SCUDDER
INVESTMENTS (SM)
[LOGO]
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SECTOR/SPECIALITY
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Scudder Choice Series:
Scudder Health Care
Fund
Fund #352
Scudder Technology
Fund
Fund #351
Annual Report
May 31, 2000
Two 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.
<PAGE>
Contents
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4 Letter from the Series' President
Scudder Health Care Fund
6 Portfolio Management Discussion
12 Performance Update
14 Portfolio Summary
16 Investment Portfolio
Scudder Technology Fund
19 Portfolio Management Discussion
24 Performance Update
26 Portfolio Summary
28 Investment Portfolio
32 Glossary of Investment Terms
33 Financial Statements
37 Financial Highlights
39 Notes to Financial Statements
45 Report of Independent Accountants
46 Tax Information
47 Officers and Trustees
48 Investment Products and Services
50 Scudder Solutions
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Scudder Choice Series
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Scudder Health Care Fund ticker symbol SCHLX fund number 352
Scudder Technology Fund ticker symbol SCUTX fund number 351
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Date of Inception-- o Scudder Health Care Fund returned 41.69% over the
twelve months ended May 31, 2000. The fund has
Scudder Health Care benefited from its holdings in strong performing
Fund: 3/2/98 areas such as biotechnology and life sciences
companies. Lipper Analytical Services ranked the fund
Scudder Technology above the median for its peer group during the period.^1
Fund:
3/2/98 o Scudder Technology Fund returned 111.79% during the
twelve months ended May 31, 2000. This performance
Total Net Assets as placed the fund in the top 20% of its peer group for
of 5/31/00 -- the period, according to Lipper Analytical Services.^2
Scudder Health Care
Fund:
$94.2 million
Scudder Technology
Fund:
$667.9 million
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. Scudder Health Care Fund's Lipper ranking was 25 out of 57
funds for the one-year period ended May 31, 2000. Past performance is no
guarantee of future results.
^2 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. Scudder Technology Fund's Lipper ranking was 20 out of 108
funds for the one-year period ended May 31, 2000. Past performance is no
guarantee of future results.
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Letter from the Series' President
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Dear Shareholders,
Until March of 2000, the great bull market for "new economy" stocks seemed
unstoppable. However, rising interest rates eventually reversed the market's
momentum, causing many stocks with high valuations and little or no earnings to
experience sharp declines. In an environment such as this, it is easy to become
caught up in the daily movements of both individual stocks and the broader
indices. With a constant bombardment of minute-by-minute updates from television
and the Internet, the temptation to focus on what is happening today can be
irresistible. However, we at Scudder strive to focus on the fundamentals and
longer-term factors that can be obscured by the daily ups and downs of the
market. And in the technology and health care sectors, the fundamentals are
growing increasingly compelling.
Advancements in technology and communications have changed the way we work and
live, and there is an abundance of companies that are positioned for rapid
growth through their sales of products that will fuel this ongoing revolution.
In the health care area, meanwhile, recent discoveries in the field of genetics
research have launched medical science into a new and promising area. At the
forefront of this revolution are companies that are working to unlock the
secrets of the human genetic code,
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as well as the research facilities that are striving to develop drugs and
therapies based on this information and the companies that supply the equipment
for these processes. We believe that we can capitalize on important
opportunities such as these by using intensive fundamental research and a
patient, long-term view to invest in the fastest growing companies in these
sectors. For more information on where the portfolio managers of Scudder Health
Care Fund and Scudder Technology see opportunities emerging in these areas,
please turn to the Portfolio Management Discussions on pages 6 and 19,
respectively.
Thank you for your continued investment in Scudder Choice Series. For current
information on the fund or your account, visit our Web site at www.scudder.com.
There you'll find a wealth of information, including fund performance, the most
recent news on Scudder products and services, and the opportunity to perform
account transactions. You can also speak with one of our representatives by
calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Linda C. Coughlin
Linda C. Coughlin
President,
Scudder Choice Series
5
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Portfolio Management Discussion
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May 31, 2000
Scudder Health Care Fund
In the following interview, lead portfolio manager James E. Fenger discusses
Scudder Health Care Fund's strategy and the market environment in the
twelve-month period ended May 31, 2000.
Q: In the last report, you noted that the fund had increased its weighting in
biotechs, life science instrumentation makers, and specialty pharmaceutical
companies. How did the events of the past year impact the portfolio?
A: Most investors are aware that smaller, aggressive companies have generally
experienced unusually high volatility over the last twelve months. Increased
interest in high-growth, earlier stage companies helped fuel amazing rallies in
the most aggressive sectors of the market, such as technology and biotechnology
in the fourth quarter of 1999 and the first two months of 2000. However, once
concerns about higher interest rates and extended valuations became more
pervasive, these groups declined just as rapidly as they had risen. Fund
holdings in the biotech, drug discovery, and life science equipment groups were
among those that were affected by these fluctuations. While the day-to-day
volatility in these sectors was one of the major stories of the market in recent
months, we believe that the more important issue is the improving fundamentals
of so many emerging companies in the health care area.
In the biotech sector, for instance, stock prices generally plummeted in March
and April, but in our view this only obscured the fact that fundamentals of the
sector are becoming increasingly attractive. New product flow is on an upswing,
more companies are moving toward profitability, and new technology platforms
will exponentially increase future opportunities. We increased our weighting in
this group during the latter half of 1999, and were therefore positioned to
benefit from the tremendous rally that ensued early this year. By March,
however, we felt that valuations had become too extended,
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plus our biotech and life science holdings had expanded to encompass over half
of the total portfolio. These factors prompted us to reduce our holdings in the
more speculative biotechs, i.e., those that lacked either near-term milestones
or products in the later stages of development. Our decision to trim the fund's
biotech holdings proved beneficial to performance once the sector weakened
during the final three months of the period. The fund's weighting in the group
currently stands at 31% of net assets, up from 26% six months ago and 8% twelve
months ago.
On the other hand, as the biotechs peaked, other sectors of health care --
including the specialty pharmaceuticals and hospital supply and device companies
-- approached attractive levels. Many specialty pharmaceutical companies are
benefiting from higher-growth niche products that are not a significant part of
the growing debate surrounding a Medicare drug benefit. We believe that selected
companies within this group will also benefit from generics and sustained
release drugs that will gain share as key pharmaceuticals face patent
expirations over the next few years. Our weighting in this sector rose to 21%,
up from 12% six months ago. Many supply and device companies also offered stable
growth and attractive valuations in an environment of increased volatility. We
added or expanded positions in names such as Baxter, Abbott Labs, Biomet, and
St. Jude during the March-April period, bringing the fund's overall weighting in
supply and device stocks to 20% from 12% six months ago and 14% twelve months
ago. In summary, our balanced portfolio approach and ability to shift among
different sectors of the health care area increased overall returns and helped
reduce fund volatility during the past six months.
Q: How did the fund perform in this environment?
A: The fund returned 41.69% over the twelve months ended May 31, 2000, compared
to a return of 10.49% for its unmanaged benchmark, the S&P 500. Over the six
months since the last report, the fund produced a total return of 31.23%, versus
2.89% for the S&P. According to
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Lipper Analytical Services, the fund also beat the median return of funds in the
Health/Biotechnology category over both the six- and the twelve-month periods.
We believe that our strong relative performance has been the result of our focus
on companies with both strong growth prospects and profitable business models.
Q: What individual companies do you favor among biotechs, specialty
pharmaceuticals, and equipment makers?
A: Six months ago, we highlighted several names including two life science
companies, Waters and PE Corp-PE Biosystems. We continue to view the life
science instrumentation and reagent market as an attractive, lower risk way to
benefit from the progress in genomics. The companies that provide the necessary
tools for discovery should capture both improved growth and near-term
profitability. In the case of Waters, the use of its equipment in the study of
proteins is increasing as information from the human genome project expands the
number of proteins and potential targets available for drug discovery. An
attractive valuation and increased recognition for accelerated growth resulted
in almost a doubling in Waters' stock price over the last six months.
In addition to Waters and PE Corp-PE Biosystems, we have taken positions in a
number of smaller companies with promising new technologies that have the
potential to accelerate and reduce the risk of the current drug discovery
process. The mapping of the human genome is only the first step in a lengthy
process of target discovery and screening that could eventually generate new
drugs and therapeutic proteins for a wide range of diseases. Genomics could also
lead to better clinical trial design and improved targeting of existing drugs.
We believe that the life science instrumentation and reagent companies will be
near-term beneficiaries of these trends. We view drug development companies that
are incorporating these new techniques into their discovery process as
attractive
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long-term investments, and include recently added positions in Millennium and
Vertex Pharmaceuticals.
We have also found what we believe to be a number of attractive investment
opportunities in the specialty pharmaceutical area. Sepracor, ALZA, Forest Labs,
and Allergan are among our larger positions. Sepracor has an attractive patent
portfolio of potentially improved versions of existing drugs. We feel that the
development of these products is lower risk since the original drugs are already
proven and marketed. Furthermore, the possibly improved safety, compliance, and
efficacy of the new compounds may play an important commercial role as patents
on the existing drugs start to expire. ALZA is developing a franchise among
oncologists and urologists and will soon launch a sustained release drug for the
treatment of attention deficit disorder that does not need to be administered
during school hours, a major benefit to teachers and students. Forest Labs is
selling a rapidly growing antidepressant and will benefit from the
Warner-Lambert/ Pfizer merger as all rights to this product revert back to
Forest. Finally, Allergan is benefiting from a growing niche in eye care
pharmaceuticals and a product for muscle disorders.
Q: Has your outlook improved for the large pharmaceuticals?
A: Yes. In the past, we have expressed concerns about the effects that Congress'
Medicare legislation may have on earnings in the sector. However, we believe
that the current economic backdrop of potentially slower growth may prove to be
very positive for the group. Since the pharmaceuticals' earnings are generally
not affected by economic fluctuations -- because prescription drugs are an
essential item -- its relative attractiveness can increase significantly as
other sectors are impacted by a slowdown. Looking ahead over the next year, we
believe that the steady, 12-15% growth of the large pharmaceutical companies
will become increasingly attractive to investors as the Fed's rate hikes begin
to bite.
9
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We are optimistic on the prospects for Warner-Lambert, whose growth rate is
above average for the pharmaceutical group. Taking into account the cost
synergies that should come out of its merger with Pfizer -- another of the
industry's fastest growing companies -- the growth of the combined entity could
exceed 25%, double the group average. Even though Warner-Lambert has already
been a strong performer for the fund, we remain enthusiastic on its potential in
the years ahead. We are also constructive on Eli Lilly, a new holding in the
fund, as it has a promising pipeline of new products with large sales potential
that address inadequately treated diseases.
Q: What is your outlook for the health care sector overall?
A: We remain positive on the outlook for the group as a whole, for all the
reasons we have mentioned in the past. Industry consolidation, an explosion of
new products, the rapid growth of genomics, and the increase in the number of
joint ventures among companies in different sectors should all contribute to
stronger earnings for a wide range of health care companies going forward. But
this is a long-term process, and the health care sector will undoubtedly
experience several more corrections along the way. The key for investors is to
stay focused on the steady improvement in the sector's fundamentals, rather than
the day-to-day movements of stock prices. We believe that investors who can
withstand the inevitable downturns will ultimately benefit from the sector's
powerful long-term growth potential.
10
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Scudder Health Care Fund:
A Team Approach to Investing
Scudder Health Care Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Lead portfolio manager James E. Fenger has responsibility for the fund's
day-to-day management and investment strategies. Mr. Fenger has been a health
care investment analyst with the Adviser for 17 years.
Portfolio manager Anne Carney joined the Adviser in 1992 as an equity research
analyst and has over 12 years of investment industry experience. Ms. Carney
contributes expertise in health care services, hospital supplies, medical
devices, and distribution companies. Prior to joining the Adviser, Ms. Carney
was a research analyst specializing in the health care industry.
Portfolio manager Sally A. Yanchus contributes expertise in biotechnology and
drug discovery companies. Prior to joining the Adviser in 1997, Ms. Yanchus was
a sell-side analyst for six years covering various health care industries.
11
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Performance Update
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May 31, 2000
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
2/00 16487 12728 12306
5/00 14762 13275 10174
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Fund Index Comparison
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Total Return
Period ended 5/31/2000 Growth of Average
$10,000 Cumulative Annual
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Scudder Health Care Fund
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1 year $ 14,169 41.69% 41.69%
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Life of Fund** $ 15,267 52.67% 20.69%
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S&P 500 Index*
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1 year $ 11,049 10.49% 10.49%
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Life of Fund** $ 13,275 32.75% 13.94%
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Russell 2000 Index*
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1 year $ 10,990 9.90% 9.90%
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Life of Fund** $ 10,174 1.74% .80%
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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.
12
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER HEALTH
CARE FUND TOTAL RETURN (%) AND S&P 500 Index* TOTAL RETURN (%)
BAR CHART DATA:
Yearly periods ended May 31
1998** 1999 2000
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Fund Total
Return (%) .67 7.04 41.69
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Index Total
Return (%) -.73 21.02 10.49
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Net Asset Value ($) 12.08 12.93 18.32
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Income
Dividends ($) -- -- --
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Capital Gains
Distributions ($) -- -- --
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* 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 returns for the Fund would have
been lower.
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Portfolio Summary
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May 31, 2000
Scudder Health Care Fund
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Asset Allocation
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The 6% cash position is
higher than normal; in
general, management
seeks to remain fully
invested at all times.
Equity Holdings 94%
Cash Equivalents 6%
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100%
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Diversification (Excludes 6% Cash Equivalents)
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The fund's holdings in
the biotech and medical
supply and specialty
sectors have all
increased in the last
six months.
Pharmaceuticals:
U.S. Major Pharmaceuticals 17%
Specialty Pharmaceuticals 21%
International Pharmaceuticals 7%
Biotechnology 31%
Medical Supply & Specialty 20%
Insurance 2%
Hospital Management 2%
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100%
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Ten Largest Equity Holdings
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(35% of Portfolio) The fund's top holdings
reflect its extensive
diversification among
many subsectors of the
health care area.
1. Baxter International, Inc.
Manufacturer and distributor of hospital and
laboratory products and services
2. Abbott Laboratories
Health care products
3. Warner-Lambert Co.
Provider of drug, toiletry and food products
4. Waters Corp.
Provider of high-performance liquid chromatography
products and services
5. Eli Lilly & Co.
Leading pharmaceutical company
6. Amgen Inc.
Biotech developer of pharmaceuticals
7. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer products
company
8. Pfizer, Inc.
International pharmaceutical company
9. Merck & Co., Inc.
Drug manufacturer
10. Sepracor, Inc.
Developer of enhanced forms of existing pharmaceuticals
For more complete details about the Fund's investment portfolio, see page 16. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
15
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<TABLE>
<CAPTION>
Investment Portfolio as of May 31, 2000
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Principal
Amount ($) Value ($)
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Scudder Health Care Fund
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Short-Term Notes 5.6%
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<S> <C> <C>
Student Loan Marketing Association Discount Note, ----------
6.35%**, 6/1/2000 (Cost $5,314,000) ........................................ 5,314,000 5,314,000
----------
Shares
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Common Stocks 94.4%
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Biotechnology 29.6%
Aclara Biosciences Inc.* ...................................................... 19,300 509,038
Actelion Ltd.* ................................................................ 2,700 769,642
Affymetrix, Inc.* ............................................................. 2,300 273,125
Alexion Pharmaceuticals, Inc.* ................................................ 37,400 1,390,813
Alkermes, Inc.* ............................................................... 40,800 1,494,300
Amgen Inc.* ................................................................... 49,100 3,123,988
Aurora Biosciences Corp.* ..................................................... 9,000 426,938
Biogen, Inc.* ................................................................. 20,600 1,122,700
Cambridge Antibody Technology Group plc* ...................................... 11,600 403,984
Celgene Corp.* ................................................................ 14,300 525,525
COR Therapeutics, Inc.* ....................................................... 13,900 880,913
Diversa Corp.* ................................................................ 27,600 607,200
Genentech, Inc.* .............................................................. 16,700 1,793,163
IDEC Pharmaceuticals Corp.* ................................................... 15,000 957,188
ImClone Systems Inc.* ......................................................... 7,000 494,375
Immunex Corp.* ................................................................ 22,500 582,188
Invitrogen Corp.* ............................................................. 17,000 677,875
LJL Biosystems, Inc.* ......................................................... 27,500 249,219
MedImmune, Inc.* .............................................................. 8,600 1,336,225
Millennium Pharmaceuticals, Inc.* ............................................. 10,700 894,788
Molecular Devices Corp.* ...................................................... 11,300 603,138
NPS Pharmaceuticals, Inc.* .................................................... 38,300 464,388
PE Corp-PE Biosystems Group ................................................... 39,100 2,170,050
Packard BioScience Co.* ....................................................... 80,000 1,120,000
Pharmacopeia, Inc.* ........................................................... 14,100 306,675
QLT PhotoTherapeutics, Inc.* .................................................. 4,100 201,370
Texas Biotechnology Corp.* .................................................... 67,600 654,875
Transkaryotic Therapies, Inc.* ................................................ 8,500 212,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
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Shares Value ($)
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Vertex Pharmaceuticals, Inc.* ............ 6,000 443,250
Waters Corp.* ............................ 35,700 3,373,650
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28,063,083
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Hospital Management 1.8%
HCA-The Healthcare Co.* .................. 64,800 1,749,600
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Medical Supply & Specialty 18.9%
Abbott Laboratories ...................... 120,200 4,890,627
Baxter International, Inc. ............... 79,300 5,273,450
Becton, Dickinson & Co. .................. 75,800 2,212,413
Biomet, Inc. ............................. 48,300 1,741,819
Edwards Lifesciences Corp.* .............. 15,860 322,156
Medtronic, Inc. .......................... 38,640 1,994,790
St. Jude Medical, Inc.* .................. 41,200 1,480,625
-----------
17,915,880
-----------
Pharmaceuticals 42.3%
Allergan, Inc. ........................... 27,200 1,868,300
Alpharma Inc. ............................ 48,200 2,385,900
ALZA Corp.* .............................. 43,100 2,190,019
American Home Products Corp. ............. 30,800 1,659,350
Andrx Corp.* ............................. 16,300 971,888
Biovail Corp.* ........................... 12,000 567,000
Bristol-Myers Squibb Co. ................. 49,500 2,725,594
Chugai Pharmaceutical Co., Ltd.* ......... 106,000 1,815,372
Eli Lilly & Co. .......................... 41,500 3,159,188
Forest Laboratories, Inc.* ............... 24,400 2,159,400
Fujisawa Pharmaceutical Co. .............. 27,000 997,494
KYORIN Pharmaceutical Co., Ltd. .......... 45,000 1,812,866
Medicis Pharmaceutical Corp.* ............ 11,400 532,950
Merck & Co., Inc. ........................ 33,100 2,470,088
Pfizer, Inc. ............................. 57,900 2,580,169
Sanochemia Pharmazeutika AG* ............. 11,300 528,699
Schering-Plough Corp. .................... 31,800 1,538,325
Sepracor, Inc.* .......................... 25,400 2,428,875
Shire Pharmaceuticals Group plc* ......... 21,600 942,300
Teva Pharmaceutical Industries, Ltd. (ADR) 32,600 1,756,325
Warner-Lambert Co. ....................... 29,800 3,639,325
Yamanouchi Pharmaceutical Co., Ltd.* ..... 31,000 1,412,884
-----------
40,142,311
-----------
The accompanying notes are an integral part of the financial statements.
17
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Shares Value ($)
--------------------------------------------------------------------------------
Insurance 1.8%
Cigna Corp. ............................. 18,700 1,660,794
-----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $73,317,582) 89,531,668
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $78,631,582) (a) 94,845,668
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate. (Unaudited)
(a) The cost for federal income tax purposes was $78,933,419. At May 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$15,912,249. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$19,022,672 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $3,110,423.
During the year ended May 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $109,052,095 and
$84,114,968, respectively.
The accompanying notes are an integral part of the financial statements.
18
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Portfolio Management Discussion
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May 31, 2000
Scudder Technology Fund
In the following interview, lead portfolio manager Brooks Dougherty discusses
Scudder Technology Fund's strategy and the market environment in the
twelve-month period ended May 31, 2000.
Q: After a tremendous run-up over most of the past year, technology stocks have
plummeted during the last three months. What's your take on the sector's
decline?
A: Tech stocks had an incredible run throughout the final quarter of 1999 and
the first two months of 2000. With concerns over higher interest rates growing
more pervasive, investors moved into companies whose growth was believed to be
sustainable even in the event of a slowdown in the economy. Momentum factors
also played an important role in the sector's rally as both individuals and
institutions sought to boost their returns by investing in stocks with the best
performance records, a dynamic that created a positive, self-perpetuating cycle.
From October 19 through March 10, these factors helped push the tech-heavy
Nasdaq index to a gain of almost 88%. By mid-March, however, valuation concerns
and fears that the Fed would be forced to raise rates several more times in 2000
prompted a sharp sell-off in tech shares. As momentum factors turned negative,
the Nasdaq fell from a peak of 5048 to 3165 by May 23, a decline of 37.3%.
Small-cap stocks generally experienced the most violent sell-off during this
period, as did companies with higher valuations. In contrast, low p/e large cap
names tended to outperform. This disparity proved to be a negative for fund
performance, since we tend to focus on stocks with the strongest growth
characteristics.
During this correction phase, the stocks with the best fundamentals have not
necessarily provided the strongest performance. Earnings have been surging
across the entire technology sector, but news that companies had beaten their
estimates was often met with additional selling pressure. A prime example is
Sycamore Networks, a fund holding that reported first quarter earnings that were
up 100% year-over-year, and 60% above analysts' consensus
19
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expectation. Despite these blowout numbers, the stock still fell about 15% on
the news. This event illustrates the deeply negative psychology in the market,
and the sharp disconnect between fundamentals and performance.
Q: Have you adjusted your management style to account for the difficult market
conditions?
A: No. We have not changed our strategy, or our process. There will always be
times when the tech sector plummets and sentiment takes precedence over
fundamentals. The key to successful investing in techs is to stick with your
discipline even when the market goes south, and to stay invested in companies
with the best earnings potential. When the market eventually rebounds, it is
generally the strongest growers that provide the best returns. So we continue to
look for stocks with the strongest competitive positions, the best operating
models, and the most open-ended growth potential, just as we did when the market
was in the midst of its winter rally. While it is impossible to say when techs
will enjoy an extended rebound, we believe that the fund is well positioned for
the inevitable resurgence in the sector.
Q: How has the fund performed in this environment?
A: Over the twelve-month period ended May 31, 2000, the Scudder Technology Fund
returned 111.79%, compared to 80.68% for its unmanaged benchmark, the Russell
2000 Technology Index, and 56.90% for the Goldman Sachs Technology Composite.
Since the fund's inception on March 2, 1998, it has produced an average annual
return of 72.44%, versus 36.15% for the Russell 2000 Tech Index and 51.00% for
the Goldman Composite. Going forward, we will be using the Goldman index as the
fund's benchmark, since its focus on larger companies makes it a better source
of comparison.
The fund has also performed well against its peers. According to Lipper
Analytical Services, it has ranked in the top 19% of technology funds through
the one-year period ended May 31. We attribute the fund's outperformance to
strong stock selection, particularly in
20
<PAGE>
the semiconductor and networking areas, as well as the intensive fundamental
analysis employed by our team of research analysts.
Q: In the last report, you spoke positively on the semiconductor sector. How has
this position helped the fund, and what is your view of the group going forward?
A: Semiconductor stocks, as a group, produced outstanding performance for the
fund over the full period. As we anticipated, demand has been very strong and
the chipmakers have been reporting outstanding earnings. In the most recent
quarter, all of our holdings beat Wall Street's earnings estimates, many by a
wide margin. However, due to weakness in the broader market and concerns that
the strength of the current cycle will not prove sustainable, stocks in the
sector declined over the final three months of the period. We remain slightly
overweight in semis, and are focusing on the names that we believe are best
positioned to produce strong earnings going forward. The fund's top holdings in
this group are Broadcom, which makes chips for broadband communications; Micron
Technology, which stands to benefit from continued strength in the semiconductor
cycle, and Intel, which should profit if the personal computer industry stages a
recovery.
Q: How is the fund positioned within other subsectors of the technology group?
A: The fund also holds a modest overweighting in the networking and
telecommunications group. Strong earnings boosted the performance of this sector
over the full year, but it was hit hard from mid-March onward. We are focused on
the producers of optical components, which is the leading edge technology being
employed by large service providers such as Cisco, Lucent, and Nortel. There is
a shortage of supply and very strong demand, since companies such as these need
to grow their infrastructure by a factor of ten each year to handle the growth
in Internet traffic. This is a combination that points to strong
21
<PAGE>
secular growth in the years ahead. We are particularly optimistic on the
prospects for SDL, which is the leading player in high-powered optical
components for the long-haul market. The company is enjoying significant margin
expansion, and we expect earnings to increase substantially over time.
In the software group, we continue to hold positions in the companies that we
believe are the dominant players in their respective sectors. For instance, we
own VERITAS (storage management) and Siebel (customer relationship management).
We also own companies that stand to profit from the buildout of the 'Net
infrastructure, such as Vignette, Check Point, and BEA Systems.
In the other three subsectors we follow -- hardware, Internet, and IT services
-- the fund is slightly underweight. While each group offers a number of strong
individual companies that we hold in the fund, in general we are finding better
opportunities in other areas of the tech sector.
Q: What is your outlook for the tech sector from here?
A: We remain positive on the long-term outlook for technology stocks. Although a
popular theme in the financial press has been that the sector remains overvalued
because so many companies are still trading at 50-100 times earnings, we feel
that this thought process makes little sense. You don't find winners in the tech
sector by looking at valuations; instead, you have to focus on fundamentals. The
greatest risk, in our view, is to miss a move in a dominant company by becoming
sensitive to valuations while it is still experiencing rapid growth. By
traditional valuation measures, Cisco would have been a "sell" years ago. It is
certainly possible that volatility will continue, but we don't intend to start
using a value-oriented approach since so many "value" stocks in the tech sector
have weak earnings, bad business models, and a history of poor execution.
Instead, we will focus on what we do best, which is finding companies with the
best fundamentals and the strongest earnings potential.
22
<PAGE>
Scudder Technology Fund:
A Team Approach to Investing
Scudder Technology Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Lead portfolio manager Brooks Dougherty joined the Adviser in 1993 as an equity
analyst specializing in technology companies. Mr. Dougherty has 15 years of
industry experience.
Portfolio manager Robert L. Horton joined the Adviser in 1996 and has over nine
years of industry experience.
Portfolio manager Deborah L. Koch is responsible for security analysis for
software/data services, aerospace/ defense, and conglomerates. Ms. Koch joined
the Adviser in 1992.
Portfolio manager Patricia Hutchinson joined the Adviser in 1998 and has seven
years of industry experience.
Portfolio manager James Burkart joined the Adviser in 1998 and has more than 19
years of industry experience.
23
<PAGE>
Performance Update
--------------------------------------------------------------------------------
May 31, 2000
Scudder Technology Fund
--------------------------------------------------------------------------------
Growth of a $10,000 Investment
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Goldman Sachs Russell 2000 Russell 2000
Technology Fund Technology Index* Technology Index* Index*
3/98** 10000 10000 10000 10000
5/98 10058 9295 9513 9842
8/98 8567 6634 7059 8949
11/98 11300 9161 8338 12246
2/99 13892 9513 8245 14551
5/99 16083 10801 9257 16109
8/99 20108 12118 9062 18751
11/99 27092 16468 9644 22342
2/00 47232 29008 12306 29786
5/00 34063 19515 10174 25274
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Period ended 5/31/2000 Growth of Average
$10,000 Cumulative Annual
--------------------------------------------------------------------------------
Scudder Technology Fund
--------------------------------------------------------------------------------
1 year $ 21,179 111.79% 111.79%
--------------------------------------------------------------------------------
Life of Fund** $ 34,063 240.63% 72.44%
--------------------------------------------------------------------------------
Goldman Sachs Technology Index*
--------------------------------------------------------------------------------
1 year $ 15,690 56.90% 56.90%
--------------------------------------------------------------------------------
Life of Fund** $ 25,274 152.74% 51.00%
--------------------------------------------------------------------------------
Russell 2000 Technology Index*
--------------------------------------------------------------------------------
1 year $ 18,068 80.68% 80.68%
--------------------------------------------------------------------------------
Life of Fund** $ 19,515 95.15% 36.15%
--------------------------------------------------------------------------------
Russell 2000 Index*
--------------------------------------------------------------------------------
1 year $ 10,990 9.90% 9.90%
--------------------------------------------------------------------------------
Life of Fund** $ 10,174 1.74% .80%
--------------------------------------------------------------------------------
24
<PAGE>
--------------------------------------------------------------------------------
Returns and Per Share Information
--------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER
TECHNOLOGY FUND TOTAL RETURN (%) AND GOLDMAN SACHS TECHNOLOGY INDEX* TOTAL
RETURN (%)
BAR CHART DATA:
Yearly periods ended May 31
1998** 1999 2000
--------------------------------------------------------------------------------
Fund Total
Return (%) .58 59.90 111.79
--------------------------------------------------------------------------------
Index Total
Return (%) -1.58 63.67 56.90
--------------------------------------------------------------------------------
Net Asset Value ($) 12.07 19.31 39.55
--------------------------------------------------------------------------------
Income
Dividends ($) -- -- --
--------------------------------------------------------------------------------
Capital Gains
Distributions ($) -- -- 1.32
--------------------------------------------------------------------------------
* 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. The Goldman Sachs Technology Index is a
capitalization-weighted index based on a universe of technology-related
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.
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 returns for the Fund would have
been lower.
25
<PAGE>
Portfolio Summary
--------------------------------------------------------------------------------
May 31, 2000
Scudder Technology Fund
--------------------------------------------------------------------------------
Asset Allocation
--------------------------------------------------------------------------------
The fund's cash position
provides management with
the ability to take
advantage of market
corrections to add to
its favorite companies.
Equity Holdings 94%
Cash Equivalents 6%
------------------------------------
100%
------------------------------------
--------------------------------------------------------------------------------
Diversification
--------------------------------------------------------------------------------
(Excludes 6% Cash Equivalents) The fund's position in
semiconductor stocks,
which increased from 13%
of net assets on
November 30, 1999,
provided a boost to
Semiconductors 25% performance.
Computer Software 16%
Electronic Components/
Distributors 15%
Diverse Electronic Products 8%
EDP Peripherals 7%
Miscellaneous Consumer
Services 5%
Telephone/Communications 5%
Miscellaneous Commercial
Services 4%
Electronic Data Processing 4%
Other 11%
------------------------------------
100%
------------------------------------
26
<PAGE>
--------------------------------------------------------------------------------
Ten Largest Equity Holdings
--------------------------------------------------------------------------------
(35% of Portfolio) Management continues to
invest in companies that
it believes to have the
best fundamentals and
the strongest long-term
earnings potential.
1. SDL, Inc.
Designer and manufacturer of semiconductor lasers
2. JDS Uniphase Corp.
Designer, developer, manufacturer and distributor of
products for the fiberoptic communications market
3. Juniper Networks, Inc.
Provider of Internet infrastructure solutions for
Internet service telecommunications providers
4. Micron Technology, Inc.
Manufacturer of semiconductor memory and enhancement
products for workstations and personal computers
5. Cisco Systems, Inc.
Manufacturer of computer network products
6. Oracle Corp.
Provider of database management software
7. Intel Corp.
Producer of semiconductor memory circuits
8. Dell Computer Corp.
Developer and manufacturer of IBM compatible personal
computers
9. VERITAS Software Corp.
Developer of memory and storage devices
10. Broadcom Corp.
Manufacturer of integrated silicon solutions for
broadband digital data transmission
For more complete details about the Fund's investment portfolio, see page 28. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
27
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of May 31, 2000
------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------
Scudder Technology Fund
------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.6%
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.37%, to
be repurchased at $10,853,920 on 6/1/2000*** -------------
(Cost $10,852,000) ......................................................... 10,852,000 10,852,000
------------
------------------------------------------------------------------------------------------------------------
Short-Term Notes 4.6%
------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 6.27%**, 6/1/2000 ------------
(Cost $30,000,000) ......................................................... 30,000,000 30,000,000
------------
Shares
------------------------------------------------------------------------------------------------------------
Common Stocks 93.8%
Cellular Telephone 1.3%
Nokia Oyj (ADR) ............................................................... 160,000 8,320,000
------------
Telephone/Communications 4.4%
JDS Uniphase Corp.* ........................................................... 330,000 29,040,000
------------
Other Financial Companies 1.1%
W.R. Hambrecht & Co.* (b) (c) ................................................. 140,000 7,000,000
------------
EDP Services 2.2%
Sapient Corp.* ................................................................ 75,000 7,495,313
VeriSign, Inc.* ............................................................... 50,000 6,768,750
------------
14,264,063
------------
Miscellaneous Commercial Services 4.0%
Answerthink, Inc.* ............................................................ 390,000 6,898,125
Internap Network Services Corp.* .............................................. 195,000 5,581,875
Siebel Systems, Inc.* ......................................................... 120,000 14,040,000
------------
26,520,000
------------
Miscellaneous Consumer Services 4.7%
eBay, Inc.* ................................................................... 190,000 11,886,873
Infospace.com, Inc.* .......................................................... 152,000 6,593,000
Phone.com, Inc.* .............................................................. 75,000 5,245,313
Yahoo!, Inc.* ................................................................. 60,000 6,783,750
------------
30,508,936
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Telecommunications Equipment 1.2%
Lucent Technologies, Inc. .............. 110,000 6,311,250
Sonus Networks, Inc.* .................. 17,600 1,283,700
------------
7,594,950
------------
Electrical Products 0.5%
ANADIGICS, Inc.* ....................... 97,500 3,382,031
------------
Industrial Specialty 1.1%
QUALCOMM Inc.* ......................... 110,000 7,301,250
------------
Machinery/Components/Controls 1.7%
Newport Corp. .......................... 66,000 11,257,125
------------
Office Equipment/Supplies 1.1%
Lexmark International, Inc.* ........... 100,000 6,975,000
------------
Computer Software 15.4%
America Online, Inc.* .................. 130,000 6,890,000
BEA Systems, Inc.* ..................... 160,000 5,780,000
Brocade Communications Systems, Inc.* .. 84,000 9,906,750
Check Point Software Technologies, Ltd.* 66,000 12,399,750
Exodus Communications, Inc.* ........... 92,000 6,491,750
I2 Technologies Inc.* .................. 105,000 11,169,375
Intertrust Technologies Corp.* ......... 175,000 3,106,250
Metasolv Software, Inc.* ............... 135,900 5,368,050
Microsoft Corp.* ....................... 140,000 8,758,750
Oracle Systems Corp.* .................. 291,500 20,951,563
Sycamore Networks, Inc.* ............... 64,000 5,352,000
Vignette Corp.* ........................ 170,000 4,685,625
------------
100,859,863
------------
Diverse Electronic Products 7.1%
Aether Systems, Inc.* .................. 60,000 8,246,250
Applied Materials, Inc.* ............... 170,000 14,195,000
Dell Computer Corp.* ................... 370,000 15,956,250
Teradyne, Inc.* ........................ 96,000 8,256,000
------------
46,653,500
------------
EDP Peripherals 6.3%
Ariba, Inc.* ........................... 99,000 5,160,375
Mercury Interactive Corp.* ............. 85,000 7,203,750
Network Appliance, Inc.* ............... 206,000 13,299,875
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
VERITAS Software Corp.* ......................... 135,000 15,727,500
------------
41,391,500
------------
Electronic Components/Distributors 14.4%
Altera Corp.* ................................... 110,000 9,446,250
Analog Devices, Inc.* ........................... 90,000 6,930,000
Applied Micro Circuits Corp.* ................... 65,000 6,451,250
Broadcom Corp.* ................................. 110,000 14,306,875
Cisco Systems, Inc.* ............................ 368,000 20,953,000
Juniper Networks, Inc.* ......................... 125,500 21,986,031
ONI Systems Corp.* .............................. 10,000 250,000
PMC-Sierra, Inc.* ............................... 60,000 9,195,000
SanDisk Corp.* .................................. 85,000 4,940,625
------------
94,459,031
------------
Electronic Data Processing 3.4%
Apple Computer, Inc.* ........................... 130,000 10,920,000
Sun Microsystems, Inc.* ......................... 146,000 11,187,250
------------
22,107,250
------------
Precision Instruments 0.8%
Lam Research Corp.* ............................. 165,000 5,300,625
------------
Semiconductors 23.1%
ARM Holdings plc (ADR)* ......................... 215,000 5,563,125
Advanced Micro Devices, Inc.* ................... 80,000 6,515,000
Chartered Semiconductor Manufacturing Ltd. (ADR)* 120,000 9,630,000
Cree Research, Inc.* ............................ 80,000 9,718,750
Intel Corp.* .................................... 160,000 19,950,000
KLA-Tencor Corp.* ............................... 219,000 10,854,188
Micron Technology, Inc.* ........................ 312,000 21,820,500
QLogic Corp.* ................................... 74,000 3,635,250
SDL, Inc.* ...................................... 210,000 47,578,125
Taiwan Semiconductor Manufacturing Co.* ......... 1,331,072 6,782,808
Vitesse Semiconductor Corp.* .................... 190,000 9,618,750
------------
151,666,496
------------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $480,585,089) 614,601,620
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $521,437,089) (a) 655,453,620
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate. (Unaudited)
*** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $523,046,531. At May 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$132,407,089. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$193,168,227 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $60,761,138.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $7,000,000 (1.05% of net assets). Their
values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at May 31, 2000 aggregated $7,000,000. These securities may also
have certain restrictions as to resale.
(c) Restricted Securities are securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
The aggregate fair value of restricted securities at May 31, 2000, amounted
to $7,000,000 which represents 1.05% of net assets. Information concerning
such restricted securities at May 31, 2000 is as follows:
Security Acquisition
Date Cost ($)
-------------------------------------------------- ------------- ----------
W.R. Hambrecht & Co. 3/13/2000 7,000,000
During the year ended May 31, 2000, purchases and sales of investment securities
(excluding short-term investments) aggregated $686,237,032 and $323,254,055,
respectively.
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
Glossary of Investment Terms
--------------------------------------------------------------------------------
Fundamental Analysis of companies based on the projected impact of
Research management, products, sales, and earnings on their balance
sheets and income statements. Distinct from technical
analysis, which evaluates the attractiveness of a stock
based on historical price and trading volume movements,
rather than the financial results of the underlying
company.
Growth Stock of a company that has displayed above-average
Stock earnings growth and is expected to continue to increase
profits faster than the overall market. Stocks of such
companies usually trade at higher valuations and
experience more price volatility than the market as a
whole. Distinct from value stock.
Liquidity A characteristic of an investment or an asset referring to
the ease of convertibility into cash within a reasonably
short period of time. A stock that is liquid has enough
shares outstanding and a substantial enough market
capitalization to allow large purchases and sales to occur
without causing a significant move in its market price as
a result.
Momentum The practice of investing in the market's top performing
Investing stocks in order to capture additional upward movements in
their prices.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
32
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets Scudder Health Scudder
Care Fund Technology Fund
------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (cost, see ... $ 94,845,668 $ 655,453,620
accompanying investment portfolios)
Cash ............................................. 1,938 --
Foreign currency, at value (cost of $213,057 and
$2,322,135, respectively) ..................... 215,000 2,287,702
Receivable for investments sold .................. 558,827 11,442,093
Dividends receivable ............................. 45,571 7,789
Interest receivable .............................. -- 1,920
Receivable for Fund shares sold .................. 1,053,861 1,066,160
Foreign taxes recoverable ........................ 1,098 --
Deferred organization expenses ................... 7,077 242
Due from Adviser ................................. 368,187 --
Other assets ..................................... 475 171
------------- ---------------
Total assets ..................................... 97,097,702 670,259,697
Liabilities
------------------------------------------------------------------------------------
Payable for investments purchased ................ 2,604,137 462,090
Payable for Fund shares redeemed ................. 109,940 224,886
Accrued management fee ........................... -- 1,077,277
Accrued reorganization costs ..................... 29,842 --
Accrued Trustees' fees and expenses .............. 30,908 29,266
Due to Adviser ................................... -- 104,761
Other accrued expenses and payables .............. 87,827 413,875
------------- ---------------
Total liabilities ................................ 2,862,654 2,312,155
------------------------------------------------------------------------------------
Net assets, at value $ 94,235,048 $ 667,947,542
------------------------------------------------------------------------------------
Net Assets
------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments .................................... 16,214,086 134,016,531
Foreign currency related transactions .......... 1,684 (34,448)
Accumulated net realized gain (loss) ............. 4,746,339 17,064,423
Paid-in capital .................................. 73,272,939 516,901,036
------------------------------------------------------------------------------------
Net assets, at value $ 94,235,048 $ 667,947,542
------------------------------------------------------------------------------------
Net Asset Value
------------------------------------------------------------------------------------
------------- ---------------
Net Asset Value, offering and redemption price per $ 18.32 $ 39.55
share ------------- ---------------
(outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized) ................................... 5,143,649 16,890,064
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder Scudder
Health Care Technology
Investment Income Fund Fund
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $5,431
and $16,952, respectively) .................................. $ 329,450 $ 138,112
Interest ....................................................... 107,896 1,449,960
------------- -------------
Total Income ................................................... 437,346 1,588,072
------------- -------------
Expenses:
Management fee ................................................. 508,867 3,470,232
Services to shareholders ....................................... 375,270 1,460,836
Custodian and accounting fees .................................. 53,777 97,416
Auditing ....................................................... 24,704 30,670
Legal .......................................................... 11,600 8,011
Trustees' fees and expenses .................................... 75,262 80,721
Reports to shareholders ........................................ 19,788 49,649
Registration fees .............................................. 21,089 144,509
Amortization of organization expenses .......................... 2,664 5,611
Reorganization ................................................. 33,337 --
Other .......................................................... 4,570 4,464
------------- -------------
Total expenses, before expense reductions ...................... 1,130,928 5,352,119
Expense reductions ............................................. (34,272) (37,883)
------------- -------------
Total expenses, after expense reductions ....................... 1,096,656 5,314,236
-------------------------------------------------------------------------------------------------
Net investment income (loss) (659,310) (3,726,164)
-------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment
transactions
-------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 6,527,939 26,314,341
Foreign currency related transactions .......................... (29,673) (175,909)
------------- -------------
6,498,266 26,138,432
------------- -------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 11,707,423 113,077,214
Foreign currency related transactions .......................... 1,847 (34,254)
------------- -------------
11,709,270 113,042,960
-------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 18,207,536 139,181,392
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 17,548,226 $ 135,455,228
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Health Care Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended May 31,
Increase (Decrease) in Net Assets 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ (659,310) $ (407,909)
Net realized gain (loss) on investment transactions 6,498,266 (1,072,161)
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 11,709,270 4,443,657
------------ ------------
Net increase (decrease) in net assets resulting
from operations ................................ 17,548,226 2,963,587
------------ ------------
Fund share transactions:
Proceeds from shares sold ......................... 55,751,188 18,249,598
Cost of shares redeemed ........................... (26,560,656) (14,795,571)
Redemption fees ................................... 88,513 66,290
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 29,279,045 3,520,317
------------ ------------
Increase (decrease) in net assets ................. 46,827,271 6,483,904
Net assets at beginning of period ................. 47,407,777 40,923,873
Net assets at end of period ....................... $ 94,235,048 $ 47,407,777
Other Information
----------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 3,667,066 3,387,150
------------ ------------
Shares sold ....................................... 3,177,427 1,439,570
Shares redeemed ................................... (1,700,844) (1,159,654)
------------ ------------
Net increase (decrease) in Fund shares ............ 1,476,583 279,916
Shares outstanding at end of period ............... 5,143,649 3,667,066
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Technology Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended May 31,
Increase (Decrease) in Net Assets 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ (3,726,164) $ (702,801)
Net realized gain (loss) on investment transactions 26,138,432 10,339,195
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 113,042,960 19,936,472
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ 135,455,228 29,572,866
------------- -------------
Distribution to shareholders from:
Net realized gains ................................ (13,942,736) --
------------- -------------
Fund share transactions:
Proceeds from shares sold ......................... 592,736,489 76,951,237
Reinvestment of distributions ..................... 13,589,780 --
Cost of shares redeemed ........................... (179,749,674) (25,003,128)
Redemption fees ................................... 1,015,276 162,860
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 427,591,871 52,110,969
------------- -------------
Increase (decrease) in net assets ................. 549,104,363 81,683,835
Net assets at beginning of period ................. 118,843,179 37,159,344
------------- -------------
Net assets at end of period ....................... $ 667,947,542 $ 118,843,179
------------- -------------
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 6,154,964 3,078,971
------------- -------------
Shares sold ....................................... 14,964,757 4,653,561
Reinvestment of distributions ..................... 345,180 --
Shares redeemed ................................... (4,574,837) (1,577,568)
------------- -------------
Net increase (decrease) in Fund shares ............ 10,735,100 3,075,993
------------- -------------
Shares outstanding at end of period ............... 16,890,064 6,154,964
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<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 Health Care Fund
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Years Ended May 31, 2000 1999 1998(b)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.93 $12.08 $12.00
---------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss) (.17) (.11) (.01)
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 5.54 .94 .09
---------------------------
------------------------------------------------------------------------------------
Total from investment operations 5.37 .83 .08
------------------------------------------------------------------------------------
Redemption fees .02 .02 --***
------------------------------------------------------------------------------------
Net asset value, end of period $18.32 $12.93 $12.08
---------------------------
------------------------------------------------------------------------------------
Total Return (%) (c) (d) 41.69 7.04 .67**
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 94 47 41
------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.89(e) 1.95 3.68*
------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.83(e) 1.75 1.75*
------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.10) (.88) (.40)*
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 142 133 68*
------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period March 2, 1998 (commencement of operations) to May 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 1% redemption fee.
(e) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.79% and
1.75%, respectively.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
37
<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>
--------------------------------------------------------------------------------------
Years Ended May 31, 2000 1999 1998(b)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.31 $12.07 $12.00
------------------------------
--------------------------------------------------------------------------------------
Income (loss) from investment operations:
--------------------------------------------------------------------------------------
Net investment income (loss) (.34) (.17) (.03)
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 21.81 7.37 .10
------------------------------
--------------------------------------------------------------------------------------
Total from investment operations 21.47 7.20 .07
--------------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.32) -- --
--------------------------------------------------------------------------------------
Redemption fees .09 .04 --***
--------------------------------------------------------------------------------------
Net asset value, end of period $39.55 $19.31 $12.07
------------------------------
--------------------------------------------------------------------------------------
Total Return (%) (d) 111.79 59.90(c) .58(c)**
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 668 119 37
--------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.31(e) 1.86 3.69*
--------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) 1.30(e) 1.75 1.75*
--------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.91) (1.11) (.87)*
--------------------------------------------------------------------------------------
Portfolio turnover rate (%) 83 135 137*
--------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period March 2, 1998 (commencement of operations) to May 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 1% redemption fee.
(e) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.30% and
1.30%, respectively.
* Annualized
** Not annualized
*** Amount is less than one half of $.01.
38
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
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 accounting
principles generally accepted in the United States, 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.
39
<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
40
<PAGE>
in the market value of the underlying security above the exercise price. If a
Fund writes a put option it accepts the risk of a decline in the market value of
the underlying security below 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 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.
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 accounting principles generally accepted in the United
States. 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.
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.
41
<PAGE>
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 Investment 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 0.85% for each of Scudder Health Care Fund and 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 Health Care Fund and Scudder
Technology Fund at no more than 1.75% of the average daily net assets of each
Fund. Certain expenses incurred in connection with the reorganization are
excluded from the expense limitation. For the year ended May 31, 2000, the
Adviser did not impose a portion of its management fee for Scudder Health Care
Fund, which amounted to $16,645 and the amount imposed aggregated $492,222. For
the year ended May 31, 2000, the management fee for Scudder Technology Fund
amounted to $3,470,232.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for each Fund. For the
year ended May 31, 2000, SSC imposed its fee for Scudder Health Care Fund
42
<PAGE>
and Scudder Technology Fund aggregating $334,505 and $1,304,080, respectively,
of which $33,571 and $250,338, respectively, is unpaid at May 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of each Fund. For the year ended
May 31, 2000, SFAC imposed its fee for Scudder Health Care Fund and Scudder
Technology Fund, aggregating $43,815 and $73,522, respectively, of which $6,889
and $15,984, respectively, is unpaid at May 31, 2000.
The Funds pay each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended May 31, 2000 the Trustees' fees and expenses for Scudder Health Care Fund
and Scudder Technology Fund aggregated $45,247 and $50,706, respectively. In
addition, a one-time fee of $30,015 for each of the Scudder Health Care Fund and
the Scudder Technology Fund was accrued for payment to those Trustees not
affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note E. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $15,007 of such costs for each of the Scudder Health Care Fund and the
Scudder Technology Fund.
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 year ended May 31, 2000,
Scudder Health Care Fund's and Scudder Technology Fund's custodian and transfer
agent fees were reduced by $684 and $1,936 and by $7,778 and $15,098,
respectively.
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 based upon net assets, among each of the
Participants. Interest is calculated based on the market rates at the
43
<PAGE>
time of borrowing. The Funds may borrow up to a maximum of 33 percent of their
net assets under the agreement.
E. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Scudder Health Care Fund.
44
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Scudder Securities Trust and the Shareholders of Scudder
Health Care Fund and Scudder Technology Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Health Care Fund and
Scudder Technology Fund (the "Funds") at May 31, 2000, the results of their
operations, the changes in their net assets, and the financial highlights for
each of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at May 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
July 27, 2000
45
<PAGE>
Tax Information
--------------------------------------------------------------------------------
The Scudder Technology Fund paid distributions of $0.20 per share from net
long-term capital gains during its year ended May 31, 2000, of which 100%
represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Scudder Health Care
Fund and the Scudder Technology Fund designate $3,607,000 and $19,250,000,
respectively, as capital gain dividends for their year ended May 31, 2000, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
46
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin*
o President
Sheryle J. Bolton
o Trustee; Chief Executive Officer
and Director, Scientific Learning Corporation
William T. Burgin
o Trustee; General Partner,
Bessemer Venture Partners
Keith R. Fox
o Trustee; General Partner, The Exeter Group of Funds
William H. Luers
o Trustee; Chairman and President of
the U.N. Association of America
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Joan E. Spero
o Trustee; President, Doris Duke
Charitable Foundation
Paul Bancroft III
o Honorary Trustee; Consultant
Thomas J. Devine
o Honorary Trustee; Consultant
Wilson Nolen
o Honorary Trustee; Consultant
Robert G. Stone, Jr.
o Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg*
o Honorary Trustee
Peter Chin*
o Vice President
J. Brooks Dougherty*
o Vice President
James M. Eysenbach*
o Vice President
James E. Fenger*
o Vice President
Philip S. Fortuna*
o Vice President
Sewall Hodges*
o Vice President
Ann M. McCreary*
o Vice President
Thaddeus Paluszek*
o Vice President
Peter Taylor*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
47
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
The Scudder Family of Funds+++
--------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares* Scudder Micro Cap Fund
Managed Shares*
Scudder Tax Free Money Fund+ Growth
Scudder Classic Growth Fund***
Tax Free+ Scudder Large Company Growth Fund***
Scudder Limited Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Medium Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder 21st Century Growth Fund***
Scudder High Yield Tax Free Fund***
Scudder California Tax Free Fund** Global Equity
Scudder Massachusetts Limited Term Worldwide
Tax Free Fund** Scudder Global 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 Global Discovery Fund***
U.S. Income Scudder Emerging Markets Growth Fund
Scudder Short Term Bond Fund Scudder Gold Fund
Scudder GNMA 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 Health Care Fund
Asset Allocation Scudder Technology Fund
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio Preferred Series
Scudder Pathway Growth Portfolio Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
</TABLE>
48
<PAGE>
--------------------------------------------------------------------------------
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 IRA for Minors
Inherited 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 Class S 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
Kemper Investment'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 Kemper Investment's insurance agencies,
1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
49
<PAGE>
Scudder Solutions
--------------------------------------------------------------------------------
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.
50
<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
51
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
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
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.
