporting requirements.

An individual may make a deductible IRA contribution of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year only if
(i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA ($2,000 per
individual for married couples if only one spouse has earned income) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.

Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Investor income received by a Fund from sources outside the U.S. may be
subject to withholding and other taxes imposed by such foreign jurisdictions.
Tax conventions between certain countries and the U.S. may reduce or eliminate
those foreign taxes, however, and foreign countries generally do not impose
taxes on capital gains in respect of investments by foreign investors.

Over-the-counter options on debt securities written or purchased by the
Fund will be subject to tax under Section 1234 of the Code. In general, no loss
will be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of
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the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any property
in the Fund's portfolio similar to the property underlying the put option. If
the Fund writes an option, no gain is recognized upon its receipt of a premium.
If a call option lapses or is closed out, any gain or loss is treated as
short-term capital gain or loss. If the option is exercised, the character of
the gain or loss depends on the holding period of the underlying stock.

Many futures and forward contracts entered into by a Fund and listed
nonequity options written or purchased by a Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by a Fund will be treated as ordinary income or loss.

Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or nonequity option or
other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. Each Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.

Notwithstanding any of the foregoing, recent tax law changes may require a
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does

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not apply to certain transactions closed in the 90-day period ending with the
30th day after the close of the Fund's taxable year, if certain conditions are
met.

Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

If the Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark-to-market losses and any loss from an actual disposition of shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
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subject to a fund-level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.

A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount imputed income will
comprise a part of the investment company taxable income of the Fund which must
be distributed to shareholders in order to maintain the qualification of the
Fund as a regulated investment company and to avoid federal income tax at the
Fund's level.

Gain derived by a Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price), including tax-exempt market discount bonds,
held by the Fund will be taxed as ordinary income to the extent of the accrued
market discount on the bonds, unless the Fund elects to include the market
discount in income as it accrues.

Each Fund will be required to report to the Internal Revenue Service (the
"IRS") all distributions of investment company taxable income and capital gains
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of certain exempt shareholders. Under the backup withholding
provisions of Section 3406 of the Code, distributions of investment company
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if a Fund is notified
by the IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.

Shareholders of a Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.

The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be

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subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.

Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.

PORTFOLIO TRANSACTIONS

BROKERAGE COMMISSIONS

Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase and
sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. The Adviser will not place
orders with
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broker/dealers on the basis that the broker/dealer has or has not sold shares of
a Fund. In effecting transactions in over-the-counter securities, orders are
placed with the principal market makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
elsewhere.

To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.

Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than a Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to a Fund.

The Trustees review from time to time whether the recapture for the benefit
of a Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.

PORTFOLIO TURNOVER

The portfolio turnover rate is defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities with maturities at time of
acquisition of one year or less. The portfolio turnover rate for Short Term Bond
Fund was 61.8% and 39.4% for the fiscal years ended December 31, 1996 and 1997,
respectively. The portfolio turnover rate for Zero Coupon 2000 Fund was 85.2%
and 5.74% for the fiscal years ended December 31, 1996 and 1997, respectively.

Purchases and sales are made for a Fund whenever necessary, in management's
opinion, to meet each Fund's objective.

NET ASSET VALUE

The net asset value of shares of each Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,

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Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on the Nasdaq Stock Market
("Nasdaq") system is valued at its most recent sale price. Lacking any sales,
the security is valued at the most recent bid quotation. The value of an equity
security not quoted on the Nasdaq System, but traded in another over-
the-counter market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Funds' pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded over-
the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the

90
<PAGE> 255

fair market value of the portfolio asset, the value of the portfolio asset is
taken to be an amount which, in the opinion of the Valuation Committee,
represents fair market value on the basis of all available information. The
value of other portfolio holdings owned by the Fund is determined in a manner
which, in the discretion of the Valuation Committee most fairly reflects fair
market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

EXPERTS

The Financial Highlights of each Fund included in the Fund's prospectus,
and the Financial Statements incorporated by reference in the Statement of
Additional Information will be so included or incorporated by reference in
reliance on the report of Coopers & Lybrand, L.L.P., One Post Office Square,
Boston, Massachusetts 02109, independent accountants, and given upon their
authority as experts in accounting and auditing. Coopers & Lybrand, L.L.P. is
responsible for performing annual audits of the financial statements and
financial highlights of each Fund in accordance with Generally Accepted Auditing
Standards, and the preparation of federal tax returns.

SHAREHOLDER INDEMNIFICATION

The Trust is an organization of the type commonly known as a Massachusetts
business trust. Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Trust property or the acts,
obligations or affairs of the Trust and a disclaimer stating that each series
shall not be liable for the obligations of any other series. The Declaration of
Trust also provides for indemnification out of the Trust's property of any
shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.

91
<PAGE> 256

OTHER INFORMATION

Short Term Bond Fund's CUSIP number is 810902-20-5.

Zero Coupon 2000 Fund's CUSIP number is 810902-23-9.

Each Fund has a fiscal year ending on December 31.

Portfolio securities of each Fund are held separately, pursuant to a
custodian agreement, by the Funds' custodian, State Street Bank and Trust
Company, 255 Franklin Street, Boston, Massachusetts 02101.

The law firm of Dechert Price & Rhoads is counsel to each Fund.

Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA 02109, serves
as independent accountants to the Trust.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, 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 Funds.

Short Term Bond Fund and Zero Coupon 2000 Fund each pays Scudder Fund
Accounting Corporation an annual fee equal to .025% of the first $150 million of
average daily net assets, .0075% of such assets in excess of $150 million up to
$1 billion and .0045% of such assets in excess of $1 billion, plus transaction
holding charges. Scudder Fund Accounting Corporation charged Short Term Bond
Fund an aggregate fee of $173,925, of which $13,765 was unpaid at December 31,
1997. Scudder Fund Accounting Corporation charged Zero Coupon 2000 Fund $26,394,
of which $11,106 was not imposed, and $10,769 was unpaid at December 31, 1997.

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-
2291, a subsidiary of the Adviser, is the transfer, dividend-paying and
shareholder service agent for each Fund. Each Fund pays Scudder Service
Corporation an annual fee for each account maintained as a participant. Short
Term Bond Fund and Zero Coupon 2000 Fund each pays Scudder Service Corporation
an annual fee of $26.00 for each account maintained for a shareholder. The fees
incurred by Short Term Bond Fund for the fiscal year ended December 31, 1997
amounted to $1,966,378, of which $144,271 was unpaid at December 31, 1997. The
fees incurred by Zero Coupon 2000 Fund for the fiscal year ended December 31,
1997 amounted to $46,588, of which $19,604 was not imposed, and $7,723 was
unpaid at December 31, 1997.

Scudder Trust Company, an affiliate of the Adviser, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. Annual service fees are paid by a Fund to Scudder Trust
Company for such accounts. Short Term Bond Fund and Zero Coupon 2000 Fund each
pays Scudder Trust Company a fee of $29.00 for each account
92
<PAGE> 257

maintained. The fees incurred by Short Term Bond for the fiscal year ended
December 31, 1997 were $611,127, of which $48,871 was unpaid at December 31,
1997. The fees incurred by Zero Coupon 2000 Fund for the fiscal year ended
December 31, 1997 amounted to $8,564, of which $3,604 was not imposed, and $111
was unpaid at December 31, 1997.

This Statement of Additional Information combines the information of both
Scudder Short Term Bond Fund and Scudder Zero Coupon 2000 Fund. Each Fund,
through its individual prospectus, offers only its own shares, yet it is
possible that one Fund might become liable for a misstatement regarding the
other Fund. The Trustees of each Fund have considered this, and have approved
the use of a combined Statement of Additional Information.

The name "Scudder Funds Trust" is the designation of the Trustees for the
time being under a Declaration of Trust dated June 24, 1981, as amended from
time to time, and all persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Trustees, officers, agents nor shareholders assume any personal
liability for obligations entered into on behalf of the Trust. Upon the initial
purchase of shares, the shareholder agrees to be bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with a Fund must look only to the assets of a
Fund for the enforcement of any claims against a Fund as no other series of the
Trust assumes any liabilities for obligations entered into on behalf of a Fund.

SCUDDER FUNDS TRUST, Two International Place, Boston, Massachusetts 02110,
has filed with the U.S. Securities and Exchange Commission, Washington, D.C.
20549, a Registration Statement under the 1933 Act, as amended, with respect to
the shares of Short Term Bond Fund and Zero Coupon 2000 Fund offered by each
Fund's prospectus. Each Fund's prospectus and this Statement of Additional
Information do not contain all of the information set forth in the Registration
Statement and its amendments, certain parts of which are omitted in accordance
with Rules and Regulations of the SEC. The Registration Statement and its
amendments, may be inspected at the principal office of the SEC at 450 Fifth
Street, N.W., Washington and copies thereof may be obtained from the SEC at
prescribed rates.

FINANCIAL STATEMENTS

SCUDDER SHORT TERM BOND FUND

The financial statements, including the Investment Portfolio, of Scudder
Short Term Bond Fund, together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements, attached hereto in the

93
<PAGE> 258

Annual Report to the Shareholders of the Fund dated December 31, 1997, are
incorporated by reference herein and are hereby deemed to be a part of this
Statement of Additional Information.

SCUDDER ZERO COUPON 2000 FUND

The financial statements, including the Investment Portfolio, of Scudder
Zero Coupon 2000 Fund, together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements, attached hereto in the
Annual Report to the Shareholders of the Fund dated December 31, 1997, are
incorporated by reference herein and are hereby deemed to be a part of this
Statement of Additional Information.

RATINGS OF CORPORATE BONDS

The two highest ratings of Moody's for corporate bonds are Aaa and Aa.
Bonds rated Aaa are judged by Moody's to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa are judged to be of
high quality by all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. Aa bonds are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Moody's Baa rated bonds are considered
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and may have speculative characteristics
as well.

The two highest ratings of S&P for corporate bonds are AAA and AA. Bonds
rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity
to pay interest and repay principal is extremely strong. Bonds rated AA have a
very strong capacity to pay interest and repay principal and differ from the
highest rated issues only in a small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt
94
<PAGE> 259

in higher rated securities. S&P's BBB rated bonds, or medium-grade category
bonds, are between sound obligations and those where the speculative elements
begin to predominate. Although these bonds have adequate asset coverage and
normally are protected by satisfactory earnings, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and principal.

95
<PAGE> 260

GLOSSARY

1. BOND

A contract by an issuer (borrower) to repay the owner of the contract (lender)
the face amount of the bond on a specified date (maturity date) and to pay a
stated rate of interest until maturity. Interest is generally paid semi-
annually in amounts equal to one-half the annual interest rate.

2. DEBT OBLIGATION

A general term which includes fixed income and variable rate securities,
obligations issued at a discount and other types of securities which evidence a
debt.

3. DISCOUNT AND PREMIUM

(a) Market Discount and Premium -- A discount (premium) bond is a bond selling
in the market at a price lower (higher) than its face value. The amount of the
market discount (premium) is the difference between market value and face value.

(b) Original Issue Discount -- An original issue discount is the discount from
face value at which the bond is first offered to the public.

4. FACE VALUE

The value of a bond that appears on the face of the bond, unless the value is
otherwise specified by the issuing company. Face value is ordinarily the amount
the issuing company promises to pay at maturity. Face value is not an indication
of market value.

5. FIXED INCOME OBLIGATION

An instrument under which the lender agrees to pay interest, either at a stated
rate or according to a specified formula, over the life of the instrument, as
well as to repay principal at maturity.

6. INVESTMENT COMPANY TAXABLE INCOME

The investment company taxable income of a Fund includes dividends, interest
(including original issue discount) and net short-term capital gains in excess
of long-term capital losses, less expenses.

7. LIQUIDATION

The process of converting securities or other property into cash.

96
<PAGE> 261

8. MATURITY

The date on which the principal amount of a debt obligation comes due by the
terms of the instrument.

9. MATURITY DATE

Zero Coupon Fund will mature on the third Friday in December 2000 and proceeds
of the liquidation of the Fund will be distributed shortly thereafter.

10. MATURITY VALUE

The actual maturity value per share of Zero Coupon Fund will be the actual net
asset value per share on the Maturity Date.

When used with respect to periods prior to the Maturity Date, maturity value
means an estimate of the approximate anticipated net asset value per share of
Zero Coupon 2000 Fund on its Maturity Date, calculated by dividing the aggregate
face value of all securities in the Fund increased by any unamortized premiums
and decreased by any unamortized original issue discounts plus all other assets,
minus all liabilities, by the number of outstanding shares at the time of
calculation of Maturity Value.

11. MATURITY YEAR

The calendar year in which Zero Coupon 2000 Fund will mature. All investments in
a Fund will mature within two years of the Fund's Maturity Year.

12. NET ASSET VALUE PER SHARE

The value of the share of a Fund for purposes of sales and redemptions. (See
"NET ASSET VALUE.")

13. NET INVESTMENT INCOME

The net investment income of a Fund is comprised of its interest income,
including amortizations of original issue and certain market discounts, less
amortizations of premiums and expenses paid or accrued.

14. PAR VALUE

Par value of a bond is a dollar amount representing the denomination and
assigned value of the bond. It signifies the dollar value on which interest on
the bonds is computed and is usually the same as face value and maturity value
for an individual bond. For example, most bonds are issued in $1,000
denominations and they have a face value, maturity value and par value of
$1,000. Their market price can of course vary significantly from $1,000 during
their life between issuance and maturity.
97
<PAGE> 262

15. TARGET OR TARGET YEAR

See Maturity Year.

16. TARGET DATE

See Maturity Date.

17. ZERO COUPON SECURITY

A non-interest (non-cash) paying debt obligation which is issued at a
substantial discount from its face value. Income is accrued over the life of the
obligation, and cash equal to the face value is due at maturity.

COMPOUND INTEREST TABLE(1)

The table below shows the return on $100 over 5, 10 and 15 year periods
assuming interest rates of 5%, 7%, 9%, 11% and 13%.

<TABLE>
<CAPTION>
YEARS
--------------------------
INTEREST RATE 5 10 15
- ------------- ------ ------ ------
<S> <C> <C> <C>
5%......................................... $128.0 $163.8 $209.7
7%......................................... 141.0 198.9 280.6
9%......................................... 155.2 241.1 374.5
11%......................................... 170.8.. 291.7 498.3
13%......................................... 187.7.. 352.3 661.4
</TABLE>

- ------------------------------
1. Compounded semiannually at one-half the annual rate similar to normal bond
calculation of yield-to-maturity. The calculation is different from a
calculation of anticipated growth which involves additional assumptions. (See
"THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES -- Management of Reinvestment
Risk and Anticipated Growth of Zero Coupon 2000 Fund" and "DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS.")

98
<PAGE> 263

SCUDDER ZERO COUPON 2000 FUND

ANNUAL REPORT
DECEMBER 31, 1997

PURE NO-LOAD(TM) FUNDS

For investors who seek as high an investment return over a selected period
as is consistent with investment in U.S. government securities and the
minimization of reinvestment risk.

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

SCUDDER (LOGO)
<PAGE> 264

SCUDDER ZERO COUPON 2000 FUND

<TABLE>
<S> <C> <C>
Date of Inception: 2/4/86 Total Net Assets as of Ticker Symbol: SGZTX
12/31/97: $20.4 million
</TABLE>

- In a year that proved to be rewarding for fixed-income investors, Scudder
Zero Coupon 2000 Fund posted a positive total return of 6.53% for its
most recent fiscal year ended December 31, 1997.

- The Fund provided a 30-day net annualized SEC yield of 4.86% as of
December 31, 1997.

TABLE OF CONTENTS

<TABLE>
<C> <S>
3 Letter from the Fund's
President
4 Performance Update
5 Portfolio Management
Discussion
8 Glossary of Investment Terms
9 Investment Portfolio
10 Financial Statements
13 Financial Highlights
14 Notes to Financial Statements
17 Report of Independent
Accountants
18 Shareholder Meeting Results
20 Officers and Trustees
21 Investment Products and
Services
22 Scudder Solutions
</TABLE>

2 - Scudder Zero Coupon 2000 Fund
<PAGE> 265

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

We are pleased to report to you on Scudder Zero Coupon 2000 Fund's
performance over its most recent fiscal year ended December 31, 1997. The Fund's
managers continue to invest in high quality U.S. Treasuries, with almost all
maturities set within one year of the Fund's 2000 target date. Given the Fund's
relatively short time to maturity, the Fund's philosophy is to seek as high an
investment return over a selected period as is consistent with the minimization
of investment risk. For more information on the Fund's investment strategy,
results, and outlook, please read the portfolio management discussion beginning
on page 5.

For those of you who are interested in new Scudder products, we recently
introduced a new industry sector fund, Scudder Financial Services Fund. One of
Scudder's Choice Series sector funds, the Fund seeks long-term growth by
investing in financial services companies in the U.S. and abroad. In addition,
two other Choice Series funds will be launched on March 2: Scudder Health Care
Fund, seeking long-term growth from health care companies located around the
world, and Scudder Technology Fund, pursuing long-term growth by investing in
companies that develop, produce, or distribute technology.

If you have any questions regarding Scudder Zero Coupon 2000 Fund or any
other Scudder fund, please do not hesitate to call Investor Relations at 1-
800-225-2470. Or visit Scudder's Web site at http://funds.scudder.com.

Sincerely,

/s/ Daniel Pierce
Daniel Pierce
President,
Scudder Zero Coupon 2000 Fund

3 - Scudder Zero Coupon 2000 Fund
<PAGE> 266

PERFORMANCE UPDATE AS OF DECEMBER 31, 1997
FUND INDEX COMPARISONS

<TABLE>
<CAPTION>
TOTAL RETURN
PERIOD GROWTH ---------------------
ENDED OF AVERAGE
12/31/97 $10,000 CUMULATIVE ANNUAL
-------- ------- ---------- -------
<S> <C> <C> <C>
SCUDDER ZERO COUPON 2000 FUND
1 Year $10,653 6.53% 6.53%
5 Year $13,638 36.38% 6.40%
10 Year $24,899 148.99% 9.55%
LB GOVERNMENT/CORPORATE BOND INDEX
1 Year $10,975 9.75% 9.75%
5 Year $14,430 44.30% 7.61%
10 Year $23,984 139.84% 9.13%
</TABLE>

GROWTH OF A $10,000 INVESTMENT

[LINE GRAPH]

The unmanaged Lehman Brothers (LB) Government/Corporate Bond Index is
composed of U.S. government treasury and agency securities, corporate and Yankee
bonds. Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.

4 - Scudder Zero Coupon 2000 Fund
<PAGE> 267

RETURNS AND PER SHARE INFORMATION

[BAR GRAPH]

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

Scudder Zero Coupon 2000 Fund provided a 30-day net annualized SEC yield of
4.86% as of December 31, 1997. The Fund's total return of 6.53% for the 12-month
period reflects a $0.11 increase in the Fund's net asset value to $11.88, plus
$0.63 per share in income distributions. The unmanaged Lehman Brothers
Government/Corporate Bond Index's return during the same period was 9.75%. The
difference in return between the Fund and its comparative index mirrors the
Fund's ever-shortening average maturity.

Scudder Zero Coupon 2000 Fund seeks to provide investors with as high an
investment return over a selected period as is consistent with direct
investments in government securities and the minimization of reinvestment risk,
with the additional advantages of professional management, diversification, and
liquidity. The Fund invests in high quality zero coupon bonds that pay no
current income but, similar to savings bonds, are issued at substantial
discounts to their value at maturity. When held to maturity, a zero coupon
bond's entire return comes from the difference between its issue price and its
par value.

BONDS BENEFIT AS INFLATION FADES

The year 1997 was rewarding for most bond investors as the market's focus
gradually shifted from the possibility of an overheating U.S. economy and
increases in inflation to the Asian currency crisis and speculation about
deflation. As Asian currencies such as the Korean won and the Thai baht
surrendered

5 - Scudder Zero Coupon 2000 Fund
<PAGE> 268

approximately half of their value versus the U.S. dollar from July to December,
expectations grew that lower-cost Asian imports and reduced profit expectations
for global U.S.-based companies would keep the domestic economy and inflation
under control for some time to come, despite near full employment. Yield
declines -- as shown in the chart above -- and price gains in the Treasury bond
sector reflected this favorable environment.

U.S. TREASURY YIELD CURVE
12/31/96 VERSUS 12/31/97

[LINE CHART]

PORTFOLIO REVIEW

Our goal in managing Scudder Zero Coupon 2000 Fund is to maximize the value
of your investment on the December 2000 maturity date. Since zero coupon bonds
such as those held by the Fund lack the cushion of regular interest payments,
the Fund can be more volatile than other fixed-income investments of comparable
maturity. Because some shareholders may need to redeem Fund shares before the
maturity date, we try to limit share price volatility where possible while at
the same time seeking a higher return than that provided by many other
fixed-income investments.

As the Fund approaches its maturity in the year 2000, we continue to
gradually shorten the duration of the Fund, keeping over 90% of the bonds in the
Fund's portfolio within two months of the target date, and almost 99% within one
year of the date. For the same reason, we are keeping the Fund's duration in a
neutral stance in terms of its permissible range: As of December 31, 1997, the
Fund's duration was 3 years, in the middle of its allowable range of two years
to four years. (Duration gives relative weight to both interest and principal
payments and has replaced maturity as the standard measure of interest rate
sensitivity among professional investors. Generally, the shorter the duration,
the less sensitive a portfolio will be to changes in interest rates and the more
stable its price is likely to be.)

6 - Scudder Zero Coupon 2000 Fund
<PAGE> 269

ECONOMIC AND MARKET PROSPECTS

Amid the gloom (and economic pain for the people of Asia) of the Asian
currency crisis is a ray of sunshine -- the relaxing of inflation worries in the
U.S. bond market. Though no one can predict exactly how long this period of
tranquility for bond investors will last, we expect this slow-growth,
low-inflation environment to continue and to benefit Treasury investors over the
coming months. As we approach Scudder Zero Coupon 2000 Fund's target year, we
will monitor events influencing the bond market closely and adjust the Fund's
duration and maturity structure accordingly. We will continue to seek to
maximize the Fund's net asset value on its maturity date.

Sincerely,

Your Portfolio Management Team

/s/ TIMOTHY G. RANEY /s/ STEPHEN A. WOHLER
- ------------------------------------------ ------------------------------------------
Timothy G. Raney Stephen A. Wohler
</TABLE>

SCUDDER ZERO COUPON
2000 FUND:
A TEAM APPROACH TO INVESTING

Scudder Zero Coupon 2000 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 SKI's 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 Zero Coupon 2000 Fund investors by
bringing together many disciplines and leveraging SKI's extensive resources.

Lead Portfolio Manager Timothy G. Raney has responsibility for overseeing
the Fund's day-to-day operations and setting the Fund's investment strategy.
Tim, who has eight years of investment industry experience, joined the Adviser
in 1989 as a taxable securities trader and also played a key role in the
development of automated trade and compliance software. Stephen Wohler,
Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Steve has over 15 years' experience managing
fixed income investments and has been with SKI since 1979.

7 - Scudder Zero Coupon 2000 Fund
<PAGE> 270

GLOSSARY OF INVESTMENT TERMS

<TABLE>
<S> <C>
Inflation An overall increase in the prices
of goods and services, as happens
when business and consumer
spending increases relative to the
supply of goods available in the
marketplace -- in other words,
when too much money is chasing too
few goods. High inflation has a
negative impact on the prices of
fixed-income securities.

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 net
annualized income earnings
capability of every holding in a
given fund's portfolio, assuming
each is held to maturity.
Total Return The most common yardstick to
measure the performance of a fund.
Total return -- annualized or
compound -- is based on a
combination of capital return plus
income and capital gain
distributions, if any, expressed
as a percentage gain or loss in
value.
Treasuries Negotiable debt obligations of the
U.S. government, secured by its
full faith and credit, and issued
at various schedules and
maturities.
Zero Coupon Bond A bond that makes no periodic
interest payments but instead is
sold at a deep discount from its
face value. The buyer of such a
bond receives a rate of return
through the gradual appreciation
of the security, which is redeemed
at face value on a specified
maturity date.
</TABLE>

- ------------------------------

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

8 - Scudder Zero Coupon 2000 Fund
<PAGE> 271

INVESTMENT PORTFOLIO AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET
U.S. GOVERNMENT SECURITIES 100.0% AMOUNT ($) VALUE ($)
- --------------------------------- ---------- ----------
<S> <C> <C>
U.S. Treasury Note, 5.125%, 11/30/98.......... 100,000 99,562
U.S. Treasury Note, 5%, 1/31/99............... 150,000 149,016
U.S. Treasury Separate Trading Registered
Interest and Principal, 5/15/00, (5.65*).... 630,000 552,019
U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/00, (5.68*)... 9,999,000 8,513,149
U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/01, (5.70*).... 10,980,000 9,211,451
U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/01, (5.72*)... 2,388,000 1,919,307
---------- ----------
Total U.S. Government Securities
(Cost $19,842,017)................ 20,444,504
==========
Total Investment Portfolio -- 100.0%
(Cost $19,842,017)(a)............. 20,444,504
==========
</TABLE>

- ------------------------------
(a) The cost for federal income tax purposes was $19,898,013. At December 31,
1997, unrealized appreciation based on tax cost consisted entirely of
aggregated gross unrealized appreciation of $546,491.

* Bond equivalent yield to maturity; not a coupon rate (unaudited).

The accompanying notes are an integral part of the financial statements.
9 - Scudder Zero Coupon 2000 Fund
<PAGE> 272

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1997

<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $19,842,017)... $20,444,504
Interest receivable.................................... 3,589
Receivable for Fund shares sold........................ 106,411
Other assets........................................... 380
-----------
Total assets................................... 20,554,884
Liabilities
Due to custodian bank.................................. 33,273
Other payables and accrued expenses.................... 67,639
-----------
Total liabilities.............................. 100,912
-----------
Net assets, at market value.............................. $20,453,972
-----------
Net Assets
Net assets consist of:
Undistributed net investment income................. 734,074
Unrealized appreciation on investments.............. 602,487
Accumulated net realized loss....................... (1,330,864)
Paid-in capital..................................... 20,448,275
-----------
Net assets, at market value......................... $20,453,972
-----------
Net Asset Value

Net Asset Value, offering and redemption price per
share ($20,453,972/1,721,605 outstanding shares of
beneficial interest, $.01 par value, unlimited
number of shares authorized)........................ $ 11.88
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
10 - Scudder Zero Coupon 2000 Fund
<PAGE> 273

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $1,387,950
----------
Expenses:
Management fee............................................ 129,600
Services to shareholders.................................. 97,995
Custodian and accounting fees............................. 42,223
Trustees' fees and expenses............................... 22,312
Auditing.................................................. 25,808
Reports to shareholders................................... 27,653
Registration fees......................................... 14,766
Legal..................................................... 13,713
Other..................................................... 5,527
----------
Total expenses before reductions.......................... 379,597
Expense reductions........................................ (163,914)
----------
Expenses, net............................................. 215,683
----------
Net investment income..................................... 1,172,267
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
- ------------------------------------------------------------------------
Net realized gain from investments........................ 161,395
Net unrealized appreciation on investments during the
period................................................. 1,997
----------
Net gain on investment transactions....................... 163,392
----------
Net increase in net assets resulting from operations...... $1,335,659
----------
</TABLE>

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

11 - Scudder Zero Coupon 2000 Fund
<PAGE> 274

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.................... $ 1,172,267 $ 1,432,554
Net realized gain (loss) from
investments............................ 161,395 (261,794)
Net unrealized appreciation
(depreciation) on investments during
the period............................. 1,997 (1,086,030)
----------- ------------
Net increase in net assets resulting from
operations............................. 1,335,659 84,730
----------- ------------
Distributions to shareholders from net
investment income...................... (1,127,761) (1,477,442)
----------- ------------
Fund share transactions:
Proceeds from shares sold................ 3,450,490 6,651,479
Net asset value of shares issued to
shareholders in reinvestment of
distributions.......................... 1,105,633 1,435,813
Cost of shares redeemed.................. (9,750,463) (10,477,503)
----------- ------------
Net decrease in net assets from Fund
share transactions..................... (5,194,340) (2,390,211)
----------- ------------
Decrease in net assets................... (4,986,442) (3,782,923)
Net assets at beginning of period........ 25,440,414 29,223,337
----------- ------------
Net assets at end of period (including
undistributed net investment income of
$734,074 and $689,568, respectively)... $20,453,972 $ 25,440,414
----------- ------------
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of
period................................. 2,161,757 2,359,785
----------- ------------
Shares sold.............................. 290,883 560,049
Shares issued to shareholders in
reinvestment of distributions.......... 96,147 122,172
Shares redeemed.......................... (827,182) (880,249)
----------- ------------
Net decrease in Fund shares.............. (440,152) (198,028)
----------- ------------
Shares outstanding at end of period...... 1,721,605 2,161,757
----------- ------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
12 - Scudder Zero Coupon 2000 Fund
<PAGE> 275

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 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $11.77 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income................. .63 .64 .65 .59 .79 .94 .99 .86 .51 .63
Net realized and unrealized gain
(loss) on investments............... .11 (.57) 1.40 (1.59) 1.23 .17 1.44 (.29) 1.73 .58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations...... .74 .07 2.05 (1.00) 2.02 1.11 2.43 .57 2.24 1.21
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income............ (.63) (.68) (.62) (.31) (.83) (.93) (.94) (.83) (.52) (.63)
From net realized gains on
investments......................... -- -- -- (.59) (.89) (1.39) -- (.08) (.03) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions................... (.63) (.68) (.62) (.90) (1.72) (2.32) (.94) (.91) (.55) (.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period........ $11.88 $11.77 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%)(b)........... 6.53 .65 19.08 (7.92) 16.00 8.13 20.03 4.59 20.39 11.71
Ratios and Supplemental Data
Net assets, end of period ($
millions)........................... 20 25 29 25 31 29 33 33 32 5
Ratio of operating expenses, net to
average daily net assets (%)........ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Ratio of operating expenses before
expense reductions, to average daily
net assets (%)...................... 1.76 1.45 1.48 1.47 1.28 1.28 1.23 1.39 1.62 3.37
Ratio of net investment income to
average daily net assets (%)........ 5.44 5.42 5.59 5.23 5.29 6.38 7.12 7.62 7.10 8.10
Portfolio turnover rate (%)........... 5.74 85.2 86.6 89.3 101.6 118.8 90.7 98.5 87.1 149.2
</TABLE>

- ------------------------------
(a) Based on monthly average shares outstanding during the period.

(b) Total returns would have been lower had certain expenses not been reduced.

13 - Scudder Zero Coupon 2000 Fund
<PAGE> 276

NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES

Scudder Zero Coupon 2000 Fund (the "Fund") is organized as a diversified
series of Scudder Funds Trust (the "Trust"), a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund primarily invests in U.S. Government
zero coupon securities. At least 50% of the Fund's net assets will be invested
in zero coupon securities maturing within two years of the Fund's target
maturity date. It is expected that the Fund will be liquidated in December of
the year 2000.

Security Valuation. Portfolio debt securities purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
Officers of the Fund, which prices 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 having 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 Trustees.

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
provision for federal income taxes was required.

At December 31, 1997, the Fund had a net tax basis capital loss
carryforward of approximately $1,275,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2002 ($723,000), December 31, 2003 ($178,000), and
December 31, 2004 ($374,000) the respective expiration dates.

Distribution of Income and Gains. Distributions of net investment income
are made annually. 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.

14 - Scudder Zero Coupon 2000 Fund
<PAGE> 277
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in certain securities sold at a
loss. 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.

The Fund uses the specific identification 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 generally recorded on the accrual basis under the
amortized cost method whereby the Fund adjusts the cost of each investment
assuming a constant accretion to maturity of any discount. All original issue
discounts are accreted for both tax and financial reporting purposes.
Distributions to shareholders are recorded on the ex-dividend date.

B. PURCHASES AND SALES OF SECURITIES

During the year ended December 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,246,960 and
$7,844,015, respectively.

C. RELATED PARTIES

15 - Scudder Zero Coupon 2000 Fund
<PAGE> 278
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately 0.60% of
the average daily net assets of the Fund computed and accrued daily and payable
monthly. In addition, the Adviser has agreed to maintain the annualized expenses
of the Fund at not more than 1.00% of average daily net assets until April 30,
1998. For the year ended December 31, 1997, the fee pursuant to these agreements
amounted to $129,600, all of which was not imposed.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend disbursing and shareholder service agent for the Fund. For
the year ended December 31, 1997, the amount charged to the Fund by SSC
aggregated $46,588, of which $19,604 was not imposed, and $7,723 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 for the Fund. For the year ended December 31, 1997, the
amount charged to the Fund by STC aggregated $8,564, of which $3,604 was not
imposed, and $111 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
$26,394, of which $11,106 was not imposed, and $10,769 is unpaid at December 31,
1997.

The Fund pays each Trustee 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 $22,312.

16 - Scudder Zero Coupon 2000 Fund
<PAGE> 279

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Scudder Funds Trust and the Shareholders of Scudder Zero
Coupon 2000 Fund:

We have audited the accompanying statement of assets and liabilities of
Scudder Zero Coupon 2000 Fund including the investment portfolio, 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. 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 Zero Coupon 2000 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 11, 1998

17 - Scudder Zero Coupon 2000 Fund
<PAGE> 280

SHAREHOLDER MEETING RESULTS

A Special Meeting of Shareholders (the "Meeting") of Scudder Zero Coupon
2000 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.

<TABLE>
<CAPTION>
NUMBER OF VOTES:
----------------
DIRECTOR FOR WITHHELD
- -------- ------- --------
<S> <C> <C>
Henry P. Becton, Jr................................. 864,722 41,139
Dawn-Marie Driscoll................................. 883,808 42,053
Peter B. Freeman.................................... 884,915 40,946
George M. Lovejoy, Jr. ............................. 888,114 37,747
Dr. Wesley W. Marple, Jr. .......................... 888,114 37,747
Daniel Pierce....................................... 888,308 37,553
Kathryn L. Quirk.................................... 887,907 37,954
Jean C. Tempel...................................... 884,253 41,608
</TABLE>

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

<TABLE>
<CAPTION>
NUMBER OF VOTES:
----------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
- --- ------- ------- -----------------
<S> <C> <C> <C>
846,297 34,327 45,237 911
</TABLE>

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.)

<TABLE>
<CAPTION>
NUMBER OF VOTES:
----------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
- --- ------- ------- -----------------
<S> <C> <C> <C>
921,736 66,176 64,850 909
</TABLE>

18 - Scudder Zero Coupon 2000 Fund
<PAGE> 281

<TABLE>
<CAPTION>
NUMBER OF VOTES:
-----------------
FOR AGAINST ABSTAIN BROKER NON-VOTES*
--- ------- ------- -----------------
<S> <C> <C> <C>
925,395 57,220 70,147 909
</TABLE>

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

<TABLE>
<CAPTION>
NUMBER OF VOTES:
----------------------------------------
BROKER
FUNDAMENTAL POLICIES FOR AGAINST ABSTAIN NON-VOTES*
-------------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Diversification................ 800,708 51,639 72,603 911
5.2 Borrowing...................... 795,238 57,108 72,604 911
5.3 Senior securities.............. 796,950 57,016 70,984 911
5.4 Concentration.................. 796,642 57,324 70,984 911
5.5 Underwriting of securities..... 800,708 50,233 74,009 911
5.6 Investment in real estate...... 802,328 48,614 74,008 911
5.7 Purchase of physical
commodities.................... 799,169 51,772 74,009 911
5.8 Lending........................ 800,910 50,031 74,009 911
</TABLE>

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

<TABLE>
<CAPTION>
NUMBER OF VOTES:
- --------------------------
FOR AGAINST ABSTAIN
- ------- ------- -------
<S> <C> <C>
864,900 13,903 47,058
</TABLE>

- ------------------------------
* 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.

19 - Scudder Zero Coupon 2000 Fund
<PAGE> 282

OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee

Henry P. Becton
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.

20 - Scudder Zero Coupon 2000 Fund
<PAGE> 283

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**

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.

21 - Scudder Zero Coupon 2000 Fund
<PAGE> 284

SCUDDER SOLUTIONS

Convenient ways to invest, quickly and reliably:

<TABLE>
<CAPTION>
Automatic Investment Plan QuickBuy
------------------------- --------
<S> <C>
</TABLE>

<TABLE>
<CAPTION>
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
--------------------------- ------------------------------------
<S> <C>
</TABLE>

Around-the-clock electronic account service and information, including some
transactions:

Scudder Automated Information Line: SAIL(SM)1-800-343-2890

Scudder's Web Site -- http://funds.scudder.com

Scudder Electronic Account Services: Offering

22 - Scudder Zero Coupon 2000 Fund
<PAGE> 285

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

<TABLE>
<CAPTION>
Automatic Withdrawal Plan QuickSell
------------------------- ---------
<S> <C>
</TABLE>

DistributionsDirect

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

For more information about these services, call a Scudder representative at
1-800-225-5163

Mutual Funds and More -- Brokerage and Guidance Services:

Scudder Brokerage Services

Offers you access to a world of investments, including stocks, corporate
bonds, Treasuries, plus over 6,000 mutual funds from at least 150 mutual fund
companies. And Scudder Fund Folio(SM) provides investors with access to a
marketplace of more than 500 no-load funds from well-known companies -- with no
transaction fees or commissions. Scudder shareholders can take advantage of a
Scudder Brokerage account already reserved for them, with no minimum investment.
For information about Scudder Brokerage Services, call 1-800-700-0820.

Scudder Portfolio Builder

A free service designed to help suggest ways investors like you can
diversify your portfolio among domestic and global, as well as equity,
fixed-income, and money market funds, using Scudder funds.

Personal Counsel from Scudder()(SM)

23 - Scudder Zero Coupon 2000 Fund
<PAGE> 286

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 Scudder Investor Relations --
1-800-225-5163

For establishing 401(k) and 403(b) plans Scudder Defined Contribution
Services -- 1-800-323-6105

For information about The Scudder Funds, including additional applications and
prospectuses, or for answers to investment questions Scudder Investor
Relations -- 1-800-225-2470 [email protected]

Please address all written correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center

Many shareholders enjoy the personal, one-on-one service of the Scudder Investor
Centers. Check for an Investor Center near you -- they can be found in the
following cities:

<TABLE>
<S> <C> <C>
Boca Raton Chicago San Francisco
Boston New York
</TABLE>

24 - Scudder Zero Coupon 2000 Fund
<PAGE> 287

ABOUT THE FUND'S ADVISER

Scudder Kemper Investments, Inc., is one of the largest and most
experienced investment management organizations 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.

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]
<PAGE> 288

SCUDDER SHORT TERM BOND FUND

SEMIANNUAL REPORT
JUNE 30, 1998

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> 289

SCUDDER SHORT TERM BOND FUND
DATE OF INCEPTION: 4/24/84 TOTAL NET ASSETS AS OF
6/30/98: $1,062 MILLION
TICKER SYMBOL: SCSTX

- - Scudder Short Term Bond Fund's 30-day net annualized SEC yield at the end of
June was 5.46%, comparing favorably with the 5.01% average yield for taxable
money market funds tracked by IBC/Donoghue.

- - During a challenging period for short-term fixed-income investments, the Fund
produced a six-month total return of 1.74% and a twelve-month return of 5.25%.
The average short-term bond fund, as tracked by Lipper Analytical Services
returned 2.82% and 6.28% for the same periods.

- - The Fund continued to hold a broadly diversified mix of short-maturity
alternatives to U.S. Treasuries to pursue its objective of high current income
with a high degree of principal stability.

- - The Fund maintained its high quality orientation, with 68% of portfolio
holdings rated AA or better by Standard & Poor's and/or Moody's as of June 30,
1998.

TABLE OF CONTENTS

<TABLE>
<C> <S>
3 Letter from the Fund's
President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management
Discussion
8 Glossary of Investment Terms
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
21 Investment Products and
Services
22 Scudder Solutions
</TABLE>

2 - SCUDDER SHORT TERM BOND FUND
<PAGE> 290

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

We are pleased to report to you on Scudder Short Term Bond Fund's
performance over its most recent semiannual period ended June 30, 1998. The Fund
posted a modest 1.74% total return for the period, as shorter-maturity fixed
income securities generally traded in a narrow range. On June 30, the Fund's
yield was 5.46%, considerably higher than the current low level of U.S.
inflation. As the Fund's managers state in the portfolio management discussion
that begins on page 6, we believe the Asian economic downturn could continue to
dampen U.S. growth, contributing to a supportive environment for bonds over the
coming months.

For those of you interested in new Scudder products and services, we would
like to take this opportunity to highlight two upcoming additions to our
international category, both of which are scheduled to begin operations on
September 1st. Scudder International Growth Fund will seek long-term capital
appreciation by investing primarily in the equity securities of non-U.S.
companies with high growth potential, and Scudder International Value Fund will
seek long-term capital appreciation by investing primarily in undervalued
foreign equity securities. These two funds make Scudder among the first in the
industry to offer funds that pursue long-term growth of capital internationally
in both the growth and value styles of investing, respectively. Please see page
21 for more information on Scudder products and services.

If you have any questions regarding Scudder Short Term Bond Fund or any
other Scudder fund, please do not hesitate to call Investor Relations at 1-800-
225-2470. Or visit Scudder's 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> 291

PERFORMANCE UPDATE AS OF JUNE 30, 1998
FUND INDEX COMPARISONS

<TABLE>
<CAPTION>
TOTAL RETURN
PERIOD GROWTH ---------------------
ENDED OF AVERAGE
6/30/98 $10,000 CUMULATIVE ANNUAL
------- ------- ---------- -------
<S> <C> <C> <C>
SCUDDER SHORT TERM BOND FUND
1 Year $10,525 5.25% 5.25%
5 Year $12,424 24.24% 4.44%
10 Year* $20,025 100.25% 7.19%
SALOMON BROTHERS INC. TREASURY/GOVERNMENT
SPONSORED CORPORATE INDEX (1-3 YEARS)
1 Year $10,684 6.84% 6.84%
5 Year $13,170 31.70% 5.66%
10 Year* $20,225 102.25% 7.29%
</TABLE>

- ------------------------
* 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 81.76% and 6.87%,
respectively.

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 JUNE 30
SCUDDER SHORT TERM BOND FUND

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
'88.................................... $10,000
'89.................................... $10,890
'90.................................... $11,806
'91.................................... $13,017
'92.................................... $14,387
'93.................................... $15,357
'94.................................... $15,619
'95.................................... $16,819
'96.................................... $17,757
'97.................................... $18,930
'98.................................... $20,225
</TABLE>

4 - SCUDDER SHORT TERM BOND FUND
<PAGE> 292

SALOMON BROTHERS INC. TREASURY/GOVERNMENT
SPONSORED CORPORATE INDEX (1-3 YEARS)

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
'88.................................... $10,000
'89.................................... $10,979
'90.................................... $12,003
'91.................................... $13,513
'92.................................... $14,861
'93.................................... $16,118
'94.................................... $16,212
'95.................................... $17,050
'96.................................... $17,922
'97.................................... $19,027
'98.................................... $20,025
</TABLE>

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 JUNE 30

[BAR GRAPH]

5 - SCUDDER SHORT TERM BOND FUND
<PAGE> 293

worth more or less than when purchased. Returns may be higher due to the
Adviser's maintenance of the Fund's expenses.

PORTFOLIO SUMMARY AS OF JUNE 30, 1998

DIVERSIFICATION

<TABLE>
<S> <C>
Corporate Bonds............................................. 31%
Asset-Backed Securities..................................... 18%
Government National Mortgage Association.................... 16%
Collateralized Mortgage Obligations......................... 15%
U.S. Government Agency Pass-throughs........................ 10%
U.S. Government Obligations................................. 6%
Cash Equivalents............................................ 4%
---
100%
</TABLE>

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

We have been increasing the Fund's exposure to corporate bonds as a
precautionary measure. We believe these bonds would provide additional safety if
U.S. economic growth slows.

QUALITY

<TABLE>
<S> <C>
U.S. Government & Agencies......... 32%
AAA*............................... 27%
AA................................. 9%
A.................................. 3%
BBB................................ 29%
---
100%
</TABLE>

- ------------------------------
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.

The overall quality of the Fund's portfolio holdings remains high.

6 - SCUDDER SHORT TERM BOND FUND
<PAGE> 294

EFFECTIVE MATURITY

<TABLE>
<S> <C>
Under 1 year............................... 14%
1 -- 5 years............................... 76%
5 -- 8 years............................... 8%
8 years or greater......................... 2%
---
100%
</TABLE>

- ------------------------------
Weighted average effective maturity: 2.63 years

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

The Fund continued to maintain 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
9. A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.

PORTFOLIO MANAGEMENT DISCUSSION

We recently asked Scudder Short Term Bond Fund's Co-Lead Portfolio
Managers, Stephen Wohler and Robert Cessine, to discuss fund strategy and market
conditions during the first half of 1998.

Q: HOW WOULD YOU CHARACTERIZE THE INVESTMENT ENVIRONMENT OVER THE PAST SIX
MONTHS?

A: It was a period of strong economic growth, muted inflation and relatively
stable interest rates--a market that favored equity over fixed income
investing. While the bond market rallied for longer maturities, short-term
rates held fairly steady due to the unchanging policy of the Federal
Reserve, creating a more challenging environment for the short-term issues
in which the Fund invests.

Q: HOW DID SCUDDER SHORT TERM BOND FUND PERFORM DURING THE SIX-MONTH PERIOD?

A: Scudder Short Term Bond Fund continued to provide investors with a
competitive, high-yielding alternative for their short-term cash reserves,
providing a 30-day net annualized SEC yield of 5.46% at the end of June,
compared with 5.01% on average for the taxable money market funds tracked by
IBC/Donoghue, an independent research firm. The Fund historically has
maintained a comfortable yield advantage over money market funds. Of course,
money market funds seek to maintain a stable principal

7 - SCUDDER SHORT TERM BOND FUND
<PAGE> 295

value, while the Fund's net asset value will fluctuate with changing market
conditions.

From a total return standpoint, however, the Fund did not perform up to our
expectations. It provided a total return of 1.74% for the six months ending
June 30, 1998 compared to 2.82% for the average short-term bond fund
tracked by Lipper Analytical Services. At the beginning of the year, the
Fund was positioned to capture yield, but this strategy was not rewarded.
While the overall quality of the Fund's holdings remained high, relatively
large positions in weak areas such as asset-backed securities and REITs
detracted from the Fund's performance. In addition, high coupon mortgage
pass-throughs also underperformed due to rapid prepayments caused by
refinancing activity as mortgage rates continued to decline.

[Bar Graph To Come]

Q: AT THE END OF THE PERIOD, 18% OF THE PORTFOLIO WAS IN ASSET-BACKED
SECURITIES. WHAT ARE THEY, AND HOW DO THEY DIFFER FROM OTHER TYPES OF
FIXED-INCOME INVESTMENTS?

A: Historically, most bonds in the public debt market have been issued either
on an unsecured basis, based on the financial strength of a corporation, or
on a secured basis, backed by high quality collateral. Asset-backed
securities evolved from the secured bond market, but unlike most of the
secured bond market, they have been designed to insulate investors from the
performance of the issuing corporations. With asset-backed securities, the
securities perform based on the collateral, not the issuer. Even if the
issuer goes bankrupt, investors should still receive 100% of principal and
interest

8 - SCUDDER SHORT TERM BOND FUND
<PAGE> 296

payments from the security. Historically, asset-backed securities have been
one of the higher yielding, lower risk investment options in the bond
market.

Over the past six months, the Fund's manufactured housing and home equity
asset-backed securities underperformed, but we continue to believe they
offer good longer-term upside potential and a valuable source of
diversification.

Q: DID YOU MAKE ANY CHANGES IN THE FUND'S INVESTMENT STRATEGY DURING THE FIRST
HALF OF THE YEAR?

A: We have been increasing the Fund's exposure to corporate bonds, which
accounted for 31% of the portfolio at the end of the period and now
constitute the Fund's largest sector weighting. To the extent possible, we
are focusing our corporate purchases in non-cyclical areas, such as
consumables, cable TV, and media. Although we don't anticipate a recession,
we believe these sectors would provide greater safety in a recessionary
environment. We have also tried to increase the upside potential of the
portfolio in case short-term interest rates fall. This included reducing the
Fund's premium mortgages position from 31% at the beginning of the year to
24% on June 30, 1998. That money has been reallocated to new asset-backed
securities and corporate bonds. At the end of the period, asset-backed
securities accounted for 18% of the portfolio.

Q: WHAT ABOUT THE FUND'S DURATION?

A: Duration measures a portfolio's sensitivity to interest rate changes, and is
adjusted by altering the mix of securities. The shorter a portfolio's
duration, the less its net asset value will be affected by rising interest
rates. As a short-term bond fund, the Fund's duration will never exceed that
of a 3-year Treasury note--about 2.5 years. The Fund's duration remained in
the 1.6 to 1.8 year range throughout the period, in anticipation of a
possible rise in short term rates. This had little effect on performance, as
short-term rates remained relatively stable between January and June.

Q: WHAT IS YOUR OUTLOOK FOR THE REST OF THE YEAR?

A: We are cautiously optimistic about the bond market. We believe the slowdown
in Asia may help keep U.S. economic growth to acceptable levels--less than
3.0%--which would be a supportive environment for bonds. Inventory buildup
in the first quarter may also lead to slower growth in the second half of
the year. We believe inflation will remain restrained, and in the absence of
the economy picking up steam, we would expect the Federal Reserve Board to
stay on the sidelines. It has been an unusual period, with the Federal Funds
rate pegged at 5.5% and short-term interest

9 - SCUDDER SHORT TERM BOND FUND
<PAGE> 297

rates even lower. Even so, U.S. rates are still higher than those in Europe
and Japan. And with very little difference in yields between short-and
long-term bonds, we believe the tradeoff for extending maturities is not
there for risk-averse investors. Scudder Short Term Bond Fund continues to
offer investors an opportunity for a high level of income, consistent with
relative price stability and liquidity.

10 - SCUDDER SHORT TERM BOND FUND
<PAGE> 298

GLOSSARY OF INVESTMENT TERMS

<TABLE>
<S> <C>
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 A bond that has a quality rating of BBB or higher.
BOND
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.
</TABLE>

- ------------------------------
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)

11 - SCUDDER SHORT TERM BOND FUND
<PAGE> 299

INVESTMENT PORTFOLIO AS OF JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 0.7%
- -----------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
6/30/1998 at 5.75%, to be repurchased at $7,355,175 on
7/1/1998, collateralized by a $5,163,000 U.S. Treasury
Bond, 12.75%, 11/15/2010 (Cost $7,354,000)................ 7,354,000 7,354,000
- -----------------------------------------------------------------------------------------
SHORT-TERM NOTES 3.8%
- -----------------------------------------------------------------------------------------
Prudential Funding Corp., 5.89%, 7/2/1998................... 20,000,000 20,000,000
Federal National Mortgage Association, 5.83%* with various
maturities to 7/7/1998.................................... 20,000,000 19,980,600
- -----------------------------------------------------------------------------------------
Total Short-Term Notes (Cost $39,980,600) 39,980,600
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 6.2%
- -----------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.5%, 4/14/2000..................... 10,000,000 9,973,400
Federal Home Loan Bank, 5.625%, 3/19/2001 (b)............... 20,000,000 19,962,400
U.S. Treasury Note, 6.25%, 6/30/2002........................ 10,000,000 10,251,600
U.S. Treasury Note, 5.625%, 12/31/2002...................... 10,000,000 10,043,700
U.S. Treasury Note, 5.5%, 5/31/2003......................... 15,000,000 15,002,400
- -----------------------------------------------------------------------------------------
Total U.S. Government Obligations (Cost $65,190,632) 65,233,500
- -----------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 15.6%
- -----------------------------------------------------------------------------------------
11.5% with various maturities to 7/20/2020.................. 13,291,660 14,996,092
11% with various maturities to 10/20/2020................... 1,599,088 1,769,596
9% with various maturities to 12/15/2020 (b)................ 55,563,318 59,834,258
10% with various maturities to 1/20/2022.................... 3,270,987 3,556,931
8% with various maturities to 12/15/2023.................... 72,292,035 75,082,179
7.13% with various maturities to 9/20/2025.................. 8,546,831 8,683,046
- -----------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost
$162,610,155) 163,922,102
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY PASS-THROUGHS 9.9%
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Series 1719-C, Principal
Only, 4/15/1999 (b)....................................... 18,387,720 17,932,337
Federal Home Loan Mortgage Corp., 7.5%, 9/1/2012............ 46,774,129 48,074,918
Federal Home Loan Mortgage Corp., 9.5% with various
maturities to 8/1/2016.................................... 5,618,104 6,090,081
Federal Home Loan Mortgage Corp., Series 1250-F, 7%,
4/15/2019................................................. 78,698 78,550
Federal Home Loan Mortgage Corp., 7.792%, 11/1/2021......... 439,621 457,413
Federal Home Loan Mortgage Corp., 7.74% with various
maturities to 9/1/2024.................................... 6,050,441 6,289,615
Federal National Mortgage Association, 7.31% with various
maturities to 1/1/2019.................................... 925,200 955,121
Federal National Mortgage Association, 8.5% with various
maturities to 8/1/2022.................................... 14,003,959 14,685,484
</TABLE>

12 - SCUDDER SHORT TERM BOND FUND
<PAGE> 300

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association, 7.38% with various
maturities to 12/1/2022................................... 5,496,713 5,659,031
Federal National Mortgage Association, 7.4% with various
maturities to 10/1/2023................................... 4,223,469 4,338,199
- -----------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-throughs (Cost
$104,831,347) 104,560,749
- -----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 14.5%
- -----------------------------------------------------------------------------------------
Chemical Mortgage Securities, Inc., Series 1993-1 A4, 7.45%,
2/25/2023................................................. 1,417,678 1,420,780
Citicorp Mortgage Securities, Inc., Series 1997-3, 7%,
8/25/2027................................................. 21,361,390 21,341,363
Countrywide Funding Corp., Series 1994-2 A8, 6.5%,
2/25/2009................................................. 1,900,000 1,895,844
First Bank System Inc., Series 1993-F, 7.178%, 11/25/2024
(b)....................................................... 17,626,602 17,747,785
General Electric Capital Mortgage Services, Inc., 7%,
1/25/2008................................................. 6,500,000 6,577,155
General Electric Capital Mortgage Services, Inc., Series
1994-21A, 6.5%, 8/25/2009................................. 14,372,712 14,350,147
General Electric Capital Mortgage Services, Inc., Series
1994-19 A1, 7.5%, 6/25/2024............................... 995,741 992,624
General Electric Capital Mortgage Services, Inc., Series
1994-27 A1, 6.5%, 7/25/2024............................... 5,842,203 5,836,726
Norwest Asset Security Corp., Series 1996-5 AB, 7.5%,
11/25/2026................................................ 8,796,142 8,848,369
Residential Funding Mortgage Securities, Series 1996-A17,
7.75%, 1/25/2007.......................................... 8,063,349 8,172,961
Residential Funding Mortgage Securities, Series 1993-S35,
7.087%, 10/25/2023........................................ 16,290,434 16,361,705
Residential Funding Mortgage Securities I Inc., Series
1997-S19 A6, 6.5%, 12/25/2012............................. 26,528,498 26,462,171
Residential Funding Mortgage Securities I Inc., Series
1997-S13 A8, 7.1%, 9/25/2027.............................. 21,076,321 21,076,321
Resolution Trust Corp., Series 1992-12 A2A, 7.5%,
8/25/2023................................................. 748,026 749,545
Ryland Acceptance Corp. Four, Series 97-H, 8.95%,
8/20/2019................................................. 1,092,919 1,093,936
- -----------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost
$153,940,898) 152,927,432
- -----------------------------------------------------------------------------------------
ASSET BACKED 17.8%
- -----------------------------------------------------------------------------------------
Miscellaneous 2.6%
Bally's Health & Tennis Master Trust, 8.43%, 8/1/2002....... 13,000,000 13,018,281
Mortgage Index Amortizing Trust Series 1997-1, 6.682%,
8/25/2004................................................. 14,000,000 14,095,703
-------------
27,113,984
-------------
Credit Card Receivables 1.4%
First USA Bank, Series 1994-1, 7.45%, 4/15/1999............. 4,528,302 4,538,264
Proffitt's, Inc. Credit Card Master Trust, 6%, 9/15/2004.... 10,000,000 9,970,703
-------------
14,508,967
-------------
Home Equity Loans 5.2%
Advanta Corp., Series 1997-2 A3, 7.3%, 10/25/2022 (b)....... 10,500,000 10,782,188
AFC Home Equity Loan Trust, Series 1990-3A, 9.6%,
7/26/2005................................................. 943,056 952,192
AFC Home Equity Loan Trust, Series 1992-3A, 7.05%,
8/15/2007................................................. 474,177 472,844
</TABLE>

13 - SCUDDER SHORT TERM BOND FUND
<PAGE> 301

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CTS Home Equity Loan Trust, Series 1991-1A, 8.8%,
1/15/2006................................................. 263,019 262,443
Contimortgage Home Equity Loan Trust, Series 1991-1, 9.52%,
4/15/2006................................................. 475,299 470,843
Contimortgage Home Equity Loan Trust, Series 1997-3 M1-F,
7.31%, 8/15/2028 (b)...................................... 18,500,000 18,913,359
Contimortgage Net Interest Margin Notes, Series 1997-3,
Series 1997-3, 7.23%, 7/16/2028........................... 6,781,279 6,755,849
Green Tree Financial Corp., Series 1997-B A5, 7.15%,
4/15/2027................................................. 9,600,000 9,748,500
Old Stone Credit Corp. Home Equity Loan, Series 1992-2,
6.95%, 5/15/2007.......................................... 2,757,427 2,768,622
Old Stone Credit Corp. Home Equity Loan, Series 1993-1,
5.85%, 3/15/2008.......................................... 659,389 654,855
Security Pacific Home Equity Trust, Series 1991-A B, 10.5%,
3/10/2006................................................. 2,543,398 2,553,334
-------------
54,335,029
-------------
Manufactured Housing Receivables 8.6%
Associated Manufactured Housing Corp., Series 1997-1 B1,
7.6%, 6/15/2028........................................... 8,000,000 8,111,250
Green Tree Financial Corp., Securitized NIM, Series 1994-A,
6.9%, 2/15/2004........................................... 13,385,116 13,364,725
Green Tree Financial Corp., Securitized NIM, Series 1994-B,
7.85%, 7/15/2004.......................................... 11,105,567 11,227,034
Green Tree Financial Corp., Series 1995-3 B2, 8.1%,
8/15/2025................................................. 20,636,400 20,744,419
Green Tree Financial Corp., Series 1995-5 B2, 7.65%,
9/15/2026................................................. 9,000,000 9,013,711
Green Tree Financial Corp., 7.3%, 12/15/2026................ 9,500,000 9,566,797
Green Tree Financial Corp., Series 1996-5 B2, 8.45%,
7/15/2027................................................. 9,998,413 10,311,644
Merrill Lynch Mortgage Investors Inc., Series 1991-B, 9.2%,
3/15/2011................................................. 41,626 41,613
Merrill Lynch Mortgage Investors Inc., Series 1992-B, 8.5%,
4/15/2012................................................. 8,560,721 8,582,123
-------------
90,963,316
- -----------------------------------------------------------------------------------------
Total Asset Backed (Cost $185,863,466) 186,921,296
- -----------------------------------------------------------------------------------------
CORPORATE BONDS 31.5%
- -----------------------------------------------------------------------------------------
Consumer Discretionary 1.4%
Wal-Mart Stores Inc., 5.85%, 6/1/2000....................... 15,000,000 14,960,625
-------------
Consumer Staples 1.4%
Philip Morris Companies Inc., 6.15%, 3/15/2000.............. 15,000,000 14,945,625
-------------
Communications 1.1%
AT&T Capital Corp., 6.25%, 5/15/2001........................ 11,000,000 11,029,700
-------------
Financial 19.2%
American Health Properties, Inc. (REIT), 7.05%, 1/15/2002... 2,200,000 2,247,718
BANC ONE CORP., 6.25%, 10/1/2001............................ 10,000,000 10,112,500
Citicorp, 8.03%, 2/15/2000.................................. 15,000,000 15,514,050
Colonial Realty LP (REIT), 7.5%, 7/15/2001 (b).............. 4,000,000 4,090,600
ERP Operating LP (REIT), 8.5%, 5/15/1999.................... 4,100,000 4,177,326
General Electric Capital Corp., 6.02%, 5/1/2001 (b)......... 15,000,000 15,075,000
</TABLE>

14 - SCUDDER SHORT TERM BOND FUND
<PAGE> 302

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Health Care Properties Investors, Inc. (REIT), 6%,
11/8/2000................................................. 5,225,000 5,172,750
Morgan Stanley Capital Investment, Inc., 6.25%, 7/15/2007... 7,914,192 7,973,239
NationsBank Corp., 5.75%, 3/15/2001......................... 19,000,000 18,997,744
Oasis Residential Inc. (REIT), 6.75%, 11/15/2001............ 13,400,000 13,603,680
Oasis Residential Inc. (REIT), 7%, 11/15/2003............... 14,900,000 15,120,222
Simon Debartolo Group, Inc. (REIT), 6.625%, 6/15/2003....... 15,000,000 14,995,500
Spieker Properties, Inc. (REIT), 6.65%, 12/15/2000.......... 15,000,000 15,105,600
Spieker Properties, Inc. (REIT), 6.8%, 12/15/2001........... 5,500,000 5,590,860
Spieker Properties, Inc. (REIT), 6.95%, 12/15/2002.......... 3,500,000 3,561,005
Sun Communities, Inc. (REIT), 7.625%, 5/1/2003.............. 5,850,000 6,061,419
Susa Partnership LP (REIT), 7.125%, 11/1/2003............... 5,400,000 5,523,768
Taubman Realty Group LP (REIT), Medium Term Note, 8%,
6/15/1999................................................. 4,755,000 4,832,887
Taubman Realty Group LP (REIT), Medium Term Note, 7.5%,
6/15/2002................................................. 19,150,000 19,678,540
World Omni Automobile Lease Securitization Trust, Series
1996-B, 6.85%, 11/15/2002................................. 14,982,494 15,188,503
-------------
202,622,911
-------------
Media 2.1%
Comcast Cable Communications, 8.125%, 5/1/2004.............. 15,000,000 16,251,450
Tele-Communications, Inc., 7.375%, 2/15/2000................ 6,000,000 6,126,300
-------------
22,377,750
-------------
Technology 2.9%
Pitney Bowes, Inc., 6.27%, 1/20/2012........................ 15,000,000 15,018,750
Raytheon Co., 6.45%, 8/15/2002.............................. 15,000,000 15,148,800
-------------
30,167,550
-------------
Energy 1.4%
Lyondell Petrochemical Co., Global Note, 9.125%,
3/15/2002................................................. 8,900,000 9,607,906
Lyondell Petrochemical Co., 9.75%, 9/4/2003................. 4,600,000 5,334,758
-------------
14,942,664
-------------
Metals & Minerals 1.4%
Alcan Aluminium Ltd., 9.625%, 7/15/2019 (b)................. 14,000,000 14,999,600
-------------
Transportation 0.6%
Continental Airlines Inc. Pass-thru Trust, 7.42%,
4/1/2007.................................................. 6,178,750 6,343,416
- -----------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $329,266,224) 332,389,841
- -----------------------------------------------------------------------------------------
Total Investment Portfolio--100.0% (Cost $1,049,037,322) (a) 1,053,289,520
- -----------------------------------------------------------------------------------------
</TABLE>

15 - SCUDDER SHORT TERM BOND FUND
<PAGE> 303

- ------------------------------
* Annualized yield at time of purchase; not a coupon rate.

(a) The cost for federal income tax purposes was $1,049,037,322. At June 30,
1998, net unrealized appreciation for all securities based on tax cost was
$4,252,198. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$7,933,764 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $3,681,566.

(b) At June 30, 1998 these securities, in whole or in part, have been pledged to
cover initial margin requirements for open futures contracts.

At June 30, 1998, 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 September 21, 1998 1,000 109,196,875 109,687,500
----------- -----------
Total net unrealized depreciation on open futures contracts sold short... (490,625)
===========
</TABLE>

ABBREVIATIONS AND OTHER ACRONYMS USED IN THIS PORTFOLIO:

REIT Real Estate Investment Trust
NIM Net Interest Margin

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.

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

16 - SCUDDER SHORT TERM BOND FUND
<PAGE> 304

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1998 (UNAUDITED)

<S> <C>
Assets
Investments, at market (identified cost
$1,049,037,322)..................................... $1,053,289,520
Cash.................................................. 687,501
Receivable for investments sold....................... 3,342,836
Interest receivable................................... 8,075,048
Receivable for Fund shares sold....................... 1,512,437
Other assets.......................................... 15,349
--------------
Total assets................................ 1,066,922,691

Liabilities
Dividends payable..................................... 1,101,788
Payable for Fund shares redeemed...................... 2,451,775
Payable for investments purchased..................... 7,029
Payable for daily variation margin on open futures
contracts........................................... 210,180
Accrued management fee................................ 459,770
Other payables and accrued expenses................... 678,264
--------------
Total liabilities........................... 4,908,806
--------------
Net assets, at market value $1,062,013,885
--------------

Net Assets
Net assets consist of:
Undistributed net investment income................. 3,739,631
Net unrealized appreciation (depreciation) on:
Investments......................................... 4,252,198
Futures............................................. (490,625)
Accumulated net realized loss......................... (146,448,580)
Paid-in capital....................................... 1,200,961,261
--------------
Net assets, at market value $1,062,013,885
--------------
Net Asset Value
Net Asset Value, offering and redemption price per
share ($1,062,013,885/97,291,906 outstanding shares
of beneficial interest, $.01 par value, unlimited
number of shares -- authorized)..................... $ 10.92
--------------
</TABLE>

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

17 - SCUDDER SHORT TERM BOND FUND
<PAGE> 305

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Investment Income
Income:
Interest................................................. $39,795,647
-----------
Expenses:
Management fee........................................... 2,994,960
Services to shareholders................................. 1,423,746
Custodian and accounting fees............................ 149,325
Trustees' fees and expenses.............................. 26,788
Reports to shareholders.................................. 107,152
Auditing................................................. 32,037
Legal.................................................... 17,195
Registration fees........................................ 19,005
Other.................................................... 23,613
-----------
4,793,821
-----------
Net investment income.................................... 35,001,826
-----------
Realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments.............................................. (472,085)
Futures.................................................. (7,369,695)
Options.................................................. (11,842)
-----------
(7,853,622)
-----------
Net unrealized appreciation (depreciation) during the
period on:
Investments.............................................. (8,473,457)
Futures.................................................. 170,036
-----------
(8,303,421)
-----------
Net gain (loss) on investment transactions............... (16,157,043)
-----------
Net increase (decrease) in net assets resulting from
operations............................................ $18,844,783
-----------
</TABLE>

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

18 - SCUDDER SHORT TERM BOND FUND
<PAGE> 306

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income............... $ 35,001,826 $ 85,116,159
Net realized gain (loss) from
investment transactions.......... (7,853,622) (20,654,427)
Net unrealized appreciation
(depreciation) on investment
transactions during the period... (8,303,421) 11,486,176
-------------- --------------
Net increase (decrease) in net assets
resulting from operations........... 18,844,783 75,947,908
-------------- --------------
Distributions to shareholders from:
Net investment income................. (31,641,266) (78,060,393)
-------------- --------------
Fund share transactions:
Proceeds from shares sold........... 158,485,931 225,970,263
Net asset value of shares issued to
shareholders in reinvestment of
distributions.................... 24,057,737 58,987,223
Cost of shares redeemed............. (273,264,462) (585,484,724)
-------------- --------------
Net increase (decrease) in net assets
from Fund share transactions........ (90,720,794) (300,527,238)
-------------- --------------
Increase (decrease) in net assets..... (103,517,277) (302,639,723)
Net assets at beginning of period..... 1,165,531,162 1,468,170,885
-------------- --------------
Net assets at end of period (including
undistributed net investment income
of $3,739,631 and $379,071,
respectively)....................... $1,062,013,885 $1,165,531,162
-------------- --------------
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of
period........................... 105,576,081 132,860,852
-------------- --------------
Shares sold......................... 14,397,761 20,508,345
Shares issued to shareholders in
reinvestment of distributions.... 2,195,694 5,352,697
Shares redeemed..................... (24,877,630) (53,145,813)
-------------- --------------
Net increase (decrease) in Fund
shares.............................. (8,284,175) (27,284,771)
-------------- --------------
Shares outstanding at end of period... 97,291,906 105,576,081
-------------- --------------
</TABLE>

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

19 - SCUDDER SHORT TERM BOND FUND
<PAGE> 307

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>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1998(A) ---------------------------------------------
(UNAUDITED) 1997(A) 1996(A) 1995 1994 1993(A)
-------------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $11.04 $11.05 $11.35 $10.91 $12.01 $11.93
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income...... .34 .73 .74 .71 .81 .87
Net realized and unrealized
gain (loss) on
investments.............. (.15) (.07) (.32) .44 (1.15) .08
------ ------ ------ ------ ------ ------
Total from investment
transactions........... .19 .66 .42 1.15 (.34) .95
------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income................... (.31) (.67) (.72) (.43) (.64) (.80)
From net realized gains.... -- -- -- -- -- (.03)
In excess of gains......... -- -- -- -- -- (.04)
From tax return of
capital.................. -- -- -- (.28) (.12) --
------ ------ ------ ------ ------ ------
Total distributions...... (.31) (.67) (.72) (.71) (.76) (.87)
====== ====== ====== ====== ====== ======
Net asset value, end of
period..................... $10.92 $11.04 $11.05 $11.35 $10.91 $12.01
------ ------ ------ ------ ------ ------
Total Return (%)......... 1.74** 6.17 3.86 10.74 (2.87) 8.18
Ratios and Supplemental Data
Net assets, end of period
($ millions)............... 1,062 1,166 1,468 1,823 2,136 3,190
Ratio of operating expenses
net, to average daily net
assets (%)................. .86* .86 .80 .75 .73 .68
Ratio of net investment
income to average daily net
assets (%)................. 6.30* 6.64 6.66 6.37 6.93 7.21
Portfolio turnover rate
(%)........................ 152.2* 39.4 61.8 101.1 65.3 66.1
</TABLE>

- ------------------------------
(a) Per share amounts have been calculated using weighted average shares
outstanding.

* Annualized

** Not annualized

20 - SCUDDER SHORT TERM BOND FUND
<PAGE> 308

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

A. SIGNIFICANT ACCOUNTING POLICIES

Security Valuation. Portfolio debt securities other than money market
instruments with an original maturity over 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.

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 purchased and sold interest rate futures to hedge against
declines in the value of portfolio securities.

21 - SCUDDER SHORT TERM BOND FUND
<PAGE> 309

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.

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. The Fund accordingly paid no federal income taxes and no provision
for federal income taxes was required.

22 - SCUDDER SHORT TERM BOND FUND
<PAGE> 310

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. 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 (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.

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 accredited for both tax and financial reporting purposes.

B. PURCHASES AND SALES OF SECURITIES

For the six months ended June 30, 1998, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $722,365,276 and $799,037,486, respectively. Purchases and sales of
U.S. Government obligations aggregated $80,748,047 and $116,614,141,
respectively.

The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1998 was $9,329,943,690 and $9,425,604,654,
respectively.

C. RELATED PARTIES

Under the Investment Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.60% on the first
$500,000,000 of average daily net assets, 0.50% on the next $500,000,000 of

23 - SCUDDER SHORT TERM BOND FUND
<PAGE> 311

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 six months ended June 30, 1998,
the fee pursuant to these agreements amounted to $2,994,960, of which $459,770
is unpaid at June 30, 1998. The management fee was equivalent to an annualized
effective rate of 0.54% 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 $829,599 charged to the Fund by SSC for the six
months ended June 30, 1998, of which $261,880 is unpaid at June 30, 1998.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended June 30,
1998, the amount charged to the Fund by STC aggregated $275,201, of which
$131,415 is unpaid at June 30, 1998.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Fund. For the
six months ended June 30, 1998, the amount charged to the Fund by SFAC
aggregated $84,934, of which $27,083 is unpaid at June 30, 1998.

The Trust pays each of its Trustees not affiliated with the Adviser an
annual retainer, divided equally among the series of the Trust, plus specified
amounts for attended board and committee meetings. For the six months ended June
30, 1998, Trustees' fees and expenses aggregated $26,788.

24 - SCUDDER SHORT TERM BOND FUND
<PAGE> 312

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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 EQUITY
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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.

INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund

RETIREMENT PROGRAMS AND EDUCATION ACCOUNTS

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.

25 - SCUDDER SHORT TERM BOND FUND
<PAGE> 313

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. ***Only the Scudder Shares of the Fund
are part of the Scudder Family of Funds. ++Only the International Shares of the
Fund are part of the Scudder Family of Funds. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #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.

26 - SCUDDER SHORT TERM BOND FUND
<PAGE> 314

SCUDDER SOLUTIONS

Convenient ways to invest, quickly and reliably:

<TABLE>
<CAPTION>
Automatic Investment Plan QuickBuy
------------------------- --------
<S> <C>

</TABLE>

<TABLE>
<CAPTION>
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
--------------------------- ------------------------------------
<S> <C>

</TABLE>

- ------------------------------
* 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:

<TABLE>
<CAPTION>
Scudder's Web Site --
Scudder Automated Information Line: SAIL(TM) http://funds.scudder.com
- -------------------------------------------- ----------------------------------
<S> <C>
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.
</TABLE>

27 - SCUDDER SHORT TERM BOND FUND
<PAGE> 315

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

<TABLE>
<CAPTION>
Automatic Withdrawal Plan QuickSell
------------------------- ---------
<S> <C>
You designate the bank account, Provides speedy access to your
determine the schedule and amount money by (as frequently as once a
of the redemptions, and Scudder month) electronically crediting
does the rest. your redemption proceeds to the
bank account you previously
designated.
</TABLE>

<TABLE>
<CAPTION>
Distribution Direct
-------------------
<S> <C>
Automatically deposits your fund
distributions into the bank
account you designate within three
business days after each
distribution is paid.
</TABLE>

For more information about these services, call a Scudder representative at
1-800-225-5163

Mutual Funds and More -- Brokerage and Guidance Services:

<TABLE>
<CAPTION>
Scudder Brokerage Services Scudder Portfolio Builder
-------------------------- -------------------------
<S> <C>
Offers you access to a world of A free service designed to help
investments, including stocks, suggest ways investors like you
corporate bonds, Treasuries, plus can diversify your portfolio among
over 8,000 mutual funds from at domestic and global, as well as
least 150 mutual fund companies. equity, fixed-income, and money
And Scudder Fund Folio(SM) market funds, using Scudder funds.
provides investors with access to
a marketplace of more than 500 no- Personal Counsel from Scudder(SM)
load funds from well-known
companies -- with no transaction Developed for investors who prefer
fees or commissions. Scudder the benefits of no-load funds but
shareholders can take advantage of want ongoing professional
a Scudder Brokerage account assistance in managing a
already reserved for them, with no portfolio. Personal Counsel(SM) is
minimum investment. For a highly customized, fee-based
information about Scudder asset management service for
Brokerage Services, call individuals investing $100,000 or
1-800-700-0820. more.

</TABLE>

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

28 - SCUDDER SHORT TERM BOND FUND
<PAGE> 316

For more information about these services, call a Scudder representative at
1-800-225-5163.

Additional Information on How to Contact Scudder:

<TABLE>
<CAPTION>
For existing account services and transactions Please address all written correspondence to
- ---------------------------------------------- --------------------------------------------
<S> <C>
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
Boston, Massachusetts 02107-2291
For establishing 401(k) and 403(b) plans Or Stop by a Scudder Investor Center
Scudder Defined Contribution
Services -- 1-800-323-6105
For information about The Scudder Funds, Many shareholders enjoy the personal,
including additional applications and one-on-one service of the Scudder Investor
prospectuses, or for answers to investment Centers. Check for an Investor Center near
questions you -- they can be found in the following
Scudder Investor Relations -- 1-800-225-2470 cities:
[email protected] Boca Raton, Boston, Chicago, New York, San
Francisco
</TABLE>

For existing account services and transactions Scudder Investor
Relations -- 1-800-225-5163

For establishing 401(k) and 403(b) plans Scudder Defined Contribution
Services -- 1-800-323-6105

For information about The Scudder Funds, including additional applications and
prospectuses, or for answers to investment questions Scudder Investor
Relations -- 1-800-225-2470 [email protected]

Please address all written correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center

Many shareholders enjoy the personal, one-on-one service of the Scudder Investor
Centers. Check for an Investor Center near you -- they can be found in the
following cities:
Boca Raton Chicago San Francisco
Boston New York

29 - SCUDDER SHORT TERM BOND FUND
<PAGE> 317

ABOUT THE FUND'S ADVISER

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]

30 - SCUDDER SHORT TERM BOND FUND
<PAGE> 318

SCUDDER ZERO COUPON 2000 FUND

SEMIANNUAL REPORT
JUNE 30, 1998

PURE NO-LOAD(TM) FUNDS

For investors who seek as high an investment return over a selected period
as is consistent with investment in U.S. government securities and the
minimization of reinvestment risk.

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

SCUDDER

[logo]
<PAGE> 319

SCUDDER ZERO COUPON 2000 FUND
DATE OF INCEPTION: 2/4/86 TOTAL NET ASSETS AS OF
6/30/98: $18.8 MILLION
TICKER SYMBOL: SGZTX

- - For its most recent semiannual period ended June 30, 1998, Scudder Zero Coupon
2000 Fund posted a 2.84% total return. As of June 30, the Fund provided a
30-day net annualized SEC yield of 4.55%.

- - Short-term Treasury security prices moved within a limited range during the
six months ended June 30, 1998, as the Federal Reserve made known its concerns
over tight labor markets and the possible resurgence of inflationary
pressures.

TABLE OF CONTENTS

<TABLE>
<C> <S>
3 Letter from the Fund's
President
4 Performance Update
5 Portfolio Management
Discussion
7 Glossary of Investment Terms
8 Investment Portfolio
9 Financial Statements
12 Financial Highlights
13 Notes to Financial Statements
16 Officers and Trustees
17 Investment Products and
Services
18 Scudder Solutions
</TABLE>

2 - Scudder Zero Coupon 2000 Fund
<PAGE> 320

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

We are pleased to report to you on Scudder Zero Coupon 2000 Fund's
performance over its most recent semiannual period ended June 30, 1998. The Fund
posted a 2.84% total return for the period, as shorter maturity Treasury
securities traded in a narrow range. Given Scudder Zero Coupon 2000 Fund's
relatively short time to maturity, the Fund's managers continue to seek as high
an investment return over a selected period as is consistent with the
minimization of investment risk. For more information on the Fund's investment
strategy, results, and outlook, please read the portfolio management discussion
beginning on page 5.

For those of you interested in our newest Scudder offerings, we would like
to take this opportunity to highlight two upcoming additions to our
international category, both of which are scheduled to begin operations on
September 1st. Scudder International Growth Fund will seek long-term capital
appreciation by investing primarily in the equity securities of foreign
companies with high earnings growth potential, and Scudder International Value
Fund will seek long-term capital appreciation by investing primarily in
undervalued foreign equity securities. These two funds make Scudder among the
first in the industry to offer funds that pursue long-term growth of capital
internationally in both the growth and value styles of investing. Please see
page 17 for more information on Scudder products and services.

If you have any questions regarding Scudder Zero Coupon 2000 Fund or any
other Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470. Or visit Scudder's Web site at http://funds.scudder.com.

Sincerely,

/s/ Daniel Pierce
Daniel Pierce
President
Scudder Zero Coupon 2000 Fund

3 - Scudder Zero Coupon 2000 Fund
<PAGE> 321

PERFORMANCE UPDATE AS OF JUNE 30, 1998

FUND INDEX COMPARISONS

<TABLE>
<CAPTION>
TOTAL RETURN
PERIOD GROWTH ---------------------
ENDED OF AVERAGE
6/30/98 $10,000 CUMULATIVE ANNUAL
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
SCUDDER ZERO COUPON 2000 FUND
1 Year $10,745 7.45% 7.45%
5 Year $12,455 24.55% 4.49%
10 Year $24,004 140.04% 9.15%

LB GOVERNMENT/CORPORATE BOND INDEX
1 Year $11,129 11.29% 11.29%
5 Year $13,944 39.44% 6.87%
10 Year $23,885 138.85% 9.09%
</TABLE>

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 June 30
SCUDDER ZERO COUPON 2000 FUND

<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------
<S> <C>
'88...................................... 10000
'89...................................... 11235
'90...................................... 12033
'91...................................... 13261
'92...................................... 15137
'93...................................... 17129
'94...................................... 16880
'95...................................... 19036
'96...................................... 19921
'97...................................... 21463
'98...................................... 23885
</TABLE>

4 - Scudder Zero Coupon 2000 Fund
<PAGE> 322

LB GOVERNMENT/CORPORATE BOND INDEX

<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------
<S> <C>
'88...................................... 10000
'89...................................... 12113
'90...................................... 12370
'91...................................... 13413
'92...................................... 15770
'93...................................... 19272
'94...................................... 18362
'95...................................... 20549
'96...................................... 21046
'97...................................... 22340
'98...................................... 24005
</TABLE>

5 - Scudder Zero Coupon 2000 Fund
<PAGE> 323

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 points listed in the
table below.

Yearly periods ended June 30

[BAR GRAPH TO COME]

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not temporarily
capped expenses, the total returns for the Fund would have been lower.

6 - Scudder Zero Coupon 2000 Fund
<PAGE> 324

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

Though the Federal Reserve made no move to increase short-term interest
rates during the six months ended June 30, 1998, the Fed made clear its bias
towards credit tightening during the period. Nevertheless, short-term Treasury
securities traded within a narrow range and interest rates stayed at low levels.
In keeping with this interest rate environment, Scudder Zero Coupon 2000 Fund
posted a 2.84% total return for its most recent semiannual period ended June 30,
1998. In addition, the Fund provided a 30-day net annualized SEC yield of 4.55%
as of June 30, 1998. The Fund's total return of 2.84% for the six-month period
reflects a $0.13 decline in the Fund's net asset value to $11.75, offset by
$0.46 per share in income distributions. The unmanaged Lehman Brothers
Government/Corporate Bond Index's return during the same period was 4.17%. The
difference in return between the Fund and its comparative index mirrors the
Fund's ever-shortening average maturity.

Scudder Zero Coupon 2000 Fund seeks to provide investors with as high an
investment return over a selected period as is consistent with investments in
government securities and the minimization of reinvestment risk, but with the
additional advantages of professional management, diversification, and
liquidity. The Fund invests in high-quality zero-coupon bonds that pay no
current income but, similar to savings bonds, are issued at substantial
discounts to their value at maturity. When held to maturity, a zero-coupon
bond's entire return comes from the difference between its issue price and its
par value.

PORTFOLIO REVIEW

In managing Scudder Zero Coupon 2000 Fund we attempt to maximize the value
of your investment on the December 2000 maturity date. Since zero coupon bonds
such as those held by the Fund lack the cushion of regular interest payments,
the Fund can be more volatile than other fixed-income investments of comparable
maturity. Because some shareholders may need to redeem Fund shares before the
maturity date, we try to limit share price volatility where possible while at
the same time seeking a higher return than other fixed-income investments.

As the Fund approaches its 2000 maturity, we are gradually shortening the
duration of the Fund, keeping over 90% of the bonds in the Fund's portfolio
within two months of the target date, and over 99% within one year of the date.
For the same reason, we are keeping the Fund's duration in a neutral stance in
terms of its permissible range: As of June 30, 1998, the Fund's duration was 2.5

7 - Scudder Zero Coupon 2000 Fund
<PAGE> 325

years, in the middle of its allowable range of 1.5 years to 3.5 years. (Duration
gives relative weight to both interest and principal payments and has replaced
maturity as the standard measure of interest rate sensitivity among professional
investors. Generally the shorter the duration, the less sensitive a portfolio
will be to changes in interest rates.)

A WARY FEDERAL RESERVE

The Federal Reserve kept short-term interest rates from declining by making
known its concerns about tight labor markets and the possible resurgence of wage
inflationary pressures. Although the stock market experienced volatility during
the second quarter of the year, the Fed also was reportedly concerned about
unwarranted speculation in the U.S. stock market. We believe the Fed's posture
of being more inclined to raise short-term interest rates than to lower them
will make it difficult for shorter-maturity Treasury rates to move lower in the
near term, limiting the potential for the Fund's share price to appreciate.

As we approach Scudder Zero Coupon 2000 Fund's target year, we will monitor
events influencing the bond market closely and adjust the Fund's duration and
maturity structure accordingly. We will continue to attempt to maximize the
Fund's net asset value on its maturity date.

Sincerely,

Your Portfolio Management Team

/s/ Timothy G. Raney /s/ Stephen A. Wohler
- ------------------------------------ ------------------------------

Timothy G. Raney Stephen A. Wohler

8 - Scudder Zero Coupon 2000 Fund
<PAGE> 326

GLOSSARY OF INVESTMENT TERMS

INFLATION An overall increase in the prices of goods
and services, as happens when business and
consumer spending increases relative to the
supply of goods available in the
marketplace--in other words, when too much
money is chasing too few goods. High
inflation has a negative impact on the
prices of fixed-income securities.

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 net annualized income
earnings capability of every holding in a
given fund's portfolio, assuming each is
held to maturity.

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

TREASURIES Negotiable debt obligations of the U.S.
government, secured by its full faith and
credit, and issued at various schedules and
maturities.

ZERO COUPON BOND A bond that makes no periodic interest
payments but instead is sold at a deep
discount from its face value. The buyer
of such a bond receives the rate of return
by the gradual appreciation of the
security, which is redeemed at face value
on a specified maturity date.
- ------------------------------
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)

9 - Scudder Zero Coupon 2000 Fund
<PAGE> 327

INVESTMENT PORTFOLIO AS OF JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL MARKET
U.S. GOVERNMENT SECURITIES 100.0% AMOUNT ($) VALUE ($)
- --------------------------------- ---------- ----------
<S> <C> <C>
U.S. Treasury Note, 5%, 1/31/1999............. 100,000 99,734
U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/2001
(5.48%*).................................... 10,350,000 8,979,867
U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/2000
(5.49%*).................................... 10,224,000 8,990,270
U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/2001
(5.50%*).................................... 763,000 635,419
----------
Total U.S. Government Securities (Cost
$18,158,867)................................ 18,705,290
==========
Total Investment Portfolio -- 100.0%
(Cost $18,158,867) (a)...................... 18,705,290
==========
</TABLE>

- ------------------------------
(a) The cost for federal income tax purposes was $18,158,867. At June 30, 1998,
unrealized appreciation based on tax cost consisted entirely of aggregated
gross unrealized appreciation of $546,423.

* Bond equivalent yield to maturity; not a coupon rate.

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

10 - Scudder Zero Coupon 2000 Fund
<PAGE> 328

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $18,158,867)... $18,705,290
Cash................................................... 93,382
Interest receivable.................................... 2,085
Receivable for Fund shares sold........................ 15,566
Other assets........................................... 288
-----------
Total assets................................... 18,816,611

Liabilities
Payable for Fund Shares redeemed....................... 3,541
Other payables and accrued expenses.................... 24,987
-----------
Total liabilities...................................... 28,528
-----------
Net assets, at market value............................ $18,788,083
-----------

Net Assets
Net assets consist of:
Undistributed net investment income.................... 507,526
Unrealized appreciation on investments................. 546,423
Accumulated net realized loss.......................... (1,242,334)
Paid-in capital........................................ 18,976,468
-----------
Net assets, at market value $18,788,083
-----------

Net Asset Value
Net Asset Value, offering and redemption price per
share ($18,788,083/1,598,631 outstanding shares of
beneficial interest, $.01 par value, unlimited
number of shares authorized)........................ $ 11.75
-----------
</TABLE>

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

11 - Scudder Zero Coupon 2000 Fund
<PAGE> 329

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Investment Income
Interest.................................................. $615,567
--------
Expenses:
Management fee............................................ 58,057
Services to shareholders.................................. 46,498
Custodian and accounting fees............................. 21,073
Trustees' fees and expenses............................... 19,465
Auditing.................................................. 14,098
Reports to shareholders................................... 9,444
Registration fees......................................... 6,946
Legal..................................................... 7,405
Other..................................................... 2,269
--------
Total expenses before reductions.................. 185,255
Expense reductions........................................ (88,473)
--------
Expenses, net............................................. 96,782
--------
Net investment income..................................... 518,785
--------
Realized and unrealized gain (loss) on investment
transactions
Net realized gain from investments........................ 88,530
Net unrealized depreciation on investments during the
period................................................. (56,064)
--------
Net gain on investment transactions....................... 32,466
--------
Net increase in net assets resulting from operations...... $551,251
--------
</TABLE>

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

12 - Scudder Zero Coupon 2000 Fund
<PAGE> 330

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income..................... $ 518,785 $ 1,172,267
Net realized gain (loss) from
investments............................ 88,530 161,395
Net unrealized appreciation (depreciation)
on investments during the period....... (56,064) 1,997
----------- -----------
Net increase in net assets resulting from
operations............................. 551,251 1,335,659
----------- -----------
Distributions to shareholders from net
investment income...................... (745,333) (1,127,761)
----------- -----------
Fund share transactions:
Proceeds from shares sold................. 2,507,474 3,450,490
Net asset value of shares issued to
shareholders in reinvestment of
distributions.......................... 730,732 1,105,633
Cost of shares redeemed................... (4,710,013) (9,750,463)
----------- -----------
Net decrease in net assets from Fund share
transactions........................... (1,471,807) (5,194,340)
----------- -----------
Decrease in net assets.................... (1,665,889) (4,986,442)
Net assets at beginning of period......... 20,453,972 25,440,414
----------- -----------
Net assets at end of period (including
undistributed net investment income of
$507,526 and $734,074, respectively)... $18,788,083 $20,453,972
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of
period................................. 1,721,605 2,161,757
----------- -----------
Shares sold............................... 210,772 290,883
Shares issued to shareholders in
reinvestment of distributions.......... 63,212 96,147
Shares redeemed........................... (396,958) (827,182)
----------- -----------
Net decrease in Fund shares............... (122,974) (440,152)
----------- -----------
Shares outstanding at end of period....... 1,598,631 1,721,605
----------- -----------
</TABLE>

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

13 - Scudder Zero Coupon 2000 Fund
<PAGE> 331

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>
SIX MONTHS ENDED
JUNE 30, 1998(a) YEARS ENDED DECEMBER 31,
(UNAUDITED) 1997(a) 1996(a) 1995 1994 1993
---------------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $11.88 $11.77 $12.38 $10.95 $12.85 $12.55
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income.................... .31 .63 .64 .65 .59 .79
Net realized and unrealized gain (loss)
on investments.......................... .02 .11 (.57) 1.40 (1.59) 1.23
------ ------ ------ ------ ------ ------
Total from investment
operations....................... .33 .74 .07 2.05 (1.00) 2.02
------ ------ ------ ------ ------ ------
Less distributions:
From net investment income............... (.46) (.63) (.68) (.62) (.31) (.83)
From net realized gains on investments... -- -- -- -- (.59) (.89)
------ ------ ------ ------ ------ ------
Total distributions............... (.46) (.63) (.68) (.62) (.90) (1.72)
------ ------ ------ ------ ------ ------
Net asset value, end of period........... $11.75 $11.88 $11.77 $12.38 $10.95 $12.85
------ ------ ------ ------ ------ ------
Total Return(%)(b)................ 2.84** 6.53 .65 19.08 (7.92) 16.00
Ratios and Supplemental Data Net assets,
end of period ($ millions).............. 18.8 20 25 29 25 31
Ratio of operating expenses, net to
average daily net assets(%)............. 1.00* 1.00 1.00 1.00 1.00 1.00
Ratio of operating expenses before
expense reductions, to average daily net
assets(%)............................... 1.91* 1.76 1.45 1.48 1.47 1.28
Ratio of net investment income to average
daily net assets(%)..................... 5.36* 5.44 5.42 5.59 5.23 5.29
Portfolio turnover rate(%)............... 6.93* 5.74 85.2 86.6 89.3 101.6
</TABLE>

- ------------------------------
(a) Based on monthly average shares outstanding during the period.

(b) Total returns would have been lower had certain expenses not been reduced.

* Annualized

** Not annualized

14 - Scudder Zero Coupon 2000 Fund
<PAGE> 332

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

A. SIGNIFICANT ACCOUNTING POLICIES

15 - Scudder Zero Coupon 2000 Fund
<PAGE> 333

shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.

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

B. PURCHASES AND SALES OF SECURITIES

During the six months ended June 30, 1998, purchases and sales of
investment securities (excluding short-term investments) aggregated $671,071 and
$2,954,794, respectively.

C. RELATED PARTIES

Under the Investment Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies and
restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately 0.60% of
the average daily net assets of the Fund computed and accrued daily and payable
monthly. In addition, the Adviser has agreed to maintain the annualized expenses
of the Fund at not more than 1.00% of average daily net assets until

16 - Scudder Zero Coupon 2000 Fund
<PAGE> 334

April 30, 1999. For the six months ended June 30, 1998, the fee pursuant to the
Agreement amounted to $58,057, all of which was not imposed.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend disbursing and shareholder service agent for the Fund. For
the six months ended June 30, 1998, the amount charged to the Fund by SSC
aggregated $28,066, of which $16,365 was not imposed, and $14,340 is unpaid at
June 30, 1998.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans for the Fund. For the six months ended June 30, 1998, the
amount charged to the Fund by STC aggregated $5,677, of which $3,310 was not
imposed, and $961 is unpaid at June 30, 1998.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Fund. For the
six months ended June 30, 1998, the amount charged to the Fund by SFAC
aggregated $18,422, of which $10,741 was not imposed, and $3,125 is unpaid at
June 30, 1998.

The Fund pays each Trustee not affiliated with the Adviser an annual
retainer divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the six months ended June 30,
1998, Trustees' fees and expenses aggregated $19,465.

17 - Scudder Zero Coupon 2000 Fund
<PAGE> 335

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; Executive Fellow,
Center for Business Ethics,
Bentley College

Peter B. Freeman
Trustee; Corporate Director

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

Stephen A. Wohler*
Vice President

Thomas F. McDonough*
Vice President, Secretary and
Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

- ------------------------------

* Scudder Kemper Investments, Inc.

19 - Scudder Zero Coupon 2000 Fund
<PAGE> 336

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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund

GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder International Growth 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.

INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund

RETIREMENT PROGRAMS AND EDUCATION ACCOUNTS
RETIREMENT PROGRAMS
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)

20 - Scudder Zero Coupon 2000 Fund
<PAGE> 337

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. ***Only the Scudder Shares of the Fund
are part of the Scudder Family of Funds. ++Only the International Shares of the
Fund are part of the Scudder Family of Funds. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #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.

21 - Scudder Zero Coupon 2000 Fund
<PAGE> 338

SCUDDER SOLUTIONS

Convenient ways to invest, quickly and reliably:

<TABLE>
<CAPTION>
Automatic Investment Plan QuickBuy
------------------------- --------
<S> <C>

</TABLE>

<TABLE>
<CAPTION>
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
--------------------------- ------------------------------------
<S> <C>

</TABLE>

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) -- 1-800-343-2890

Scudder's Web Site -- http://funds.scudder.com

Scudder Electronic Account Services: Offering

22 - Scudder Zero Coupon 2000 Fund
<PAGE> 339

ever 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.

Distributions Direct

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

For more information about these services, call a Scudder representative at
1-800-225-5163

Mutual Funds and More -- Brokerage and Guidance Services:

Scudder Brokerage Services

Offers you access to a world of investments, including stocks, corporate
bonds, Treasuries, plus over 8,000 mutual funds from at least 150 mutual fund
companies. And Scudder Fund Folio(SM) provides investors with access to a
marketplace of more than 500 no-load funds from well-known companies--with no
transaction fees or commissions. Scudder shareholders can take advantage of a
Scudder Brokerage account already reserved for them, with no minimum investment.
For information about Scudder Brokerage Services, call 1-800-700-0820.

Scudder Portfolio Builder

A free service designed to help suggest ways investors like you can
diversify your portfolio among domestic and global, as well as equity,
fixed-income, and money market funds, using Scudder funds.

23 - Scudder Zero Coupon 2000 Fund
<PAGE> 340

Personal Counsel from Scudder(SM)

Developed for investors who prefer the benefits of no-load funds but want
ongoing professional assistance in managing a portfolio. Personal Counsel(SM) is
a highly customized, fee-based asset management service for individuals
investing $100,000 or more.

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 Scudder Investor
Relations -- 1-800-225-5163

For establishing 401(k) and 403(b) plans Scudder Defined Contribution
Services -- 1-800-323-6105

For information about The Scudder Funds, including additional applications
and prospectuses, or for answers to investment questions Scudder Investor
Relations -- 1-800-225-2470 [email protected]

Please address all written correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts 02107-2291

Or Stop by a Scudder Investor Center

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you -- they can be found in
the following cities:
Boca Raton Chicago San Francisco
Boston New York

24 - Scudder Zero Coupon 2000 Fund
<PAGE> 341

ABOUT THE FUND'S ADVISER

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]

25 - Scudder Zero Coupon 2000 Fund
<PAGE> 342

PART C

OTHER INFORMATION

ITEM 15. INDEMNIFICATION

A policy of insurance covering Scudder Kemper Investments, Inc., its
affiliates including Scudder Investor Services, Inc., and all of the registered
investment companies advised by Scudder Kemper Investments, Inc. insures the
Registrant's trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.

Article IV, Sections 4.1-4.3 of the Registrant's Declaration of Trust
states as follows:

Section 4.1 No Personal Liability of Shareholders, Trustees, Etc.

No Shareholder shall be subject to any personal liability whatsoever
to any Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than to the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with
respect to such Person; and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on
account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims
and liabilities, to which such Shareholder may become subject by reason of
his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of
the assets of the one or more series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder at the time
the act or event occurred, which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under
this Section 4.1 shall not impair any other right to which such Shareholder
may be lawfully entitled, nor shall anything herein contained restrict the
right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.

C-1
<PAGE> 343

Section 4.2 Non-Liability of Trustees, Etc.

No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer,
employee, or agent thereof for any action or failure to act (including
without limitation the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his own bad faith,
willful misfeasance, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

Section 4.3 Mandatory Indemnification.

(a) Subject to the exceptions and limitations contained in paragraph
(b) below:

(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted
by law against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;

(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative, or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Trustee or
officer:

(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;

(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;

(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did not engage in
willful misfeasance,

C-2
<PAGE> 344

bad faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;

(A) by the court or other body approving the settlement or
other disposition; or (B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in
office act on the matter) or (y) written opinion of independent
legal counsel.

(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to be
such Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person. Nothing contained
herein shall affect any rights to indemnification to which personnel of the
Trust other than Trustees and officers may be entitled by contract or
otherwise under law.

(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in paragraph
(a) of this Section 4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is
not entitled to indemnification under this Section 4.3 provided that
either:

(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances: or

(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed to
a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.

As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.

C-3
<PAGE> 345

The application of the foregoing provisions is limited by the
following undertaking set forth in the rules promulgated by the Securities
and Exchange Commission:

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by final
adjudication of such issue.

ITEM 16. EXHIBITS

1. (a) Amended and Restated Declaration of Trust dated December 21, 1987.
(Incorporated by reference to Exhibit 1(a) to Post-Effective Amendment No.
24 to the Registration Statement.)

(b) Instrument dated September 17, 1982 Establishing and Designating
Series of Shares. (Incorporated by reference to Post-Effective Amendment
Exhibit 1(b) to No.24 to the Registration Statement.)

(c) Instrument dated September 17, 1982 Establishing and Designating
an Additional Series of Shares. (Incorporated by reference to Exhibit 1(c)
to Post-Effective Amendment No. 24 to the Registration Statement.)

(d) Instrument dated March 21, 1984 Establishing and Designating an
Additional Series of Shares. (Incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 24 to the Registration Statement.)

(e) Certificate of Amendment of Declaration of Trust dated June 29,
1989. (Incorporated by reference to Exhibit 1(e) to Post-Effective
Amendment No. 24 to the Registration Statement.)

(f) Amendment of Establishment and Designation of Additional Series of
Shares dated June 29, 1989. (Incorporated by reference to Exhibit 1(f) to
Post-Effective Amendment No. 24 to the Registration Statement.)

C-4
<PAGE> 346

(g) Abolition of series by the Registrant dated June 29, 1989 on
behalf of the U.S. Government 1990 Portfolio. (Incorporated by reference to
Exhibit 1(g) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(h) Abolition of series by the Registrant dated June 29, 1989 on
behalf of the General 1990 Portfolio. (Incorporated by reference to Exhibit
1(h) to Post-Effective Amendment No. 24 to the Registration Statement.)

(i) Abolition of series by the Registrant on behalf of the Scudder
Zero Coupon 1995 Fund, dated July 15, 1992. (Incorporated by reference to
Exhibit 1(i) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(j) Redesignation of Series of Registrant dated March 7, 1990.
(Incorporated by reference to Exhibit 1(j) to Post-Effective Amendment No.
24 to the Registration Statement.)

(k) Certificate of Amendment of Declaration of Trust dated July 2,
1991. (Incorporated by reference to Exhibit 1(k) to Post-Effective
Amendment No. 24 to the Registration Statement.)

2. (a) By-Laws of the Registrant dated as of September 17, 1982.
(Incorporated by reference to Exhibit 2(a) to Post-Effective Amendment No.
24 to the Registration Statement.)

(b) Amendment to the By-Laws of Registrant as of March 5, 1984.
(Incorporated by reference to Exhibit 2(b) to Post-Effective Amendment No.
24 to the Registration Statement.)

(c) Amendment to the By-Laws of Registrant as of October 1, 1984.
(Incorporated by reference to Exhibit 2(c) to Post-Effective Amendment No.
24 to the Registration Statement.)

(d) Amendment to the By-Laws of Registrant as of December 12, 1991.
(Incorporated by reference to Exhibit 2(d) to Post-Effective Amendment No.
24 to the Registration Statement.)

(e) Amendment to the By-Laws of the Registrant dated September 17,
1992. (Incorporated by reference to Exhibit 2(e) to Post-Effective
Amendment No. 24 to the Registration Statement.)

3. Not applicable.

4. Form of Agreement and Plan of Reorganization is filed herewith as
Exhibit C.

5. Not applicable.

C-5
<PAGE> 347

6. (a) Investment Advisory Agreement between the Registrant (on behalf of
Scudder Short Term Bond Fund) and Scudder, Stevens & Clark, Inc.
("Scudder") dated June 6, 1991. (Incorporated by reference to Exhibit 5(a)
to Post-Effective Amendment No. 24 to the Registration Statement.)

(b) Investment Advisory Agreement between the Registrant (on behalf of
the Zero Coupon Funds) and Scudder dated June 6, 1991. (Incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 24 to the
Registration Statement.)

(c) Investment Management Agreement between the Registrant (on behalf
of Scudder Short Term Bond Fund) and Scudder dated March 18, 1992.
(Incorporated by reference to Exhibit 5(c) to Post-Effective Amendment No.
24 to the Registration Statement.)

(d) Investment Management Agreement between the Registrant (on behalf
of Scudder Short Term Bond Fund) and Scudder dated September 7, 1993.
(Incorporated by reference to Exhibit 5(d) to Post-Effective Amendment No.
24 to the Registration Statement.)

(e) Form of an Investment Management Agreement between the Registrant,
on behalf of Scudder Short Term Bond Fund, and Scudder Kemper Investments,
Inc. dated December 31, 1997. (Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)

(f) Form of an Investment Management Agreement between the Registrant,
on behalf of Scudder Zero Coupon 2000 Fund, and Scudder Kemper Investments,
Inc. dated December 31, 1997. (Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)

(g) Investment Management Agreement between the Registrant, on behalf
of Scudder Short Term Bond Fund, and Scudder Kemper Investments, Inc. dated
December 31, 1997 is filed herein.

(h) Investment Management Agreement between the Registrant, on behalf
of Scudder Zero Coupon 2000 Fund, and Scudder Kemper Investments, Inc.
dated December 31, 1997 is filed herein.

7. Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. (Formerly Scudder Fund Distributors, Inc.) dated July 15,
1985. (Incorporated by reference to Exhibit 6 to Post-Effective Amendment
No. 24 to the Registration Statement.)

8. Not applicable.

C-6
<PAGE> 348

9. (a)(1) Custodian Agreement between the Registrant and State Street
Bank and Trust Company ("State Street Bank") dated December 17, 1982.
(Incorporated by reference to Exhibit 8(a)(1) to Post-Effective Amendment
No. 24 to the Registration Statement.)

(a)(2) Fee schedule for Custodian Agreement between the Registrant and
State Street Bank. (Incorporated by reference to Exhibit 8(a)(2) to
Post-Effective Amendment No. 24 to the Registration Statement.)

(a)(3) Amendment to the Custodian Agreement between the Registrant and
State Street Bank dated September 14, 1987. (Incorporated by reference to
Exhibit 8(a)(3) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(a)(4) Amendment to the Custodian Agreement between the Registrant and
State Street Bank dated September 16, 1988. (Incorporated by reference to
Exhibit 8(a)(4) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(a)(5) Amendment to the Custodian Agreement between the Registrant and
State Street Bank dated December 13, 1990. (Incorporated by reference to
Exhibit 8(a)(5) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(a)(6) Fee schedule for Custodian Agreement between the Registrant on
behalf of Scudder Zero Coupon 2000 Fund and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.)

10. Not applicable.

11. Opinion and Consent of Dechert Price & Rhoads filed herewith.

12. Form of opinion and consent of Dechert Price & Rhoads supporting the
tax matters and consequences to shareholders discussed in the prospectus
filed herewith.

13. (a)(1) Transfer Agency and Service Agreement with fee schedule between
the Registrant and Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a) to Post-Effective Amendment No.
24 to the Registration Statement.)

(a)(2) Revised fee schedule dated October 1, 1995 for Exhibit 9(a).
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)

C-7
<PAGE> 349

(a)(3) Revised fee schedule dated October 1, 1996 for Exhibit 9(a).
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)

(b)(1) COMPASS Service Agreement with fee schedule with Scudder Trust
Company dated January 1, 1990. (Incorporated by reference to Exhibit
9(b)(1) to Post-Effective Amendment No. 24 to the Registration Statement.)

(b)(2) COMPASS Service Agreement with Scudder Trust Company dated
October 1, 1995. (Incorporated by reference to Post-Effective Amendment No.
22 to the Registration Statement.)

(b)(3) Revised fee schedule dated October 1, 1996 for Exhibit 9(b)(2).
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)

(c) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990. (Incorporated by reference to
Exhibit 9(c) to Post-Effective Amendment No. 24 to the Registration
Statement.)

(d)(1) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Zero Coupon 2000 Fund, and Scudder Fund Accounting
Corporation dated January 10, 1995. (Incorporated by reference to
Post-Effective Amendment No. 21 to the Registration Statement.)

(d)(2) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Short Term Bond Fund, and Scudder Fund Accounting
Corporation dated July 19, 1995. (Incorporated by reference to Post-
Effective Amendment No. 22 to the Registration Statement.)

14. Consent of PricewaterhouseCoopers, LLP filed herewith.

15. Inapplicable.

16. Powers of Attorney filed herewith.

17. (a) Form of proxy card filed herewith.

ITEM 17. UNDERTAKINGS

(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act [17 CFR 230.145c], the reoffering prospectus will
contain the information called for by the applicable registration form
for

C-8
<PAGE> 350

reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.

(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment
to the registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.

C-9
<PAGE> 351

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 16th day of November, 1998.

Scudder Funds Trust

By: /s/ THOMAS F. MCDONOUGH*

----------------------------------
Thomas F. McDonough,
Secretary

*By: /s/ SHELDON A. JONES
-----------------------------------------
Sheldon A. Jones
Attorney-in-fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DANIEL PIERCE* President and November 18, 1998
- ------------------------------------------ Trustee
Daniel Pierce

/s/ KATHRYN L. QUIRK* Trustee November 18, 1998
- ------------------------------------------
Kathryn L. Quirk

/s/ HENRY P. BECTON, JR.* Trustee November 18, 1998
- ------------------------------------------
Henry P. Becton, Jr.

/s/ DAWN-MARIE DRISCOLL* Trustee November 18, 1998
- ------------------------------------------
Dawn-Marie Driscoll

/s/ PETER B. FREEMAN* Trustee November 18, 1998
- ------------------------------------------
Peter B. Freeman

/s/ GEORGE M. LOVEJOY, JR.* Trustee November 18, 1998
- ------------------------------------------
George M. Lovejoy, Jr.

/s/ WESLEY W. MARPLE, JR.* Trustee November 18, 1998
- ------------------------------------------
Wesley W. Marple, Jr.

/s/ JEAN C. TEMPEL* Trustee November 18, 1998
- ------------------------------------------
Jean C. Tempel
</TABLE>

C-10
<PAGE> 352

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN R. HEBBLE* Treasurer November 18, 1998
- ------------------------------------------ (Principal
John R. Hebble Financial and
Accounting
Officer)
</TABLE>

- ------------------------------

*By: /s/ SHELDON A. JONES

-----------------------------------------

Sheldon A. Jones

Attorney-in-fact

*Executed pursuant to powers of attorney filed with the Registrant's
Registration Statement on Form N-14 as filed with the Commission electronically
on October 6, 1998.

C-11

<PAGE> 1

EXHIBIT 99.11

November 18, 1998

Scudder Funds Trust, on behalf

of Scudder Short Term Bond Fund
Two International Place
Boston, MA 02110-4103

Re: Registration Statement on Form N-14

Gentlemen:

Scudder Funds Trust, formerly Scudder Target Fund, (the "Trust") is a trust
created under a written Declaration of Trust dated July 24, 1981, and executed
and delivered in Boston, Massachusetts. The Declaration of Trust was amended by
an Amended and Restated Declaration of Trust dated December 21, 1987 (as further
amended, the "Declaration of Trust"). The beneficial interest thereunder is
represented by transferable shares with a par value of $.01 per share
("Shares"). The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided.

We are of the opinion that all legal requirements have been complied with
in the creation of the Trust and that said Declaration of Trust is legal and
valid.

Under Article V, Section 5.4 of the Declaration of Trust, the Trustees are
empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares authorized to be issued under the Declaration of Trust is
unlimited. Under Article V, Section 5.11, the Trustees may authorize the
division of Shares into two or more series. By instruments dated June 29, 1989
and March 7, 1990, the Trustees changed the names of the series of the Trust
such that the existing six series of the Trust were designated as follows:
Scudder Zero Coupon 1990 Fund, Scudder Zero Coupon 1995 Fund, Scudder Zero
Coupon 2000 Fund, Scudder Zero Coupon 2005 Fund, Scudder Zero Coupon 2010 Fund
and Scudder Short Term Bond Fund. By written instruments dated December 31, 1990
and July 15, 1992, the Trustees abolished and dissolved Scudder Zero Coupon 1990
Fund and Scudder Zero Coupon 1995 Fund.

We understand that you are about to file a Registration Statement on Form
N-14 to register Shares (the "STB Shares") of Scudder Short Term Bond Fund (the
"Acquiring Fund") which will be issued to shareholders of Scudder Zero Coupon
2000 Fund (the "Acquired Fund") in exchange for substantially all of the assets
of the Acquired Fund pursuant to an Agreement and Plan of Reorgani-
<PAGE> 2

zation dated November 9, 1998, between the Trust, on behalf of the Acquired
Fund, and the Trust, on behalf of the Acquiring Fund (the "Agreement").

We are of the opinion that all necessary Trust action precedent to the
issue of STB Shares pursuant to the Agreement was duly taken. We are of the
further opinion that the STB Shares when issued pursuant to the Agreement will
be legally and validly issued, fully paid and nonassessable by the Trust. In
rendering the opinion expressed in the preceding sentence, we assume that the
sale of STB Shares will be effected in compliance with the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, regulating
the sale of securities. We further assume that there will be no material changes
in the facts and conditions on which we base this opinion between the date
hereof and the time of issuance of STB Shares.

We consent to your filing this opinion with the Securities and Exchange
Commission together with the Trust's Registration Statement on Form N-14
referred to above.

Very truly yours,

/s/ Dechert Price & Rhoads

<PAGE> 1

EXHIBIT 99.12

FORM OF OPINION OF COUNSEL

[CLOSING DATE], 1998

Scudder Funds Trust
in respect of
the Scudder Zero Coupon 2000 Fund
Two International Place
Boston, Massachusetts 02110

Scudder Funds Trust
in respect of
the Scudder Short Term Bond Fund
Two International Place
Boston, Massachusetts 02110

Gentlemen:

You have requested our opinion regarding certain federal income tax
consequences to the Scudder Zero Coupon 2000 Fund ("Target"), a separate series
of Scudder Funds Trust (the "Trust"), to the holders of the shares of beneficial
interest (the "shares") of Target (the "Target shareholders"), and to the
Scudder Short Term Bond Fund ("Acquiring Fund"), also a separate series of the
Trust, in connection with the proposed transfer of substantially all of the
assets of Target to Acquiring Fund in exchange solely for voting shares of
beneficial interest of Acquiring Fund ("Acquiring Fund shares"), followed by the
distribution of such Acquiring Fund shares received by Target in complete
liquidation, all pursuant to the Agreement and Plan of Reorganization (the
"Plan") dated [ ], 1998 (the "Reorganization").

For purposes of this opinion, we have examined and rely upon (1) the Plan,
(2) the Form N-14, filed by the Trust on September [ ], 1998, with the
Securities and Exchange Commission, (3) the facts and representations contained
in the letter dated [Closing Date], 1998, addressed to us from the Trust on
behalf of Target, (4) the facts and representations contained in the letter
dated [Closing Date], addressed to us from the Trust on behalf of Acquiring
Fund, and (5) such other documents and instruments as we have deemed necessary
or appropriate for purposes of rendering this opinion.

This opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), United States Treasury regulations, judicial decisions and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned upon the
Reorganization taking place in the manner described in the Plan and the Form
N-14 referred to above.
<PAGE> 2

Based upon the foregoing, it is our opinion that:

(1) The acquisition by Acquiring Fund of substantially all of the
assets of Target in exchange solely for Acquiring Fund shares, followed by
the distribution of such Acquiring Fund shares to the Target shareholders
in exchange for their Target shares in complete liquidation of Target, will
constitute a reorganization within the meaning of Section 368(a) of the
Code. Acquiring Fund and Target will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.

(2) No gain or loss will be recognized to Target upon the transfer of
substantially all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund shares, or upon the distribution to the Target shareholders
of the Acquiring Fund shares.

(3) No gain or loss will be recognized by Acquiring Fund upon the
receipt of Target's assets in exchange for Acquiring Fund shares.

(4) The basis of the assets of Target in the hands of Acquiring Fund
will be, in each instance, the same as the basis of those assets in the
hands of Target immediately prior to the Reorganization exchange.

(5) The holding period of Target's assets in the hands of Acquiring
Fund will include the period during which the assets were held by Target.

(6) No gain or loss will be recognized to the Target shareholders upon
the receipt of Acquiring Fund shares solely in exchange for Target shares.

(7) The basis of the Acquiring Fund shares received by the Target
shareholders will be the same as the basis of the Target shares surrendered
in exchange therefor.

(8) The holding period of the Acquiring Fund shares received by the
Target shareholders will include the holding period of the Target shares
surrendered in exchange therefor, provided that such Target shares were
held as capital assets in the hands of the Target shareholders upon the
date of the exchange.

We express no opinion as to the federal income tax consequences of the
Reorganization except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 to be filed by the Trust with the Securities
and Exchange Commission.

Very truly yours,

<PAGE> 1

EXHIBIT 99.14

AUDITOR'S CONSENT

PRICEWATERHOUSECOOPERS [LOGO TO COME]
PricewaterhouseCoopers LLP
One Post Office Square
Boston MA 02109
Telephone (617) 478 5000
Facsimile (617) 478 5900

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Scudder Funds Trust:

We hereby consent to the incorporation by reference in the Registration
Statement on Form N-14 of Scudder Funds Trust of our reports dated February 11,
1998 and February 18, 1998 on our audits of the financial statements and
financial highlights of Scudder Zero Coupon 2000 Fund and Scudder Short Term
Bond Fund which reports are included in the Annual Reports to Shareholders for
the year ended December 31, 1997 which are incorporated by reference in the
Registration Statement.

/s/ PRICEWATERHOUSECOOPERS LLP

-------------------------------------
PricewaterhouseCoopers LLP

October 5, 1998

<PAGE> 1

EXHIBIT 99.16

POWERS OF ATTORNEY

SIGNATURES

Scudder Funds Trust

By: /s/ THOMAS F. MCDONOUGH
----------------------------------
Thomas F. McDonough,
Secretary

*By: /s/ SHELDON A. JONES
--------------------------------
Sheldon A. Jones
Attorney-in-fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DANIEL PIERCE*
- ------------------------------------------------ President and
Daniel Pierce Trustee

/s/ KATHRYN L. QUIRK*
- ------------------------------------------------
Kathryn L. Quirk Trustee

/s/ HENRY P. BECTON, JR.*
- ------------------------------------------------
Henry P. Becton, Jr. Trustee

/s/ DAWN-MARIE DRISCOLL*
- ------------------------------------------------
Dawn-Marie Driscoll Trustee

/s/ PETER B. FREEMAN*
- ------------------------------------------------
Peter B. Freeman Trustee

/s/ GEORGE M. LOVEJOY, JR*.
- ------------------------------------------------
George M. Lovejoy, Jr. Trustee
</TABLE>
<PAGE> 2

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WESLEY W. MARPLE, JR.*
- ------------------------------------------------
Wesley W. Marple, Jr. Trustee

/s/ JEAN C. TEMPEL*
- ------------------------------------------------
Jean C. Tempel Trustee

/s/ JOHN R. HEBBLE* Treasurer
- ------------------------------------------------ (Principal
John R. Hebble Financial and
Accounting Officer)

*By: /s/ SHELDON A. JONES
Sheldon A. Jones
Attorney-in-fact , 1998
</TABLE>

- ------------------------------
* Executed pursuant to powers of attorney filed with the Registrant's
Registration Statement on Form N-14 as filed with the Commission
electronically on October 6, 1998.

<PAGE> 1

EXHIBIT 99.17A

PLEASE VOTE YOUR PROXY TODAY!

YOUR VOTE IS IMPORTANT!

PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.

FORM OF PROXY

Please fold and detach card at perforation before mailing.

PROXY SCUDDER ZERO COUPON 2000 FUND PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 15, 1998

The undersigned hereby appoints Bruce H. Goldfarb, Kathryn L. Quirk, Thomas
F. McDonough and Daniel Pierce and each of them, the proxies of the undersigned,
with the power of substitution to each of them, to vote all shares of the Fund
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Fund to be held at the offices of Scudder Kemper Investments, Inc., Two
International Place, Boston Massachusetts 02110, on Tuesday, December 15, 1998
at 11:00 a.m., eastern time, and at any adjournments thereof.

Dated:

-----------------------------------------,
1998

PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH.

-----------------------------------------

(SIGNATURE OF SHAREHOLDER)

UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S VOTE
WILL BE CAST FOR EACH NUMBERED ITEM LISTED BELOW.

The Board members of your Fund, including those who are not affiliated with
the Fund or Scudder Kemper Investments, Inc., recommend that you vote FOR each
item.

1. To approve an Agreement and Plan of Reorganization for the Fund;

<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>

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

<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>

3. To approve the revision of the Fund's fundamental lending policy.

<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>

The proxies are authorized to vote in their discretion on any other business
which may properly come before the meeting and any adjournments thereof.

(continued opposite side)