Scudder Investments(SM)
[LOGO]
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SECTOR/SPECIALITY
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Scudder Choice Series:
Scudder Financial
Services Fund
Fund #350
Scudder Health Care
Fund
Fund #352
Scudder Technology
Fund
Fund #351
Semiannual Report
November 30, 1999
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.
A no-load fund with no commissions to buy,
sell, or exchange shares.
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Contents
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4 Letter from the Series' President
Scudder Financial Services Fund
6 Portfolio Management Discussion
10 Performance Update
12 Portfolio Summary
14 Investment Portfolio
Scudder Health Care Fund
16 Portfolio Management Discussion
21 Performance Update
23 Portfolio Summary
25 Investment Portfolio
Scudder Technology Fund
28 Portfolio Management Discussion
33 Performance Update
35 Portfolio Summary
37 Investment Portfolio
40 Financial Statements
45 Financial Highlights
48 Notes to Financial Statements
54 Officers and Trustees
55 Investment Products and Services
57 Scudder Solutions
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Scudder Choice Series
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Scudder Financial Services Fund ticker symbol SCFSX fund number 350
Scudder Heatlh Care Fund ticker symbol SCHLX fund number 352
Scudder Technology Fund ticker symbol SCUTX fund number 351
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Date of o Scudder Financial Services Fund provided a
Inception -- total return of -3.68% for the six months
ended November 30, 1999. Financial stocks
Scudder Financial posted anemic returns for most of the period
Services Fund: due to a difficult interest rate environment
11/3/97 and a litany of company- and
industry-specific difficulties.
Scudder Health
Care Fund: o Scudder Health Care Fund returned 7.97% for
3/2/98 the six-month period ended November 30,
1999. While large-cap pharmaceutical stocks
Scudder Technology were hurt by continued concerns over
Fund: Medicare legislation, management found
3/2/98 attractive opportunities in small caps and
biotech stocks.
o Scudder Technology Fund posted a return of
Total Net Assets as 68.45% for the six months ended November 30,
of 11/30/99 -- 1999. Tech stocks led the market higher
throughout the second half of the year as
Scudder investors focused on the wide variety of
Financial investment opportunities that are arising
Services Fund: from the growth of the Internet.
$27.3 million
Scudder Health
Care Fund:
$47.1 million
Scudder
Technology
Fund:
$316.6 million
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Letter from the Series' President
Dear Shareholders,
Scudder is pleased to present the combined annual report for the Scudder Choice
Series, which includes Scudder Financial Services Fund, Scudder Health Care
Fund, and Scudder Technology Fund. The Choice Series is designed for investors
who wish to gain exposure to specific areas of the stock market. While such
investments tend to have a higher level of risk due to their concentrated
nature, they can also provide significant return potential for investors with
longer term time horizons.
Of the three sectors represented in the Choice Series, technology provided the
strongest performance. In an environment that favored growth stocks, investors
poured assets into companies that stand to take advantage of the explosive
growth of the Internet. The rally has extended beyond the Internet companies
themselves to software, hardware, and chip companies whose business models are
based on the `Net. Despite the strong upward move in the sector, management
continues to find a wealth of individual companies with considerable potential.
Exciting opportunities can also be found in the health care sector, where fund
management has increased its positions in biotechnology, small cap
pharmaceuticals, and medical device companies. Financial stocks provided the
weakest performance of the three sectors, but Congress' repeal of the
Glass-Steagall Act may set the stage for a new round of industry consolidation.
For more information on where the management of the Choice Series funds
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sees opportunities in 2000 and beyond, please turn to the Portfolio Management
Discussions that begin on page 6.
Finally, it should be noted that Daniel Pierce retired in June of this year as
President of Scudder Choice Series, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the Choice Series' team in this capacity, and look
forward to serving your interests.
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-SCUDDER (1-800-728-3337), or visit our Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President, Scudder Choice Series
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Portfolio Management Discussion
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November 30, 1999
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 six-month period ended November 30, 1999.
Q: Financial stocks continued to lag the broader market over the most recent
reporting period. What are some of the factors behind the sector's
underperformance?
A: The primary cause for the weakness in financials was the unfavorable interest
rate environment. As investors became increasingly wary of the potential
inflationary effects of the booming U.S. economy, the yield on the benchmark
30-year Treasury issue rose from 5.83% on May 31 to a high of 6.38% on October
26. The Federal Reserve raised short-term interest rates on three separate
occasions during the period, and investors remained concerned that booming
equity prices and a tight labor market may force the Fed to move again in 2000.
Since financial stocks are particularly sensitive to interest rate sentiment,
the ongoing threat posed by the continued strength of the domestic economy
dampened the sector's performance throughout most of the period.
Several of the subsectors within the financial group also suffered from
industry-specific concerns. Bank stocks were subject to several high-profile
earnings disappointments, with the most notable being those issued by companies
involved in recent mergers, such as First Union and BANK ONE. In the insurance
group, a poor pricing environment continued to take a toll on the property and
casualty sector, while life insurance companies were hurt by slowing asset flows
into variable annuity products. The mortgage funding area also experienced
significant weakness due to narrowing loan spreads.
The news for financial stocks was not all bad, however. In mid-October, Congress
passed a financial services reform bill that effectively repealed the
Glass-Steagall Act. The financial sector subsequently rallied on the expectation
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that a new round of consolidation will result from this important shift in the
regulatory environment. A drop in interest rates added fuel to this rebound, and
many downtrodden issues retraced a large portion of the losses they had incurred
over the previous six months.
Q: How did the fund perform in this environment?
A: Over the six months ended November 30, the fund produced a total return of
- -3.68%, which trailed the -2.11% return of its unmanaged benchmark, the S&P
Financial Index. We believe that the primary cause for the underperformance was
the fact that compared to the Index, we hold relatively smaller positions in the
types of global blue chip names that have performed so well in 1999. While we do
hold a large percentage of assets in companies like American International Group
(AIG) and American Express, we are not able to match the index weightings
without jeopardizing fund diversification. Instead, we focus on the fact that we
beat the -3.81% return of funds in the financial services category, as
calculated by Lipper Analytical Services.
Q: How would you characterize your strategy over the last six months?
A: We remain committed to our research-driven, bottom-up approach. We believe
that over time, companies with attractive brand franchises, identifiable
competitive advantages, favorable growth prospects, and attractive valuations
will outperform the companies that lack these qualities. We employ intensive
fundamental analysis not only to uncover potential buy candidates that fit these
criteria, but also to identify existing holdings whose fundamentals may be in
the early stages of deterioration. This approach is reflected in the portfolio
shifts that we made in the last six months. In the midst of a negative interest
rate environment, we focused on higher conviction names that we felt had a high
probability of meeting or beating their earnings estimates. At the same time, we
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aggressively trimmed stocks where our investment themes were beginning to lose
steam.
This approach has led us to underweight bank stocks, which remain vulnerable to
earnings disappointments as a number of companies exit business lines and/or
reorient their business mixes. While we believe that this process will be a
long-run positive for the sector, it could have a negative impact on revenues in
the near term. We also benefited from an overweight position in consumer finance
stocks, which were helped by the continued strength of the economy. On the down
side, our overweight position in insurance stocks was detrimental to
performance. We remain committed to our position in this sector, however, since
the fundamentals are strong and the potential upside that should accompany an
improvement in the pricing environment would be significant. For this reason, we
added to the fund's holdings in the insurance area over the final six weeks of
the period.
Q: What are some individual companies that you find attractive here?
A: The fund's top performers have generally been its large-cap, blue chip
holdings, and we continue to see some excellent opportunities in this area. For
example, Chase Manhattan Corp. -- the fund's number four holding -- has produced
effective execution in its role as a broad-based financial services provider. In
addition to gaining market share in its debt business, the company has built its
consumer and global service organizations into strong complements to its core
operations. Chase also acquired Hambrecht & Quist, a move that we view as being
a strong step toward filling out its range of offerings. Chase has also
capitalized on opportunities in Europe and the trend toward modernization on a
global basis, which is consistent with its longstanding success in global
operations. The stock has been in a trading range for most of 1999, but we feel
that its strong management and favorable business mix will allow it to overcome
the weakness in the broader banking sector.
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In the insurance area, we continue to like AIG. Its dominant business is
property and casualty insurance, but it also generates significant profits from
life insurance and financial services. The benefit of such broad diversification
is that even when the P&C industry is out of favor, the company has still been
able to post solid earnings growth. AIG is a unique, well-managed company that
we believe is deserving of a premium multiple due to its consistent earnings. We
are also optimistic on the outlook for AFLAC, which, like AIG, has provided
consistent, above-average earnings growth over time. In our view, AFLAC has done
extraordinarily well given that 80% of its revenues come from Japan, which has
suffered from a difficult economic environment for several years. We believe
that the improving backdrop in Japan will provide a boost to earnings going
forward, which in turn should support a higher multiple.
Q: What is your outlook for the financial sector?
A: We remain optimistic on the outlook for the sector. Financials have been
ignored this year as investors have focused on growth stocks at the expense of
value names. Still, there are a number of companies in the sector that are
selling at cheap valuations despite their strong earnings positions. Credit
spreads are tightening, the demand for funds in the corporate sector remains
high, and the pricing environment for insurance companies appears to be on the
verge of improvement. While we believe that investors will continue to focus on
interest rates in the near term, it is only a matter of time before the sector's
strong underlying fundamentals are recognized by the market. It has been a long
time since everything has come together at once for the financial sector, but
the events of October and November -- when sentiment was boosted by falling
interest rates and the financial services legislation -- provides an
illustration of the group's potential upside. Consequently, we intend to
maintain a patient, long-term approach, so that we may be positioned to
capitalize on what we believe is the inevitable revival in financials.
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Performance Update
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November 30, 1999
Scudder Financial Services Fund
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Financial
Services Fund Russell 1000 Index* S&P Financial Index*
11/97** 10000 10000 10000
2/98 11208 10970 11161
5/98 11650 11347 11702
8/98 9398 9850 9385
11/98 11273 12004 11466
2/99 11363 12765 12108
5/99 11686 13468 12677
8/99 10801 13550 11814
11/99 11256 14371 12410
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 11/30/1999 $10,000 Cumulative Annual
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Scudder Financial Services Fund
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1 year $ 9,984 -.16% -.16%
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Life of Fund** $ 11,471 14.71% 6.84%
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S&P Financial Index*
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1 year $ 10,824 8.24% 8.24%
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Life of Fund** $ 12,410 24.10% 11.40%
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Russell 1000 Index*
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1 year $ 12,120 21.20% 21.20%
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Life of Fund** $ 14,744 47.44% 20.59%
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* 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.
** The Fund commenced operations on November 3, 1997. Index comparisons
begin November 30, 1997.
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER FINANCIAL SERVICES FUND TOTAL RETURN (%) AND
S&P FINANCIAL INDEX* TOTAL RETURN (%)
Yearly periods ended November 30
1997** 1998 1999
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Fund Total
Return (%) 1.92 12.73 -.16
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Index Total
Return (%) 3.95 14.66 8.24
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Net Asset
Value ($) 12.23 13.76 13.61
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Income
Dividends -- .03 .03
($)
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Capital
Gains
Distributions
($) -- -- .09
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* 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.
** The Fund commenced operations on November 3, 1997. Index comparisons
begin November 30, 1997.
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.
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Portfolio Summary
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November 30, 1999
Scudder Financial Services Fund
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Management seeks to
remain fully invested in
equities at all times.
Equity Holdings 100%
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100%
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
The fund's weighting in
banks has been reduced,
while its position in
insurance stocks has
increased.
Banks 33%
Insurance 31%
Consumer Finance 21%
Other Financial Companies 12%
Asset Management 2%
Investment Services 1%
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100%
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Ten Largest Equity Holdings
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(59% of Portfolio) Management has increased
its holdings in the
1. American International Group, Inc. stocks in which it has
Major international insurance holding company the highest level of
conviction.
2. Citigroup, Inc.
Diversified financial services company
3. Bank of America Corp.
Bank
4. Chase Manhattan Corp.
Commercial bank
5. Federal National Mortgage Association
Insurer and holder of mortgage loans
6. American Express Co.
Travel and investment services, insurance, banking
7. Northern Trust Corp.
Commercial banking and personal/corporate fiduciary
services
8. Cigna Corp.
Provider of insurance, health care benefits, pension
management and related financial services
9. Wells Fargo Co.
Provider of banking, insurance and consumer finance
10. AMBAC Financial Group, Inc.
Insurer of municipal bonds
For more complete details about the Fund's investment portfolio, see page 14. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
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Investment Portfolio as of November 30, 1999 (Unaudited)
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Shares Value ($)
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Scudder Financial Services Fund
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Common Stocks 100.0%
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Banks 32.8%
Bank of America Corp. ................. 36,934 2,160,637
Chase Manhattan Corp. ................. 24,400 1,884,900
First Tennessee National Corp. ........ 17,500 575,313
FleetBoston Financial Corp. ........... 18,002 680,701
Imperial Bancorp* ..................... 13,392 321,408
North Fork Bancorporation, Inc. ....... 23,300 468,913
Northern Trust Corp. .................. 10,900 1,055,256
US Bancorp ............................ 23,200 793,150
Wells Fargo Co. ....................... 19,200 892,800
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8,833,078
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Insurance 30.5%
AFLAC, Inc. ........................... 12,400 593,650
AMBAC Financial Group, Inc. ........... 16,300 888,350
American International Group, Inc. .... 26,225 2,707,731
Aon Corp. ............................. 8,100 289,069
Cigna Corp. ........................... 8,300 682,675
MBIA, Inc. ............................ 5,800 290,000
Marsh & McLennan Companies, Inc. ...... 3,700 290,913
Nationwide Financial Services, Inc. "A" 23,200 833,750
St. Paul Companies, Inc. .............. 11,100 335,081
Travelers Property Casualty Corp. "A" . 14,900 496,356
XL Capital Ltd. "A" ................... 15,811 806,361
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8,213,936
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Consumer Finance 21.1%
American Express Co. .................. 9,200 1,392,075
Associates First Capital Corp. ........ 25,800 857,850
Citigroup, Inc. ....................... 42,450 2,286,994
Household International, Inc. ......... 19,400 767,513
SLM Holding Corp. ..................... 7,400 366,763
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5,671,195
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Other Financial Companies 12.2%
CIT Group, Inc. ....................... 11,200 232,400
Charter One Financial, Inc. ........... 13,230 286,926
Federal Home Loan Mortgage Corp. ...... 17,000 839,375
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
Shares Value ($)
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<S> <C> <C>
Federal National Mortgage Association ................... 25,500 1,698,938
TD Waterhouse Group, Inc.* .............................. 13,500 237,094
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3,294,733
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Asset Management 2.2%
Federated Investors, Inc. "B" ........................... 33,500 596,719
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Investment Services 1.2%
Lehman Brothers Holdings, Inc. .......................... 4,200 320,773
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Total Common Stocks (Cost $24,141,461) 26,930,434
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Total Investment Portfolio -- 100.0% (Cost $24,141,461) (a) 26,930,434
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</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $24,146,242. At November
30, 1999, net unrealized appreciation for all securities based on tax
cost was $2,784,192. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $4,088,357 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $1,304,165.
During the six months ended November 30, 1999, purchases and sales of
investment securities (excluding short-term investments) aggregated
$3,000,867 and $8,189,386, respectively.
The accompanying notes are an integral part of the financial statements.
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Portfolio Management Discussion
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November 30, 1999
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 six-month
period ended November 30, 1999.
Q: The primary story in the health care sector over the last six months has been
the underperformance of the large-cap pharmaceutical stocks. What was the cause
of the weakness in the group?
A: The issues surrounding the drug stocks are essentially the same as those we
discussed in the last report. Most important, investors remain concerned that
Congress will approve a Medicare drug benefit. The conventional wisdom says that
if such a law were to pass, the government would likely take a more active role
in pharmaceutical pricing. This, in turn, would act as a drag on the earnings of
the companies in this sector. We are not particularly concerned about this issue
from a long-term perspective, but it is likely that the sector's performance
will continue to suffer until a final resolution is reached. We think that the
question of the drug benefit, which has weighed on the sector for the last 6-9
months, will continue to affect performance well into the coming year.
When we last spoke in May, I also cited the strength of the economy as being a
negative for drug stocks. Growth has accelerated since then, and GDP is now
expected to expand at least 4% in 1999. As a result, there has been no need for
investors to seek shelter in sectors -- like the pharmaceuticals -- whose
earnings tend to have a low correlation with the direction of the economy. Money
has flowed out of the group in favor of other sectors, particularly technology.
Most drug stocks continue to produce strong earnings growth, but it will be
difficult for them to mount a sustainable rally until these issues have
dissipated.
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Q: How did you respond to this development?
A: We have increased our weightings in subsectors that offer attractive growth
characteristics and are less exposed to the negative psychology and political
issues facing the large pharmaceutical stocks. These opportunities include the
biotechs, life science discovery and instrumentation companies, specialty
pharmaceuticals, and selected medical device companies. In order to fund these
more attractive alternatives, we gradually trimmed our position in large-cap
domestic drug names from 37% of assets on May 31 to 25.5% at the end of
November. In contrast, we increased our weighting in biotechnology, drug
discovery, and life science instrumentation companies from 8% of net assets on
May 31 to 26% on November 30.
The biotechnology and drug discovery group is a very dynamic subsector that
benefits from strong new product flow and an explosion in new discovery
techniques deployed by the pharmaceutical industry. A number of the more mature
companies have either launched new products that have exceeded expectations or
are in the latter stages of the approval process. We primarily look to invest in
companies with these characteristics, as there is less risk of failure and
significant growth potential over a 12-24 month horizon as the company moves
toward profitability. Conversely, we seek to avoid more speculative companies
that are further away from profitability.
As a subset of our biotech holdings, the life science instrumentation companies
represent another profitable area for investment. The pharmaceutical and biotech
companies, along with academia, are spending an increasing amount on life
science research. New discovery techniques, such as genomics, will generate an
explosion in the numbers of potential targets that can be analyzed and screened
for new drugs and therapeutic proteins. This process requires specialized
equipment and reagents. We are anticipating 15% annual growth in the R&D budgets
of the pharma/biotech firms over the next few years as the pressure to produce a
greater number of blockbuster drugs intensifies. We now own several names in
this area,
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including PE Corp-PE Biosystems, a leader in DNA sequencing and
analysis, and Affymetrix, a developer of chip-based genes that can be used for
both research and diagnostic purposes.
Similar to the biotechs, the specialty pharmaceutical subsector also provides a
wealth of companies that are exploiting niche opportunities. Many of the
companies benefit from drug delivery technologies and generic opportunities that
will become increasingly important as the larger companies face major patent
expirations early in the next decade. Valuation parameters among many of the
specialty companies are also quite compelling. We now hold 12% in this sector,
up from 8% on May 31.
Q: What were some other interesting companies that you have found in these
sectors?
A: In the biotech sector, one of our favorite companies is QLT
PhotoTherapeutics, which has developed a therapy for the excessive growth of
blood vessels in the retina, a condition known as macular degeneration. This
condition, which is a leading cause of eyesight loss in older people, has no
current treatment. QLT has devised a non-invasive treatment that involves the
injection of a light-sensitive drug into the bloodstream in combination with
laser therapy. The drug has received a unanimous positive review by the FDA, and
is likely to be on the market in early 2000.
We are also enthusiastic about Genentech, a leading biotech company that stands
to benefit from the development of numerous new therapeutic proteins. We feel
that its most interesting opportunities are in the oncology area, where it has
launched a targeted antibody with minimal toxicity for non-Hodgkin's lymphoma.
Previously, the only treatment for this condition was chemotherapy, which is
modestly beneficial and is highly toxic to healthy cells as well as to cancer
cells. Another targeted antibody for use in breast cancer treatment disrupts a
genetic pathway that is related to tumor growth in approximately one-third of
breast cancer patients. A
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third Genentech product that just moved into the final stage of development is
one that treats cancer by blocking blood vessel growth and starving the tumor of
nourishment. Based on the underlying sales trends of Genentech's oncology
franchise, along with other new opportunities in cardiovascular and respiratory
medicine, we believe that the stock has significant upside from its current
levels.
In the life science instrumentation and reagent group, we find PE Corp-PE
Biosystems to be particularly compelling. PE Corp-PE Biosystems has developed
gene-sequencing equipment that is currently being used to explore and analyze
the human genome. We view the company as a lower-risk way of participating in
the growth of genomics, since it supplies all the major players in the drug
discovery field without taking any specific product development risk. We also
like Waters, a leading manufacturer of instruments and reagents used by
pharmaceutical and biotech companies to identify new drugs and proteins and
ensure the purity and potency of existing drugs. The stock has come down from
its highs in recent months, which in our view represents an opportunity since
its fundamental growth story remains intact.
Q: How did the fund perform over the period?
A: For the six months ended November 30, Scudder Health Care Fund returned
7.97%, which beat the 7.39% return of the S&P 500. We attribute the fund's
outperformance to strong individual stock selection and our decision to move
into high-growth areas -- such as drug discovery companies and biotechs -- at
the expense of large-cap pharmaceuticals.
Q: What is your outlook for the health care sector?
A: The long-term themes that we have been talking about since the fund's
inception remain in place, and in our view will be the drivers of the strong
long-term growth we expect from the sector. Demographic trends, industry
consolidation, cooperation among companies in new
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product development, and the explosive growth of genomics should all provide a
fundamental underpinning for the health care sector. We believe that our
positioning in high-growth areas such as biotech will allow the fund to
capitalize on these trends going forward. For this reason, we encourage
investors to remain focused on the long term during the times when health care
stocks are underperforming the broader market.
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Performance Update
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November 30, 1999
Scudder Health Care Fund
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Health
Care Fund S&P 500 Index* Russell 2000 Index*
3/98** 10000 10000 10000
5/98 9734 9927 9513
8/98 8380 8744 7059
11/98 10145 10670 8338
2/99 10749 11390 8245
5/99 10419 12014 9257
8/99 11031 12225 9062
11/99 11249 12902 9644
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 11/30/1999 $10,000 Cumulative Annual
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Scudder Health Care Fund
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1 year $ 11,088 10.88% 10.88%
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Life of Fund** $ 11,633 16.33% 9.04%
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S&P 500 Index*
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1 year $ 12,092 20.92% 20.92%
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Life of Fund** $ 12,902 29.02% 16.50%
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Russell 2000 Index*
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1 year $ 11,566 15.66% 15.66%
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Life of Fund** $ 9,644 -3.56% -2.15%
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* The Standard & Poor's 500 (S&P) 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.
** The Fund commenced operations on March 2, 1998. Index comparisons begin
March 31, 1998.
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- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER HEALTH CARE FUND TOTAL RETURN (%) AND
S&P 500 INDEX* TOTAL RETURN (%)
Yearly periods ended November 30
1998** 1999
- --------------------------------------------------------------------------------
Fund Total
Return (%) 4.92 10.88
- --------------------------------------------------------------------------------
Index Total
Return (%) 12.33 20.92
- --------------------------------------------------------------------------------
Net Asset
Value ($) 12.59 13.95
- --------------------------------------------------------------------------------
Income
Dividends
($) -- --
- --------------------------------------------------------------------------------
Capital
Gains
Distributions
($) -- --
- --------------------------------------------------------------------------------
* The Standard & Poor's (S&P) 500 Index is a capitalization-weighted index of
500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on March 2, 1998. Index comparisons begin March
31, 1998.
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.
22
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
November 30, 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.
Management seeks to
remain fully invested in
equities at all times.
Equity Holdings 100%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
The fund's weighting in
biotechnology has
increased from 8% of
market value on May 31.
Pharmaceuticals:
U.S. Major Pharmaceuticals 27%
Speciality Pharmaceuticals 12%
International Pharmaceuticals 8%
Biotechnology 26%
Medical Supply & Speciality 12%
Health Industry Services 10%
Diversified Manufacturing 3%
Hospital Management 2%
- ------------------------------------
100%
- ------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(37% of Portfolio) The presence of Alpharma
and Shire
1. Warner-Lambert Co. Pharmaceuticals in the
Drugs, toiletries and food products top ten holdings
reflects management's
2. Johnson & Johnson increased focus on
Health care products specialty
pharmaceuticals.
3. Cardinal Health, Inc.
Distributor of pharmaceutical-related products and services
4. Baxter International Inc.
Manufacturer and distributor of hospital and
laboratory products and services
5. American Home Products Corp.
Diversified pharmaceutical company
6. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer products
company
7. Amgen Inc.
Biotech developer of pharmaceuticals
8. Shire Pharmaceuticals Group plc
Specializes in marketing, licensing and
developing prescription medicines
9. Alpharma Inc.
Manufacturer and marketer of human pharmaceutical and
animal health products
10. Merck & Co., Inc.
Drug manufacturer
For more complete details about the Fund's investment portfolio, see page 25. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
24
<PAGE>
Investment Portfolio as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Scudder Health Care Fund
- --------------------------------------------------------------------------------
Common Stocks 99.9%
- --------------------------------------------------------------------------------
Biotechnology 26.2%
Affymetrix, Inc.* ............... 2,800 274,400
Alexion Pharmaceuticals, Inc.* .. 37,400 652,163
Alkermes, Inc.* ................. 8,200 348,500
Amgen Inc.* ..................... 32,800 1,494,450
Biogen, Inc.* ................... 14,200 1,037,488
Enzon, Inc.* .................... 20,300 685,125
Genentech, Inc.* ................ 15,400 1,322,475
IDEC Pharmaceuticals Corp.* ..... 2,100 266,175
Immunex Corp.* .................. 5,000 354,375
MedImmune, Inc.* ................ 11,700 1,406,194
Millennium Pharmaceuticals, Inc.* 4,200 408,844
PE Corp-PE Biosystems Group ..... 13,400 1,093,775
QLT PhotoTherapeutics Inc.* ..... 27,500 1,231,678
Transkaryotic Therapies, Inc.* .. 8,400 385,875
Triangle Pharmaceuticals, Inc.* . 9,300 182,513
Waters Corp.* ................... 21,400 1,048,600
-----------
12,192,630
-----------
Health Industry Services 10.4%
Cardinal Health, Inc. ........... 36,400 1,904,169
Cigna Corp. ..................... 8,300 682,675
IMS Health Inc. ................. 24,100 567,856
Medical Manager Corp.* .......... 12,300 744,919
United Healthcare Corp. ......... 9,100 472,631
Wellpoint Health Networks Inc.* . 7,900 454,744
-----------
4,826,994
-----------
Hospital Management 2.3%
Columbia/HCA Healthcare Corp. ... 39,700 1,081,825
-----------
Medical Supply & Specialty 11.8%
Baxter International Inc. ....... 28,800 1,945,800
C.R. Bard, Inc. ................. 4,200 228,113
Medtronic Inc. .................. 33,240 1,292,205
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Stryker Corp. ....................... 9,500 540,906
Synthes-Stratec Inc.* ............... 668 260,675
VISX Inc.* .......................... 15,600 1,209,975
-----------
5,477,674
-----------
Pharmaceuticals 46.5%
Allergan, Inc. ...................... 14,100 1,387,088
Alpharma Inc. ....................... 44,600 1,427,200
American Home Products Corp. ........ 36,500 1,898,000
Atlanta AG .......................... 5,900 424,820
Bristol-Myers Squibb Co. ............ 20,800 1,519,700
Celgene Corp.* ...................... 2,600 156,000
Chugai Pharmaceutical Co., Ltd. ..... 18,000 196,193
Eli Lilly & Co. ..................... 7,700 552,475
Forest Laboratories, Inc.* .......... 22,900 1,172,194
Fujisawa Pharmaceutical Co. ......... 12,000 324,340
Glaxo Wellcome plc (ADR) ............ 12,900 766,744
Johnson & Johnson ................... 19,900 2,064,625
King Pharmaceuticals, Inc.* ......... 6,300 290,588
Merck & Co., Inc. ................... 18,100 1,420,850
Pfizer, Inc. ........................ 11,700 423,394
Pharmacia & Upjohn, Inc. ............ 15,600 853,125
Rhone-Poulenc S.A. "A" (ADR) ........ 10,600 652,563
Roche Holding AG .................... 3,300 398,475
Schering-Plough Corp. ............... 19,300 986,713
Shire Pharmaceuticals Group plc* .... 48,400 1,485,275
SmithKline Beecham plc (ADR) ........ 4,900 325,850
SSL International plc ............... 17,000 171,064
Takeda Chemical Industries, Ltd. .... 3,000 177,180
Warner-Lambert Co. .................. 23,700 2,125,594
Yamanouchi Pharmaceutical Co., Ltd. . 10,000 436,574
-----------
21,636,624
-----------
Diversified Manufacturing 2.7%
Tyco International Ltd. ............. 31,200 1,249,950
-----------
Total Common Stocks (Cost $38,167,909) 46,465,697
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Purchased Options 0.1%
- ------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous
VISX, Inc., strike price 75, expires 12/18/1999,
(Cost $54,490) ........................................ 80 40,000
Total Investment Portfolio -- 100.0% (Cost $38,222,399) (a) 46,505,697
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $38,252,755. At November
30, 1999, net unrealized appreciation for all securities based on tax
cost was $8,252,942. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $9,307,602 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $1,054,660.
During the six months ended November 30, 1999, purchases and sales of
investment securities (excluding short-term investments) aggregated
$22,615,261 and $26,563,828, respectively.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
November 30, 1999
Scudder Technology Fund
In the following interview, lead portfolio manager Brooks Dougherty discusses
Scudder Technology Fund's strategy and the market environment in the six-month
period ended November 30, 1999.
Q: In the past six months, we have witnessed an explosive rally in technology
shares. What have been the driving forces behind this rally?
A: The rally in techs has been sparked by two key elements: improving
fundamentals and wildly positive investor psychology. The growth of the Internet
has helped boost the earnings of a wide range of companies in
telecommunications, semiconductors, software, and hardware. As company after
company has blown away their earnings estimates, their p/e multiples have risen
in kind. This, in turn, has fueled a massive inflow of liquidity into the sector
from both individual and institutional investors, perpetuating the virtuous
cycle.
The market's preference for technology stocks is illustrated by the recent
performance of the tech-heavy Nasdaq average. After closing at 2,688 on October
19, the index rose to 3,336 by November 30, putting its year-to-date advance at
almost 53%. In contrast, the year-to-date return for the Dow Jones Industrial
Average was 20% on November 30. Tech stocks continued to rally after the close
of the reporting period, bringing the Nasdaq within range of 4,000 by year-end.
Unlike previous run-ups, this most recent rally was not just confined to
high-profile large caps like Microsoft and Cisco Systems. While many of the
largest tech companies provided strong performance, most actually trailed the
sector's average because so many small caps produced triple-digit returns. A
number of IPOs also made headlines with enormous first-day gains, typifying the
excitement that captured the period.
28
<PAGE>
Q: How has the fund performed in this environment?
A: The fund produced a total return of 68.45% for the six-month period ended
November 30, 1999, and 139.75% for the one-year period ended on the same date.
In contrast, the fund's unmanaged benchmark -- the Russell 2000 Technology Index
- -- rose 52.47% and 79.77%, respectively, over the same periods. The fund also
performed well with respect to its peer group. According to Lipper Analytical
Services, the fund finished in the top 18th percentile of technology funds over
the six months ended November 30, and in the top 20th percentile over the
twelve-month period.^1 We believe that these performance numbers reflect the
value of a research- intensive investment process. We held positions in a number
of stocks that benefited from upward earnings revisions, as well as many that
blew away their earnings estimates. This doesn't happen by accident -- strong
stock selection is the result of on-the-ground research and the many hours we
spend interviewing buyers, suppliers, and others with their fingers on the pulse
of the industry.
Q: How has the runup in tech stocks affected the various subsectors that you
follow?
A: The strongest performing group was networking and communications, which rose
46% over the six months. The Internet group was up 37%, followed by software
(36%) and semiconductors (31%). Hardware and IT services both rose, but trailed
the tech sector as a whole. In general, the companies most closely linked to the
growth of the Internet provided the best performance. Take the software group,
for instance, where many companies that are taking advantage of the `Net as a
sales channel posted enormous gains in the latter half of `99. Electronic Arts,
which announced a tie-up with America Online to provide
^1 Source: Lipper Analytical Services, Inc. Lipper Analytical Services, Inc., is
an independent analyst of investment performance. Performance includes
reinvestment of dividends and capital gains. For the period ended November 30,
1999, Scudder Technology Fund's Lipper ranking was 19 out of 106 funds for the
six-month period, and 18 out of 91 funds for the one-year period.
29
<PAGE>
electronic gaming over the Internet, rose over 60%. Intuit, which is moving its
business to the `Net, was up over 100%, as was VERITAS, which sells storage
management software. Other small- to mid-caps that performed well for us in the
software group were BEA Systems (which makes application and integration
software for e-commerce), Mercury Interactive (web site testing tools), Check
Point Software (firewalls), VeriSign (security mechanisms), and Ariba
(Internet-based business-to-business purchasing exchange).
The networking area has also produced a number of big winners for the fund,
particularly in the small-cap area. Our top holding in this group was QUALCOMM,
which started the year as a small cap but grew into a mega-cap by year-end. We
also benefited from the gains in three stocks that were direct beneficiaries of
the Internet frenzy -- Broadcom Communications Systems, which provides broadband
access, JDS Uniphase, a producer of optical networking equipment, and Juniper
Networks, which provides high-end routers. Our participation in Juniper's IPO
allowed us to ride the stock from its offering price of $34 to its November 30
close of $277 1/8.
Q: Semiconductor stocks also posted excellent performance. How was the fund
positioned in that group?
A: We began increasing our position in semis over a year ago on the belief that
the combination of decreased production capacity and continued strong demand for
personal computers would spark a cyclical upswing in the sector. Our holdings in
this group have performed extremely well this year, and we continued to hold 12%
of net assets in chipmakers at the end of the period. We have benefited from the
strong performance of higher profile names such as Intel, Micron Technology, and
Xilinx, but small caps provided the best performance within the semiconductor
group. For example, we own shares of QLogic, a leading supplier of fiber channel
technology that facilitates high speed connections between host computer systems
and their storage subsystems. The company has a
30
<PAGE>
strong market position and a one- to two-year lead in producing a technology
that is expected to grow at a breakneck pace between now and 2002. Over the
six-month reporting period, the stock gained 78%. We also held Cree Research (up
94%), a leader in silicon carbide chips and LED chip products.
Q: Is there a common thread among the various stocks that have done so well for
the fund?
A: Yes. As we've said in the past, we look to invest in companies that are
poised to exceed their earnings expectations. In technology investing, finding
the stocks that will beat their numbers or benefit from upward revisions is the
name of the game. What's lost amid all the talk surrounding the valuation levels
of tech stocks is the fact that most of the top performers have superior
fundamentals, and the sector as a whole is producing incredible earnings growth.
As we've seen over the past year, valuations are of significantly lesser
importance than the direction of fundamentals -- even richly valued stocks will
continue to move higher if they consistently beat their earnings estimates. We
believe companies that develop profitable niches by producing disruptive
technologies that cannot be easily imitated -- such as QUALCOMM, QLogic, and
Juniper Networks -- will be in the best position to increase their earnings over
time.
Q: What is your outlook for tech stocks?
A: We expect increased volatility in the year 2000. Investors have been somewhat
spoiled by the one-way market of the past few months, but we think that tech
stocks are growing increasingly vulnerable to negative surprises and/or profit
taking at these levels. That said, we remain bullish on the sector's
fundamentals. The upswing in the semiconductor cycle should continue, providing
a continued underpinning for stocks in that group. We also see no letup in the
growth of the communications and networking group as the buildout of the
Internet infrastructure continues. In the software sector, there will
31
<PAGE>
likely be a broader-based recovery as traditional companies end their Y2K
spending lockdowns and are free to devote their resources to new software
implementation. In addition, we see continued opportunities arising in software
companies that are configuring their businesses to profit from e-commerce. We
are less enthusiastic on the hardware group, which may suffer as the excessive
corporate spending that preceded Y2K begins to slow. The Internet sector is
harder to gauge because so much of the sector's movement is caused by shifts in
investor psychology. We think that the market's patience for money-losing
companies will wane as investors begin to insist that companies deliver a
business plan that will result in longer-term profitability. Nevertheless, we
continue to believe that the dominant companies with the most disruptive
business models -- Yahoo!, Amazon, and eBay being our favorites -- will continue
to outperform on a long-term basis.
In closing, I'd like to remind investors that the last six months have been an
unusual period for the tech sector, and one that is not likely to be repeated
right away. We encourage our shareholders to be prepared for volatility in the
year ahead, and to remain focused on earnings growth and fundamentals even in
periods when tech stocks are not the top performing sector in the market.
32
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
November 30, 1999
Scudder Technology Fund
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Russell 2000
Scudder Technology Fund Russell 2000 Index* Technology Index*
3/98 10000 10000 10000
5/98 10058 9513 9295
8/98 8567 7059 6634
11/98 11300 8338 9161
2/99 13892 8245 9513
5/99 16083 9257 10801
8/99 20108 9062 12118
11/99 27092 9644 16468
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 11/30/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Technology Fund
- --------------------------------------------------------------------------------
1 year $ 23,975 139.75% 139.75%
- --------------------------------------------------------------------------------
Life of Fund** $ 27,092 170.92% 76.86%
- --------------------------------------------------------------------------------
Russell 2000 Technology Index*
- --------------------------------------------------------------------------------
1 year $ 17,977 79.77% 79.77%
- --------------------------------------------------------------------------------
Life of Fund** $ 16,468 64.68% 34.89%
- --------------------------------------------------------------------------------
Russell 2000 Index*
- --------------------------------------------------------------------------------
1 year $ 10,417 4.17% 4.17%
- --------------------------------------------------------------------------------
Life of Fund** $ 9,644 -3.56% -2.15%
- --------------------------------------------------------------------------------
* 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.
** The Fund commenced operations on March 2, 1998. Index comparisons begin
March 31, 1998.
33
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER TECHNOLOGY FUND TOTAL RETURN (%) AND
RUSSELL 2000 TECHNOLOGY INDEX* TOTAL RETURN (%)
Yearly periods ended November 30
1998** 1999
- --------------------------------------------------------------------------------
Fund Total
Return (%) 13.00 139.75
- --------------------------------------------------------------------------------
Index Total
Return (%) -8.39 79.77
- --------------------------------------------------------------------------------
Net Asset
Value ($) 13.56 32.51
- --------------------------------------------------------------------------------
Income
Dividends
($) -- --
- --------------------------------------------------------------------------------
Capital
Gains
Distributions
($) -- --
- --------------------------------------------------------------------------------
* 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.
** The Fund commenced operations on March 2, 1998. Index comparisons begin
March 31, 1998.
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.
34
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
November 30, 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.
The fund maintained a
modest cash position
Equity Holdings 92% during the period.
Cash Equivalents 8%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
(Excludes 8% Cash Equivalents) In the past six months,
management has increased
Computer Software 23% the portfolio's position
Semiconductors 13% in software and trimmed
Miscellaneous Consumer its position in
Services 8% semiconductors.
Electronic Components/
Distributors 8%
Diverse Electronic Products 8%
EDP Peripherals 7%
Telephone/Communications 6%
Electronic Data Processing 5%
EDP Services 4%
Other 18%
- ------------------------------------
100%
- ------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(34% of Portfolio) QUALCOMM's 2621% gain
made it the the
top-performing stock in
the U.S. market in 1999.
1. JDS Uniphase Corp.
Designer, developer, manufacturer, and distributor of
products for the fiberoptic communications market
2. America Online Inc.
Provider of online computer services
3. Cisco Systems, Inc.
Manufacturer of computer network products
4. Microsoft Corp.
Developer of computer software
5. QUALCOMM Inc.
Developer and manufacturer of communication systems
6. eBay, Inc.
Person-to-person trading community on the Internet
7. Applied Materials, Inc.
Producer of reactors used to manufacture thin film
8. Xilinx, Inc.
Supplier of semiconductors
9. Intel Corp.
Producer of semiconductor memory circuits
10. Sun Microsystems, Inc.
Manufacturer of high-performance workstations, servers
and networking software
For more complete details about the Fund's investment portfolio, see page 37. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
36
<PAGE>
Investment Portfolio as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------
Scudder Technology Fund
- --------------------------------------------------------------------------------
Commercial Paper 8.3%
- --------------------------------------------------------------------------------
Federal Home Loan Bank, 5.57%**, 12/1/1999
(Cost $26,243,000) ............................. 26,243,000 26,243,000
Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 91.7%
- --------------------------------------------------------------------------------
Specialty Retail 2.0%
Amazon.com, Inc.* ................................. 44,000 3,742,750
Priceline.com, Inc.* .............................. 45,000 2,790,000
-----------
6,532,750
-----------
Medical Supply & Specialty 1.5%
VISX Inc.* ........................................ 61,000 4,731,313
-----------
Cellular Telephone 0.9%
Nokia Oy "A" (ADR) ................................ 20,000 2,763,750
-----------
Telephone/Communications 5.1%
JDS Uniphase Corp.* ............................... 71,500 16,355,625
-----------
Advertising 0.7%
DoubleClick, Inc.* ................................ 14,400 2,304,900
-----------
EDP Services 4.2%
Electronic Data Systems Corp. ..................... 81,000 5,209,313
Sapient Corp.* .................................... 66,000 5,115,000
VeriSign, Inc.* ................................... 15,500 2,880,094
-----------
13,204,407
-----------
Miscellaneous Commercial Services 1.5%
Whittman-Hart, Inc.* .............................. 78,600 4,828,988
-----------
Miscellaneous Consumer Services 7.7%
Akamai Technologies, Inc.* ........................ 28,000 6,636,000
Infospace.com, Inc.* .............................. 35,000 3,559,063
Yahoo! Inc.* ...................................... 22,000 4,680,500
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Shares Value ($)
- ----------------------------------------------------------------
eBay, Inc.* ........................... 58,000 9,573,625
-----------
24,449,188
-----------
Telecommunications Equipment 3.8%
Lucent Technologies, Inc. ............. 97,000 7,087,063
Tellabs, Inc.* ........................ 75,000 4,865,625
-----------
11,952,688
-----------
Electrical Products 1.2%
Power Integrations, Inc.* ............. 96,000 3,828,000
-----------
Industrial Specialty 3.1%
QUALCOMM Inc.* ........................ 27,500 9,963,594
Computer Software 21.0%
America Online Inc.* .................. 200,000 14,537,500
BEA Systems, Inc.* .................... 40,000 3,250,000
Brocade Communications Systems, Inc.* . 11,000 3,189,313
Check Point Software Technologies Ltd.* 28,000 3,965,500
Electronic Arts Inc.* ................. 16,500 1,730,438
I2 Technologies Inc.* ................. 25,000 2,125,000
Intuit Inc.* .......................... 135,000 6,750,000
Metasolv Software, Inc.* .............. 70,900 4,373,644
Microsoft Corp.* ...................... 135,000 12,291,321
Oracle Systems Corp.* ................. 70,000 4,746,875
SAP AG (Sponsored ADR) ................ 50,000 1,678,125
Sycamore Networks, Inc.* .............. 25,000 5,550,000
Vignette Corp.* ....................... 12,500 2,600,000
-----------
66,787,716
-----------
Diverse Electronic Products 7.2%
Applied Materials, Inc.* .............. 85,000 8,282,188
Dell Computer Corp.* .................. 65,000 2,795,000
KLA Tencor Corp.* ..................... 15,500 1,310,719
Motorola, Inc. ........................ 64,500 7,369,125
Teradyne, Inc.* ....................... 74,000 3,223,625
-----------
22,980,657
-----------
EDP Peripherals 6.2%
Ariba, Inc.* .......................... 20,000 3,611,250
EMC Corp.* ............................ 40,000 3,342,500
Mercury Interactive Corp.* ............ 32,000 2,660,000
Network Appliance, Inc.* .............. 51,500 6,060,906
VERITAS Software Corp.* ............... 45,000 4,120,313
-----------
19,794,969
-----------
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Components/Distributors 7.6%
Broadcom Corp.* .......................................... 25,000 4,476,563
Cisco Systems, Inc.* ..................................... 154,000 13,734,875
Juniper Networks, Inc.* .................................. 13,500 3,741,188
Samsung Electronics Co. .................................. 11,000 2,277,334
-----------
24,229,960
-----------
Electronic Data Processing 4.4%
Apple Computer, Inc.* .................................... 63,500 6,215,063
Sun Microsystems, Inc.* .................................. 58,000 7,670,500
-----------
13,885,563
-----------
Office/Plant Automation 1.5%
Cabletron Systems Inc.* .................................. 110,000 2,523,125
Novell Inc.* ............................................. 107,000 2,093,188
-----------
4,616,313
-----------
Semiconductors 12.1%
Cree Research, Inc.* ..................................... 27,000 1,542,375
Intel Corp. .............................................. 102,500 7,860,469
Linear Technology Corp. .................................. 30,500 2,167,406
Micron Technology Inc.* .................................. 66,000 4,430,250
QLogic Corp.* ............................................ 37,000 4,185,625
Taiwan Semiconductor Manufacturing Co.* .................. 1,039,900 4,875,301
Vitesse Semiconductor Corp.* ............................. 118,000 5,317,375
Xilinx, Inc.* ............................................ 89,500 8,010,250
-----------
38,389,051
-----------
- ---------------------------------------------------------------------------------------
Total Common Stocks (Cost $174,059,762) 291,599,432
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $200,302,762) (a) 317,842,432
- ---------------------------------------------------------------------------------------
</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 $200,524,196. At November
30, 1999, net unrealized appreciation for all securities based on tax
cost was $117,318,236. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $117,855,397 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $537,161.
During the six months ended November 30, 1999, purchases and sales of
investment securities (excluding short-term investments) aggregated
$138,763,264 and $63,789,328, respectively.
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
Financial Scudder Health Scudder
Assets Services Fund Care Fund Technology Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, in securities, at
value (cost, see accompanying
investment portfolios) ....... $ 26,930,434 $ 46,505,697 $ 317,842,432
Cash ............................ -- 27,447 2,821
Foreign currency, at value ...... -- 200 127,879
Receivable for investments sold . 668,927 1,094,491 --
Receivable for Fund shares sold . 54,150 28,455 1,928,497
Dividends receivable ............ 16,698 31,819 13,940
Foreign taxes recoverable ....... -- 6,065 --
Deferred organization expenses .. 5,847 8,408 3,048
Other assets .................... 932 225 220
------------ ------------ -------------
Total assets .................... 27,676,988 47,702,807 319,918,837
Liabilities
- ------------------------------------------------------------------------------------
Due to custodian bank ........... 29,212 -- --
Payable for investments purchased -- 262,538 1,932,975
Payable for Fund shares redeemed 38,158 95,937 687,490
Accrued management fee .......... 4,226 26,830 243,171
Other payables and accrued
expenses ..................... 275,033 241,141 419,504
------------ ------------ -------------
Total liabilities ............... 346,629 626,446 3,283,140
Net assets, at value $ 27,330,359 $ 47,076,361 $ 316,635,697
Net Assets
- ------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment
income (loss) ................ 21,773 (243,125) (983,440)
Net unrealized appreciation
(depreciation) on:
Investment securities ......... 2,788,973 8,283,298 117,539,670
Foreign currency related
transactions .................. -- 49 2,563
Accumulated net realized gain
(loss) ....................... (675,249) (984,602) 17,122,965
Paid-in capital ................. 25,194,862 40,020,741 182,953,939
Net assets, at value $ 27,330,359 $ 47,076,361 $ 316,635,697
Net Asset Value
- ------------------------------------------------------------------------------------
Net Asset Value, offering and
redemption price per share $13.61 $13.95 $32.51
(outstanding shares of
beneficial interest, $.01 par
value, unlimited number of
shares authorized) ........... 2,007,809 3,373,907 9,738,567
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
Financial Scudder Health Scudder
Investment Income Services Fund Care Fund Technology Fund
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends ............................. $ 233,929 $ 157,495 $ 60,185
Interest .............................. 11,330 18,269 302,203
----------- ------------ -------------
245,259 175,764 362,388
Less foreign taxes withheld ........... -- (2,717) (8,949)
----------- ------------ -------------
Total income .......................... 245,259 173,047 353,439
----------- ------------ -------------
Expenses:
Management fee ........................ 111,766 202,034 800,489
Services to shareholders .............. 80,233 170,184 389,080
Custodian and accounting fees ......... 29,379 24,000 46,390
Trustees' fees and expenses ........... 23,145 17,202 24,298
Auditing .............................. 9,255 10,065 13,392
Registration fees ..................... 9,470 6,559 31,067
Reports to shareholders ............... 3,934 13,496 25,796
Legal ................................. 9,849 4,758 4,784
Amortization of organization
expense ............................ 1,086 1,332 2,805
Other ................................. 13 7,224 2,158
----------- ------------ -------------
Total expenses, before expense
reductions ......................... 278,130 456,854 1,340,259
Expense reductions .................... (54,644) (40,682) (3,389)
----------- ------------ -------------
Total expenses, after expense
reductions ......................... 223,486 416,172 1,336,870
Net investment income (loss) 21,773 (243,125) (983,431)
Realized and unrealized gain (loss)
on investment transactions
- --------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................... (604,705) 118,696 7,798,057
Foreign currency related
transactions ....................... -- (9,437) 20,188
----------- ------------ -------------
(604,705) 109,259 7,818,245
----------- ------------ -------------
Net unrealized appreciation
(depreciation) during the period on:
Investments ........................... (662,958) 3,776,635 96,600,353
Foreign currency related
transactions ....................... -- 212 2,757
----------- ------------ -------------
(662,958) 3,776,847 96,603,110
Net gain (loss) on investment
transactions (1,267,663) 3,886,106 104,421,355
Net increase (decrease) in net
assets resulting from operations $(1,245,890) $ 3,642,981 $ 103,437,924
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Financial Services Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended November
30, 1999 Year Ended May
Increase (Decrease) in Net Assets (Unaudited) 31, 1999
- ---------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .................... $ 21,773 $ 55,020
Net realized gain (loss) ........................ (604,705) 25,899
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (662,958) (289,920)
------------ ------------
Net increase (decrease) in net assets resulting
from operations .............................. (1,245,890) (209,001)
------------ ------------
Distributions to shareholders:
From net investment income ...................... -- (80,908)
From net realized gains ......................... -- (241,895)
------------ ------------
Fund share transactions:
Proceeds from shares sold ....................... 3,656,835 13,081,109
Reinvestment of distributions ................... -- 306,306
Cost of shares redeemed ......................... (8,777,783) (16,172,386)
Redemption fees ................................. 17,182 70,321
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions ........................... (5,103,766) (2,714,650)
------------ ------------
Increase (decrease) in net assets ............... (6,349,656) (3,246,454)
Net assets at beginning of period ............... 33,680,015 36,926,469
Net assets at end of period (including
undistributed net investment income of $21,773
at November 30, 1999) ........................ $ 27,330,359 $ 33,680,015
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ....... 2,382,567 2,597,296
------------ ------------
Shares sold ..................................... 267,269 946,560
Shares issued to shareholders in reinvestment of
distributions ................................ -- 22,228
Shares redeemed ................................. (642,027) (1,183,517)
------------ ------------
Net increase (decrease) in Fund shares .......... (374,758) (214,729)
Shares outstanding at end of period ............. 2,007,809 2,382,567
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Health Care Fund
- --------------------------------------------------------------------------------
Six Months
Ended November
30, 1999 Year Ended May
Increase (Decrease) in Net Assets (Unaudited) 31, 1999
- --------------------------------------------------------------------------------
Operations:
Net investment income (loss) ................... $ (243,125) $ (407,909)
Net realized gain (loss) ....................... 109,259 (1,072,161)
Net unrealized appreciation (depreciation) on
investment transactions during the period ... 3,776,847 4,443,657
------------ ------------
Net increase (decrease) in net assets resulting
from operations ............................. 3,642,981 2,963,587
------------ ------------
Fund share transactions:
Proceeds from shares sold ...................... 5,361,625 18,249,598
Cost of shares redeemed ........................ (9,348,033) (14,795,571)
Redemption fees ................................ 12,011 66,290
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions .......................... (3,974,397) 3,520,317
------------ ------------
Increase (decrease) in net assets .............. (331,416) 6,483,904
Net assets at beginning of period .............. 47,407,777 40,923,873
Net assets at end of period (including
undistributed net investment loss of $243,125
at November 30, 1999) ....................... $ 47,076,361 $ 47,407,777
Other Information
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 3,667,066 3,387,150
------------ ------------
Shares sold .................................... 402,047 1,439,570
Shares redeemed ................................ (695,206) (1,159,654)
------------ ------------
Net increase (decrease) in Fund shares ......... (293,159) 279,916
Shares outstanding at end of period ............ 3,373,907 3,667,066
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Technology Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended November
30, 1999 Year Ended May
Increase (Decrease) in Net Assets (Unaudited) 31, 1999
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ................... $ (983,431) $ (702,801)
Net realized gain (loss) ....................... 7,818,245 10,339,195
Net unrealized appreciation (depreciation) on
investment transactions during the period ... 96,603,110 19,936,472
------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................. 103,437,924 29,572,866
------------- -------------
Fund share transactions:
Proceeds from shares sold ...................... 120,963,038 76,951,237
Cost of shares redeemed ........................ (26,771,598) (25,003,128)
Redemption fees ................................ 163,154 162,860
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions .......................... 94,354,594 52,110,969
------------- -------------
Increase (decrease) in net assets .............. 197,792,518 81,683,835
Net assets at beginning of period .............. 118,843,179 37,159,344
Net assets at end of period (including
undistributed net investment loss of $983,440
at November 30, 1999) ....................... $ 316,635,697 $ 118,843,179
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 6,154,964 3,078,971
------------- -------------
Shares sold .................................... 4,682,069 4,653,561
Shares redeemed ................................ (1,098,466) (1,577,568)
------------- -------------
Net increase (decrease) in Fund shares ......... 3,583,603 3,075,993
Shares outstanding at end of period ............ 9,738,567 6,154,964
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Financial Services Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(b) 1999(c) 1998(d)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.14 $14.22 $12.00
--------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) .01 .02 .02
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.55) (.01) 2.22
--------------------------
- ------------------------------------------------------------------------------------
Total from investment operations (.54) .01 2.24
- ------------------------------------------------------------------------------------
Less distribution from:
- ------------------------------------------------------------------------------------
Net investment income -- (.03) (.03)
- ------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.09) --
--------------------------
- ------------------------------------------------------------------------------------
Total distributions -- (.12) (.03)
- ------------------------------------------------------------------------------------
Redemption fees .01 .03 .01
- ------------------------------------------------------------------------------------
Net asset value, end of period $13.61 $14.14 $14.22
--------------------------
- ------------------------------------------------------------------------------------
Total return (%) (e) (f) (3.68)** 0.30 18.73**
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 34 37
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.87* 1.83 2.59*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.50* 1.50 1.50*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .15* .15 .25*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 20.4* 23.2 25.0*
- -----------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended November 30, 1999 (Unaudited).
(c) For the year ended May 31, 1999.
(d) For the period November 3, 1997 (commencement of operations) to May 31,
1998.
(e) Total return would have been lower had certain expenses not been
reduced.
(f) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 1% redemption fee.
* Annualized
** Not annualized
45
<PAGE>
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Health Care Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(b) 1999(c) 1998(d)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.93 $12.08 $12.00
---------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) (.07) (.11) (.01)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.09 .94 .09
---------------------------
- ------------------------------------------------------------------------------------
Total from investment operations 1.02 .83 .08
- ------------------------------------------------------------------------------------
Redemption fees --*** .02 --***
- ------------------------------------------------------------------------------------
Net asset value, end of period $13.95 $12.93 $12.08
---------------------------
- ------------------------------------------------------------------------------------
Total return (%) (e) (f) 7.97** 7.04 .67**
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 47 47 41
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.92* 1.95 3.68*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.75* 1.75 1.75*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.02)* (.88) (.40)*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 97.2* 132.8 68.3*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended November 30, 1999 (Unaudited).
(c) For the year ended May 31, 1999.
(d) For the period March 2, 1998 (commencement of operations) to May 31,
1998.
(e) Total return would have been lower had certain expenses not been
reduced.
(f) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 1% redemption fee.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
46
<PAGE>
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information
derived from the financial statements.
Scudder Technology Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(b) 1999(c) 1998(d)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.31 $12.07 $12.00
----------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) (.13) (.17) (.03)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 13.31 7.37 .10
----------------------------
- ------------------------------------------------------------------------------------
Total from investment operations 13.18 7.20 .07
- ------------------------------------------------------------------------------------
Redemption fees .02 .04 --***
- ------------------------------------------------------------------------------------
Net asset value, end of period $32.51 $19.31 $12.07
----------------------------
- ------------------------------------------------------------------------------------
Total return (%) (f) 68.45** 59.90(e) .58(e)**
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 317 119 37
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.42* 1.86 3.69*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) 1.42* 1.75 1.75*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.04)* (1.11) (.87)*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70.6* 134.9 136.5*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended November 30, 1999 (Unaudited).
(c) For the year ended May 31, 1999.
(d) For the period November 3, 1997 (commencement of operations) to May 31,
1998.
(e) Total return would have been lower had certain expenses not been
reduced.
(f) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 1% redemption fee.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
47
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
A. Significant Accounting Policies
Scudder Financial Services Fund, Scudder Health Care Fund and Scudder Technology
Fund (the "Funds") are each a non-diversified series of Scudder Securities Trust
(the "Trust") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
The 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 consistently by each Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. 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 ("NASDAQ"), for which there have been sales, are valued at
the most recent sale price reported. 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, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. 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 Trust, 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.
48
<PAGE>
Foreign Currency Translations. The books and records of the Funds are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
certain banks and brokers whereby the Fund, through its custodian or
sub-custodian bank, 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
principal amount of the repurchase price plus accrued interest.
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 a Fund if the option is exercised. During the period,
Scudder Health Care Fund purchased put options on securities as a hedge against
potential adverse price movements in the value of portfolio assets.
The liability representing a 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 prices or
at the most recent asked price (bid for purchased options) if no bid and asked
price are available. Over-the-counter written or purchased options are valued
using dealer supplied quotations. Gain or loss is recognized when the option
contract expires or is closed.
If a Fund writes a covered call option, that Fund foregoes, in exchange for the
premium, the opportunity to profit during the option period from an increase
49
<PAGE>
in the market value of the underlying security above the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. A 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 a 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.
Federal Income Taxes. It is each Fund's policy is to comply with the
requirements of the Internal Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute all of its taxable income to
its shareholders. Accordingly, the Funds paid no federal income taxes and no
federal income tax provision was required. 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 loses and treat them as arising in
the fiscal year ending May 31, 2000.
At May 31, 1999, the Scudder Heath Care Fund had a net tax basis capital loss
carryforward 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.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to a Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from 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 that
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.
50
<PAGE>
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as a Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis. All discounts
are accreted for both tax and financial reporting purposes.
Expenses. Expenses arising in connection with a specific Fund are allocated to
that Fund. Other Trust expenses are allocated between the Funds in proportion to
their relative net assets.
Organization Costs. Costs incurred by each Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
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
will be assessed and retained by the relevant Fund for the benefit of the
remaining shareholders. The redemption fee is accounted for as an addition to
paid-in capital.
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 each Fund in accordance with its respective 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 each 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, 2000 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 six months
ended November 30, 1999, the Adviser did not
51
<PAGE>
impose a portion of its management fee for Scudder Financial Services Fund,
Scudder Health Care Fund and Scudder Technology Fund, which amounted to $54,239,
$40,219, and $0, respectively, and the amount imposed aggregated $57,527,
$161,815, and $800,489, respectively, of which $4,226, $26,830, and $243,171 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
six months ended November 30, 1999, SSC imposed its fee for Scudder Financial
Services Fund, Scudder Health Care Fund and Scudder Technology Fund aggregating
$79,804, $141,156, and $337,743, respectively, of which $12,712, $44,837, and
$281,291 is unpaid at November 30, 1999.
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 six months
ended November 30, 1999, SFAC imposed its fee for Scudder Financial Services
Fund, Scudder Health Care Fund and Scudder Technology Fund, aggregating $26,873,
$21,747, and $32,164, respectively, of which $13,248, $6,250, and $14,126 is
unpaid at November 30, 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 six
months ended November 30, 1999 the Trustees' fees and expenses for Scudder
Financial Services Fund, Scudder Health Care Fund and Scudder Technology Fund
aggregated $23,145, $17,202, and $24,298, respectively.
C. Expense Off-Set Arrangements
Each Fund has entered into an arrangement with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the period, Scudder Financial
Services Fund's, Scudder Health Care Fund's and Scudder Technology Fund's
custodian and transfer agent fees were reduced by $95 and $310, $27 and $436,
and $2,454 and $935, respectively.
52
<PAGE>
D Lines of Credit
The Funds and several other Scudder Funds (the "Participants") share in a $1
billion 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.
53
<PAGE>
Officers and Trustees
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Lynn S. Birdsong* Peter Chin*
o President o Vice President
Sheryle J. Bolton J. Brooks Dougherty*
o Trustee; Chief Executive Officer o Vice President
and Director, Scientific Learning
Corporation James M. Eysenbach*
o Vice President
William T. Burgin
o Trustee; General Partner, James E. Fenger*
Bessemer Venture Partners o Vice President
Keith R. Fox Philip S. Fortuna*
o Trustee; Private Equity Investor o Vice President
William H. Luers Sewall Hodges*
o Trustee; Chairman and President of o Vice President
the U.N. Association of America
Ann M. McCreary*
Kathryn L. Quirk* o Vice President
o Trustee, Vice President and
Assistant Secretary Thaddeus Paluszek*
o Vice President
Joan E. Spero
o Trustee; President, Doris Duke John Millette*
Charitable Foundation o Vice President and Secretary
Thomas J. Devine John R. Hebble*
o Honorary Trustee; Consultant o Treasurer
Wilson Nolen Caroline Pearson*
o Honorary Trustee; Consultant o Assistant Secretary
Robert G. Stone, Jr. *Scudder Kemper Investments, Inc.
o Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg*
o Honorary Trustee
54
<PAGE>
Investment Products and Services
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1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
55
<PAGE>
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1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
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.
56
<PAGE>
Scudder Solutions
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1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
57
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
58
<PAGE>
Notes
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<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 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 over 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
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
