Scudder
Development Fund
Semiannual Report
December 31, 1996
Pure No-Load(TM) Funds
Offers opportunities for long-term growth of capital by investing primarily in
securities of emerging growth companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
18 Financial Statements
21 Financial Highlights
22 Notes to Financial Statements
25 Shareholder Meeting Results
26 Investment Products and Services
27 How to Contact Scudder
In Brief
o Over the second half of 1996, stock market sentiment moved strongly away
from smaller capitalization growth issues, contributing to Scudder
Development Fund's total return of negative 3.06%. For the full calendar
year, the Fund provided a positive total return of 10.04%.
o Despite a number of small cap earnings disappointments that surfaced this
fall, overall earnings by companies in the portfolio continue to grow at an
attractive rate -- over 40% per annum.
o The Fund's long-term performance remains solid. For the three-year period
ended December 31, 1996, the Fund provided an average annual total return
of 16.21%, versus 12.47% for the unmanaged Russell 2000 Growth Index.
2 - Scudder Development Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to present this Semiannual Report for Scudder Development
Fund, covering the six months ended December 31, 1996. As detailed in the
management discussion that follows, this period saw a divergence between the
performance of large and small capitalization companies. Following a short but
sharp market setback this past summer, a relative handful of larger stocks rose
to record levels on a seemingly daily basis. Smaller issues in the aggregate,
however, essentially treaded water over the second half of 1996. Such rotations
in market leadership are largely unpredictable, and a cautious outlook is
understandable in view of current market levels. However, exposure to smaller
companies with the potential for rapid earnings growth remains appropriate for
investors seeking long-term capital appreciation, as indicated by Scudder
Development Fund's solid long-term performance.
With tax season upon us, of particular interest are recent favorable
changes in the federal tax code that raised the amount of money that
single-earner married couples can contribute to an Individual Retirement
Account. For the 1997 tax year, such couples can now invest a combined $4000
into an IRA, up from $2250. An easy way to budget IRA contributions is by
establishing a Scudder Automatic Investment Plan. Contact Scudder Investor
Relations for more information on this service.
As part of Scudder's ongoing efforts to meet investor needs, we recently
launched an innovative product called Scudder Pathway Series. A "fund of funds,"
Pathway Series is a collection of four distinct portfolios -- Conservative,
Balanced, Growth, and International -- that offers flexibility, diversification,
and simplicity. Each portfolio invests in a select mix of Scudder Funds designed
to help achieve a specific investment objective. For more information on Pathway
Series and other Scudder products and services, please turn to page 26.
Thank you for your continued investment in Scudder Development Fund. If you
have any questions about your investment, please call a Scudder Investor
Relations Representative at 1-800-225-2470, or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Development Fund
3 - Scudder Development Fund
<PAGE>
PERFORMANCE UPDATE as of December 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER DEVELOPMENT FUND
- --------------------------------------
1 Year $ 11,004 10.04% 10.04%
5 Year $ 16,770 67.70% 10.89%
10 Year $ 39,443 294.43% 14.71%
20 Year $209,581 1995.81% 16.43%
- --------------------------------------
RUSSELL 2000 GROWTH INDEX
- --------------------------------------
1 Year $11,126 11.26% 11.26%
5 Year $17,379 73.79% 11.67%
10 Year $28,101 181.01% 10.88%
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 December 31
SCUDDER DEVELOPMENT FUND
Year Amount
- ----------------------
'86 $10,000
'87 $ 8,952
'88 $10 776
'89 $12,949
'90 $10,695
'91 $16,169
'92 $17,426
'93 $19,754
'94 $19,273
'95 $25,256
'96 $28,101
RUSSELL 2000 GROWTH INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $ 9,858
'88 $10,948
'89 $13,489
'90 $13,688
'91 $23,520
'92 $23,092
'93 $25,134
'94 $23,791
'95 $35,845
'96 $39,443
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 December 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $18.69 $22.32 $22.69 $21.73 $36.23 $33.62 $33.51 $29.54 $40.12 $39.79
CAPITAL GAINS
DIVIDENDS......... $ 1.90 $ .42 $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07 $ 2.12 $ 4.20 $ 4.48
FUND TOTAL
RETURN (%)........ -1.42 11.06 23.61 1.48 71.83 -1.82 8.84 -5.34 50.67 10.04
INDEX TOTAL
RETURN (%)........ -10.48 20.37 20.17 -17.41 51.19 7.77 13.36 -2.43 31.04 11.26
</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 December 31, 1996
- ---------------------------------------------------------------------------
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.
Given a constructive outlook for inflation and interest rates, the Fund
is essentially fully invested in common stocks.
- --------------------------------------------------------------------------
SECTOR DIVERSIFICATION
- -----------------------------
Technology 25%
Health 19%
Service Industries 15%
Consumer Discretionary 10%
Energy 9%
Financial 8%
Manufacturing 5%
Durables 5%
Transportation 1%
Other 3%
- ----------------------------------------------
100%
- ----------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's largest concentration is in the growth-oriented technology sector.
- --------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS
(27% of portfolio)
- --------------------------------------------------------------------------
1. CINTAS CORP.
Uniform rentals
2. PARAMETRIC TECHNOLOGY CORP.
Mechanical design software producer
3. STERIS CORP.
Manufacturer of sterile processing systems
4. G&K SERVICES INC. "A"
Uniform rentals
5. ASCEND COMMUNICATIONS, INC.
Developer and producer of a variety of high-speed wide area network access
products
6. SYNOPSYS INC.
Developer of high level electronic design software
7. ATMEL CORP.
Developer and manufacturer of integrated circuits
8 ACCUSTAFF, INC.
National provider of temporary staffing personnel
9. TRITON ENERGY LTD.
Independent oil and gas exploration and production company
10. KEANE, INC.
Provider of computer software project management and design
development services.
The Fund continues to focus on small-
to mid-size companies that we believe
have excellent earnings growth potential.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 9. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5 - SCUDDER DEVELOPMENT FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
For the six month period ended December 31, 1996, Scudder Development Fund's
total return was a negative 3.06%, versus -0.59% for the unmanaged Russell 2000
Growth Index. For the full calendar year, the Fund provided a positive total
return of 10.04%, slightly below the benchmark index return of 11.26%.
================================================================================
Average Annual Total Returns
(Periods ended December 31, 1996)
- --------------------------------------------------------------------------------
Scudder Russell 2000
Development Fund Growth Index
- --------------------------------------------------------------------------------
Last Year 10.04% 11.26%
Last 3 Years 16.21 12.47
Last 5 Years 10.89 11.69
Last 10 Years 14.71 10.88
Last 15 Years 12.95 10.81
================================================================================
- ----------
Scudder Development Fund's performance over time has generally been strong both
in absolute terms and relative to its benchmark index.
Stock Market Moves to Large Cap
Over the six months since we last reported to you, stock market sentiment moved
dramatically towards larger capitalization issues, with small growth companies
such as those in which the Fund principally invests lagging the overall averages
by an unusually wide margin. Buoyed by large company share repurchase programs
and a late cycle affinity for liquidity, investors gravitated toward a very few
large cap stocks as 1996 progressed. To illustrate, over the second half of the
year, the S&P 500 -- a widely followed gauge of large company stocks -- returned
11.68%, versus the slight negative return on small growth stocks as measured by
the Russell 2000 Growth Index. Moreover, positive activity was concentrated
among a small number of issues: only 30 S&P 500 stocks accounted for roughly
half of the Index's gains for the year, and five large cap stocks accounted for
more than half of the gains experienced by members of the NASDAQ index in 1996.
Interest rate jitters and earnings disappointments impacted the smaller cap
market negatively over the period. Investor fears of tightening activity by the
Federal Reserve and higher interest rates in the face of surprisingly strong
economic indicators hung over the financial markets for much of the year.
Concerns over a potential "buyers' strike" on the part of Japanese investors,
who have very large holdings of U.S. Treasury bonds, provided additional upward
pressure on interest rates. Long-term rates, which began 1996 at under 6%, ended
the year at 6.64% as gauged by the 30-year Treasury, after spending considerable
time above the 7% level. With little sign of increasing inflation, the rising
long rates over the first half of 1996 appear to have been a technical
aberration. That said, higher long rates and fears of Fed action left little
room for valuation expansion during the period.
6 - Scudder Development Fund
<PAGE>
On the earnings front, several disappointments hit the smaller cap market in
October. ITI Technology, a manufacturer of home security electronics, saw nearly
half of its business disappear as ADT decided to switch suppliers. Itron, a
leading producer of automatic meter reading devices, saw its margins crumble due
to pricing pressure. Other shorter term problems at Meadowbrook Insurance and
Veterinary Centers of America provided proverbial "buying opportunities." These
earnings disappointments in October spurred a correction in smaller stocks
generally that was too deep to recover from in November and December in the face
of higher interest rates.
Earnings Trend Remains Positive for Portfolio Holdings
Despite disappointments such as those outlined above, overall earnings by
companies in the portfolio continue to grow. During the most recently reported
quarter, the weighted average revenues and earnings per share (EPS) in your
portfolio grew by 58% and 47% respectively. Our largest thirty holdings,
representing 48% of the portfolio, appreciated on average by 83% in 1996,
supported by EPS gains of over 80%. Our conviction concerning the opportunity
presented by these companies is leading us to concentrate a higher proportion of
the Fund's assets in fewer holdings.
With respect to sector performance trends, energy stocks continued to benefit
from recent discoveries and higher prices for gas and oil. Strength in the
energy sector spread to technology and semiconductors towards the end of the
period. A new holding, Cymer, was up 171% during the fourth quarter. Cymer is
the sole worldwide supplier of high energy deep UV light for leading edge
semiconductor photolithography. In the medical area, biotech stocks are starting
to make up lost ground. With numerous late-stage clinical trials ongoing, the
prospect for a number of significant FDA approvals next year is promising. The
Fund's largest pharmaceutical investment, Agouron, has already filed for
approval of its next generation protease inhibitor for AIDS. The stock rose by
55% during the fourth quarter.
Fully Invested Approach
The Fund continues to implement a consistent approach designed to provide
long-term capital appreciation through investment in small- to mid-size
companies that we believe are well managed and capable of delivering at least
15% earnings growth per year. Central to the Fund's solid long-term record is
the proprietary fundamental research performed by Scudder's analysts on each
investment considered for the portfolio. Given the continued benign inflation
environment, we remain of the view that a sustained increase in interest rates
of any significance is unlikely in the near future, and the Fund is therefore
essentially fully invested in common stocks. At the end of December, 99.9% of
Fund assets were invested in equity securities. The Fund's largest sector
concentration is in technology, in which 25% of assets are invested, not unusual
given the high proportion of high-tech companies in the Fund's investment
universe.
7 - Scudder Development Fund
<PAGE>
The performance of the Fund over the last six months has not been what we would
have hoped for, but the Fund's long-term performance remains solid versus its
benchmark index. For example, for the three-year period ended December 31, 1996,
the Fund provided an average annual total return of 16.21%, versus 12.47% for
the Russell 2000 Growth Index. Although we cannot control such investment
variables as interest rate trends and the shifting popularity of individual
sectors, we do focus heavily on owning what we view as soundly run companies
with bright futures and well above average earnings prospects. Seeing even a
handful of these issues report fundamental disappointments is painful and leads
us to redouble our efforts to make certain that we are, indeed, invested in
well-managed, rapidly growing businesses. As it has since the Fund's inception
in 1971, Scudder Development Fund remains committed to seeking above average
capital appreciation over time by investing in the stocks of smaller,
growth-oriented companies. Thank you for your continued investment in Scudder
Development Fund.
Sincerely,
Your Portfolio Management Team
/s/Roy C. McKay
Roy C. McKay
/s/Peter Chin
Peter Chin
8 - Scudder Development Fund
<PAGE>
<PAGE>
Investment Portfolio as of December 31, 1996 (Unaudited)
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Repurchase Agreements 0.1%
- --------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust
Company dated 12/31/96 at 6%, to be repurchased at
$892,297 on 1/2/97, collateralized by a $845,000 U.S. -----------
Treasury Bond, 7.125%, 2/15/23 (Cost $892,000) ........ 892,000 892,000
-----------
Convertible Bonds 0.3%
- --------------------------------------------------------------------------------
Health 0.3%
Hospital Management 0.2%
Complete Management, Inc., 8%, 8/15/03 ................. 1,700,000 1,768,000
-----------
Pharmaceuticals 0.1%
North American Vaccine, Inc., 6.5%, 5/1/03 ............. 1,000,000 1,032,500
-----------
Media 0.0%
Broadcasting & Entertainment 0.0%
InTouch Group, Inc. Promissory Note, 8%,
2/1/96*(b)(c)(d) ...................................... 250,000 97,195
- --------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,950,000) 2,897,695
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Convertible Preferred Stocks 0.5%
- --------------------------------------------------------------------------------
Health 0.3%
Biotechnology 0.2%
Norian Corp.* "D" (Developer and manufacturer of a
proprietary biomaterial for skeletal repair)(b)(c) .... 2,857,143 2,000,000
-----------
Medical Supply & Specialty 0.1%
InterVentional Technologies, Inc."G"* (Manufacturer of
minimally invasive disposable microsurgical devices
and systems for treatment of cardiovascular
disease)(b)(c) ........................................ 120,000 1,200,000
-----------
Miscellaneous 0.2%
HYSEQ Inc.* "A" (Genetic biotechnology company)(b)(c) .. 175,000 1,400,000
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $4,600,000) 4,600,000
- --------------------------------------------------------------------------------
Common Stocks 99.0%
- --------------------------------------------------------------------------------
Consumer Discretionary 10.2%
Apparel & Shoes 1.7%
Nautica Enterprises, Inc. (Designer and manufacturer of
men's clothing) ....................................... 185,000 4,671,250
Oakley, Inc. (Manufacturer of designer and sport
sunglasses and goggles) ............................... 112,200 1,220,175
St. John Knits Inc.* (Manufacturer of women's clothing). 190,700 8,295,450
Tommy Hilfiger Corp.* (Designer and marketer of men's
sportswear) ........................................... 43,700 2,097,600
-----------
16,284,475
-----------
Department & Chain Stores 0.5%
Men's Wearhouse Inc.* (Discount retailer) .............. 208,675 5,112,528
-----------
The accompanying notes are an integral part of the financial statements.
9 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Hotels & Casinos 1.6%
Anchor Gaming* (Operator of gaming machines and
casinos) .............................................. 105,300 4,238,325
Grand Casinos Inc.* (Casino manager) ................... 600,000 8,100,000
Shuffle Master, Inc.* (Manufacturer of automatic card
shuffling systems for gaming operations) .............. 347,500 3,084,063
-----------
15,422,388
-----------
Recreational Products 1.1%
Family Golf Centers, Inc.* (Operator of golf-related
recreational facilities) .............................. 297,700 8,968,213
First Team Sports, Inc.* (Manufacturer and wholesaler
of in-line roller skates) ............................. 202,600 1,342,225
-----------
10,310,438
-----------
Restaurants 1.4%
Lone Star Steakhouse/Saloon* (Full service restaurant
chain) ................................................ 110,700 2,961,225
Outback Steakhouse Inc.* (Operator of full-service
restaurants) .......................................... 197,500 5,283,125
Starbucks Corp.* (High-quality coffee provider) ........ 187,000 5,352,875
-----------
13,597,225
-----------
Specialty Retail 3.9%
PETsMART Inc.* (Pet food and supply superstores) ....... 657,400 14,380,625
Viking Office Products Inc.* (Direct marketer of office
supplies) ............................................. 587,200 15,670,900
Wilmar Industries, Inc.* (National distributor of
repair and maintenance products for the apartment
housing market) ....................................... 255,700 7,095,675
-----------
37,147,200
-----------
Health 18.5%
Biotechnology 2.6%
Alliance Pharmaceutical Corp.* (Developer of products
for treatment of immune system disorders, cancer,
respiratory distress syndrome) ........................ 137,700 1,876,163
Cardiovascular Dynamics, Inc.* (Developer and
manufacturer of catheters for treatment of vascular
diseases) ............................................. 290,300 3,773,900
CytoTherapeutics, Inc.* (Developer of therapeutic
products for treatment of certain chronic and
disabling diseases) ................................... 382,900 3,446,100
Digene Corp.* (Manufacturer of diagnostic DNA testing
systems) .............................................. 63,600 667,800
ESC Medical Systems Ltd. (Producer of devices for
non-invasive treatment of benign vascular lesions) .... 26,600 678,300
NABI, Inc.* (Leading biopharmaceutical company in
development of products to prevent and treat
autoimmune and infectious diseases) ................... 632,600 5,535,250
Neoprobe Corp.* (Research and development of a system
for diagnosis and treatment of cancer) ................ 435,262 6,692,153
Norland Medical Systems, Inc. (Marketer of systems used
in diagnosis of bone disorders) ....................... 279,300 1,885,275
-----------
24,554,941
-----------
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Health Industry Services 1.0%
IDX Systems Corp.* (Provider of health care information
systems to physician groups and academic medical
centers) .............................................. 281,500 8,057,938
Ventana Medical Systems, Inc.* (Manufacturer of
automated medical test systems for cell and tissue
analysis) ............................................. 145,700 2,112,650
-----------
10,170,588
-----------
Hospital Management 2.3%
ARV Assisted Living, Inc. (Operator of licensed
assisted living facilities for senior citizens) ....... 228,200 2,652,825
Advocat, Inc.* (Operator of nursing homes and
retirement centers) ................................... 100,500 728,625
Assisted Living Concepts, Inc.* (Operator of assisted
living residences) .................................... 152,900 2,331,725
Atria Communities, Inc.* (Provider of assisted and
independent living communities for the elderly) ....... 222,000 2,275,500
Karrington Health, Inc.* (Owner and operator of private
pay assisted living residences) ....................... 171,000 2,137,500
Sunrise Assisted Living, Inc.* (Provider of assisted
living to the elderly) ................................ 225,100 6,274,663
Veterinary Centers of America, Inc.* (Owner and manager
of veterinary hospitals) .............................. 490,200 5,392,200
-----------
21,793,038
-----------
Medical Supply & Specialty 7.0%
Endosonics Corp.* (Manufacturer of imaging catheters) .. 514,000 7,838,500
ICU Medical Inc.* (Designer, manufacturer and marketer
of proprietary disposable medical products) ........... 550,800 4,337,550
Med-Design Corp. (Developer and manufacturer of safety
medical devices) ...................................... 262,200 1,376,550
PLC Systems Inc.* (Developer, manufacturer and marketer
of medical laser systems) ............................. 314,200 7,069,500
Perclose, Inc.* (Developer and producer of minimally
invasive single-use systems to close arterial access
sites surgically) ..................................... 247,800 5,017,950
STERIS Corp.* (Manufacturer of sterile processing
systems) .............................................. 637,600 27,735,600
Sterile Recoveries, Inc.* (Delivery and retrieval
service for reusable gowns and other disposable
products needed for surgery) .......................... 115,200 1,706,400
Target Therapeutics, Inc.* (Manufacturer of disposable
medical devices for treatment of vascular diseases) ... 168,600 7,081,200
Thermedics Inc.* (Manufacturer of drug detection
instruments, explosives detectors, and heart assist
devices) .............................................. 226,900 4,112,563
Thermo Cardiosystems, Inc. (Manufacturer of implantable
heart assisting devices) .............................. 51,100 1,533,000
-----------
67,808,813
-----------
Pharmaceuticals 5.6%
Agouron Pharmaceuticals, Inc.* (Developer of
therapeutic and synthetic drugs for treatment of
cancer and other diseases) ............................ 130,200 8,821,050
Alkermes, Inc.* (Neurophmaraceutical company developing
products to aid treatment of central nervous system) .. 220,100 5,117,325
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Cyanotech Corp.* (Producer of algal products for
nutritional and pharmaceutical markets) ............... 145,600 937,300
Interneuron Pharmaceuticals, Inc.* (Developer of
neuropharmaceuticals to treat various psychiatric and
neurological disorders) ............................... 175,400 4,560,400
Neurogen Corp.* (Developer of biopharmaceuticals for
treatment of psychiatric and neurological disorders) .. 231,900 4,464,075
North American Vaccine, Inc.* (Developer of
immunological products) ............................... 286,700 6,952,475
Noven Pharmaceuticals, Inc.* (Transdermal drug delivery
systems) .............................................. 814,400 11,401,600
PathoGenesis Corp.* (Developer of drugs for treatment
of serious infectious diseases) ....................... 391,000 8,504,250
SciClone Pharmaceuticals, Inc.* (Developer of
pharmaceuticals for infectious diseases, cancer and
immune system disorders) .............................. 320,000 2,560,000
Sugen, Inc.* (Developer of small molecule drugs for use
in cancer and diabetes treatment) ..................... 50,500 650,188
-----------
53,968,663
-----------
Communications 0.4%
Cellular Telephone
CommNet Cellular, Inc.* (Management, maintenance and
financing of cellular telephone systems throughout the
United States) ........................................ 132,100 3,682,288
-----------
Financial 8.4%
Banks 5.6%
Dauphin Deposit Corp. (Commercial banking in
Pennsylvania) ......................................... 145,200 4,791,600
First American Corp. (Tennessee)(Regional commercial
banking) .............................................. 123,100 7,093,638
First Commerce Corp. (Commercial banking in Louisiana
and Mississippi) ...................................... 192,400 7,479,550
First Security Corp. (Commercial banking in western
states) ............................................... 271,750 9,171,563
Magna Group, Inc. (Commercial banking and financial
services) ............................................. 236,100 6,964,950
Union Planters Corp. (Commercial banking in Tennessee).. 240,600 9,383,400
Zions Bancorp (Commercial banking in Utah) ............. 88,700 9,224,800
-----------
54,109,501
-----------
Insurance 2.5%
CapMAC Holdings Inc. (Provider of financial guaranty
insurance) ............................................ 229,200 7,592,250
Compdent Corp.* (Provider of dental coverage in the
managed dental care industry) ......................... 135,000 4,758,750
Meadowbrook Insurance Group. Inc. (Insurance holding
company) .............................................. 278,200 5,842,200
Terra Nova (Bermuda) Holdings Ltd. "A" (Property,
casualty and marine insurance and reinsurance
company) .............................................. 276,200 5,938,300
-----------
24,131,500
-----------
Business Finance 0.3%
Imperial Bancorp (Merchant card transaction processing,
trust and custodial services, international trade and
foreign exchange services) ............................ 100,000 2,400,000
-----------
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Media 0.7%
Advertising 0.3%
Outdoor Systems, Inc. (Outdoor advertising company) .... 115,650 3,252,656
-----------
Print Media 0.4%
Desktop Data, Inc.* (Provider of customized real-time
news and information over local area networks to
professional customers) ............................... 180,100 3,466,925
-----------
Service Industries 15.3%
EDP Services 2.1%
Analysts International Corp. (Contract programming and
software services) .................................... 166,600 4,706,450
Computer Horizons Corp.* (Diversified information
technology services and solutions) .................... 283,400 10,910,900
Systems & Computer Technology Corp.* (Computer software
for educational institutions) ......................... 288,000 4,608,000
-----------
20,225,350
-----------
Environmental Services 0.2%
Commodore Applied Technologies, Inc.* (Developer of
environmental technologies) ........................... 337,800 1,689,000
Commodore Applied Technologies, Inc. Warrants* (Expire
6/28/01) .............................................. 286,800 394,350
-----------
2,083,350
-----------
Miscellaneous Commercial Services 13.0%
AccuStaff, Inc. (National provider of temporary
staffing personnel) ................................... 1,038,852 21,945,749
Apollo Group, Inc. (Provider of higher education
programs for working adults) .......................... 286,550 9,581,516
BI Inc.* (Manufacturer of and service provider for
house arrest electronic monitoring systems) ........... 335,300 2,347,100
CMG Information Services, Inc. (Developer of
information based products and services for direct
marketing) ............................................ 306,100 5,127,175
Cintas Corp.(Uniform rentals) .......................... 586,900 34,480,375
Copart, Inc.* (Auctioner of damaged vehicles for
insurance companies) .................................. 347,500 4,560,938
G & K Services Inc. "A" (Uniform rentals) .............. 725,000 27,368,750
National Processing, Inc.* (Low-cost, high-volume card
and check transaction processing) ..................... 207,200 3,315,200
RTW, Inc. (Provider of comprehensive managed care
products and services for workers' compensation
programs) ............................................. 215,550 3,960,731
Sitel Corp. (Nebraska based telemarketing company for
major credit-card and insurance companies) ............ 347,200 4,904,200
Verifone, Inc.* (Provider of electronic payment
services to financial institutions, retail merchants
and consumers) ........................................ 259,500 7,655,250
-----------
125,246,984
-----------
Durables 4.5%
Automobiles 0.5%
Tower Automotive, Inc.* (Producer of engineered metal
stampings and assemblies for automotive industry) ..... 147,100 4,596,875
-----------
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Telecommunications Equipment 4.0%
AML Communications, Inc. (Manufacturer of amplifiers
and related products for communications markets) ...... 50,000 668,750
Ascend Communications, Inc.* (Developer and producer of
a variety of high-speed wide area network access
products) ............................................. 421,961 26,214,327
Cascade Communications Corp. (Designer and developer of
multi-service wide area network switches) ............. 215,400 11,873,925
-----------
38,757,002
-----------
Manufacturing 4.5%
Containers & Paper 0.9%
Aptargroup, Inc. (Manufacturer of packaging equipment
components) ........................................... 124,700 4,395,675
Sealed Air Corp.* (Manufacturer of protective packaging
material) ............................................. 99,000 4,120,875
-----------
8,516,550
-----------
Electrical Products 1.1%
Advanced Lighting Technologies, Inc.* (Manufacturer of
metal halide lighting products) ....................... 308,700 7,485,975
FORE Systems, Inc. (Producer of high-performance
networking products) .................................. 100,000 3,287,500
-----------
10,773,475
-----------
Industrial Specialty 1.0%
Bakrie & Brothers (Manufacturer of industrial steel
products, steel pipes, corrugated sheet iron, asbestos
and fiber cements) .................................... 7,080,000 2,922,523
Lydall, Inc.* (Engineered fiber materials) ............. 300,000 6,750,000
-----------
9,672,523
-----------
Office Equipment/Supplies 1.5%
Encad, Inc. (Manufacturer of large format color inkjet
printers) ............................................. 357,200 14,734,500
-----------
Technology 25.1%
Computer Software 17.2%
Advent Software, Inc.* (Provider of stand-alone and
client/server software products) ...................... 229,300 6,964,988
Aurum Software, Inc.* (Developer of sales and marketing
information software) ................................. 126,700 2,929,938
Avant! Corp.* (Developer and marketer of integrated
circuit design automation software) ................... 207,100 6,575,425
CBT Group PLC (ADR)(Developer and publisher of software
focusing on client/server technologies) ............... 94,100 5,104,925
Clarify, Inc. (Manufacturer of adaptable client/server
application software) ................................. 118,800 5,702,400
Excalibur Technologies Corp.* (Manufacturer of document
imaging software)(c) .................................. 50,000 787,500
Informix Corp.* (Database management software) ......... 300,000 6,112,500
Integrated Systems, Inc. (Manufacturer of software
development tools for various industries) ............. 400,000 10,400,000
Keane, Inc.*(Provider of computer software project
management and design development services) ........... 538,400 17,094,200
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Lycos, Inc.* (Developer of online guides to the
Internet) ............................................. 148,000 1,554,000
OrCAD, Inc.* (Developer and supporter of Windows-based
electronic design software) ........................... 100,000 1,100,000
Parametric Technology Corp.* (Mechanical design
software producer) .................................... 610,000 31,338,750
Project Software & Development, Inc.* (Developer of
software used for management of equipment
maintenance) .......................................... 306,400 12,983,700
Pure Atria Corp.* (Developer of diagnostic and testing
products for managing software projects) .............. 197,650 4,891,838
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 11,560,500
Sterling Commerce, Inc.* (Producer of electronic data
interchange products and services) .................... 200,000 7,050,000
Synopsys Inc.* (Developer of high level electronic
design software) ...................................... 541,500 25,044,375
Vantive Corp. (Provides customer interaction
applications software) ................................ 168,600 5,268,750
VideoServer, Inc.* (Supplier of networking equipment
and associated software to create multimedia
conferences over wide area networks) .................. 57,000 2,422,500
-----------
164,886,289
-----------
Diverse Electronic Products 0.5%
C-Cube Microsystems, Inc.* (Developer of digital video
compression technology for use in consumer
electronics, computers and communications) ............ 124,100 4,583,944
-----------
EDP Peripherals 0.6%
ACT Networks, Inc.* (Developer and maker of wide-area
network access products) .............................. 56,800 2,073,200
Network Appliance, Inc.* (Designer and manufacturer of
network data storage devices) ......................... 76,800 3,907,200
-----------
5,980,400
-----------
Electronic Components/Distributors 0.1%
Trident International, Inc.* (Manufacturer of impulse
ink jet subsystems) ................................... 85,200 1,384,500
-----------
Precision Instruments 0.9%
KLA Instruments Corp.* (Developer, manufacturer and
marketer of automated image processing systems) ....... 240,100 8,523,550
-----------
Semiconductors 5.8%
Atmel Corp.* (Developer and manufacturer of integrated
circuits) ............................................. 720,500 23,866,563
Chips & Technologies, Inc.* (Manufacturer of
semiconductor products for media and graphics) ........ 62,400 1,138,800
Cymer, Inc.* (Provides excimer laser illumination
sources for use in deep ultra-violet photolithography
systems for the pilot and volume production segments
of the semiconductor manufacturing market) ............ 181,400 8,729,875
ESS Technology, Inc.* (Producer of mixed signal
semiconductor audio solutions for multimedia desktop
and notebook computer manufacturers) .................. 232,800 6,547,500
S3 Inc.* (Producer of multimedia accelerator solutions
for personal computer platforms and operating
systems) .............................................. 441,800 7,179,250
Triquint Semiconductor, Inc.* (Manufacturer of high
performance analog and mixed signal integrated
circuits) ............................................. 100,000 2,637,500
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Vitesse Semiconductor Corp.* (Manufacturer of digital
integrated circuits) .................................. 131,200 5,969,600
-----------
56,069,088
-----------
Energy 9.2%
Oil & Gas Production 6.0%
Barrett Resources Corp.* (Oil and gas exploration and
production) ........................................... 390,500 16,645,063
Belco Oil & Gas Corp.* (Natural gas and oil
exploration, development and production) .............. 158,500 4,338,938
Benton Oil & Gas Co.* (Oil and gas exploration,
development and production) ........................... 410,800 9,294,350
Nuevo Energy Co.* (Oil and gas exploration, development
and production) ....................................... 117,000 6,084,000
Triton Energy Ltd.* (Independent oil and gas
exploration and production company) ................... 431,300 20,918,050
-----------
57,280,401
-----------
Oil Companies 0.5%
Rutherford-Moran Oil Corp.* (Independent energy company
which develops oil and gas properties in southeast
Asia) ................................................. 166,300 4,656,400
-----------
Oilfield Services/Equipment 2.7%
Global Industries Ltd. (Pipeline construction, derrick
and diving services for offshore oil and gas
industry) ............................................. 493,600 9,193,300
Reading & Bates Corp.* (Involved in the contract
drilling business with worldwide exploratory and
development drilling) ................................. 194,200 5,146,300
Transocean Offshore Inc. (Contract drilling services of
offshore oil and gas wells) ........................... 187,700 11,754,713
-----------
26,094,313
-----------
Metals & Minerals 0.5%
Steel & Metals 0.5%
RMI Titanium Co.* (Producer of titanium products) ...... 173,500 4,879,688
-----------
Construction 0.8%
Building Materials 0.8%
Simpson Manufacturing Co., Inc.* (Manufacturer of
wood-to-wood, wood-to-concrete and wood-to-masonry
connectors) ........................................... 318,600 7,327,800
-----------
Transportation 0.9%
Marine Transportation 0.9%
Trico Marine Services, Inc.* (Provider of marine
support services for offshore oil and gas exploration
and production operations) ............................ 187,800 9,014,400
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $612,199,696) 952,500,549
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER DEVELOPMENT FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Options - Purchased 0.1%
- --------------------------------------------------------------------------------
Put on Atmel, strike price $26.426, expire 5/20/97
(Cost $1,475,000) ..................................... 500,000 725,000
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $622,116,696)(a) 961,615,244
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $622,196,357. At December 31,
1996, net unrealized appreciation for all securities based on tax cost was
$339,418,887. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$388,533,405 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $49,114,518.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $4,697,195 (.5% 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 December 31, 1996 aggregated $4,850,000. These securities may
also have certain restrictions as to resale.
(c) Restricted Securities - securities which have not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.
Information concerning such restricted securities at December 31, 1996 is as
follows:
Security Acquisition Date Cost ($)
-------- ---------------- --------
InTouch Group Inc. 2/14/95 250,000
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
Excalibur Technologies Corp. 11/17/95 1,250,000
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
At December 31, 1996, outstanding written options on securities were as
follows (Note A of notes to Financial Statements):
Expiration Strike Market
Put Options Shares Date Price ($) Value ($)
----------- ------ ---- --------- ---------
Atmel .............. 500,000 5/20/97 23.49 370,000
Transactions in written call options on securities during the six months
ended December 31, 1996 were:
Shares Premiums Received ($)
------ ---------------------
Outstanding at June 30, 1996 ......... -- --
Contracts written .................... 500,000 895,100
Contracts closed ..................... -- --
----------------------------------------------------------------------------
Outstanding at December 31, 1996 500,000 895,100
======= =======
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER DEVELOPMENT FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1996 (Unaudited)
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost $622,116,696)
(Note A) .................................................... $961,615,244
Cash .......................................................... 571
Receivable for investments sold ............................... 13,495,664
Receivable for Fund shares sold ............................... 1,456,290
Dividends and interest receivable ............................. 200,771
Foreign taxes recoverable ..................................... 5,038
Other assets .................................................. 4,660
------------
Total assets .................................................. 976,778,238
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ............................. 2,456,640
Payable for Fund shares redeemed .............................. 10,837,221
Written options, at value (premiums received $895,100) ........ 370,000
Accrued management fee (Note C) ............................... 813,610
Other accrued expenses (Note C) ............................... 417,761
------------
Total liabilities ............................................. 14,895,232
------------------------------------------------------------------------------
Net assets, at market value $961,883,006
------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss (4,969,227) Net unrealized
appreciation (depreciation) on:
Investments ................................................. 339,498,548
Written options ............................................. 525,100
Foreign currency related transactions ....................... (54)
Accumulated net realized gain ................................. 5,027,379
Paid-in capital ............................................... 621,801,260
------------------------------------------------------------------------------
Net assets, at market value $961,883,006
------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($961,883,006 / 24,171,807 outstanding shares of
beneficial interest, $.01 par value, unlimited ------------
number of shares authorized) ................................ $ 39.79
------------
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER DEVELOPMENT FUND
<PAGE>
Statement of Operations
six months ended December 31, 1996 (Unaudited)
Investment Income
- --------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 911,360
Interest ...................................................... 566,566
------------
1,477,926
Expenses:
Management fee (Note C) ....................................... 4,786,855
Services to shareholders (Note C) ............................. 1,250,235
Custodian and accounting fees (Note C) ........................ 139,336
Trustees' fees and expenses (Note C) .......................... 16,349
Reports to shareholders ....................................... 120,543
Registration fees ............................................. 32,118
Auditing ...................................................... 23,150
Legal ......................................................... 22,892
Other ......................................................... 55,675
------------
6,447,153
------------------------------------------------------------------------------
Net investment loss (4,969,227)
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................... 9,184,219
Foreign currency related transactions ......................... (1,430)
------------
9,182,789
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................... (38,136,700)
Written options ............................................... 525,100
Foreign currency related transactions ......................... (345)
------------
(37,611,945)
------------------------------------------------------------------------------
Net loss on investment transactions (28,429,156)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(33,398,383)
------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
19 - SCUDDER DEVELOPMENT FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended
1996 June 30,
Increase (Decrease) in Net Assets (Unaudited) 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss ............................ $ (4,969,227) $ (8,112,460)
Net realized gain from investment transactions . 9,182,789 162,355,115
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (37,611,945) 102,866,430
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations .............................. (33,398,383) 257,109,085
--------------- ---------------
Distributions to shareholders from net realized
gains ....................................... (103,800,648) (84,837,216)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ...................... 227,650,880 486,060,931
Net asset value of shares issued to shareholders
in reinvestment of distributions ............. 98,959,399 80,963,827
Cost of shares redeemed ........................ (267,816,976) (426,320,016)
--------------- ---------------
Net increase in net assets from Fund share
transactions ................................. 58,793,303 140,704,742
--------------- ---------------
Increase (decrease) in net assets .............. (78,405,728) 312,976,611
Net assets at beginning of period .............. 1,040,288,734 727,312,123
Net assets at end of of period (including
accumulated net investment loss --------------- ---------------
of $4,969,227 at December 31, 1996) .......... $ 961,883,006 $ 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 .................................... 5,591,633 11,614,545
Shares issued to shareholders in reinvestment
of distributions ............................. 2,413,215 2,054,380
Shares redeemed ................................ (6,666,297) (10,310,488)
--------------- ---------------
Net increase in Fund shares .................... 1,338,551 3,358,437
--------------- ---------------
Shares outstanding at end of period ............ 24,171,807 22,833,256
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - 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>
Six Months
Ended
December 31, Years Ended June 30,
1996(b)
(Unaudited) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <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 $25.12
----------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss .... (.21) (0.38) (.31) (.30) (.27) (.23) (.10) (.08) (.10) (.08) (.07)
Net realized and
unrealized gain
(loss) on
investment
transactions ......... (1.08) 12.79 12.20 (3.63) 6.63 3.78 2.41 6.07 1.06 (1.41) 1.67
Total from
investment ----------------------------------------------------------------------------------------------------------
operations ........... (1.29) 12.41 11.89 (3.93) 6.36 3.55 2.31 5.99 .96 (1.49) 1.60
----------------------------------------------------------------------------------------------------------
Less distributions
from net realized
gains on investment
transactions ......... (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33)
----------------------------------------------------------------------------------------------------------
Total distributions .... (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28) (.42) (1.90) (1.33)
----------------------------------------------------------------------------------------------------------
Net asset value, ----------------------------------------------------------------------------------------------------------
end of period ........ $39.79 $45.56 $37.35 $ 27.58 $34.58 $29.92 $27.33 $26.25 $22.54 $22.00 $25.39
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ....... (3.06)** 35.26 45.41 (12.91) 22.28 12.83 10.32 28.50 4.66 (5.35) 7.51
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 962 1,040 727 546 821 700 476 361 275 356 387
Ratio of operating
expenses to average
daily net
assets (%) ........... 1.31* 1.24 1.32 1.27 1.30 1.30 1.29 1.34 1.32 1.30 1.27
Ratio of net investment
loss to average daily
net assets (%) ....... (1.01)* (0.91) (1.01) (.91) (.83) (.70) (.40) (.35) (.47) (.44) (.33)
Portfolio turnover
rate (%) ............. 47.9* 58.8 41.6 48.3 49.2 53.5 70.8 40.1 32.0 39.2 23.5
Average commission
rate paid (a) ........ $.0491 $.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.
* Annualized
** Not Annualized
21 - SCUDDER DEVELOPMENT FUND
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder Development Fund (the "Fund") is a diversified series of Scudder
Securities Trust, a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's financial statements are prepared in
accordance with generally accepted accounting principles which require the use
of management estimates. The policies described below are followed consistently
by the Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations the most recent bid quotation shall be used. Short-term investments
having a maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Trustees.
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 December 31,
1996, amounted to $5,484,695 which represents .6% 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and
22 - SCUDDER DEVELOPMENT FUND
<PAGE>
each subsequent business day is required to be maintained at such a level that
the market value, depending on the maturity of the repurchase agreement, is
equal to at least 100.5% of the resale price.
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.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to tax equalization and investments in certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain
23 - SCUDDER DEVELOPMENT FUND
<PAGE>
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the six months ended December 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $232,290,114 and
$286,240,486, 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 six months ended
December 31, 1996, the fee pursuant to the Agreement amounted to $4,786,855,
which was equivalent to an annual effective rate of .97% of the Fund's average
daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended December 31, 1996, the amount charged by SSC aggregated
$710,945, of which $143,932 is unpaid at December 31, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended December
31, 1996, the amount charged to the Fund by STC aggregated $357,699, of which
$76,565 is unpaid at December 31, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended December 31, 1996, the amount charged to the Fund by SFAC aggregated
$69,360 of which $10,853 is unpaid at December 31, 1996.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the six months ended December 31, 1996, Trustees' fees and expenses aggregated
$16,349.
24 - SCUDDER DEVELOPMENT FUND
Shareholder Meeting Results
A special meeting of shareholders of Scudder Development Fund was held on
Monday, December 2, 1996, at the offices of Scudder, Stevens & Clark, Inc., 345
Park Avenue, New York, New York. The two matters voted upon by the shareholders
and the resulting votes for each matter are presented below.
1. The election of eight Trustees to hold office until their respective
successors shall have been duly elected and qualified.
<TABLE>
<CAPTION>
Trustee Number of Votes:
------- ----------------
<S> <C> <C> <C> <C>
For Witheld Broker Non-Votes*
--- ------- -----------------
Daniel Pierce 13,974,625 301,980 0
Paul Bancroft III 13,892,623 383,982 0
Thomas J. Devine 13,955,075 321,530 0
Keith R. Fox 13,965,701 310,905 0
Dudley H. Ladd 13,901,405 375,201 0
Dr. Wilson Nolen 13,963,510 313,096 0
Kathryn L. Quirk 13,911,929 364,676 0
Dr. Gordon Shillinglaw 13,956,033 320,572
</TABLE>
2. Ratification or rejection of the action taken by the Board of Trustees in
selecting Coopers & Lybrand L.L.P as independent accountants for the fiscal
year ending June 30, 1997.
<TABLE>
<CAPTION>
Number of Votes:
----------------
<S> <C> <C> <C> <C>
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
13,803,106 149,793 323,706 0
</TABLE>
- ----------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
25 - 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
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder 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 GNMA Fund
Scudder Income Fund
Scudder Zero Coupon 2000 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 Capital Growth Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Emerging Markets Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
SIMPLE 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 First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
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 from expected
least to most risk. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *Not available in all states. +++
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges.
26 - Scudder Development Fund
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services 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 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
Please address all correspondence to
- --------------------------------------------------------------------------------
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton Chicago San Francisco
Boston New York
For information on Scudder Treasurers Trust(TM), an institutional cash
management service for corporations, non-profit organizations and
trusts which utilizes certain portfolios of Scudder Fund, Inc.*
($100,000 minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds**, funds designed to
meet the broad investment management and service needs of banks and
other institutions, call: 1-800-854-8525.
- ----------
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus
with more complete information, including management fees and expenses. Please
read it carefully before you invest or send money.
27 - 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
