Scudder
Financial Services
Fund
Semiannual Report
February 28, 1998
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund seeking long-term growth of
capital by investing primarily in common stocks and other equity securities of
companies in the financial services industry.
SCUDDER (logo)
<PAGE>
Scudder Financial Services Fund
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Date of Inception: 11/3/97 Total Net Assets as of Ticker Symbol: SCFSX
2/28/98: $27.4 million
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o For the abbreviated semiannual period beginning with the Fund's inception on
November 3, 1997, and ending February 28, 1998, Scudder Financial Services Fund
provided a strong total return of 14.23%.
o Financial services stocks corrected briefly in January 1998, but rebounded
impressively in February.
o Although the financial services sector has outperformed the stock market over
the past three years and future performance is uncertain, we believe that
ongoing industry consolidations, further deregulation, and major investments in
new technology make this sector attractive over the long term.
Table of Contents
3 Letter from the Fund's President 10 Financial Statements
4 Portfolio Summary 13 Financial Highlights
5 Portfolio Management Discussion 14 Notes to Financial Statements
7 Glossary of Investment Terms 17 Investment Products and Services
8 Investment Portfolio 18 Scudder Solutions
2 - Scudder Financial Services
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We welcome you as investors in Scudder Financial Services Fund, and are
pleased to present the first shareholder report of the Fund, covering the
abbreviated semiannual period from November 3, 1997 through February 28, 1998.
Going forward, you can expect to receive regular reports including the annual
report, which will follow the August 31, 1998 conclusion of the Fund's first
fiscal year.
The Fund is off to a fine start and in just under four months has grown to
over $27 million in net assets. As of February 28, the Fund's total return since
its November 3, 1997 inception was a solid 14.23%.
As outlined in the portfolio management discussion beginning on page 5, the
Fund's managers have been busy constructing and diversifying the Fund's
portfolio, choosing securities among a wide spectrum of financial services
companies, including banks, insurance and finance companies, securities
brokerage and asset management firms, and government sponsored enterprises.
Beyond its objective of pursuing long-term growth, the Fund also seeks to
identify and capitalize on changes within the financial services industry by
selecting companies that possess a strong competitive advantage.
For those of you interested in new Scudder offerings, on April 6 we
introduced Scudder Real Estate Investment Fund, which seeks long-term capital
growth and current income by investing primarily in equity securities of
companies in the real estate industry. The Fund offers a convenient and
professionally managed way to take advantage of the long-term growth and income
opportunities offered by the real estate industry. Please see pages 17 through
19 for more information on Scudder products and services.
Lastly, at the start of 1998 the Fund's investment adviser 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.
Thank you for your interest and investment in Scudder Financial Services
Fund. Please do not hesitate to contact Investor Relations at 1-800-225-2470
with any questions regarding your account.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Financial Services Fund
3 - Scudder Financial Services
<PAGE>
PORTFOLIO SUMMARY as of February 28, 1998
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ASSET ALLOCATION
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Equity Holdings 95%
Cash Equivalents 5%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
At the close of its abbreviated
semiannual period beginning with
its November 3, 1997 inception,
the Fund held a modest cash
position.
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SECTOR DIVERSIFICATION
(Excludes 5% Cash Equivalents)
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Banks 44%
Insurance 40%
Other Financial Companies 11%
Consumer Finance 5%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's sector weightings
reflect valuations as well as
fundamenal prospects for each
sector.
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10 LARGEST EQUITY HOLDINGS
(35% OF PORTFOLIO)
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1. BankAmerica Corp.
2. Federal National Mortgage Association
3. Norwest Corp.
4. American International Group, Inc.
5. Travelers Group, Inc.
6. NationsBank Corp.
7. Fremont General Corp.
8. Conseco, Inc.
9. Allstate Corp.
10. BANC ONE CORP.
BankAmerica, the Fund's
largest holding, maintains one
of the premier retail banking
franchises in the United States;
we believe the company
possesses a great deal of
incremental earnings leverage
as it takes advantage of some
visible profit opportunities in
its consumer business.
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For more complete details about the Fund's investment portfolio,
see page 8. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
4 - Scudder Financial Services
<PAGE>
Portfolio Management Discussion
In the following interview, Co-Lead Portfolio Managers Thaddeus Paluszek and
Peter Taylor discuss Scudder Financial Services Fund's strategy and the market
environment over the period since the Fund began operations on November 3, 1997.
Q: How has Scudder Financial Services Fund performed in its first months?
A: The Fund's total return for the period since it started operations on
November 3 was 14.23% as of February 28, 1998. The total return of the Fund's
benchmark, the S&P Financial Index, was 13.14% over the same period.
Q: How do you view the Fund's performance?
A: Overall, we're quite pleased, considering that there were occasional air
pockets in the financial industry's performance over the period, as concerns
related to Asian economic difficulties and temporary increases in interest rates
caused stock market volatility. Also, since financial services was one of the
top performing sectors over the past three years and staged a rally at year-end
1997, investors in this industry were seemingly taking some profits in January
1998. We saw a resurgence in the sector in February as interest rates came back
down. The impact of movements in interest rates is a risk that investors must be
aware of when investing in any fund that focuses on financial companies.
Q: Can you describe your investment approach and your process in beginning to
select stocks for the
portfolio?
A: Our investment approach is research based and "bottom up." We try to identify
positive changes in company fundamentals and to find companies that have a
competitive advantage. We're looking for companies that have the value drivers
- -- including attractive price-to-earnings ratios and price-to-book ratios,
improving earnings trends, a favorable franchise and business mix -- that can
enable them to outperform. We're particularly interested in companies that have
undergone important changes that haven't yet been recognized by the marketplace.
On the flip side, stocks that have reached our price target or whose relative
value has diminished significantly are candidates for sale, as are companies
that are not tracking well against our fundamental expectations.
We also incorporate a strong measure of risk control that includes broad
diversification within the sector and a maximum size of 5% at the time of
purchase for any one holding as a percentage of the Fund's assets.
We have a very wide spectrum of financial players to choose from. We began to
construct the portfolio by looking at individual sectors. Our largest initial
industry weightings in the Fund, reflecting both valuation and fundamental
prospects, were approximately 44% of the portfolio in banks and approximately
40% in insurance. We were also positioned in the thrift, consumer finance,
commercial finance, and other financial services subsectors, while investing
just under 10% of the Fund in international holdings.
Q: Can you talk about specific companies and groupings that you've liked?
A: With respect to specific investments, we`ve analyzed several individual
subsectors of the financial services industry. These include commercial banks,
insurance companies, thrifts, commercial finance, consumer finance, securities
5 - Scudder Financial Services Fund
<PAGE>
brokerage and asset management, and government-sponsored mortgage enterprises.
We can start with banks, since they're the largest weighting in the portfolio.
Among our largest holdings are BankAmerica Corp. and Norwest Corp. We're very
impressed with the quality and discipline of the BankAmerica team in managing
the company's franchise to create value for shareholders. The company is very
focused on improving financial results and we believe there is a tremendous
amount of incremental earnings leverage as the company takes advantage of some
visible profit opportunities in its consumer business; BankAmerica maintains one
of the premier retail banking franchises in the country. Norwest has been a
consistent and strong fundamental performer over a long period of time. We're
attracted to the highly conservative nature of this disciplined management team,
the broad product mix the company maintains and the sales orientation prevalent
throughout the organization that should continue to drive strong revenue growth
at the company, differentiating it from many of its banking industry peers.
Q: How about in the insurance sector?
A: One insurance company that has distinguished itself is American International
Group. AIG is truly an international insurance player, and there are several
things that make this company different from the average insurance company. AIG
is AAA-rated, its balance sheet is superb, and company management has shown
tremendous discipline in its underwriting business, which provides steady
profitability. Another standout characteristic is that AIG has offices in a
large number of important countries; in most cases, they've been in a particular
country for several decades. AIG has been in China since 1920. As a result, they
have local talent on the ground to run their operations successfully. This is an
insurer for all seasons. For AIG, it doesn't matter that property/casualty
pricing is declining. They have offsets, and the company is a very consistent
earner.
On the life insurance side, there is Hartford Life, a significant player in the
variable and fixed annuity and life insurance businesses. They are highly
profitable; they produce their variable life product at about the lowest
acquisition cost we know of, and they do it through advances in technology.
Q: What is your outlook for the financial services sector?
A: We anticipate reasonable growth in bank earnings this year, though a slight
decline in bank profitability ratios over the coming year may be in the offing
because of slowing revenue growth and narrower interest rate spreads. On the
insurance side, pricing, particularly in the property casualty area, is
unfavorable. But we see opportunities on the life insurance side. And as long as
the stock market avoids a sharp sell-off, we think annuity companies will
continue to be very attractive.
Overall, the financial services industry has enjoyed three years of
outperformance of the S&P 500, and the coming year may be a more challenging
one. But what continues to make investing in this group very attractive are the
significant changes -- including industry consolidations, further deregulation
and advances in technology -- that we believe lie ahead. We will seek to
capitalize on those changes as we pursue long-term growth of capital for the
Fund's investors.
6 - Scudder Financial Services Fund
<PAGE>
Glossary of Investment Terms
BOTTOM-UP APPROACH A "bottom-up" approach to investing involves
searching for stocks with attractive value
and/or good performance before considering
the impact of economic trends. Companies may
be identified from research reports, personal
knowledge of the company's products and
services, and other methods. This approach
assumes that individual companies can perform
well, even in an industry that is not
performing well.
DIVERSIFICATION The spreading of risk by putting assets in
several categories of assets -- in the case
of a sector fund, in several subsectors of a
particular industry.
INTEREST RATE SPREAD The difference in yield between bonds of the
same maturity but different quality.
MARKET CAPITALIZATION The value of a company's outstanding shares
of common stock, determined by multiplying
the number of shares outstanding by the share
price (shares x price = market
capitalization).
NET ASSET VALUE (NAV) The price per share of a mutual fund based on
the sum of the market value of all the
securities owned by the fund divided by the
number of outstanding shares.
SECTOR A particular group of stocks, usually found
in one industry.
TOTAL RETURN The most common yardstick to measure the
performance of a mutual fund. Total return --
annualized or compound -- is based on a
combination of share price changes plus
income and capital gain distributions, if
any, expressed as a percentage gain or loss
in value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
7 - Scudder Financial Services Fund
<PAGE>
Investment Portfolio as of February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
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<S> <C> <C>
Cash 4.8%
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Repurchase Agreement with State Street Bank and Trust Company dated 2/27/98 at
5.55%, to be repurchased at $1,317,609 on 3/2/98, collateralized by a ----------
$1,210,000 U.S. Treasury Bond, 7.875%, 11/15/07 (Cost $1,317,000) ..................... 1,317,000 1,317,000
----------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 95.2%
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Banks 42.3%
BANC ONE CORP. .......................................................................... 14,230 803,995
BankAmerica Corp. ....................................................................... 14,500 1,123,750
BankBoston Corp. ........................................................................ 4,100 408,719
CCB Financial Corp. ..................................................................... 2,100 228,113
Chase Manhattan Corp. ................................................................... 6,400 794,000
Citicorp ................................................................................ 4,000 530,000
CoreStates Financial Corp. .............................................................. 3,400 287,088
First American Corp. (Tennessee) ........................................................ 5,100 244,163
First Chicago NBD Corp. ................................................................. 4,900 402,719
First Security Corp. .................................................................... 10,150 235,353
First Union Corp. ....................................................................... 15,100 795,581
Imperial Bancorp ........................................................................ 6,900 227,700
KeyCorp ................................................................................. 4,900 343,306
Mellon Bank Corp. ....................................................................... 6,700 417,494
National City Corp. ..................................................................... 5,600 365,400
NationsBank Corp. ....................................................................... 13,900 952,150
Northern Trust Corp. .................................................................... 6,900 524,831
Norwest Corp. ........................................................................... 26,800 1,097,125
Silicon Valley Bancshares ............................................................... 4,000 228,000
US Bancorp .............................................................................. 4,600 529,288
Union Planters Corp. .................................................................... 2,800 173,075
Wells Fargo & Co. ....................................................................... 2,100 676,200
Zions Bancorp ........................................................................... 7,900 339,700
----------
11,727,750
----------
Insurance 38.1%
AMBAC Inc. .............................................................................. 10,100 537,825
Aegon NV (ADR) .......................................................................... 3,200 360,000
Allstate Corp. .......................................................................... 8,700 811,275
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 - Scudder Financial Services Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American International Group, Inc. ...................................................... 9,000 1,081,688
Chubb Corp. ............................................................................. 3,300 263,381
Conseco, Inc. ........................................................................... 17,300 812,019
ESG Re Ltd .............................................................................. 15,400 408,100
EXEL Ltd. (ADR) ......................................................................... 5,800 383,888
Fremont General Corp. ................................................................... 14,900 874,444
General Re Corp. ........................................................................ 1,600 340,800
Hartford Life, Inc. "A" ................................................................. 15,900 684,694
MBIA, Inc. .............................................................................. 7,500 548,906
Mid Ocean, Ltd. ......................................................................... 3,900 239,119
Nationwide Financial Services, Inc. "A" ................................................. 16,300 717,200
PMI Group, Inc. ......................................................................... 5,600 407,400
Safeco Corp. ............................................................................ 5,300 277,919
Stirling Cooke Brown Holdings Limited ................................................... 10,500 259,875
Travelers Group, Inc. ................................................................... 17,950 1,000,713
Travelers Property & Casualty Insurance Co. "A" ......................................... 13,100 537,100
----------
10,546,346
----------
Consumer Finance 4.8%
American Express Company ................................................................ 7,300 657,456
Associates First Capital Corp. .......................................................... 8,600 688,000
----------
1,345,456
----------
Other Financial Companies 10.0%
CIT Group, Inc. ......................................................................... 7,700 254,100
Charter One Financial, Inc. ............................................................. 4,400 266,613
Federal National Mortgage Association ................................................... 17,200 1,097,571
First Data Corp. ........................................................................ 8,500 289,000
Franklin Resources, Inc. ................................................................ 10,100 515,100
SLM Holding Corp. ....................................................................... 8,650 357,353
----------
2,779,737
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Total Common Stocks (Cost $23,424,827) 26,399,289
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Total Investment Portfolio -- 100.0% (Cost $24,741,827) (a) 27,716,289
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $24,741,827. At February 28,
1998, net unrealized appreciation for all securities based on tax cost was
$2,974,462. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,975,917 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,455.
The accompanying notes are an integral part of the financial statements.
9 - Scudder Financial Services Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of February 28, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $24,741,827) .................. $ 27,716,289
Cash .................................................................. 993
Receivable for Fund shares sold ....................................... 267,907
Dividends and interest receivable ..................................... 26,907
Due from Adviser ...................................................... 62,452
Deferred organization expenses ........................................ 26,234
----------------
Total assets .......................................................... 28,100,782
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 528,481
Payable for Fund shares redeemed ...................................... 60,370
Other payables and accrued expenses ................................... 145,071
----------------
Total liabilities ..................................................... 733,922
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Net assets, at market value $ 27,366,860
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Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income .......... (15,531)
Unrealized appreciation (depreciation) on investment securities ....... 2,974,462
Accumulated net realized gain (loss) .................................. (25,770)
Paid-in capital ....................................................... 24,433,699
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Net assets, at market value $ 27,366,860
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Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($27,366,860 /
2,000,524 outstanding shares of beneficial interest, $.01 par ----------------
value, unlimited number of shares authorized) ...................... $13.68
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Financial Services Fund
<PAGE>
Statement of Operations
for the period November 3, 1997 (commencemnt
of operations) to February 28, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends .............................................................. $ 102,221
Interest ............................................................... 25,713
-----------------
127,934
-----------------
Expenses:
Management fee ......................................................... 51,796
Services to shareholders ............................................... 88,307
Custodian and accounting fees .......................................... 16,846
Trustees' fees and expenses ............................................ 10,761
Auditing ............................................................... 10,058
Registration fees ...................................................... 20,818
Reports to shareholders ................................................ 8,854
Legal .................................................................. 4,138
Amortization of organization expense ................................... 1,766
Other .................................................................. 3,020
-----------------
Total expenses before reductions ....................................... 216,364
Expense reductions ..................................................... (114,248)
-----------------
Expenses, net .......................................................... 102,116
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Net investment income (loss) 25,818
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .............................. (25,770)
Net unrealized appreciation (depreciation) during the period on
investments ............................................................ 2,974,462
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,948,692
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,974,510
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Financial Services Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
November 3, 1997
(commencement of
operations) to
February 28, 1998
Increase (Decrease) in Net Assets (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income ............................................. $ 25,818
Net realized gain (loss) from investment transactions ............. (25,770)
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................. 2,974,462
-----------------------
Net increase (decrease) in net assets resulting from operations ... 2,974,510
-----------------------
Distributions to shareholders:
From net investment income ........................................ (41,349)
-----------------------
Fund share transactions:
Proceeds from shares sold ......................................... 25,556,484
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................. 40,371
Cost of shares redeemed ........................................... (1,172,255)
Redemption fees ................................................... 7,899
-----------------------
Net increase (decrease) in net assets from Fund share
transactions ................................................... 24,432,499
-----------------------
Increase (decrease) in net assets ................................. 27,365,660
Net assets at beginning of period ................................. 1,200
Net assets at end of period (including accumulated -----------------------
distributions in excess of net investment income of $15,531) ... $27,366,860
-----------------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ......................... 100
-----------------------
Shares sold ....................................................... 2,088,993
Shares issued to shareholders in reinvestment of distributions .... 3,199
Shares redeemed ................................................... (91,768)
-----------------------
Net increase (decrease) in Fund shares ............................ 2,000,424
-----------------------
Shares outstanding at end of period ............................... 2,000,524
-----------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Financial Services Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
November 3, 1997
(commencement
of operations) to
February 28, 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------
Net asset value, beginning of period ..................................................... $12.00
-----------------
Income from investment operations:
Net investment income .................................................................... .02
Net realized and unrealized gain (loss) on investments ................................... 1.69
-----------------
Total from investment operations ......................................................... 1.71
-----------------
Less distributions from net investment income ............................................ (.03)
Redemption fees .......................................................................... --***
-----------------
Net asset value, end of period ........................................................... $13.68
- -------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ................................................................. 14.23**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................... 27
Ratio of operating expenses, net, to average daily net assets (%) ........................ 1.50*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ............................................................................ 3.18*
Ratio of net investment income to average daily net assets (%) ........................... .38*
Portfolio turnover rate (%) .............................................................. 29.1*
Average commission rate paid ............................................................. $.0409
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of the 1% redemption fee on shares
held less than one year.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
13 - Scudder Financial Services Fund
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder Financial Services Fund (the "Fund") is a diversified series of Scudder
Securities Trust, 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 by the Fund in the preparation of its
financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq System, for which
there have been sales, are valued at the most recent sale price reported on such
system. If there are no such sales, the value is the most recent bid quotation.
Securities which are not quoted on the Nasdaq System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations the most recent bid quotation 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.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.
Distribution of Income and Gains. Distributions of net investment income, if
any, 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 annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions
14 - Scudder Financial Services Fund
<PAGE>
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.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the period November 3, 1997 (commencement of operations) to February 28,
1998, purchases and sales of investment securities (excluding short-term
investments) aggregated $25,600,015 and $2,149,418, 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. 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 Fund pays the Adviser a
fee equal to an annual rate of 0.75% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objective, 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. In addition, the Adviser has agreed not to impose
all or a portion of the Fund's management fee until December 31, 1998 in order
to maintain the annualized expenses of the Fund at not more than 1.50% of
average daily net assets. For the period November 3, 1997 (commencement of
operations) to February 28, 1998, the Adviser did not impose any of its
management fee, which amounted to $51,796.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
period November 3, 1997 (commencement of operations) to February 28, 1998, SSC
did not impose a portion of its fee amounting to $53,443, and the amount imposed
aggregated $18,546.
15 - Scudder Financial Services Fund
<PAGE>
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 period
November 3, 1997 (commencement of operations) to February 28, 1998, SFAC did not
impose a portion of its fee amounting to $9,009, and the amount imposed
aggregated $3,491.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the period
November 3, 1997 (commencement of operations) to February 28, 1998 the Trustees'
fees and expenses aggregated $10,761.
16 - Scudder Financial Services Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
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.
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.
17 - Scudder Financial Services Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
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
- ------------------------------------------------------------------------------------------------------------------------------
18 - Scudder Financial Services Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
19 - Scudder Financial Services Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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