Filed electronically with the Securities and Exchange Commission
on October 21, 1997
File No. 2-36238
File No. 811-2021
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 51
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35
Scudder Securities Trust
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston MA 02110
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
X on November 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on _______________ pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on _______________ pursuant to paragraph (a)(ii) of
Rule 485.
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on August 28, 1997.
<PAGE>
SCUDDER DEVELOPMENT FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed FINANCIAL HIGHLIGHTS
Financial
Information
4. General INVESTMENT OBJECTIVES AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of FINANCIAL HIGHLIGHTS
the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser, Transfer agent
SHAREHOLDER BENEFITS--A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION--Dividends and capital gains distributions
Securities FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestment plan, T.D.D.
service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time, Minimum balances,
Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares,
Tax identification number, Minimum balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 1
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain
Being Offered Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - Page 2
<PAGE>
SCUDDER SMALL COMPANY VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed FINANCIAL HIGHLIGHTS
Financial
Information
4. General INVESTMENT OBJECTIVES AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of FINANCIAL HIGHLIGHTS
the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS- A team approach to
investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains
Securities distributions
FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestment plan,
T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time, Minimum
balances, Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 3
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain
Being Offered Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance
Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - Page 4
<PAGE>
SCUDDER MICRO CAP FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item Item Caption Prospectus Caption
No.
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed NOT APPLICABLE
Financial
Information
4. General INVESTMENT OBJECTIVE AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of A MESSAGE FROM SCUDDER'S CHAIRMAN
the Fund FUND ORGANIZATION-Investment adviser, Transfer agent
SHAREHOLDER BENEFITS-A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains distributions
Securities FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestment plan, T.D.D.
service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time, Minimum balances,
Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 5
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain Distribution
Being Offered Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance
Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - Page 6
<PAGE>
SCUDDER 21ST CENTURY GROWTH FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item Item Caption Prospectus Caption
No.
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed NOT APPLICABLE
Financial
Information
4. General INVESTMENT OBJECTIVE AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of A MESSAGE FROM SCUDDER'S CHAIRMAN
the Fund FUND ORGANIZATION-Investment adviser, Transfer agent
SHAREHOLDER BENEFITS-A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains distributions
Securities FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestment plan, T.D.D.
service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing shares, Share price,
Processing time, Minimum balances, Third party
transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares, Tax
identification number, Minimum balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 7
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Allocation Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND--Dividend and Capital Gain Distribution
Being Offered Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance
Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - Page 8
<PAGE>
SCUDDER FINANCIAL SERVICES FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed NOT APPLICABLE
Financial
Information
4. General INVESTMENT OBJECTIVE AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of A MESSAGE FROM SCUDDER'S CHAIRMAN
the Fund FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains
Securities distributions
FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestmen plan, T.D.D.
service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time,
Minimum balances, Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 9
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain
Being Offered Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - 10
<PAGE>
SCUDDER HEALTH CARE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed NOT APPLICABLE
Financial
Information
4. General INVESTMENT OBJECTIVE AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of A MESSAGE FROM SCUDDER'S CHAIRMAN
the Fund FUND ORGANIZATION-Investment adviser, Transfer agent
SHAREHOLDER BENEFITS-A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains distributions
Securities FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER
BENEFITS-SAIL(TM)-Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the
hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time,
Minimum balances, Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 11
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and Other DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain
Being Offered Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial FINANCIAL STATEMENTS
Statements
Cross Reference - Page 12
<PAGE>
SCUDDER TECHNOLOGY FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed NOT APPLICABLE
Financial
Information
4. General INVESTMENT OBJECTIVE AND POLICIES
Description of WHY INVEST IN THE FUND?
Registrant ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of A MESSAGE FROM SCUDDER'S CHAIRMAN
the Fund FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of
Fund
Performance
6. Capital Stock DISTRIBUTION AND PERFORMANCE
and Other INFORMATION-Dividends and capital gains
Securities distributions
FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder Automated
Information Line, Dividend reinvestment plan,
T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of FUND ORGANIZATION-Underwriter
Securities PURCHASES
Being Offered TRANSACTION INFORMATION-Purchasing
shares, Share price, Processing time, Minimum
balances, Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 13
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page COVER PAGE
11. Table of TABLE OF CONTENTS
Contents
12. General FUND ORGANIZATION
Information
and History
13. Investment THE FUND'S INVESTMENT OBJECTIVE AND
Objectives and POLICIES PORTFOLIO TRANSACTIONS-Brokerage
Policies Commissions, Portfolio turnover
14. Management of INVESTMENT ADVISER
the Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control TRUSTEES AND OFFICERS
Persons and
Principal
Holders of
Securities
16. Investment INVESTMENT ADVISER
Advisory and DISTRIBUTOR
Other Services ADDITIONAL INFORMATION-Experts, Other
Information
17. Brokerage PORTFOLIO TRANSACTIONS-Brokerage
Allocation Commissions, Portfolio Turnover
and Other
Practices
18. Capital Stock FUND ORGANIZATION
and DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Other
Securities
19. Purchase, PURCHASES
Redemption and EXCHANGES AND REDEMPTIONS
Pricing of FEATURES AND SERVICES OFFERED BY THE
Securities FUND-Dividend and Capital Gain Distribution Options
Being Offered SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial FINANCIAL STATEMENTS
Statements
</TABLE>
Cross Reference - Page 14
<PAGE>
This prospectus sets forth concisely the information about Scudder Development
Fund, a series of Scudder Securities Trust, 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, 1997, 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 and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).
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.
NOT FDIC-INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Scudder
Development
Fund
Prospectus
November 1, 1997
A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital by investing primarily in securities of small and medium-size growth
companies
<PAGE>
Expense information
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, 1997.
Investment management fee 0.98%
12b-1 fees NONE
Other expenses 0.38%
-----
Total Fund operating expenses 1.36%
=====
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
- ------ ------- ------- --------
$14 $43 $75 $164
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."
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, 1997 and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
Years Ended June 30,
1997(b) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, --------------------------------------------------------------------------------------------
beginning of period ...... $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39
--------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss ......... (.40) (0.38) (.31) (.30) (.27) (.23) (.10) (.08) (.10) (.08)
Net realized and
unrealized gain (loss)
on investment
transactions ............. (1.66) 12.79 12.20 (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41)
Total from investment --------------------------------------------------------------------------------------------
operations ............... (2.06) 12.41 11.89 (3.93) 6.36 3.55 2.31 5.99 .96 (1.49)
--------------------------------------------------------------------------------------------
Less distributions from
net realized gains
on investment
transactions ............. (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90)
--------------------------------------------------------------------------------------------
Total distributions ......... (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90)
--------------------------------------------------------------------------------------------
Net asset value, --------------------------------------------------------------------------------------------
end of period ............ $39.02 $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............ (4.93) 35.26 45.41 (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35)
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............. 862 1,040 727 546 821 700 476 361 275 356
Ratio of operating
expenses to average
daily net assets (%) ..... 1.36 1.24 1.32 1.27 1.30 1.30 1.29 1.34 1.32 1.30
Ratio of net investment
loss to average daily
net assets (%) ........... (1.02) (0.91) (1.01) (.91) (.83) (.70) (.40) (.35) (.47) (.44)
Portfolio turnover rate (%) . 52.2 58.8 41.6 48.3 49.2 53.5 70.8 40.1 32.0 39.2
Average commission rate
paid (a) ................. $.0355 $.0554 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal periods ending on or after June 30, 1996.
(b) Per share amounts have been calculated using the weighted average shares
method.
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 $125 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 the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Investor 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
o long-term growth of capital
Investment characteristics
o a professionally managed portfolio consisting primarily of securities of
small and medium-size growth companies
o potential for above-average long-term growth of capital in return for
above-average risk
o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees
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
Transaction information 10
Shareholder benefits 14
Purchases 16
Exchanges and redemptions 17
Investment products and services 19
How to contact Scudder 20
4
<PAGE>
Investment objective and policies
Scudder Development Fund (the "Fund"), a diversified series of Scudder
Securities Trust, seeks long-term growth of capital by investing primarily in
securities of small and medium-size 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. 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 small and medium-size companies, commonly referred to
as emerging growth companies, that the Fund's investment 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. Generally, small and medium-size companies
are those with $50 million to $5 billion in total market capitalization.
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 invest without limit
in cash and may invest in high quality debt securities without equity features,
U.S. Government securities and money market instruments which are rated in the
two highest categories by Moody's Investor Services, Inc. or Standard & Poor's
Corporation, or, if unrated, are deemed by the Adviser to be of equivalent
quality. It is impossible to accurately predict for how long such alternative
strategies may be utilized.
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, and invest in illiquid or
restricted securities, foreign securities, convertible bonds, and may engage in
strategic transactions. More information about these investment techniques is
provided under "Additional information about policies and investments."
Why invest in the Fund?
Scudder Development Fund offers participation in the potential growth of small
and medium-size growth companies with favorable long-term prospects. The Fund
offers the benefits of professional management of investments chiefly in U.S.
companies with histories of rapid earnings growth and like prospects for the
future. 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 &
5
<PAGE>
Poor's 500 Stock Index.
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 or except in connection with reverse repurchase agreements
and may not make loans except through the lending of portfolio securities, the
purchase of debt securities or through repurchase agreements.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Common stocks
Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Foreign securities
While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund may invest in foreign
securities when the anticipated performance of the foreign securities is
believed by the Adviser to offer equal or 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.
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 be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of 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
6
<PAGE>
(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. Please refer to "Risk factors--Strategic
Transactions and derivatives" for more information.
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 the 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, which are generally small to medium-size, is higher
than that normally associated with larger, older companies due to the greater
business risks of smaller 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 and medium-size 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.
Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price.
Foreign securities. Investments in foreign securities involve special
considerations, due to limited information, higher brokerage costs, different
accounting standards and thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the income from securities. They may
also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
7
<PAGE>
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less government supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. 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.
Further, it may be more difficult for the Fund's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio securities. The
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets.
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
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 net investment income and any
net realized capital gains after utilization of capital loss carryforwards, if
any, in December to prevent application of federal excise tax. An additional
distribution may be made if necessary. Any dividends or capital gains
8
<PAGE>
distributions declared in October, November or December with a record date in
such a month and paid during 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 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.
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. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. 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 series of Scudder Securities Trust
(the "Trust"), formerly known as Scudder Development Fund, an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Trust 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 the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust 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 management agreement. 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 the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
For the fiscal year ended June 30, 1997, the Adviser received an investment
management fee of 0.98% of the Fund's average daily net assets.
The fee is graduated so that increases in the Fund's net assets may result in a
lower fee and decreases in the Fund's net assets may result in a higher fee.
9
<PAGE>
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 charged by most funds, but not
necessarily higher than fees charged to funds with investment objectives similar
to those of the Fund.
All of the Fund's expenses are paid out of the assets of the Fund. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at 345 Park Avenue, New York, New
York.
Scudder has entered into an agreement with Zurich Insurance Company ("Zurich"),
an international insurance and financial services organization, pursuant to
which Scudder will form a new global investment organization by combining with
Zurich's subsidiary, Zurich Kemper Investments, Inc., and change its name to
Scudder Kemper Investments, Inc. After the transaction is completed, Zurich will
own approximately 70% of the new organization with the balance owned by the new
organization's officers and employees.
Consummation of the transaction is subject to a number of contingencies,
including regulatory approvals. The transaction is expected to close in the
fourth quarter of 1997. Upon consummation of the transaction the investment
management agreement with Scudder, Stevens & Clark, Inc., will terminate. The
Trustees have approved an investment management agreement with Scudder Kemper
Investments, Inc. which is substantially identical to the current investment
management agreement to become effective upon the termination of the current
investment management agreement.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a 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 Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent 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 canceled 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. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
10
<PAGE>
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. 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. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Trustees. 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. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation 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.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
11
<PAGE>
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
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
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information 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 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.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 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 $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
12
<PAGE>
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If 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.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation 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.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received 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
Investor Relations 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 business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including 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 correct 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 correct 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 correct 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 $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. A shareholder may open an account
with at least $1,000, if an automatic investment plan of $100/month is
established.
13
<PAGE>
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other information" in the Fund's Statement of
Additional Information for more information.
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.
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 Trust 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 more than 30
years of investment experience, with over 20 years specializing in small and
medium-size 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 Fund in 1993. Mr. Chin contributes expertise in manufacturing,
service and energy companies. Mr. Chin has 28 years of investment experience,
including over ten years in small and medium-size company growth stocks.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
14
<PAGE>
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. 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, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds. For more information,
please call 1-800-225-5163.) 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.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
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.
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 Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.
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.
15
<PAGE>
Purchases
<TABLE>
<CAPTION>
<S> <C> <C>
Opening
an account Minimum initial investment: $2,500; IRAs $1,000
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
o By Mail Send your completed and signed application and check
Make checks
payable to "The by regular mail to: or by express, registered,
Scudder Funds." or certified mail to:
The Scudder Funds Scudder Shareholder
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares-- By
wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
- ------------------------------------------------------------------------------------------------------------------------
Purchasing
additional shares Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a
payable to "The letter of instruction including your account number and the
Scudder Funds." complete Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares-- By
wire for details, including the ABA wire transfer number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center locations
are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares-- By
QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a
regular basis through automatic Investment Plan
deductions from your bank checking account. Please call
1-800-225-5163 ($50 minimum) for more information and an
enrollment form.
16
<PAGE>
Exchanges and redemptions
Exchanging shares Minimum investments: $2,500 to establish a new account;
$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 8 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
- -------------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from 8 a.m. to 8 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 $100,000 sent to your
address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000. See Transaction
information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically. Call
Withdrawal 1-800-225-5163 for more information and an enrollment form.
Plan
</TABLE>
17
<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.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has 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 you no annual custodial fee.
o 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.
o 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. The Scudder Keogh
charges you no annual custodial fee.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o 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. The Scudder SEP-IRA charges
you no annual custodial fee.
o 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, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s 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.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
18
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. +++ +++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.
19
<PAGE>
<TABLE>
<CAPTION>
How to contact Scudder
Account Service and Information:
<S> <C>
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be
found in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
</TABLE>
<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 Small and Medium-Size Growth Companies
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
- --------------------------------------------------------------------------------
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,
1997, 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>
<S> <C>
<CAPTION>
TABLE OF CONTENTS
Page
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments Involving Above-Average Risk.....................................................................1
Investments and Investment Techniques........................................................................2
Investment Restrictions.....................................................................................10
Other Investment Policies...................................................................................11
PURCHASES............................................................................................................13
Additional Information About Opening An Account.............................................................13
Additional Information About Making Subsequent Investments..................................................13
Additional Information About Making Subsequent Investments by QuickBuy......................................13
Checks......................................................................................................14
Wire Transfer of Federal Funds..............................................................................14
Share Price.................................................................................................14
Share Certificates..........................................................................................14
Other Information...........................................................................................15
EXCHANGES AND REDEMPTIONS............................................................................................15
Exchanges...................................................................................................15
Redemption by Telephone.....................................................................................16
Redemption by QuickSell.....................................................................................17
Redemption by Mail or Fax...................................................................................17
Redemption-In-Kind..........................................................................................17
Other Information...........................................................................................18
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................18
The Pure No-Load(TM) Concept................................................................................18
Internet access.............................................................................................19
Dividend and Capital Gain Distribution Options..............................................................20
Diversification.............................................................................................20
Scudder Investor 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..............................................................................26
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................27
PERFORMANCE INFORMATION..............................................................................................27
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................28
Total Return................................................................................................28
Comparison of Fund Performance..............................................................................28
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
FUND ORGANIZATION....................................................................................................33
INVESTMENT ADVISER...................................................................................................34
Personal Investments by Employees of the Adviser............................................................36
TRUSTEES AND OFFICERS................................................................................................37
REMUNERATION.........................................................................................................39
Responsibilities of the Board--Board and Committee Meetings.................................................39
Compensation of Officers and Trustees.......................................................................39
DISTRIBUTOR..........................................................................................................40
TAXES................................................................................................................41
PORTFOLIO TRANSACTIONS...............................................................................................45
Brokerage Commissions.......................................................................................45
Portfolio Turnover..........................................................................................45
NET ASSET VALUE......................................................................................................46
ADDITIONAL INFORMATION...............................................................................................47
Experts.....................................................................................................47
Shareholder Indemnification.................................................................................47
Other Information...........................................................................................47
FINANCIAL STATEMENTS.................................................................................................48
</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,
series of Scudder Securities Trust (the "Trust"), an open-end management
investment company which continuously offers and redeems its shares at net asset
value. 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 small and medium-size 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 small and medium-size companies, commonly
referred to as emerging growth companies, that the Fund's investment 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. Generally, small and
medium-size companies are those with $50 million to $5 billion in market
capitalization.
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 invest
without limit in cash, and may invest in 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 Investor
Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), or, if
unrated, are deemed by the Adviser to be of equivalent quality. It is impossible
to accurately predict how long such alternative strategies may be utilized.
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 and invest in illiquid or
restricted securities, foreign securities, convertible bonds, and may engage in
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. 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. 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.
Master/Feeder Structure. The Fund's Board of Trustees may determine that
the objective of the Fund would be achieved more efficiently, while retaining
its current distribution arrangement, by investing in a master fund in a
master/feeder fund structure as described below, and in that case cause the Fund
to do so without prior approval by shareholders.
A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests all of its
investment assets in a separate registered investment company (the "master
<PAGE>
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds preserving separate identities, management or distribution channels
at the feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss.
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.
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- and medium-size 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 greater
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 small and medium-size 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.
Investments and Investment Techniques
Illiquid and Restricted Securities. 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.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid or restricted investments. Disposing of illiquid or
restricted investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price. The Fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay in
effecting such registration. Also market quotations are less readily available.
The judgment of the Adviser may at times play a greater role in valuing these
securities than in the case of unrestricted securities.
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 15% 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.
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
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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.
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 fixed-income securities in the Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of 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
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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 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
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
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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 15% of its net 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
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.
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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.
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.
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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
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
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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
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 cash or liquid
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 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 cash or liquid
assets 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 cash or
liquid
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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
cash or liquid 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 assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid 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 cash or liquid
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 cash or liquid 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 cash or liquid 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 liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
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 assets 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 cash or liquid 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, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Foreign Securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., 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 equal or 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 U.S. 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
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<PAGE>
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 U.S. 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 U.S. and foreign countries may be less reliable than
within the U.S., 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 U.S. investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. 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 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of the 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.
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As a matter of fundamental policy, 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;
(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 Policies
As a matter of nonfundamental policy, the Fund will not:
(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;
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<PAGE>
(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 15% 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 7 days, and the Fund will not invest more than 10% 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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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
the Adviser 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 $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser 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 ($2,500 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 $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
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 Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. 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
cancellation. 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 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.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickBuy program, may purchase shares of the Fund by telephone. Through this
service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before 4 p.m. eastern time. Proceeds in the
amount of your purchase will be transferred from your bank checking account two
or three business days following your call. For requests received by the close
of regular trading on the Exchange, shares will be purchased at the net asset
value per share calculated at the close of trading on the day of your call.
QuickBuy requests received after the close of regular trading on the Exchange
will begin their processing and be purchased at the net asset value calculated
the following business day. If you purchase shares by QuickBuy and redeem them
within seven days of the purchase, the Fund may hold the redemption proceeds for
a period of up to seven business days. If you purchase shares and there are
insufficient funds in your bank account the purchase will be canceled and you
will be subject to any losses or fees incurred in the transaction. QuickBuy
transactions are not available for most retirement plan accounts. However,
QuickBuy transactions are available for Scudder IRA accounts.
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In order to request purchases by QuickBuy, shareholders must have completed
and returned to the Transfer Agent the application, including the designation of
a bank account from which the purchase payment will be debited. New investors
wishing to establish QuickBuy may so indicate on the application. Existing
shareholders who wish to add QuickBuy to their account may do so by completing
an QuickBuy Enrollment Form. After sending in an enrollment form shareholders
should allow for 15 days for this service to be available.
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.
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust 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.
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 Distributor pays a fee for receipt by State Street
Bank and Trust Company (the "Custodian") 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 the Custodian 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 receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Trust's 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 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.
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Other Information
If purchases or redemptions of Fund shares are arranged and settlement is
made at the investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor each has the right to limit, for
any reason, 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
for any reasons.
The Tax Identification Number section of the application must be completed
when opening an account. Applications and purchase orders without a correct
certified tax identification number and certain other certified information
(e.g. from exempt organizations, certification of exempt status) will be
returned to the investor.
The Trust 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.
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 may be
either 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 $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, 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 at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone 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
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communicated by telephone that it reasonably believes to be genuine. The Trust,
the Fund 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 the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder Funds. For more information please call
1-800-225-5163.
Scudder retirement plans may have different exchange requirements. Please
refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $100,000 and have the proceeds mailed to
their address of record. Shareholders may also request 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
predesignated 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
predesignated 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.
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Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. To sell shares
by QuickSell, shareholders should call before 4 p.m. eastern time. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. QuickSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated the following business day. QuickSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
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/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).
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 by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays in payment of more than seven days 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 for regular
accounts. For more information please call 1-800-225-5163.
Redemption-In-Kind
The Trust 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 Trust
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 into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which the Trust 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.
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<PAGE>
Other Information
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 and a shareholder's right to redeem
shares and to receive payment may be suspended at times during which (a) the
Exchange is closed, other than customary weekend and holiday closings, (b)
trading on the Exchange is restricted for any reason, (c) 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) the SEC may by order permit
such a suspension for the protection of the Trust's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b) or (c)
exist.
Shareholders should maintain a share balance worth at least $2,500 ($1,000
for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts),
which amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum balance requirements. A shareholder may open an
account with at least $1,000 ($500 for an IRA), if an automatic investment plan
(AIP) of $100/month ($50/month for an IRA) is established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
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
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<PAGE>
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.
<TABLE>
<S> <C> <C> <C> <C>
<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
- --------------------------------------------------------------------------------------------------------------------
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.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability. A
section entitled "Planning Resources" provides information on asset allocation,
tuition, and retirement planning to users who fill out interactive "worksheets."
Investors can easily establish a "Personal Page," that presents price
information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties on
Prodigy since 1988 and has participated since 1994 in GALT's Networth "financial
marketplace" site on the Internet. The firm made Scudder Funds information
available on America Online in early 1996.
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Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions for
an account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
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.
Please include your account number with your written request. See "How to
contact Scudder" in the Prospectus for the address.
Reinvestment is usually made at the closing net asset value determined on
the business 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
in 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
gain 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.
Confirmation statements will be mailed to shareholders as notification that
distributions have been deposited.
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 may protect you against the
possible risks of concentrating in fewer securities or in a specific market
sector.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or obtain assistance
with
20
<PAGE>
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 to "The Scudder
Funds" at the address listed under "How to contact Scudder" in the Prospectus.
Reports to Shareholders
The Fund issues shareholders unaudited semiannual financial statements and
annual financial statements audited by independent accountants, including a list
of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.
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 Funds' prospectuses.)
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.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current income.
The Fund seeks to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible, and declares
dividends daily.
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. SCIT seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not be
possible, and declares dividends daily.
Scudder Money Market Series seeks to provide investors with as high a level
of current income as is consistent with its investment polices and with
preservation of capital and liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share, but there is no assurance that
it will be able to do so. The institutional class of shares of this Fund is
not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with as
high a level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to maintain
a constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt from
regular federal income tax and stability of principal through investments
primarily in municipal securities. STFMF seeks to maintain a constant net
asset value of $1.00 per share, although in extreme circumstances this may
not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal income
tax by reason of federal law as is consistent with its investment policies
and with preservation of capital and liquidity. The Fund seeks to maintain
a constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.
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<PAGE>
Scudder California Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value will
be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset while providing New York taxpayers
income exempt from New York State and New York City personal income taxes
and regular federal income tax. There can be no assurance that the stable
net asset value will be maintained.
TAX FREE
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 Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation.
The Fund will invest primarily in high-grade, intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from regular
federal income tax primarily through investments in high-grade, long-term
municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of interest
income, exempt from regular federal income tax, from an actively managed
portfolio consisting primarily of investment-grade municipal securities.
Scudder California Tax Free Fund*seeks to provide California taxpayers with
income exempt from both California State personal income and regular
federal income tax. The Fund is a professionally managed portfolio
consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers with
income exempt from New York State and New York City personal income taxes
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of New York municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income tax.
The Fund is a professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania taxpayers
with income exempt from both Pennsylvania personal income tax and regular
federal income tax. The Fund is a professionally managed portfolio
consisting primarily of investment-grade municipal securities.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing primarily
in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment return
over a selected period as is consistent with investment in U.S. Government
securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from U.S.
Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in
foreign currencies and the U.S. dollar. As a secondary objective, the Fund
will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. 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.
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 by governments and
corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will have
some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors with
a balance of growth and income by investing in a select mix of Scudder
money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors with
long-term growth of capital. In pursuing this objective, the Portfolio
will, under normal market conditions, invest predominantly in a select mix
of Scudder equity mutual funds designed to provide long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total return
for investors. Total return consists of any capital appreciation plus
dividend income and interest. To achieve this objective, the Portfolio
invests in a select mix of established international and global Scudder
funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund also
seeks long-term preservation of capital through a quality-oriented approach
that is designed to reduce risk.
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<PAGE>
Scudder Growth and Income Fund seeks long-term growth of capital, current
income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that, before
expenses, correspond to the total return of common stocks publicly traded
in the United States, as represented by the Standard & Poor's 500 Composite
Stock Price Index.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund seeks to provide long-term growth of
capital and to keep the value of its shares more stable than other
growth mutual funds.
Scudder Large Company 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 Development Fund seeks long-term growth of capital by
investing primarily in securities of small and medium-size growth
companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
Scudder Global Discovery 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 Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
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<PAGE>
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository
Receipts) 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
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds may not be available
for purchase or exchange. For more information, please call 1-800-225-5163.
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.
25
<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 $2,000 per individual for married couples if only one spouse has earned
income). 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.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<S> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
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>
26
<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.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<S> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
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 may establish an Automatic Withdrawal Plan
to receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. Shareholders may designate which day
they want the automatic withdrawal to be processed. 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 and any reinvested dividends and
capital gains distributions. Requests for increases in withdrawal amounts or to
change the 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 ten days prior
to the date of the first automatic withdrawal. An Automatic Withdrawal Plan may
be terminated at any time by the shareholder, the Trust or its agent on written
notice, and will be 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,
Corporation] 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
27
<PAGE>
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 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 redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
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 investment company taxable income, which includes 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, 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 the amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Code, the Fund may be subject to
such tax. In certain circumstances the Fund may determine that it is in the
interest of shareholders to distribute less than the required amount. (See
"TAXES.")
The Fund intends to distribute substantially all of its investment company
taxable income and any net realized capital gains resulting from Fund investment
activity in December although an additional distribution may be made, if
necessary. 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. Distributions of investment company
taxable income and net realized capital gains are taxable (see "TAXES"), whether
made in shares or cash.
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:
28
<PAGE>
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:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
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, 1997
One year Five years Ten years
(4.93)% 14.77% 12.18%
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, 1997
One year Five years Ten years
(4.93)% 99.14% 215.50%
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.
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
29
<PAGE>
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.
Because some or all of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
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. In addition, the Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which the Fund's performance may be compared include, but
are not limited to, the following:
The Europe/Australia/Far East (EAFE) Index
International Finance Corporation's Latin America Investable Total Return Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
Nasdaq Composite Index
Wilshire 5000 Stock Index
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 amount of 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.
30
<PAGE>
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.
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 or other relevant statistical information
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
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.
31
<PAGE>
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 Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC'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.
Investor's Business 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.
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<PAGE>
SmartMoney, 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 news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The 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.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because they
assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity, due
partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed-- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global stock
markets do not move in lock step. When the valuations in one market rise, there
are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
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<PAGE>
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
FUND ORGANIZATION
(See "Fund organization" in the Fund'prospectus.)
The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985. The Trust's predecessor was organized as a
Delaware corporation in 1970. The Trust'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. The Trust's shares are currently divided into four series, Scudder
Development Fund, Scudder Micro Cap Fund, Scudder Small Company Value Fund and
Scudder 21st Century Growth Fund. The Trustees have the authority to issue
additional series of shares and to designate the relative rights and preferences
as between the different series. Each share of each Fund has equal rights with
each other share of that Fund as to voting, dividends and liquidations. All
shares issued and outstanding will be fully paid and nonassessable by the Trust,
and redeemable as described in this Statement of Additional Information and in
each Fund's prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting that individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series.
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, 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
34
<PAGE>
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 thund'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 U.S. 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 available in the U.S. investing
internationally in securities of issuers in several foreign countries. The firm
reorganized from a partnership to a corporation on June 28, 1985.
Scudder has entered into an agreement with Zurich Insurance Company
("Zurich"), an international insurance and financial services organization,
pursuant to which Scudder will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc., and change
its name to Scudder Kemper Investments, Inc. After the transaction is completed,
Zurich will own approximately 70% of the new organization with the balance owned
by the new organization's officers and employees.
Consummation of the transaction is subject to a number of contingencies,
including regulatory approvals. The transaction is expected to close in the
fourth quarter of 1997. Upon consummation of the transaction the investment
management agreement with Scudder, Stevens & Clark, Inc., will terminate. The
Trustees have approved an investment management agreement with Scudder Kemper
Investments, Inc. which is substantially identical to the current investment
management agreement to become effective upon the termination of the current
investment management agreement.
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 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 Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
Pathway Series, Scudder Securities Trust, 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 Korea Fund, Inc., The
Japan Fund, Inc., The Latin America Dollar Income Fund, Inc. and Scudder Spain
and Portugal 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 over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. and AMA
Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"),
dated May 9, 1997, Scudder has agreed, subject to applicable state regulations,
to pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management
fee received by Scudder with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLinkSM Program. Scudder will
also pay AMA Solutions, Inc. a general monthly fee, currently in the amount of
$833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the
35
<PAGE>
AMA InvestmentLinkSM Program will be a customer of Scudder (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM is a
service mark of AMA Solutions, Inc.
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. In this work, the Adviser
utilizes certain reports and statistics from a variety of sources, including
brokers and dealers who may execute portfolio transactions for the Fund and for
clients of the Adviser, but conclusions are based primarily on investigations
and critical analyses by its own research specialists.
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 toward 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 (the "Agreement") was last approved by
the Trustees of the Fund on September 10-11, 1997. The Agreement is dated June
9, 1992 and will continue in effect until September 30, 1998 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 either by a vote of the Fund's Trustees
or of a majority 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, held or sold 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, the 1940 Act and the Internal Revenue Code of 1986, as
amended and to the Fund's investment objective, policies and restrictions, and
subject, further, to such policies and instructions as the Board of 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.
Under the Agreement, the Adviser 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 (except those for attending
Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such directors, officers and
36
<PAGE>
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 charged by most
funds, but not necessarily higher than fees charged to funds with investment
objectives similar to those of the Fund. The investment advisory fees for the
fiscal years ended June 30, 1995, 1996 and 1997 were $6,050,470, $8,710,130 and
$8,996,442, respectively. Net assets as of June 30, 1997 were $861,564,139.
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; legal, auditing and
accounting expenses; the calculation of net asset value; 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, the cost of
responding to shareholders' inquiries, 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 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 Adviser are represented by independent counsel at the Fund's
expense.
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.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
37
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
Daniel Pierce+* (63) President and Trustee Chairman of the Board and Vice President, Director and
Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.
Paul Bancroft III (67) Trustee Venture Capitalist and --
79 Pine Lane Consultant; Retired, President
Box 6639 Chief Executive Officer and
Snowmass Village, CO 81615 Director of Bessemer Securities
Corporation
Sheryle J. Bolton (51) Trustee Chief Executive Officer, --
Scientific Learning Corporation Scientific Learning Corporation
1995 University Avenue
Suite 400
Berkeley, CA 94704
William T. Burgin (54) Trustee General Partner, Bessemer --
83 Walnut Street Venture Partners
Wellesley, MA 02181-2101
Thomas J. Devine (70) Trustee Consultant --
450 Park Avenue
New York, NY 10022
Keith R. Fox (43) Trustee President, Exeter Capital --
10 East 53rd Street Management Corporation
New York, NY 10022
David S. Lee+*#(63) Trustee and Vice Managing Director of Scudder, President, Director and
President Stevens & Clark, Inc. Assistant Treasurer
William H. Luers (68) Trustee President, Metropolitan Museum --
The Metropolitan Museum of Art of Art
1000 Fifth Avenue
New York, NY 10028
Wilson Nolen (70) 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 (until June
1989)
Kathryn L. Quirk++*# (44) Trustee, Vice Managing Director of Scudder, Senior Vice President, Director
President and Stevens & Clark, Inc. and Assistant Clerk
Assistant Secretary
38
<PAGE>
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
Dr. Gordon Shillinglaw (72) Trustee Professor Emeritus of --
Columbia University Accounting, Columbia University
196 Villard Avenue Graduate School of Business
Hastings-on-Hudson
New York, NY 10706
Robert W. Lear (80) Honorary Trustee Executive-in-Residence, Visiting --
429 Silvermine Road Professor, Columbia University
New Canaan, CT 06840 Graduate School of Business
Robert G. Stone, Jr. (74) Honorary Trustee Chairman Emeritus and Director, --
405 Lexington Avenue, Kirby Corporation (inland and
39th Floor offshore marine transportation
New York, NY 10174 and diesel repairs)
Edmund R. Swanberg++ (75) Honorary Trustee Advisory Managing Director of --
Scudder, Stevens & Clark, Inc.
Peter Chin++ (55) Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Richard W. Desmond++ (61) Assistant Secretary Vice President of Scudder, Vice President
Stevens & Clark, Inc.
James M. Eysenbach@ (35) Vice President Vice President of Scudder, --
Stevens & Clark, Inc.
Philip S. Fortuna++ (39) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman++ (64) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph+ (58) Vice President Principal of Scudder, Stevens & Vice President, Director,
Clark, Inc. Treasurer and Assistant Clerk
Thomas F. McDonough+ (50) Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.
Pamela A. McGrath+ (43) Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Roy C. McKay++ (54) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Edward J. O'Connell++ (52) Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
</TABLE>
39
<PAGE>
* Mr. Lee, Ms. Quirk and Mr. Pierce 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.
# Mr. Lee and Ms. Quirk 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
@ Address: 101 California Street, Suite 4100, San Francisco, CA 94111-5886
The Trustees and Officers of the Fund also serve in similar capacities with
other Scudder Funds.
To the knowledge of the Trust, as of September 30, 1997, 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) 368,276 shares, or
1.73% of the shares of the Fund outstanding on such date.
Certain accounts for which the Adviser acts as investment adviser owned
2,242,440 shares in the aggregate, or 10.56% of the outstanding shares on
September 30, 1997. The Adviser may be deemed to be the beneficial owner of such
shares but disclaims any beneficial ownership in such shares.
To the knowledge of the Trust, as of September 30, 1997, no person owned
beneficially more than 5% of the Fund's outstanding shares except as stated
above.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Adviser"). These "Independent Trustees"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
The Independent Trustees met fourteen times during 1996, including Board
and Committee meetings and meetings to review each Fund's contractual
arrangements as described above.
Compensation of Officers and Trustees
Several of the officers and Trustees of the Trust may be officers of the
Adviser, or of the Distributor, the Transfer Agent, Scudder Trust Company of
Scudder Fund Accounting Corporation from whom they receive compensation, as a
result of which they may be deemed to participate in fees paid by the Trust. The
Trust pays no direct remuneration to any officer of the Trust. However, each of
the Trustees who is not affiliated with the Adviser
40
<PAGE>
will be compensated for all expenses relating to Trust business (specifically
including travel expenses relating to Trust business). Each of these
unaffiliated Trustees receives a revised annual Trustee's fee of $12,000,
divided equally among the series of the Trust plus $100 for attending each
Trustees' meeting, audit committee meeting or meeting held for the purpose of
considering arrangements between the Trust on behalf of a Fund and the Adviser
or any affiliates. Each unaffiliated Trustee also receives $100 per committee
meeting, other than those set forth above, attended.
No additional compensation is paid to any Independent Trustee for travel
time to meetings, attendance at trustees' educational seminars or conferences,
service on industry or association committees, participation as speakers at
trustees' conferences, service on special trustee task forces or subcommittees
or service as lead or liaison trustee. Independent Trustees do not receive any
employee benefits such as pension, retirement or health insurance.
The Independent Trustees also serve in the same capacity for other funds
managed by the Adviser. These funds differ broadly in type and complexity and in
some cases have substantially different Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Trustee
during 1996 from the Trust and from all of Scudder funds as a group.
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Name Scudder Securities Trust* All Scudder Funds
---- ------------------------- -----------------
Paul Bancroft III $17,572 $143,358 (16 funds)
Sheryle J. Bolton** -- $71,200 (9 funds)
William T. Burgin*** -- -- --
Thomas J. Devine $18,672 $156,058 (18 funds)
Keith R. Fox $18,372 $87,508 (10 funds)
William H. Luers** -- $100,486 (11 funds)
Wilson Nolen $19,172 $165,608 (17 funds)
Dr. Gordon Shillinglaw $19,172 $119,918 (19 funds)
Robert W. Lear -- $33,049 (11 funds)
Robert G. Stone, Jr. $1,272 $12,272@ (2 funds)
</TABLE>
* Scudder Securities Trust consists of four mutual funds: Scudder Development
Fund, Scudder Small Company Value Fund, Scudder 21st Century Growth Fund
and Scudder Micro Cap Fund. Scudder Micro Cap Fund and Scudder 21st Century
Growth Fund commenced operations on August 12, 1996 and September 9, 1996,
respectively.
** Elected as Trustee to Scudder Securities Trust in October 1997.
*** Elected as Trustee to Scudder Securities Trust June 1, 1997.
@ This amount does not reflect $6,189 in retirement benefits accrued as part
of Fund Complex expenses, and $6,000a in estimated annual benefits payable
upon retirement. Retirement benefits accrued and proposed are to be paid
to Mr. Stone as additional compensation for serving on the Board of The
Japan Fund, Inc.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 30, 1995 will remain in effect until September 30, 1998 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 10-11, 1997.
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
41
<PAGE>
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.
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 "Transactio 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 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.
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% 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 a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between a pro rata share of such gains owned and the
individual tax credit.
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<PAGE>
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 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 during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss, which the Fund designates as capital gain
dividends, 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 $2,000 per individual for married couples if only one spouse
has earned income) 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
43
<PAGE>
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 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.
The Fund may 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; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. 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 covered call options on portfolio stock) 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 a put 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 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 capital gain or loss, 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. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
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.
44
<PAGE>
Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting material principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests including options, futures and forward contracts and short sales in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
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 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 series of 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.
45
<PAGE>
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 Commissions
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.
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 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 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. 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.
In the fiscal years ended June 30, 1995, 1996 and 1997, the Fund paid
brokerage commissions of $543,646, $466,503 and $825,519, respectively. For the
fiscal year ended June 30, 1997, $713,707 (86% 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 $366,689,326 (34% 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
46
<PAGE>
of acquisition were one year or less) for the fiscal years ended June 30, 1996
and 1997 were 58.8% and 52.2%, respectively.
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, Martin Luther King, Jr. 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 Nasdaq Stock Market
("Nasdaq") system is valued at its most recent sale price. Lacking any sales,
the security is valued at the most recent 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 money market instruments, 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
purchased with remaining maturities of sixty days or less shall be 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.
47
<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., One Post Office Square, Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing.
Shareholder Indemnification
The Trust 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 Trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Fund's property or the acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Fund's property of any shareholder held personally
liable for the claims and liabilities 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 Securities Trust" is the 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. No series of the
Trust shall be liable for the obligations of any other series. Upon the initial
purchase of shares, the shareholder agrees to be bound by the Trust'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 811196-10-4.
The Fund employs State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 as custodian.
The firm of Dechert Price & Rhoads of Boston is counsel to the Trust.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million, 0.0045% of such assets in excess of $1
billion, plus holding and transaction charges for this service. The fee incurred
by the Fund for the fiscal years ended June 30, 1996 and 1997, amounted to
$127,426 and $130,526, respectively, of which $10,121 was unpaid at June 30,
1997.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend paying agent for the Fund. The Fund pays Service Corporation an annual
fee for each account maintained for a participant. The fee incurred by the Fund
for the fiscal years ended June 30, 1995, 1996 and 1997, amounted to $1,131,627,
$979,311 and $1,504,880, respectively, of which $127,740 was unpaid at June 30,
1997.
48
<PAGE>
Scudder Trust Company, an affiliate of the Adviser, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. Annual service fees are paid by the Fund to Scudder
Trust Company, Two International Place, Boston, Massachusetts 02110-4103 for
such accounts. The Fund pays Scudder Trust Company an annual fee of $17.55 per
shareholder account. The fee incurred by the Fund for the fiscal years ended
June 30, 1996 and 1997, amounted to $391,855 and $893,240, respectively, of
which $89,950 was unpaid at June 30, 1997.
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.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of Scudder
Development Fund, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements in the Annual Report to the
Shareholders of the Fund dated June 30, 1997, are incorporated herein by
reference, and are hereby deemed to be a part of this Statement of Additional
Information.
49
<PAGE>
Scudder
Development Fund
Annual Report
June 30, 1997
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.
SCUDDER [logo]
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Glossary of Investment Terms
12 Investment Portfolio
20 Financial Statements
23 Financial Highlights
24 Notes to Financial Statements
28 Report of Independent Accountants
29 Tax Information
32 Officers and Trustees
33 Investment Products and Services
34 Scudder Solutions
In Brief
o After more than two years of strong performance, Scudder Development Fund
gave back some of its gains in the 12-month period ended June 30, 1997. Hit
hard by extreme volatility in some of its most important sectors, the Fund
posted a -4.93% total return for the period.
o The Fund's average annual return of 23.20% exceeds the 21.75% return for
the average mid-cap fund tracked by Lipper Analytical Services for the
three-year period ended June 30, 1997.
o The correction in emerging-growth stocks -- one of the longest and sharpest
in history -- appears to be over. Small company growth stocks rebounded
smartly during the second quarter of 1997, with the Russell 2000 Growth
Index gaining nearly 18%.
o During the fiscal year ended June 30, 1997, the Fund worked toward building
a more balanced portfolio, with additions outside the healthcare and
technology sectors. Newcomers to the portfolio include regional banks and
natural gas exploration and development companies.
2 - SCUDDER DEVELOPMENT FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
The past year has not been easy for investors in small growth stocks. In
the first nine months of your fund's fiscal year ended June 30, 1997, the stocks
of emerging-growth companies suffered their worst setback since 1994 due to a
host of factors that included higher interest rates, a stronger dollar, and
increased competition in certain segments of the economy.
Scudder Development Fund was especially hard hit relative to its peers in
the mid-capitalization category of funds tracked by Lipper Analytical Services.
As Fund Managers Roy McKay and Peter Chin outline in the following letter, the
Fund seeks above-average growth and is aggressive by nature. In the past, when
the markets for emerging-growth companies were strong -- as was the case during
the Fund's 1995 and 1996 fiscal years -- the Fund performed even better. In
those years, Scudder Development Fund returned 45.41% and 35.26%, respectively,
versus 25.28% and 25.33% for the average mid-cap fund, according to Lipper.
Conversely, when markets head lower, the Fund may sink at a faster rate, as was
the case this year.
If the second quarter of 1997 is any indication, small-company growth
stocks have begun to stage a recovery. The Russell 2000 Growth Index, a
barometer for small and medium-sized growth stocks, returned 18% in the three
months ended June 30. In view of previous price declines, however, we believe
many of the Fund's holdings remain at attractive levels, given their strong
potential for future earnings gains. We look forward to the coming year, and
thank you for your continued investment in Scudder Development Fund.
We would like to take this opportunity to tell you of a newcomer to
Scudder's mutual fund lineup: Scudder International Growth and Income Fund. The
Fund employs a yield-oriented approach to international investing and seeks to
provide long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach may
appreciate the Fund's emphasis on the dividend paying stocks of established
companies listed on foreign exchanges. For a complete listing of Scudder's
mutual fund offerings, see page 33.
If you have any questions regarding Scudder Development Fund or any other
Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Development Fund
3 - SCUDDER DEVELOPMENT FUND
<PAGE>
PERFORMANCE UPDATE as of June 30, 1997
- -----------------------------------------------------------------
FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ---------------------------------------
SCUDDER DEVELOPMENT FUND
- ---------------------------------------
1 Year $ 9,507 -4.93% -4.93%
5 Year $ 19,914 99.14% 14.77%
10 Year $ 31,550 215.50% 12.18%
20 Year $194,433 1844.33% 15.99%
- ---------------------------------------
RUSSELL 2000 GROWTH INDEX
- ---------------------------------------
1 Year $ 10,451 4.51% 4.51%
5 Year $ 20,211 102.11% 15.10%
10 Year $ 23,543 135.43% 8.93%
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
- ---------------------------
'87 $10,000
'88 $ 8,911
'89 $ 9,825
'90 $10,681
'91 $10,742
'92 $11,649
'93 $14,031
'94 $14,157
'95 $17,809
'96 $22,526
'97 $23,543
RUSSELL 2000 GROWTH INDEX
Year Amount
- ---------------------------
'87 $10,000
'88 $ 9,465
'89 $ 9,905
'90 $12,729
'91 $14,042
'92 $15,843
'93 $19,374
'94 $16,873
'95 $24,536
'96 $33,187
'97 $31,550
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>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 22.00 $ 22.54 $ 26.25 $ 27.33 $ 29.92 $ 34.58 $ 27.58 $ 37.35 $ 45.56 $ 39.02
CAPITAL GAINS
DIVIDENDS......... $ 1.90 $ .42 $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07 $ 2.12 $ 4.20 $ 4.48
FUND TOTAL
RETURN (%)........ -5.35 4.66 28.50 10.32 12.83 22.28 -12.91 45.41 35.26 -4.93
INDEX TOTAL
RETURN (%)........ -10.88 10.26 8.72 .58 8.45 20.45 .88 25.82 26.49 4.51
</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 - SCUDDER DEVELOPMENT FUND
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1997
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Common Stocks 99%
Convertible Securities 1%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Following the Fund's rebound
during the second quarter, we are
keeping the Fund near fully
invested to benefit from any
further gains in the emerging-
growth group.
- --------------------------------------------------------------------------
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------
Technology 20%
Service Industries 18%
Financial 17%
Health 16%
Consumer Discretionary 8%
Energy 8%
Manufacturing 5%
Durables 2%
Media 2%
Other 4%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
In keeping with our strategy of
increasing portfolio
diversification, we added natural
gas companies, banks and
consumer stocks.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(23% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. G & K SERVICES INC.
Uniform rentals
2. CINTAS CORP.
Uniform rentals
3. ACCUSTAFF, INC.
National provider of temporary
staffing personnel
4. SYNOPSIS INC.
Developer of high level electronic design
software
5. FIRST SECURITY CORP.
Commercial banking in western
states
6. KEANE, INC.
Provider of computer software
project management & design
development services
7. FIRST AMERICAN CORP.
Regional commercial banking
8. PARAMETRIC TECHNOLOGY CORP.
Mechanical design software producer
9. ENCAD, INC.
Manufacturer of large format color ink jet
printers
10. SECURITY DYNAMICS TECHNOLOGIES, INC.
Designer, developer & supporter of a family
of security products used to manage access
to computer-based information resources
Solid returns were
demonstrated by information
technology outsourcing
companies including the Fund's
sixth largest holding, Keane,
Inc., which is helping to
reprogram computers for the
year 2000.
For more complete details about the Fund's investment portfolio,
see page 12. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5 - SCUDDER DEVELOPMENT FUND
<PAGE>
Portfolio Management Discussion
Scudder Development Fund has been managed by Roy C. McKay since 1988. Peter Chin
joined the team as co-manager in 1993. For a report on the Fund's fiscal year
1997 performance and strategy, as well as management's outlook for the coming
year, here is an interview with Roy McKay and Peter Chin, Portfolio Managers of
Scudder Development Fund.
Q: How did Scudder Development Fund perform relative to its benchmark, the
Russell 2000 Growth Index, in fiscal year 1997?
A: The Fund's total return was a negative 4.93%, versus an index return of
4.51%. The index's outperformance can be attributed largely to its
diversification. In a correction as sharp as the one just past, holding a basket
of 2000 stocks can provide significantly more downside protection than the
roughly 150 stocks held by the Fund. Of course, when emerging-growth stocks in
general are performing well, the Fund's relatively smaller group of select
holdings historically have had a better track record. In fiscal years 1995 and
1996, for example, your fund outperformed the index by a significant margin.
Q: What were some of the factors that contributed to the underperformance of
emerging-growth stocks relative to large-company stocks this year ?
A: Chief among investors' concerns has been the fear of rising interest rates
and their potential impact on the valuations of emerging-growth companies. As
the economy picked up steam last year, investors began to worry that record low
unemployment and tight manufacturing capacity would spark an increase in
inflation. Under this scenario, the Federal Reserve would be forced to raise
interest rates -- which it eventually did, in March -- thereby increasing the
discount rate used to value growth equities.
Other factors contributed to the darkening mood. For example, a rising dollar
hurt many technology issues, because investors feared that the stronger currency
would give overseas companies a competitive edge. Also, while reported earnings
have continued to grow overall, a number of emerging-growth companies
disappointed investors with weaker-than-expected results. By early 1997, mutual
funds and other large institutional buyers were abandoning emerging-growth
stocks and seeking the safety and liquidity of large, well-established
companies.
In all, the decline lasted roughly nine months, far longer than previous
corrections. The average emerging-growth company on Nasdaq fell 30% from its
summer 1996 highs through the end of March 1997. It is interesting to compare
the actual earnings growth of these stocks with their share price movements.
Over the past twelve months, your fund's largest 30 holdings, representing 45%
of the portfolio, reported weighted average earnings gains of roughly 27% and
weighted average price gains of 28%. With an investment horizon of one year or
beyond, short-term factors like interest rate movements and market psychology
tend to be overcome by actual earnings growth.
Q: What sectors and stocks helped boost Fund performance?
A: Throughout the 12-month period, positive performance came from energy-related
holdings such as Global Industries, Ltd., a company specializing in pipeline
6 - SCUDDER DEVELOPMENT FUND
<PAGE>
construction and other services for offshore drillers. Semiconductor companies
also showed some resilience during the year, bouncing back from last year's
inventory-related downturn.
Solid returns were demonstrated by information technology outsourcing companies
and regional banks. Fund holdings such as Keane and Computer Horizons are
helping to reprogram computers for the year 2000 -- a potentially sticky problem
impacting any company that must keep accurate client records. (In the past, the
mainframe computers that store huge corporate databases were not programmed to
recognize dates past 1999.) Regional banks have also provided strong
performance, thanks to a wave of merger activity in some of the country's
fastest-growing areas. Many of the Fund's bank holdings are take-over
candidates; some -- Dauphin Deposit, for example -- have already been bought out
at attractive premiums.
Q: What were some of the disappointments?
A: In the first three months of 1997, holdings in the healthcare and technology
sectors generally declined in lockstep. Throughout the year a number of large
portfolio holdings announced weaker fundamentals and suffered related price
declines. Many of these holdings were subsequently sold. While we cannot control
investment variables like interest rates and sector fashions, we do take pride
in owning well-managed companies with bright futures. Seeing even a handful of
these report earnings disappointments is painful and leads us to redouble our
efforts to make certain that we are indeed invested in well-managed, rapidly
growing businesses. That may mean somewhat more concentrated positions in the
future as we focus more narrowly on those companies in which we have the
greatest conviction.
Q: Lipper includes the Fund in its mid-capitalization category. How did it
perform relative to this peer group in fiscal year 1997?
A: Scudder Development Fund underperformed the group by a fairly wide margin.
The 188 mid-cap funds tracked by Lipper returned 15.61% on average over the
12-month period, compared with -4.93% for the Fund. It's worth noting that one
of these "mid-cap" funds owns General Electric with a market cap of $232
billion. About 60% of these "mid-cap" funds own Intel, with a market cap of $128
billion. Since the market has favored larger companies over the past twelve
months, it is not surprising that given its smaller-cap focus, Scudder
Development Fund returns lagged during this period.
Q: How would you characterize the Fund's investment strategy relative to its
Lipper category?
A: Scudder Development Fund is clearly one of the more aggressive entrants in
Lipper's mid-cap category. While the Fund's holdings may be medium-sized on
average, it matters more to us that our companies are growing rapidly and that
they offer the potential for above-average earnings growth. This focus naturally
has led to heavy weightings in the growth-oriented technology and healthcare
sectors of the economy -- sectors that were among the hardest hit during the
correction. We maintain our conviction that, over the longer-term, companies
that demonstrate strong earnings growth will provide above-average performance.
7 - SCUDDER DEVELOPMENT FUND
<PAGE>
Q: The Fund rebounded 16.1% in the final three months of the period. In light of
these gains, what stocks do you find attractive now?
A: Even after the strong second quarter, we believe the portfolio represents
some compelling values, given current earnings estimates. In fact, at the end of
June the Fund's price/earnings ratio based on next year's estimated earnings was
20.5, or roughly a 3% discount to the Russell 2000 Growth Index. In early May, a
number of holdings were initiated or increased to take advantage of the extreme
price weakness then prevalent. New investments included PLC Systems, Systems and
Computer Technology, Vivus, Rational Software, and Cornell Corrections.
Q: What other changes to the Fund have you made in recent months?
A: In keeping with our strategy of increasing portfolio diversification, we
added two natural gas and development companies, two banks, and two consumer
stocks. St. Mary Land & Exploration has a number of large drilling opportunities
this year, and KCS Energy has a long-term record of creating shareholder value
through reserve and production expansion. Silicon Valley Bancshares was added to
gain exposure to the California economy and to reinvest profits from the partial
sale of Zions Bancorp, a strong performer during the period. As for our consumer
stocks, West Marine Inc., is a retailer of boating equipment.
THE ORIGINAL DOCUMENT CONTAINS A LINE GRAPH HERE
LINE GRAPH TITLE:
Scudder Development Fund:
Price/Earnings Ratio Relative to the S&P 500
The following data is plotted quarterly from the year 1971 to the present.
The normal range of values is 120 to 180, inclusive.
LINE GRAPH DATA:
130
155
155
180
195
217
214
207
171
153
149
134
116
153
149
134
116
92
88
79
80
89
73
83
92
104
105
115
120
128
130
120
122
128
142
141
129
141
171
162
175
193
180
175
182
165
169
180
192
191
208
180
170
150
155
149
143.5
135
153
155
122
153
133
154
120
111
114
105
84
100
98
120
145.5
137
133.6
148.8
149.3
142.6
136.5
137.4
122.7
135.1
145.1
141.2
142
165
126
97
113
118.9
111.2
134
139
111
124
122
120
150
187
184
169
174
174
195
146
179
120
The portfolio's smaller-cap holdings appear reasonably valued versus the
large company universe.
8 - SCUDDER DEVELOPMENT FUND
<PAGE>
We believe our efforts to diversify the portfolio outside of the health and
technology sectors, combined with recent "bargain hunting" purchases, have
positioned the portfolio to benefit from any further gains in the
emerging-growth group. Large-company stocks now have held the performance lead
for more than a year. We think the gains of the past three months, linked to a
more benign inflationary outlook, indicate that the tide has finally turned in
favor of rapidly growing companies.
/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. Mr. McKay has more than
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. Mr. Chin contributes special expertise in manufacturing, service and
energy companies.
9 - SCUDDER DEVELOPMENT FUND
<PAGE>
Glossary of Investment Terms
CURRENCY The price at which one country's currency can be
EXCHANGE RATE exchanged into another currency. When the
U.S. dollar rises relative to foreign currencies, this
decreases the buying power of overseas purchasers of
U.S. goods and services and tends to hurt the earnings
of U.S. companies that export; by contrast, a weak
dollar promotes U.S. exports.
DIVIDEND YIELD With stocks, a company's payment out of earnings
to shareholders divided by its share price. For
example, a stock that sells for $10 and pays annual
dividends totaling $1 has a yield of 10%; if the stock
price goes up to $20, the yield would fall to 5%.
FEDERAL FUNDS RATE A benchmark short-term interest rate, the
Fed Funds rate is the interest charged by Federal
Reserve member banks to other member banks requiring
overnight loans to meet regulatory reserve
requirements. The Fed Funds rate is a key instrument of
U.S. monetary policy, by which the Federal Reserve
seeks to influence growth and inflation by controlling
the supply of money in the economy.
FUNDAMENTAL Analysis of companies based on the projected impact of
RESEARCH management, products, sales, and earnings on
their balance sheets and income statements. Distinct
from technical analysis, which evaluates the
attractiveness of a stock based on historical price and
trading volume movements, rather than the financial
results of the underlying company.
GROWTH STOCK Stock of a company that has displayed above
average earnings growth and is expected to continue to
increase profits rapidly going forward. Stocks of such
companies usually trade at higher multiples to earnings
and experience more price volatility than the market as
a whole.
PRICE/EARNINGS A widely used gauge of a stock's valuation, that
RATIO indicates what investors are paying for a
company's earning power at the current stock price. May
be based on a company's projected earnings for the
coming 12 months. A higher "earnings multiple"
indicates higher expected earnings growth, along with
greater risk of earnings disappointments.
10 - SCUDDER DEVELOPMENT FUND
<PAGE>
LIQUIDITY A stock that is liquid has enough shares outstanding
and a substantial enough market capitalization to allow
large purchases and sales to occur without causing a
significant move in its market price as a result.
MARKET The market value of a company's outstanding shares of
CAPITALIZATION common stock, determined by the number
of shares outstanding multiplied by the share price
(shares x price = market capitalization). The universe
of publicly traded companies is frequently divided into
large-, mid-, and small-capitalization. "Large-cap"
stocks tend to be more liquid.
NASDAQ The Nasdaq Stock Market (for National Association of
Securities Dealers Automated Quotation system.) A
computerized system that provides brokers and dealers
with price quotations for securities traded over the
counter ("OTC"), as well as for some securities listed
on the New York Stock Exchange or American Stock
Exchange. Historically, most securities traded OTC
using the Nasdaq quotation system have been
smaller-capitalization stocks that do not qualify for
listing on a major exchange.
VALUE STOCK A company whose stock price does not fully
reflect its intrinsic value, as indicated by
price/earnings ratio, price/book value ratio, dividend
yield, or some other valuation measure, relative to its
industry or the market overall. Value stocks tend to
display less price volatility and may carry higher
dividend yields.
OVER/UNDER Refers to the allocation of assets -- usually by
WEIGHTING sector, industry, or country -- within a
portfolio relative to the portfolio's benchmark index
or investment universe.
11 - SCUDDER DEVELOPMENT FUND
<PAGE>
Investment Portfolio as of June 30, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Bonds 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 0.1%
Pharmaceuticals
North American Vaccine, Inc., 6.5%, 5/1/03 ............................................. 1,000,000 903,750
-----------
Media 0.0%
Broadcasting & Entertainment
Intouch Group, Inc. Promissory Note, 8%, 2/1/96 (b)(c)(d) .............................. 217,500 104,000
-----------
Durables 0.1%
Aerospace
Simula, Inc., 8%, 5/1/04 ............................................................... 823,000 1,024,635
- -----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,209,985) 2,032,385
- -----------------------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Health 0.4%
Biotechnology 0.2%
Norian Corp. "D" * (Developer and manufacturer of a proprietary biomaterial for
skeletal repair) (b)(c) .............................................................. 357,142 1,999,995
-----------
Medical Supply & Specialty 0.2%
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
-----------
Miscellaneous 0.4%
HYSEQ Inc. "A" * (Genetic biotechnology company) (b)(c) ................................ 175,000 3,360,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $4,599,995) 6,559,995
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stocks 99.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 8.4%
Apparel & Shoes 1.4%
St. John Knits Inc. (Manufacturer of women's clothing) ................................. 221,300 11,950,200
-----------
Hotels & Casinos 1.5%
Anchor Gaming* (Operator of gaming machines and casinos) ............................... 148,300 7,081,325
Grand Casinos Inc.* (Casino manager) (e) ............................................... 200,000 2,950,000
Shuffle Master, Inc.* (Manufacturer of automatic card shuffling systems
for gaming operations) ............................................................... 347,500 2,845,156
-----------
12,876,481
-----------
Recreational Products 1.2%
Family Golf Centers, Inc.* (Operator of golf-related recreational facilities) .......... 441,000 10,143,000
-----------
Restaurants 0.3%
Dave & Buster's, Inc.* (Operator of restaurant/entertainment complexes) ................ 100,000 2,675,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Specialty Retail 4.0%
PETsMART Inc.* (Pet food and supply superstores) ....................................... 824,000 9,476,000
Viking Office Products Inc.* (Direct marketer of office supplies) ...................... 662,800 12,593,200
West Marine, Inc.* (Retailer of recreational and commercial boating supplies
and apparel) ......................................................................... 234,400 6,035,800
Wilmar Industries, Inc.* (National distributor of repair and maintenance
products for the apartment housing market) ........................................... 255,700 6,232,688
-----------
34,337,688
-----------
Health 15.8%
Biotechnology 2.6%
Alexion Pharmaceuticals, Inc. (Producer of immunoregulatory compounds) (b)(c) .......... 400,000 3,230,500
CytoTherapeutics, Inc.* (Developer of therapeutic products for treatment of
certain chronic and disabling diseases) .............................................. 382,900 2,058,088
Guilford Pharmaceuticals, Inc.* (Research and development of therapeutic and
diagnostic drugs) .................................................................... 139,000 3,370,750
Neurogen Corp.* (Developer of biopharmaceuticals for treatment of psychiatric and
neurological disorders) .............................................................. 200,000 4,550,000
Neoprobe Corp.* (Research and development of a system for diagnosis and treatment
of cancer) ........................................................................... 435,262 6,093,668
Norland Medical Systems, Inc.* (Marketer of systems used in diagnosis of bone
disorders) ........................................................................... 277,100 3,013,463
-----------
22,316,469
-----------
Health Industry Services 1.4%
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) ................................................. 306,300 10,567,350
Ventana Medical Systems, Inc.* (Manufacturer of automated medical test systems
for cell and tissue analysis) ........................................................ 145,700 1,803,038
-----------
12,370,388
-----------
Hospital Management 1.6%
ARV Assisted Living, Inc.* (Operator of licensed assisted living facilities for
senior citizens) ..................................................................... 228,200 2,510,198
Advocat, Inc.* (Operator of nursing homes and retirement centers) ...................... 100,500 1,143,188
Assisted Living Concepts, Inc.* (Operator of assisted living residences) ............... 157,800 4,359,225
Atria Communities, Inc.* (Provider of assisted and independent living communities
for the elderly) ..................................................................... 222,000 3,413,250
Karrington Health, Inc.* (Owner and operator of private pay assisted living
residences) .......................................................................... 171,000 2,565,000
-----------
13,990,861
-----------
Medical Supply & Specialty 5.7%
Cardiovascular Dynamics, Inc.* (Developer and manufacturer of catheters for
treatment of vascular diseases) ...................................................... 353,800 2,786,175
Closure Medical Corp.* (Manufacturer of medical adhesive products) ..................... 130,100 2,504,425
Endosonics Corp.* (Manufacturer of imaging catheters) .................................. 409,400 4,452,225
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of
benign vascular lesions) .............................................................. 252,900 6,448,950
ICU Medical Inc.* (Designer, manufacturer and marketer of proprietary disposable
medical products) (e) ................................................................. 550,800 4,199,850
PLC Systems Inc.* (Developer, manufacturer and marketer of medical laser systems) ....... 392,100 8,650,706
Perclose, Inc.* (Developer and producer of minimally invasive single-use systems
to close arterial access sites surgically) ............................................ 247,800 6,195,000
STERIS Corp.* (Manufacturer of sterile processing systems) .............................. 175,800 6,570,525
Sterile Recoveries, Inc.* (Delivery and retrieval service for reusable gowns and
other disposable products needed for surgery) ......................................... 172,900 3,068,975
Thermo Cardiosystems, Inc.* (Manufacturer of implantable heart assisting devices) ....... 172,000 4,472,000
-----------
49,348,831
-----------
Pharmaceuticals 4.5%
Agouron Pharmaceuticals, Inc.* (Developer of therapeutic and synthetic drugs for
treatment of cancer and other diseases) ............................................... 129,500 10,473,313
NABI, Inc.* (Leading biopharmaceutical company in development of products to
prevent and treat autoimmune and infectious diseases) ................................. 444,100 2,942,163
North American Vaccine, Inc.* (Developer of immunological products) ..................... 286,700 5,536,894
Noven Pharmaceuticals, Inc.* (Transdermal drug delivery systems) ........................ 814,400 5,802,600
PathoGenesis Corp.* (Developer of drugs for treatment of serious infectious
diseases) ............................................................................. 300,000 8,737,500
Vivus, Inc.* (Developer of therapeutic systems for treatment of reproductive
dysfunction) .......................................................................... 224,400 5,343,525
-----------
38,835,995
-----------
Financial 16.5%
Banks 13.0%
CCB Financial Corp. (Commercial bank providing retail, commercial, mortgage and
construction loans) ................................................................... 141,100 10,317,938
Corus Bankshares, Inc. (Commercial bank holding company) ................................ 55,200 1,559,400
First American Corp. (Tennessee) (Regional commercial banking) .......................... 450,000 17,268,750
First Commerce Corp. (Commercial banking in Louisiana and Mississippi) .................. 192,400 8,465,600
First Security Corp. (Commercial banking in western states) ............................. 698,175 19,068,905
First Virginia Banks, Inc. (Commercial and mortgage banking and insurance) .............. 190,000 11,459,375
Magna Group, Inc. (Commercial banking and financial services) ........................... 236,100 8,204,475
Signet Banking Corp. (Multi-bank holding company) ....................................... 272,800 9,820,800
Union Planters Corp. (Commercial banking in Tennessee) .................................. 250,000 12,968,750
Zions Bancorp (Commercial banking in Utah) .............................................. 329,400 12,393,675
-----------
111,527,668
-----------
Insurance 2.6%
CapMAC Holdings Inc. (Provider of financial guaranty insurance) ......................... 216,900 7,293,262
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compdent Corp.* (Provider of dental coverage in the managed dental care industry) ....... 135,000 2,843,438
Meadowbrook Insurance Group. Inc. (Insurance holding company) ........................... 262,600 6,548,587
Terra Nova (Bermuda) Holdings Ltd. "A" (Property, casualty and marine insurance and
reinsurance company) .................................................................. 273,800 5,749,800
-----------
22,435,087
-----------
Business Finance 0.9%
Imperial Bancorp (Merchant card transaction processing, trust and custodial
services, international trade and foreign exchange services) .......................... 254,100 7,337,140
-----------
Media 1.7%
Advertising 1.5%
Outdoor Systems, Inc.* (Outdoor advertising company) .................................... 115,650 4,423,613
Universal Outdoor Holdings, Inc.* (Outdoor advertising company) ......................... 235,800 8,223,525
-----------
12,647,138
-----------
Broadcasting & Entertainment 0.2%
Jacor Communications, Inc. "A" * (Owner and operator of radio stations) ................. 50,000 1,912,500
-----------
Service Industries 18.0%
EDP Services 5.2%
Analysts International Corp. (Contract programming and software services) ............... 166,600 5,581,100
Computer Horizons Corp.* (Diversified information technology services and
solutions) ............................................................................ 328,050 11,235,713
Keane, Inc.* (Provider of computer software project management and design
development services) ................................................................. 332,100 17,269,200
Systems & Computer Technology Corp.* (Computer software for educational
institutions) ......................................................................... 370,300 9,905,525
-----------
43,991,538
-----------
Environmental Services 0.1%
Commodore Applied Technologies, Inc.* (Developer of environmental technologies) ......... 175,200 1,040,250
Commodore Applied Technologies, Inc. Warrants* (expire 6/1/02) .......................... 113,000 155,375
-----------
1,195,625
-----------
Miscellaneous Commercial Services 12.0%
ABR Information Services, Inc.* (Benefits, compliance and information services) ......... 113,200 3,282,798
AccuStaff, Inc.* (National provider of temporary staffing personnel) .................... 1,038,852 24,607,804
Apollo Group, Inc.* (Provider of higher education programs for working adults) .......... 200,000 7,050,000
CMG Information Services, Inc.* (Developer of information based products and
services for direct marketing) ........................................................ 250,500 3,287,813
Cintas Corp. (Uniform rentals) .......................................................... 376,700 25,898,125
Copart, Inc.* (Auctioneer of damaged vehicles for insurance companies) .................. 347,500 5,733,750
G & K Services Inc. "A" (Uniform rentals) ............................................... 700,000 26,075,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sitel Corp.* (Nebraska based telemarketing company for major credit-card and
insurance companies) .................................................................. 367,200 7,573,500
-----------
103,508,790
-----------
Miscellaneous Consumer Services 0.7%
Veterinary Centers of America, Inc.* (Owner and manager of veterinary hospitals) ........ 490,200 5,974,313
-----------
Durables 2.4%
Automobiles 0.6%
Tower Automotive, Inc.* (Producer of engineered metal stampings and assemblies for
automotive industry) .................................................................. 120,000 5,160,000
-----------
Telecommunications Equipment 1.8%
AML Communications, Inc.* (Manufacturer of amplifiers and related products for
communications markets) ............................................................... 24,100 68,532
Ascend Communications, Inc.* (Developer and producer of a variety of high-speed
wide area network access products) .................................................... 279,961 11,023,464
Pairgain Technologies Inc.* (Manufactures telecommunications equipment) ................. 260,700 4,040,850
-----------
15,132,846
-----------
Manufacturing 4.4%
Containers & Paper 1.2%
Aptargroup, Inc. (Manufacturer of packaging equipment components) ....................... 124,700 5,642,675
Sealed Air Corp.* (Protective packaging material) ....................................... 99,000 4,702,500
-----------
10,345,175
-----------
Electrical Products 1.0%
Advanced Lighting Technologies, Inc.* (Manufacturer of metal halide lighting
products) ............................................................................. 324,500 8,193,624
-----------
Industrial Specialty 0.5%
Lydall, Inc.* (Engineered fiber materials) .............................................. 196,400 4,148,950
-----------
Office Equipment/Supplies 1.7%
Encad, Inc.* (Manufacturer of large format color inkjet printers) ....................... 357,200 14,823,800
-----------
Technology 20.4%
Computer Software 13.7%
Advent Software, Inc.* (Provider of stand-alone and client/server software
products) ............................................................................. 287,400 7,652,024
Aurum Software, Inc.* (Developer of sales and marketing information software) ........... 300,000 7,200,000
CBT Group PLC* (ADR) (Developer and publisher of software focusing on client/server
technologies) ......................................................................... 94,100 5,940,063
Integrated Systems, Inc.* (Manufacturer of software development tools for various
industries) ........................................................................... 423,300 4,973,775
Lycos, Inc.* (Developer of online guides to the Internet) ............................... 163,656 2,086,614
Parametric Technology Corp.* (Mechanical design software producer) ...................... 373,300 15,888,581
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Project Software & Development, Inc.* (Developer of software used for management of
equipment maintenance) ................................................................ 440,600 6,388,700
Pure Atria Corp.* (Developer of diagnostic and testing products for managing
software projects) .................................................................... 100,000 1,412,500
Rational Software Corp.* (Software products and services for development of
software applications) ................................................................ 273,500 4,598,219
SeaChange International, Inc.* (Manufacturer of software-based products for
management and distribution of digital video for television and
telecommunication companies) .......................................................... 288,200 8,141,650
Security Dynamics Technologies, Inc.* (Designer, developer and supporter of a
family of security products used to manage access to computer-based
information resources) ................................................................ 367,000 13,533,125
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) ............................................................................. 210,000 6,903,750
Synopsys Inc.* (Developer of high level electronic design software) ..................... 542,100 19,922,175
Technology Modeling Associates, Inc.* (Physical simulation software for integrated
circuit design and manufacturing) ..................................................... 100,000 1,362,500
Vantive Corp.* (Provides customer interaction applications software) .................... 283,800 8,017,350
VideoServer, Inc.* (Supplier of networking equipment and associated software to
create multimedia conferences over wide area networks) ................................ 318,300 4,217,475
-----------
118,238,501
-----------
EDP Peripherals 0.5%
Network Appliance, Inc.* (Designer and manufacturer of network data storage
devices) .............................................................................. 110,000 4,180,000
-----------
Electronic Components/Distributors 0.2%
Trident International, Inc.* (Manufacturer of impulse ink jet subsystems) ............... 85,200 1,533,600
-----------
Office/Plant Automation 3.3%
Cognex Corp.* (Manufacturer of machine vision systems) .................................. 140,000 3,710,000
Cymer, Inc.* (Provider of laser illumination sources for ultra-violet
photolithography systems) ............................................................. 181,400 8,843,250
KLA Instruments Corp.* (Developer, manufacturer and marketer of automated image
processing systems) ................................................................... 200,000 9,750,000
Teradyne Inc.* (Electronic industry automatic test equipment manufacturer) .............. 150,000 5,887,500
-----------
28,190,750
-----------
Semiconductors 2.7%
Altera Corp.* (Designer and marketer of programmable logic integrated circuits
and computer engineering software and hardware) ....................................... 171,000 8,635,500
Anadigics, Inc.* (Supplier of gallium arsenide integrated circuits for use in
television and telecommunication applications) ........................................ 126,800 3,930,800
Triquint Semiconductor, Inc.* (Manufacturer of high performance analog and
mixed signal integrated circuits) ..................................................... 175,700 6,039,688
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) .............. 146,350 4,783,816
-----------
23,389,804
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER DEVELOPMENT FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 7.5%
Oil & Gas Production 4.5%
Barrett Resources Corp.* (Oil and gas exploration and production) ....................... 388,200 11,621,738
Belco Oil & Gas Corp.* (Natural gas and oil exploration, development and production) .... 158,500 3,397,844
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) ............. 164,800 2,472,000
KCS Energy, Inc. (Crude oil and natural gas exploration, development and production) .... 174,000 3,545,250
Nuevo Energy Co.* (Oil and gas exploration, development and production) ................. 109,500 4,489,500
Triton Energy Ltd.* (Independent oil and gas exploration and production company) ........ 294,600 13,496,363
-----------
39,022,695
-----------
Oilfield Services/Equipment 3.0%
Global Industries Ltd.* (Pipeline construction, derrick and diving services for
offshore oil and gas industry) ........................................................ 300,000 7,007,814
Newpark Resources, Inc.* (Environmental management and oilfield construction services) .. 338,500 11,424,375
Transocean Offshore Inc. (Contract drilling services of offshore oil and gas wells) ..... 100,000 7,262,500
-----------
25,694,689
-----------
Metals & Minerals 1.1%
Steel & Metals
RMI Titanium Co.* (Producer of titanium products) ....................................... 336,800 9,177,800
-----------
Construction 1.0%
Building Materials
Simpson Manufacturing Co., Inc.* (Manufacturer of wood-to-wood, wood-to-concrete and
wood-to-masonry connectors) ........................................................... 318,600 8,442,900
-----------
Transportation 0.8%
Marine Transportation
Trico Marine Services, Inc.* (Provider of marine support services for offshore
oil and gas exploration and production operations) .................................... 331,200 7,224,300
-----------
Other 1.0%
Kuhlman Corp. (Manufacturer of electrical and industrial products) ...................... 77,800 2,509,050
Protein Design Labs, Inc.* (Developer of human and humanized antibodies) ................ 75,000 2,137,500
Robert Mondavi Corp. "A" * (Premium wine producer) ...................................... 36,800 1,738,800
St. Mary Land & Exploration Co. (Oil and gas exploration, development and
production) ........................................................................... 77,800 2,732,725
-----------
9,118,075
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $586,019,188) 851,392,221
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $592,829,168) (a) 859,984,601
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER DEVELOPMENT FUND
<PAGE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $594,066,122. At June 30,
1997, net unrealized appreciation for all securities based on tax cost was
$265,918,479. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $310,334,803 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$44,416,324.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $9,894,495 (1.15% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at June 30, 1997 aggregated $7,917,500. These securities
may also have certain restrictions as to resale.
(c) Restricted Securities -- securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
Information concerning such restricted securities at June 30, 1997 is as
follows were:
Security Acquisition Date Cost ($)
-------- ---------------- --------
InTouch Group Inc. 2/14/95 217,500
Norian Corp. "D" 4/12/95 2,000,000
HYSEQ Inc. "A" 5/15/96 1,400,000
InterVentional Technologies, Inc. "G" 3/6/95 1,200,000
Alexion Pharmaceuticals, Inc. 6/13/97 3,100,000
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
Transactions in written options on securities during the year ended June
30, 1997 were:
Shares Premiums Received ($)
------ ---------------------
Outstanding at June 30, 1996 -- --
Contracts written 500,000 895,100
Contracts closed (500,000) (895,100)
-------------------------------------------------------------------------
Outstanding at June 30, 1997 -- --
========= ==========
(e) Affiliated Issuer (See Notes to Financial Statements)
The accompanying notes are an integral part of the financial statements.
19 - SCUDDER DEVELOPMENT FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of June 30, 1997
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market:
Unaffiliated issuers (identified cost $583,295,724) ............ $ 852,834,751
Affiliated issuers (identified cost $9,533,444) ................ 7,149,850
--------------
Total investments, at market (identified cost $592,829,168) ....... 859,984,601
Cash .............................................................. 1,703
Receivable for investments sold ................................... 14,120,651
Receivable for Fund shares sold ................................... 1,371,243
Dividends and interest receivable ................................. 252,001
Foreign taxes recoverable ......................................... 4,893
Other assets ...................................................... 21,310
--------------
Total assets 875,756,402
Liabilities
----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................. 5,513,810
Payable for Fund shares redeemed .................................. 3,474,389
Notes payable ..................................................... 4,100,000
Accrued management fee ............................................ 708,356
Other payables and accrued expenses ............................... 395,708
--------------
Total liabilities 14,192,263
----------------------------------------------------------------------------------------
Net assets, at market value $ 861,564,139
----------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments .................................................... 267,155,433
Foreign currency related transactions .......................... (199)
Accumulated net realized gain ..................................... 61,527,637
Paid-in capital ................................................... 532,881,268
----------------------------------------------------------------------------------------
Net assets, at market value $ 861,564,139
----------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($861,564,139 / 22,081,273 outstanding shares of beneficial
interest, $.01 par value, unlimited number of --------------
shares authorized) ................................................ $39.02
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - SCUDDER DEVELOPMENT FUND
<PAGE>
Statement of Operations
year ended June 30, 1997
<TABLE>
<CAPTION>
Investment Income
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends ......................................................... $ 2,334,676
Interest .......................................................... 820,442
--------------
3,155,118
--------------
Expenses:
Management fee .................................................... 8,996,442
Services to shareholders .......................................... 2,728,373
Custodian and accounting fees ..................................... 249,415
Trustees' fees and expenses ....................................... 44,794
Reports to shareholders ........................................... 281,227
Registration fees ................................................. 57,728
Auditing .......................................................... 46,500
Legal ............................................................. 31,565
Interest expense .................................................. 21,879
Other ............................................................. 91,208
--------------
12,549,131
----------------------------------------------------------------------------------------
Net investment loss (9,394,013)
----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments--Unaffiliated issuers ................................. 76,915,053
Investments--Affiliated issuers ................................... (10,947,107)
Options ........................................................... (284,900)
Foreign currency related transactions ............................. (8,055)
--------------
65,674,991
Net unrealized appreciation (depreciation) during the period on:
Investments ....................................................... (110,479,815)
Foreign currency related transactions ............................. (490)
--------------
(110,480,305)
----------------------------------------------------------------------------------------
Net loss on investment transactions (44,805,314)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (54,199,327)
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - SCUDDER DEVELOPMENT FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended June 30,
Increase (Decrease) in Net Assets 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss ......................................... $ (9,394,013) $ (8,112,460)
Net realized gain from investment transactions .............. 65,674,991 162,355,115
Net unrealized appreciation (depreciation) on investment
transactions during the period............................. (110,480,305) 102,866,430
-------------- ---------------
Net increase (decrease) in net assets resulting from
operations ............................................... (54,199,327) 257,109,085
-------------- ---------------
Distributions to shareholders from net realized gains ...... (103,800,648) (84,837,216)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold .................................. 437,599,929 486,060,931
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 98,959,399 80,963,827
Cost of shares redeemed .................................... (557,283,948) (426,320,016)
-------------- ---------------
Net increase (decrease) in net assets from Fund share
transactions ............................................. (20,724,620) 140,704,742
-------------- ---------------
Increase (decrease) in net assets .......................... (178,724,595) 312,976,611
Net assets at beginning of period .......................... 1,040,288,734 727,312,123
-------------- ---------------
Net assets at end of period ................................ $ 861,564,139 $1,040,288,734
-------------- ---------------
Other Information
---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 22,833,256 19,474,819
-------------- ---------------
Shares sold ................................................ 11,250,824 11,614,545
Shares issued to shareholders in reinvestment of
distributions ............................................ 2,413,215 2,054,380
Shares redeemed ............................................ (14,416,022) (10,310,488)
-------------- ---------------
Net increase (decrease) in Fund shares ..................... (751,983) 3,358,437
-------------- ---------------
Shares outstanding at end of period ........................ 22,081,273 22,833,256
-------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - SCUDDER DEVELOPMENT FUND
<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,
1997(b) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, --------------------------------------------------------------------------------------------
beginning of period ...... $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39
--------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss ......... (.40) (0.38) (.31) (.30) (.27) (.23) (.10) (.08) (.10) (.08)
Net realized and
unrealized gain (loss)
on investment
transactions ............. (1.66) 12.79 12.20 (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41)
Total from investment --------------------------------------------------------------------------------------------
operations ............... (2.06) 12.41 11.89 (3.93) 6.36 3.55 2.31 5.99 .96 (1.49)
--------------------------------------------------------------------------------------------
Less distributions from
net realized gains
on investment
transactions ............. (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90)
--------------------------------------------------------------------------------------------
Total distributions ......... (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90)
--------------------------------------------------------------------------------------------
Net asset value, --------------------------------------------------------------------------------------------
end of period ............ $39.02 $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............ (4.93) 35.26 45.41 (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35)
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............. 862 1,040 727 546 821 700 476 361 275 356
Ratio of operating
expenses to average
daily net assets (%) ..... 1.36 1.24 1.32 1.27 1.30 1.30 1.29 1.34 1.32 1.30
Ratio of net investment
loss to average daily
net assets (%) ........... (1.02) (0.91) (1.01) (.91) (.83) (.70) (.40) (.35) (.47) (.44)
Portfolio turnover rate (%) . 52.2 58.8 41.6 48.3 49.2 53.5 70.8 40.1 32.0 39.2
Average commission rate
paid (a) ................. $.0355 $.0554 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal periods ending on or after June 30, 1996.
(b) Per share amounts have been calculated using the weighted average shares
method.
23 - SCUDDER DEVELOPMENT FUND
<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 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.
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, 1997,
amounted to $9,894,495 which represents 1.15% 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.
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.
24 - SCUDDER DEVELOPMENT FUND
<PAGE>
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options on securities as a hedge against
potential adverse price movements in the value of portfolio assets and wrote put
options as part of a put spread. If the Fund writes an option and the option
expires unexercised, the Fund will realize income, in the form of a capital
gain, to the extent of the amount received for the option (the "premium"). If
the Fund elects to close out the option it would recognize a gain or loss based
on the difference between the cost of closing the option and the initial premium
received. If the Fund purchased an option and allows the option to expire it
would realize a loss to the extent of the premium paid. If the Fund elects to
close out the option it would recognize a gain or loss equal to the difference
between the cost of acquiring the option and the amount realized upon the sale
of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
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.
25 - SCUDDER DEVELOPMENT FUND
<PAGE>
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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $475,012,001 and
$614,141,628, respectively.
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,
1997, the fee pursuant to the Agreement amounted to $8,996,442, which was
equivalent to an annual effective rate of .98% of the Fund's average daily net
assets.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
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, 1997, the amount charged by SSC aggregated $1,504,880, of
which $127,740 is unpaid at June 30, 1997.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At June 30, 1997, the Special
Servicing Agreement expense charged to the Fund amounted to $5,100.
26 - SCUDDER DEVELOPMENT FUND
<PAGE>
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, 1997,
the amount charged to the Fund by STC aggregated $893,240, of which $89,950 is
unpaid at June 30, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $130,526 of
which $10,121 is unpaid at June 30, 1997.
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, 1997, Trustees' fees and expenses aggregated $44,794.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates for the year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Team Sports -- 7,661,846 -- --
ICU Medical, Inc. -- 76,850 -- 4,199,850
Grand Casinos Inc -- 18,497,653 -- 2,950,000
The Men's Wearhouse Inc 1,238,200 6,973,567 -- --
------------- ------------- ------------- -------------
1,238,200 33,209,916 -- 7,149,850
============= ============= ============= =============
</TABLE>
E. Lines 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 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
The weighted average outstanding daily balance of all loans (based on the number
of days the loans were outstanding) was $2,819,149 with a weighted average
interest rate of 5.9%. Interest for the year ended June 30, 1997 was $21,879
(less than $.01 per share). The maximum month-end borrowings outstanding during
the year ended June 30, 1997 was $4,100,000.
27 - SCUDDER DEVELOPMENT FUND
<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, 1997, 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, 1997 by correspondence with the custodian. 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, 1997, 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 8, 1997
28 - SCUDDER DEVELOPMENT FUND
<PAGE>
Tax Information
The Fund paid distributions of $4.34 per share from long-term capital gains
during its year ended June 30, 1997. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $65,658,062 as capital gain dividends for its
fiscal year ended June 30, 1997.
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.
29 - SCUDDER DEVELOPMENT FUND
<PAGE>
This Page
intentionally
left blank.
30 - SCUDDER DEVELOPMENT FUND
<PAGE>
This Page
intentionally
left blank.
31 - SCUDDER DEVELOPMENT FUND
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
William T. Burgin
Trustee; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital Management Corporation
Dudley H. Ladd*
Trustee
Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate School
of Business
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman Emeritus and Director, Kirby Corporation
Edmund R. Swanberg
Honorary Trustee
Peter Chin*
Vice President
Richard W. Desmond*
Assistant Secretary
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
*Scudder, Stevens & Clark, Inc.
32 - SCUDDER DEVELOPMENT FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++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.
33 - SCUDDER DEVELOPMENT FUND
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
34 - SCUDDER DEVELOPMENT FUND
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
35 - SCUDDER DEVELOPMENT FUND
<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 over 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.
SCUDDER
[LOGO]
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
For Scudder Development Fund:
Financial highlights for the ten fiscal years ended June 30,
1997.
Filed herein.
For Scudder Small Company Value Fund:
Financial highlights for the period October 6,
1995 (commencement of operations) to August 31,
1996.
(Incorporated by reference to Post-Effective
Amendment No. 43 to the Registration
Statement.)
For Scudder Micro Cap Fund:
Financial highlights for the period August 12,
1996 (commencement of operations) to August 31,
1996.
(Incorporated by reference to Post-Effective
Amendment No. 44 to the Registration
Statement.)
For Scudder 21st Century Growth Fund:
Financial highlights for the period September
9, 1996 (commencement of operations) to
February 28, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 45 to the Registration
Statement.)
For Scudder Financial Services Fund:
Financial Highlights to be filed by amendment.
For Scudder Health Care Fund:
Financial Highlights to be filed by amendment.
For Scudder Technology Fund:
Financial Highlights to be filed by amendment.
Included in Part B of this Registration Statement:
For Scudder Development Fund:
Investment Portfolio as of June 30, 1997
Statement of Assets and Liabilities as of June 30, 1997
Statement of Operations for the fiscal year ended
June 30, 1997
Statements of Changes in Net Assets for the two fiscal
years ended June 30, 1997
Financial Highlights for the ten fiscal years ended
June 30, 1997
Part C - Page 1
<PAGE>
Notes to Financial Statements Report of Independent
Accountants
Filed herein.
For Scudder Small Company Value Fund:
Investment Portfolio as of August 31, 1996
Statement of Assets and Liabilities as of August 31, 1996
Statement of Operations for the period October 6, 1995
(commencement of operations) to August 31, 1996
Statement of Changes in Net Assets for the period
October 6,1995 (commencement of operations) to August 31,
1996
Financial Highlights for the period October 6, 1995
(commencement of operations) to August 31, 1996
Notes to Financial Statements (Incorporated
by reference to Post-Effective Amendment No. 43 to the
Registration Statement.)
For Scudder Micro Cap Fund:
Investment Portfolio as of August 31, 1996
Statement of Assets and Liabilities as of August 31, 1996
Statement of Operations for the period August 12, 1996
(commencement of operations) to August 31, 1996
Statement of Changes in Net Assets for the period
August 12, 1996 (commencement of operations) to August
31, 1996
Financial Highlights for the period August 12, 199
(commencement of operations) to August 31, 1996
Notes to Financial Statements
Report of Independent Accountants (Incorporated by
reference to Post-Effective Amendment No. 44 to the
Registration Statement.)
For Scudder 21st Century Growth Fund:
Investment Portfolio as of February 28, 199
Statement of Assets and Liabilities as of February 28, 1997
Statement of Operations for the period September 9, 1996
(commencement of operations) to February 28, 1997
Statement of Changes in Net Assets for the period
September 9, 1996 (commencement of operations) to
February 28, 1997
Financial Highlights for the period September 9, 1996
(commencement of operations) to February 28, 1997
Notes to Financial Statements
(Incorporated by reference to Post-Effective Amendment No.
45 to the Registration Statement.)
For Scudder Financial Services Fund:
Statement of Assets and Liabilities as of September 25, 1997
is filed herein.
Part C - Page 2
<PAGE>
For Scudder Health Care Fund:
Statement of Assets and Liabilities as of September ___,
1997 to be filed by amendment.
For Scudder Technology Fund:
Statement of Assets and Liabilities as of September ___,
1997 to be filed by amendment.
Statements, schedules and historical information other than those
listed above have been omitted since they are either not
applicable or are not required.
b. Exhibits :
1.(a)(1) Amended and Restated Declaration of Trust dated
December 21, 1987.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(a)(2) Amendment to Amended and Restated Declaration of Trust
dated December 13, 1990.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(a)(3) Amendment to Amended and Restated Declaration of Trust
to change the name of the Trust dated July 21, 1995
is filed herein.
(Incorporated by reference to Exhibit1 (a)(3) to
Post-Effective Amendment No. 35 to the Registration
Statement.)
(a)(4) Amendment to Amended and Restated Declaration of Trust
to add new series dated July 21, 1995.
(Incorporated by reference to Exhibit 1(a)(4) to Post
Effective Amendment No. 35 to the Registration
Statement.)
(a)(5) Establishment and Designation of Series dated June
6, 1996.
(Incorporated by reference to Exhibit 1(a)(5) to
Post-Effective Amendment No. 40 to the Registration
Statement.)
(a)(6) Establishment and Designation of Series dated June 3,
1997 is filed herein.
(Incorporated by reference to Post-Effective Amendment
No. 46 to the Registration Statement.)
2. (a) Amendment to the By-Laws Article IV: Notice of
Meetings dated December 12, 1991.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b) By-Laws as of October 16, 1985.
(Incorporated by Reference to Post-Effective
Amendment No. 43 to the Registration Statement.)
Part C - Page 3
<PAGE>
(c) Amendment to the By-Laws of Registrant as amended
through December 9, 1985.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial
interest ($.01 par value) for Scudder Development
Fund.
(Incorporated by reference to Exhibit 4 to Post-
Effective Amendment No. 28 to the Registration
Statement.)
5. (a) Investment Management Agreement between the Registrant,
on behalf of Scudder Development Fund, and Scudder,
Stevens & Clark, Inc. dated June 9, 1992.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b) Investment Management Agreement between the Registrant,
on behalf of Scudder Development Fund, and Scudder,
Stevens & Clark, Inc. dated December 14, 1990.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(c) Investment Management Agreement between the Registrant,
on behalf of Scudder Small Company Value Fund, and
Scudder, Stevens & Clark, Inc. dated October 6, 1995.
(Incorporated by reference to Exhibit 5(c) to Post
Effective Amendment No. 36 to the Registration
Statement.)
(d) Investment Management Agreement between the Registrant,
on behalf of Scudder Micro Cap Fund, and Scudder,
Stevens & Clark, Inc. dated August 12, 1996.
(Incorporated by reference to Exhibit 5(d) to Post-
Effective Amendment No.40 to the Registration
Statement.)
(e) Investment Management Agreement between the Registrant,
on behalf of Scudder 21st Century Growth Fund, and
Scudder, Stevens & Clark, Inc. dated September 9, 1996.
(Incorporated by reference to Exhibit 5(e) to Post-
Effective Amendment No. 41 to the Registration
Statement).
(e) (1) Investment Management Agreement between the Registrant,
on behalf of Scudder Financial Services Fund, and
Scudder, Stevens & Clark, Inc. dated September 30,
1997.
(Incorporated by reference to Post-Effective Amendment
No.50 to the Registration Statement.)
(e) (2) Investment Management Agreement between the Registrant,
on behalf of Scudder Health Care Fund, and Scudder,
Stevens & Clark, Inc. dated _____.
To be filed by amendment.
Part C - Page 4
<PAGE>
(e)(3) Investment Management Agreement between the Registrant,
on behalf of Scudder Technology Fund, and Scudder,
Stevens & Clark, Inc. dated _____.
To be filed by amendment.
6. (a) Underwriting Agreement between the Registrant, on
behalf of Scudder Development Fund, and Scudder
Investor Services, Inc., formerly Scudder Fund
Distributors, Inc., dated December 31, 1985.
(Incorporated by reference to Exhibit 6 to Post-
Effective Amendment No. 25 to the Registration
Statement.)
(b) Underwriting Agreement between the Registrant and
Scudder Investor Services, Inc., dated September 30,
1995.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
7. Inapplicable.
8. (a)(1) Custodian Contract between the Registrant, on behalf of
Scudder Development Fund, and Brown Brothers Harriman
& Co. dated April 1, 1980.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 8(a)(1).
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(a)(3) Custodian Contract between the Registrant and State
Street Bank and Trust Company dated September 6, 1995.
(Incorporated by reference to Exhibit 8(a)(3) to Post-
Effective Amendment No. 35 to the Registration
Statement.)
(a)(4) Fee schedule for Exhibit 8(a)(3).
(Incorporated by reference to Exhibit 8(a)(4) to Post-
Effective Amendment No. 35 to the Registration
Statement.)
(b)(1) Subcustodian Agreement between Brown Brothers Harriman
& Co. and The Bank of New York, London office, dated
January 30, 1979.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b)(2) Fee schedule for Exhibit 8(b)(1).
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
9. (a)(1) Transfer Agency and Service Agreement between the
Registrant and Scudder Service Corporation dated
October 2, 1989.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 9(a)(1).
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
Part C - Page 5
<PAGE>
(a)(3) Service Agreement between Copeland Associates, Inc., on
behalf of Scudder Development Fund, and Scudder Service
Corporation dated June 8, 1995.
(Incorporated by reference to Exhibit 9(a)(3) to Post
Effective Amendment No. 35 to the Registration
Statement.)
(a)(4) Revised fee schedule for Exhibit 9(a)(1).
(Incorporated by reference to Exhibit 9(a)(4) to Post-
Effective Amendment No. 37 to the Registration
Statement.)
(b)(1) COMPASS Service Agreement between the Registrant and
Scudder Trust Company dated January 1, 1990.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b)(2) Fee schedule for Exhibit 9(b)(1).
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b)(3) COMPASS Service Agreement between the Registrant and
Scudder Trust Company.
(Incorporated by reference to Exhibit 9(b)(3) to Post-
Effective Amendment No. 37 to the Registration
Statement.)
(d) Shareholder Services Agreement between the Registrant
and Charles Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(e) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Development Fund, and
Scudder Fund Accounting Corporation dated March 21,
1995.
(Incorporated by reference to Exhibit 9(e) to Post-
Effective Amendment No. 35 to the Registration
Statement.)
(f) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Small Company Value
Fund, and Scudder Fund Accounting Corporation dated
October 6, 1995.
(Incorporated by reference to Exhibit 9(f) to Post-
Effective Amendment No. 37 to the Registration
Statement.)
(g) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Micro Cap Fund, and
Scudder Fund Accounting Corporation dated August 12,
1996.
(Incorporated by reference to Exhibit 9(g) to Post-
Effective Amendment No. 41 to the Registration
Statement.)
(h) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder 21st Century Growth
Fund, and Scudder Fund Accounting Corporation
dated September 9, 1996.
(Incorporated by reference to Exhibit 9(h) to Post-
Effective Amendment No. 41 to the Registration
Statement.)
(h)(1) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Financial Services
Fund, and Scudder Fund Accounting Corporation
dated September 11, 1997.
Part C - Page 6
<PAGE>
(Incorporated by reference to Post-Effective Amendment
No. 50 to the Registration Statement.)
(h)(2) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Health Care Fund, and
Scudder Fund Accounting Corporation dated -----.
To be filed by amendment.
(h)(3) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Technology Fund, and
Scudder Fund Accounting Corporation dated
-----.
To be filed by amendment.
10. Inapplicable.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Inapplicable.
14. (a) Scudder Flexi-Plan for Corporations and Self-Employed
Individuals.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(b) Scudder Individual Retirement Plan.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(c) Scudder Funds 403(b) Plan.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(d) Scudder Employer-Select 403(b) Plan.
(Incorporated by Reference to Post-Effective Amendment
No. 43 to the Registration Statement.)
(e) Scudder Cash or Deferred Profit Sharing Plan under
Section 401(k). (Incorporated by Reference to Post-
Effective Amendment No. 43 to the Registration
Statement.)
15. Inapplicable.
16. Schedule for Computation of Performance Data.
(Incorporated by Reference to Post- Effective Amendment
No. 43 to the Registration Statement.)
17. Financial Data Schedule for the Development Fund is
filed herein.
18. Inapplicable.
Power of Attorney is incorporated by reference to the Signature Page of
Post-Effective Amendment No. 30, Post-Effective Amendment No. 37, Post-Effective
Amendment No. 40 and Post-Effective Amendment No. 44.
Part C - Page 7
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities (as of October 3, 1997).
(1) (2)
Title of Class Number of Record
Shareholders
Shares of beneficial
interest
($.01 par value)
Scudder Development Fund 45,507
Scudder Micro Cap Fund 10,644
Scudder Small Company Value Fund 12,373
Scudder 21st Century Growth Fund 2,743
Scudder Financial Services Fund n/a
Scudder Health Care Fund n/a
Scudder Technology Fund n/a
Item 27. Indemnification
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its subsidiaries including Scudder Investor Services, Inc., and
all of the registered investment companies advised by Scudder,
Stevens & Clark, Inc. insures the Registrant's trustees and
officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration of
Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. No Trustee, officer,
employee or agent of the Trust shall be subject to any personal
liability whatsoever to any Person, other than to the Trust or
its Shareholders, in connection with Trust Property or the
affairs of the Trust, save only that arising from bad faith,
willful misfeasance, gross negligence or reckless disregard of
his duties with respect to such Person; and all such Persons
shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall
not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and
against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made
only out of the assets of the one or more Series of which the
Shareholder who is entitled to indemnification or reimbursement
was a Shareholder at the time the act or event occurred which
gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section 4.1 shall
not impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict
the right of the Trust to indemnify or reimburse a Shareholder in
any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including
without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Part C - Page 8
<PAGE>
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having
been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or
other body before which a proceeding was brought that he engaged
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless
there has been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (x) vote
of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee
or officer may now or hereafter be entitled, shall continue as to
a person who has ceased to be such Trustee or officer and shall
insure to the benefit of the heirs, executors, administrators and
assigns of such a person. Nothing contained herein shall affect
any rights to indemnification to which personnel of the Trust
other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described
in paragraph (a) of this Section 4.3 may be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking
by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification
under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient, or the
Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available
Part C - Page 9
<PAGE>
facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is
one who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person" by
any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
<TABLE>
<CAPTION>
<S> <C>
Stephen R. Beckwith Director, Vice President, Treasurer, Chief Operating Officer & Chief Financial Officer,
Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc.(investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment company)**
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I &
II (investment company) +
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporation oo
Part C - Page 10
<PAGE>
E. Michael Brown Director, Chief Administrative Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding company)*
Director & President, Scudder Trust Company (a trust company)+++
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service
Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc.(investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc.(investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Part C - Page 11
<PAGE>
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust(investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc.(investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Incorporator, Scudder Trust Company (a trust company)+++
Part C - Page 12
<PAGE>
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance
Officer and Secretary, Scudder, Stevens &
Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary,
The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary,
Scudder International Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary,
Scudder New Asia Fund (investment company)**
Director, Vice President & Assistant Secretary,
Scudder Global Fund, Inc. (investment
company)**
Trustee, Vice President & Assistant Secretary,
Scudder Equity Trust (investment company)**
Trustee, Vice President & Assistant Secretary,
Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary,
Scudder Funds Trust (investment company)**
Trustee, Scudder Investment Trust (investment
company)*
Trustee, Scudder Municipal Trust (investment
company)*
Vice President & Trustee, Scudder Cash
Investment Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money
Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust
(investment company)*
Vice President & Secretary, AARP Growth Trust
(investment company)**
Vice President & Secretary, AARP Income Trust
(investment company)**
Vice President & Secretary, AARP Tax Free Income
Trust (investment company)**
Vice President & Secretary, AARP Cash Investment
Funds (investment company)**
Vice President & Secretary, AARP Managed
Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, Scudder
World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea
Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil
Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery
Street Income Securities, Inc. (investment
company)o
Vice President & Assistant Secretary, Scudder
Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder
Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder
New Europe Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder
Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First
Iberian Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Latin
America Dollar Income Fund, Inc. (investment
company)**
Vice President, Scudder Fund, Inc. (investment
company)**
Vice President, Scudder Institutional Fund, Inc.
(investment company)**
Vice President, Scudder GNMA Fund (investment
company)*
Director, Senior Vice President & Clerk, Scudder
Investor Services, Inc. (broker/dealer)*
Director, Vice President & Secretary, Scudder
Fund Accounting Corporation (in-house fund
accounting agent)*
Director, Vice President & Secretary, Scudder
Realty Holdings Corporation (a real estate
holding company)*
Director & Clerk, Scudder Service Corporation
(in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Part C - Page 13
<PAGE>
Vice President, Director & Assistant Secretary,
Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc.
(investment adviser)**
President, AARP Cash Investment Funds
(investment company)**
President, AARP Growth Trust (investment
company)**
President, AARP Income Trust (investment
company)**
President, AARP Tax Free Income Trust
(investment company)**
President, AARP Managed Investment Portfolio
Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer,
Scudder, Stevens & Clark, Inc. (investment
adviser)**
Chairman & Director, The Argentina Fund, Inc.
(investment company)**
Chairman & Director, The Latin America Dollar
Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income
Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Mortgage Fund
(investment company) +
Supervisory Director, Scudder Floating Rate
Funds for Fannie Mae Mortgage Securities I &
II (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc.
(investment adviser)###
Director, The Brazil Fund, Inc. (investment
company)**
Director, Indosuez High Yield Bond Fund
(investment company) Luxembourg
President & Director, Scudder, Stevens & Clark
Overseas Corporation oo
President & Director, Scudder, Stevens & Clark
Corporation (Delaware) (investment adviser)**
Director, Scudder Realty Advisors, Inc. (realty
investment adviser) x
Director, IBJ Global Investment Management S.A.,
(Luxembourg investment management company)
Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Vice President, Montgomery Street Income
Securities, Inc. (investment company)o
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue,
Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA # Soci,t, Anonyme, 47,
Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao,
Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad
Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei,
Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies oo 20-5,
Ichibancho, Chiyoda-ku, Tokyo, Japan ### 1-7, Kojimachi, Chiyoda-ku,
Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard,
Exeter, Devon, U.K.
Item 29. Principal Underwriters.
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Part C - Page 14
<PAGE>
Scudder GNMA Fund
Scudder Institutional Fund, Inc
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
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
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
(1) (2) (3)
Name and Position and Offices Positions and
Principal with Offices with
Business Scudder Investor Registrant
Address Services, Inc.
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY
10154
E. Michael Brown Assistant Treasurer None
Two International
Place
Boston, MA 02110
Mark S. Casady Director and Vice None
Two International President
Place
Boston, MA 02110
Linda Coughlin Director and Senior None
Two International Vice President
Place
Boston, MA 02110
Richard W. Vice President None
Desmond
345 Park Avenue
New York, NY
10154
Paul J. Elmlinger Senior Vice President None
345 Park Avenue and Assistant Clerk
New York, NY
10154
Margaret D. Assistant Treasurer None
Hadzima
Two International
Place
Boston, MA 02110
Part C - Page 15
<PAGE>
Name and Position and Offices Positions and
Principal with Offices with
Business Scudder Investor Registrant
Address Services, Inc.
Thomas W. Joseph Director, Vice Vice
Two International President, President
Place Treasurer and
Boston, MA 02110 Assistant Clerk
David S. Lee Director, President Trustee and
Two International and Assistant Vice
Place Treasurer President
Boston, MA 02110
Thomas F. Clerk Vice
McDonough President and
Two International Secretary
Place
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY
10154
Edward J. Assistant Treasurer Vice
O'Connell President and
345 Park Avenue Assistant
New York, NY Treasurer
10154
Daniel Pierce Director, Vice President and
Two International President Trustee
Place and Assistant
Boston, MA 02110 Treasurer
Kathryn L. Quirk Director, Senior Vice Trustee, Vice
345 Park Avenue President and President
New York, NY Assistant Clerk and Assistant
10154 Secretary
Robert A. Rudell Vice President None
Two International
Place
Boston, MA 02110
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY
10154
Benjamin Vice President None
Thorndike
Two International
Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International
Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International
Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International
Place
Boston, MA 02110
Part C - Page 16
<PAGE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of this
Item 29.
(c)
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwrit on Redemptions Brokerage Other
Principal ing Commission Commissions Compensation
Underwriter Discounts Repurchases
Scudder None None None None
Investor
Services, Inc.
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules promulgated thereunder
are maintained by Scudder, Stevens & Clark, Inc., Two International
Place, Boston, MA 02110-4103. Records relating to the duties of the
Registrant's custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records relating
to the duties of the Registrant's transfer agent are maintained by
Scudder Service Corporation, Two International Place, Boston,
Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Registrant hereby undertakes to file a post-effective amendment,
using reasonably current financial statements of Scudder Financial
Services, Scudder Health Care Fund and Scudder Technology Fund, within
four to six months from the effectiveness date of each Registrant's
Registration Statement under the 1933 Act.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of a Fund's latest annual report
to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting on the question of removal of a Trustee or
Trustees when requested to do so by the holders of at least 10% of the
Registrant's outstanding shares and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
the registrant will unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Part C - Page 17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 9th day of October, 1997.
SCUDDER SECURITIES TRUST
By /s/Thomas F. McDonough
----------------------
Thomas F. McDonough, Vice President
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- ---------------------------------------
Daniel Pierce* President (Principal Executive October 9, 1997
Officer) and Trustee
/s/Paul Bancroft III
- ---------------------------------------
Paul Bancroft III* Trustee October 9, 1997
/s/William T. Burgin
- ---------------------------------------
William T. Burgin* Trustee October 9, 1997
/s/Thomas J. Devine
- ---------------------------------------
Thomas J. Devine* Trustee October 9, 1997
/s/Keith R. Fox
- ---------------------------------------
Keith R. Fox* Trustee October 9, 1997
/s/David S. Lee
- ---------------------------------------
David S. Lee* Trustee and Vice President October 9, 1997
/s/Wilson Nolen
- ---------------------------------------
Wilson Nolen* Trustee October 9, 1997
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant October 9, 1997
Secretary
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Gordon Shillinglaw
- ---------------------------------------
Gordon Shillinglaw* Trustee October 9, 1997
/s/Pamela A. McGrath
- ---------------------------------------
Pamela A. McGrath Vice President and Treasurer October 9, 1997
(Principal Financial and Accounting
Officer)
</TABLE>
*By: /s/Thomas F. McDonough
-----------------------
Thomas F. McDonough
Attorney-in-fact pursuant to power of
attorneys contained in the signature pages
of Post-Effective Amendment No. 30 filed
August 26, 1991, Post-Effective Amendment
No. 37 filed April 4, 1996, Post-Effective
Amendment No. 40 filed August 12, 1996,
Post-Effective Amendment No. 44 filed
February 11, 1997 and Post-Effective
Amendment No. 46 filed July 11, 1997.
2
<PAGE>
File No. 2-36238
File No. 811-2021
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 51
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 35
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER SECURITIES TRUST
<PAGE>
SCUDDER SECURITIES TRUST
EXHIBIT INDEX
Exhibit 11
Exhibit 17
Coopers & Lybrand
Consent of Independent Accountants
To the Trustees of Scudder Securities Trust:
We consent to the inclusion in Post-Effective Amendment No. 51 to the
Registration Statement of Scudder Development Fund on Form N-1A, of our report
dated August 8, 1997 on our audit of the financial statements and financial
highlights of the Scudder Development Fund, which is included in the Annual
Report to Shareholders for the year ended June 30, 1997, which is incorporated
by reference in the Registration Statement.
We also consent to the reference to our Firm under the caption, "Experts."
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts Coopers & Lybrand L.L.P.
October 9, 1997
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Development Fund Annual Report for the fiscal year ended 6/30/97 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER>1
<NAME>SCUDDER DEVELOPMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 592,829,168
<INVESTMENTS-AT-VALUE> 859,984,601
<RECEIVABLES> 15,748,788
<ASSETS-OTHER> 23,013
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 875,756,402
<PAYABLE-FOR-SECURITIES> 5,513,810
<SENIOR-LONG-TERM-DEBT> 4,100,000
<OTHER-ITEMS-LIABILITIES> 4,578,453
<TOTAL-LIABILITIES> 14,192,263
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 532,881,268
<SHARES-COMMON-STOCK> 22,081,273
<SHARES-COMMON-PRIOR> 22,833,256
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,527,637
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 267,155,234
<NET-ASSETS> 861,564,139
<DIVIDEND-INCOME> 2,334,676
<INTEREST-INCOME> 820,442
<OTHER-INCOME> 0
<EXPENSES-NET> 12,549,131
<NET-INVESTMENT-INCOME> (9,394,013)
<REALIZED-GAINS-CURRENT> 65,674,991
<APPREC-INCREASE-CURRENT> (110,480,305)
<NET-CHANGE-FROM-OPS> (54,199,327)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (103,800,648)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,250,824
<NUMBER-OF-SHARES-REDEEMED> (14,416,022)
<SHARES-REINVESTED> 2,413,215
<NET-CHANGE-IN-ASSETS> (178,724,595)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 99,645,238
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,996,442
<INTEREST-EXPENSE> 21,879
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 920,820,034
<PER-SHARE-NAV-BEGIN> 45.56
<PER-SHARE-NII> (0.40)
<PER-SHARE-GAIN-APPREC> (1.66)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (4.48)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 39.02
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
