Scudder
Choice Series:
Scudder Financial
Services Fund
Scudder
Health Care Fund
Scudder
Technology Fund
Annual Report
May 31, 1999
No-Load Funds
Three no-load funds each of which seeks long-term growth of capital by investing
primarily in common stocks and other equity securities of companies in a group
of related industries.
SCUDDER
<PAGE>
Scudder Choice Series
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Scudder Financial Services Fund Date of Inception: 11/3/97 Ticker Symbol: SCFSX
Scudder Health Care Fund Date of Inception: 3/2/98 Ticker Symbol: SCHLX
Scudder Technology Fund Date of Inception: 3/2/98 Ticker Symbol: SCUTX
- -----------------------------------------------------------------------------------------
</TABLE>
o Scudder Financial Services Fund provided a total return of 0.30% for the
twelve-month period ended May 31, 1999. Financial stocks rallied strongly
throughout the period, but were hurt in April and May by fears of higher
interest rates.
o Scudder Health Care Fund returned 7.04% for the twelve months ended May 31,
1999. While the health care sector was buoyed by the market's recent emphasis on
growth stocks, the rotation to value stocks in the final two months of the
period negatively impacted performance.
o Scudder Technology Fund posted a return of 59.90% for the twelve-month period
ended May 31, 1999. The Fund benefited from its holdings in Internet stocks and
the sectors that indirectly benefit from the growth of the `Net, such as
networking and telecommunications companies.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
3 Letter from the Series' Scudder Health 29 Financial Statements
Chairman Care Fund 37 Notes to Financial
Statements
Scudder Financial 11 Portfolio Management 41 Report of Independent
Services Fund Discussion Accountants
15 Performance Update 42 Tax Information
4 Portfolio Management 16 Portfolio Summary 43 Shareholder Meeting
Discussion 17 Investment Portfolio Results
7 Performance Update 35 Financial Highlights 48 Officers and Trustees
8 Portfolio Summary 49 Investment Products
9 Investment Portfolio Scudder and Services
34 Financial Highlights Technology Fund 50 Scudder Solutions
20 Portfolio Management
Discussion
24 Performance Update
25 Portfolio Summary
26 Investment Portfolio
36 Financial Highlights
</TABLE>
2 - Scudder Choice Series
<PAGE>
Letter from the Series' Chairman
Dear Shareholders,
Scudder is pleased to present the combined annual report for Scudder Choice
Series, which includes Scudder Financial Services Fund, Scudder Health Care
Fund, and Scudder Technology Fund. The Choice Series has been designed to
provide investors with the opportunity to take part in the evolution of three
dynamic, fast-growing industries. While funds that invest in single sectors
often experience a higher level of volatility than those that are more broadly
diversified, they also have the potential to provide market-beating investment
returns over time. For investors who have a long-term time horizon and the
ability to withstand volatility, these funds are a compelling way to add focus
to a diversified portfolio.
All three sectors have provided solid returns over the past year, despite
significant fluctuations. Financial stocks have benefited from industry
consolidation and a healthy domestic economy, and the Fund's management team
sees further opportunities ahead in undervalued bank stocks and selected
insurance companies. The health care sector, meanwhile, continues to be buoyed
by positive trends such as new product introductions, favorable demographic
shifts, and significant research breakthroughs. Technology stocks have received
the most attention from the investing public in the past year, and with good
reason. The explosive growth of the Internet has opened up opportunities for
companies in a wide range of businesses to benefit from the expansion of the new
economy. For more information about how each fund's management team is seeking
to capitalize on these developments, please see the portfolio management
discussions that begin on page 4.
For those of you who are interested in new Scudder products, we are pleased
to introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of pursuing long-term outperformance compared to
their benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
Thank you for your continued investment in Scudder Choice Series. If you
have any questions about your investment, please call Scudder Investor
Information at 1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman and President,
Scudder Choice Series
3 - Scudder Choice Series
<PAGE>
Portfolio Management Discussion
Scudder Financial Services Fund
In the following interview, Co-Lead Portfolio Managers Thaddeus Paluszek and
Peter Taylor discuss Scudder Financial Services Fund's strategy and the market
environment in the twelve-month period ended May 31, 1999.
Q: Please discuss how the recent market environment has affected financial
stocks.
A: As a group, financials have experienced substantial volatility in the past
year. After plummeting during the market correction last fall, the sector
rebounded off of extremely low levels once it became apparent that the U.S.
economy would weather the difficulties emanating from overseas. The combination
of low inflation, a steepening of the yield curve, and continued domestic growth
provided the ideal environment for financials, which proceeded to rally through
the fourth quarter of 1998 and the first quarter of 1999. Several money center
bank stocks returned in excess of 100% in this period, but by April fresh
concerns about the direction of the U.S. economy stifled the rally. Signs of
possible inflation raised fears that the Federal Reserve would have to begin
raising interest rates, driving the yield on the bellwether 30-year Treasury
bond above 6%. A smattering of earnings disappointments and generalized fears
about the potential impact of Y2K problems overseas also contributed to poor
sector performance in the final two months of the period.
Q: How did the Fund perform in this environment?
A: The Fund underperformed its benchmark over the period. While the unmanaged
S&P Financial Index returned 8.33% for the twelve months ended May 31, the Fund
returned 0.30%. We attribute this performance disparity to our underweight
position in stocks with higher levels of volatility, such as brokers and
investment banks. We sought to diversify the portfolio into areas that have a
lower correlation with the performance of the broader market -- such as
insurance stocks -- but this proved to be a negative when the market soared
during the first quarter. On the positive side, our value orientation led us to
such strong performing stocks as American Express, BanK One, Cigna, and American
International Group. If the market continues to perceive a threat of emerging
inflation and higher interest rates, it is reasonable to expect that the Fund's
diversification would help relative performance, much as it did during the
correction in 1998.
Q: In the last report, you spoke enthusiastically about insurance stocks. How
did this group perform?
A: While as a whole the sector did not perform as well as the banks and brokers,
it nevertheless provided a boost to Fund performance. In fact, a number of our
holdings hit their price targets and were sold in the latter part of the period.
We found opportunities in several subsectors of the insurance group, including
property and casualty (St. Paul Companies), disability (Unum Corp.), and bond
insurers (MBIA). After being significantly underweighted in the property and
casualty ("P&C") sector for some time, we became more optimistic on the group's
prospects by the end of the period. We are seeing evidence that the pricing
4 - Scudder Choice Series
<PAGE>
structure in the P&C industry has begun to stabilize, creating upside
opportunities in a group that has been lagging for some time.
Our top holding within the insurance sector continues to be American
International Group, which we view as a stock for all seasons. The company has
high operational flexibility, excellent management, and a strong balance sheet,
all of which provide it with the ability to capitalize on market opportunities
as they arise. For example, American International Group took advantage of the
crisis in Asia by providing liquidity to some of the region's strongest
companies, and has earned substantial returns as a result. We feel that the
company will be able to maintain a growth rate in the 15-16% area through the
combination of organic growth and astute acquisitions.
Q: What is your investment strategy with regard to the banking sector?
A: In an effort to mitigate the uncertainty that weighed on the investment
environment in the latter part of the period, we focused on the names that we
believe offer the best long-term values. The recent weakness in the sector has
allowed us to build positions in the value names in which we have the strongest
conviction. One stock that we're particularly enthusiastic about is BanK One,
which fell to distressed levels earlier in the year. Believing that the
company's strong position in the consumer credit industry would hold it in good
stead at a time when Americans are spending freely and piling on new debt, we
added to our holdings at a time when the stock's price-to-earnings ratio was
well below its group average. The management team is successfully integrating
BanK One and First Chicago in the formation of this new entity, and we believe
that they will be able to use their direct marketing orientation to further
leverage the company's dominant position in the future.
Q: In the last report, you spoke favorably about the prospects for American
Express and Fannie Mae. What is your outlook for these two companies?
A: We remain positive on American Express, which has generated half of its
earnings growth from revenues, and half from cost and capital management. The
outlook for further growth on the revenue side is favorable since the company's
marketing thrust will likely be geared toward building their cardholder base. We
believe that their Membership Rewards Program will continue to be a strong
vehicle to promote customer retention and increase spending per card. American
Express has also continued to expand internationally, and is developing a
clearly defined Internet strategy. While their presence on the `Net is unlikely
to have an immediate impact on earnings, it provides an impetus for both
long-term growth and near-term investor interest.
Federal National Mortgage Association continues to be one of our favorite names,
although it has underperformed so far in 1999. The stock was hurt by negative
political developments in Washington in the early part of the year, and most
recently has been depressed by higher interest rates. Despite these short-term
influences, we remain enthusiastic on the Federal National Mortgage
Association's prospects due to the huge demand for mortgage funding. Throughout
its history the company has posted strong returns on equity, and has been a
5 - Scudder Choice Series
<PAGE>
stellar market performer due to its consistent earnings growth. We believe that
any concerns about the effects of interest rate fluctuations on FNMA's earnings
are misguided, since the company has improved its matching of assets and
liabilities.
Q: What factors do you feel are likely to drive performance in the financial
sector in the months ahead?
A: Financial stocks will likely be taking their cues from interest rates
throughout the remainder of 1999. As long as fears of inflation continue to
permeate the market, it will be difficult for the sector to mount a sustainable
rally. In this environment, we will continue to emphasize risk controls and
diversification among a variety of subsectors. Despite the Fund's recent
underperformance, we remain confident that our prudent strategy will provide
favorable risk-adjusted returns over time.
Scudder Financial Services Fund:
A Team Approach to Investing
Scudder Financial Services Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 our offices
across the United States and abroad. We believe our team approach benefits
Fund investors by bringing together many disciplines and leveraging our
extensive resources.
Co-Lead Portfolio Managers Thaddeus Paluszek and Peter Taylor have
responsibility for the Fund's day-to-day management and investment strategies.
Mr. Paluszek joined the Adviser in 1993 and specializes in banking, consumer
finance, and commercial finance companies. Mr. Paluszek has 19 years of
investment industry experience. Mr. Taylor joined the Adviser in 1989 as an
equity analyst and focuses on insurance companies, asset management companies,
and government-sponsored enterprises. Mr. Taylor has 30 years of investment
industry experience.
Portfolio Manager Andrew Absler joined the Adviser in 1993 as an equity
research analyst. Mr. Absler joined the team in 1999 and has over nine years
of investment industry experience.
Portfolio Manager William F. Truscott joined the Adviser in 1992 as an equity
research analyst and has over 16 years of investment industry experience.
6 - Scudder Choice Series
<PAGE>
Performance Update as of May 31, 1999
Scudder Financial Services Fund
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
---------------------------------------------------
Period Growth of Average
Ended 5/31/1999 $10,000 Cumulative Annual
---------------------------------------------------
Scudder Financial Services Fund
---------------------------------------------------
1 Year $ 10,030 0.30% 0.30%
Life of Fund* $ 11,909 19.09% 11.82%
---------------------------------------------------
Russell 1000 Index
---------------------------------------------------
1 Year $ 12,031 20.31% 20.31%
Life of Fund* $ 11,289 12.89% 27.45%
---------------------------------------------------
S&P Financial Index
---------------------------------------------------
1 Year $ 10,833 8.33% 8.33%
Life of Fund* $ 12,677 26.77% 17.15%
---------------------------------------------------
* The Fund commenced operations on November 3, 1997. Index comparisons begin
November 30, 1997.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Russell Scudder S&P
1000 Financial Financial
Index Services Fund Index
11/97* 10000 10000 10000
2/98 10939 11208 11161
5/98 9982 11650 11702
8/98 8699 9397 9385
11/98 10835 11273 11466
2/99 11558 11363 12108
5/99 11741 11686 12677
The Russell 1000 Index is an unmanaged capitalization-weighted measure of
approximately 1000 small U.S. stocks. The Standard and Poor's (S&P) Financial
Index is a capitalization- weighted index of all stocks designed to measure the
performance of the financial sector of the Standard & Poor's 500 Index. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND S&P FINANCIAL
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly Periods Ended May 31
1998* 1999
- -------------------------------------------------------------------------------
Net Asset Value $ 14.22 $ 14.14
- -------------------------------------------------------------------------------
Income Dividends $ .03 $ .03
- -------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .09
- -------------------------------------------------------------------------------
Fund Total Return (%) 18.73 .30
- -------------------------------------------------------------------------------
Index Total Return (%) 18.62 8.33
- -------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total 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 maintained the Fund's expenses,
the total return for the one year and life of Fund periods would have been
lower.
7 - Scudder Choice Series
<PAGE>
Portfolio Summary as of May 31, 1999
Scudder Financial Services Fund
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 98%
Cash Equivalents 2%
--------------------------------------
100%
--------------------------------------
Fund management seeks to stay as close to fully invested as possible.
- --------------------------------------------------------------------------------
Diversification
(Excludes 2% Cash Equivalents)
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Banks 40%
Insurance 29%
Other Financial Companies 17%
Consumer Finance 12%
EDP Services 2%
--------------------------------------
100%
--------------------------------------
The Fund's high level of diversification is consistent with a strategy that
seeks strong risk-adjusted returns over time.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
(48% of Portfolio)
- --------------------------------------------------------------------------------
1. Bank of America Corp.
Global banking company
2. American International Group, Inc.
International insurance holding
company
3. BANK ONE CORP.
Consumer and commercial bank
4. Citigroup Inc.
Provider of financial services
5. Chase Manhattan Corp.
Commercial Bank
6. Federal National Mortgage
Association
Insurance and holder of mortgage
loans
7. First Union Corp.
Commercial bank
8. American Express Co.
Payments, travel, investment
services and banking
9. Wells Fargo Co.
Provider of banking, mortgage
banking and consumer finance
10. Cigna Corp.
Provider of insurance, health
care benefits, pension management
and related financial services
Top holdings reflect management's focus on companies whose stock prices reflect
significant value relative to their long-term prospects.
For more complete details about the Fund's investment portfolio, see page 9.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
8 - Scudder Choice Series
<PAGE>
Investment Portfolio as of May 31, 1999
Scudder Financial Services Fund
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.5%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 5/28/1999 at 4.8%,
to be repurchased at $493,263 on 6/1/1999, collateralized by a $425,000 U.S. Treasury ----------
Bill, 10.750%, 02/15/2003 (Cost $493,000) .............................................. 493,000 493,000
----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 98.5%
- ------------------------------------------------------------------------------------------------------------------------------
Banks 39.5%
BANK ONE CORP ............................................................................ 34,562 1,954,913
Bank of America Corp. .................................................................... 36,934 2,389,166
BankBoston Corp. ......................................................................... 15,200 720,100
Chase Manhattan Corp. .................................................................... 24,400 1,769,000
First Security Corp. ..................................................................... 17,950 339,928
First Tennessee National Corp. ........................................................... 13,000 535,438
First Union Corp. ........................................................................ 24,280 1,118,398
Imperial Bancorp* ........................................................................ 13,392 257,796
KeyCorp .................................................................................. 11,000 382,250
Mellon Bank Corp. ........................................................................ 22,000 785,125
North Fork Bancorporation, Inc. .......................................................... 14,100 300,506
Northern Trust Corp. ..................................................................... 10,900 985,088
Silicon Valley Bancshares* ............................................................... 8,000 154,000
US Bancorp ............................................................................... 18,600 604,500
Wells Fargo Co. .......................................................................... 27,400 1,096,000
----------
13,392,208
----------
Insurance 29.0%
AMBAC Financial Group, Inc. .............................................................. 16,300 950,494
Allstate Corp. ........................................................................... 12,900 470,044
American International Group, Inc. ....................................................... 18,500 2,114,781
Cigna Corp. .............................................................................. 11,700 1,091,025
Fremont General Corp. .................................................................... 49,900 1,057,256
MBIA, Inc. ............................................................................... 5,800 396,213
Nationwide Financial Services, Inc. "A" .................................................. 21,600 932,850
St. Paul Companies, Inc. ................................................................. 11,100 394,744
Travelers Property Casualty Corp. "A" .................................................... 14,900 588,550
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - Scudder Choice Series
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNUM Corp. ............................................................................... 16,000 861,000
XL Capital Ltd. " A" ..................................................................... 15,811 961,506
----------
9,818,463
----------
Consumer Finance 11.9%
American Express Co. ..................................................................... 9,200 1,114,925
Associates First Capital Corp. ........................................................... 25,800 1,057,800
Citigroup Inc. ........................................................................... 28,300 1,874,875
----------
4,047,600
----------
Other Financial Companies 16.5%
CIT Group, Inc. .......................................................................... 11,200 324,800
Charter One Financial, Inc. .............................................................. 12,600 358,313
Federal Home Loan Mortgage Corp. ......................................................... 17,000 991,313
Federal National Mortgage Association .................................................... 25,500 1,734,000
Federated Investors, Inc. "B" ............................................................ 33,500 586,250
Household International, Inc. ............................................................ 19,400 841,475
Legg Mason Inc. .......................................................................... 12,100 409,132
Merrill Lynch & Co., Inc. ................................................................ 4,200 352,800
----------
5,598,083
----------
EDP Services 1.6%
First Data Corp. ......................................................................... 11,800 530,262
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $29,934,685) 33,386,616
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $30,427,685) (a) 33,879,616
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $30,432,466. At May 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$3,447,150. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,387,306 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$940,156.
During the year ended May 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $8,107,133 and
$10,412,218, respectively.
The accompanying notes are an integral part of the financial statements.
10 - Scudder Choice Series
<PAGE>
Portfolio Management Discussion
Scudder Health Care Fund
In the following interview, Lead Portfolio Manager James E. Fenger discusses
Scudder Health Care Fund's strategy and the market environment in the
twelve-month period ended May 31, 1999.
Q: Large-cap pharmaceuticals, the dominant industry group within both the Fund
and the health care sector, performed well until the end of the first quarter,
but have been decimated since then. What factors have been driving their
performance?
A: Pharmaceutical stocks tend to outperform when earnings growth in the overall
stock market is expected to be weak, and to underperform when corporate earnings
are expected to accelerate. While this may seem counterintuitive, it helps to
think of the sector in terms of its relative attractiveness. When corporate
profit growth is slow, investors tend to flock to the companies that they
believe have the best ability to produce sustainable earnings. Since
pharmaceutical companies generally produce nondiscretionary items whose sales
are unaffected by fluctuations in the economy, the stocks tend to be more
attractive when the external environment is less favorable. For this reason, the
sector held up well in the months immediately following last year's global
economic crisis. Once signs of a recovery in Asia prompted investors to become
more confident in the earnings prospects of the broader market, money rotated
from pharmaceuticals to cyclicals and other traditional "value" sectors.
Another factor that has taken the steam out of pharmaceutical stocks is the
debate in Washington concerning Medicare reform, including an outpatient drug
benefit. Congressional Democrats have formulated proposals that, if put into
practice, could lead to greater government control of the industry's pricing
structure. While these ideas have no Republican sponsorship and are unlikely to
be enacted into law, they have put a cloud over the market in recent months. As
long as this issue remains unresolved, it is likely that it will continue to
dampen the performance of pharmaceutical stocks. On the other hand, passage of
market-based Medicare reform without any direct price controls would likely
spark a rally by bringing a sense of closure to market participants.
Q: How did the Fund's holdings in the pharmaceutical sector perform during this
period?
A: Until their recent downturn, pharmaceuticals provided a significant boost to
Fund performance. Stocks that were swept up in the market's previously
insatiable appetite for growth stocks, such as Schering-Plough, Pfizer, and
Warner Lambert, posted the best returns in calendar year 1998 due to
above-average industry growth and a substantial expansion in their
price-to-earnings ratios. Unfortunately, these companies also led the sector on
the downside, due to a compression of their valuation parameters. Three stocks
that performed well for us through both the run-up and the correction were
Bristol Myers Squibb, Pharmacia & Upjohn, and SmithKline Beecham, due to their
strong product pipelines and reasonable valuations. SmithKline Beecham, for
example, has benefited from the introduction
11 - Scudder Choice Series
<PAGE>
of Avandia, a diabetes drug with blockbuster potential. Since new products are
one of the most important drivers of stock price performance in the
pharmaceutical sector, the quality of each company's pipeline is a critical
factor.
Q: How have these developments impacted Fund returns?
A: For the twelve-month period ended May 31, the Fund returned 7.04%, compared
to 21.02% for the S&P 500 Index and -2.69% for the Russell 2000 Index. The Fund
posted its best returns in the final four months of 1998 amid a highly favorable
market climate for growth stocks. Returns have been hurt by the recent drop in
pharmaceuticals, but our decision to diversify into other sectors has helped our
relative performance. According to Lipper Analytical Services, Scudder Health
Care Fund ranked in the top 35th percentile of all health and biotechnology
funds in the five months ended May 31.^1
Q: Beyond pharmaceuticals, in what other sectors have you found attractive
opportunities?
A: Tyco International, the Fund's number four holding, is a stock
whose weighting we have increased substantially in the past six months. A
diversified conglomerate, Tyco counts hospital supplies among its core
businesses. The company has built its reputation in the stock market on its
ability to gain synergies from its acquisitions, a trait that has allowed it to
reduce its overall cost structure and post outstanding financial performance.
Tyco outperformed the health care group over the period, and we remain
optimistic on its prospects going forward.
Among smaller stocks, we continue to invest in companies that have profited from
their ability to design new treatments or fill therapeutic voids. VISX, for
instance, holds the dominant position in the explosive market for laser eye
surgery. By collecting a royalty every time its lasers are used, VISX is
positioned to generate recurring income in a market where we expect procedures
to total one million in 1999, more than double the number in 1998. The stock has
outperformed the market by a wide margin over the last six months, rising 185%.
In the biotech sector we hold companies with promising new therapies such as
Immunex and MedImmune. Immunex has created a drug for rheumatoid arthritis with
breakthrough potential, and MedImmune has developed a vaccine for RSV, a viral
respiratory disease that can have serious ramifications in premature infants.
The common thread among these stocks is that they have successfully developed
and launched groundbreaking technologies that have the potential to exceed
expectations. We believe that investment in such companies will allow the Fund
to benefit from the dynamic growth of the smaller stocks in the health care
sector, while at the same time providing a balance to the large-cap
pharmaceuticals that make up the core of the Fund.
- ----------
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. For the calendar year-to-date period ended May 31,
1999, Scudder Health Care Fund's Lipper ranking was 18 out of 52 comparable
funds.
12 - Scudder Choice Series
<PAGE>
Q: Has there been any change in the Fund's overall weighting in small-caps?
A: Our position in small-caps has been steadily falling as we have increased our
emphasis on the stocks in which we have the highest level of conviction. While
we are excited about the prospects for a number of smaller companies, such as
those I just mentioned, in general we are most confident in the potential of our
large-cap names. In the six months ended May 31, for example, we trimmed our
weighting in the small-cap sector from 14.2% to 10.4%. As recently as early
September, this number was as high as 24.0%. Our position in large-caps has gone
up accordingly, rising from 59.6% on November 30 to 73.6% at the end of the
period. These weightings are not the result of top-down decisions; instead, they
represent the aggregated result of all of the decisions we made regarding
individual stocks. Given the many promising technologies being developed by
emerging companies, I would not be surprised to see our exposure to smaller caps
increase as future opportunities arise.
Q: In the last report, you cited several themes that you believe will power the
health care sector in the years ahead. Are these forces still in place?
A: Yes. Concerns about healthcare reform legislation and an improving overall
corporate profit picture may increase volatility and limit near-term
performance. However, over the long term, a number of important, growth-oriented
themes should continue to drive performance. New products, increased spending on
advertising, an aging global population, industry consolidation, and the rapid
growth of new drug discovery techniques such as genomics should all contribute
13 - Scudder Choice Series
<PAGE>
to increased earnings for a wide range of health care companies over time.
Believing that the sector will continue to provide above-average growth, we view
near-term setbacks as buying opportunities. Valuations on many of the stocks
have become increasingly attractive and offer significant upside potential from
current levels. We urge investors to maintain their focus on the positive
long-term outlook for health stocks even when the sector is temporarily out of
favor with the market.
Scudder Health Care Fund:
A Team Approach to Investing
Scudder Health Care Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") professionals, each of whom plays 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 our offices across the
United States and abroad. We believe our team approach benefits Fund investors
by bringing together many disciplines and leveraging our extensive resources.
Lead Portfolio Manager James E. Fenger has responsibility for the Fund's
day-to-day management and investment strategies. Mr. Fenger has been a health
care investment analyst with the Adviser for 16 years.
Portfolio Manager Anne Carney joined the Adviser in 1992 as an equity research
analyst and has over 12 years of investment industry experience. Ms. Carney
contributes expertise in health care services, hospital supplies and
distribution companies. Prior to joining the Adviser, Ms. Carney was a
research analyst specializing in the health care industry.
Portfolio Manager Sally A. Yanchus contributes expertise in medical devices,
specialty pharmaceuticals, and health care information systems. Prior to
joining the Adviser in 1997, Ms. Yanchus was a sell-side analyst for six years
covering various health care industries.
Portfolio Manager Frank Zavrl has nine years of biotechnology industry
experience and specializes in biotechnology/drug discovery and pharmaceutical
outsourcing companies. Prior to joining the Adviser in 1998, Mr. Zavrl was a
research associate and a senior validation consultant.
Portfolio Manager William F. Truscott joined the Adviser in 1992 as an equity
research analyst and has over 16 years of investment industry experience. Mr.
Truscott is currently the Director of Global Equity Research for the Adviser.
14 - Scudder Choice Series
<PAGE>
Performance Update as of May 31, 1999
Scudder Health Care Fund
- --------------------------------------------------------------------------------
Fund Index Comparisons
- --------------------------------------------------------------------------------
Total Return
------------------------------------------------------
Period Ended Growth of Average
5/31/1999 $10,000 Cumulative Annual
------------------------------------------------------
Scudder Health Care Fund
------------------------------------------------------
1 Year $ 10,704 7.04% 7.04%
Life of Fund* $ 10,775 7.75% 6.21%
------------------------------------------------------
S&P 500 Index
------------------------------------------------------
1 Year $ 12,102 21.02% 21.02%
Life of Fund* $ 12,014 20.14% 17.02%
------------------------------------------------------
Russell 2000 Index
------------------------------------------------------
1 Year $ 9,731 -2.69% -2.69%
Life of Fund* $ 9,257 -7.43% -6.40%
* The Fund commenced operations on March 2, 1998. Index comparisons begin
March 31, 1998.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
S&P 500 Scudder Health Russell 2000
Index Care Fund Index
3/98* 10000 10000 10000
5/98 9927 9734 9513
8/98 8744 8380 7059
11/98 10670 10145 8338
2/99 11390 10749 8245
5/99 12014 10419 9257
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. The Russell 2000 Index is an unmanaged
capitalization-weighted measure of approximately 2000 small U.S. stocks. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND S&P 500
INDEX TOTAL RETURN (%)
Yearly Periods Ended May 31
CHART DATA:
1998* 1999
- --------------------------------------------------------------------------------
Net Asset Value $ 12.08 $ 12.93
- --------------------------------------------------------------------------------
Income Dividends $ -- $ --
- --------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ --
- --------------------------------------------------------------------------------
Fund Total Return (%) .67 7.04
- --------------------------------------------------------------------------------
Index Total Return (%) -.73 21.02
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total 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 maintained the Fund's expenses,
the total return for the life of Fund period would have been lower.
15 - Scudder Choice Series
<PAGE>
Portfolio Summary as of May 31, 1999
Scudder Health Care Fund
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 98%
Cash Equivalents 2%
--------------------------------------
100%
--------------------------------------
Fund management seeks to stay as close to fully invested as possible.
- --------------------------------------------------------------------------------
Diversification
(Excludes 2% Cash Equivalents)
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Pharmaceuticals 53%
Medical Supply & Specialty 14%
Health Industry Services 11%
Biotechnology 8%
Hospital Management 5%
Diversified Manufacturing 4%
Chemicals 3%
Insurance 2%
--------------------------------------
100%
--------------------------------------
The Fund's holdings in large-cap pharmaceutical stocks made a significant
contribution to positive performance over the full period.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
(41% of Portfolio)
- --------------------------------------------------------------------------------
1. American Home Products Corp.
Diversified pharmaceutical company
2. Baxter International Inc.
Manufacturer and distributor of
hospital and laboratory products
and services
3. Abbott Laboratories
Health care products
4. Tyco International Ltd.
Manufacturer of medical products
and electronic components
5. Warner-Lambert Co.
Maker of drugs, toiletries and
food products
6. SmithKline Beecham plc
Multinational pharmaceutical and
healthcare products company
7. Bristol-Myers Squibb Co.
Diversified pharmaceutical and
consumer products company
8. Schering-Plough Corp.
Producer of pharmaceutical and
consumer products
9. Eli Lilly & Co.
Pharmaceutical company
10. Pharmacia & Upjohn, Inc.
Pharmaceutical company
Using a bottom-up approach, management continues to find the most attractive
opportunities in large-cap stocks.
For more complete details about the Fund's investment portfolio, see page 17.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
16 - Scudder Choice Series
<PAGE>
Investment Portfolio as of May 31, 1999
Scudder Health Care Fund
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.6%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 5/28/1999 at 4.8%, to
be repurchased at $750,400 on 6/1/1999, collateralized by a $670,000 U.S. Inflationary ----------
Index Treasury Bill, 7.5%, 11/15/2016 (Cost $750,000) .................................. 750,000 750,000
----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 98.4%
- ------------------------------------------------------------------------------------------------------------------------------
Biotechnology 7.5%
Alkermes, Inc.* .......................................................................... 9,200 227,700
Amgen Inc.* .............................................................................. 8,800 556,600
Biogen Inc.* ............................................................................. 5,600 611,100
Genentech, Inc.* ......................................................................... 8,100 709,256
Immunex Corp.* ........................................................................... 2,100 275,363
Ligand Pharmaceuticals "B"* .............................................................. 32,500 333,125
MedImmune, Inc. * ........................................................................ 9,600 610,800
QLT PhotoTherapeutics Inc.* .............................................................. 5,400 237,804
----------
3,561,748
----------
Health Industry Services 11.0%
Cardinal Health, Inc. .................................................................... 20,400 1,231,650
IDX Systems Corp.* ....................................................................... 6,900 164,738
IMS Health Inc. .......................................................................... 33,700 829,863
MedQuist, Inc.* .......................................................................... 9,400 345,450
Quintiles Transnational Corp.* ........................................................... 36,000 1,462,500
United Healthcare Corp. .................................................................. 11,000 640,750
Wellpoint Health Networks Inc.* .......................................................... 6,200 511,113
----------
5,186,064
----------
Hospital Management 4.9%
Columbia/HCA Healthcare Corp. ............................................................ 37,600 885,950
LifePoint Hospitals, Inc.* ............................................................... 1,978 19,780
Triad Hospitals, Inc.* ................................................................... 1,978 20,027
Universal Health Services, Inc.* ......................................................... 27,500 1,371,563
----------
2,297,320
----------
Medical Supply & Specialty 13.6%
Baxter International Inc. ................................................................ 35,900 2,317,794
Biomet Inc. .............................................................................. 26,100 1,042,369
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Choice Series
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boston Scientific Corp.* ................................................................. 12,600 478,013
Medtronic Inc. ........................................................................... 21,370 1,517,270
Ventana Medical Systems, Inc.* ........................................................... 20,700 414,000
VISX Inc.* ............................................................................... 12,600 654,413
----------
6,423,859
----------
Pharmaceuticals 52.1%
Abbott Laboratories ...................................................................... 50,300 2,272,925
Allergan, Inc. ........................................................................... 10,400 967,200
Alpharma Inc. ............................................................................ 15,600 416,325
ALZA Corp. "A"* .......................................................................... 3,200 114,200
American Home Products Corp. ............................................................. 42,600 2,454,825
Atlanta AG ............................................................................... 2,900 169,024
Bristol-Myers Squibb Co. ................................................................. 24,200 1,660,725
Eli Lilly & Co. .......................................................................... 22,700 1,621,631
Forest Laboratories, Inc.* ............................................................... 27,900 1,328,738
Fujisawa Pharmaceutical Co. .............................................................. 19,000 298,536
Glaxo Wellcome plc (ADR) ................................................................. 27,000 1,518,750
Johnson & Johnson ........................................................................ 14,300 1,324,538
Merck & Co., Inc. ........................................................................ 11,900 803,250
Pfizer, Inc. ............................................................................. 8,100 866,700
Pharmacia & Upjohn, Inc. ................................................................. 28,900 1,602,144
Roche Holding AG ......................................................................... 6,700 700,150
Schering-Plough Corp. .................................................................... 36,600 1,649,288
Shire Pharmaceuticals Group plc* ......................................................... 26,600 631,750
SmithKline Beecham plc (ADR) ............................................................. 27,000 1,771,875
Takeda Chemical Industries, Ltd. ......................................................... 6,000 266,589
Warner-Lambert Co. ....................................................................... 29,500 1,829,000
Watson Pharmaceuticals, Inc.* ............................................................ 9,600 367,800
----------
24,635,963
----------
Insurance 2.0%
Cigna Corp. .............................................................................. 10,200 951,150
----------
Chemicals 2.9%
Monsanto Co. ............................................................................. 20,800 863,200
Rhone-Poulenc S.A. "A" (ADR) ............................................................. 10,600 496,875
----------
1,360,075
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Choice Series
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Manufacturing 4.4%
Tyco International Ltd. .................................................................. 23,900 2,088,263
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $41,997,779) 46,504,442
----------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $42,747,779) (a) 47,254,442
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $42,778,134. At May 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$4,476,308. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,672,568 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,196,260.
During the year ended May 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $61,338,125 and
$58,862,751, respectively.
The accompanying notes are an integral part of the financial statements.
19 - Scudder Choice Series
<PAGE>
Portfolio Management Discussion
Scudder Technology Fund
In the following interview, Lead Portfolio Manager J. Brooks Dougherty discusses
Scudder Technology Fund's strategy and the market environment in the
twelve-month period ended May 31, 1999.
Q: Tech stocks, particularly those that focus on the Internet, have been on a
wild ride in recent months. What factors are at work here?
A: From a macro standpoint, the primary reason for the sector's outperformance
was the market's focus on high-multiple growth stocks. With interest rates near
their historic lows and corporate earnings growth in the broader market expected
to be weak, market participants were willing to pay high premiums for future
growth. Once value stocks rebounded and bond yields began to approach 6%,
however, the market's passion for tech names began to cool. Despite the weakness
in April and May, the sector posted outstanding performance over the full
period.
Of the six subsectors we follow -- semiconductors, software, hardware, services,
networking/ telecommunications, and the Internet -- the strongest performers
have been those that are directly tied to the growth of the `Net. The Internet
stocks themselves were propelled by an intense mania among the investing public,
although the froth dissipated in the last two months when a substantial amount
of new issues and secondary offerings flooded the sector with supply. The
explosive demand for Internet infrastructure provided a boost to
telecommunications and networking stocks, which benefited from the growing need
for high-speed data networking and transport.
Semiconductors, hardware, and software stocks, which have less exposure to the
`Net, did not rally as strongly as the other groups in the tech sector.
Semiconductors began a cyclical rebound after years of poor growth and
overcapacity, but the rally was not broad-based due to the continued softness in
DRAM prices. Still, we were encouraged by the fact that companies finally began
to make their numbers after several quarters of negative earnings
preannouncements. We feel that the strong gains in companies such as Taiwan
Semiconductor and Xilinx are justified due to their improved earnings prospects.
The hardware and software sectors have both been constrained by slow growth in
the sales volume of personal computers, as well as the potential threat being
posed by the Year 2000 issue. Not wanting to make substantial capital
investments ahead of Y2K, corporations have scaled back on their purchases in
these areas. As a consequence, there has been a cloud hanging over the stocks.
While selected issues such as IBM and Hewlett Packard have managed to buck the
trend, the majority of the companies in these subsectors experienced increased
headwinds as the period progressed.
Q: How has this environment impacted Fund performance?
A: For the twelve-month period ended May 31, the Fund returned
59.90%, beating the 2.69% return of the unmanaged Russell 2000 Index, and the
14.88% return of the unmanaged Russell 2000 Technology Index. Over the full
20 - Scudder Choice Series
<PAGE>
period, the Fund trailed the average return of the funds in its Lipper peer
group, but it finished in the top third for the one-, three-, and six-month
periods.^1 Strong stock selection contributed to the Fund's strong showing, as
did its overweighted position in the Internet, networking, and telecom sectors.
Relative performance was also helped by the selection of EMC, IBM, and Sun
Microsystems, three strong performers in an otherwise weak hardware sector.
Q: How is the Fund positioned within the `Net sector?
A: The fundamental thesis for investing in Internet stocks is that we are still
in the early stages of a significant change in the way the world conducts
business. However, we are cautious on the near-term outlook due to the
combination of heavy new issuance and higher interest rates. Discounted cash
flow valuations are difficult to support, especially given that 10-year bond
yields have moved up above 5%. Without stability in rates, it will be difficult
for the sector to resume its rally above recent highs.
That said, we continue to believe that the greatest risk is not to be invested
in this area. We seek to own companies with competitive advantages -- the
predators of the industry -- rather than the more questionable second-tier
names. For traditional businesses, competitive advantage was generally derived
from fixed assets and access to capital. In the new world of the Internet,
however, advantage lies in the ability to acquire customers, keep them, and find
new ways to get them to spend their money. We look for companies that fit this
description, as well as those whose first-mover status has allowed them to build
networks of business alliances that provide the potential to lock the market to
their competitors. Using these guidelines, we have built up positions in America
Online, Yahoo!, eBay, and Priceline, and have used sell-offs to our advantage.
While it is reasonable to expect weakness during the summer months (when people
spend less time on their computers), we look forward to the chance to pick up
additional shares at bargain prices.
Q: What stocks have done well in the other sectors you follow?
A: One stock that differentiates our Fund from most in the category is the local
shares of Taiwan Semiconductor, which rose 63% in the first five months of 1999.
The premier company in its industry, Taiwan Semiconductor is the primary
beneficiary of the trend toward the outsourcing of chip production. We felt that
the local shares offered more than just a positive earnings story, however --
they also were extremely cheap, selling at only a little over half of the
valuation accorded their ADRs (American Depositary Receipts) in the U.S. This
purchase worked out well for us, as the stock did indeed close the gap on its
ADRs throughout the period.
- ----------
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. For the period ended May 31, 1999, Scudder
Technology Fund's Lipper ranking was 37 out of 81 comparable funds for the
one-year period, 26 out of 91 funds for the six-month period, 28 out of 98
for the three-month period, and 13 out of 98 for the one-month period.
21 - Scudder Choice Series
<PAGE>
Broadcom is an example of a holding that has benefited from the explosive demand
for Internet infrastructure. We believe that Broadcom's exposure to enterprise
networking, cable modems, HD TV, settop boxes, and DSL lines for carriers
positions it in the vortex of the communications revolution. The company's
creation of entire systems on a single computer chip has allowed its customers
to reduce costs and has vaulted the company into the position of being the
dominant supplier to its end markets. Through the end of May, the stock was up
59% year-to-date.
Old favorite IBM also managed to shine amidst the cutting-edge names we've
talked about so far. Investors were worried about slow revenue growth in certain
components of IBM's business, but the company has generated strong revenues from
its high-margin operations, boosting profit growth for the entire firm. IBM's
strategy revolves around its service business, where it offers consulting,
education, design and development, and managed operations. Its successes here
have opened the door for excellent stock price performance.
The common trait among all of these holdings is their ability to generate upside
earnings surprises. Investors can struggle with valuations, but if earnings come
through, tech stocks will usually do well. Conversely, missed estimates can
result in dramatic drops, as we witnessed with Compaq. By buying stocks in which
we have the highest level of conviction, employing fundamental research to
develop earnings projections, and buying dominant companies with increasing
market share, we hope to position the Fund to benefit from positive surprises
and at the same time avoid "torpedoes."
22 - Scudder Choice Series
<PAGE>
Q: What is your outlook for the tech sector over the remainder of the year?
A: It is reasonable to expect that the tech sector will experience its usual
"summer slump" as vacation season slows demand. Techs generally tend to pick up
again in the fall, but this year may be different because of the Y2K problem.
Based on what we've learned from talking to company managements, expectations
are probably worse than they should be. While there may be a spending freeze, it
is likely to be short-lived. We view any market turmoil that occurs as a result
of Y2K represents a buying opportunity. As a consequence, we remain cautiously
optimistic on the remainder of 1999, and are maintaining our positive outlook on
the long-term prospects for the tech sector.
Scudder Technology Fund:
A Team Approach to Investing
Scudder Technology Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") professionals, each of whom plays 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 our offices across the
United States and abroad. We believe our team approach benefits Fund investors
by bringing together many disciplines and leveraging our extensive resources.
Lead Portfolio Manager J. Brooks Dougherty has responsibility for the Fund's
day-to-day management and investment strategies. Mr. Dougherty joined the
Adviser in 1993 as an equity analyst specializing in technology companies. Mr.
Dougherty has 15 years of investment industry experience.
Portfolio Manager Robert L. Horton joined the Adviser in 1996 as a research
analyst and has five years of experience in the investment industry. Prior to
joining the Adviser, Mr. Horton was a software engineer and a senior analyst.
Portfolio Manager Virginea Stuart has four years of industry experience. Ms.
Stuart joined the Adviser in 1996 as a small-cap technology analyst focusing
on software and Internet companies.
Portfolio Manager William F. Truscott joined the Adviser in 1992 as an equity
research analyst and has over 16 years of investment industry experience. Mr.
Truscott is currently the Director of Global Equity Research for the Adviser.
Portfolio Manager Deborah L. Koch is responsible for security analysis for
software/data services and conglomerates. Ms. Koch joined the Adviser in 1992
and has 14 years of investment industry experience.
23 - Scudder Choice Series
<PAGE>
Performance Update as of May 31, 1999
Scudder Technology Fund
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
-----------------------------------------------------
Period Ended Growth of Average
5/31/1999 $10,000 Cumulative Annual
-----------------------------------------------------
Scudder Technology Fund
-----------------------------------------------------
1 Year $ 15,990 59.90% 59.90%
Life of Fund* $ 16,083 60.83% 46.78%
-----------------------------------------------------
Russell 2000 Index
-----------------------------------------------------
1 Year $ 9,731 -2.69% -2.69%
Life of Fund* $ 9,257 -7.43% -6.40%
-----------------------------------------------------
Russell 2000 Technology Index
-----------------------------------------------------
1 Year $ 11,488 14.88% 14.88%
Life of Fund* $ 10,586 5.86% 5.00%
-----------------------------------------------------
* The Fund commenced operations on March 2, 1998. Index comparisons begin
March 31, 1998.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Russell 2000 Scudder Russell 2000
Index Technology Fund Technology Index
3/98* 10000 10000 10000
5/98 9513 9511 9214
8/98 7059 8101 6505
11/98 8338 10686 11627
2/99 8245 13136 12067
5/99 9257 15209 13119
The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. The Russell 2000 Technology Index is a
capitalization-weighted index of companies that serve the electronics and
computer industries or that manufacture products based on the latest applied
science. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND RUSSELL 2000 TECHNOLOGY
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly Periods Ended May 31
1998* 1999
- -------------------------------------------------------------------------------
Net Asset Value $ 12.07 $ 19.31
- -------------------------------------------------------------------------------
Income Dividends $ -- $ --
- -------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ --
- -------------------------------------------------------------------------------
Fund Total Return (%) .58 59.90
- -------------------------------------------------------------------------------
Index Total Return (%) -7.05 14.88
- -------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total 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 maintained the Fund's expenses,
the total return for the life of Fund period would have been lower.
24 - Scudder Choice Series
<PAGE>
Portfolio Summary as of May 31, 1999
Scudder Technology Fund
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 93%
Cash Equivalents 7%
--------------------------------------
100%
--------------------------------------
The Fund maintained a modest cash position during the period.
- --------------------------------------------------------------------------------
Diversification
Excludes 7% Cash Equivalents)
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Semiconductors 16%
Telecommunications Equipment 15%
Computer Software 12%
Diverse Electronics Products 11%
Electronic Data Processing 9%
EDP Services 7%
Miscellaneous Commercial Services 5%
Miscellaneous Consumer Services 5%
EDP Peripherals 4%
Other 16%
----------------------------------------
100%
----------------------------------------
In the past six months, management has increased the Fund's weighting in
semiconductor stocks, and reduced its position in the software sector.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
(39% of Portfolio)
- --------------------------------------------------------------------------------
1. Cisco Systems, Inc.
Manufacturer of computer network
products
2. Microsoft Corp.
Computer operating systems
software
3. America Online Inc.
Provider of online computer
services
4. Motorola Inc.
Manufacturer of telecommunication
products and semiconductors
5. International Business Machines
Corp.
Manufacturer and servicer of
business and computing machines
6. Lucent Technologies Inc.
Designer, developer, and
manufacturer of communication
systems software and products
7. eBay, Inc.
Person-to-person trading
community on the internet
8. Applied Materials, Inc.
Producer of reactors used to
manufacture thin film
9. Nokia AB Oy "A"
Cellular telephone manufacturer
10. Intel Corp.
Producer of semiconductor memory
circuits
The presence of eBay and AOL in the top ten holdings reflects management's
belief in the attractiveness of Internet companies with competitive advantage
and sound business models.
For more complete details about the Fund's investment portfolio, see page 26.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
25 - Scudder Choice Series
<PAGE>
Investment Portfolio as of May 31, 1999
Scudder Technology Fund
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short Term Notes 6.6%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association , 4.72%**, 6/01/1999 (Cost $7,961,000) ............. 7,961,000 7,961,000
-----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 93.4%
- ------------------------------------------------------------------------------------------------------------------------------
Recreational Products 0.5%
Electronic Arts Inc.* .................................................................... 13,100 641,081
-----------
Specialty Retail 3.0%
Amazon.com, Inc.* ........................................................................ 17,500 2,078,125
Priceline.com, Inc.* ..................................................................... 13,500 1,512,422
-----------
3,590,547
-----------
Medical Supply & Specialty 1.4%
VISX Inc.* ............................................................................... 33,000 1,713,938
-----------
Telephone/Communications 2.4%
Frontier Corp. ........................................................................... 31,000 1,631,375
MCI WorldCom, Inc.* ...................................................................... 14,000 1,209,250
-----------
2,840,625
-----------
Cable Television 0.7%
American Telecasting, Inc.* .............................................................. 150,000 857,813
-----------
EDP Services 6.9%
America Online Inc. ...................................................................... 46,000 5,491,250
Sapient Corp.* ........................................................................... 33,000 2,103,750
VeriSign, Inc.* .......................................................................... 5,300 628,050
-----------
8,223,050
-----------
Miscellaneous Commercial Services 4.7%
Galileo International, Inc. .............................................................. 13,000 585,000
Metzler Group, Inc.* ..................................................................... 86,400 2,829,600
Whittman-Hart, Inc.* ..................................................................... 78,600 2,230,275
-----------
5,644,875
-----------
Miscellaneous Consumer Services 4.7%
Complete Business Solutions, Inc.* ....................................................... 85,000 2,061,250
eBay, Inc.* .............................................................................. 20,500 3,632,344
-----------
5,693,594
-----------
Telecommunications Equipment 13.5%
Cisco Systems, Inc.* ..................................................................... 63,500 6,913,563
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 - Scudder Choice Series
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lucent Technologies Inc. ................................................................. 72,000 4,095,000
Nokia AB Oy "A" (ADR) .................................................................... 50,000 3,550,000
Tellabs, Inc.* ........................................................................... 29,000 1,696,500
-----------
16,255,063
-----------
Electrical Products 2.2%
FORE Systems, Inc.* ...................................................................... 30,000 1,031,250
Power Intergrations, Inc.* ............................................................... 32,500 1,578,281
-----------
2,609,531
-----------
Office Equipment/Supplies 0.8%
Xerox Corp. .............................................................................. 17,600 988,900
-----------
Computer Software 10.9%
Brocade Communications Systems, Inc.* .................................................... 12,500 806,250
Check Point Software Technologies Ltd.* .................................................. 36,500 1,615,125
Intuit Inc.* ............................................................................. 13,000 1,057,875
Microsoft Corp.* ......................................................................... 70,500 5,688,465
New Era Networks, Inc.* .................................................................. 24,000 1,068,000
PLATINUM Technology International, Inc.* ................................................. 38,000 1,106,750
Yahoo! Inc.* ............................................................................. 12,000 1,776,000
-----------
13,118,465
-----------
Diverse Electronic Products 10.7%
Applied Materials, Inc.* ................................................................. 65,000 3,570,938
Dell Computer Corp.* ..................................................................... 48,000 1,653,000
KLA Tencor Corp.* ........................................................................ 15,500 705,250
Motorola Inc. ............................................................................ 62,000 5,134,375
Teradyne Inc.* ........................................................................... 33,000 1,742,813
-----------
12,806,376
-----------
EDP Peripherals 3.4%
EMC Corp.* ............................................................................... 11,000 1,095,875
Mercury Interactive Corp.* ............................................................... 28,800 946,800
Network Appliance, Inc.* ................................................................. 42,500 2,004,141
-----------
4,046,816
-----------
Electronic Components/Distributors 1.7%
Broadcom Corp.* .......................................................................... 21,500 2,058,625
-----------
Electronic Data Processing 8.3%
Hewlett-Packard Co. ...................................................................... 24,000 2,263,500
International Business Machines Corp. .................................................... 44,000 5,117,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
27 - Scudder Choice Series
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sun Microsystems, Inc.* .................................................................. 43,000 2,569,250
-----------
9,950,500
-----------
Office/Plant Automation 2.3%
Cabletron Systems Inc.* .................................................................. 80,000 1,190,000
Novell Inc.* ............................................................................. 67,000 1,574,500
-----------
2,764,500
-----------
Semiconductors 15.3%
Cree Research, Inc.* ..................................................................... 18,400 1,013,150
Intel Corp. .............................................................................. 64,000 3,460,000
Linear Technology Corp. .................................................................. 17,000 901,000
Micron Technology Inc.* .................................................................. 51,000 1,934,813
QLogic Corp.* ............................................................................ 14,500 1,591,375
Taiwan Semiconductor Manufacturing Co.* .................................................. 630,000 2,263,761
Texas Instruments Inc. ................................................................... 18,000 1,968,750
Vitesse Semiconductor Corp.* ............................................................. 42,500 2,334,844
Xilinx Inc.* ............................................................................. 66,500 2,955,094
-----------
18,422,787
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $91,287,769) 112,227,086
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $99,248,769) (a) 120,188,086
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security
** Annualized yield at time of purchase; not a coupon rate. (Unaudited)
(a) The cost for federal income tax purposes was $99,545,959. At May 31, 1999,
net unrealized appreciation for all securities based on tax cost was
$20,642,127. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $22,398,949 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,756,822.
During the year ended May 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $127,929,390 and
$79,152,186, respectively.
Transactions in written options during the year ended May 31, 1999 were as
follows:
Options on Securities
---------------------
Premiums
Contracts Received ($)
---------------------------------------------------------------------
Outstanding at May 31, 1998 ............... -- --
Written ................................... 555 137,924
Exercised ................................. (300) (91,597)
Closed .................................... (255) (46,327)
------- -------
Outstanding at May 31, 1999 ............... -- --
======= =======
The accompanying notes are an integral part of the financial statements.
28 - Scudder Choice Series
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of May 31, 1999
<TABLE>
<CAPTION>
Scudder
Financial Scudder Health Scudder
Services Fund Care Fund Technology Fund
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) ............... $ 33,879,616 $ 47,254,442 $120,188,086
Cash ................................................ 671 865 584
Foreign currency, at value, (cost $84,411) .......... -- -- 84,218
Receivable for investments sold ..................... 58,570 256,660 2,561,555
Receivable for Fund shares sold ..................... 13,419 123,896 356,028
Dividends and interest receivable ................... 39,422 57,241 8,360
Foreign taxes recoverable ........................... -- 6,617 --
Deferred organization expenses ...................... 6,933 9,741 5,853
Other assets ........................................ 211 277 270
---------------- ---------------- ----------------
Total assets ........................................ 33,998,842 47,709,739 123,204,954
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................... -- 15,561 3,824,697
Payable for Fund shares redeemed .................... 31,829 51,302 117,741
Accrued management fee .............................. 105,109 29,500 85,538
Other payables and accrued expenses ................. 181,889 205,599 333,799
---------------- ---------------- ----------------
Total liabilities ................................... 318,827 301,962 4,361,775
------------------------------------------------------ ---------------- ---------------- ----------------
Net assets, at market value $ 33,680,015 $ 47,407,777 $118,843,179
------------------------------------------------------ ---------------- ---------------- ----------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investment securities ............................. 3,451,931 4,506,663 20,939,317
Foreign currency related transactions ............. -- (163) (194)
Accumulated net realized gain (loss) ................ (70,544) (1,093,861) 9,304,720
Paid-in capital ..................................... 30,298,628 43,995,138 88,599,336
------------------------------------------------------ ---------------- ---------------- ----------------
Net assets, at market value $ 33,680,015 $ 47,407,777 $118,843,179
------------------------------------------------------ ---------------- ---------------- ----------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per ---------------- ---------------- ----------------
share $14.14 $12.93 $19.31
---------------- ---------------- ----------------
(shares of beneficial interest outstanding,
$.01 par value, unlimited number of shares
authorized) ....................................... 2,382,567 3,667,066 6,154,964
</TABLE>
The accompanying notes are an integral part of the financial statements.
29 - Scudder Choice Series
<PAGE>
Statement of Operations
for the year ended May 31, 1999
<TABLE>
<CAPTION>
Scudder
Financial Scudder Health Scudder
Services Fund Care Fund Technology Fund
Investment Income (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends ........................................... $ 552,464 $ 313,941 $ 75,316
Interest ............................................ 39,787 92,290 335,125
---------------- ---------------- ----------------
592,251 406,231 410,441
Less foreign taxes withheld ......................... (489) (3,892) (1,707)
---------------- ---------------- ----------------
591,762 402,339 408,734
Expenses:
Management fee ...................................... 268,347 393,549 539,888
Services to shareholders ............................ 234,820 333,740 449,158
Custodian and accounting fees ....................... 31,675 49,372 49,997
Trustees' fees and expenses ......................... 32,167 29,956 28,091
Auditing ............................................ 22,312 20,282 24,482
Registration fees ................................... 20,312 30,716 38,073
Reports to shareholders ............................. 21,289 27,646 27,406
Legal ............................................... 13,461 7,788 14,236
Amortization of organization expense ................ 2,689 2,914 5,595
Other ............................................... 7,891 8,339 5,366
---------------- ---------------- ----------------
Total expenses before reductions .................... 654,963 904,302 1,182,292
Expense reductions .................................. (118,221) (94,054) (70,757)
---------------- ---------------- ----------------
Expenses, net ....................................... 536,742 810,248 1,111,535
------------------------------------------------------ ---------------- ---------------- ----------------
Net investment income (loss) 55,020 (407,909) (702,801)
------------------------------------------------------ ---------------- ---------------- ----------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ....................................... 25,899 (1,067,861) 10,317,020
Written options ................................... -- -- 37,570
Foreign currency related transactions ............. -- (4,300) (15,395)
---------------- ---------------- ----------------
25,899 (1,072,161) 10,339,195
---------------- ---------------- ----------------
Net unrealized appreciation (depreciation) during the
period on:
Investments ....................................... (289,920) 4,443,786 19,936,666
Foreign currency related transactions ............. -- (129) (194)
---------------- ---------------- ----------------
(289,920) 4,443,657 19,936,472
------------------------------------------------------ ---------------- ---------------- ----------------
Net gain (loss) on investment transactions (264,021) 3,371,496 30,275,667
------------------------------------------------------ ---------------- ---------------- ----------------
------------------------------------------------------ ---------------- ---------------- ----------------
Net increase (decrease) in net assets resulting from
operations $ (209,001) $ 2,963,587 $ 29,572,866
------------------------------------------------------ ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30 - Scudder Choice Series
<PAGE>
Statement of Changes in Net Assets
Scudder Financial Services Fund
<TABLE>
<CAPTION>
For the Period
November 3, 1997
Year Ended (commencement of
May 31, operations) to
Increase (Decrease) in Net Assets 1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................... $ 55,020 $ 38,617
Net realized gain (loss) from investment transactions .. 25,899 143,464
Net unrealized appreciation (depreciation) on
investment transactions during the period ............ (289,920) 3,741,851
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. (209,001) 3,923,932
---------------- ----------------
Distributions to shareholders from:
Net realized gains ..................................... (241,895) --
---------------- ----------------
Net investment income .................................. (80,908) (41,350)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 13,081,109 35,640,825
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 306,306 40,371
Cost of shares redeemed ................................ (16,172,386) (2,656,047)
Redemption fees ........................................ 70,321 17,538
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ......................................... (2,714,650) 33,042,687
---------------- ----------------
Increase (decrease) in net assets ...................... (3,246,454) 36,925,269
Net assets at beginning of period ...................... 36,926,469 1,200
---------------- ----------------
Net assets at end of period (Includes undistributed net ---------------- ----------------
investment income of $14,902 as of May 31, 1998) ..... $ 33,680,015 $ 36,926,469
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 2,597,296 100
---------------- ----------------
Shares sold ............................................ 946,560 2,789,515
Shares issued to shareholders in reinvestment of
distributions ........................................ 22,228 3,199
Shares redeemed ........................................ (1,183,517) (195,518)
---------------- ----------------
Net increase (decrease) in Fund shares ................. (214,729) 2,597,196
---------------- ----------------
Shares outstanding at end of period .................... 2,382,567 2,597,296
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31 - Scudder Choice Series
<PAGE>
Statement of Changes in Net Assets
Scudder Health Care Fund
<TABLE>
<CAPTION>
For the Period
March 2, 1998
Year Ended (commencement of
May 31, operations) to
Increase (Decrease) in Net Assets 1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................... $ (407,909) $ (37,119)
Net realized gain (loss) from investment transactions .. (1,072,161) (23,791)
Net unrealized appreciation (depreciation) on
investment transactions during the period ............ 4,443,657 62,843
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 2,963,587 1,933
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 18,249,598 42,821,776
Cost of shares redeemed ................................ (14,795,571) (1,910,103)
Redemption fees ........................................ 66,290 9,067
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ......................................... 3,520,317 40,920,740
---------------- ----------------
Increase (decrease) in net assets ...................... 6,483,904 40,922,673
Net assets at beginning of period ...................... 40,923,873 1,200
---------------- ----------------
Net assets at end of period ............................ $ 47,407,777 $ 40,923,873
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 3,387,150 100
---------------- ----------------
Shares sold ............................................ 1,439,570 3,543,239
Shares redeemed ........................................ (1,159,654) (156,189)
---------------- ----------------
Net increase (decrease) in Fund shares ................. 279,916 3,387,050
---------------- ----------------
Shares outstanding at end of period .................... 3,667,066 3,387,150
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32 - Scudder Choice Series
<PAGE>
Statement of Changes in Net Assets
Scudder Technology Fund
<TABLE>
<CAPTION>
For the Period
March 2, 1998
Year Ended (commencement of
May 31, operations) to
Increase (Decrease) in Net Assets 1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................... $ (702,801) $ (74,055)
Net realized gain (loss) from investment transactions .. 10,339,195 (1,049,870)
Net unrealized appreciation (depreciation) on
investment transactions during the period ............ 19,936,472 1,002,651
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 29,572,866 (121,274)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 76,951,237 38,714,812
Cost of shares redeemed ................................ (25,003,128) (1,441,830)
Redemption fees ........................................ 162,860 6,436
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ......................................... 52,110,969 37,279,418
---------------- ----------------
Increase (decrease) in net assets ...................... 81,683,835 37,158,144
Net assets at beginning of period ...................... 37,159,344 1,200
---------------- ----------------
Net assets at end of period ............................ $118,843,179 $ 37,159,344
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 3,078,971 100
---------------- ----------------
Shares sold ............................................ 4,653,561 3,194,723
Shares redeemed ........................................ (1,577,568) (115,852)
---------------- ----------------
Net increase (decrease) in Fund shares ................. 3,075,993 3,078,871
---------------- ----------------
Shares outstanding at end of period .................... 6,154,964 3,078,971
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33 - Scudder Choice Series
<PAGE>
Financial Highlights
Scudder Financial Services Fund
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
November 3, 1997
(commencementof
Year Ended operations) to
May 31, 1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
--------------------------------
Net asset value, beginning of period .................................................... $14.22 $12.00
--------------------------------
Income (loss) from investment operations:
Net investment income (loss) ............................................................ .02 .02
Net realized and unrealized gain (loss) on investments .................................. (.01) 2.22
--------------------------------
Total from investment operations ........................................................ .01 2.24
--------------------------------
Less distributions from net investment income ........................................... (.03) (.03)
From net realized gains on investment transactions ...................................... (.09) --
--------------------------------
Total distributions ..................................................................... (.12) (.03)
--------------------------------
Redemption fees ......................................................................... .03 .01
--------------------------------
Net asset value, end of period .......................................................... $14.14 $14.22
--------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ................................................................ 0.30 18.73**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................................. 34 37
Ratio of operating expenses, net, to average daily net assets (%) ....................... 1.50 1.50*
Ratio of operating expenses before expense reductions, to average daily net assets (%) .. 1.83 2.59*
Ratio of net investment income to average daily net assets (%) .......................... .15 .25*
Portfolio turnover rate (%) ............................................................. 23.2 25.0*
</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 to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
34 - Scudder Choice Series
<PAGE>
Financial Highlights
Scudder Health Care Fund
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
March 2, 1998
Year Ended (commencement of
May 31, operations) to
1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period ................................................. $12.08 $12.00
-----------------------------------
Income (loss) from investment operations:
Net investment income (loss) ......................................................... (.11) (.01)
Net realized and unrealized gain (loss) on investments ............................... .94 .09
-----------------------------------
Total from investment operations ..................................................... .83 .08
-----------------------------------
Redemption fees ...................................................................... .02 --***
-----------------------------------
Net asset value, end of period ....................................................... $12.93 $12.08
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................. 7.04 .67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 47 41
Ratio of operating expenses, net, to average daily net assets (%) .................... 1.75 1.75*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ......................................................................... 1.95 3.68*
Ratio of net investment income to average daily net assets (%) ....................... (.88) (.40)*
Portfolio turnover rate (%) .......................................................... 132.8 68.3*
</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 to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
35 - Scudder Choice Series
<PAGE>
Financial Highlights
Scudder Technology Fund
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
March 2, 1998
Year Ended (commencement of
May 31, operations) to
1999 May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period ................................................. $12.07 $12.00
-----------------------------------
Income (loss) from investment operations:
Net investment income (loss) ......................................................... (.17) (.03)
Net realized and unrealized gain (loss) on investments ............................... 7.37 .10
-----------------------------------
Total from investment operations ..................................................... 7.20 .07
-----------------------------------
Redemption fees ...................................................................... .04 --***
-----------------------------------
Net asset value, end of period ....................................................... $19.31 $12.07
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................. 59.90 .58**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 119 37
Ratio of operating expenses, net, to average daily net assets (%) .................... 1.75 1.75*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ......................................................................... 1.86 3.69*
Ratio of net investment income to average daily net assets (%) ....................... (1.11) (.87)*
Portfolio turnover rate (%) .......................................................... 134.9 136.5*
</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 to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
36 - Scudder Choice Series
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Financial Services Fund, Scudder Health Care Fund and Scudder Technology
Fund (the "Funds") is each a non-diversified series of Scudder Securities 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 Funds' 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 each 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 Stock Market, Inc.
("Nasdaq"), 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 Nasdaq 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.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
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. Each 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, is equal to at least the repurchase price.
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 year
ended May 31, 1999, the Scudder Technology Fund wrote call options on securities
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
purchased 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.
37 - Scudder Choice Series
<PAGE>
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 prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Foreign Currency Translations. The books and records of the Funds 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 other liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds do 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 dividends,
interest, and foreign withholding taxes.
Federal Income Taxes. It is each Fund's policy to comply with the requirements
of the Internal Revenue Code of 1986, as amended, which are applicable to
regulated investment companies, and to distribute all of its taxable income to
its shareholders. From November 1, 1998 through May 31, 1999, Scudder Financial
Services Fund incurred approximately $66,000 of net realized capital losses. As
permitted by tax regulations, Scudder Financial Services Fund intends to elect
to defer these losses and treat them as arising in the fiscal year ending May
31, 2000. At May 31, the Scudder Health Care Fund had a net tax basis capital
loss carryfoward of approximately $1,064,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until May 31, 2007, the expiration date. Accordingly, the Funds paid no
federal income taxes and no federal income tax provision was required.
Redemption Fees. In general, shares of each 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
38 - Scudder Choice Series
<PAGE>
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 for
each Fund, 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 applicable 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 during such
period. Accordingly, a Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Each 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 each Fund in connection with their
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. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser") the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.75% for Scudder
Financial Services Fund, 0.85% for Scudder Health Care Fund and 0.85% for
Scudder Technology Fund, based on the applicable Fund's average daily net
assets, computed and accrued daily and payable monthly. In addition, the Adviser
has agreed not to impose all or a portion of each Fund's management fee until
September 30, 1999 in order to maintain the annualized expenses of each of
Scudder Financial Services Fund, Scudder Health Care Fund and Scudder Technology
Fund at no more than 1.50%, 1.75% and 1.75%, respectively, of the average daily
net assets of each Fund. For the year ended May 31, 1999, the Adviser did not
impose a portion of its management fee for Scudder Financial Services Fund,
Scudder Health Care Fund and Scudder Technology Fund, which amounted to
$118,221, $94,054, and $70,757, respectively, and the amount imposed aggregated
$150,126, $299,495, and $469,131, respectively, of which $105,109, $29,500, and
$85,538 is unpaid.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for each Fund. For the
year ended May 31, 1999, SSC imposed its fee for Scudder Financial Services
Fund, Scudder Health Care Fund and Scudder Technology Fund aggregating $183,262,
$303,720, and $402,981, respectively, of which $14,427, $145,156, and $208,103
is unpaid at May 31, 1999.
39 - Scudder Choice Series
<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 each Fund. For the year ended
May 31, 1999, SFAC imposed its fee for Scudder Financial Services Fund, Scudder
Health Care Fund and Scudder Technology Fund, aggregating $37,500, $37,500, and
$39,654, respectively, of which $3,125, $3,125, and $3,517 is unpaid at May 31,
1999.
The Funds pay each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended May 31, 1999 the Trustees' fees and expenses for Scudder Financial
Services Fund, Scudder Health Care Fund and Scudder Technology Fund aggregated
$32,167, $29,956, and $28,091, respectively.
C. Lines of Credit
The Funds and several other Scudder Funds (the "Participants") share in a $850
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of borrowing. The Funds may
borrow up to a maximum of 33 percent of their net assets under the agreement.
40 - Scudder Choice Series
<PAGE>
Report of Independent Accountants
To the Board of Trustees of Scudder Securities Trust and the Shareholders of
Scudder Financial Services Fund, Scudder Health Care Fund, and Scudder
Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Financial Services Fund,
Scudder Health Care Fund, and Scudder Technology Fund (the "Funds") at May 31,
1999, the results of their operations, the changes in their net assets, and
their financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
July 9, 1999
41 - Scudder Choice Series
<PAGE>
Tax Information
For corporate shareholders, 100% of the income dividends paid during the Scudder
Financial Services Fund's fiscal year ended May 31, 1999 qualified for the
dividends received deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Scudder Technology
Fund designates $500,000 as capital gain dividends for its year ended May 31,
1999.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
42 - Scudder Choice Series
<PAGE>
Shareholder Meeting Results
Scudder Financial Services Fund
A Special Meeting of Shareholders (the "Meeting") of Scudder Financial Services
Fund (the "Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,559,792 41,801 65,427 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,409,292 59,223 80,512 117,993
- --------------------------------------------------------------------------------
* 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.
43 - Scudder Choice Series
<PAGE>
Shareholder Meeting Results
Scudder Health Care Fund
A Special Meeting of Shareholders (the "Meeting") of Scudder Health Care Fund
(the "Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
2,020,815 70,775 96,354 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,860,463 101,947 132,863 88,671
- --------------------------------------------------------------------------------
* 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.
44 - Scudder Choice Series
<PAGE>
Shareholder Meeting Results
Scudder Technology Fund
A Special Meeting of Shareholders (the "Meeting") of Scudder Technology Fund
(the "Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,891,453 73,835 86,836 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,773,565 95,298 125,795 57,466
- --------------------------------------------------------------------------------
* 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.
45 - Scudder Choice Series
<PAGE>
This Page
intentionally
left blank.
46 - Scudder Choice Series
<PAGE>
This Page
intentionally
left blank.
47 - Scudder Choice Series
<PAGE>
Officers and Trustees
Daniel Pierce*
Chairman, President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and
Consultant
Sheryle J. Bolton
Trustee; Chief Executive Officer
and Director, Scientific Learning
Corporation
William T. Burgin
Trustee; General Partner,
Bessemer Venture Partners
Keith R. Fox
Trustee; Private Equity Investor
William H. Luers
Trustee; Chairman and President
of the U.N. Association of the
U.S.A.
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Joan E. Spero
Trustee; President, Doris Duke
Charitable Foundation
Thomas J. Devine
Honorary Trustee; Consultant
Wilson Nolen
Honorary Trustee; Consultant
Robert G. Stone, Jr.
Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg*
Honorary Trustee
Peter Chin*
Vice President
J. Brooks Doherty*
Vice President
James M. Eysenbach*
Vice President
James E. Fenger*
Vice President
Philip S. Fortuna*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Thaddeus Paluszek*
Vice President
Kurt R. Stalzer*
Vice President
Peter Taylor*
Vice President
Richard W. Desmond*
Assistant Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
48 - Scudder Choice Series
<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 --
Prime Reserve Shares*
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 GNMA Fund
Scudder Income Fund
Scudder Corporate Bond 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 Select 500 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 Select 1000 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
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
49 - Scudder Choice Series
<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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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
- ------------------------------------------------------------------------------------------------------------------------------
50 - Scudder Choice Series
<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 8,000 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
800 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.
Fund Folio funds held less than six months will be charged a transaction fee. 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.
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>
51 - Scudder Choice Series
<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 $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
