Scudder
Development
Fund
Semiannual Report
December 31, 1998
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
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Date of Inception: 2/11/71 Total Net Assets as of Ticker Symbol: SCDVX
12/31/98: $770 million
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o Scudder Development Fund's essentially flat return reflects the difficult
environment for small-caps as the portfolio was graduallyrepositioned into
mid-cap stocks over the six-month period ended December 31, 1998.
o The Fund outperformed the unmanaged Russell 2000 Growth Index for the full six
months and the S&P MidCap 400 Index by a significant margin in both November and
December.
o Management continued to minimize exposure to companies that it believed could
be impacted by an economic slowdown while emphasizing U.S. companies that stand
to benefit from the aging of baby boomers and companies with unique products and
services.
Table of Contents
3 Letter from the Fund's President 19 Financial Highlights
4 Performance Update 20 Notes to Financial Statements
5 Portfolio Summary 24 Shareholder Meeting Results
6 Portfolio Management Discussion 28 Officers and Trustees
9 Glossary of Investment Terms 29 Investment Products and Services
10 Investment Portfolio 30 Scudder Solutions
16 Financial Statements
2 - Scudder Development Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The U.S. equity markets achieved another year of strong returns, with a
handful of large-cap growth stocks making a significant contribution to the
market-cap-weighted indices such as the S&P 500. A healthy U.S. economy,
declining interest rates, nonexistent inflation and strong deflationary forces
provided a generally favorable environment for equity investors. It seemed that
investors were willing to pay any price for large growth companies with earnings
perceived to be bullet-proof. This resulted in weak returns for small- and
mid-cap stocks, despite attractive growth rates and solid fundamentals for many
of these companies.
Scudder Development Fund has made a number of significant strides over the
six months as the Fund's managers, Kurt Stalzer and David Burshtan, have
continued to add more mid-cap names to the portfolio's holdings. While six
months is a relatively short period of time to implement a revised strategy,
they have had a number of successes over the period. A complete discussion of
their investment strategy begins on page 6.
As we ponder another year of strong performance in the stock markets, and
what lies ahead, we believe the importance of diversification cannot be
overstated. This straightforward principle is particularly significant following
nearly eight consecutive years of strong returns in the domestic equity markets.
Investors can be easily lulled into believing that 20% or higher returns every
year are normal while long-run returns have averaged about half that amount. The
U.S. stock market may record another period of strong performance in 1999;
nevertheless, we believe that investors with adequate exposure to several asset
classes, such as fixed income, small-cap, and international equities, will be
the most successful over the long term.
For those of you who are interested in new Scudder products, we recently
introduced two funds which employ portfolio strategies that are designed to
minimize tax consequences to investors: Scudder Tax Managed Growth Fund -- which
seeks long-term growth of capital through equity investments in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund -- which
focuses on small-cap stocks. For further information on these new funds, please
call Scudder Investor Relations at 1-800-225-2470, or visit our Web site at
www.scudder.com.
Thank you for your continued investment in Scudder Development Fund.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President, Scudder Development Fund
3 - Scudder Development Fund
<PAGE>
Performance Update as of December 31, 1998
- ---------------------
Fund Index Comparison
- ---------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
- ---------------------------------------------------
Scudder Development Fund
- ---------------------------------------------------
1 Year $ 10,801 8.01% 8.01%
5 Year $ 18,125 81.25% 12.63%
10 Year $ 41,612 316.12% 15.32%
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Russell 2000 Growth Index
- ---------------------------------------------------
1 Year $ 10,123 1.23% 1.23%
5 Year $ 16,261 62.61% 10.21%
10 Year $ 29,804 198.04% 11.53%
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Russell 2000 Growth Index Scudder Development Fund
------------------------- ------------------------
'88 10000 10000
'89 12017 12321
'90 9923 12503
'91 15002 21484
'92 16165 21094
'93 18329 22959
'94 17883 21732
'95 23429 32743
'96 26068 36030
'97 29441 38526
'98 29804 41613
Yearly periods ended December 31
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
- ---------------------------------
Yearly Periods Ended December 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 | 1998*
- ------------------------------------------------------------------------------------------------------------------------|----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 22.69 $ 21.73 $ 36.23 $ 33.62 $ 33.51 $ 29.54 $ 40.12 $ 39.79 $ 38.55 | $ 37.37
- ------------------------------------------------------------------------------------------------------------------------|----------
Capital Gains Distributions $ 2.28 $ 1.23 $ .96 $ 1.70 $ 3.07 $ 2.12 $ 4.20 $ 4.48 $ 3.88 | $ 3.75
- ------------------------------------------------------------------------------------------------------------------------|----------
Fund Total Return (%) 23.21 1.48 71.83 -1.82 8.84 -5.34 50.67 10.04 6.93 | 8.01
- ------------------------------------------------------------------------------------------------------------------------|----------
Index Total Return (%) 20.17 -17.41 51.19 7.77 13.36 -2.43 31.04 11.26 12.85 | 1.23
- ------------------------------------------------------------------------------------------------------------------------|----------
</TABLE>
* Effective July 1, 1998, the Fund adopted its current objective to seek
long-term growth of capital by investing primarily in medium-sized companies
with the potential for sustainable above-average earning growth. Prior to that
date, the Fund's investment objective was to seek long-term growth of capital by
investing primarily in securities of small and medium-sized growth companies.
Since adopting its current objective, the cumulative return is -0.32%.
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.
4 - Scudder Development Fund
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Portfolio Summary as of December 31, 1998
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Asset Allocation
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Common Stocks 93%
Cash Equivalents 6%
Convertible Securities 1%
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100%
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The Fund pursued a fully invested approach to investing in
small- and mid-cap stocks.
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Sector Diversification
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Technology 22%
Health 21%
Service Industries 21%
Financial 13%
Consumer Discretionary 8%
Media 4%
Manufacturing 4%
Construction 3%
Energy 2%
Other 2%
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100%
---------------------------------------------
Management increased diversification through representation
in nearly all industry sectors.
- ---------------------------
Ten Largest Equity Holdings
(26% of Portfolio)
- ---------------------------
1. Cintas Corp.
Uniform rentals
2. Network Appliance Inc.
Designer and manufacturer of network
data storage devices
3. CMG Information Services, Inc.
Developer of information-based
products and services for direct
marketing
4. PathoGenesis Corp.
Developer of drugs for treatment of
serious infectious diseases
5. AmeriSource Health Corp.
Distributor of wholesale
pharmaceutical and related products
6. Bergen Brunswig Corp.
Supplier of pharmaceuticals and health
care products
7. CCB Financial Corp.
Commercial bank providing retail,
commercial, mortgage and construction
loans
8. Zions Bancorp
Commercial banking in Utah
9. Solectron Corp.
Manufacturer of computer products and
subsystems
10. Biogen Inc.
Biotechnology research and development
company
The Fund held significant individual positions while
limiting overall exposure to specific industry categories.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Development Fund
<PAGE>
Portfolio Management Discussion
We asked portfolio managers Kurt R. Stalzer and David H. Burshtan to discuss the
market environment for small- and mid-cap growth stocks and their investment
strategy for the six-month period ended December 31, 1998.
Q: Large-cap growth stocks dominated performance over the six months. Where did
that leave small- and mid-cap growth stocks?
It was an interesting period for small and mid-cap stocks to say the least. The
August market correction, which really began in July with Russia's currency
devaluation and debt moratorium, shook the market's confidence and sent
investors in search of the most liquid and highest quality investments. The
events of the period impacted small-caps more than large-caps due to the
perception of limited liquidity and lower quality in the small-cap area. For the
six months, small-caps declined 7.12% overall as measured by the unmanaged
Russell 2000 Index. The Russell 2000 Growth Index, a benchmark of small growth
stocks and the Fund's benchmark, declined less with a return of -3.99%.
While most shareholders know that the market rebounded strongly in the fourth
quarter, few may realize that by some measures, mid-cap stocks actually edged
out the unmanaged S&P 500 Index for the six-month period. The S&P MidCap 400
Index, an unmanaged index of mid-cap stocks, returned 9.64% for the six months
to edge out the 9.23% for the S&P 500. Most of this advantage can be attributed
to the 12.08% return of the S&P MidCap 400 Index in December, versus the
comparatively modest 5.76% return for the S&P 500 for the same month.
Q: How did the Fund perform?
The implementation of our revised investment strategy (outlined in our June 30,
1998 report to shareholders) came at a difficult time, as the market's wide
gyrations accentuated the Fund's exposure to smaller-cap issues, which were
among the most volatile and weakest performers over the period. In the third
calendar quarter, as the market was both plummeting and rebounding sharply from
one day to the next, we were in the process of increasing the portfolio's median
market capitalization, reducing the number of holdings, and attempting to invest
in stocks that meet our "growth at a reasonable price" discipline.
We continued this process on a gradual basis into the fourth quarter, but the
portfolio was not fully repositioned in mid-cap stocks until the end of the
year. While the Fund outperformed the Russell 2000 Growth Index, it trailed the
strong performance of the S&P MidCap 400 Index, reflecting the portfolio's
transition from small- to mid-cap stocks. We now believe that the portfolio is
well positioned to participate in the many opportunities we foresee in the
mid-cap area. In fact, the portfolio has already delivered some promising
performance in January.
Q: In positioning the Fund's holdings, what is your investment philosophy?
We seek long-term growth of capital by investing primarily in securities of
medium-sized growth companies. We believe superior returns can be achieved by
investing in undervalued growth stocks of superior quality companies that have
sustainable above-average earnings growth. In other words, we attempt to buy
6 - Scudder Development Fund
<PAGE>
growth at a reasonable price. We search for franchise businesses with visible
earnings growth over at least a two-year time period. Companies that have
proprietary businesses, dominant and/or growing market shares, and unique and
defensible market niches are ideal candidates. We seek to identify companies
with a low cost structure, which also can contribute to a strong market
position. Companies that have the ability to influence the prices of assets that
are bought and sold within an industry are also attractive; in other words,
companies with pricing power. Overall, we are interested in companies with
limited sensitivity to changes in the economy.
Q: How are you managing the portfolio?
We are pursuing a bottom-up approach to selecting securities on a stock-by-stock
basis. Any stock included in the portfolio must meet all our requirements for
growth, quality, and financial stability. Any portfolio holding must have an
expected earnings growth rate of at least 15%, persistent historical earnings
growth (we believe success breeds success), a return on equity of at least 12%,
and either a debt-to-capitalization ratio under 50% or interest coverage of
three times or more.
Q: What stocks held back performance?
Our holdings in the energy area were hurt by the 25%+ decline in crude oil
prices in 1998. We held Global Industries (eliminated from the portfolio prior
to year-end) and Transocean Offshore in the oil service area, which were
impacted by the record low oil prices. Another weak performer was Computer
Horizons, an IT (information technology) company. While the company did not
disappoint on the earnings front, investors have become concerned about any
firms with potential exposure to the Year 2000 (Y2K) reprogramming tasks as we
approach the new millenium.
THE PRINTED DOCUMENT CONTAINS A TABLE HERE
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Stock Selection Criteria
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Growth Quality and financial stability
o Expected earnings growth o Return on equity of
rate of 15% or more 12% or more
o Demonstrated earnings o Debt-to-capitalization ratio
growth in four consecutive below 50% or interest
quarters over the past coverage of 3x or more.
three years.
=============================================================
Q: And, holdings that helped performance?
Our decision to overweight the health care and technology sectors toward the end
of the year made a significant contribution to the Fund's out- performance of
both small- and mid-cap indices. In the health care area, Immunex, a
biopharmaceutical company, rose as new drugs were approved, prescriptions were
ahead of expectations, and the firm reached profitability. CMG Information
Services, a developer of information-based products and services for direct
marketing, rose on the strong performance of several of its Internet-related
venture capital holdings. While the semiconductor sector is a cyclical area,
Vittesse Semiconductor has done well due in part to its special focus on
semiconductors for the telecommunications industry. In the EDP (electronic data
processing) area, CSG Systems International is benefiting from better than
expected growth from such clients as AT&T, Sprint, and several cable companies.
This outsourcing company provides billing solutions, software, and services for
7 - Scudder Development Fund
<PAGE>
customer care and billing functions. The Fund also benefited from good
performance from Network Appliance -- our second largest holding -- which
designs and manufactures network data storage devices.
THE PRINTED DOCUMENT CONTAINS A TABLE/CALLOUT HERE
==================================================================
Portfolio Strategy
==================================================================
An emphasis on quality and managing risk
o Maintain 70-80 stocks in the portfolio
o Hold significant individual positions while limiting overall
exposure to a specific industry to less than 10% of assets
o Invest in stocks with low volatility and solid earnings records
o Broaden diversification through representation in nearly all
industry sectors
o Current focus on issues with market capitalizations in the
$1-5 billion range.
==================================================================
Q: Overall how has the Fund's strategy and composition changed over the period?
We've reduced the number of holdings to 74. That's down from 110 six months ago.
Our ultimate goal is to have 70-80 names in the portfolio. We've also increased
our weightings in the individual stocks we own. The number of stocks
representing a 1% or greater position in the portfolio is 45 (representing more
than half of Fund holdings). This compares to 38 stocks (a bit more than
one-third of Fund holdings) at the end of June. This approach reflects our
belief that fewer holdings, and larger weightings in the quality companies about
which we have strong convictions, should reduce the portfolio's relative risk
level versus the market. Partly as a result of this emphasis on quality, the
projected growth rate has decreased slightly from 36% to 35%. At this level of
growth we expect more consistent returns over the long run.
Q: Another objective has been to increase the portfolio's market cap. Where does
the portfolio stand today?
As we have repositioned the portfolio from small-cap to mid-cap stocks, the
market cap has risen to $2.4 billion as of December 31 from $910 million at the
end of June, which is in line with our goal of $2-4 billion.
Q: With large-cap growth stocks getting much of the attention over the last
year, why should investors consider staying with this mid-cap fund?
We think most people realize that after an extended run for this select group of
large-cap stocks, it may be time for them to take a rest. Of course, we are not
market timers and do not have a crystal ball, but we believe investors should
maintain exposure to a variety of asset classes including small- and mid-cap
stocks. Besides, many large-cap stocks at one time were small- and mid-cap
stocks. We attempt to invest in companies while they are smaller and during the
period when they are exhibiting faster growth rates than that of larger
companies.
Our philosophy is premised on sticking with a consistent and disciplined
investment strategy. We pursue a bottom-up, fully invested approach and we do
not focus on predicting the overall movements of the market. As we have said
before, we will continue to seek the best companies we can find that meet our
investment criteria whether the market is going up or down.
8 - Scudder Development Fund
<PAGE>
Glossary of Investment Terms
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and earnings
on balance sheets and income statements. Distinct
from technical analysis, which evaluates the
attractiveness of a stock, based on historical price
and trading volume movements, rather than the
financial results of the underlying company.
GROWTH STOCK Stock of a company that has displayed
above-average earnings growth and is expected to
continue to increase profits rapidly going forward.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the share price
(shares x price = market capitalization). The
universe of publicly traded companies is frequently
divided into large-, mid-, and small-capitalizations.
OVER/UNDERWEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within an investment
portfolio relative to a benchmark index or investment
universe.
PRICE/EARNINGS RATIO (P/E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a company's
earnings on a per share basis. Typically based on a
company's projected earnings for the next six months,
a higher "earnings multiple" indicates a higher
expected growth rate and the potential for greater
price fluctuations.
RETURN ON EQUITY An amount, expressed as a percentage, earned on a
company's common stock investment for a given
period. Calculated by dividing common stock equity
(net worth) at the beginning of the period into net
income for the period after preferred stock
dividends but before common stock dividends. Return
on equity tells common shareholders how effectively
their money is being employed.
VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value, as indicated by price/earnings
and price/book ratios, dividend yield, or some other
valuation measure, relative to its industry or the
market overall. Value stocks tend to display less
price volatility and may carry higher dividend
yields.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Development Fund
<PAGE>
Investment Portfolio as of December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 6.1%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5.0%,
to be repurchased at $48,406,878 on 1/4/1999, collateralized by a $45,438,000 -----------
U.S. Treasury Bond, 5.875%, 11/15/2005 (Cost $48,380,000) ............................. 48,380,000 48,380,000
-----------
Convertible Bonds 0.0%
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Media
Broadcasting & Entertainment
Intouch Group, Inc. Promissory Note, 8.0%*, 2/1/1996 (Cost $217,500) (b) (c) (d) ........ 217,500 0
-----------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stocks 0.4%
- ------------------------------------------------------------------------------------------------------------------------------
Health
Biotechnology 0.3%
Norian Corp. "D"* (Developer and manufacturer of a proprietary biomaterial for
skeletal repair) (b) (c) .............................................................. 357,142 1,999,995
-----------
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
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $3,199,995) 3,199,995
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 93.5%
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Consumer Discretionary 8.8%
Apparel & Shoes 0.8%
Abercrombie & Fitch Co. "A"* (Retailer of casual apparel for men and women) ............. 89,200 6,310,900
-----------
Department & Chain Stores 2.2%
Dollar Tree Stores Inc.* (Store chain that sells assorted general merchandise) .......... 225,000 9,829,688
Kohl's Corp.* (Operator of a chain of specialty department stores) ...................... 125,100 7,685,831
-----------
17,515,519
-----------
Home Furnishings 1.1%
WestPoint Stevens, Inc.* (Manufacturer of bedroom and bathroom textile products) ........ 276,600 8,730,188
-----------
Recreational Products 1.6%
Harley-Davidson Inc. (Manufacturer of motorcycles) ...................................... 275,000 13,028,125
-----------
Restaurants 0.6%
Dave & Buster's, Inc.* (Operator of restaurant/entertainment complexes) ................. 204,000 4,704,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Development Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Specialty Retail 2.5%
Intimate Brands, Inc. (Retailer of intimate apparel and personal care products) ......... 250,400 7,480,700
Office Depot Inc.* (Office supply stores) ............................................... 335,500 12,392,531
-----------
19,873,231
-----------
Health 19.6%
Biotechnology 5.1%
Biogen Inc.* (Biotechnology research and development company) ........................... 175,000 14,525,000
Immunex Corp.* (Biopharmaceutical company) .............................................. 96,900 12,191,231
Sepracor, Inc.* (Developer of enhanced forms of existing pharmaceuticals) ............... 155,500 13,615,969
-----------
40,332,200
-----------
Health Industry Services 5.0%
Bergen Brunswig Corp. "A" (Supplier of pharmaceuticals and health care products) ........ 465,900 16,248,263
Express Scripts Inc. "A"* (Operator of health care management businesses) ............... 115,800 7,773,075
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) .................................................. 173,300 7,625,200
Quintiles Transnational Corp.* (Provider of full-service contract research,
sales and marketing services to the worldwide pharmaceutical, biotechnology
and medical device industries) ........................................................ 93,900 5,011,913
Ventana Medical Systems, Inc.* (Manufacturer of automated medical test systems
for cell and tissue analysis) ......................................................... 162,800 3,520,550
-----------
40,179,001
-----------
Hospital Management 1.2%
Universal Health Services, Inc.* (Owner and operator of 35 general acute care
hospitals and psychiatric-care facilities located throughout the United States) ....... 182,100 9,446,438
-----------
Medical Supply & Specialty 3.3%
Arterial Vascular Engineering, Inc.* (Provider of specialized stent and balloon
angioplasty systems) .................................................................. 108,200 5,680,500
Biomet Inc. (Manufacturer of surgical implant devices) .................................. 250,000 10,062,500
Sofamor Danek Group, Inc.* (Developer, manufacturer and marketer of devices,
instruments, computer-assisted surgery products and biomaterials) ..................... 85,500 10,409,625
-----------
26,152,625
-----------
Pharmaceuticals 5.0%
AmeriSource Health Corp.* (Distributor of wholesale pharmaceutical and related
products) ............................................................................. 278,100 18,076,500
PathoGenesis Corp.* (Developer of drugs for treatment of serious infectious
diseases) ............................................................................. 380,000 22,040,000
-----------
40,116,500
-----------
</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>
Financial 12.4%
Banks 5.1%
CCB Financial Corp. (Commercial bank providing retail, commercial, mortgage and
construction loans) ................................................................... 282,200 16,085,400
First Security Corp. (Commercial banking in western states) ............................. 376,625 8,803,609
Zions Bancorp (Commercial banking in Utah) .............................................. 254,300 15,861,963
-----------
40,750,972
-----------
Insurance 5.9%
AMBAC Financial Group Inc. (Insurer of municipal bonds) ................................. 116,200 6,993,788
Fremont General Corp. (Insurance and financial services) ................................ 241,400 5,974,650
Mutual Risk Management Ltd. (Risk management services) .................................. 189,900 7,429,838
Protective Life Corp. (Insurance and financial services) ................................ 326,400 12,994,800
Providian Financial Corp. (Insurance and financial services) ............................ 185,400 13,905,000
-----------
47,298,076
-----------
Consumer Finance 1.4%
Capital One Financial Corp. (Holding company which provides consumer lending
services through its subsidiaries) .................................................... 95,200 10,948,000
-----------
Media 3.7%
Advertising 2.6%
Outdoor Systems, Inc.* (Outdoor advertising company) .................................... 451,800 13,554,000
Young & Rubicam Inc.* (Advertising, marketing and communications company) ............... 222,000 7,187,250
-----------
20,741,250
-----------
Broadcasting & Entertainment 1.1%
Jacor Communications, Inc. "A"* (Owner and operator of radio stations) .................. 140,000 9,012,500
-----------
Service Industries 22.2%
EDP Services 6.0%
Affiliated Computer Services* (Provider of information technology services and
electronic funds transfer) ............................................................ 255,400 11,493,000
CSG Systems International, Inc.* (Provider of billing solutions, software and
services for customer care and billing functions) ..................................... 113,300 8,950,700
Fiserv Inc.* (Data processing services) ................................................. 167,400 8,610,638
Keane, Inc.* (Provider of computer software project management and design
development services) ................................................................. 250,000 9,984,375
SunGard Data Systems* (Specialized computer services) ................................... 211,000 8,374,063
-----------
47,412,776
-----------
</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>
Miscellaneous Commercial Services 14.3%
Apollo Group, Inc. "A"* (Provider of higher education programs for working
adults) ............................................................................... 300,000 10,162,500
CMG Information Services, Inc.* (Developer of information-based products and
services for direct marketing) ........................................................ 212,600 22,641,900
Cintas Corp. (Uniform rentals) .......................................................... 490,000 34,514,375
Concord EFS, Inc.* (Electronic transaction authorization, processing, settlement
and transfer services) ................................................................ 340,100 14,411,738
Ecolab, Inc. (Commercial cleaning, sanitizing and maintenance services) ................. 244,600 8,851,463
G & K Services, Inc. "A" (Uniform rentals) .............................................. 199,000 10,596,750
Nova Corp. of Georgia* (Provider of transaction processing services related to
software application products) ........................................................ 204,500 7,093,594
Whittman-Hart, Inc.* (Information technology consulting and system integration
services) ............................................................................. 209,000 5,773,625
-----------
114,045,945
-----------
Miscellaneous Consumer Services 1.9%
ITT Educational Services, Inc.* (Provider of technology-oriented postsecondary
degree programs) ...................................................................... 215,300 7,320,200
Service Corp. International (Funeral and cemetery services) ............................. 199,300 7,585,856
-----------
14,906,056
-----------
Manufacturing 3.6%
Containers & Paper 1.1%
Aptargroup, Inc. (Manufacturer of packaging equipment components) ....................... 307,800 8,637,638
-----------
Diversified Manufacturing 1.0%
Pentair, Inc. (Diversified manufacturing company) ....................................... 198,000 7,882,875
-----------
Office Equipment/Supplies 1.5%
Lexmark International Group Inc. "A"* (Developer, manufacturer and supplier of
printing solutions and products) ...................................................... 120,000 12,060,000
-----------
Technology 17.9%
Computer Software 2.0%
Intuit Inc.* (Leading provider of financial software for households and small
businesses) ........................................................................... 107,700 7,808,242
Maxtor Corp.* (Developer, manufacturer and marketer of hard disk drives for
desktop computer systems) ............................................................. 575,100 8,051,400
-----------
15,859,642
-----------
Diverse Electronic Products 4.0%
Gentex Corp.* (Designer, developer, manufacturer and marketer of products which
use electro-optic technology) ......................................................... 373,300 7,466,000
</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>
KLA Tencor Corp.* (Developer, manufacturer and marketer of automated image
processing systems) ................................................................... 200,000 8,675,000
Solectron Corp.* (Manufacturer of computer products and subsystems) ..................... 167,500 15,567,031
-----------
31,708,031
-----------
EDP Peripherals 6.6%
Mercury Interactive Corp.* (Producer of automated software testing tools) ............... 224,100 14,174,325
Network Appliance, Inc.* (Designer and manufacturer of network data storage
devices) .............................................................................. 659,700 29,686,500
Symbol Technologies Inc. (Manufacturer of bar code laser scanners) ...................... 137,400 8,785,013
-----------
52,645,838
-----------
Office/Plant Automation 0.9%
Novell Inc.* (Personal computer network systems) ........................................ 397,900 7,211,938
-----------
Semiconductors 4.4%
Linear Technology Corp. (Manufacturer of integrated circuits) ........................... 143,000 12,807,438
Sanmina Corp.* (Provider of electronics contract manufacturing services) ................ 181,800 11,362,500
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) .............. 245,100 11,182,688
-----------
35,352,626
-----------
Energy 1.8%
Oil & Gas Transmission 0.8%
El Paso Energy Corp. (Marketer, trader and transporter of natural gas and
natural gas products) ................................................................. 188,500 6,562,156
-----------
Oilfield Services/Equipment 1.0%
Newpark Resources, Inc.* (Environmental management and oilfield construction
services) ............................................................................. 570,900 3,889,256
Transocean Offshore Inc. (Contract drilling services of offshore oil and gas
wells) ................................................................................ 150,600 4,037,963
-----------
7,927,219
-----------
Construction 2.5%
Building Materials 1.5%
Simpson Manufacturing Co., Inc.* (Manufacturer of wood-to-wood, wood-to-concrete
and wood-to-masonry connectors) ....................................................... 318,600 11,927,588
-----------
Homebuilding 1.0%
D.R. Horton, Inc. (Construction and sale of single family homes) ........................ 362,300 8,332,900
-----------
Transportation 1.0%
Air Freight
Expeditors International of Washington, Inc. (Air and ocean freight forwarding,
customs clearance, cargo insurance and logistical services) ........................... 190,000 7,980,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $481,053,655) 745,593,503
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $532,851,150) (a) 797,173,498
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Development Fund
<PAGE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $532,883,281. At December 31,
1998, net unrealized appreciation for all securities based on tax cost was
$264,290,217. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $270,249,673 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$5,959,456.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $3,199,995 (.42% 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, 1998 aggregated $3,417,495. These
securities may also have certain restrictions as to resale.
(c) Restricted Securities are securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
The aggregate fair value of restricted securities at December 31, 1998,
amounted to $3,199,995 which represents .42% of net assets. Information
concerning such restricted securities at December 31, 1998 is as follows
were:
Security Acquisition Date Cost ($)
-------- ---------------- --------
InTouch Group Inc. 2/14/1995 217,500
Norian Corp. "D" 4/12/1995 1,999,995
InterVentional Technologies,
Inc. "G" 3/6/1995 1,200,000
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
The accompanying notes are an integral part of the financial statements.
15 - Scudder Development Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $532,851,150) ................ 797,173,498
Receivable for investments sold ...................................... 122,936,516
Receivable for Fund shares sold ...................................... 5,531,826
Dividends and interest receivable .................................... 221,789
Foreign taxes recoverable ............................................ 1,488
Other assets ......................................................... 10,635
----------------
Total assets ......................................................... 925,875,752
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank ................................................ 1,061
Payable for investments purchased .................................... 142,428,883
Payable for Fund shares redeemed ..................................... 12,700,783
Accrued management fee ............................................... 614,434
Other payables and accrued expenses .................................. 362,227
----------------
Total liabilities .................................................... 156,107,388
-------------------------------------------------------------------------------------------
Net assets, at market value $ 769,768,364
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss ...................................... (3,132,433)
Net unrealized appreciation (depreciation) on:
Investments ....................................................... 264,322,348
Foreign currency related transactions ............................. (3,605)
Accumulated net realized gain (loss) ................................. 31,122,622
Paid-in capital ...................................................... 477,459,432
-------------------------------------------------------------------------------------------
Net assets, at market value $ 769,768,364
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($769,768,364 / 20,598,986 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ....................................................... $37.37
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Development Fund
<PAGE>
Statement of Operations
six months ended December 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends .............................................................. $ 1,028,660
Interest ............................................................... 1,230,188
----------------
2,258,848
----------------
Expenses:
Management fee ......................................................... 3,515,074
Services to shareholders ............................................... 1,565,201
Custodian and accounting fees .......................................... 65,343
Trustees' fees and expenses ............................................ 19,922
Reports to shareholders ................................................ 97,668
Registration fees ...................................................... 51,937
Auditing ............................................................... 22,468
Legal .................................................................. 7,131
Other .................................................................. 46,537
----------------
5,391,281
-------------------------------------------------------------------------------------------
Net investment income (loss) (3,132,433)
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments -- Unaffiliated issuers .................................... 27,480,964
Investments -- Affiliated issuers ...................................... 4,757,283
----------------
32,238,247
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ (39,043,566)
Foreign currency related transactions .................................. 675
----------------
(39,042,891)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (6,804,644)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (9,937,077)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Development Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1998 Year Ended
Increase (Decrease) in Net Assets (Unaudited) June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................... $ (3,132,433) $ (8,621,837)
Net realized gain (loss) from investment transactions ...... 32,238,247 117,823,275
Net unrealized appreciation (depreciation) on
investment transactions during the period ............... (39,042,891) 36,206,400
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .............................................. (9,937,077) 145,407,838
---------------- ----------------
Distributions to shareholders from net realized gains ...... (70,436,487) (78,146,533)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................. 502,981,794 623,810,270
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 67,517,665 74,979,135
Cost of shares redeemed .................................... (565,762,606) (782,209,774)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ............................................ 4,736,853 (83,420,369)
---------------- ----------------
Increase (decrease) in net assets .......................... (75,636,711) (16,159,064)
Net assets at beginning of period .......................... 845,405,075 861,564,139
Net assets at end of period (including accumulated ---------------- ----------------
net investment loss of $3,132,433) ...................... $ 769,768,364 $ 845,405,075
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 20,289,263 22,081,273
---------------- ----------------
Shares sold ................................................ 14,313,179 15,158,214
Shares issued to shareholders in reinvestment of
distributions ........................................... 1,901,906 2,003,718
Shares redeemed ............................................ (15,905,362) (18,953,942)
---------------- ----------------
Net increase (decrease) in Fund shares ..................... 309,723 (1,792,010)
---------------- ----------------
Shares outstanding at end of period ........................ 20,598,986 20,289,263
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Development Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1998 Years Ended June 30,
(Unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 41.67 $ 39.02 $ 45.56 $ 37.35 $ 27.58 $ 34.58
--------------------------------------------------------------------------
Income from investment operations:
Net investment loss ................................... (.16) (.41) (.40) (.38) (.31) (.30)
Net realized and unrealized gain (loss) on
investment transactions ............................. (.39) 6.94 (1.66) 12.79 12.20 (3.63)
--------------------------------------------------------------------------
Total from investment operations ...................... (.55) 6.53 (2.06) 12.41 11.89 (3.93)
--------------------------------------------------------------------------
Less distributions from net realized gains on
investment transactions ............................. (3.75) (3.88) (4.48) (4.20) (2.12) (3.07)
--------------------------------------------------------------------------
Total distributions ................................... (3.75) (3.88) (4.48) (4.20) (2.12) (3.07)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net asset value, end of period ........................ $ 37.37 $ 41.67 $ 39.02 $ 45.56 $ 37.35 $ 27.58
--------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ...................................... (.85)** 17.86 (4.93) 35.26 45.41 (12.91)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 770 845 862 1,040 727 546
Ratio of operating expenses to average daily
net assets (%) ...................................... 1.51* 1.41 1.36 1.24 1.32 1.27
Ratio of net investment income (loss) to
average daily net assets (%) ........................ (.88)* (.99) (1.02) (.91) (1.01) (.91)
Portfolio turnover rate (%) ........................... 67.0(b)** 52.4 52.2 58.8 41.6 48.3
</TABLE>
(a) Per share amounts have been calculated using the weighted average shares
method.
(b) The change in the investment objective during the period resulted in a
higher portfolio turnover rate.
* Annualized
** Not annualized
19 - Scudder Development Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Development Fund (the "Fund") is a diversified series of Scudder
Securities Trust, a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an 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, whose 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value is equal to at least the repurchase price.
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.
20 - Scudder Development Fund
<PAGE>
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, 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 plus
one basis. However, for financial reporting purposes, investment security
transactions are reported on trade date. 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, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $451,375,580 and
$509,783,918, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Fund agrees to pay to
the Adviser a fee equal to an annual rate of 1.00% 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, 1998, the fee pursuant to these
agreements amounted to $3,515,074, which was equivalent to an annual effective
rate of .99% of the Fund's average daily net assets.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon
21 - Scudder Development Fund
<PAGE>
consummation of the transaction, the Fund's Management Agreement with Scudder
Kemper was deemed to have been assigned and, therefore, terminated. In December
1998, the Board of Trustees and the shareholders of the Fund approved a new
investment management agreement with Scudder Kemper, which is substantially
identical to the former Management Agreement, except for the dates of execution
and termination.
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, 1998, the amount charged to the Fund by SSC
aggregated $640,349, of which $103,357 is unpaid at December 31, 1998.
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, 1998, the Special Servicing Agreement expense charged to the Fund
amounted to $84,718.
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, 1998, the amount charged to the Fund by STC aggregated $706,283, of which
$114,025 is unpaid at December 31, 1998.
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, 1998, the amount charged to the Fund by SFAC aggregated
$47,382, of which $7,919 is unpaid at December 31, 1998.
The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer plus specified amounts for attended board and committee meetings. For
the six months ended December 31, 1998, Trustees' fees and expenses aggregated
$19,922.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates during the six months ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ICU Medical, Inc. -- 9,558,749 -- --
Alexion -- 4,717,763 -- --
--------------- --------------- --------------- ----------------
-- 14,276,512 -- --
=============== =============== =============== ================
</TABLE>
22 - Scudder Development Fund
<PAGE>
E. Line of Credit
The Fund and several Scudder Funds ("The Participants") share in a $850 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.
23 - Scudder Development Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Development Fund
(the "Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
10,128,900 346,210 289,637 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
9,295,005 470,422 438,886 560,434
- --------------------------------------------------------------------------------
* 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.
24 - Scudder Development Fund
<PAGE>
This Page
intentionally
left blank.
25 - Scudder Development Fund
<PAGE>
This Page
intentionally
left blank.
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
Keith R. Fox
Trustee; President, Exeter Capital Management Corporation
William H. Luers
Trustee; President, Metropolitan Museum of Art
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Joan Spero
Trustee; President, Doris Duke Charitable Foundation
Thomas J. Devine
Honorary Trustee; Consultant
Wilson Nolen
Honorary Trustee; Consultant
Robert G. Stone, Jr.
Honorary Trustee; Chairman Emeritus and Director, Kirby Corporation
Edmund R. Swanberg
Honorary Trustee
Peter Chin*
Vice President
J. Brooks Doherty*
Vice President
James M. Eysenbach*
Vice President
James E. Fenger*
Vice President
Philip S. Fortuna*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Thaddeus Paluszek*
Vice President
Kurt R. Stalzer*
Vice President
Peter Taylor*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Richard W. Desmond*
Assistant Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*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 --
Prime Reserve Shares*
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 Corporate Bond 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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++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:
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<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:
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Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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:
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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.
Distributions Direct
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
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30 - Scudder Development Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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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 8,000 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
800 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 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
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Additional Information on How to Contact Scudder:
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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
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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 $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
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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