Scudder
Development
Fund
Semiannual Report
December 31, 1997
Pure No-Load(TM) Funds
A fund seeking long-term growth of capital by investing primarily in
securities of small and medium-size growth companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Development Fund
- --------------------------------------------------------------------------------
Date of Inception: 2/11/71 Total Net Assets as of Ticker Symbol: SCDVX
12/31/97: $859.5 million
- --------------------------------------------------------------------------------
o Small growth stocks staged a recovery in the summer and early fall, bolstered
by declining interest rates and rapid earnings gains.
o Scudder Development Fund recorded a double-digit increase in net asset value
in the third quarter of 1997 but gave back some of those gains in the fourth
quarter, ending the six-month period through December 31 with a 9.04% total
return.
o During the period, the Fund reduced exposure to companies affected by events
in Southeast Asia, while concentrating purchases on companies whose operations
do not depend upon foreign buyers.
o The Fund continues to eliminate holdings that exhibit fundamental weakness,
while investing in companies with solid records of earnings growth and the
potential for above-average gains in stock price.
Table of Contents
3 Letter from the Fund's President 20 Financial Highlights
4 Performance Update 21 Notes to Financial Statements
5 Portfolio Summary 25 Shareholder Meeting Results
6 Portfolio Management Discussion 28 Officers and Trustees
8 Glossary of Investment Terms 29 Investment Products and Services
9 Investment Portfolio 30 Scudder Solutions
17 Financial Statements
2 - Scudder Development Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Small growth stocks have enjoyed a dramatic recovery over the past several
months, against a backdrop of declining interest rates and solid earnings
growth. The Russell 2000 Growth Index rose nearly 40% from April to September
before the financial crisis in Southeast Asia rattled equity markets around the
world.
The investment community continues to speculate on the potential impact of
Asia's economic woes. As the situation worsened in October and November,
investors generally retreated from companies that might suffer from slackened
Asian demand, sending stock prices lower across a number of industries. As Fund
Managers Roy McKay and Peter Chin outline in the following letter, the Fund's
holdings are primarily domestic, with the bulk of their sales and earnings
coming from the United States. This domestic orientation served as a buffer in
the final months of 1997 when investor sentiment was at its worst, enabling the
Fund to outperform by a comfortable margin its benchmark index for the six
months.
With a cautious eye on the events unfolding in Asia, your Fund's managers
remain committed to investing in what they consider the best-available growth
stocks -- companies with solid records of earnings growth and the potential for
above-average gains in stock prices.
As you may know, we have been conducting extensive research to find out
your needs and preferences regarding materials we send to you. Recently, a
survey was sent to a sampling of shareholders to gauge satisfaction with the
funds' annual and semiannual reports. An impressive majority of respondents --
88% -- were satisfied or very satisfied with the reports. Respondents clearly
liked the question and answer format and the idea of including a glossary of
investment terms. We have already begun to implement these changes to the
reports, and you can expect that we will continue to make improvements based on
your feedback going forward.
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 December 31, 1997
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FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/97 $10,000 Cumulative Annual
- ---------------------------------------
SCUDDER DEVELOPMENT FUND
- ---------------------------------------
1 Year $ 10,693 6.93% 6.93%
5 Year $ 18,264 82.64% 12.80%
10 Year $ 42,786 327.86% 15.65%
20 Year $179,036 1,690.36% 15.52%
- ---------------------------------------
RUSSELL 2000 GROWTH INDEX
- ---------------------------------------
1 Year $ 11,285 12.85% 12.85%
5 Year $ 18,198 81.98% 12.71%
10 Year $ 35,406 254.06% 13.47%
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
- ---------------------------
'87 $10,000
'88 $11,105
'89 $13,684
'90 $13,886
'91 $23,860
'92 $23,426
'93 $25,497
'94 $24,135
'95 $36,363
'96 $40,013
'97 $42,786
RUSSELL 2000 GROWTH INDEX
Year Amount
- ---------------------------
'87 $10,000
'88 $12,036
'89 $14,463
'90 $11,943
'91 $18,056
'92 $19,456
'93 $22,060
'94 $21,523
'95 $28,198
'96 $31,327
'97 $35,406
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.
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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>
<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... $ 20.32 $ 22.69 $ 21.73 $ 36.23 $ 33.62 $ 33.51 $ 29.54 $ 40.12 $ 39.79 $ 38.55
CAPITAL GAINS
DIVIDENDS......... $ .42 $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07 $ 2.12 $ 4.20 $ 4.48 $ 3.88
FUND TOTAL
RETURN (%)........ 11.06 23.21 1.48 71.83 -1.82 8.84 -5.34 50.67 10.04 6.93
INDEX TOTAL
RETURN (%)........ 20.37 20.17 -17.41 51.19 7.77 13.36 -2.43 31.04 11.26 12.85
</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, 1997
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ASSET ALLOCATION
(Excludes 1% Cash Equivalents)
- ---------------------------------------------------------------------------
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.
The Fund is essentially fully invested
in small and medium size company stocks
with strong long-term growth potential.
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SECTOR DIVERSIFICATION
(Excludes 1% Cash Equivalents)
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Technology 19%
Service Industries 18%
Health 18%
Financial 16%
Consumer Discretionary 9%
Energy 8%
Manufacturing 5%
Durables 1%
Transportation 1%
Other 5%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's healthcare holdings are
focused on companies that have
developed advanced medical devices,
rather than caregivers such as HMOs.
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TEN LARGEST EQUITY HOLDINGS
(24% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. CINTAS CORP.
Uniform rentals
2. G & K SERVICES INC.
Uniform rentals
3. KEANE, INC.
Provider of computer software
project management & design
development services
4. ACCUSTAFF, INC.
National provider of temporary
staffing personnel
5. SYSTEMS & COMPUTER TECHNOLOGY CORP.
Computer software for educational
institutions
6. FIRST SECURITY CORP.
Commercial banking in western
states
7. IDX SYSTEMS CORP.
Provider of healthcare information
systems to physicians
8. COMPUTER HORIZONS CORP.
Diversified information technology
services and solutions
9. UNION PLANTERS CORP.
Commercial banking in Tennessee
10. FIRST AMERICAN CORP.
Regional commercial banking
Top holdings include a number of
providers of business services,
from uniform rentals to information
management systems.
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
We asked Roy C. McKay and Peter Chin, portfolio managers of Scudder Development
Fund, to discuss the market environment and the Fund's current strategy.
Q: How did Scudder Development Fund perform relative to its benchmark, the
Russell 2000 Growth Index, in the first half of its fiscal year?
A: The Fund's total return was 9.04%, versus an index return of 7.34% for the
first six months. Small growth stocks gained momentum over the summer but were
hit hard by the Asian financial crisis. As the crisis unfolded, the U.S. stock
market initially focused on the negative impact of faltering demand for U.S.
exports in Asian markets. The Fund fared relatively well during the downturn,
declining 5.68% versus an 8.19% drop in the Russell index, in part because
roughly 85% of the portfolio is invested in companies with purely U.S. sales and
earnings.
Q: What sectors and stocks helped boost performance?
A: Internet companies came back to life during the period, with sharp gains
posted by Lycos Inc. and CMG Information Services. Regional banks provided
strong performance, thanks to a wave of merger activity in some of the country's
fastest-growing areas. Computer service companies and specialty consumer stocks
also performed well, with double-digit gains by Analysts International, Keane
Inc., Authentic Specialty Foods, and Wet Seal Inc.
Q: What were some of the disappointments?
A: Sectors that underperformed included energy, semiconductor capital equipment,
and certain biotech companies. In the most recent quarter, for example, Triton
Energy fell 30%, Speedfam International 56%, and Guilford Pharmaceuticals
declined 32%.
Q: How would you characterize the current investment environment?
A: The situation is tricky. The stock market appears to be discounting a global
weakening of demand as the Asian crisis worsens and spreads to the Americas and
Europe. This sentiment has naturally triggered a flight to liquidity and
quality. In the United States, long-term interest rates appear headed below
5.50% as investors trade in equities and high-risk debt for Treasuries.
Usually, falling long-term rates produce higher valuations for growth stocks.
Also, a strong U.S. dollar tends to favor small-cap stocks because of their
domestic focus. As we expected, earnings of the companies in the portfolio grew
dramatically during the most recently reported quarter, up 47% on average.
Normally, a drop in rates combined with earnings growth of this magnitude would
produce superior absolute and relative performance. But the current environment
is not normal, and a flight to quality often favors large companies over small
ones. As the Asian crisis continues to unfold, we think caution is warranted.
Q: What's the Fund's strategy?
A: We have reduced export exposure to Asia via the sale of technology companies
such as Sawtek, Inc., a component supplier for cellular phones exported to
Korea. In addition, we reduced economically sensitive technology holdings via
6 - Scudder Development Fund
<PAGE>
the sale of Altera Semiconductor, Triquint Semiconductor, Integrated Systems,
Pairgain, Video Server, and Rational Software.
We also took steps to concentrate the portfolio in only those companies in which
we have the highest confidence in future earnings increases. Overall, the number
of holdings has dropped to 117 from 129 on June 30, and further reductions are
in progress. Purchases were and continue to be concentrated in U.S. companies
whose operations do not depend upon foreign buyers. In the current environment,
we prefer non-cyclical and non-capital-spending related companies.
Medical devices companies fit this bill. Thus, certain positions were augmented
on weakness during the period. A partial list includes Theragenics, the maker of
palladium "seeds" for the treatment of prostate cancer; Thermo Cardiac, the
developer and manufacturer of an insertable left ventricular assist pump; and
Steris Corp., the leading expert in hospital sterilization.
Specialized domestic service companies also meet our criteria. Computer Horizons
is benefiting from the need to reprogram computers for the year 2000 and beyond.
Checkpoint Software solves security requirements of companies building
intranets, extranets, and Internet commerce capabilities. IDX Services provides
computer software for hospitals and doctor groups. Investments in these
companies were increased during the period.
Q: How are you positioning the Fund going forward?
A: We remain committed to investing Scudder Development Fund's portfolio in what
we believe to be the best available small growth companies for long-term
appreciation. The current environment calls for caution. However, we believe
that once the Asian solution becomes more clear, the recovery in small stocks
that began in April should resume, fueled by low interest rates, improved
earnings growth, and an important cut in the capital gains tax rate.
7 - Scudder Development Fund
<PAGE>
Glossary of Investment Terms
EARNINGS The net income of a company. Earnings are an
important gauge of a company's health.
Primary earnings per share refers to net
income after preferred dividends, divided by
common shares outstanding plus the shares
that would be outstanding if common stock
equivalents were actually converted. Retained
earnings are the profits remaining in the
company after payment of preferred and common
stock dividends, and provide an important
source of capital for business expansion.
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.
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 CAPITALIZATION The market value of a company's outstanding
shares of 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.
PORTFOLIO The combined holdings by an individual or
institution of stocks, bonds, money-market
instruments, commodities, and other
securities.
STOCK The ownership of a corporation, represented
by shares that are a claim on the company's
assets and earnings. "Common" stock gives
investors voting rights in the company,
entitling them to vote on the election of
directors and other issues, either at
shareholder meetings or by proxy. "Preferred"
stock usually does not grant voting rights,
but preferred shareholders have a prior claim
on assets and earnings in the event of the
company's liquidation. Also, dividends must
be paid on preferred stock before being paid
on common stock.
VOLATILITY The tendency of a security, commodity, or
market to rise and fall in price over time.
Volatility is inherent in almost all
investments but differs in degree from
investment to investment and from market to
market. For example, in the United States,
money-market mutual funds strive to maintain
a fixed price and thus experience very little
volatility, if any. By comparison, stocks can
be very volatile.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
8 - Scudder Development Fund
<PAGE>
Investment Portfolio as of December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.2%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/97 at 6.5%,
to be repurchased at $9,966,598 on 1/2/98, collateralized by a $9,935,000 U.S. ------------
Treasury Note, 6.25%, 5/31/99 (Cost $9,963,000) ....................................... 9,963,000 9,963,000
------------
Convertible Bonds 0.2%
- ------------------------------------------------------------------------------------------------------------------------------
Health 0.1%
Pharmaceuticals
North American Vaccine, Inc., 6.5%, 5/1/03 .............................................. 1,000,000 1,043,750
------------
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 ................................................................ 923,000 982,995
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,321,985) 2,130,745
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 0.7%
- ------------------------------------------------------------------------------------------------------------------------------
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 0.3%
HYSEQ Inc. "A" (Genetic biotechnology company) (b)(c) ................................... 336,000 2,587,200
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $4,599,995) 5,787,195
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 97.9%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 8.5%
Apparel & Shoes 1.1%
St. John Knits Inc. (Manufacturer of woman's clothing) .................................. 248,200 9,928,000
------------
Hotels & Casinos 0.7%
Anchor Gaming* (Operator of gaming machines and casinos) ................................ 97,600 5,441,196
Shuffle Master, Inc.* (Manufacturer of automatic card shuffling systems for
gaming operations) ................................................................... 28,000 196,000
------------
5,637,196
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - Scudder Development Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Recreational Products 2.5%
Electronic Arts Inc.* (Developer and marketer of entertainment software) ................ 191,400 7,237,313
Family Golf Centers, Inc.* (Operator of golf-related recreational facilities) ........... 463,700 14,548,588
------------
21,785,901
------------
Restaurants 0.5%
Dave & Buster's, Inc.* (Operator of restaurant/entertainment complexes) ................. 204,000 4,590,000
------------
Specialty Retail 3.7%
Viking Office Products Inc.* (Direct marketer of office supplies) ....................... 662,800 14,457,325
West Marine, Inc.* (Retailer of recreational and commercial boating supplies and
apparel) .............................................................................. 206,000 4,609,250
Wet Seal, Inc. "A"* (Specialty retailer of moderately priced casual apparel for
young women) .......................................................................... 224,700 6,628,650
Wilmar Industries, Inc.* (National distributor of repair and maintenance
products for the apartment housing market) ............................................ 284,200 6,785,275
------------
32,480,500
------------
Consumer Staples 1.4%
Food & Beverage
Authentic Specialty Foods, Inc.* (Producer and distributor of Mexican foods) ............ 190,400 2,594,200
Robert Mondavi Corp. "A"* (Premium wine producer) ....................................... 14,400 702,000
Suiza Foods Corp.* (Food distributor) ................................................... 150,000 8,934,375
------------
12,230,575
------------
Health 16.2%
Biotechnology 3.3%
Alexion Pharmaceuticals, Inc.* (Developer of immunoregulatory compounds) (e) ............ 484,600 6,057,500
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of
benign vascular lesions) .............................................................. 252,900 9,799,875
Ligand Pharmaceuticals "B" (Developer of drugs to regulate hormone activated
receptors) ............................................................................ 151,400 1,949,275
Neoprobe Corp.* (Research and development of a system for diagnosis and
treatment of cancer) .................................................................. 751,062 4,506,372
Norland Medical Systems, Inc.* (Marketer of systems used in diagnosis of bone
disorders). ........................................................................... 277,100 2,078,250
Protein Design Labs, Inc. (Developer of human and humanized antibodies) ................. 94,400 3,776,000
------------
28,167,272
------------
Health Industry Services 2.3%
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) .................................................. 480,500 17,778,500
Ventana Medical Systems, Inc.* (Manufacturer of automated medical test systems
for cell and tissue analysis) ......................................................... 145,700 2,221,925
------------
20,000,425
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Development Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hospital Management 1.2%
Assisted Living Concepts, Inc.* (Operator of assisted living residences) ................ 315,600 6,233,100
Atria Communities, Inc.* (Provider of assisted and independent living communities
for the elderly) ...................................................................... 222,000 3,801,750
------------
10,034,850
------------
Medical Supply & Specialty 5.4%
ArthroCare Corp.* (Manufacturer of orthopedic surgery equipment) ........................ 10,000 131,250
Closure Medical Corp.* (Manufacturer of medical adhesive products) ...................... 222,300 5,752,013
Endosonics Corp.* (Manufacturer of imaging catheters) ................................... 343,200 3,689,400
ICU Medical Inc.* (Designer, manufacturer and marketer of proprietary disposable
medical products) (e) ................................................................. 496,100 6,139,238
Novoste Corp.* (Developer of a beta radiation catheter delivery system) ................. 41,900 942,750
PLC Systems Inc.* (Developer, manufacturer and marketer of medical laser systems) ....... 365,600 3,039,050
Perclose, Inc. (Developer and producer of minimally invasive single-use systems
to close arterial access sites surgically) ............................................ 247,800 4,770,150
STERIS Corp.* (Manufacturer of sterile processing systems) .............................. 218,000 10,518,500
Theragenics Corp.* (Manufacturer of device for treatment of prostate cancer) ............ 115,700 4,165,200
Thermo Cardiosystems, Inc.* (Manufacturer of implantable heart assisting devices) ....... 274,200 7,334,850
------------
46,482,401
------------
Pharmaceuticals 4.0%
Agouron Pharmaceuticals, Inc.* (Developer of therapeutic and synthetic drugs for
treatment of cancer and other diseases) ............................................... 164,300 4,826,313
Guilford Pharmaceuticals, Inc.* (Research and development of therapeutic and
diagnostic drugs) ..................................................................... 114,900 2,312,363
Immunex Corp.* (Biopharmaceutical company) .............................................. 106,700 5,761,800
North American Vaccine, Inc.* (Developer of immunological products) ..................... 286,700 7,149,581
Noven Pharmaceuticals, Inc.* (Transdermal drug delivery systems) ........................ 471,500 3,300,500
PathoGenesis Corp.* (Developer of drugs for treatment of serious infectious
diseases) ............................................................................. 300,000 11,137,500
------------
34,488,057
------------
Communications 0.4%
Telephone/Communications
General Communication, Inc. "A"* (Telecommunication services) ........................... 464,400 3,076,650
------------
Financial 15.8%
Banks 15.0%
CCB Financial Corp. (Commercial bank providing retail, commercial, mortgage and
construction loans) ................................................................... 141,100 15,168,250
First American Corp. (Regional commercial banking) ...................................... 323,400 16,089,150
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Development Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Security Corp. (Commercial banking in western states) ............................. 430,800 18,039,750
First Virginia Banks, Inc.* (Commercial and mortgage banking and insurance) ............. 307,200 15,878,400
Imperial Bancorp (Merchant card transaction processing, trust and custodial
services, international trade and foreign exchange services) .......................... 254,100 12,530,306
Magna Group, Inc. (Commercial banking and financial services) ........................... 236,100 10,801,575
Silicon Valley Bancshares* (Commercial bank holding company) ............................ 100,000 5,625,000
Sovereign Bancorp, Inc. (Commercial bank holding company) ............................... 154,900 3,214,175
Union Planters Corp. (Commercial banking in Tennessee) .................................. 250,000 16,984,375
Zions Bancorp (Commercial banking in Utah) .............................................. 337,800 15,327,675
------------
129,658,656
------------
Insurance 0.8%
Fremont General Corp. (Insurance and financial services) ................................ 105,500 5,776,125
Meadowbrook Insurance Group. Inc. (Insurance holding company) ........................... 41,300 1,076,381
------------
6,852,506
------------
Media 0.8%
Advertising
Outdoor Systems, Inc.* (Outdoor advertising company) .................................... 173,475 6,657,103
------------
Service Industries 19.8%
EDP Services 8.0%
Analysts International Corp. (Contract programming and software services) ............... 254,250 8,771,625
Computer Horizons Corp.* (Diversified information technology services and
solutions) ............................................................................ 383,350 17,250,750
Keane, Inc.* (Provider of computer software project management and design
development services) ................................................................. 600,800 24,407,500
Systems & Computer Technology Corp.* (Computer software for educational
institutions) ......................................................................... 370,300 18,376,138
------------
68,806,013
------------
Miscellaneous Commercial Services 11.8%
AccuStaff, Inc.* (National provider of temporary staffing personnel) .................... 912,852 20,995,596
Apollo Group, Inc.* (Provider of higher education programs for working adults) .......... 200,000 9,450,000
CMG Information Services, Inc. (Developer of information-based products and
services for direct marketing) ........................................................ 175,000 5,293,750
Cintas Corp. (Uniform rentals) .......................................................... 753,400 29,382,600
Copart, Inc.* (Auctioneer of damaged vehicles for insurance companies) .................. 342,800 6,127,550
G & K Services Inc. "A" (Uniform rentals) ............................................... 675,000 28,350,000
Veterinary Centers of America, Inc.* (Owner and manager of veterinary hospitals) ........ 219,700 2,952,219
------------
102,551,715
------------
</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>
Durables 1.2%
Aerospace 0.5%
Simula, Inc.* (Development and production of transportation safety products) ............ 303,800 4,651,938
------------
Telecommunications Equipment 0.7%
CIENA Corp.* (Manufacturer of dense wavelength multiplexing systems for
fiberoptic telecommunication networks) ................................................ 100,000 6,112,500
------------
Manufacturing 5.1%
Containers & Paper 2.1%
Aptargroup, Inc* (Manufacturer of packaging equipment components). ...................... 124,700 6,920,850
Sealed Air Corp.* (Protective packaging material) ....................................... 176,400 10,892,700
------------
17,813,550
------------
Electrical Products 1.9%
Advanced Lighting Technologies, Inc.* (Manufacturer of metal halide lighting
products) ............................................................................. 409,500 7,780,500
American Power Conversion Corp.* (Manufacturer of backup power supply products) ......... 188,000 4,441,500
Anadigics, Inc.* (Supplier of radio and microwave frequency integrated circuits
for use in television and telecommunication applications) ............................. 133,000 4,006,625
------------
16,228,625
------------
Industrial Specialty 0.0%
Lydall, Inc.* (Engineered fiber materials) .............................................. 21,600 421,200
------------
Office Equipment/Supplies 1.1%
Encad, Inc.* (Manufacturer of large format color inkjet printers) ....................... 360,700 9,919,250
------------
Technology 14.9%
Computer Software 8.0%
Advent Software, Inc.* (Provider of stand-alone and client/server software
products) ............................................................................. 242,000 6,927,250
CBT Group PLC (ADR)* (Developer and publisher of software focusing on
client/server technologies) ........................................................... 94,100 7,727,963
JDA Software Group, Inc.* (Comprehensive software solutions for management of
retailing information) ................................................................ 150,100 5,253,500
Lycos, Inc.* (Developer of online guides to the Internet) ............................... 32,756 1,355,280
Parametric Technology Corp.* (Mechanical design software producer) ...................... 153,900 7,291,013
Project Software & Development, Inc.* (Developer of software used for management
of equipment maintenance) ............................................................. 203,100 4,772,850
SeaChange International, Inc.* (Manufacturer of software-based products for
management and distribution of digital video for television and
telecommunication companies) .......................................................... 398,800 2,841,450
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 13,120,250
</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>
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) ............................................................................. 210,000 8,071,875
Synopsys Inc.* (Developer of high level electronic design software) ..................... 253,800 9,073,350
Technology Modeling Associates, Inc.* (Physical simulation software for
integrated circuit design and manufacturing) .......................................... 66,500 706,563
Vantive Corp.* (Provider of customer interaction applications software) ................. 61,100 1,542,775
------------
68,684,119
------------
Diverse Electronic Products 0.2%
KLA Tencor Corp.* (Developer, manufacturer and marketer of automated image
processing systems) ................................................................... 46,400 1,792,200
------------
EDP Peripherals 1.6%
Network Appliance, Inc.* (Designer and manufacturer of network data storage
devices) .............................................................................. 375,000 13,312,500
------------
Electronic Components/Distributors 1.3%
Adaptec Inc.* (Manufacturer of computer data flow systems) .............................. 75,000 2,784,370
Kent Electronics Corp.* (Distributor of electronic connectors, wire and cable,
components and assemblies) ............................................................ 148,900 3,741,113
Uniphase Corp.* (Manufacturer of laser subsystems, semiconductor wafer defect
examination and analysis equipment) ................................................... 122,100 5,051,888
------------
11,577,371
------------
Office/Plant Automation 0.5%
Cognex Corp.* (Manufacturer of machine vision systems) .................................. 140,000 3,815,000
------------
Semiconductors 3.3%
ASM Lithography Holding NV (Manufacturer of photolithography projection systems) ........ 115,100 7,769,250
Cymer, Inc. (Provider of laser illumination sources for ultra-violet
photolithography systems) ............................................................. 234,800 3,522,000
DuPont Photomasks, Inc.* (Manufacturer of photomasks used in semiconductor
production) ........................................................................... 74,700 2,605,163
GaSonics International Corp.* (Manufacturer of photoresist removal equipment) ........... 247,600 2,445,050
SpeedFam International, Inc.* (Manufacturer of chemical mechanical polishing
systems used for fabrication of semiconductor devices) ................................ 118,200 3,132,300
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) .............. 230,250 8,691,938
------------
28,165,701
------------
Energy 7.6%
Oil & Gas Production 3.3%
Barrett Resources Corp.* (Oil and gas exploration and production) ....................... 388,200 11,743,050
KCS Energy, Inc. (Crude oil and natural gas exploration, development and
production) ........................................................................... 174,000 3,610,500
St. Mary Land & Exploration Co. (Oil and gas exploration, development and
production) ........................................................................... 213,700 7,479,500
Triton Energy Ltd.* (Independent oil and gas exploration and production company) ........ 202,250 5,903,172
------------
28,736,222
------------
</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>
Oilfield Services/Equipment 4.3%
Global Industries Ltd.* (Pipeline construction, derrick and diving services for
offshore oil and gas industry) ........................................................ 600,000 10,200,000
Newpark Resources, Inc.* (Environmental management and oilfield construction
services) ............................................................................. 615,400 10,769,500
Superior Energy Services, Inc.* (Oilfield products and services provider) ............... 106,100 1,074,263
Transocean Offshore Inc.* (Contract drilling services of offshore oil and gas
wells) ................................................................................ 310,000 14,938,125
------------
36,981,888
------------
Metals & Minerals 0.6%
Steel & Metals
RMI Titanium Co.* (Manufacturer of titanium products) ................................... 263,700 5,274,000
------------
Construction 1.2%
Building Materials
Simpson Manufacturing Co., Inc.* (Manufacturer of wood-to-wood, wood-to-concrete
and wood-to-masonry connectors) ....................................................... 318,600 10,613,363
------------
Transportation 1.4%
Air Freight 0.5%
Expeditors International of Washington, Inc.* (Air and ocean freight forwarding,
customs clearance, cargo insurance and logistical services) ........................... 118,700 4,569,950
------------
Marine Transportation 0.9%
Trico Marine Services, Inc.* (Provider of marine support services for offshore
oil and gas exploration and production operations) .................................... 266,300 7,822,563
------------
Other 3.0%
Miscellaneous Securities ................................................................ 26,387,963
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $528,772,981) 846,307,723
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $545,657,961) (a) 864,188,663
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $546,059,041. At December 31,
1997, net unrealized appreciation for all securities based on tax cost was
$318,129,622. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$345,951,122 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $27,821,500.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $5,891,195 (.69% of net assets). Their
values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at December 31, 1997 aggregated $4,817,495. These securities may
also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
15 - Scudder Development Fund
<PAGE>
- --------------------------------------------------------------------------------
(c) Restricted Securities -- securities which have not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.
Information concerning such restricted securities at December 31, 1997 is as
follows were:
Security Acquisition Date Cost ($)
-------- ---------------- --------
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
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
(e) Affiliated Issuer (See Notes to FInancial Statements)
The accompanying notes are an integral part of the financial statements.
16 - Scudder Development Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market:
Unaffiliated issuers (identified cost $535,156,664) .............. $ 849,404,725
Affiliated issuers (identified cost $10,501,297) ................. 14,783,938
----------------
Total investments, at market (identified cost $545,657,961) ......... 864,188,663
Cash ................................................................ 820
Receivable for investments sold ..................................... 527,323
Receivable for Fund shares sold ..................................... 2,521,186
Dividends and interest receivable ................................... 276,606
Foreign taxes recoverable ........................................... 2,164
Other assets ........................................................ 4,660
----------------
Total assets ........................................................ 867,521,422
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................... 1,468,162
Payable for Fund shares redeemed .................................... 5,380,699
Accrued management fee .............................................. 723,855
Other payables and accrued expenses ................................. 487,145
----------------
Total liabilities ................................................... 8,059,861
-------------------------------------------------------------------------------------------
Net assets, at market value $ 859,461,561
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss ..................................... (4,106,766)
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 318,530,702
Foreign currency related transactions ............................ (2,928)
Accumulated net realized gain ....................................... 14,374,703
Paid-in capital ..................................................... 530,665,850
-------------------------------------------------------------------------------------------
Net assets, at market value $ 859,461,561
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($859,461,561 / 22,293,636 outstanding shares of beneficial
interest, $.01 par value, unlimited number of ----------------
shares authorized) .................................................. $38.55
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Development Fund
<PAGE>
Statement of Operations
six months ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends ........................................................... $ 1,933,896
Interest ............................................................ 305,375
-----------------
2,239,271
-----------------
Expenses:
Management fee ...................................................... 4,432,925
Services to shareholders ............................................ 1,538,056
Custodian and accounting fees ....................................... 121,256
Trustees' fees and expenses ......................................... 19,688
Reports to shareholders ............................................. 108,744
Registration fees ................................................... 29,808
Auditing ............................................................ 23,184
Legal ............................................................... 11,224
Other ............................................................... 61,152
-----------------
6,346,037
--------------------------------------------------------------------------------------------
Net investment loss (4,106,766)
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments -- Unaffiliated issuers ................................. 31,174,714
Investments -- Affiliated issuers ................................... (181,115)
-----------------
30,993,599
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 51,375,269
Foreign currency related transactions ............................... (2,729)
-----------------
51,372,540
--------------------------------------------------------------------------------------------
Net gain on investment transactions 82,366,139
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 78,259,373
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Development Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended
1997 June 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment loss ............................................ $ (4,106,766) $ (9,394,013)
Net realized gain from investment transactions ................. 30,993,599 65,674,991
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. 51,372,540 (110,480,305)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .................................................. 78,259,373 (54,199,327)
---------------- ----------------
Distributions to shareholders from net realized gains .......... (78,146,533) (103,800,648)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ...................................... 289,842,682 437,599,929
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 74,979,135 98,959,399
Cost of shares redeemed ........................................ (367,037,235) (557,283,948)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................ (2,215,418) (20,724,620)
---------------- ----------------
Increase (decrease) in net assets .............................. (2,102,578) (178,724,595)
Net assets at beginning of period .............................. 861,564,139 1,040,288,734
Net assets at end of period (including accumulated net ---------------- ----------------
investment loss of $4,106,766 at December 31, 1997) ......... $ 859,461,561 $ 861,564,139
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ...................... 22,081,273 22,833,256
---------------- ----------------
Shares sold .................................................... 6,873,162 11,250,824
Shares issued to shareholders in reinvestment of
distributions ............................................... 2,003,718 2,413,215
Shares redeemed ................................................ (8,664,517) (14,416,022)
---------------- ----------------
Net increase (decrease) in Fund shares ......................... 212,363 (751,983)
---------------- ----------------
Shares outstanding at end of period ............................ 22,293,636 22,081,273
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - 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,
1997(b)
(Unaudited) 1997(b) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, -------------------------------------------------------------------------------------------------------
beginning of period ... $39.02 $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25 $22.54
Income from investment -------------------------------------------------------------------------------------------------------
operations:
Net investment loss ...... (.19) (.40) (.38) (.31) (.30) (.27) (.23) (.10) (.08)
Net realized and
unrealized gain
(loss) on investment
transactions .......... 3.60 (1.66) 12.79 12.20 (3.63) 6.63 3.78 2.41 6.07
Total from investment -------------------------------------------------------------------------------------------------------
operations ............ 3.41 (2.06) 12.41 11.89 (3.93) 6.36 3.55 2.31 5.99
Less distributions from -------------------------------------------------------------------------------------------------------
net realized gains
on investment
transactions .......... (3.88) (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28)
-------------------------------------------------------------------------------------------------------
Total distributions ...... (3.88) (4.48) (4.20) (2.12) (3.07) (1.70) (.96) (1.23) (2.28)
-------------------------------------------------------------------------------------------------------
Net asset value, -------------------------------------------------------------------------------------------------------
end of period ......... $38.55 $39.02 $45.56 $37.35 $27.58 $34.58 $29.92 $27.33 $26.25
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ......... 9.04** (4.93) 35.26 45.41 (12.91) 22.28 12.83 10.32 28.50
Ratios and Supplemental
Data
Net assets, end of
period ($ millions) ... 859 862 1,040 727 546 821 700 476 361
Ratio of operating
expenses to average
daily net assets (%)... 1.40* 1.36 1.24 1.32 1.27 1.30 1.30 1.29 1.34
Ratio of net investment
loss to average daily
net assets (%) ........ (.91)* (1.02) (.91) (1.01) (.91) (.83) (.70) (.40) (.35)
Portfolio turnover
rate (%) .............. 55.4* 52.2 58.8 41.6 48.3 49.2 53.5 70.8 40.1
Average commission rate
paid (a) .............. $.0514 $.0355 $.0554 $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
1989(b) 1988
- ----------------------------------------------
Net asset value, ----------------
beginning of period ... $22.00 $25.39
Income from investment ----------------
operations:
Net investment loss ...... (.10) (.08)
Net realized and
unrealized gain
(loss) on investment
transactions .......... 1.06 (1.41)
Total from investment ----------------
operations ............ .96 (1.49)
Less distributions from ----------------
net realized gains
on investment
transactions .......... (.42) (1.90)
----------------
Total distributions ...... (.42) (1.90)
----------------
Net asset value, ----------------
end of period ......... $22.54 $22.00
- ----------------------------------------------
Total Return (%) ......... 4.66 (5.35)
Ratios and Supplemental
Data
Net assets, end of
period ($ millions) ... 275 356
Ratio of operating
expenses to average
daily net assets (%)... 1.32 1.30
Ratio of net investment
loss to average daily
net assets (%) ........ (.47) (.44)
Portfolio turnover
rate (%) .............. 32.0 39.2
Average commission rate
paid (a) .............. $ -- $ --
(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
20 - 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 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 most recent 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.
Portfolio debt securities other than money market securities with an original
maturity over sixty days are valued by pricing agents approved by the officers
of the Fund, which quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
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,
1997, amounted to $5,891,195 which represents .69% 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.
21 - Scudder Development Fund
<PAGE>
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, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to tax equalization and investments in certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the six months ended December 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $245,885,136 and
$334,012,941, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Agreement, which is effective December 31, 1997, is the same in all material
respects as the corresponding previous Investment Management Agreement, except
that Scudder Kemper is the new investment adviser to the Fund.
22 - Scudder Development Fund
<PAGE>
Under the Management Agreement with Scudder Kemper, 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. For
the six months ended December 31, 1997, the fee pursuant to these agreements
amounted to $4,432,925, which was equivalent to an annual effective rate of .98%
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, 1997, the amount charged by SSC aggregated
$730,593, of which $115,560 is unpaid at December 31, 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. For the six months ended
December 31, 1997, the Special Servicing Agreement expense charged to the Fund
amounted to $63,848.
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, 1997, the amount charged to the Fund by STC aggregated $566,557, of which
$97,587 is unpaid at December 31, 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 six months
ended December 31, 1997, the amount charged to the Fund by SFAC aggregated
$64,124 of which $10,819 is unpaid at December 31, 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 six months ended December 31, 1997, Trustees' fees and expenses aggregated
$19,688.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates for the six months ended December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alexion Pharmaceuticals, Inc. 959,117 -- -- 6,057,500
ICU Medical, Inc. -- 767,888 -- 6,139,238
------------- ------------- ------------- -------------
959,117 767,888 -- 12,196,738
============= ============= ============= =============
</TABLE>
23 - Scudder Development Fund
<PAGE>
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.
24 - Scudder Development Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Development Fund
(the "Fund") was held on October 27, 1997, at the office of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), 345 Park Avenue (at
51st Street), New York, New York 10154. At the Meeting, as adjourned and
reconvened, the following matters were voted upon by the shareholders (the
resulting votes for each matter are presented below). With regard to certain
proposals, it was recommended that the Meeting be reconvened in order to provide
shareholders with an additional opportunity to return their proxies. The date of
the reconvened meeting at which the matters were decided is noted after the
proposed matter.
1. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Paul Bancroft III 10,805,186 399,599
Sheryle J. Bolton 10,807,981 396,804
William T. Burgin 10,810,240 394,545
Thomas J. Devine 10,804,484 400,301
Keith R. Fox 10,810,952 393,833
William H. Luers 10,803,961 400,824
Wilson Nolen 10,804,678 400,107
Daniel Pierce 10,810,516 394,269
Kathryn L. Quirk 10,791,800 412,985
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
10,587,382 367,680 249,723 650,439
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
11,099,268 793,451 451,902 468,781
25 - Scudder Development Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
11,193,851 708,915 441,855 468,781
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Diversification 9,561,608 571,330 421,408 650,439
5.2 Borrowing 9,519,183 615,109 420,054 650,439
5.3 Senior securities 9,561,165 573,661 419,520 650,439
5.4 Concentration 9,557,278 579,012 418,056 650,439
5.5 Underwriting of securities 9,567,950 568,579 417,817 650,439
5.6 Investment in real estate 9,562,068 521,790 470,488 650,439
5.7 Purchase of physical 9,555,853 524,815 473,678 650,439
commodities
5.8 Lending 9,554,848 523,040 476,458 650,439
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
10,751,818 171,329 281,638
* 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.
26 - Scudder Development Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Development Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and
Consultant
Sheryle J. Bolton
Trustee; Chief Executive Officer,
Scientific Learning Corporation
William T. Burgin
Trustee; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital
Management Corporation
William H. Luers
Trustee; President, Metropolitan
Museum of Art
Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
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
Thomas F. McDonough*
Vice President and Secretary
Roy C. McKay*
Vice President
Edward J. O'Connell*
Vice President and Assistant
Treasurer
Thaddeus Paluszek*
Vice President
Caroline Pearson*
Vice President
Peter Taylor*
Vice President
*Scudder Kemper Investments, Inc.
28 - 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
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
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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 Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.
29 - 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 money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 previously designated.
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
- ------------------------------------------------------------------------------------------------------------------------------
30 - 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
</TABLE>
31 - Scudder Development Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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