Scudder
Development
Fund
Annual Report
June 30, 1996
Pure No-Load(TM) Funds
Offers opportunities for long-term growth of capital by investing primarily in
securities of emerging growth companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
In Brief
Scudder Development Fund provided shareholders with a 35.26% total return for
the 1996 fiscal year ended June 30, due to astute stock selection and a
generally healthy market environment.
The Fund's return during this time period was well ahead of the average
mid-capitalization fund tracked by Lipper, which returned 25.33%, and also
outpaced the unmanaged Russell 2000 Growth Index's 26.49% gain.
BAR CHART TITLE: Comparative Returns Through June 30, 1996
BAR CHART DATA:
One Year Five Years* Ten Years*
Scudder Development Fund 35.26 18.77 13.56
Russell 2000 Growth Index 26.49 15.95 9.11
Lipper Average 25.33 17.08 12.58
* Average annualized returns
The Fund sought to strengthen diversity in portfolio holdings throughout the
year and in the process reduced its technology holdings substantially. Timely
additions in the services, healthcare, and energy sectors proved beneficial for
Fund performance.
2
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We hope you enjoy our newly redesigned shareholder report. The new format,
which is being implemented on a test basis with select Scudder funds, is
designed to enhance the attractiveness and readability of the reports. Let us
know what you think.
In this era of electronic information we have also taken a look at our
short-form quarterly reports, which you generally receive two or more weeks
after the end of your fund's first and third fiscal quarters. Going forward,
these printed reports will be discontinued, and portfolio information will be
made available on a more timely basis -- each month, in most cases -- through
Scudder's Web site, Scudder's automated information line (SAIL), and by calling
a Scudder Investor Relations representative.
We are very pleased to report on another successful year for Scudder
Development Fund. After delivering a 45% total return to investors in fiscal
year 1995, the Fund produced an additional 35% for the 12 months ended June 30,
1996. A beneficial combination of strong earnings gains, positive investor
sentiment, and smart stock selection were critical to these results.
In our calendar-year-end report, we outlined our concerns for U.S. stock
investors going forward. As Roy McKay and Peter Chin explain in the following
letter from portfolio management, the markets have been volatile and sound
companies with growing earnings much harder to find. In the short run, these
factors may lead to some downward movement in your fund's share price. The
Fund's research team has redoubled its efforts to identify those companies
likely to disappoint with lower-than-expected earnings, but as we witnessed on
July 15, the market sometimes punishes swans and ugly ducklings with equal
vigor. Longer term, we believe this era of low inflation and dramatic innovation
will provide fertile ground for Scudder Development Fund in its quest for
capital appreciation.
Please do not hesitate to call an Investor Relations representative at
1-800-225-2470 if you have any questions regarding Scudder Development Fund.
Page 31 contains more information on how to contact us.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Development Fund
3
<PAGE>
PERFORMANCE UPDATE as of June 30, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER DEVELOPMENT FUND
- --------------------------------------
1 Year $ 13,526 35.26% 35.26%
5 Year $ 23,635 136.35% 18.77%
10 Year $ 35,679 256.79% 13.56%
20 Year $225,955 2,159.55% 16.87%
- --------------------------------------
RUSSELL 2000 GROWTH INDEX
- --------------------------------------
1 Year $12,649 26.49% 26.49%
5 Year $20,973 109.73% 15.95%
10 Year $23,935 139.35% 9.11%
20 Year* $ - -% -%
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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
SCUDDER DEVELOPMENT FUND
Year Amount
- ----------------------
'86 $10,000
'87 $10,751
'88 $10,175
'89 $10,649
'90 $13,684
'91 $15,096
'92 $17,033
'93 $20,828
'94 $18,140
'95 $26,378
'96 $35,679
RUSSELL 2000 GROWTH INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,620
'88 $ 9,465
'89 $10,436
'90 $11,347
'91 $11,412
'92 $12,376
'93 $14,907
'94 $15,039
'95 $18,922
'96 $23,935
The Russell 2000 Growth Index is an unmanaged 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.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
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
below.
YEARLY PERIODS ENDED JUNE 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $25.39 $22.00 $22.54 $26.25 $27.33 $29.92 $34.58 $27.58 $37.35 $45.56
CAPITAL GAINS
DIVIDENDS......... $ 1.33 $ 1.90 $ .42 $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07 $ 2.12 $ 4.20
FUND TOTAL
RETURN (%)........ 7.51 -5.35 4.66 28.50 10.32 12.83 22.28 -12.91 45.41 35.26
INDEX TOTAL
RETURN (%)........ 6.20 -10.88 10.26 8.72 .58 8.45 20.45 .88 25.82 26.49
</TABLE>
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased.
*Index returns are not available for this period.
4
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1996
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Equity Holdings 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.
The Fund's near fully invested position reflects
our belief that interest rates are more likely to
head down than up in the coming year.
- --------------------------------------------------------------------------
SECTOR DIVERSIFICATION
(Excludes 3% Cash Equivalents)
- -------------------------------------------------------------------------
Technology 23%
Health 20%
Service Industries 15%
Consumer Discretionary 12%
Durables 9%
Energy 6%
Financial 5%
Manufacturing 4%
Transportation 1%
Other 5%
- ----------------------------------------------
100%
- ----------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
In an effort to reduce portfolio volatility
through diversification, we reduced the Fund's
technology exposure from a high of 29% one year ago.
- --------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS
(21% of portfolio)
- --------------------------------------------------------------------------
1. CINTAS CORP.
Uniform rentals
2. PARAMETRIC TECHNOLOGY CORP.
Mechanical design software producer
3. GRAND CASINOS INC.
Casino manager
4. ATMEL CORP.
Developer and manufacturer of integrated circuits
5. G&K SERVICES INC.
Uniform rentals
6. U.S. ROBOTICS CORP.
Designer and manufacturer of high performance data communication products
and systems
7. STERIS CORP.
Manufacturer of sterile processing systems
8. SYNOPSYS INC.
Developer of high level electronic design software
9. SECURITY DYNAMICS TECHNOLOGIES, INC.
Designer, developer and supporter of a family of security products used to
manage access to computer-based information resources
10. ASCEND COMMUNICATIONS, INC.
Developer and producer of a variety of high-speed wide area network access
products
The Funds's 10 largest holdings returned
107% on average during the year.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 9. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
We are pleased to report on another year of strong performance from Scudder
Development Fund. During the fiscal year ended June 30, 1996, the Fund produced
a total return of 35.26%. As you can see in the table below, the Fund has
delivered returns over the past 10 years that compare favorably with those of
the unmanaged Russell 2000 Growth Index, the Fund's benchmark.
Scudder Russell 2000
To June 30, 1996 Development Fund* Growth Index*
------------------------------------------------------
Last Quarter 6.58% 5.84%
Last 6 Months 13.51 11.92
Last Year 35.26 26.49
Last 3 Years 71.30 60.56
Last 5 Years 136.35 109.73
Last 10 years 256.79 139.35
* Cumulative total returns
------------------------------------------------------
Three principal reasons account for the past year's positive performance: a
relatively benign interest rate environment, rapidly expanding earnings of
companies held in the portfolio, and extremely positive money flows into stocks.
The Fund's longer-term results reflect the successful implementation of a
consistent long-term philosophy to concentrate investments in small- to mid-size
companies that are well managed and capable of delivering at least 15% earnings
growth per year. Key to the Fund's success has been Scudder's fundamental
research into each of its investments.
The Good, the Bad, and the Uncertain
A total of 30 holdings enjoyed gains of over 50% during the year. Included in
the list were five service companies, four Internet and remote access companies,
four pharmaceutical companies, two specialty consumer companies, two oil and gas
related investments, and one airline. This diversified group had one unifying
theme: earnings increases, which averaged 56% in the most recently reported
quarter. Collectively, these companies represented 31% of Scudder Development
Fund's portfolio on June 30.
This powerful performance extends beyond the most recent 12 month period and
has, in fact, helped propel your Fund's share price for nearly two straight
years. In June, sparked by a combination of earnings disappointments and rising
interest rates, this streak of gains was interrupted. Eight portfolio holdings
declined by 30% or more during the quarter. As diverse a group as last year's
overachievers, these recent stumblers produced earnings gains of only 4% on
average during the most recent quarter. Collectively, they accounted for 4% of
the Fund's portfolio as of June 30, 1996.
6
<PAGE>
We are now in the middle of yet another quarterly earnings reporting season. So
far, the most that can be said is that in certain industries -- particularly
semiconductors, computers, and some areas of software -- it is becoming
increasingly difficult to report rising revenues and earnings. In the light of
this unpleasant fact, we have reduced investments in semiconductors and related
equipment.
Trends and Developments
We continue to increase investments in services -- in particular, outsourcing
services. This sector has been especially rewarding this year with AccuStaff
gaining 86%, Career Horizons up 107%, Computer Horizons gaining 56%, Sitel up
170%, and Viasoft soaring a breathtaking 444% for the 12 month period. We also
increased our investments in assisted living centers. The demographic demand for
these facilities far exceeds supply, and a number of well-run regional companies
recently have announced initial public stock offerings.
Based upon rapidly increasing production from recent discoveries and higher
prices for natural gas, investments in the oil and gas industry also performed
exceptionally well. For the year, Benton Oil and Gas and Barrett Resources
gained 59% and 28%, respectively. In our estimation, these and other energy
investments provide excellent growth potential and risk-reducing diversification
for the Fund.
Throughout the year, Scudder Development Fund was also favorably impacted by
acquisitions. Most recently, in late April, Cisco Systems made an offer to merge
with Fund holding Stratacom at a 35% premium. Since Cisco's $30 billion market
capitalization exceeds our definition of "small" we took our profits on
Stratacom and eliminated the position.
The Months Ahead
After almost two years of non-stop positive performance, the stock market was
poised for a correction. The recent increase in long-term interest rates (and
the fear of future increases in short-term rates), coupled with current earnings
disappointments, tipped the balance. Historically, sudden and sharp selloffs
such as this are more indicative of bull market corrections than longer-term
bear market declines.
That said, further increases in interest rates stemming from an accelerating
economy would not be positive for equities. We believe the current spate of
weaker earnings is more indicative of a tired economy than one that is
accelerating. An economy near the end of its expansionary cycle does not warrant
interest rate increases. Thus, we are maintaining our strategy of being near
fully invested in stocks.
7
<PAGE>
With the benefit of experience, we believe the keys to successful stock
investing are (1) to maintain a consistent long-term investment horizon, (2)
have the courage and persistency to stay invested in well-managed companies in
spite of short-term price declines, and (3) have the flexibility to sell
companies whose underlying fundamentals are deteriorating. Scudder's entire
research team is working to identify early those companies that may be impacted
by a weakening economy. As we have for the past 25 years, we remain committed to
our ongoing search for undiscovered opportunities and believe that Scudder
Development Fund will continue to provide above-average capital appreciation for
its shareholders over the long term.
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 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. 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 30 years of
investment experience, with over 20 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.
PHOTO CAPTION: Your Portfolio Management Team: Roy C. McKay and Peter Chin
8
<PAGE>
Investment Portfolio as of June 30, 1996
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/28/96 at 5.45%, to be
repurchased at $11,310,134 on 7/1/96, collateralized by a $11,288,000 U.S. Treasury
Note, 5.75%, 9/30/97 (Cost $11,305,000) ................................................. 11,305,000 11,305,000
==========
CERTIFICATES OF DEPOSIT 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Xerox Corp., 5.09%, 7/25/96 (Cost $19,929,600) ............................................ 20,000,000 19,929,600
==========
CONVERTIBLE BONDS 0.3%
- -----------------------------------------------------------------------------------------------------------------------
HEALTH 0.3%
Hospital Management 0.1%
Complete Management, Inc., 8%, 8/15/03 .................................................... 1,700,000 1,802,000
----------
Pharmaceuticals 0.2%
North American Vaccine, Inc., 6.5%, 5/1/03 ................................................ 2,000,000 1,890,000
----------
MEDIA 0.0%
Broadcasting & Entertainment
Intouch Group, Inc. Promissory Note, 8%, 2/1/96* (b) (c) (d) .............................. 250,000 --
- -----------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $3,950,000) ................................................. 3,692,000
- -----------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.4%
- -----------------------------------------------------------------------------------------------------------------------
HEALTH 0.3%
Biotechnology 0.2%
Norian Corp. "D"* (Developer and manufacturer of a proprietary biomaterial for skeletal
repair) (b) (c) ......................................................................... 2,857,143 2,000,000
----------
Medical Supply & Specialty 0.1%
InterVentional Technologies, Inc."G"* (Manufacturer of minimally invasive disposable
microsurgical devices and systems for treatment of cardiovascular disease) (b) (c) ...... 120,000 1,200,000
----------
MEDIA 0.0%
Broadcasting & Entertainment
InTouch Group Inc. "D"* (Interactive place-based media applications and information
services) (b) (c) (d) ................................................................... 363,637 --
----------
MISCELLANEOUS 0.1%
HYSEQ Inc. "A"* (Genetic biotechnology company) (b) (c) ................................... 175,000 1,400,000
- -----------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $8,600,007) ...................................... 4,600,000
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 96.3%
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 11.5%
Apparel & Shoes 1.6%
Oakley, Inc.* (Manufacturer of designer and sport sunglasses and goggles) ................. 56,600 2,575,300
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
St. John Knits Inc. (Manufacturer of women's clothing) .................................... 192,500 8,590,313
Tommy Hilfiger Corp.* (Designer and marketer of men's sportswear) ......................... 105,400 5,652,075
----------
16,817,688
----------
Department & Chain Stores 1.3%
Men's Wearhouse Inc.* (Discount retailer) ................................................. 351,075 11,322,169
Renters Choice, Inc.* (Operator of rent-to-own stores offering home electronics, appliances,
furniture and accessories) .............................................................. 112,100 2,858,550
----------
14,180,719
----------
Hotels & Casinos 3.0%
Anchor Gaming* (Operator of gaming machines and casinos) .................................. 101,300 6,103,325
Grand Casinos Inc.* (Casino manager) ...................................................... 906,400 23,339,800
Shuffle Master, Inc.* (Manufacturer of automatic card shuffling systems for
gaming operations) ...................................................................... 199,900 2,998,500
----------
32,441,625
----------
Recreational Products 0.3%
First Team Sports, Inc.* (Manufacturer and wholesaler of in-line roller skates) ........... 331,900 3,567,925
----------
Restaurants 2.0%
Lone Star Steakhouse/Saloon* (Full service restaurant chain) .............................. 130,200 4,915,050
Outback Steakhouse Inc.* (Operator of full-service restaurants) ........................... 169,100 5,831,307
Starbucks Corp.* (High-quality coffee provider) ........................................... 381,900 10,788,675
----------
21,535,032
----------
Specialty Retail 3.3%
Just For Feet, Inc.* (Operator of superstore chain specializing in athletic
and outdoor footwear) ................................................................... 19,800 1,046,925
PETsMART Inc.* (Pet food and supply superstores) .......................................... 331,900 15,848,225
Viking Office Products Inc.* (Direct marketer of office supplies) ......................... 592,800 18,599,100
----------
35,494,250
----------
CONSUMER STAPLES 0.7%
Package Goods/Cosmetics 0.1%
Thermolase Corp.* (Producer of skin-care and other personal care products) ................ 31,100 847,475
----------
Textiles 0.6%
Nautica Enterprises, Inc.* (Designer and manufacturer of men's clothing) .................. 239,000 6,871,250
----------
HEALTH 18.8%
Biotechnology 2.2%
Affymetrix, Inc.* (Manufacturer of a genetic information system) .......................... 7,600 115,900
Alliance Pharmaceutical Corp.* (Developer of products for treatment of immune system
disorders, cancer and respiratory distress syndrome) .................................... 139,000 2,293,500
Applied Biometrics, Inc.* (Manufacturer of cardiac output measuring devices) (b) (c) ...... 50,000 635,000
Avigen, Inc.* (Developer of gene therapy products) ........................................ 112,300 786,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Biofield Corp.* (Developer of medical technology to detect breast cancer) ................. 140,900 1,919,763
Biotransplant, Inc.* (Developer of organ transplant systems and products) ................. 47,000 381,875
Cardiometrics, Inc.* (Developer and manufacturer of intravascular devices to measure
blood flow impairment) .................................................................. 62,500 406,250
Cardiovascular Dynamics, Inc.* (Developer and manufacturer of catheters for treatment of
vascular diseases) ...................................................................... 154,900 1,897,525
CytoTherapeutics, Inc.* (Developer of therapeutic products for treatment of certain chronic
and disabling diseases) ................................................................. 386,600 4,300,925
Digene Corp.* (Manufacturer of diagnostic DNA testing systems) ............................ 71,800 574,400
NABI, Inc.* (Leading biopharmaceutical company in development of products to prevent
and treat autoimmune and infectious diseases) ........................................... 350,000 3,325,000
Neoprobe Corp.* (Research and development of a system for diagnosis and treatment of cancer) 337,862 5,954,818
Virus Research Institute, Inc.* (Developer of vaccine delivery systems) ................... 133,100 1,214,538
----------
23,805,594
----------
Health Industry Services 0.9%
IDX Systems Corp.* (Provider of health care information systems to physician groups
and academic medical centers) ........................................................... 186,000 7,254,000
Transition Systems, Inc.* (Provider of integrated clinical and financial decision
support systems) ........................................................................ 69,400 1,977,900
----------
9,231,900
----------
Hospital Management 1.9%
ARV Assisted Living, Inc.* (Operator of licensed assisted living facilities for
senior citizens) ........................................................................ 230,400 3,571,200
Advocat, Inc.* (Operator of nursing homes and retirement centers) ......................... 227,100 2,157,450
Sunrise Assisted Living, Inc.* (Provider of assisted living to the elderly) ............... 227,300 5,455,200
Veterinary Centers of America, Inc.* (Owner and manager of veterinary hospitals) .......... 415,600 9,299,050
----------
20,482,900
----------
Medical Supply & Specialty 8.8%
Bio-Plexus Inc.* (Developer and marketer of various medical products) ..................... 124,200 1,242,000
Endosonics Corp.* (Manufacturer of imaging catheters) ..................................... 518,900 9,275,338
ICU Medical Inc.* (Designer, manufacturer and marketer of proprietary disposable
medical products) ....................................................................... 556,100 7,646,375
Isolyser Co., Inc.* (Developer and manufacturer of varied healthcare products) ............ 447,900 5,374,800
Med-Design Corp.* (Developer and manufacturer of safety medical devices) .................. 309,100 4,945,600
PLC Systems Inc.* (Developer, manufacturer and marketer of medical laser systems) ......... 317,200 7,097,350
Perclose, Inc.* (Developer and producer of minimally invasive single-use systems to close
arterial access sites surgically) ....................................................... 250,200 5,629,500
Quidel Corp.* (Producer of non-instrumented diagnostic products for clinical laboratories,
office and home testing markets) ........................................................ 53,600 274,700
Research Industries* (Manufacturer of single-patient use cardiology medical products) ..... 186,200 4,119,675
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STERIS Corp.* (Manufacturer of sterile processing systems) ................................ 643,700 20,598,400
Summit Technology, Inc.* (Producer of medical devices for treatment of vision disorders) .. 344,700 4,825,800
Target Therapeutics, Inc.* (Manufacturer of disposable medical devices for treatment of
vascular diseases) ...................................................................... 170,200 6,978,200
Thermedics Inc.* (Manufacturer of drug detection instruments, explosives detectors, and
heart assist devices) ................................................................... 485,200 12,130,000
Trex Medical Corp.* (Manufacturer of mammography equipment and needle biopsy systems) ..... 22,900 432,238
UroMed Corp.* (Manufacturer of urological/gynecological medical products) ................. 274,333 3,772,079
----------
94,342,055
----------
Pharmaceuticals 5.0%
Agouron Pharmaceuticals, Inc.* (Developer of therapeutic and synthetic drugs for
treatment of cancer and other diseases) ................................................. 131,500 5,128,500
BioChem Pharma, Inc.* (Research and development of therapeutic products) .................. 51,500 1,931,250
Cyanotech Corp.* (Producer of algal products for nutritional and pharmaceutical markets) .. 124,600 934,500
Flamel Technologies S.A. (ADR)* (Developer of controlled release pharmaceuticals) ......... 121,300 977,981
Interneuron Pharmaceuticals, Inc.* (Developer of neuropharmaceuticals to treat various
psychiataric and neurological disorders) ................................................ 135,600 4,068,000
Matrix Pharmaceutical, Inc.* (Developer of site-specific treatments for cancer and serious
skin diseases) .......................................................................... 296,200 5,331,600
Neurogen Corp.* (Developer of biopharmaceuticals for treatment of psychiatric and
neurological disorders) ................................................................. 234,100 6,028,075
North American Vaccine, Inc.* (Developer of immunological products) ....................... 275,400 5,026,050
Noven Pharmaceuticals, Inc.* (Transdermal drug delivery systems) .......................... 822,200 13,155,200
PathoGenesis Corp.* (Developer of drugs for treatment of serious infectious diseases) ..... 394,800 6,119,400
SciClone Pharmaceuticals, Inc.* (Developer of pharmaceuticals for infectious diseases,
cancer and immune system disorders) ..................................................... 369,600 5,128,200
----------
53,828,756
----------
COMMUNICATIONS 0.8%
Cellular Telephone 0.4%
CommNet Cellular, Inc.* (Management, maintenance and financing of cellular telephone
systems throughout the United States) ................................................... 133,400 4,002,000
----------
Telephone/Communications 0.4%
Paging Network, Inc.* (Paging services) ................................................... 162,000 3,888,000
Premiere Technologies, Inc.* (Information and telecommunication services) ................. 25,700 809,550
----------
4,697,550
----------
FINANCIAL 5.2%
Banks 3.3%
Dauphin Deposit Corp. (Commercial banking in Pennsylvania) ................................ 143,000 4,075,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First American Corp. (Tennessee) (Regional commercial banking) ............................ 124,300 5,236,138
First Commerce Corp. (Commercial banking in Louisiana and Mississippi) .................... 121,200 4,287,450
First Security Corp. (Commercial banking in western states) ............................... 219,350 5,264,400
Magna Group, Inc. (Commercial banking and financial services) ............................. 238,400 5,721,600
Union Planters Corp. (Commercial banking in Tennessee) .................................... 172,000 5,224,500
Zions Bancorp (Commercial banking in Utah) ................................................ 74,700 5,434,425
----------
35,244,013
----------
Insurance 1.7%
CapMAC Holdings Inc. (Provider of financial guaranty insurance) ........................... 154,900 4,414,650
Compdent Corp.* (Provider of dental coverage in the managed dental care industry) ......... 136,300 6,337,950
Meadowbrook Insurance Group. Inc. (Insurance holding company) ............................. 93,600 2,878,200
Terra Nova (Bermuda) Holdings Ltd. "A" (Property, casualty and marine insurance and
reinsurance company) .................................................................... 271,600 4,345,600
----------
17,976,400
----------
Consumer Finance 0.2%
Southern Pacific Funding Corp.* (Specialty finance company providing primarily
mortgage loans for single family residences) ............................................ 143,000 2,502,500
----------
MEDIA 1.1%
Broadcasting & Entertainment 0.5%
Central European Media Enterprises Ltd. "A"* (Owner and operator of national and regional
private commercial television stations in central Europe and Germany) ................... 214,400 5,360,000
Sanctuary Woods Multimedia Corp.* (Leading developer of family-oriented entertainment
and educational CD ROM titles) (b) (c) .................................................. 700,000 433,125
Sanctuary Woods Multimedia Corp.* ......................................................... 29,000 19,938
----------
5,813,063
----------
Print Media 0.6%
Desktop Data, Inc.* (Provider of customized real-time news and information over local
area networks to professional customers) ................................................ 181,800 6,044,850
----------
SERVICE INDUSTRIES 14.5%
EDP Services 1.1%
Computer Horizons Corp.* (Diversified information technology services and solutions) ...... 80,800 3,191,600
Systems & Computer Technology Corp.* (Computer software for educational institutions) ..... 565,200 8,195,400
----------
11,387,000
----------
Investment 0.4%
Pioneer Group Inc. (Fund management company owning major gold producer in Ghana) .......... 163,800 4,381,650
----------
Miscellaneous Commercial Services 13.0%
AccuStaff, Inc.* (National provider of temporary staffing personnel) ...................... 479,800 13,074,550
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Apollo Group, Inc.* (Provider of higher education programs for working adults) ............ 289,350 8,101,800
BI Inc.* (Manufacturer of and service provider for house arrest electronic
monitoring systems) ..................................................................... 338,500 4,485,125
Bell & Howell Holdings Co.* (Information access and dissemination services) ............... 143,000 4,665,375
CMG Information Services, Inc.* (Developer of information based products and services
for direct marketing) ................................................................... 226,100 6,104,700
Career Horizons Inc.* (Temporary help service for business and healthcare) ................ 371,900 13,016,500
Checkfree Corp.* (Designer and provider of services for electronic commerce) .............. 290,500 5,773,688
Cintas Corp.* (Uniform rentals) ........................................................... 592,500 31,698,750
Copart, Inc.* (Auctioner of damaged vehicles for insurance companies) ..................... 347,200 5,728,800
G & K Services Inc. "A"* (Uniform rentals) ................................................ 732,000 20,862,000
Labor Ready, Inc.* (Provider of temporary workers for manual labor jobs) .................. 83,200 2,329,600
M.A.I.D. PLC (ADR)* (Provider of a computer-based service for access to on-line business
information) ............................................................................ 70,000 1,106,875
RTW, Inc.* (Provider of comprehensive managed care products and services for workers'
compensation programs) .................................................................. 217,650 6,855,975
Sitel Corp.* (Nebraska based telemarketing company for major credit-card and insurance
companies) .............................................................................. 197,500 8,295,000
Strategic Distribution, Inc.* (In-plant distributor of parts and supplies) ................ 123,600 973,350
Verifone, Inc.* (Provider of electronic payment services to financial institutions, retail
merchants and consumers) ................................................................ 151,600 6,405,100
----------
139,477,188
----------
DURABLES 8.9%
Automobiles 0.4%
Tower Automotive, Inc.* (Producer of engineered metal stampings and assemblies for
automotive industry) .................................................................... 148,500 3,638,250
----------
Telecommunications Equipment 8.5%
Ascend Communications, Inc.* (Developer and producer of a variety of high-speed wide
area network access products) ........................................................... 346,400 19,485,000
Cascade Communications Corp.* (Designer and developer of multi-service wide area
network switches) ....................................................................... 255,000 17,340,000
Glenayre Technologies, Inc.* (Manufacturer of telecommunications equipment and software) .. 30,000 1,500,000
Inter-Tel, Inc.* (Manufacturer of business communications software and systems) ........... 111,500 2,919,906
Shiva Corp.* (Developer and manufacturer of hardware and software products that enable
remote connectivity to enterprise networks) ............................................. 231,000 18,480,000
Stratacom, Inc.* (Manufacturer of switching systems for wide area networks) ............... 198,200 11,148,750
U.S. Robotics Corp.* (Designer and manufacturer of high performance data communication
products and systems) ................................................................... 242,708 20,751,534
----------
91,625,190
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING 3.8%
Containers & Paper 0.7%
Aptargroup, Inc. (Manufacturer of packaging equipment components) ......................... 125,900 3,808,475
Sealed Air Corp.* (Protective packaging material) ......................................... 100,000 3,362,500
----------
7,170,975
----------
Electrical Products 1.0%
Advanced Lighting Technologies, Inc.* (Manufacturer of metal halide lighting products) .... 311,700 5,454,750
FORE Systems, Inc.* (Producer of high-performance networking products) .................... 142,200 5,136,975
----------
10,591,725
----------
Industrial Specialty 1.3%
Bakrie & Brothers (Manufacturer of industrial steel products, steel pipes, corrugated sheet
iron, asbestos and fiber cements) ....................................................... 2,380,000 3,374,436
Itron, Inc.* (Manufacturer of meter reading instruments for utilities) .................... 99,900 2,834,663
Lydall, Inc.* (Engineered fiber materials) ................................................ 379,700 8,353,400
----------
14,562,499
----------
Office Equipment/Supplies 0.8%
Encad, Inc.* (Manufacturer of large format color inkjet printers) ......................... 525,000 8,925,000
----------
TECHNOLOGY 22.4%
Computer Software 16.7%
Advent Software, Inc.* (Provider of stand-alone and client/server software products) ...... 231,500 6,482,000
Aspect Development, Inc.* (Developer of component and supplier management software) ....... 50,800 1,295,400
Astea International, Inc.* (Developer, marketer and supporter of applications for the
customer interaction software market) ................................................... 232,500 5,638,125
Atria Software, Inc.* (Developer of complex software products) ............................ 60,000 3,000,000
Avant! Corp.* (Developer and marketer of integrated circuit design automation software) ... 115,100 2,676,075
CBT Group PLC (ADR)* (Developer and publisher of software focusing on client/server
technologies) ........................................................................... 35,000 1,618,750
Cheyenne Software Inc.* (Computer software and equipment) ................................. 522,250 10,053,313
Clarify, Inc.* (Manufacturer of adaptable client/server application software) ............. 53,500 2,648,250
Cooper & Chyan Technology, Inc.* (Developer of software tools to aid performance of
printed circuit boards and integrated circuits) ......................................... 136,500 2,985,938
Dendrite International, Inc.* (Provider of software products and support services for
management of large sales forces in the healthcare industry) ............................ 134,200 4,629,900
Excalibur Technologies Corp.* (Manufacturer of document imaging software) ................. 190,900 4,295,250
Informix Corp.* (Database management software) ............................................ 610,300 13,731,750
Integrated Systems, Inc.* (Manufacturer of software development tools for various
industries) ............................................................................. 72,300 2,896,519
Keane, Inc.* (Provider of computer software project management and design
development services) ................................................................... 271,800 10,022,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kurzweil Applied Intelligence* (Developer of speech recognition software and systems) ..... 310,074 930,222
Lycos, Inc.* (Developer of online guides to the Internet) ................................. 138,400 1,539,700
Open Text Corp.* (Producer of information management software for networks) ............... 130,100 1,349,788
OzEmail Ltd.* (Provider of residential and commercial Internet services in Australia and
New Zealand) .............................................................................. 145,200 1,869,450
Parametric Technology Corp.* (Mechanical design software producer) ........................ 663,800 28,792,325
Planning Sciences International PLC (ADR)* (Business software) ............................ 72,400 1,629,000
Project Software & Development, Inc.* (Developer of software used for management of
equipment maintenance) .................................................................... 254,900 11,948,438
SS&C Technologies, Inc.* (Producer of client/server-based software solutions for financial
service companies) ........................................................................ 12,700 193,675
Security Dynamics Technologies, Inc.* (Designer, developer and supporter of a family
of security products used to manage access to computer-based information resources) ....... 241,800 19,888,050
Segue Software, Inc.* (Producer and supporter of software tools, methodology and
management) ............................................................................... 171,000 5,087,250
Softdesk, Inc.* (Designer and supporter of computer-aided design software for architecture,
engineering and construction industries) .................................................. 307,800 2,924,100
Sterling Commerce, Inc.* (Producer of electronic data interchange products and services) .. 37,800 1,403,325
Synopsys Inc.* (Developer of high level electronic design software) ....................... 502,200 19,962,450
Verilink Corp.* (Developer of integrated access products for telecommunication network
service providers) ........................................................................ 16,800 428,400
Verity, Inc.* (Developer and supporter of software tools and applications for locating
information on various networks and databases) ............................................ 76,800 2,208,000
Viasoft, Inc.* (Producer of business solutions for management and automation of large-scale
COBOL software systems) ................................................................... 100,200 6,475,425
VocalTec, Ltd.* (Producer of software for audio communications on the Internet) ........... 60,600 530,250
Workgroup Technology Corp.* (Designer, manufacturer and supporter of information
management software) ...................................................................... 33,700 846,713
-----------
179,980,456
-----------
EDP Peripherals 1.0%
NetStar, Inc.* (Manufacturer and supporter of high-performance computer networking
equipment) ................................................................................ 311,100 6,144,225
Visioneer, Inc.* (Developer of intelligent paper input systems) ........................... 418,300 4,235,288
-----------
10,379,513
-----------
Electronic Components/Distributors 0.9%
Altera Corp.* (Designer and marketer of programmable logic integrated circuits and
computer engineering software and hardware) ............................................... 53,000 2,014,000
ITI Technologies, Inc.* (Designer and manufacturer of wireless security system) ........... 174,800 5,768,400
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trident International, Inc.* (Manufacturer of impulse ink jet subsystems) ................. 86,000 1,870,500
----------
9,652,900
----------
Precision Instruments 1.3%
KLA Instruments Corp.* (Developer, manufacturer and marketer of automated image
processing systems) ....................................................................... 385,300 8,958,225
Silicon Valley Group Inc.* (Manufacturer of equipment for semiconductor industry) ......... 286,000 5,362,500
----------
14,320,725
----------
Semiconductors 2.5%
Atmel Corp.* (Developer and manufacturer of integrated circuits) .......................... 707,100 21,301,388
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) ................ 95,500 2,292,000
Zilog Inc.* (Manufacturer and marketer of integrated circuits) ............................ 123,750 2,970,000
----------
26,563,388
----------
ENERGY 5.6%
Oil & Gas Production 3.9%
Abacan Resource Corp.* (Exploration and development of oil and gas properties in Nigeria) . 335,100 1,397,994
Barrett Resources Corp.* (Oil and gas exploration and production) ......................... 394,300 11,730,425
Belco Oil & Gas Corp.* (Natural gas and oil exploration, development and production) ...... 38,100 1,352,550
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) ............... 501,300 11,028,600
Triton Energy Ltd.* (Independent oil and gas exploration and production company) .......... 331,500 16,119,188
----------
41,628,757
----------
Oil Companies 0.1%
Rutherford-Moran Oil Corp.* (Independent energy company which develops oil and
gas properties in southeast Asia) ......................................................... 70,200 1,711,125
----------
Oilfield Services/Equipment 1.6%
Global Industries Ltd.* (Pipeline construction, derrick and diving services for offshore oil
and gas industry) ......................................................................... 249,200 7,413,700
Sonat Offshore Drilling Co. (Provider of contract drilling services of offshore oil and gas
wells worldwide) .......................................................................... 189,500 9,569,750
----------
16,983,450
----------
METALS & MINERALS 1.1%
Precious Metals 0.8%
Ashanti Goldfields Co., Ltd. (ADS) (Leading gold producer) ................................ 100,000 1,975,000
Stillwater Mining Co.* (Exploration and development of mines in Montana producing
platinum, palladium and associated metals) ................................................ 300,000 7,087,500
----------
9,062,500
Steel & Metals 0.3%
RMI Titanium Co.* (Producer of titanium products) ......................................... 110,500 2,596,750
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION 0.6%
Building Materials
Simpson Manufacturing Co., Inc.* (Manufacturer of wood-to-wood, wood-to-concrete and
wood-to-masonry connectors) ............................................................... 321,700 6,434,000
----------
TRANSPORTATION 1.1%
Air Freight 0.1%
AirNet Systems, Inc.* (Operator of national air transport system for delivery of
time-critical shipments) .................................................................. 83,300 1,332,800
----------
Airlines 0.7%
America West Airlines, Inc.* (Passenger airline in the West and Midwest) .................. 257,200 5,658,400
Midwest Express Holding, Inc.* (Operator of passenger airline catering to business
travelers) ................................................................................ 55,200 1,773,300
----------
7,431,700
----------
Marine Transportation 0.3%
Trico Marine Services, Inc.* (Provider of marine support services for offshore oil
and gas exploration and production operations) ............................................ 139,100 3,094,965
----------
OTHER 0.2%
Miscellaneous Securities* ................................................................. 2,671,413
----------
- -----------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $653,438,209) ................................................... 1,035,331,464
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $697,222,816)(a) ................................ 1,074,858,064
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $698,484,754. At June 30,
1996, net unrealized appreciation for all securities based on tax cost was
$376,373,310. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $415,339,543 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$38,966,233.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees. The cost of these securities at June 30, 1996, aggregated
$12,014,073. See Note A of the Notes to Financial Statements.
(c) Restricted Securities - securities which have not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.
Information concerning such restricted securities at June 30, 1996 is as
follows:
Security Acquisition Date Cost ($)
-------- ---------------- --------
Applied Biometrics, Inc. 2/29/96 300,000
HYSEQ Inc. "A" 5/15/96 1,400,000
Interventional Technologies, 3/6/95 1,200,000
Inc. "G"
InTouch Group Inc. 2/14/95 250,000
InTouch Group Inc. "D" 1/20/94 4,000,007
Norian Corp. "D" 4/12/95 2,000,000
Sanctuary Woods Multimedia 1/28/94 2,864,066
Corp.
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of June 30, 1996
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $697,222,816) (Note A) ......... $1,074,858,064
Cash ................................................................... 674
Receivable for investments sold ........................................ 458,290
Receivable for Fund shares sold ........................................ 2,656,441
Dividends and interest receivable ...................................... 168,606
Other assets ........................................................... 4,660
--------------
Total assets ........................................................... 1,078,146,735
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... $ 35,296,189
Payable for Fund shares redeemed ....................................... 1,355,454
Accrued management fee (Note C) ........................................ 868,196
Other accrued expenses (Note C) ........................................ 338,162
--------------
Total liabilities ...................................................... 37,858,001
-----------------------------------------------------------------------------------------
Net assets, at market value ............................................ $1,040,288,734
-----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on:
Investments ............................................................ 377,635,248
Foreign currency related transactions .................................. 291
Accumulated net realized gain .......................................... 99,645,238
Shares of beneficial interest .......................................... 228,333
Additional paid-in capital ............................................. 562,779,624
-----------------------------------------------------------------------------------------
Net assets, at market value ............................................ $1,040,288,734
-----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($1,040,288,734 / 22,833,256 outstanding shares of beneficial
interest, $.01 par value, unlimited number of
shares authorized ...................................................... $ 45.56
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Statement of Operations
year ended June 30, 1996
<TABLE>
<S> <C> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $31,370) ................... $ 1,355,276
Interest ............................................................... 1,586,637
--------------
2,941,913
Expenses:
Management fee (Note C) ................................................ $ 8,710,130
Services to shareholders (Note C) ...................................... 1,644,151
Custodian and accounting fees (Note C) ................................. 258,275
Trustees' fees (Note C) ................................................ 47,552
Reports to shareholders ................................................ 185,494
Legal .................................................................. 25,740
Auditing ............................................................... 44,932
State registration ..................................................... 48,630
Interest ............................................................... 6,863
Other .................................................................. 82,606
--------------
11,054,373
-----------------------------------------------------------------------------------------
Net investment loss .................................................... (8,112,460)
-----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................ 162,384,209
Foreign currency related transactions .................................. (29,094)
--------------
162,355,115
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ 102,875,126
Foreign currency related transactions .................................. (8,696)
--------------
102,866,430
--------------
Net gain on investment transactions .................................... 265,221,545
-----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ................... $ 257,109,085
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
Net investment loss .......................................... $ (8,112,460) $ (6,157,164)
Net realized gain from investment transactions ............... 162,355,115 58,067,466
Net unrealized appreciation on investment transactions ....... 102,866,430 180,163,568
during the period
--------------- -------------
Net increase in net assets resulting from operations ......... 257,109,085 232,073,870
Distributions to shareholders from net realized gains
($4.20 and $2.12 per share, respectively) .................... (84,837,216) (41,498,116)
--------------- -------------
Fund share transactions:
Proceeds from shares sold .................................... 486,060,931 260,652,295
Net asset value of shares issued to shareholders in
reinvestment of .............................................. 80,963,827 39,673,233
distributions
Cost of shares redeemed ...................................... (426,320,016) (309,316,368)
--------------- -------------
Net increase (decrease) in net assets from Fund share ........ 140,704,742 (8,990,840)
transactions --------------- -------------
Increase in net assets ....................................... 312,976,611 181,584,914
Net assets at beginning of period ............................ 727,312,123 545,727,209
--------------- --------------
Net assets at end of period .................................. 1,040,288,734 727,312,123
=============== =============
Other information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 19,474,819 19,787,452
--------------- -------------
Shares sold .................................................. 11,614,545 8,524,177
Shares issued to shareholders in reinvestment of ............. 2,054,380 1,371,263
distributions
Shares redeemed .............................................. (10,310,488) (10,208,073)
--------------- -------------
Net increase (decrease) in Fund shares ....................... 3,358,437 (312,633)
--------------- -------------
Shares outstanding at end of period .......................... 22,833,256 19,474,819
=============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended June 30,
1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of -------------------------------------------------------------------------------------------------
period ........................ $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39 $25.12
-------------------------------------------------------------------------------------------------
Income from investment
operations: .................... (0.38) (.31) (.30) (.27) (.23) (.10) (.08) (.10) (.08) (.07)
Net investment loss
Net realized and
unrealized gain
(loss) on investment
transactions .................. 12.79 12.20 (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41) 1.67
Total from investment -------------------------------------------------------------------------------------------------
operations .................... 12.41 11.89 (3.93) 6.36 3.55 2.31 5.99 .96 (1.49) 1.60
-------------------------------------------------------------------------------------------------
Less distributions from
net realized gains
on investment
transactions .................. (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33)
-------------------------------------------------------------------------------------------------
Total distributions ............ (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33)
-------------------------------------------------------------------------------------------------
Net asset value, -------------------------------------------------------------------------------------------------
end of period ................. $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39
-------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............... 35.26 45.41 (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35) 7.51
Ratios and Supplemental
Data
Net assets, end of period
($ millions) .................. 1,040 727 546 821 700 476 361 275 356 387
Ratio of operating
expenses to average
daily net assets (%) .......... 1.24 1.32 1.27 1.30 1.30 1.29 1.34 1.32 1.30 1.27
Ratio of net investment
loss to average
daily net assets (%) .......... (0.91) (1.01) (.91) (.83) (.70) (.40) (.35) (.47) (.44) (.33)
Portfolio turnover rate
(%) ........................... 58.8 41.6 48.3 49.2 53.5 70.8 40.1 32.0 39.2 23.5
Average commission rate
paid (a) ...................... $.0554 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after June 30, 1996.
(b) Per share amounts have been calculated using the weighted average shares
outstanding during the period method.
22
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Development Fund (the "Fund") is a diversified series of Scudder
Securities Trust, a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's financial statements are prepared in
accordance with generally accepted accounting principles which require the use
of management estimates. The policies described below are followed consistently
by the Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the 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 $5,668,125
(0.54% of net assets) and have been noted in the investment portfolio as of June
30, 1996.
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 10% 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, 1996,
amounted to $5,668,125 which represents 0.54% 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.
23
<PAGE>
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, if
any, are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to tax equalization and 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.
B. Purchases and Sales of Securities
During the year ended June 30, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $574,190,328 and
$512,944,829, respectively.
The aggregate face value of future contracts opened and closed during the year
ended June 30, 1996 was $69,755,575.
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
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<PAGE>
the amount of the management fee, will be paid by the Adviser. For the year
ended June 30, 1996, the fee pursuant to the Agreement amounted to $8,710,130 of
which $868,196 is unpaid at June 30, 1996.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended June 30, 1996, the amount charged by SSC aggregated $979,311, of
which $93,158 is unpaid at June 30, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended June 30, 1996,
the amount charged to the Fund by STC aggregated $391,855, of which $77,935 is
unpaid at June 30, 1996
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
June 30, 1996, the amount charged to the Fund by SFAC aggregated $127,426 of
which $24,381 is unpaid at June 30, 1996.
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, 1996, Trustees' fees aggregated $47,552.
D. Line of Credit
The Fund and several affiliated Funds ("The Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33.33% of its net assets under the agreement. In addition, the Fund
also maintains an uncommitted line of credit.
25
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Securities Trust and the 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, 1996, 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, 1996 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, 1996, 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, 1996
26
<PAGE>
Tax Information
The Fund paid distributions of $4.20 per share from long-term capital gains
during its year ended June 30, 1996. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $134,765,534 as capital gain dividends for its
fiscal year ended June 30, 1996.
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 Investor
Relations Representative at 1-800-225-5163.
27
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Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital Management Corporation
Dudley H. Ladd*
Trustee
Dr. Wilson Nolen
Trustee; Consultant
Juris Padegs*
Trustee
Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate School
of Business
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate School
of Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman of the Board and Director, Kirby Corporation
Edmund R. Swanberg
Honorary Trustee
Peter Chin*
Vice President
James M. Eysenbach*
Vice President
Philip S. Fortuna*
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
29
<PAGE>
Investment Products and Services
The Scudder Family of Funds
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-End Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia 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.
+++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.
30
<PAGE>
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
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 Relations
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services
1-800-323-6105
Please address all correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Visit the Scudder World Wide Web Site at:
http://funds.scudder.com
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 New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call: 1-800-854-8525.
Scudder Investor Relations 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.
31
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
