SCUDDER
Supplement to Prospectuses
Prospectus dated August 1, 1994 As Revised November 1, 1994
Scudder International Fund
Prospectuses dated November 1, 1994
Scudder Development Fund
Scudder Global Fund
Scudder Gold Fund
Prospectus dated February 1, 1995
Scudder Value Fund
Prospectuses dated March 1, 1995
Scudder Emerging Markets Income Fund
Scudder Global Small Company Fund
Scudder Greater Europe Growth Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Prospectuses dated May 1, 1995
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder Income Fund
Scudder Zero Coupon 2000 Fund
The following text replaces the section entitled "By telephone order."
By telephone order. Existing shareholders may purchase shares at a certain
day's price by calling 1-800-225-5163 before the close of regular trading
on the New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern
time, on that day. Orders must be for $10,000 or more and cannot be for an
amount greater than four times the value of your account at the time the
order is placed. You must include with your payment the order number given
at the time the order is placed. A confirmation with complete purchase
information is sent shortly after your order is received. If payment by
check or wire is not received within three business days, the order is
subject to cancelation and the shareholder will be responsible for any loss
to the Fund resulting from this cancelation. Telephone orders are not
available for shares held in Scudder IRA accounts and most other Scudder
retirement plan accounts.
June 7, 1995 PS999-2A-65
SFD99SU1
MIST3PS
<PAGE>
SCUDDER
June 7, 1995
Dear Scudder Investor,
The prospectus supplement on the reverse side is formal notice of a change in
Scudder's policy concerning the purchase of shares by telephone order. Investors
who purchase shares by telephone will now have three business days to pay for a
purchase, instead of the previous time limit of seven business days.
This new deadline is part of a new securities industry standard that mandates
settlement of all securities trades within three business days. The Securities
and Exchange Commission implemented this new deadline, called "T+3," to enhance
the stability of U.S. financial markets by reducing the amount of outstanding
debt among financial firms due to transaction activity.
If you have any questions about these changes, or about your Scudder Fund,
please call us at 1-800-225-2470. We will be happy to assist you.
Sincerely,
/s/David S. Lee
David S. Lee
President, Scudder Investor Services, Inc.
This letter is for explanatory purposes and is not part of the prospectus
supplement on the reverse side.
(over, please)
<PAGE>
Supplement to Statements of Additional Information dated November 1, 1994
Scudder Developoment Fund
The following text replaces the paragraph under "PURCHASES - Additional
Information About Making Subsequent Investments By Telephone Order:"
Subsequent purchase orders for $10,000 or more, and for an amount not
greater than four times the value of the shareholder's account, may be placed by
telephone, fax, etc. by members of the NASD, by banks, and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Horizon Plan, Scudder Profit Sharing and Money Purchase Pension Plans, and
Scudder 401(k) and Scudder 403(b) Plan holders). Orders placed in this manner
may be directed to any office of the Distributor listed in the Fund's
prospectus. A confirmation of the purchase will be mailed out promptly following
receipt of a request to buy. Federal regulations require that payment be
received within three business days. If payment is not received within that
time, the order is subject to cancelation. In the event of such cancelation or
cancelation at the purchaser's request, the purchaser will be responsible for
any loss incurred by the Fund or the principal underwriter by reason of such
cancelation. If the purchaser is a shareholder, the Trust shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
June 7, 1995
<PAGE>
This prospectus sets forth concisely the information about Scudder Development
Fund, an open-end management investment company, that a prospective investor
should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated November 1, 1994, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
Scudder
Development
Fund
Prospectus
November 1, 1994
A pure no-load(TM) (no sales charges) mutual fund which seeks long-term
growth of capital by investing primarily in securities of emerging growth
companies
<PAGE>
Expense information
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How to compare a Scudder pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Development Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(TM) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets, for the fiscal year ended June 30, 1994.
Investment management fee 0.98%
12b-1 fees NONE
Other expenses 0.29%
-----
Total Fund operating expenses 1.27%
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its
net investment income to shareholders. (As noted above, the Fund has no
redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $40 $70 $153
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
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2
<PAGE>
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated June 30, 1994 and may be obtained without charge by
writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
Years Ended June 30, (a)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
1994(b) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988 1987 1986(b) 1985
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $ 34.58 $ 29.92 $ 27.33 $ 26.25 $ 22.54 $ 22.00 $ 25.39 $ 25.12 $ 20.41 $ 18.57
beginning of period ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment (.30) (.27) (.23) (.10) (.08) (.10) (.08) (.07) (.01) .14
income (loss)
Net realized and (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41) 1.67 5.81 2.33
unrealized gain ----- ---- ---- ---- ---- ---- ----- ---- ---- ----
(loss) on investment
transactions
Total from investment (3.93) 6.36 3.55 2.31 5.99 .96 (1.49) 1.60 5.80 2.47
operations ----- ---- ---- ---- ---- --- ----- ---- ---- ----
Less distributions from: -- -- -- -- -- -- -- -- (.17) (.28)
Net investment
income
Net realized gains on (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33) (.92) (.35)
investment
transactions
Total distributions (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33) (1.09) (.63)
Net asset value, $ 27.58 $ 34.58 $ 29.92 $ 27.33 $ 26.25 $ 22.54 $ 22.00 $ 25.39 $ 25.12 $ 20.41
end of period ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return (%) (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35) 7.51 29.92 13.58
Ratios and Supplemental
Data
Net assets, end of 546 821 700 476 361 275 356 387 359 254
period ($ millions)
Ratio of operating 1.27 1.30 1.30 1.29 1.34 1.32 1.30 1.27 1.25 1.29
expenses to average
net assets (%)
Ratio of net investment (.91) (.83) (.70) (.40) (.35) (.47) (.44) (.33) (.03) .90
income (loss) to average
net assets (%)
Portfolio turnover 48.3 49.2 53.5 70.8 40.1 32.0 39.2 23.5 29.4 25.7
rate (%)
(a) All per share and share outstanding amounts through 1986 have been restated
to reflect the November 17, 1986, 200% stock dividend.
(b) Per share amounts have been calculated using the weighted average shares
outstanding during the period method.
</TABLE>
3
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $90 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to professional
service representatives at Scudder Service Corporation and the Scudder Investor
Information department, easy exchange among funds, shareholder reports,
informative newsletters and the walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Development Fund
Investment objective
* long-term growth of capital
Investment characteristics
* a professionally managed portfolio consisting primarily of securities of
emerging growth companies
* potential for above-average long-term growth of capital in return for
above-average risk
* daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 5
Additional information about policies and investments 6
Distribution and performance information 8
Fund organization 9
Purchases 10
Exchanges and redemptions 11
Transaction information 12
Shareholder benefits 15
Trustees and Officers 18
Investment products and services 19
How to contact Scudder Back cover
4
<PAGE>
Investment objective and policies
Above-average long-term capital growth
Scudder Development Fund (the "Fund"), a diversified mutual fund, seeks
long-term growth of capital by investing primarily in securities of emerging
growth companies. The Fund is designed for investors in search of substantial
long-term growth who can accept above-average stock market risk and little or no
current income.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's objective. If there is
a change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund generally invests in equity securities, including common stocks and
convertible securities, of relatively small or little-known companies, commonly
referred to as emerging growth companies, that the Fund's adviser, Scudder,
Stevens & Clark, Inc. (the "Adviser") believes have above-average earnings
growth potential and/or may receive greater market recognition. Both factors are
believed to offer significant opportunity for capital appreciation and the
Adviser will attempt to identify these opportunities before their potential is
recognized by investors in general.
To help reduce risk, the Fund allocates its investments among many companies and
different industries. In selecting industries and companies for investment, the
Adviser will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of governmental
regulation or deregulation, management and other factors.
For temporary defensive purposes the Fund may vary from its investment policy
during periods in which conditions in securities markets or other economic or
political conditions warrant. In such cases, the Fund may hold cash, high
quality debt securities without equity features, U.S. Government securities and
invest in money market instruments which are rated in the two highest categories
by Moody's Investors Service, Inc. or Standard & Poor's, or, if unrated, are
deemed by the Adviser to be of equivalent quality.
In addition, the Fund may invest in preferred stocks when management anticipates
that the capital appreciation is likely to equal or exceed that of common stocks
over a selected time.
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System and broker/dealers which are recognized as reporting government
securities dealers. In addition, the Fund may engage in strategic transactions.
See "Additional information about policies and investments" for more information
about these investment techniques.
Why invest in the Fund?
Scudder Development Fund offers participation in the potential growth of small
companies with favorable long-term prospects. It also offers the benefits of
professional management of investments in many rapidly changing sectors of the
economy. Examples include new retailing concepts, the U.S. transition to a more
service based economy and advances in health care, communications and
technology. In return for accepting above-average risk, investors gain access to
a large, diversified portfolio designed for above-average capital appreciation
compared to that available from larger companies such as those in the Standard &
Poor's 500 Stock Index.
5
<PAGE>
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(TM)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes and may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements.
In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its net assets, in the aggregate, in securities which are not
readily marketable, repurchase agreements maturing in more than seven days and
restricted securities, and in no event may the Fund invest more than 5% of its
total assets in restricted securities. The Fund may not invest more than 5% of
its net assets in warrants. A complete description of these and other policies
and restrictions is contained under "Investment Restrictions" in the Fund's
Statement of Additional Information.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may include the use of derivative contracts. Such strategies are
generally accepted as modern portfolio management and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
6
<PAGE>
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Please refer to "Risk factors--Strategic
Transactions and derivatives" for more information.
Foreign securities
While the Fund generally emphasizes investments in companies domiciled in the
United States, it may invest in listed and unlisted foreign securities of the
same types as the domestic securities in which the Fund may invest when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objective of the Fund. However, the Fund has no current intention of investing
more than 20% of its net assets in foreign securities.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to investments and techniques that the
Fund may use from time to time.
Investing in emerging growth companies. The investment risk associated with
emerging growth companies is higher than that normally associated with larger,
older companies due to the greater business risks of small size, the relative
age of the company, limited product lines, distribution channels and financial
and managerial resources. Further, there is typically less publicly available
information concerning smaller companies than for larger, more established ones.
The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, the Fund may need to
discount the securities from recent prices or dispose of the securities over a
long period of time. The prices of this type of security may be more volatile
than those of larger companies which are often traded on a national securities
exchange.
Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory taxes,
possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
7
<PAGE>
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryforwards,
if any, in December to prevent application of a federal excise tax, although an
additional distribution may be made within three months of the Fund's fiscal
year end, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund. If an investment is in the form of
a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. A portion of such dividends from
net investment income may qualify for the dividends-received deduction for
corporations.
The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.
8
<PAGE>
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance.
"Total return" is the change in value of an investment in the Fund for a
specified period. The "average annual total return" of the Fund is the average
annual compound rate of return of an investment in the Fund assuming the
investment has been held for one year, five years and ten years as of a stated
ending date. "Cumulative total return" represents the cumulative change in value
of an investment in the Fund for various periods. Total return calculations
assume that all dividends and capital gains distributions during the period were
reinvested in shares of the Fund. "Capital change" measures return from capital,
including reinvestment of any capital gains distributions but does not include
the reinvestment of dividends. Performance will vary based upon, among other
things, changes in market conditions and the level of the Fund's expenses.
Fund organization
Scudder Development Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
The Fund was organized as a Massachusetts business trust in October 1985 and on
December 31, 1985 assumed the business of its predecessor. Its predecessor was
organized as a Delaware corporation in February 1970.
The Fund's activities are supervised by its Board of Trustees. Shareholders have
one vote for each share held on matters on which they are entitled to vote. The
Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Trustees, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Trustee as
if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage its daily investment and business
affairs subject to the policies established by its Trustees. The Trustees have
overall responsibility for the management of the Fund under Massachusetts law.
For the fiscal year ended June 30, 1994, the Adviser received an investment
management fee of 0.98% of the Fund's average daily net assets on an annual
basis.
The fee is graduated so that increases in the Fund's net assets may result in a
lower fee rate and decreases in the Fund's net assets may result in a higher fee
rate. The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid. Because of the higher
cost of research, this fee is higher than that charged by most funds.
All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
wholly-owned subsidiary of the Adviser, is the transfer, shareholder servicing
and dividend-paying agent for the Fund.
(continued on page 12)
9
<PAGE>
Purchases
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Opening Minimum initial investment: $1,000; IRAs $500
an account Group retirement plans (401(k), 403(b), etc.) have similar
or lower minimums. See appropriate plan literature.
Make checks o By Mail Send your completed and signed application
payable to "The and check
Scudder Funds."
by regular mail to: or by express,
registered, or
certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
o By Wire
Please see Transaction
information--Purchasing shares--By
wire following these tables for
details, including the ABA wire
transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete
your application with the help of a Scudder
representative. Funds Center locations are
listed under Shareholder benefits.
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Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar
shares or lower minimums. See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip,
payable to "The or with a letter of instruction including
Scudder Funds." your account number and the complete Fund
name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing
shares--By wire following these tables for
details, including the ABA wire
transfer number.
o In Person Visit one of our Funds Centers to make an
additional investment in your Scudder fund
account. Funds Center locations are listed
under Shareholder benefits.
o By Telephone You may purchase additional shares in an
amount of $10,000 or more. Please call
1-800-225-5163 for more details.
o By Automatic You may arrange to make investments on a
Investment regular basis through automatic deductions
Plan from your bank checking account. Please call
($50 minimum) 1-800-225-5163 for more information and an
enrollment form.
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10
<PAGE>
Exchanges and redemptions
- --------------------------------------------------------------------------------
Exchanging Minimum investments: $1,000 to establish a new account;
shares $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call
1-800-225-5163 from 8 a.m. to 6 p.m. eastern
time or to access SAIL(TM), Scudder's
Automated Information Line, call
1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account
number you are exchanging from;
- your name(s) and address as they appear
on your account;
- the dollar amount or number of shares
you wish to exchange;
- the name of the Fund you are exchanging
into; and
- your signature(s)as it appears on your
account and a daytime phone number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered or
certified
mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA 02107-2291 Rockland, MA 02370-1052
-------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call
shares 1-800-225-5163 from 8 a.m. to 6 p.m.
eastern time or to access SAIL(TM),
Scudder's Automated Information Line,
call 1-800-343-2890 (24 hours a day). You
may have redemption proceeds sent to your
predesignated bank account, or redemption
proceeds of up to $50,000 sent to your
address of record.
o By Mail Send your instructions for redemption to the
or Fax appropriate address or fax number above and
include:
- the name of the Fund and account
number you are redeeming from;
- your name(s)and address as they appear on
your account;
- the dollar amount or number of shares you
wish to redeem; and
- your signature(s) as it appears on your
account and a daytime phone number.
A signature guarantee is required for
redemptions over $50,000. See Transaction
information--Redeeming shares following
these tables.
o By Automatic You may arrange to receive automatic cash
Withdrawal payments periodically if the value of your
Plan account is $10,000 or more. Call
1-800-225-5163 for more information and
an enrollment form.
-------------------------------------------------------------------------------
11
<PAGE>
Fund organization (cont'd)
(continued from page 9)
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser, is
the Fund's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Fund. Scudder Investor Information is a
telephone information service provided by Scudder Investor Services, Inc.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be cancelled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared,
which may take up to seven business days. If you purchase shares by federal
funds wire, you may avoid this delay. Redemption or exchange requests by
telephone prior to the expiration of the seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent in Boston. Accounts cannot
be opened without a completed, signed application and a Scudder fund account
number. Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts.
Please call 1-800-225-5163 for more information, including information about the
transfer of special account features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. You must
include with your payment the order number given at the time the order is
placed. A confirmation with complete purchase information is sent shortly after
your order is received. If payment by check or wire is not received within seven
business days, the order will be cancelled and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
12
<PAGE>
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.)
You can obtain a signature guarantee from most banks, credit unions or savings
associations, or from broker/dealers, municipal securities broker/dealers,
government securities broker/dealers, national securities exchanges, registered
securities associations or clearing agencies deemed eligible by the Securities
and Exchange Commission. Signature guarantees by notaries public are not
acceptable. Redemption requirements for corporations, other organizations,
trusts, fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. For more information, please call
1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value. The
Fund's custodian, Brown Brothers Harriman & Co., determines net asset value per
share as of the close of regular trading on the Exchange, normally 4 p.m.
eastern time, on each day the Exchange is open for trading. Net asset value per
share is calculated by dividing the value of total Fund assets, less all
liabilities, by the total number of shares outstanding.
13
<PAGE>
Processing time
All purchase and redemption requests received in good order by the Fund's
transfer agent in Boston by the close of regular trading on the Exchange are
executed at the net asset value per share calculated at the close of regular
trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Service Corporation by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven days (or longer in
the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in the Fund's
share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
14
<PAGE>
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Development Fund is managed by a team of Scudder investment
professionals, who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists who
work in Scudder's offices across the United States and abroad. Scudder believes
its team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.
Lead Portfolio Manager Roy C. McKay assumed responsibility for the Fund's
day-to-day management when he joined Scudder in 1988. Mr. McKay has 28 years of
investment experience, with 19 years specializing in small company growth
stocks. Peter Chin, who has been with Scudder since 1973, joined Scudder's small
company group in 1986 and became a Portfolio Manager of the Development Fund in
1993. Mr. Chin contributes expertise in manufacturing, service and energy
companies.
SAIL(TM)--Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to perform
transactions in existing Scudder fund accounts, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890. During periods of extreme
economic or market changes, or other conditions, it may be difficult for you to
effect telephone transactions in your account. In such an event you should write
to the Fund; please see "How to contact Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, tax free and
growth funds with a simple toll-free call or, if you prefer, by sending your
instructions through the mail or by fax. Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
15
<PAGE>
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
16
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
* Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income. Many
people can deduct all or part of their contributions from their taxable
income, and all investment earnings accrue on a tax deferred basis. The
Scudder No-Fee IRA charges no annual custodial fee.
* 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
* Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
* 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
* SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.
* Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA or a Scudder
Horizon Plan, please call 1-800-225-2470. For information about 401(k)s,
403(b)s, Profit Sharing Plans, Money Purchase Pension Plans or SEP-IRAs, please
call 1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
17
<PAGE>
Trustees and Officers
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Edmond D. Villani*
Trustee
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Edmund R. Swanberg*
Honorary Trustee
Peter Chin*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Roy C. McKay*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Richard W. Desmond*
Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
18
<PAGE>
<TABLE>
<CAPTION>
Investment products and services
<C> <C>
The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder GNMA Fund
Scudder U.S. Treasury Money Fund Scudder Income Fund
Tax free money market+ Scudder International Bond Fund
Scudder Tax Free Money Fund Scudder Short Term Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Global Income Fund
Scudder New York Tax Free Money Fund* Scudder Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Fund
Scudder Managed Municipal Bonds Scudder Global Small Company Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Value Fund
Scudder Balanced Fund The Japan Fund
Scudder Growth and Income Fund
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan*+++ (a variable annuity) Profit Sharing and
401(k) Plans Money Purchase Pension Plans
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</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. +A portion of the income from the tax-free funds may
be subject to federal, state and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance
Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust(TM), an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
19
<PAGE>
<TABLE>
<CAPTION>
How to contact Scudder
<C> <C> <C>
Account Service and Information: Please address all correspondence to:
For existing account Scudder Service The Scudder Funds
service and Corporation P.O. Box 2291
transactions 1-800-225-5163 Boston, Massachusetts
02107-2291
For account updates, prices, Scudder Automated
yields, exchanges and Information Line (SAIL)
redemptions 1-800-343-2890
Investment Information: Or Stop by a Scudder Funds Center:
To receive information about Scudder Investor Many shareholders enjoy the personal, one-on-one
the Scudder funds, for Information service of the Scudder Funds Centers. Check for a
additional applications and 1-800-225-2470 Funds Center near you--they can be found in the
prospectuses, or for following cities:
investment questions
For establishing Keogh, 401(k) Scudder Group Retirement Boca Raton New York
and 403(b) plans Services Boston Portland, OR
1-800-323-6105 Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder Treasurers Trust(TM), an For information on Scudder Institutional Funds*,
institutional cash management service for funds designed to meet the broad investment management and
corporations, non-profit organizations and trusts which service needs of banks and other institutions, call:
utilizes certain portfolios of Scudder Fund, Inc.* 1-800-854-8525.
($100,000 minimum), call: 1-800-541-7703.
</TABLE>
Scudder Investor Information and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
<PAGE>
SCUDDER DEVELOPMENT FUND
A Pure No-Load (TM) (No Sales Charges) Mutual Fund
Which Seeks Long-Term Growth of Capital
by Investing Primarily in Securities
of Emerging Growth Companies
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1994
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of Scudder Development Fund dated November 1,
1994, as amended from time to time, a copy of which may be obtained without
charge by writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments Involving Above-Average Risk.....................................................................1
Repurchase Agreements........................................................................................2
Foreign Securities..........................................................................................10
Investment Restrictions.....................................................................................11
Other Investment Restrictions...............................................................................12
PURCHASES............................................................................................................14
Additional Information About Opening An Account.............................................................14
Additional Information About Making Subsequent Investments by Telephone Order...............................14
Checks......................................................................................................14
Wire Transfer of Federal Funds..............................................................................15
Share Price.................................................................................................15
Share Certificates..........................................................................................15
Other Information...........................................................................................15
EXCHANGES AND REDEMPTIONS............................................................................................16
Exchanges...................................................................................................16
Redemption by Telephone.....................................................................................17
Redemption by Mail or Fax...................................................................................17
Other Information...........................................................................................18
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
The Pure No-Load(TM) Concept................................................................................19
Distribution Plans..........................................................................................20
Diversification.............................................................................................20
Scudder Funds Centers.......................................................................................20
Reports to Shareholders.....................................................................................21
Transaction Summaries.......................................................................................21
THE SCUDDER FAMILY OF FUNDS..........................................................................................21
SPECIAL PLAN ACCOUNTS................................................................................................24
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans
for Corporations and Self-Employed Individuals.........................................................25
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................25
Scudder IRA: Individual Retirement Account.................................................................25
Scudder 403(b) Plan.........................................................................................26
Automatic Withdrawal Plan...................................................................................26
Group or Salary Deduction Plan..............................................................................27
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27
Scudder Trust Company.......................................................................................27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTION.............................................................................28
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
PERFORMANCE INFORMATION..............................................................................................28
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................29
Total Return................................................................................................29
Capital Change..............................................................................................29
Comparison of Fund Performance..............................................................................29
FUND ORGANIZATION....................................................................................................33
INVESTMENT ADVISER...................................................................................................33
TRUSTEES AND OFFICERS................................................................................................36
REMUNERATION.........................................................................................................39
DISTRIBUTOR..........................................................................................................39
TAXES................................................................................................................40
PORTFOLIO TRANSACTIONS...............................................................................................43
Brokerage...................................................................................................43
Portfolio Turnover..........................................................................................44
NET ASSET VALUE......................................................................................................45
ADDITIONAL INFORMATION...............................................................................................46
Experts.....................................................................................................46
Shareholder Indemnification.................................................................................46
Other Information...........................................................................................46
FINANCIAL STATEMENTS.................................................................................................47
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" and
"Additional information about policies and
investments" in the Fund's prospectus.)
Scudder Development Fund (the "Fund") is a pure no-load(TM),
diversified, open-end management investment company which continuously offers
and redeems its shares. It is a company of the type commonly known as a mutual
fund.
General Investment Objective and Policies
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of emerging growth companies. The Fund is designed for
investors in search of substantial long-term growth who can accept above-average
stock market risk and little or no current income.
The Fund generally invests in equity securities, including common
stocks and convertible securities, of relatively small or little-known
companies, commonly referred to as emerging growth companies, that the Fund's
adviser, Scudder, Stevens & Clark, Inc. (the "Adviser") believes have
above-average earnings growth potential and/or may receive greater market
recognition. Both factors are believed to offer significant opportunity for
capital appreciation and the Adviser will attempt to identify these
opportunities before their potential is recognized by investors in general.
To help reduce risk, the Fund allocates its investments among many
companies and different industries. In selecting industries and companies for
investment, the Adviser will consider overall growth prospects, financial
condition, competitive position, technology, research and development,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
For temporary defensive purposes the Fund may vary from its investment
policy during periods in which conditions in securities markets or other
economic or political conditions warrant. In such cases, the Fund may hold cash,
high quality debt securities without equity features, U.S. Government securities
and invest in money market instruments which are rated in the two highest
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
("S&P"), or, if unrated, are deemed by the Adviser to be of equivalent quality.
In addition, the Fund may invest in preferred stocks when management
anticipates that the capital appreciation is likely to equal or exceed that of
common stocks over a selected time.
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System and any broker/dealer which is recognized as a reporting
government securities dealer. The Fund may also invest in foreign securities and
in restricted securities which may involve greater risks of loss to the Fund
than domestic readily marketable securities. The Fund may utilize various
strategic transactions.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
The Fund is intended to be an investment vehicle for that portion of an
investor's assets which can appropriately accept above-average risk and is not
intended to provide a balanced investment program to meet all requirements of
every investor.
There is no assurance that the Fund will achieve its objective.
Investments Involving Above-Average Risk
As opportunities for greater gain frequently involve a correspondingly
large risk of loss, the Fund may purchase securities carrying above-average
risk. The Fund's shares are believed by the Adviser to be suitable only for
those investors who can make such investments without concern for current income
and who are in a financial position to assume above-average stock market risks
in search of substantial long-term rewards.
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As stated above, the Fund may purchase securities involving
above-average risk. For example, the Fund has invested from time to time in
relatively new companies but is limited, however, by its non-fundamental policy
that it may not invest more than 5% of its total assets in companies that, with
their predecessors, have been in continuous operation for less than three years.
The Fund's portfolio may also include the securities of small or little-known
companies, commonly referred to as emerging growth companies, that the Adviser
believes have above-average earnings growth potential and/or may receive greater
market recognition. Both factors are believed to offer significant opportunity
for capital appreciation. Investment risk is higher than that normally
associated with larger, older companies due to the higher business risks
associated with small size, frequently narrow product lines and relative
immaturity. To help reduce risk, the Fund allocates its investments among many
companies and different industries.
The securities of such companies are often traded only over-the-counter
and may not be traded in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Fund of holdings of such
securities may require the Fund to offer a discount from recent prices or to
make many small sales over a lengthy period of time. Such securities may be
subject to more abrupt or erratic market movements than those typically
encountered on national securities exchanges.
The Fund may occasionally purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities", i.e., securities which cannot be
sold to the public without registration under the Securities Act of 1933 or the
availability of an exemption from registration (such as Rules 144 or 144A), or
which are "not readily marketable" because they are subject to other legal or
contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The Fund will not invest more than 10% of its net assets in securities
which are not readily marketable, the disposition of which is restricted under
Federal securities laws or in repurchase agreements not terminable within seven
days, and the Fund will not invest more than 5% of its total assets in
restricted securities.
Repurchase Agreements
The Fund may enter into repurchase agreements with any member bank of
the Federal Reserve System and any broker/dealer which is recognized as a
reporting government securities dealer if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by
Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be physically held by the Custodian or in the Federal Reserve Book Entry
System.
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For purposes of the Investment Company Act of 1940, as amended, ("1940
Act"), a repurchase agreement is deemed to be a loan from the Fund to the seller
of the Obligation subject to the repurchase agreement and is therefore subject
to the Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the Obligation purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt obligation purchased for the Fund, the Adviser seeks to minimize
the risk of loss through repurchase agreements by analyzing the creditworthiness
of the obligor, in this case the seller of the Obligation. Apart from the risk
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the Fund's portfolio, or to enhance potential gain.
These strategies may include the use of derivative contracts. Such strategies
are generally accepted as modern portfolio management and are regularly utilized
by many mutual funds and other institutional investors. Techniques and
instruments may change over time as new instruments and strategies are developed
or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
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(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
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particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
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instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
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currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
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<PAGE>
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid high
grade assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
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<PAGE>
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")
Foreign Securities
While the Fund generally emphasizes investments in companies domiciled
in the United States, it may invest in listed and unlisted foreign securities of
the same types as the domestic securities in which the Fund may invest when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objective of the Fund. However, the Fund has no current intention of investing
more than 20% of its net assets in foreign securities.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in United States securities and
which may favorably or unfavorably affect the Fund's performance. As foreign
companies are not generally subject to uniform accounting and auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities without delivery
may be required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Investments in
foreign securities may also entail certain risks, such as possible currency
10
<PAGE>
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund temporarily may hold funds in bank
deposits in foreign currencies during the completion of investment programs.
Accordingly, the value of the assets for the Fund as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies, if any, into U.S. dollars on a daily basis. It
may do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through strategic
transactions involving currencies.
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of the stock markets in which it is
invested and the currencies in which the investments are denominated; the
strength or weakness of the U.S. dollar against foreign currencies could account
for part of the Fund's investment performance.
Investment Restrictions
Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund involved which, under the Investment Company Act of 1940 and the
rules thereunder and as used in this Statement of Additional Information, means
the lesser of (1) 67% of shares of the Fund present at a meeting if the holders
of more than 50% of the outstanding shares of that Fund are present in person or
by proxy, or (2) more than 50% of the outstanding shares of a Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund may not:
(1) with respect to 75% of its total assets, taken at market
value, purchase more than 10% of the voting securities of any
one issuer or invest more than 5% of the value of its total
assets in the securities of any one issuer, except obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities and except securities of other investment
companies;
(2) borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements, provided that the Fund maintains asset
coverage of 300% for all borrowings;
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<PAGE>
(3) purchase or sell real estate; (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of
the Fund's ownership of securities); or purchase or sell
physical commodities or contracts relating to physical
commodities;
(4) act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;
(5) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objectives and investment policies may be
deemed to be loans; or
(6) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the securities of one or more issuers having
their principal business activities in the same industry,
provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents).
Other Investment Restrictions
The Fund will not as a matter of nonfundamental policy:
(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
one-half of one percent (1/2%) of the outstanding shares or
securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent
(1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;
(d) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions, and except that the Fund may obtain
such short-term credits as may be necessary for the clearance
of purchases and sales of securities;
(e) invest more than 10% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws or in repurchase agreements not
12
<PAGE>
terminable within 7 days, and the Fund will not invest more
than 5% of its total assets in restricted securities;
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors,
except U.S. Government securities, and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of
the total assets of the Fund taken at market value;
(g) buy options on securities or financial instruments unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of the Fund's net assets; or
sell put options on securities if, as a result, the aggregate
value of the obligations underlying such put options would
exceed 50% of the Fund's net assets;
(h) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided, that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(j) borrow money, including reverse repurchase agreements, in
excess of 5% of its total assets (taken at market value),
except for temporary or emergency purposes, or borrow other
than from banks;
(k) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's net assets or more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(l) invest more than 20% of its net assets in the securities of
foreign issuers;
(m) purchase from or sell to any of the Fund's officers and
trustees, its investment adviser, its principal underwriter or
the officers and directors of its investment adviser or
principal underwriter, portfolio securities of the Fund;
(n) purchase or sell real estate limited partnership interests; or
(o) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets.
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<PAGE>
PURCHASES
(See "Purchases" and "Transaction information" in the Fund's prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of Scudder, Stevens & Clark, Inc. or of any affiliated organization and their
immediate families, members of the National Association of Securities Dealers,
Inc. ("NASD") and banks may, if they prefer, subscribe initially for at least
$1,000 through Scudder Investor Services, Inc. by letter, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with Scudder or its affiliates and members of
their immediate families, officers and employees of the Adviser or of any
affiliated organization and their immediate families, members of the NASD, and
banks may open an account by wire. These investors must call 1-800-225-5163 to
get an account number. During the call, the investor will be asked to indicate
the Fund name, amount to be wired ($1,000 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.
Additional Information About Making Subsequent Investments by Telephone Order
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder pension and profit sharing, Scudder 401(k) and
Scudder 403(b) Planholders), members of the NASD, and banks. Orders placed in
this manner may be directed to any Scudder Investor Services, Inc. office listed
in the Fund's Prospectus. A two-part invoice of the purchase will be mailed out
promptly following receipt of a request to buy. Payment should be attached to a
copy of the invoice for proper identification. Federal regulations require that
payment be received within seven business days. If payment is not received
within that time, the shares may be canceled. In the event of such cancellation
or cancellation at the purchaser's request, the purchaser will be responsible
for any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Fund shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
Checks
A certified check is not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on, or
payable through, a United States bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Fund will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
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Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Fund pays a fee for receipt by State Street Bank
and Trust Company of "wired funds," but the right to charge investors for this
service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans' Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because State Street Bank and Trust Company is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will be executed at the next business day's net
asset value. If the order has been placed by a member of the NASD other than
Scudder Investor Services, Inc., it is the responsibility of that member broker,
rather than the Fund, to forward the purchase order to the Fund's transfer agent
in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund. Share
certificates now in a shareholder's possession may be sent to Scudder Service
Corporation (the "Transfer Agent") for cancellation and credit to such
shareholder's account. Shareholders who prefer may hold the certificates in
their possession until they wish to exchange or redeem such shares.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement
made at the investor's election through a member of the NASD other than Scudder
Investor Services, Inc., that member may, at its discretion, charge a fee for
this service. The Board of Trustees and Scudder Investor Services, Inc., the
Fund's principal underwriter, each has the right to limit the amount of
purchases by, and to refuse to sell to any person; and each may suspend or
terminate the offering of shares of the Fund at any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g. certification of exempt status from exempt investors) will be returned to
the investor.
The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
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EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in
the Fund's prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $1,000. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information--Redeeming shares--Signature guarantees" in the
Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trust and the Transfer Agent each
reserves the right to suspend or terminate the privilege of the Automatic
Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
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<PAGE>
Redemption by Telephone
Shareholders currently receive the right to redeem up to $50,000 to
their address of record automatically, without having to elect it. Shareholders
may also request by telephone to have the proceeds mailed or wired to their
predesignated bank account. In order to request wire redemptions by telephone,
shareholders must have completed and returned to the Transfer Agent the
application, including the designation of a bank account to which the redemption
proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
pre-designated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a pre-designated bank account or who want to change the
bank account previously designated to receive redemption
payments should either return a Telephone Redemption Option
Form (available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in certain retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
17
<PAGE>
It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary, agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within seven business days
after receipt of a request for redemption that complies with the above
requirements. Delays of more than seven days of payment for shares tendered for
repurchase or redemption may result, but only until the purchase check has
cleared.
The requirements for IRA redemptions are different from those of
regular accounts. For more information call 1-800-225-5163.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110 by letter, fax, TWX, or telephone. A two-part confirmation
will be mailed out promptly after receipt of the repurchase request. A written
request in good order as described above and any certificates with proper
signature guarantees, as described in the Fund's Prospectus under "Transaction
information--Redeeming shares--Signature guarantees" should be sent with a copy
of the invoice to Scudder Service Corporation, Confirmed Processing Department,
Two International Place, Boston, Massachusetts 02110-4103. Failure to deliver
shares or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by the Fund or the principal underwriter by reason of such
cancellation. The Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account to reimburse the Fund or the principal underwriter
for the loss incurred. Net losses on such transactions which are not recovered
from the shareholder will be absorbed by the principal underwriter. Any net
gains so resulting will accrue to the Fund. For this group, repurchases will be
carried out at the net asset value next computed after such repurchase requests
have been received. The arrangements described in this paragraph for
repurchasing shares are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Fund does not impose a redemption or repurchase charge, although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemptions of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (see "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times (a) during which the Exchange is closed, other than customary weekend and
holiday closings, (b) during which trading on the Exchange is restricted for any
reason, (c) during which an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during which the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment or of redemption;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
18
<PAGE>
If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Fund may notify the shareholder that,
unless the account balance is brought up to at least $1,000, the Fund will
redeem all shares, close the account and send the redemption proceeds to the
shareholder. The shareholder has sixty days to bring the account balance up to
$1,000 before any action will be taken by the Fund. (This policy does not apply
to certain Special Plan Accounts.) The Trustees have the authority to change the
minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" in the Fund's prospectus.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
19
<PAGE>
<TABLE>
<CAPTION>
Scudder No-Load Fund
Pure No-Load(TM) Load Fund with with 0.25% 12b-1
YEARS Fund 8.50% Load Fund 0.75% 12b-1 Fee Fee
----- ---- --------------- --------------- ---
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Distribution Plans
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
See "How to contact Scudder" in the Prospectus for the address. Please include
your account number with your written request.
Reinvestment is usually made on the day following the record date.
Investors may leave standing instructions with the Transfer Agent designating
their option for either reinvestment or cash distribution of any income
dividends or capital gains distributions. If no election is made, dividends and
distributions will be invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gains distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Diversification
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification helps protect you
against the risks of concentrating in fewer securities.
Scudder Funds Centers
Investors may visit any of the Centers maintained by Scudder Investor
Services, Inc. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or find assistance
with opening an account, adding monies or special options to existing accounts,
making exchanges within the Scudder Family of Funds, redeeming shares or opening
retirement plans. Checks should not be mailed to the Centers but should be
20
<PAGE>
mailed to "The Scudder Funds" at the address listed under "How to contact
Scudder" in the Prospectus.
Reports to Shareholders
The Fund issues to shareholders semiannual financial statements
(audited annually by independent accountants), including a list of investments
held and statements of assets and liabilities, operations, changes in net assets
and supplementary information for the Fund.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability of
capital, and consistent therewith, to maintain the liquidity of capital
and to provide current income through investment in a supervised portfolio
of short-term debt securities. SCIT intends to seek to maintain a constant
net asset value of $1.00 per share, although in certain circumstances this
may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and U.S.
Government guaranteed obligations with maturities of not more than 762
calendar days. The Fund intends to seek to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not
be possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current income
and, secondarily, long-term capital appreciation through investments
primarily in high-yielding debt securities issued in emerging markets.
Scudder GNMA Fund seeks to provide investors with high current income from
a portfolio of high-quality GNMA securities.
Scudder Income Fund seeks to earn a high level of income consistent with
the prudent investment of capital through a flexible investment program
emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a portfolio
of high-grade bonds denominated in foreign currencies. As a secondary
objective, the Fund seeks protection and possible enhancement of principal
value by actively managing currency, bond market and maturity exposure and
by security selection.
21
<PAGE>
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments, and
more price stability than investments in intermediate- and long-term
bonds.
Scudder Short Term Global Income Fund seeks to provide high current income
from a portfolio of high-grade money market instruments and short-term
bonds denominated in foreign currencies and the U.S. dollar.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking stability
of principal. STFMF seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible.
Scudder California Tax Free Money Fund* is designed to provide California
taxpayers income exempt from California state and regular federal income
taxes, and seeks stability of capital and the maintenance of a constant
net asset value of $1.00 per share, although in certain circumstances this
may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the maintenance
of a constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a high
degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in long-term
municipal securities with an emphasis on high quality.
Scudder Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation
by investing in high-grade municipal securities of intermediate
maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from both
California and regular federal income taxes through the professional and
efficient management of a portfolio consisting of California state,
municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as high
a level of income exempt from Massachusetts personal and regular federal
income tax as is consistent with a high degree of principal stability.
- ---------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
22
<PAGE>
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt from
both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both Ohio
and regular federal income taxes through the professional and efficient
management of a portfolio consisting of Ohio state, municipal and local
government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income, as
well as long-term preservation of capital, from a diversified portfolio of
equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio invested
primarily in common stocks and convertible securities by companies which
offer the prospect of growth of earnings while paying current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of capital
through a broad and flexible investment program emphasizing common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally common
stocks, of relatively small or little-known companies which in the opinion
of management have promise of expanding their size and profitability or of
gaining increased market recognition for their securities, or both.
Scudder Global Fund seeks long-term growth of capital primarily through a
diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and foreign
issuers. Income is an incidental consideration.
Scudder Global Small Company Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity securities
and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
- ---------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
23
<PAGE>
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a view
toward total investment return.
Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Quality Growth Fund seeks to provide long-term growth of capital
through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.
Scudder Value Fund seeks long-term growth of capital through investment in
undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
Scudder Service Representative; easy telephone exchanges into Scudder money
market, tax free, income, and growth funds; shares redeemable at net asset value
at any time.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
24
<PAGE>
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,250 for married couples if one spouse has earned income of no
more than $250). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
24
<PAGE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders who currently own or purchase $10,000
or more of shares of the Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at the
end of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be
26
<PAGE>
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when the shares are priced low the investor will
purchase more shares than when the share price is higher. Over a period of time
this investment approach may allow the investor to reduce the average price of
the shares purchased. However, this investment approach does not assure a profit
or protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to terminate a shareholder's account in the event
that regular investments to the account cease before the $1,000 minimum is
reached.
Scudder Trust Company
Annual service fees are paid by the Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are included
in the fees paid to the Transfer Agent.
27
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance
information--Dividends and capital gains
distributions" in the Fund's prospectus.)
The Fund intends to follow the practice of distributing substantially
all of its net investment income, including any excess of net realized
short-term capital gains over net realized long-term capital losses. In the
past, the Fund has followed the practice of distributing the entire excess of
net realized long-term capital gains over net realized short-term capital
losses. However, if it appears to be in the best interest of the Fund and its
shareholders, the Fund may retain all or part of such gain for reinvestment,
after paying the related federal income taxes for which the shareholders may
claim a credit against their federal income tax liability. If the Fund does not
distribute an amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Internal Revenue Code, it may be
subject to such tax. (See "TAXES.")
The Fund intends to distribute substantially all of its net investment
income and any net realized capital gains resulting from Fund investment
activity in September as well as in December. Both types of distributions will
be made in shares of the Fund and confirmations will be mailed to each
shareholder unless a shareholder has elected to receive cash, in which case a
check will be sent.
PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance
information" in the Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year, five years and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^(1/n) - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for the periods ended June 30, 1994
One year Five years Ten years
-------- ---------- ---------
-12.91% 11.24% 10.35%
28
<PAGE>
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return for the periods ended June 30, 1994
One year Five years Ten years
-------- ---------- ---------
-12.91% 70.34% 167.69%
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative total return.
Capital Change
Capital change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.
Quotations of the Fund's performance are historical, show the
performance of a hypothetical investment and are not intended to indicate future
performance of the Fund. An investor's shares when redeemed may be worth more or
less than their original cost. Performance of the Fund will vary based on
changes in market conditions and the level of the Fund's expenses.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
29
<PAGE>
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the assets that the Adviser has under management in various
geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
30
<PAGE>
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about this Fund. Sources for Fund performance
information and articles about the Fund may include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
31
<PAGE>
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
32
<PAGE>
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
FUND ORGANIZATION
(See "Fund organization" in the Fund's prospectus.)
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated October 16, 1985. The Fund's predecessor was
organized as a Delaware corporation in 1970. The Fund's authorized capital
consists of an unlimited number of shares of beneficial interest of $0.01 par
value, all of which are of one class and have equal rights as to voting,
dividends and liquidation. At the time of any election, shareholders have one
vote for each share held. The Trustees have the authority to issue two or more
series of shares and to designate the relative rights and preferences as between
the different series, although they have not exercised that authority. If more
than one series of shares were issued and a series were unable to meet its
obligations, the remaining series might have to assume the unsatisfied
obligations of that series. All shares issued and outstanding will be fully paid
and nonassessable by the Fund, and redeemable as described in this Statement of
Additional Information and in the Fund's prospectus.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes (which under present regulations would require the Fund first
to obtain an exemptive order of the SEC), nor of changing the method of
distribution of shares of the Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Fund's prospectus.)
Scudder, Stevens & Clark, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization is one of the
most experienced investment counsel firms in the United States. It was
established as a partnership in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. In 1928 it introduced
the first no-load mutual fund to the public. In 1953 the Adviser introduced
Scudder International Fund, Inc., the first mutual fund registered with the
Securities and Exchange Commission in the U.S. investing internationally in
securities of issuers in several foreign countries.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Development Fund, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
33
<PAGE>
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund,
Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar
Income Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets of approximately $12 billion and
includes the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust
and AARP Cash Investment Funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. In selecting the securities in which
the Fund may invest, the conclusions and investment decisions of the Adviser
with respect to the Fund are based primarily on the analyses of its own research
department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The Investment Management Agreement with the Adviser (the "Agreement")
was last approved by the Trustees on September 7, 1994. The Agreement is dated
June 9, 1992 and will continue in effect until September 30, 1995 and from year
to year thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or interested
persons of the Adviser or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and by a majority vote either of the Fund's
Trustees or of the outstanding voting securities of the Fund. The Agreement may
be terminated at any time without payment of penalty by either party on sixty
days' written notice, and automatically terminates in the event of its
assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund, and what portion of the Fund's assets shall
be held uninvested, subject always to the provisions of the Fund's Declaration
of Trust and By-Laws, of the Investment Company Act of 1940 and the Internal
Revenue Code of 1986 and to the Fund's investment objective, policies and
restrictions, and subject, further, to such policies and instructions as the
Trustees of the Fund may from time to time establish. The Adviser also advises
and assists the officers of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of its Trustees and the appropriate
committees of the Trustees regarding the conduct of the business of the Fund.
34
<PAGE>
Under the Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Fund's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Trustees and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the SEC and other regulatory agencies; assisting in the preparation and
filing of the Fund's federal, state and local tax returns; preparing and filing
the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees,
officers and executive employees (except those incurred in attending Board and
committee meetings outside New York, New York and Boston, Massachusetts) of the
Fund affiliated with the Adviser and makes available, without expense to the
Fund, the services of such directors, officers and employees of the Adviser as
may duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
For these services the Fund pays the Adviser a fee equal to an annual
rate of 1% of the Fund's first $500 million of average daily net assets, 0.95 of
1% of the next $500 million of such net assets, and 0.90 of 1% on such net
assets in excess of $1 billion. The fee is payable monthly, provided the Fund
will make such interim payments as may be requested by the Adviser not to exceed
75% of the amount of the fee then accrued on the books of the Fund and unpaid.
Because of the higher cost of research, this fee is higher than that paid by
most other investment companies.
For the period March 17, 1992 to June 9, 1992, the Adviser agreed to
maintain management fees equal to 1% of the Fund's first $1 billion of average
daily net assets and 0.85% of such net assets in excess of $1 billion, computed
and accrued daily and payable monthly. Between May 3, 1991 and March 17, 1992,
the Fund paid the Adviser an annual fee equal to 1% of the Fund's average daily
net assets. The investment advisory fees for the fiscal years ended June 30,
1992, 1993 and 1994 were $7,515,693, $7,770,198 and $7,239,230, respectively.
Under the Agreement, the Fund is responsible for all of its other
expenses including fees and expenses incurred in connection with membership in
investment company organizations; broker's commissions; payment for portfolio
pricing services to a pricing agent, if any; legal, auditing and accounting
expenses; taxes and governmental fees; the fees and expenses of the Transfer
Agent; the cost of preparing share certificates or any other expenses including
expenses of issuance, redemption or repurchase of shares; the expenses of and
the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Fund who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for
expenses of shareholders' meetings, and expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement provides that the Custodian shall compute the net asset value.
The Adviser has agreed in the Agreement to reimburse the Fund all or a
portion of advances of its management fee to the extent annual expenses of the
Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which the Fund's shares are offered for sale.
Management has been advised that, while most states have eliminated expense
limitations, the lowest such limitation is currently 2 1/2% of average daily net
assets up to $30 million, 2% of the next $70 million of average daily net assets
and 1 1/2% of average daily net assets in excess of that amount. Certain
35
<PAGE>
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitation and other expenses may be excluded
from time to time. For the fiscal years ended June 30, 1992, 1993 and 1994,
expenses of the Fund equaled 1.30%, 1.30% and 1.27%, respectively, of the
average net assets of the Fund. Any such fee advance required to be returned to
the Fund will be returned as promptly as practicable after the end of the Fund's
fiscal year. However, no fee payment will be made to the Adviser during any
fiscal year which will cause year to date expenses to exceed the cumulative pro
rata expense limitation at the time of such payment.
The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as the Agreement or any
extension, renewal or amendment thereof remains in effect.
In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, the Trustees of the Fund who are not "interested
persons" of the Fund are represented by independent counsel at the Fund's
expense. Dechert Price & Rhoads acts as general counsel for the Fund.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Name Position Scudder Investor
and Address with Fund Principal Occupation** Services, Inc.
- ----------- --------- ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce+* President and Trustee Chairman of the Board and Vice President, Director and
Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.
Paul Bancroft III Trustee Venture Capitalist and --
1120 Cheston Lane Consultant; Retired, President
Queenstown, MD 21658 Chief Executive Officer and
Director of Bessemer Securities
Corporation
Thomas J. Devine Trustee Consultant --
641 Lexington Avenue,
28th Floor
New York, NY 10022
Douglas M. Loudon++* Vice President and Managing Director of Scudder, Senior Vice President
Trustee Stevens & Clark, Inc.
36
<PAGE>
Position with
Underwriter,
Name Position Scudder Investor
and Address with Fund Principal Occupation** Services, Inc.
- ----------- --------- ---------------------- --------------
Wilson Nolen Trustee Consultant (1989 until present); --
1120 Fifth Avenue Corporate Vice President of
New York, NY 10128 Becton, Dickinson& Company,
manufacturer of medical and
scientific products(1973 - June
1989)
Juris Padegs++#* Trustee Managing Director of Scudder, Vice President and Director
Stevens & Clark, Inc.
Dr. Gordon Shillinglaw Trustee Professor Emeritus of --
Columbia University Accounting, Columbia University
196 Villard Avenue Graduate School of Business
Hastings-on-Hudson
New York, NY 10706
Robert G. Stone, Jr. Trustee Chairman of the Board and --
405 Lexington Avenue, Director, Kirby Corporation
39th Floor (marine transportation, diesel
New York, NY 10174 repair and property and casualty
insurance in Puerto Rico)
Edmond D. Villani++#* Trustee President and Managing Director --
of Scudder, Stevens & Clark, Inc.
Robert W. Lear Honorary Trustee Executive-in-Residence, Visiting --
429 Silvermine Road Professor, Columbia University
New Canaan, CT 06840 Graduate School of Business
Edmund R. Swanberg++ Honorary Trustee Advisory Managing Director of --
Scudder, Stevens & Clark, Inc.
Peter Chin Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Jerard K. Hartman++ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph+ Vice President Principal of Scudder, Stevens & Vice President, Director,
Clark, Inc. Treasurer and Assistant
Clerk
37
<PAGE>
Position with
Underwriter,
Name Position Scudder Investor
and Address with Fund Principal Occupation** Services, Inc.
- ----------- --------- ---------------------- --------------
David S. Lee+ Vice President Managing Director of Scudder, President, Director and
Stevens & Clark, Inc. Assistant Treasurer
Thomas F. McDonough+ Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.
Pamela A. McGrath+ Vice President and Principal of Scudder, Stevens & --
Treasurer Clark, Inc.
Roy C. McKay++ --
Edward J. O'Connell++ Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Kathryn L. Quirk++ Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens & Clark, Inc.
Richard W. Desmond++ Assistant Secretary Vice President of Scudder, Vice President
Stevens & Clark, Inc.
Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
* Messrs. Loudon, Padegs, Pierce and Villani are considered by the Fund
and counsel to be persons who are "interested persons" of the Adviser
or of the Fund, within the meaning of the Investment Company Act of
1940, as amended.
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Messrs. Padegs and Villani are members of the Executive Committee, which may exercise all of the powers of
the Trustees when they are not in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
</TABLE>
The Trustees and officers of the Fund also serve in similar capacities
with other Scudder Funds.
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<PAGE>
As of September 30, 1994, all Trustees and officers of the Fund as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) 374,818 shares, or 1.81% of the shares of the
Fund outstanding on such date.
Certain accounts for which the Adviser acts as investment adviser owned
3,395,104 shares in the aggregate, or 16.35% of the outstanding shares on
September 30, 1994. The Adviser may be deemed to be the beneficial owner of such
shares but disclaims any beneficial ownership in such shares.
To the best of the Fund's knowledge, as of September 30, 1994, no
person owned beneficially more than 5% of the Fund's outstanding shares except
as stated above.
REMUNERATION
Several of the officers and Trustees of the Fund may be officers or
employees of the Adviser, Scudder Investor Services, Inc., Scudder Service
Corporation or Scudder Trust Company, from whom they receive compensation, as a
result of which they may be deemed to participate in the fees paid by the Fund.
The Fund pays no direct remuneration to any officer of the Fund. However, each
of the Fund's Trustees who is not affiliated with the Adviser will be paid by
the Fund. Each of these unaffiliated Trustees receives an annual Trustee's fee
of $4,000 from the Fund and fees of $400 for each attended Trustees' meeting,
audit committee meeting or meeting held for the purpose of considering
arrangements between the Fund and the Adviser or any of its affiliates. Each
unaffiliated Trustee also receives $150 per committee meeting attended other
than those set forth above. For the fiscal year ended June 30, 1994, the Fund
paid such Trustees $41,160.
DISTRIBUTOR
The Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a wholly-owned
subsidiary of the Adviser, a Delaware corporation. The Fund's underwriting
agreement dated December 31, 1985 will remain in effect until September 30, 1995
and from year to year thereafter only if its continuance is approved annually by
a majority of the Trustees who are not parties to such agreement or interested
persons of any such party and either by a vote of a majority of the Trustees or
a majority of the outstanding voting securities of the Fund. The underwriting
agreement was last approved by the Trustees on September 7, 1994.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.
39
<PAGE>
NOTE: Although the Fund does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would also
pay those fees and expenses permitted to be paid or assumed by the Fund
pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information--Dividends and
capital gain distributions" and "Transaction information--
Tax information, Tax identification number" in the Fund's prospectus.)
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), or a predecessor statute and has qualified as such since its inception.
It intends to continue to qualify for such treatment. Such qualification does
not involve governmental supervision or management of investment practices or
policy.
As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90 percent
of its investment company taxable income (including net short-term capital gain)
and generally is not subject to federal income tax to the extent that it
distributes annually its investment company taxable income and net realized
capital gains in the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim his/her share of federal income taxes paid by the
Fund on such gains as a credit against his/her own federal income tax liability,
and will be entitled to increase the adjusted tax basis of his/her Fund shares
by the difference between his/her pro rata share of such gains and his/her tax
credit. If the Fund makes such an election it may not be treated as having met
the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
40
<PAGE>
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,250 to IRAs for an individual and his or her nonearning
spouse) for that year. There are special rules for determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general, a proportionate amount of each withdrawal will be deemed to be made
from nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
41
<PAGE>
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
Proposed regulations have been issued which may allow the Fund to make
an election to mark to market its shares of these foreign investment companies
in lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
and gain on dispositions as ordinary income which is not subject to a fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Equity options (including options on stock and options on narrow-based
stock indices) and over-the-counter options on debt securities written or
purchased by the Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend in the case of
a lapse or sale of the option on the Fund's holding period for the option and in
the case of an exercise of the option on the Fund's holding period for the
underlying stock. The purchase of a put option may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option written by the Fund is
exercised any resulting gain or loss is a short-term or long-term capital gain
or loss depending on the holding period of the underlying stock. The exercise of
a put option written by the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e. treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security in the Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
42
<PAGE>
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain options,
futures contracts and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Massachusetts business trust and is not
liable for any income or franchise tax in the Commonwealth of Massachusetts,
provided that it qualifies as a regulated investment company for federal income
tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage
To the maximum extent feasible the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with issuers, underwriters or other brokers and dealers.
The Distributor receives no commissions, fees or other remuneration from the
Fund for this service. Allocation of brokerage is supervised by the Adviser.
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<PAGE>
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions), size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser reviews on a routine basis commission
rates, execution and settlement services performed, making internal and external
comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes; or who supply research, market and statistical
information to the Fund or the Adviser. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold shares of the Fund. Except for implementing the policy stated
above, there is no intention to place portfolio transactions with particular
brokers or dealers or groups thereof. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.
Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions through the Fund's custodian and a credit
against the custodian fee due to the custodian equal to one-half of the
commission on any such transaction will be given.
In the fiscal years ended June 30, 1992, 1993 and 1994, the Fund paid
brokerage commissions of $612,091, $1,041,196.41, and $644,093, respectively.
For the fiscal year ended June 30, 1994, $530,201 (82% of the total brokerage
commissions paid) resulted from orders placed, consistent with the policy of
obtaining the most favorable net results, with brokers and dealers who provided
supplementary research information to the Fund or the Adviser.
The amount of such transactions aggregated $267,134,488 (82% of all
transactions).
The Trustees intend to review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable. Within the past three years no such recapture has been effected.
Portfolio Turnover
The portfolio turnover rates (defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities whose remaining maturities at
the time of acquisition were one year or less) for the fiscal years ended June
30, 1993 and 1994 were 49.2% and 48.3%, respectively.
44
<PAGE>
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
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<PAGE>
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
Shareholder Indemnification
The Fund is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.
The name "Scudder Development Fund" is a designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. Upon the
initial purchase of shares of the Fund, the shareholder agrees to be bound by
the Fund's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.
The CUSIP number of the Fund is 811122-10-0.
The Fund employs Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109 as custodian.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser, is
the transfer and dividend paying agent for the Fund. The Fund pays Service
Corporation an annual fee of $17.55 for each account maintained for a
participant. The fee incurred by the Fund for the year ended June 30, 1994
amounted to $1,167,788, of which $94,279 is unpaid at June 30, 1994.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. This Registration
Statement and its amendments are available for inspection by the public at the
SEC in Washington, D.C.
46
<PAGE>
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of
Scudder Development Fund, which are included on pages 11 through 28, inclusive,
in the Annual Report to the Shareholders of the Fund dated June 30, 1994,
together with the Report of Independent Accountants, and Financial Highlights,
are incorporated by reference and attached hereto, and are deemed to be a part
of this Statement of Additional Information.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Development
Fund
Annual Report
June 30, 1994
o Offers opportunities for long-term growth of capital by investing primarily
in securities of emerging growth companies.
o A pure no-load(TM) fund with no commissions to buy, sell or exchange
shares.
<PAGE>
SCUDDER DEVELOPMENT FUND
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
11 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
28 Report of Independent Accountants
29 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
HIGHLIGHTS
* Rising interest rates sent the prices of small company stocks tumbling in
1994, undoing many of the gains posted in the last half of 1993. Reflecting
this environment, Scudder Development Fund posted a -12.91% total return
for its fiscal year ended June 30, 1994.
* The Fund took advantage of lower stock prices to increase investments in
well-managed, fiscally strong companies with potential for rapid earnings
growth. Particular areas of emphasis include technology and
consumer-oriented stocks.
* Although the Fund's short-term performance has been disappointing, the
historically low relative average price/earnings ratio of the Fund's
holdings indicates the potential for solid long-term performance.
LINE CHART - Scudder Development Fund Price/Earnings Ratio
Relative to the S&P 500
(1975 to 1994 in five-year increments)
CHART DATA (plot points)
0 155.0% 30 119.0 60 133.0 90 139.0
1 155.0 31 122.0 61 154.0 91 129.0
2 179.0 32 128.0 62 115.0 92 127.0
3 195.0 33 142.0 63 111.0 93 120.0
4 217.0 34 141.0 64 114.0
5 214.0 35 129.0 65 105.0
6 207.0 36 141.0 66 107.0
7 171.0 37 171.0 67 93.0
8 153.0 38 162.0 68 107.0
9 149.0 39 175.0 69 124.0
10 134.0 40 193.0 70 145.5
11 116.0 41 175.0 71 137.0
12 91.0 42 182.0 72 133.6
13 100.0 43 165.0 73 148.8
14 91.0 44 169.0 74 149.3
15 101.0 45 178.0 75 142.6
16 92.0 46 192.0 76 136.5
17 88.0 47 191.0 77 137.4
18 79.0 48 208.0 78 122.7
19 80.0 49 180.0 79 135.1
20 89.0 50 170.0 80 145.1
21 73.0 51 150.0 81 141.2
22 83.0 52 155.0 82 142.0
23 92.0 53 149.0 83 165.0
24 104.0 54 143.5 84 126.0
25 105.0 55 135.0 85 97.0
26 124.0 56 153.0 86 113.0
27 115.0 57 155.0 87 122.0
28 128.0 58 122.0 88 111.2
29 130.0 59 153.0 89 135.0
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
The world's financial markets have been a study in contrasts over the past
12 months. Fueled by historically low interest rates in many countries, bond and
stock markets soared in the second half of 1993. But financial markets have
cooled considerably since then. Early in the first quarter of 1994, U.S. Federal
Reserve interest rate hikes caused bond prices to fall across the maturity
spectrum. Yields also rose outside the United States, leading to declines in
most of the world's stock and bond markets. The declines in global markets were
unusual in that they were generally synchronized, further confusing investors
struggling to adapt to the changing investment landscape.
What do these events mean for investors? On the positive side, we expect a
moderate overall pace of economic expansion and low relative inflation
worldwide. Clearly, however, the markets are much more sensitive to a rebound in
inflation than they have been for some time. As a result, financial markets are
likely to be fairly volatile through 1994. Nevertheless, we expect global
markets to revert to more typically diverse behavior as investors again focus on
each country's individual strengths and weaknesses, which should create varied
opportunities.
In light of the current market environment, we encourage you to examine
your portfolio periodically to make sure your investments remain appropriate for
your time frame and financial goals. It may help to keep in mind that over the
long term, stocks have historically provided higher total returns than bonds,
which in turn have outperformed cash equivalents such as money market
funds--although stock and bond prices can fluctuate noticeably over short time
periods, as we have seen in 1994.
Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or your investments. Page 31 provides more information
on how to contact Scudder. Thank you for choosing Scudder Development Fund to
help meet your investment needs.
Sincerely,
/S/Daniel Pierce
Daniel Pierce
President,
Scudder Development Fund
3
<PAGE>
SCUDDER DEVELOPMENT FUND
PERFORMANCE UPDATE as of June 30, 1994
<TABLE>
- -------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------
Scudder Development Fund
- ------------------------
Total Return
Period Growth -------------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- --------------------------------------
<S> <C> <C> <C>
1 Year $ 8,709 -12.91% -12.91%
5 Year $17,034 70.34% 11.24%
10 Year $26,769 167.69% 10.35%
</TABLE>
<TABLE>
Russell 2000 Growth Index
- -------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- ---------------------------------------
<S> <C> <C> <C>
1 Year $10,088 .88% .88%
5 Year $14,410 44.10% 7.58%
10 Year $23,576 135.76% 8.95%
</TABLE>
<TABLE>
Russell 2000 Index
- ------------------
Total Return
Period Growth -------------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- --------------------------------------
<S> <C> <C> <C>
1 Year $10,440 4.40% 4.40%
5 Year $15,713 57.13% 9.45%
10 Year $29,100 191.00% 11.27%
</TABLE>
<TABLE>
A chart in the form of a line graph
appears here, illustrating the Growth
of a $10,000 Investment. The data points
from the graph are as follows:
Yearly periods ended June 30
Russell 2000 Growth Index
<CAPTION>
Year Amount
- ---------------
<S> <C>
84 $10,000
85 11,627
86 15,677
87 16,649
88 14,838
89 16,361
90 17,788
91 17,891
92 19,402
93 23,370
94 23,576
</TABLE>
<TABLE>
Development Fund
<CAPTION>
Year Amount
- ---------------
<S> <C>
84 $10,000
85 11,358
86 14,757
87 15,865
88 15,015
89 15,714
90 20,194
91 22,277
92 25,135
93 30,736
94 26,769
</TABLE>
<TABLE>
Russell 2000 Index
<CAPTION>
Year Amount
- ---------------
<S> <C>
84 $10,000
85 12,083
86 16,068
87 17,513
88 16,428
89 18,520
90 19,085
91 19,320
92 22,129
93 27,873
94 29,100
</TABLE>
The Russell 2000 Growth Index is a capitalization weighted measure of 2,000 of
the smallest capitalized U.S. companies with a greater-than-average growth
orientation and whose common stocks trade on the NYSE, AMEX, and NASDAQ. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
<TABLE>
A chart in the form of a bar graph appears here, illustrating the Fund Total
Return (%) and Index Total Return (%) with the exact data points listed in the
table.
- --------------------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- --------------------------------------------------------------------------------------------
Yearly periods ended June 30
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-------------------------------------------------------------------------------
Net Asset Value . . . . . . $20.41 $25.12 $25.39 $22.00 $22.54 $26.25 $27.33 $29.92 $34.58 $27.58
Income Dividends . . . . . . $ .28 $ .17 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Capital Gains Dividends . . $ .35 $ .92 $ 1.33 $ 1.90 $ .42 $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07
Fund Total Return (%) . . . 13.58 29.92 7.51 -5.35 4.66 28.50 10.32 12.83 22.28 -12.91
Index Total Return (%) . . . 16.27 34.83 6.20 -10.88 10.26 8.72 .58 8.45 20.45 .88
</TABLE>
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Investment return and principal
value will fluctuate so that an investor's shares when redeemed may be worth
more or less than when purchased.
4
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1994
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
/ / Equity Securities 97%
/ / Cash Equivalents 3%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
- --------------------------------------------------------------------------------
SECTORS (Excludes 3% Cash Equivalents)
- --------------------------------------------------------------------------------
/ / Technology 30% We have focused on technology
/ / Consumer Discretionary 19% companies involved in computer
/ / Service Industries 16% networking, relational database
/ / Health 14% software, and specialized semi-
/ / Durables 6% conductors given our view that
/ / Energy 5% technology-related capital
/ / Manufacturing 4% spending will remain strong.
/ / Financial 3%
/ / Media 2%
/ / Other 1%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------------
1. CABLETRON SYSTEMS, INC. Computer The Fund's mix of top ten
networking products and services holdings in the technology,
cylical, and high-tech
2. CINTAS CORP. Uniform rentals sectors reflects our current
portfolio emphasis.
3. INTERGROUP HEALTH CARE CORP. Arizona
healthcare maintenance services
4. ZILOG INC. Manufacturer and marketer
of integrated circuits
5. SAP AG Computer software
6. SUPERIOR INDUSTRIES INTERNATIONAL INC.
Manufacturer of aluminum wheels for
automobiles
7. AMERICAN POWER CONVERSION CORP.
Manufacturer of backup power supply
products
8. PARAMETRIC TECHNOLOGY CORP. Mechanical
design software producer
9. FISERV INC. Data processing services
10. INFORMIX CORP. Database management
software
- --------------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 11.
A monthly investment portfolio summary is available upon request.
5
<PAGE>
SCUDDER DEVELOPMENT FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
During the fiscal year ended June 30, the stock markets demonstrated how
quickly the prices of U.S. small company stocks can change. After recording
extraordinary price gains in 1993, U.S. stock markets peaked in January. When
rising interest rates and fears of renewed inflation knocked down the U.S. bond
market in February, stock markets followed suit. As interest rates continued to
rise, and then held at new higher levels, stock prices continued to retreat
through the end of the fiscal period.
Unfortunately for the Fund, growth stocks were hit the hardest. As the
accompanying chart shows, since the end of 1993, total returns of stocks with
long-term growth rates of more than 25%--very high-growth stocks like those in
Scudder Development Fund's portfolio--were -20.15% on average.
BAR CHART - Growth Stocks Suffered Sharp Price Declines in 1994
(Total Return for December 31, 1993, through June 30, 1994)
CHART DATA
Expected Annual
Earnings Growth
0-10% -3.17
10-15% -2.79
15-20% -5.95
20-25% -7.08
25%+ -20.15
FOOTNOTE TO CHART - The data presented in the graph is the total return during
the first half of 1994 for 2,107 companies, classified by I/B/E/S estimated
earnings growth rates.
CALLOUT NEXT TO CHART - Rising interest rates and negative market sentiment have
hurt stock prices in 1994--ironically, particularly those of companies with
the highest projected earnings growth.
Scudder Development Fund's performance reflected these market conditions.
We were encouraged by the Fund's positive 5.82% total return in the last six
months of 1993 after a disappointing 1992-93 fiscal year ended June 30, 1993.
But the declining market in the first half of 1994 served to halt the Fund's
forward progress, and the Fund turned in a -17.70% total return for the second
half of the fund's fiscal year ended June 30, 1994.
6
<PAGE>
For the fiscal year ended June 30, 1994, the Fund's net asset value
declined to $27.58 per share from $34.58 one year earlier, reflecting the fact
that high-growth stocks have been especially hard hit in recent months. However,
the Fund also distributed $3.07 per share in capital gains paid out to
shareholders in late 1993, somewhat offsetting the price decline. Combined, the
distributions and change in share price produced a total return for Scudder
Development Fund of -12.91% for the fiscal year. By comparison, the unmanaged
Russell 2000 Growth Index was essentially flat, returning 0.88% during the past
12 months, aided by outstanding returns from many small regional banks.
Importantly, the Fund has provided solid returns over the long term, with
average annual total returns of 11.24%, 10.35%, and 14.60% over the past five,
ten, and twenty years, respectively. The Russell 2000 Growth Index returned
7.58% and 8.95% over the same periods (20-year returns for the Index are
unavailable). Although past returns are no guarantee of the future, the Fund's
strong long-term performance suggests that periods of weak performance, such as
we have witnessed in the last few years, have been far outweighed by longer
periods of above-average performance. For more information on the Fund's
performance, including comparisons to the Index, please turn to the Performance
Update on page 4.
Focus Is On Smaller U.S. Companies With Potential
For Rapid Earnings Growth
Scudder Development Fund's objective is to provide capital growth over time
by investing in growing businesses. Accordingly, we remain committed to
long-term investments in small and medium sized, well-managed companies. These
companies generally have little debt, are growing rapidly, and usually have a
leading position in a niche market. However, the Fund has the flexibility to
invest in companies in various stages of development, including those in the
product research and development stage and those with demonstrated revenues and
earnings streams.
Companies in the technology sector represented 30% of the equity portfolio
on June 30. Capital spending on technology and communications equipment has been
essential to recent corporate productivity increases, enabling businesses to
hold down prices. We believe technology-related spending will remain strong,
especially given our outlook for continued moderate economic expansion. Thus, we
have maintained investments in technology companies benefitting from the
7
<PAGE>
increasing demand for computer networking (8.5% of the portfolio) and relational
database software (6.7% of the portfolio) running on these networks. In
addition, we have invested 9.0% of the portfolio in specialized semi-conductor
companies and capital equipment makers for that industry.
Excluding semiconductors, the negative overall market sentiment has caused
most technology stocks to experience sharp price declines so far in 1994 despite
rapidly growing earnings, creating what we believe are extremely attractive
valuations. For example, in the networking area, Cabletron Systems, your Fund's
largest position, lost 16% this year while its earnings rose by 37%. It is now
selling at less than 15 times expected calendar 1995 earnings, a level the
company's management found compelling; they just announced a $100 million share
repurchase program. During the most recent quarter, American Power Conversion's
stock price fell 37% while its earnings rose by 67%. At period end, this leading
producer of back-up power supplies (which carries no debt, has a 47% return on
equity, and projected long-term earnings growth of over 30%) was selling at just
under 15 times expected 1995 earnings. The Fund's technology holdings outside
the U.S. fared better. SAP A.G., a rapidly growing German vendor of
multi-currency relational database software applications, rose by over 90% so
far in 1994.
The consumer sector represents the equity portfolio's second largest
weighting, 19% at the close of the fiscal year on June 30. As with technology
stocks, consumer-oriented growth companies that continued to report good
earnings results have also suffered price declines. For example, Men's
Warehouse, a retailer of men's suits, dropped 32% in price this year on a 63%
increase in recent quarterly earnings. Cracker Barrel Old Country Stores
continued its consistent 24% growth in earnings last quarter and saw its stock
drop by 13% this year. We took advantage of price weakness in the consumer group
to consolidate holdings into what we believe are among the strongest and most
attractively valued stocks.
Cyclically oriented stocks, which represented another area of opportunity
for the Fund, also witnessed price corrections thus far in 1994. After some
recent trimming, the Fund has a 4% investment in the automobile supply industry.
8
<PAGE>
We believe auto supplies should deliver solid earnings despite moderate overall
economic growth since the average age of the domestic fleet of cars and trucks
is at an all time high of over eight years. The Fund's largest holding in the
automotive category is Superior Industries, the world's leading producer of
aluminum wheels.
The energy sector also merits investment, in our opinion, in light of
prospects for increased demand and rising energy prices. We increased our
investment in Triton Energy Corp., a global exploration company with significant
new reserves in Columbia and Thailand. The stock has performed well for the
Fund, rising by 10% so far in 1994. Natural gas producers as a group also
performed relatively well. Fund holdings there include Associated Natural Gas
and Cabot Oil and Gas.
In the healthcare sector, we took advantage of the recent market conditions
to make investments in two companies that offer unique solutions to healthcare
problems. STERIS Corp. makes a non-thermal sterilizer for endoscopic equipment,
and also sells the needed sterilant. Pyxis Corp. makes a computer-controlled
cabinet for inventory management in hospitals. Both of these companies are
growing at rates of over 30% per year and are selling at 15 and 16 times 1995
projected earnings, respectively. Another holding, Heart Technologies, which
manufactures the Rotoblater for cleaning plaque from arteries, is now backlogged
with orders for its devices. When its price dropped earlier this year despite a
significant increase in production and earnings per share, we bought additional
shares. We also added to holdings in Ventritex Inc., a manufacturer of
state-of-the-art implantable defibrillators for heart attack patients, whose
earnings have improved significantly but whose stock dropped sharply in 1994.
In addition to medical device companies, we expanded our investments in
healthcare service companies with the purchase of Phycor, Inc., an owner and
operator of large multi-specialty medical clinics. Intergroup Healthcare, the
leading health maintenance organization (HMO) in Arizona, was the Fund's
third-largest position as of June 30. Both of these companies enjoy a growing
stream of recurring revenues from strong HMO participant bases.
9
<PAGE>
Looking Ahead
We believe the companies in Scudder Development Fund's portfolio are
extremely well-positioned to provide strong price appreciation potential over
time. On average, corporate earnings for Fund holdings increased by over 38% for
the most recently reported quarter. Looking ahead, we believe the portfolio's
strong expected earnings growth and historically attractive price/earnings ratio
of 16 times expected earnings offer a positive investment opportunity for
long-term investors. Although the sharp correction in smaller-company stocks so
far this year has, no doubt, disappointed many of you, history tells us that
times like these are excellent opportunities to invest in small, well-managed,
rapidly growing companies.
Sincerely,
Your Portfolio Management Team
/s/Roy C. McKay /s/Peter Chin
Roy C. McKay Peter Chin
Scudder Development Fund:
A Team Approach to Investing
Scudder Development Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work closely together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in our offices across the United States and abroad. We believe our team
approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager Roy C. McKay assumed responsibility for the Fund's
day-to-day management when he joined Scudder in 1988. Roy has 28 years of
investment experience, with 19 years specializing in small company growth
stocks. Peter Chin, who became a Portfolio Manager in 1993, has been with
Scudder since 1973, and joined Scudder's small company group in 1986. Peter
contributes expertise in manufacturing, service, and energy companies.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of June 30, 1994
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2.2% COMMERCIAL PAPER
12,098,000 Cargill Inc., 4.35%, 7/1/94 (Cost $12,098,000) . . . 12,098,000
----------
0.4% SHORT-TERM NOTE
2,000,000 U.S. Treasury Bill, 9/15/94 (Cost $1,982,583) . . . . 1,982,583
----------
1.1% CONVERTIBLE PREFERRED STOCKS
Shares
HEALTH 0.4%
Pharmaceuticals 714,286 Cima Laboratories Inc. "E" * (Developer
of oral dosage drug products) (b)(c) . . . . . . . . 2,500,001
----------
MEDIA 0.7%
Broadcasting &
Entertainment 363,637 InTouch Group Inc. "D" (Interactive place-
based media applications and information
services) (b)(c) . . . . . . . . . . . . . . . . . . 4,000,007
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $6,500,007) . . . . . . . . . . . . . . . . . 6,500,008
----------
4.1% PREFERRED STOCKS
CONSUMER DISCRETIONARY 1.1%
Specialty Retail 6,000 Hornbach AG (Do-it-yourself home
improvement retailer) . . . . . . . . . . . . . . . 6,247,042
----------
HEALTH 0.1%
Medical Supply & Specialty 125,000 Cardiometrics, Inc. Series C (Manufacturer
and marketer of intravascular Doppler
ultrasound devices for diagnostic and
therapeutic uses) (b)(c) . . . . . . . . . . . . . . 500,000
----------
TECHNOLOGY 2.9%
Computer Software 8,000 SAP AG (Computer software) . . . . . . . . . . . . . 15,926,802
----------
TOTAL PREFERRED STOCKS (Cost $10,279,994) 22,673,844
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
11
<PAGE>
<TABLE>
SCUDDER DEVELOPMENT FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
92.2% COMMON STOCKS
CONSUMER DISCRETIONARY 17.0%
Apparel & Shoes 1.6% 3,920,000 High Fashion International (Apparel producer) . . . . 502,076
103,100 Jones Apparel Group* (Designer and
distributor of women's fashion) . . . . . . . . . . 2,912,575
202,100 Nine West Group Inc.* (Designer and
marketer of women's footwear) . . . . . . . . . . . 5,254,600
----------
8,669,251
----------
Department &
Chain Stores 5.0% 980,200 CML Group Inc. (Sportswear and
recreational products) . . . . . . . . . . . . . . 11,517,350
942,850 Cato Corp. "A" * (Retailer of women's apparel) . . . 11,903,481
208,250 Men's Wearhouse Inc.* (Discount retailer) . . . . . . 4,581,500
----------
28,002,331
----------
Hotels & Casinos 1.5% 604,300 Grand Casinos Inc.* (Casino manager) . . . . . . . . 8,309,125
----------
Recreational Products 1.5% 84,400 Broderbund Software Inc.* (Developer of
entertainment and educational software) . . . . . . 3,819,100
130,000 Sanctuary Woods Multimedia Inc.* (Leading
developer of family-oriented entertainment
and educational CD ROM titles) . . . . . . . . . . 406,250
800,000 Sanctuary Woods Multimedia Inc.* (b)(c) . . . . . . . 2,000,000
147,700 Sierra On-Line Inc.* (Provider of online
computer services) . . . . . . . . . . . . . . . . 2,437,050
----------
8,662,400
----------
Restaurants 4.1% 230,000 Brinker International Inc.* (Limited menu
restaurants) . . . . . . . . . . . . . . . . . . . 4,830,000
401,200 Cracker Barrel Old Country Stores
(Restaurants and gift stores) . . . . . . . . . . . 9,578,650
201,200 Outback Steakhouse Inc.* (Operator of
full-service restaurants) . . . . . . . . . . . . . 4,853,950
240,200 Taco Cabana Inc.* (Mexican style
restaurant chain) . . . . . . . . . . . . . . . . . 3,242,700
----------
22,505,300
----------
Specialty Retail 3.3% 2,250 Hornbach AG (Do-it-yourself home
improvement retailer) . . . . . . . . . . . . . . . 1,355,892
186,600 PETsMART Inc.* (Pet food and supply
superstores) . . . . . . . . . . . . . . . . . . . . 5,271,450
45,000 Sports & Recreation Inc.* (Sports equipment
superstores) . . . . . . . . . . . . . . . . . . . . 1,665,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
400,000 Viking Office Products Inc.* (Direct marketer
of office supplies) . . . . . . . . . . . . . . . . 10,000,000
----------
18,292,342
----------
HEALTH 13.5%
Health Industry Services 3.6% 417,500 Intergroup Health Care Corp.* (Arizona
healthcare maintenance services) . . . . . . . . . . 18,370,000
45,000 PhyCor Inc. (Operator of specialty
medical clinics) . . . . . . . . . . . . . . . . . . 1,507,500
----------
19,877,500
----------
Medical Supply &
Specialty 8.0% 191,300 Bioject Medical Technologies Inc.* (Research
and development of medical syringes) . . . . . . . . 442,381
360,100 Endosonics Corp.* (Manufacturer of
imaging catheters) . . . . . . . . . . . . . . . . . 1,980,550
525,000 Heart Technology Inc.* (Developer,
manufacturer and marketer of devices for
treatment of artherosclerosis) . . . . . . . . . . . 8,728,125
217,500 ICU Medical Inc.* (Designer, manufacturer
and marketer of proprietary disposable
medical products) . . . . . . . . . . . . . . . . . 2,827,500
455,500 Immunomedics* (Cancer imaging
therapy) (b) . . . . . . . . . . . . . . . . . . . . 1,594,250
57,500 Life Medical Sciences Inc.* (Engaged in
research, development and commercialization
of technologies for use in medical applications) . . 158,125
40,000 Life Medical Sciences Inc. "A" Warrants
(expire 9/21/97)* . . . . . . . . . . . . . . . . . 25,000
180,000 PLC Systems Inc.* (Developer, manufacturer
and marketer of medical laser systems) . . . . . . . 708,750
108,000 Research Industries* (Manufacturer of
single-patient use cardiology medical products). . . 864,000
336,900 STERIS Corp.* (Manufacturer of sterile
processing systems) . . . . . . . . . . . . . . . . 6,527,437
493,500 Thermedics Inc.* (Chemical detection and
cardiac assist company) . . . . . . . . . . . . . . 7,217,438
340,000 Trimedyne Inc.* (Manufacturer of lasers and
laser catheters) . . . . . . . . . . . . . . . . . . 1,997,500
75,000 Trimedyne Inc. Warrants* (expire 12/9/96) (b)(c) . . . 153,750
89,700 UroMed Corp.* (Manufacturer of urological/
gynecological medical products) . . . . . . . . . . 403,650
274,333 UroMed Corp.* (b)(c) . . . . . . . . . . . . . . . . 987,599
410,500 Ventritex Inc.* (Electric heart control devices) . . 7,645,563
220,000 Vital Signs Inc.* (Manufacturer of single-patient
medical products) . . . . . . . . . . . . . . . . . 2,200,000
----------
44,461,618
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
13
<PAGE>
<TABLE>
SCUDDER DEVELOPMENT FUND
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 1.9% 105,000 Elan Corp. PLC Warrants* (expire 11/14/95) . . . . . 2,139,375
448,000 Noven Pharmaceuticals, Inc.* (Transdermal
drug delivery systems) . . . . . . . . . . . . . . 6,048,000
78,000 R.P. Scherer Corp.* (Manufacturer of drug
delivery system) . . . . . . . . . . . . . . . . . 2,574,000
----------
10,761,375
----------
COMMUNICATIONS 1.3%
Telephone/
Communications 5,280,612 Champion Technology (Paging services) . . . . . . . 1,895,815
46,700 Pittencrief Communications Corp.* (Mobile
radio communications services) . . . . . . . . . . 618,775
205,000 Summa Four Inc.* (Distributor of
telecommunication switching systems) . . . . . . . 4,535,625
----------
7,050,215
----------
FINANCIAL 2.6%
Banks 1.9% 85,000 First American Corp. (Tennessee) (Regional
bank holding company) . . . . . . . . . . . . . . . 2,783,750
200,000 GBC Bancorp (California commercial bank) . . . . . . 3,000,000
172,800 West One Bancorp (Commercial bank in Idaho) . . . . . 4,968,000
----------
10,751,750
----------
Insurance 0.7% 100,000 W.R. Berkley Corp. (Insurance company) . . . . . . . 3,875,000
----------
MEDIA 1.4%
Broadcasting &
Entertainment 0.6% 850,000 International Cablecasting Technologies*
(Provider of premium pay cable audio
programming services) . . . . . . . . . . . . . . . 2,975,000
100,000 International Cablecasting Technologies* (c) . . . . . 280,000
----------
3,255,000
----------
Cable Television 0.8% 599,420 Century Communications Corp. "A" * (Owner and
operator of Cable TV systems) . . . . . . . . . . . 4,420,722
----------
SERVICE INDUSTRIES 15.3%
EDP Services 4.9% 700,000 Fiserv Inc.* (Data processing services) . . . . . . . 14,350,000
288,000 Pyxis Corp.* (Manufacturer of point-of-use
distribution systems). . . . . . . . . . . . . . . . 5,472,000
476,400 Systems & Computer Technology Corp.*
(Computer software for educational institutions) . . 7,265,100
----------
27,087,100
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment 1.2% 174,700 Pioneer Group Inc. (Fund management
company owning major gold producer
in Ghana) . . . . . . . . . . . . . . . . . . . . 6,376,550
----------
Miscellaneous Commercial
Services 9.2% 342,000 BI Inc.* (Manufacturer and service provider of
house arrest electronic monitoring systems) . . . 1,624,500
98,000 Career Horizons Inc.* (Temporary help
service for business and healthcare) . . . . . . 1,862,000
700,000 Cintas Corp. (Uniform rentals) . . . . . . . . . . 22,925,000
214,800 Danka Business Systems PLC (ADR)
(Distributor of office equipment) . . . . . . . . 8,565,150
273,200 Data Broadcasting Corp.* (Provider of stock
quotes, financial information) . . . . . . . . . 1,400,150
180,300 Education Alternatives Inc.* (Provider of
school management consulting services and
developer of various educational products) . . . 2,298,825
9,722 Education Alternatives Inc.* (b)(c) . . . . . . . . 99,164
796,650 G & K Services Inc. "A" (Uniform rentals) . . . . . 12,348,075
----------
51,122,864
----------
DURABLES 5.5%
Automobiles 3.9% 130,000 Donnelly Corp. "A" (Manufacturer of
automotive glass products) . . . . . . . . . . . 2,047,500
200,000 Simpson Industries, Inc. (Auto parts
manufacturer) . . . . . . . . . . . . . . . . . . 3,600,000
494,500 Superior Industries International Inc.
(Manufacturer of aluminum wheels for
automobiles) . . . . . . . . . . . . . . . . . . 15,824,000
----------
21,471,500
----------
Telecommunications
Equipment 1.6% 283,100 Antec Corp.* (Developer and supplier of
optical transmission equipment for Cable TV). . . 6,652,850
36,400 Brooktrout Technology Inc.* (Designer,
manufacturer and marketer of computer
hard- and soft-ware) . . . . . . . . . . . . . . 373,100
355,600 Telebit Corp.* (Manufacturer of data
transmission products) . . . . . . . . . . . . . 1,822,450
----------
8,848,400
----------
MANUFACTURING 4.4%
Electrical Products 2.8% 954,300 American Power Conversion Corp.*
(Manufacturer of backup power
supply products) . . . . . . . . . . . . . . . . . 15,388,088
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
15
<PAGE>
<TABLE>
SCUDDER DEVELOPMENT FUND
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Specialty 1.6% 332,550 Lydall, Inc.* (Engineered fiber materials) . . . . 8,729,438
----------
TECHNOLOGY 26.2%
Computer Software 10.0% 175,000 Autodesk, Inc. (Computer-aided design and
drafting) . . . . . . . . . . . . . . . . . . . 8,662,500
573,850 Cheyenne Software Inc.* (Computer software
and equipment) . . . . . . . . . . . . . . . . . 4,877,725
48,000 ISG Technologies* (Manufacturer of computer
graphics systems for diagnostic purposes) . . . 312,000
916,300 Informix Corp.* (Database management
software) . . . . . . . . . . . . . . . . . . . 14,202,650
662,200 Parametric Technology Corp.* (Mechanical
design software producer) . . . . . . . . . . . 14,982,275
192,700 Synopsys Inc.* (Developer of high level
electronic design software) . . . . . . . . . . 7,226,250
136,700 Wall Data Inc.* (Developer and marketer of
Windows based software products) . . . . . . . . 5,365,475
----------
55,628,875
----------
EDP Peripherals 0.7% 216,000 Kurzweil Applied Intelligence* (Developer of
speech recognition systems) . . . . . . . . . . 675,000
468,250 Megahertz Corp.* (Manufacturer of data fax
modems for use with portable computers) . . . . 3,219,219
----------
3,894,219
----------
Electronic Components/
Distributors 0.9% 199,300 Three-Five Systems Inc.* (Manufacturer of
opto-electronic components) . . . . . . . . . . 5,181,800
----------
Office/Plant Automation 6.8% 293,400 Amtech Corp. (Manufacturer of electronic
identification products) . . . . . . . . . . . . 3,447,450
260,000 Cabletron Systems Inc.* (Computer networking
products and services) . . . . . . . . . . . . . 25,122,500
640,000 Cognex Corp.* (Manufacturer of machine
vision systems) . . . . . . . . . . . . . . . . 9,120,000
----------
37,689,950
----------
Precision Instruments 2.7% 220,600 KLA Instruments Corp.* (Developer,
manufacturer and marketer of
automated image processing systems) . . . . . . 8,272,500
350,000 Medar Inc.* (Manufacturer of quality
control equipment) . . . . . . . . . . . . . . 4,200,000
222,500 Silicon Valley Group Inc.* (Manufacturer of
equipment for semiconductor industry) . . . . . 2,572,656
----------
15,045,156
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
16
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Semiconductors 5.1% 297,600 Atmel Corp.* (Developer and manufacturer
of integrated circuits) . . . . . . . . . . . . 7,068,000
42,500 Linear Technology Corp. (Manufacturer of
integrated circuits) . . . . . . . . . . . . . . 1,870,000
84,500 Xilinx Inc.* (Supplier of semiconductors) . . . . 2,883,563
496,550 Zilog Inc.* (Manufacturer and marketer of
integrated circuits) . . . . . . . . . . . . . . 16,137,875
-----------
27,959,438
-----------
ENERGY 4.7%
Oil & Gas Production 2.5% 348,700 Benton Oil & Gas Co.* (Oil and gas exploration,
development and production) . . . . . . . . . . 2,528,075
140,000 Cabot Oil & Gas Corp. "A" (Oil and gas
exploration and production) . . . . . . . . . . 2,922,500
254,000 Triton Energy Corp.* (Oil and gas exploration) . . 8,413,750
-----------
13,864,325
-----------
Oil/Gas Transmission 0.9% 153,200 Associated Natural Gas Corp. (Oil and gas
processing and marketing) . . . . . . . . . . . 4,902,400
8,900 Western Gas Resources, Inc. (Operators of
natural gas processing centers) . . . . . . . . 235,850
-----------
5,138,250
-----------
Oilfield Services/
Equipment 1.3% 100,000 Production Operators Corp. (Oil and gas field
services) . . . . . . . . . . . . . . . . . . . 2,600,000
360,000 Weatherford International Inc.* (Oilfield
equipment and services) . . . . . . . . . . . . 4,860,000
-----------
7,460,000
-----------
TRANSPORTATION 0.3%
Trucking 125,100 Celadon Group Inc.* (Long-haul
trucking services) . . . . . . . . . . . . . . . 1,720,125
-----------
TOTAL COMMON STOCKS (Cost $429,288,317) . . . . . 511,500,007
-----------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $460,148,901) (a) 554,754,442
===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
17
<PAGE>
SCUDDER DEVELOPMENT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $461,089,821. At June
30, 1994, net unrealized appreciation for all securities based
on tax cost was $93,664,621. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $166,760,049 and aggregate
gross unrealized depreciation for all securities in which there was
an excess of tax cost over market value of $73,095,428.
<TABLE>
(b) Restricted Securities -- securities which have not been registered
with the Securities and Exchange Commission under the Securities
Act of 1933. Information concerning such restricted securities at
June 30, 1994 is as follows:
<CAPTION>
Security Acquisition Date Cost ($)
-------- ---------------- --------
<S> <C> <C>
Cardiometrics, Inc. Series C 4/26/93 500,000
Cima Laboratories Inc."E" 1/7/94 2,500,000
Education Alternatives Inc. 7/1/93 240,133
Immunomedics 3/4/91 1,024,978
InTouch Group Inc."D" 1/20/94 4,000,007
Sanctuary Woods Multimedia Inc. 1/28/94 4,000,000
Trimedyne Inc. Warrants 2/11/92 --
UroMed Corp. 9/15/93 1,250,002
<FN>
(c) Securities valued in good faith by the Valuation Committee of the
Board of Trustees. The cost of these securities at June 30, 1994,
aggregated $12,925,767. See Note A of the Notes to Financial
Statements.
* Non-income producing security.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $460,148,901)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . $554,754,442
Receivables:
Fund shares sold . . . . . . . . . . . . . . . . . . . . . 611,862
Dividends and interest . . . . . . . . . . . . . . . . . . 99,898
Investments sold . . . . . . . . . . . . . . . . . . . . . 5,548,771
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 15,229
------------
Total assets . . . . . . . . . . . . . . . . . . . . . 561,030,202
LIABILITIES
Payables:
Due to custodian bank . . . . . . . . . . . . . . . . . . $1,252,924
Investments purchased . . . . . . . . . . . . . . . . . . 12,142,508
Fund shares redeemed . . . . . . . . . . . . . . . . . . . 1,198,415
Accrued management fee (Note C) . . . . . . . . . . . . . 484,091
Other accrued expenses (Note C) . . . . . . . . . . . . . 225,055
----------
Total liabilities . . . . . . . . . . . . . . . . . . . 15,302,993
------------
Net assets, at market value . . . . . . . . . . . . . . . . . $545,727,209
============
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments . . . . . . . . . . $ 94,605,541
Accumulated net realized gain (Note E) . . . . . . . . . . 47,509,254
Shares of beneficial interest . . . . . . . . . . . . . . 197,875
Additional paid-in capital (Note E) . . . . . . . . . . . 403,414,539
------------
Net assets, at market value . . . . . . . . . . . . . . . . . $545,727,209
============
NET ASSET VALUE, offering and redemption price per
share ($545,727,209 / 19,787,452 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . . . . . . . . . $27.58
======
The accompanying notes are an integral part of the financial statements.
</TABLE>
19
<PAGE>
<TABLE>
SCUDDER DEVELOPMENT FUND
- ------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<CAPTION>
YEAR ENDED JUNE 30, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 2,151,413
Interest . . . . . . . . . . . . . . . . . . . . . . . . 544,711
------------
2,696,124
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 7,239,230
Services to shareholders (Note C) . . . . . . . . . . . . 1,434,672
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 41,160
Reports to shareholders . . . . . . . . . . . . . . . . . 158,822
Custodian fees . . . . . . . . . . . . . . . . . . . . . 276,327
Interest expense (Note D) . . . . . . . . . . . . . . . . 73,638
State registration . . . . . . . . . . . . . . . . . . . 46,081
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 19,192
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 45,456
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 47,145 9,381,723
----------- ------------
Net investment loss . . . . . . . . . . . . . . . . . . . (6,685,599)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . 74,992,505
Futures . . . . . . . . . . . . . . . . . . . . . . . (274,520) 74,717,985
-----------
Net unrealized depreciation on investments during the
period . . . . . . . . . . . . . . . . . . . . . . . (148,042,293)
------------
Net loss on investment transactions . . . . . . . . . . . (73,324,308)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $(80,009,907)
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
20
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss . . . . . . . . . . . . . . . . $ (6,685,599) $ (6,563,079)
Net realized gain from investment transactions . . 74,717,985 48,484,477
Net unrealized appreciation (depreciation) on
investment transactions during the period . . . (148,042,293) 110,435,364
------------ ------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . (80,009,907) 152,356,762
------------ ------------
Distributions to shareholders from net realized
gains from investments ($3.07 and
$1.70 per share, respectively) . . . . . . . . . (67,981,079) (40,348,441)
------------ ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 321,444,546 682,886,274
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . 64,939,143 37,463,052
Cost of shares redeemed . . . . . . . . . . . . . . (513,441,752) (711,596,341)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . . (127,058,063) 8,752,985
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (275,049,049) 120,761,306
Net assets at beginning of period . . . . . . . . . 820,776,258 700,014,952
------------ ------------
NET ASSETS AT END OF PERIOD (including
accumulated net investment loss of
$18,616,729 in 1993) . . . . . . . . . . . . . . $545,727,209 $820,776,258
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 23,737,608 23,397,573
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 9,715,584 21,537,744
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . . 1,904,190 1,279,039
Shares redeemed . . . . . . . . . . . . . . . . . . (15,569,930) (22,476,748)
------------ ------------
Net increase (decrease) in Fund shares . . . . . . (3,950,156) 340,035
------------ ------------
Shares outstanding at end of period . . . . . . . . 19,787,452 23,737,608
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
21
<PAGE>
<TABLE>
SCUDDER DEVELOPMENT FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION
DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
YEARS ENDED JUNE 30, (A)
----------------------------------------------------------------------------------
1994(B) 1993(B) 1992(B) 1991(B) 1990(B) 1989(B) 1988 1987 1986(B) 1985
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39 $25.12 $20.41 $18.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) . . . . . . (.30) (.27) (.23) (.10) (.08) (.10) (.08) (.07) (.01) .14
Net realized and
unrealized gain
(loss) on investment
transactions . . . . . . (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41) 1.67 5.81 2.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . . (3.93) 6.36 3.55 2.31 5.99 .96 (1.49) 1.60 5.80 2.47
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income . . . . . . . . . -- -- -- -- -- -- -- -- (.17) (.28)
Net realized gains on
investment transactions . (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33) (.92) (.35)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33) (1.09) (.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . . $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39 $25.12 $20.41
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35) 7.51 29.92 13.58
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of
period ($ millions) . . . . 546 821 700 476 361 275 356 387 359 254
Ratio of operating
expenses to average
net assets (%) . . . . . . 1.27 1.30 1.30 1.29 1.34 1.32 1.30 1.27 1.25 1.29
Ratio of net investment
income (loss) to
average net assets (%) . . (.91) (.83) (.70) (.40) (.35) (.47) (.44) (.33) (.03) .90
Portfolio turnover
rate (%) . . . . . . . . . 48.3 49.2 53.5 70.8 40.1 32.0 39.2 23.5 29.4 25.7
<FN>
(a) All per share and share outstanding amounts through 1986 have been restated to reflect the November 17, 1986, 200%
stock dividend.
(b) Per share amounts have been calculated using the weighted average shares outstanding during the period method.
</FN>
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Development Fund (the "Fund") is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or
foreign stock exchanges are valued at the most recent sale price reported on
the exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation is used. Securities quoted on the the National
Association of Securities Dealers Automatic Quotation ("NASDAQ") System, for
which there have been sales, are valued at the most recent sale price reported
on such system. If there are no such sales, the value is the high or "inside"
bid quotation. Securities which are not quoted on the NASDAQ System but are
traded in another over-the-counter market are valued at the most recent sale
price on such market. If no sale occurred, the security is then valued at the
calculated mean between the most recent bid and asked quotations. If there are
no such bid and asked quotations the most recent bid quotation shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees. Securities valued in good faith by
the Valuation Committee of the Trustees at fair value amounted to $10,520,521
(1.9% of net assets) and have been noted in the investment portfolio as of June
30, 1994.
FUTURES CONTRACTS. The Fund may enter into financial futures contracts
for bona fide hedging and risk management purposes. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin") are
made or received by the Fund each day, dependent on the daily fluctuations in
the value of the underlying
23
<PAGE>
SCUDDER DEVELOPMENT FUND
- ------------------------------------------------------------------------------
security, and are recorded for financial reporting purposes as unrealized gains
or losses by the Fund. When entering into a closing transaction, the Fund will
realize, for book purposes, a gain or loss equal to the difference between the
value of the futures contract to sell and the futures contract to buy. Futures
contracts are valued at the most recent settlement price. Certain risks may
arise upon entering into futures contracts from the contingency of imperfect
market conditions.
RESTRICTED SECURITIES. The Fund may not purchase restricted securities
(for these purposes, restricted security means a security which cannot be sold
to the public without registration under the Securities Act of 1933 or the
availability of an exemption from registration, or which is subject to other
legal or contractual delays in or restrictions on resale), if, as a result
thereof, more than 5% of the value of the Fund's total assets would be invested
in restricted securities. The aggregate fair value of restricted securities at
June 30, 1994 amounted to $11,834,771 which represents 2.2% of net assets.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the resale price.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the
requirements of the Internal Revenue Code which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment
income are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principals.
These differences primarily relate to investments in certain securities sold at
a loss. As a result, net investment income (loss) and net realized gain (loss)
on investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a
trade-date basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
25
<PAGE>
SCUDDER DEVELOPMENT FUND
- -------------------------------------------------------------------------------
B. PURCHASES AND SALES OF SECURITIES
- -------------------------------------------------------------------------------
During the year ended June 30, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $345,591,048 and
$540,332,188, respectively.
The aggregate face value of futures contracts opened and closed during the
year ended June 30, 1994 amounted to $28,220,210.
C. RELATED PARTIES
- -------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay to the
Adviser a fee equal to an annual rate of 1% of the Fund's first $500 million of
average daily net assets, .95% of the next $500 million of such net assets, and
.90% on such net assets in excess of $1 billion, computed and accrued daily and
payable monthly. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objective, policies,
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The Agreement
also provides that if the Fund's expenses, exclusive of taxes, interest, and
extraordinary expenses, exceed specified limits, such excess, up to the amount
of the management fee, will be paid by the Adviser. For the year ended June 30,
1994, the fee pursuant to the Agreement amounted to $7,239,230.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended June 30, 1994, the amount charged by SSC aggregated
$1,167,788, of which $94,279 is unpaid at June 30, 1994.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the year ended June 30, 1994, Trustees' fees aggregated $41,160.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
D. SHORT-TERM DEBT
- -----------------------------------------------------------------------------
During the year ended June 30, 1994, the Fund periodically borrowed amounts
from a bank at the existing prime rate. The arrangement with the bank allows
the Fund to borrow a maximum amount based on net asset value. No borrowings
were outstanding at June 30, 1994 and there were no month-end borrowings
outstanding at any month during the period.
During the year ended June 30, 1994, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $7,664,683 with a weighted average interest rate of 6.06%. Interest expense
for the year ended June 30, 1994 was $73,638 (less than $.01 per share).
E. RECLASSIFICATION OF CAPITAL ACCOUNTS
- -----------------------------------------------------------------------------
As required, effective July 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)." In implementing the SOP, the Fund has reclassified
$18,616,729 to decrease accumulated net investment loss, $27,390,044 to
decrease accumulated net realized gains and $8,773,315 to increase additional
paid-in capital. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to tax equalization and net
operating losses which are treated differently in the computation of
distributable income and capital gains under federal tax regulations versus
generally accepted accounting principles. The statement of changes in net
assets and financial highlights for prior periods have not been restated to
reflect this change in presentation.
27
<PAGE>
SCUDDER DEVELOPMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF SCUDDER DEVELOPMENT FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Development Fund, including the investment portfolio, as of June 30, 1994, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Development Fund as of June 30, 1994, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the ten years
in the period then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
August 5, 1994
28
<PAGE>
TAX INFORMATION
The Fund paid distributions of $3.07 per share from long-term capital gains
during its year ended June 30, 1994. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $74,574,479 as capital gain dividends for its
fiscal year ended June 30, 1994.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate
School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Edmond D. Villani*
Trustee
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate
School of Business
Edmund R. Swanberg
Honorary Trustee
Peter Chin*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Roy C. McKay*
Vice President
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Richard W. Desmond*
Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
29
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
<S> <C> <C>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
Money market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Value Fund
Scudder Balanced Fund The Japan Fund
Scudder Growth and Income Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-end Funds#
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
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. +A portion of the income from
the tax free funds may be subject to federal, state and local taxes. *Not available in all states. #These
funds, advised by Scudder, Stevens & Clark, Inc., are traded on the New York Stock Exchange. +++A no-load
variable annuity contract provided by Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. ++For information on Scudder Treasurers Trust(TM), an
institutional cash management service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000
minimum), call: 1-800-541-7703.
30
<PAGE>
HOW TO CONTACT SCUDDER
Account Service and Information
-------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields,
exchanges and redemptions SCUDDER
AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton Los Angeles
Boston New York
Chicago Portland, OR
Cincinnati San Francisco
Scottsdale
-------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust(TM), an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts which service needs of banks and
utilizes certain portfolios of other institutions, call:
Scudder Fund, Inc.* ($100,000 1-800-854-8525.
minimum), call: 1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Scudder Investor Information and Scudder Funds Centers are services provided through Scudder Investor
Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete information,
including management fees and expenses. Please read it carefully before you invest or send money.
</TABLE>
31
<PAGE>
Celebrating 75 Years of Serving Investors
-------------------------------------------------------------------------------
This year marks the 75th anniversary of the founding of Scudder, Stevens &
Clark, investment adviser for the Scudder Funds. Established in 1919 by Theodore
Scudder, Sidney Stevens, and F. Haven Clark, Scudder was the first independent
investment counsel firm in the United States. Since its birth, Scudder's
pioneering spirit and commitment to professional long-term investment management
have helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 35 pure no load(TM) funds, including
the first international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped Scudder become one
of the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our longstanding
principles: managing money with integrity and distinction, keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
