SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/GROWTH
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Scudder Development
Fund
Fund #067
Semiannual Report
January 31, 2000
For investors seeking long-term capital
appreciation by investing primarily in U.S.
companies with the potential for
above-average growth.
A no-load fund with no commissions to buy,
sell, or exchange shares.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
16 Glossary of Investment Terms
17 Investment Portfolio
24 Financial Statements
27 Financial Highlights
28 Notes to Financial Statements
32 Officers and Trustees
33 Investment Products and Services
35 Scudder Solutions
2
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Scudder Development Fund
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ticker symbol SCDVX fund number 067
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Date of Inception: o The domestic equity markets rallied strongly toward the
2/11/71 end of the six-month period, with growth and technology
stocks providing exceptional returns.
o The fund bested the performance of the unmanaged S&P
Total Net Assets 500 Index and Russell 2000 Index for the six months.
as Of 1/31/00:
$797 million o An expanded flexibility to invest in growth stocks of
all sizes enabled the fund's management team to
capitalize on a number of opportunities in the
technology and communications areas.
3
<PAGE>
Letter from the Fund's President
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Dear Shareholders,
The fourth quarter of 1999 was another remarkable period for the U.S. stock
market, as a strong rally in growth stocks was responsible for nearly
three-quarters of the S&P 500's total return for the whole year. Reports of
stronger than expected earnings and economic growth, high consumer confidence,
and continued low inflation overwhelmed concerns about rising interest rates. In
this environment, growth stocks provided the best returns -- especially
technology shares that continued to benefit from the explosion of the Internet.
These conditions provided an excellent backdrop for the fund.
This semiannual is the first report that reflects the effects of the fund's
broadened flexibility to invest in mid- and large-cap growth stocks in addition
to small-cap stocks. The six-month period also marks the first full period with
Sewall Hodges as lead portfolio manager. Sewall has 13 years of experience in
global portfolio management and analysis, and prior to assuming responsibilities
for this fund, he served as a portfolio manager of Scudder Global Discovery
Fund, which invests in small- and mid-cap stocks around the globe.
Over the period, Sewall and portfolio manager J.C. Cabrera have made significant
progress toward improving the fund's performance. For the period, the fund beat
the broad-based S&P 500 Index and also the small-cap Russell 2000 Index at a
time when a select group of growth stocks were delivering outstanding returns,
while other sectors trailed significantly. While the portfolio team still needs
to improve the fund's longer term ranking relative to its peers, this
experienced management team has just begun to build a solid track record. For
further discussion
4
<PAGE>
of the market environment and the fund's investment strategy, see the Portfolio
Management Discussion that begins on page 10.
For current information on the fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
the fund's most recent performance, the latest news on Scudder products and
services, and the opportunity to perform account transactions. You can also
speak with one of our representatives by calling 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued investment in Scudder Development Fund.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Development Fund
5
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Performance Update
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January 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Development S&P 500 Russell 2000
Fund Index* Growth Index*
10000 10000 10000
12301 10839 10073
19648 13299 15014
19159 14711 15187
20842 16603 17461
19119 16690 16256
29064 23142 21561
32879 29239 24795
33175 37112 26956
39044 49169 28902
48966 54261 39208
Yearly periods ended January 31
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Fund Index Comparison
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<TABLE>
<CAPTION>
Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
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Scudder Development Fund
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<S> <C> <C> <C>
1 year $ 12,541 25.41% 25.41%
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5 year $ 25,611 156.11% 20.69%
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10 year $ 48,966 389.66% 17.22%
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S&P 500 Index*
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1 year $ 11,036 10.36% 10.36%
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5 year $ 32,511 225.11% 26.58%
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10 year $ 54,261 442.61% 18.42%
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Russell 2000 Growth Index*
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1 year $ 13,566 35.66% 35.66%
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5 year $ 24,120 141.20% 19.24%
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10 year $ 39,208 292.08% 14.63%
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</TABLE>
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. 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. Effective June 30, 1999, the Fund has adopted the S&P 500 Index
for its primary securities market index over the Russell 2000 Growth Index,
as the S&P 500 Index better represents the securities and markets in which
the Fund now invests.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER DEVELOPMENT FUND TOTAL RETURN (%) AND
S&P 500 INDEX* TOTAL RETURN (%)
<TABLE>
<CAPTION>
Yearly periods ended January 31
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 23.01 59.73 -2.49 8.78 -8.26 52.01 13.13 0.90 17.69 25.41
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Index Total
Return (%) 8.39 22.69 10.62 12.86 0.52 38.66 26.35 26.93 32.49 10.36
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Net Asset
Value ($) 23.88 37.01 34.11 33.98 29.03 39.78 40.56 37.08 39.47 42.74
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Capital
Gains
Distributions
($) 1.23 0.96 1.70 3.07 2.12 4.20 4.48 3.88 3.75 6.50
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</TABLE>
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
Effective June 30, 1999, the Fund adopted its current objective to seek
long-term capital appreciation by investing primarily in U.S. companies with
the potential for above-average growth. Prior to that date, the Fund's
investment objective was to seek long-term growth of capital by investing
primarily in medium-size companies with the potential for sustainable
above-average earnings growth. In addition, the Fund has adopted the S&P 500
Index for its primary securities market index over the Russell 2000 Growth
Index, as the S&P 500 Index better represents the securities and markets in
which the Fund now invests. Since adopting its current objective, the
cumulative return is 17.64%.
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.
7
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Portfolio Summary
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January 31, 2000
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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.
The fund pursues a fully
invested approach to
Common Stocks 95% selecting growth stocks
Cash Equivalents 5% of all sizes.
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100%
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Sector Diversification
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(Excludes 5% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Performance benefited
significantly from
increased weightings in
Technology 46% strong performing areas
Media 11% (technology and
Communications 10% communications stocks)
Service Industries 10% and reductions in weak
Health 10% areas (service
Consumer Discretionary 6% industries, consumer
Financial 4% discretionary, and
Manufacturing 2% financials).
Other 1%
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100%
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8
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Ten Largest Equity Holdings
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<TABLE>
<S> <C>
(34% of Portfolio) Over the six months, the
fund's managers
1. Network Appliance, Inc. implemented a bottom-up
Designer and manufacturer of network data storage investment discipline
devices that emphasizes
companies with rapid
2. Mercury Interactive Corp. growth characteristics.
Producer of automated software testing tools
3. Time Warner Telecom, Inc.
Provider of telecommunications services
4. Immunex Corp.
Biopharmaceutical company
5. Sanmina Corp.
Provider of electronics contract manufacturing services
6. Concord EFS, Inc.
Electronic transaction authorization, processing,
settlement and transfer services
7. Intuit, Inc.
Leading provider of financial software for households
and small businesses
8. Linear Technology Corp.
Manufacturer of integrated circuits
9. Vitesse Semiconductor Corp.
Manufacturer of digital integrated circuits
10. Univision Communication, Inc.
Spanish-language broadcaster in the United States
</TABLE>
For more complete details about the Fund's investment portfolio, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
<PAGE>
Portfolio Management Discussion
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January 31, 2000
We asked portfolio managers Sewall Hodges and J.C. Cabrera to discuss the market
environment for growth stocks and their investment strategy for the six-month
period.
Q: U.S. stock market averages continued to be driven by the spectacular
performance of a small number of growth and technology issues. How would you
describe this environment?
A: As growth stock managers, we believe this is a very exciting time, full of
many dynamic growth opportunities. Over the last two years the divergence of
growth and value stocks has widened dramatically. In 1999, a record-breaking 25
percentage points separated the performance of these two investment styles, with
growth stocks recording phenomenal returns. Technology and biotech stocks have
been the best performing, with Internet-related stocks providing truly
staggering gains. Basically, if your portfolio was not invested in these two
sectors, it lagged the broad-based market averages.
We strongly believe that much of what is happening in the technology sector is
not temporary. One of our technology analysts phrased it this way: "The Internet
has taken down the barriers of space and time, facilitated the exchange of ideas
across geographic boundaries, and dramatically changed the way businesses
interact with customers and each other. These factors have created tremendous
opportunities for certain companies -- and threats for others." The type of
evolution that we see occurring with the Internet creates exceptional growth
opportunities. As a result, much of the fund's portfolio is invested in the
technology area.
Q: How did the fund perform?
A: We are pleased to report that the fund outperformed the broad market by a
significant margin. Now that the fund invests in growth stocks of all stock
market capitalizations, we compare our performance to both the large-cap S&P 500
Index and the small-cap Russell 2000 Index (see "Performance" table below).
While the fund's
10
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strong performance versus the indices is gratifying, it trailed mid-cap growth
funds as ranked by Lipper Analytical Services, Inc., an independent analyst of
investment performance. Lipper has assigned the fund to this category, but we
compare the fund to all growth funds since the fund can invest in stocks of any
market capitalization. Regardless, we know we have more work ahead to improve
the fund's ranking, but shareholders should keep in mind that over the six-month
report period we were in the process of implementing the fund's broadened
investment mandate. During this period, we attempted to limit the amount of
capital gains that the fund would have to distribute prior to the end of the
calendar year. As a result, the portfolio was not completely repositioned until
the end of the fund's fiscal period on January 31, 2000. Given these events, we
would like to be judged based on the fund's performance going forward.
Q: What is your investment approach?
A: We are seeking to invest in companies with exceptional growth potential. This
approach is not limited by a stock's market capitalization, only by our ability
to identify stocks with the greatest upside potential versus downside risk. In
other words, we are looking for companies that we believe have a high
probability of success and a low probability of failure. Since investing solely
based on the highest expected return can hurt overall portfolio returns if the
investment also has significant risk, we focus on companies that we believe have
a low likelihood of disappointing results.
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Performance
Total returns as of 1/31/00
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Six-month
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Scudder Development Fund 22.95%
S&P 500 Index 5.58%
Large-cap stocks 7.24%
Mid-cap stocks 6.53%
Small-cap stocks 12.25%
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All indices are unmanaged. Large-cap stocks are represented by the Russell 1000
Index, mid-cap stocks are represented by the Russell Midcap Index, and small-cap
stocks are represented by the Russell 2000 Index.
11
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Q: How do you identify companies with a high probability of success and low
risk?
A: We focus on three key variables in evaluating stocks for the portfolio: rapid
revenue growth, solid products, and skilled company management teams. Strong
revenue growth, especially unit growth, is very important. Note that we
emphasize revenue, not necessarily earnings growth. Revenue growth is important
because we believe it is a leading indicator of a company's future prospects.
Many companies with high revenue growth rates offer tremendous potential
returns. If a company doesn't have rapidly growing revenues, it may never have
an earnings growth rate that is competitive. The current market environment is
demanding this kind of forward-looking assessment.
Second, a company's products and services must work, and work well. We analyze a
company's products, look at competing and alternative products, and evaluate the
industry's growth rate.
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Investment Discipline
o Strong/accelerating revenue growth
o Exceptional products/services
o Strong competitive position
o Strong industry growth
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Finally, we seek companies with innovative, top-flight management teams. We are
looking for signs of weakness, such as the departure of key employees or a
change in top management. This is important because sometimes good companies can
make bad decisions. Consider Jill Barad, who revitalized the Barbie Doll product
line for Mattel. Her success with Barbie helped to propel her into the executive
offices of the company. While Barad excelled as the "Barbie Doll guru,"
operating performance stagnated
12
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under her leadership as CEO in 1998 and 1999, even excluding the troublesome
acquisition of the Learning Company stores in 1998. We invest a great deal of
time getting to know the management teams that run the companies we hold in the
portfolio. In our view, it is a critical component of a company's potential.
Q: How do you attempt to control risk in the portfolio?
A: We attempt to control risk at the individual company level rather than
attempting to make bets on the overall market or specific industries. Because we
believe that systematic (market and industry) risks tend to even out over time,
we would prefer to focus on areas where we believe we can add the greatest
value. As we search for individual companies with high rates of growth, the fund
invariably becomes overweighted in certain industries because companies with the
highest growth rates are often also benefiting from changes, restructurings, or
rapid growth within some of the same industries. We think that we will be able
to control the fund's overall risk relative to the market if we buy companies
that we believe have excellent prospects and a low probability of
disappointment.
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Risk management
o Favorable risk/reward profile
o Undiscovered/under-researched stocks
o Concentrated portfolio
o Fundamental research
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Q: What is the current composition of the fund?
A: As of the end of the period we held 82 stocks, and expect that the number of
holdings will be in the 60-70 range. It has been tough to keep this number down
because we see so many attractive stocks, especially in the small-cap area. We
can buy growth stocks of any size for
13
<PAGE>
the portfolio and have made several additions in the mid- and large-cap areas
over the period, including Intel, Yahoo!, and Corning. Currently, the fund has a
weighted-average market capitalization of $21 billion. However, about
three-quarters of the fund's total number of holdings are invested in small-caps
(stocks with market capitalizations of less than $3 billion). Reflecting an
increased focus on companies with rapidly growing revenues, as opposed to the
fund's former strategy of "growth at a reasonable price," its overall forward-
price/earnings (P/E) ratio has increased to 55x based on next year's earnings.
Q: How has your investment approach affected sector weightings?
A: At the beginning of the period the fund had about an equal weighting in each
industry sector compared to the Russell 2000 Index. As we have searched for
stocks that meet our investment criteria (high revenue growth, solid products,
and skilled company management teams), weightings increased in technology and
communications. This also led to decreases in the finance, consumer
discretionary, and retail sectors.
Q: Technology stocks have gone through the roof over the six months. How did the
fund participate in this area?
A: We found an abundance of rapidly growing companies in the technology sector,
as indicated by our overweighted position of 46%. But, we could have benefited
from an even larger weighting, as tech dramatically outperformed nearly all
other industry sectors. The fund participated in the four major subsectors:
semiconductor, software, telecommunications, and Internet companies. We
dramatically increased our exposure to semiconductors with the purchase of Atmel
- -- a terrific performer over the six months. In the software area, we held
Advanced Digital Systems, Harmonic Lightwave, HNC Software, Intuit, and J.D.
Edwards. In telecoms, we held positions in Time Warner Telecom (a subsidiary of
Time Warner), and
14
<PAGE>
Broadwing. In the Internet sector, we invested in Interleaf, Information
Architects, Yahoo!, and PSI Net.
Q: What helped or hurt performance?
A: Our overweighting in several of the strongest performing areas helped,
specifically technology and communications. At the same time our reductions in
the financial and consumer discretionary areas helped to lessen the effects of
these underperforming areas.
On a stock specific level, we had a number of big winners, including Yahoo!, the
popular Internet portal that tripled in the last three months of the period;
Network Appliance, a leader in data storage and access for network file server
and Web caching solutions; and Mercury Interactive, which develops software
tools for testing client/server, e-business, and packaged applications.
On the minus side, VISX declined on negative investor perceptions about
increasing competition in the laser eye surgery area for correcting vision
deficiencies. Leading up to this period, the stock had provided investors with
outstanding gains due to its patented process and a huge potential market. We
have sold shares in VISX because the fundamental dynamics behind the market have
impaired the stock.
Q: What is your outlook?
A: As bottom-up stockpickers, we don't make any predictions about the overall
direction of the market or the economy. However, there is no denying the fact
that this has been a terrific environment for growth stock investing. As we meet
with companies, we are continuing to see many great business plans and very
strong growth rates -- more than we have seen in years past. Of course, this
doesn't mean that there is no market risk -- there is. If the stock market goes
down, these stocks will go down, too. But, we think by picking the companies
that are demonstrating high rates of growth and low risk, we will be able to
significantly outperform the stock market in the long run.
15
<PAGE>
Glossary of Investment Terms
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Fundamental Analysis of companies based on the projected impact of
Research 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 The value of a company's outstanding shares of common
Capitalization 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/Under Refers to the allocation of assets -- usually by sector,
weighting industry, or country -- within an investment portfolio
relative to a benchmark index or investment universe.
Price/Earnings A widely used gauge of a stock's valuation that indicates
Ratio (P/E) what investors are paying for a company's earnings on a per
(also "earnings share basis. Typically based on a company's projected
multiple") earnings for the next six months, a higher "earnings
multiple" indicates a higher expected growth rate and the
potential for greater price fluctuations.
Value A company whose stock price does not fully reflect
Stock 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.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
Additional glossary terms are located at our Web site -- www.scudder.com.
16
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Investment Portfolio as of January 31, 2000 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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- -------------------------------------------------------------------------------------------
Repurchase Agreements 5.0%
- -------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Co., 5.68%, 2/1/2000, to be ------------
repurchased at $40,956,461 (Cost $40,950,000)** ............. 40,950,000 40,950,000
------------
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Convertible Bonds 0.0%
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Media
Broadcasting & Entertainment
Intouch Group, Inc. Promissory Note, 8%, 2/1/1996 ------------
(Cost $217,500) (b) (c) (d) ................................. 217,500 0
------------
Shares
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- -------------------------------------------------------------------------------------------
Convertible Preferred Stocks 0.1%
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Health
Biotechnology 0.1%
Norian Corp. "D"* (Developer and manufacturer of a
proprietary biomaterial for skeletal repair) (b) (c) ........ 357,142 630,088
------------
Medical Supply & Specialty 0.0%
InterVentional Technologies, Inc. "G"* (Manufacturer of
minimally invasive disposable microsurgical devices and
systems for treatment of cardiovascular disease) (b) (c) .... 120,000 283,200
------------
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Total Convertible Preferred Stocks (Cost $2,834,771) 913,288
- -------------------------------------------------------------------------------------------
Common Stocks 94.9%
Consumer Discretionary 5.6%
Apparel & Shoes 0.8%
Abercrombie & Fitch Co. "A"* (Retailer of casual apparel
for men and women) .......................................... 312,800 6,686,100
------------
Department & Chain Stores 2.0%
Bed Bath & Beyond, Inc.* (Operator of superstores selling
domestics merchandise and home furnishings) ................. 189,900 5,162,906
Dollar Tree Stores, Inc.* (Store chain that sells assorted
general merchandise) ........................................ 76,700 3,379,594
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Kohl's Corp.* (Operator of a chain of specialty department
stores) ................................................. 106,000 7,433,250
------------
15,975,750
------------
Recreational Products 1.7%
Harley-Davidson, Inc. (Manufacturer of motorcycles) ........ 199,000 13,967,313
------------
Specialty Retail 1.1%
Cinar Corp.* (Develops, produces, and distributes
programming and educational products for children and
families) ............................................... 72,300 1,744,238
Intimate Brands, Inc. (Retailer of intimate apparel and
personal care products) ................................. 236,670 7,159,268
8,903,506
------------
Health 9.0%
Biotechnology 5.7%
Gene Logic, Inc.* (Developer of genomic information
products, software and research services) ............... 17,700 1,190,325
Immunex Corp. (Biopharmaceutical company) .................. 220,000 28,765,000
Maxygen, Inc.* (Involved in the field of directed molecular
evolution) .............................................. 19,600 1,462,650
QLT PhotoTherapeutics, Inc.* (Developer of pharmaceutical
products) ............................................... 219,900 14,895,079
Sequenom, Inc.* (Genetic and DNA research and
development) ............................................ 26,800 696,800
------------
47,009,854
------------
Medical Supply & Specialty 3.3%
Biomet, Inc. (Manufacturer of surgical implant devices) .... 131,300 5,227,381
Medtronic, Inc. (Manufacturer of cardiac pacemakers) ....... 270,554 12,377,846
VISX, Inc.* (Developer of laser technologies and systems for
vision correction) ...................................... 325,500 9,236,063
------------
26,841,290
------------
Communications 9.8%
Cellular Telephone 0.1%
interWAVE Communications International, Ltd.* (Wireless
communication systems) .................................. 15,400 562,100
------------
Telephone/Communications 9.7%
Adelphia Business Solutions, Inc.* (Provider of
communication services) ................................. 219,000 11,223,750
Allegiance Telecom, Inc.* (Provider of telecommunication
services to business, government, and other institutional
users across the United States) ......................... 37,800 3,983,175
BroadWing, Inc. (Provider of various communication
services) ............................................... 358,400 13,619,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
CenturyTel, Inc. (Provider of local exchange telephone
services and wireless telephone services) ............... 257,400 9,845,542
Time Warner Telecom, Inc. "A"* (Provider of
telecommunications services) ............................ 570,700 34,670,025
Xircom, Inc.* (Developer, manufacturer and seller of
communication solutions for computer users) ............. 128,800 6,351,450
------------
79,693,142
------------
Financial 3.9%
Banks 1.2%
First Security Corp. (Commercial banking) .................. 376,625 9,745,172
------------
Insurance 0.8%
Providian Financial Corp. (Insurance and financial services) 73,900 6,235,313
------------
Consumer Finance 1.4%
Capital One Finance Corp. (Holding company which
provides consumer lending services through its
subsidiaries) ........................................... 285,600 11,709,600
------------
Real Estate 0.5%
Walden Residential Properties, Inc. (Self-administered and
self-managed real estate investment trust which owns
garden apartment communities) ........................... 200,000 4,500,000
------------
Media 9.9%
Advertising 1.4%
Young & Rubicam, Inc. (Advertising, marketing and
communications company) ................................. 222,000 11,960,250
------------
Broadcasting & Entertainment 8.5%
AMFM Inc.* (Owner and operator of radio stations) .......... 110,400 8,611,200
Clear Channel Communications, Inc.* (Operator of TV and
radio stations) ......................................... 162,024 13,994,823
Infinity Broadcasting Corp. (Operator of radio stations and
provider of outdoor advertising) ........................ 564,750 18,354,375
Regent Communications, Inc.* (Radio broadcasting
company) ................................................ 97,100 1,140,925
USA Networks, Inc.* (Diversified media and electronic
commerce company) ....................................... 150,000 7,443,750
Univision Communication, Inc.* (Spanish-language
broadcaster in the United States) ....................... 185,000 19,818,125
------------
69,363,198
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 9.7%
EDP Services 3.3%
CSG Systems International, Inc.* (Provider of billing
solutions, software and services for customer care and
billing functions) ..................................... 179,500 6,787,344
Fiserv Inc.* (Provider of data processing services) ....... 251,100 8,521,706
PSINet, Inc.* (Provider of Internet access services) ...... 141,300 11,286,338
------------
26,595,388
------------
Miscellaneous Commercial Services 5.6%
CMG Information Services, Inc.* (Developer of
information-based products and services for direct
marketing) ............................................. 52,000 5,853,250
Cintas Corp. (Uniform rentals) ............................ 196,100 9,186,059
Concord EFS, Inc.* (Electronic transaction authorization,
processing, settlement and transfer services) .......... 1,249,200 25,374,375
Neoforma.com, Inc.* (Provider of electronic commerce
services to the medical industry) ...................... 18,900 950,906
Swift Transportation Co., Inc.* (National truckload carrier
company) ............................................... 376,700 4,802,925
------------
46,167,515
------------
Miscellaneous Consumer Services 0.8%
eBay, Inc.* (Person-to-person trading community on the
Internet) .............................................. 41,800 6,272,613
------------
Manufacturing 1.9%
Containers & Paper 0.2%
Aptargroup, Inc. (Manufacturer of packaging equipment
components) ............................................ 84,500 1,859,000
------------
Industrial Specialty 0.5%
Corning, Inc. (Specialty glass manufacturer) .............. 24,600 3,794,550
------------
Office Equipment/Supplies 1.2%
Lexmark International Group, Inc. "A"* (Developer,
manufacturer and supplier of printing solutions and
products) .............................................. 102,000 9,613,500
------------
Technology 44.1%
Computer Software 14.7%
Advanced Digital Information Corp.* (Software producer --
provides products that organize, protect, and retrieve
electronic data) ....................................... 120,000 5,880,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Concurrent Computer Corp.* (Supplier of high performance
real time computer systems, software and solutions for
commercial and government markets) ..................... 234,600 4,428,075
Evolving Systems, Inc.* (Provider of software applications
to the telecommunications industry) .................... 114,000 1,410,750
Extensity, Inc.* (Provider of Internet-based software
applications) .......................................... 11,400 659,775
HNC Software, Inc.* (Developer, marketer and supporter of
client-server software solutions for mission-critical
decision applications) ................................. 99,100 8,937,581
Information Architects Corp.* (Provider of Web-based
digital content and information management solutions) .. 483,800 6,470,825
Interleaf, Inc.* (Developer and marketer of software
products) .............................................. 178,400 7,459,350
Intuit, Inc.* (Leading provider of financial software for
households and small businesses) ....................... 363,600 21,929,625
J.D. Edwards & Co.* (Producer of software solutions to
changing business needs) ............................... 379,500 11,313,844
Metasolv Software, Inc.* (Provider of telecommunications
related software) ...................................... 13,700 1,462,475
Microsoft Corp.* (Developer of computer software) ......... 67,300 6,586,988
Parametric Technology Corp.* (Producer of mechanical
design software) ....................................... 497,600 10,667,300
PeopleSoft, Inc.* (Manufacturer of human resource
management software) ................................... 626,500 14,096,250
SAP AG (Sponsored ADR)* (Computer software
manufacturer) .......................................... 206,100 13,435,144
Sycamore Networks, Inc.* (Developer of software-based
optical networking products) ........................... 6,900 2,201,100
VocalTec, Ltd.* (Producer of software for audio
communications on the Internet) ........................ 93,700 2,658,738
Xpedior, Inc.* (Provider of eBusiness solutions to Internet
businesses) ............................................ 15,100 415,250
------------
120,013,070
------------
Diverse Electronic Products 2.0%
Solectron Corp.* (Manufacturer of computer products and
subsystems) ............................................ 232,000 16,849,000
------------
EDP Peripherals 11.7%
Mercury Interactive Corp.* (Producer of automated software
testing tools) ......................................... 367,500 40,195,313
Network Appliance, Inc.* (Designer and manufacturer of
network data storage devices) .......................... 412,200 41,374,575
Symbol Technologies, Inc. (Manufacturer of bar code laser
scanners) .............................................. 237,800 14,193,688
------------
95,763,576
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Data Processing 0.1%
Turnstone Systems, Inc.* (Provides loop management
solutions) ............................................. 6,400 185,600
------------
Precision Instruments 2.6%
Harmonic Inc.* (Manufacturer of fiber optic systems) ...... 133,000 12,809,563
Photon Dynamics, Inc.* (Supplier of test and inspection
systems for the flat panel manufacturing industry) ..... 141,100 8,060,338
------------
20,869,901
------------
Semiconductors 12.0%
Atmel Corp.* (Developer and manufacturer of integrated
circuits) .............................................. 343,600 10,673,075
Intel Corp. (Producer of semiconductor memory circuits) ... 92,800 9,181,400
Linear Technology Corp. (Manufacturer of integrated
circuits) .............................................. 227,200 21,513,000
Quantum Effect Devices, Inc.* (Developer of
high-performance embedded microprocessors) ............. 10,900 174,400
Sanmina Corp.* (Provider of electronics contract
manufacturing services) ................................ 255,200 27,115,000
Silicon Storage Technology, Inc.* (Designer of memory
chips) ................................................. 214,200 8,367,188
Vitesse Semiconductor Corp.* (Manufacturer of digital
integrated circuits) ................................... 490,200 21,323,700
------------
98,347,763
------------
Miscellaneous 1.0%
Davox Corp.* (Developer of management systems for call
center operations) ..................................... 291,300 8,338,463
------------
Energy 1.0%
Oil & Gas Production
Anadarko Petroleum Corp. (Oil and gas exploration and
production) ............................................ 123,900 4,065,469
Nabors Industries, Inc. (Land drilling contractor) ........ 129,400 3,833,475
------------
7,898,944
------------
Transportation 0.0%
Air Freight
Expeditors International of Washington, Inc. (Air and ocean
freight forwarding, customs clearance, cargo insurance
and logistical services) ............................... 8,000 337,250
------------
- ---------------------------------------------------------------------------------------
Total Common Stocks (Cost $487,074,015) 776,058,721
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $531,076,286) (a) 817,922,009
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $531,087,182. At January 31,
2000, net unrealized appreciation for all securities based on tax cost was
$286,834,827. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $320,866,060 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$34,031,233.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $913,288 (0.11% 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 January 31, 2000 aggregated $3,052,271. 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 January 31, 2000,
amounted $913,288 which represents 0.11% of net assets. Information
concerning such restricted securities at January 31, 2000 is as follows:
Acquisition
Security Date Cost ($)
------------------------------------------------ ------------ -----------
Intouch Group Inc. .......................... 2/14/1995 217,500
Norian Corp. "D" ............................ 4/12/1995 1,634,771
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.
23
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $531,076,286) ................ $ 817,922,009
Cash ................................................................... 175
Receivable for investments sold ........................................ 2,781,242
Receivable for Fund shares sold ........................................ 7,418,178
Dividends receivable ................................................... 9,088
Interest receivable .................................................... 6,461
Foreign taxes recoverable .............................................. 1,597
Other assets ........................................................... 4,660
---------------
Total assets ........................................................... 828,143,410
Liabilities
- ----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 26,467,836
Payable for Fund shares redeemed ....................................... 3,445,738
Accrued management fee ................................................. 708,463
Other accrued expenses and payables .................................... 1,007,747
---------------
Total liabilities ...................................................... 31,629,784
- ----------------------------------------------------------------------------------------
Net assets, at value $ 796,513,626
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss (3,484,119) Net unrealized appreciation
(depreciation) on:
Investments .......................................................... 286,845,723
Foreign currency related transactions ................................ (3,495)
Accumulated net realized gain (loss) ................................... 117,561,538
Paid-in capital ........................................................ 395,593,979
- ----------------------------------------------------------------------------------------
Net assets, at value $ 796,513,626
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($796,513,626 /
18,637,345 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 42.74
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends ...................................................... $ 888,781
Interest ....................................................... 974,675
---------------
Total income ................................................... 1,863,456
---------------
Expenses:
Management fee ................................................. 3,673,215
Services to shareholders ....................................... 1,476,813
Custodian and accounting fees .................................. 57,913
Trustees' fees and expenses .................................... 23,685
Reports to shareholders ........................................ 65,213
Registration fees .............................................. 38,792
Auditing ....................................................... 11,820
Legal .......................................................... 5,864
Other .......................................................... 4,558
---------------
---------------
Total expenses, before expense reductions ...................... 5,357,873
Expense reductions ............................................. (10,298)
---------------
---------------
Total expenses, after expense reductions ....................... 5,347,575
- --------------------------------------------------------------------------------
Net investment income (loss) (3,484,119)
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 75,227,937
---------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 85,451,343
Foreign currency related transactions .......................... (131)
---------------
85,451,212
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions 160,679,149
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 157,195,030
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended January One Month
31, 2000 Ended July 31, Year Ended
Increase (Decrease) in Net Assets (Unaudited) 1999 June 30, 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ (3,484,119) $ (698,861) $ (6,849,870)
Net realized gain (loss) from
investment transactions ...... 75,227,937 159,681 157,147,002
Net unrealized appreciation
(depreciation) on investment
transactions during the period 85,451,212 (31,346,662) (70,623,956)
---------------- ---------------- ---------------
Net increase (decrease) in net
assets resulting from
operations ................... 157,195,030 (31,885,842) 79,673,176
---------------- ---------------- ---------------
Distributions to shareholders:
From net realized gains ......... (113,692,320) -- (70,435,632)
---------------- ---------------- ---------------
Fund share transactions:
Proceeds from shares sold ....... 365,405,462 65,351,061 1,005,318,406
Reinvestment of distributions ... 106,659,586 -- 67,536,828
Cost of shares redeemed ......... (435,132,708) (91,895,521) (1,152,988,975)
---------------- ---------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. 36,932,340 (26,544,460) (80,133,741)
---------------- ---------------- ---------------
Increase (decrease) in net assets 80,435,050 (58,430,302) (70,896,197)
Net assets at beginning of period 716,078,576 774,508,878 845,405,075
Net assets at end of period
(including accumulated net
investment loss
of $3,484,119 at January 31, ---------------- ---------------- ---------------
2000) ........................ $ 796,513,626 $ 716,078,576 $ 774,508,878
---------------- ---------------- ---------------
Other Information
- -------------------------------------------------------------------------------------
Shares outstanding at beginning
of period .................... 17,787,902 18,415,573 20,289,263
---------------- ---------------- ---------------
Shares sold ..................... 8,696,163 1,563,492 27,091,983
Shares issued to shareholders in
reinvestment of distributions 2,595,755 -- 1,902,446
Shares redeemed ................. (10,442,475) (2,191,163) (30,868,119)
---------------- ---------------- ---------------
Net increase (decrease) in Fund
shares ....................... 849,443 (627,671) (1,873,690)
Shares outstanding at end of ---------------- ---------------- ---------------
period ....................... 18,637,345 17,787,902 18,415,573
---------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<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>
- -------------------------------------------------------------------------------------
2000(b) 1999(c) 1999(d) 1998(d) 1997(d) 1996(d) 1996(d)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $40.26 $42.06 $41.67 $39.02 $45.56 $37.35 $27.58
--------------------------------------------------------------
- -------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -------------------------------------------------------------------------------------
Net investment
income (loss) (a) (.20) (.04) (.35) (.41) (.40) (.38) (.31)
- -------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on investment
transactions 9.18 (1.76) 4.49 6.94 (1.66) 12.79 12.20
--------------------------------------------------------------
- -------------------------------------------------------------------------------------
Total from
investment operations 8.98 (1.80) 4.14 6.53 (2.06) 12.41 11.89
- -------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------
Net realized gains on
investment transactions (6.50) -- (3.75) (3.88) (4.48) (4.20) (2.12)
--------------------------------------------------------------
- -------------------------------------------------------------------------------------
Total distributions (6.50) -- (3.75) (3.88) (4.48) (4.20) (2.12)
- -------------------------------------------------------------------------------------
Net asset value, end
of period $42.74 $40.26 $42.06 $41.67 $39.02 $45.56 $37.35
--------------------------------------------------------------
- -------------------------------------------------------------------------------------
Total Return (%) 22.95** (4.33)** 11.65 17.86 (4.93) 35.26 45.41
- -------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 797 716 775 845 862 1,040 727
- ------------------------------------------------------------------------------------
Ratio of expenses (%) 1.44* 1.52* 1.51 1.41 1.36 1.24 1.32
- ------------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) (.94)* (1.09)* (.94) (.99) (1.02) (.91) (1.01)
- ------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 104* 4* 97(e) 52 52 59 42
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended January 31, 2000 (Unaudited).
(c) For the one month ended July 31, 1999. On July 7, 1999, the Trustees of the
Fund changed the fiscal year end from June 30 to July 31.
(d) For the year ended June 30.
(e) The change in the investment objective during the period resulted in a
higher portfolio turnover rate.
* Annualized
** Not annualized
27
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Development Fund (the "Fund") is a diversified series of Scudder
Securities Trust (the "Trust"), which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
On July 7, 1999, the Board of Trustees of the Fund changed the fiscal year end
from June 30 to July 31.
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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. 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 Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than 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.
28
<PAGE>
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, 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
principal amount of the repurchase price plus accrued interest.
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. 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 at least
annually.
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. 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
29
<PAGE>
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended January 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $369,641,941 and
$441,911,789, 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, 0.95% of the next $500 million of such net
assets, and 0.90% 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 January 31, 2000, the fee pursuant to these
agreements amounted to $3,673,215, which was equivalent to an annual effective
rate of 0.98% 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 January 31, 2000, the amount charged to the Fund by SSC
aggregated $535,572, of which $272,017 is unpaid at January 31, 2000.
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 January
31, 2000, the amount charged to the Fund by STC aggregated $604,664, of which
$302,920 is unpaid at January 31, 2000.
30
<PAGE>
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 January 31, 2000, the amount charged to the Fund by SFAC aggregated
$50,625, of which $9,427 is unpaid at January 31, 2000.
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
January 31, 2000, the Special Servicing Agreement expense charged to the Fund
amounted to $109,927.
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 January 31, 2000, Trustees' fees and expenses aggregated
$23,685.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. For the six months ended January 31,
2000, the Fund's custodian and transfer agent fees were reduced by $4,507 and
$5,791, respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
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 pro rata based on net assets 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.
31
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong* Peter Chin*
o President o Vice President
Sheryle J. Bolton J. Brooks Dougherty*
o Trustee; Chief Executive Officer o Vice President
and Director, Scientific Learning
Corporation James M. Eysenbach*
o Vice President
William T. Burgin
o Trustee; General Partner, James E. Fenger*
Bessemer Venture Partners o Vice President
Keith R. Fox Philip S. Fortuna*
o Trustee; Private Equity Investor o Vice President
William H. Luers Sewall F. Hodges*
o Trustee; Chairman and President, o Vice President
U.N. Association of America
Ann M. McCreary*
Kathryn L. Quirk* o Vice President
o Trustee, Vice President and
Assistant Secretary Thaddeus Paluszek*
o Vice President
Joan E. Spero
o Trustee; President, Doris Duke John Millette*
Charitable Foundation o Vice President and Secretary
Paul Bancroft III John R. Hebble*
o Honorary Trustee; Venture o Treasurer
Capitalist and Consultant
Caroline Pearson*
Wilson Nolen o Assistant Secretary
o Honorary Trustee; Consultant
*Scudder Kemper Investments, Inc.
Robert G. Stone, Jr.
o Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg*
o Honorary Trustee
32
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
33
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1-800-SCUDDER www.scudder.com
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Retirement Programs and Education Accounts
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Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
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Closed-End Funds#
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<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
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 or classes thereof 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.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold 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.
34
<PAGE>
Scudder Solutions
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1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
35
<PAGE>
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1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
36
<PAGE>
Notes
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<PAGE>
Notes
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<PAGE>
Notes
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<PAGE>
About the Fund's Adviser
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 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 over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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.
