SCUDDER
INVESTMENTS(SM)
[LOGO]
--------------------------
EQUITY/GROWTH
--------------------------
Scudder Development
Fund
Fund #067
Annual Report
July 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
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
32 Report of Independent Accountants
33 Tax Information
34 Shareholder Meeting Results
35 Officers and Trustees
36 Investment Products and Services
38 Account Management Resources
2
<PAGE>
Scudder Development Fund
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ticker symbol SCDVX fund number 067
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Date of o During the twelve months ended July 31, 2000, Scudder
Inception: Development Fund returned 29.22%, which beat the 9.00%
2/11/71 return of its unmanaged benchmark, the S&P 500.
o The fund benefited from its overweight position in the
technology sector, as well as strong stock selection
Total Net within the group.
Assets as
of 7/31/00: o Management continues to focus on companies with strong
$827 million revenue growth, capable management teams, and products
with the potential to generate strong sales.
3
<PAGE>
Letter from the Fund's President
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Dear Shareholders,
In recent months, growth stocks have experienced fluctuations that are unusual
even for a sector that is known for its volatility. During the first seven
months of 2000, the Nasdaq had several large swings that are depicted in the box
at the bottom of the page.
When the market exhibits this type of volatility, it can be difficult for growth
investors to adhere to the guidelines we at Scudder frequently encourage:
namely, diversification and a long-term approach. Nevertheless, we believe that
you should keep these factors in mind no matter how the market is performing on
any given day. Growth stocks, although volatile, are a critical component of a
diversified portfolio. As a shareholder of Scudder Development Fund, you own a
fund that invests in stocks that management believes to be among the market's
most attractive growth companies. Although some will undoubtedly fail to live up
to expectations, others may ultimately evolve into some of the market's most
elite companies. But in order to participate in such growth, it is necessary to
stay focused on your goals during periods of market volatility. By placing too
great of an emphasis
--------------------------------------------------------
Nasdaq Total Returns by Period
--------------------------------------------------------
January 1 - March 10 +24.10%
March 11 - May 23 -35.49%
May 24 - July 17 +30.73%
July 18 - July 31 -9.82%
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4
<PAGE>
on the latest trends -- such as the direction of interest rates or the
implications of the latest economic report -- it is easy to make decisions that
prevent you from participating in the long-term benefits of growth stocks.
During the twelve-month period ended July 31, 2000, Scudder Development Fund
outperformed the S&P 500. For more information on the reasons for the fund's
performance, please turn to the Portfolio Management Discussion that begins on
page 10.
Thank you for your continued investment in Scudder Development Fund. For current
information on the fund or your account, visit our Web site at www.scudder.com.
There you'll find a wealth of information, including fund performance, the most
recent 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).
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder Development Fund
5
<PAGE>
Performance Update
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July 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:
Yearly periods ended July 31
Scudder Development Fund S&P 500 Index*
'90 10000 10000
'91 12648 11274
'92 13581 12719
'93 15526 13830
'94 14253 14543
'95 22129 18340
'96 23815 21376
'97 27865 32524
'98 28839 38798
'99 32781 46639
'00 42361 50834
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Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 7/31/2000 $10,000 Cumulative Annual
------------------------------------------------------------------------------
Scudder Development Fund
------------------------------------------------------------------------------
1 year $ 12,922 29.22% 29.22%
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5 year $ 19,143 91.43% 13.87%
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10 year $ 42,361 323.61% 15.53%
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S&P 500 Index*
------------------------------------------------------------------------------
1 year $ 10,900 9.00% 9.00%
------------------------------------------------------------------------------
5 year $ 27,718 177.18% 22.59%
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10 year $ 50,834 408.34% 17.64%
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* 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.
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 (%)
Yearly periods ended July 31
<TABLE>
<CAPTION>
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 (%) 26.48 7.38 14.31 -8.20 55.27 7.62 17.00 3.50 13.67 29.22
------------------------------------------------------------------------------------
Index Total
Return (%) 12.74 12.81 8.73 5.16 26.10 16.56 52.15 19.29 20.21 9.00
------------------------------------------------------------------------------------
Net Asset
Value ($) 29.83 31.08 33.58 28.23 40.82 39.60 41.76 39.16 40.26 44.92
------------------------------------------------------------------------------------
Capital
Gains
Distributions
($) 1.23 .96 1.70 3.07 2.12 4.20 4.48 3.88 3.75 6.50
------------------------------------------------------------------------------------
</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. Since adopting its current
objective, the cumulative return is 23.64%.
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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July 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's cash position
Common Stocks 90% has increased from 5% of
Cash Equivalents 10% net assets during the
------------------------------------ past six months,
100% reflecting management's
------------------------------------ desire to avoid buying
stocks it believes to be
too expensive.
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Sector Diversification
--------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
(Excludes 10% Cash Equivalents) An overweight position
in technology -- as well
Technology 58% as strong selection
Service Industries 10% within the group -- was a
Health 10% key factor in the fund's
Communications 7% outperformance during
Consumer Discretionary 5% the period.
Media 3%
Durables 3%
Energy 3%
Other 1%
------------------------------------
100%
------------------------------------
8
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Ten Largest Equity Holdings
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(38% of Portfolio) Management seeks to
invest in companies with
1. Mercury Interactive Corp. powerful revenue growth,
Producer of automated software testing tools skilled managment teams,
and products with the
2. Sanmina Corp. potential to generate
Provider of electronics contract manufacturing strong sales.
services
3. Network Appliance, Inc.
Designer and manufacturer of network data storage
devices
4. Concord EFS, Inc.
Provider of electronic transaction authorization,
processing, settlement and transfer services
5. Time Warner Telecom, Inc.
Provider of telecommunications services
6. Vitesse Semiconductor Corp.
Manufacturer of digital integrated circuits
7. Andrx Corp.
Formulates and commercializes generic
controlled-released oral pharmaceuticals
8. Immunex Corp.
Biopharmaceutical company
9. Fiserv, Inc.
Provider of data processing services
10. Harley-Davidson, Inc.
Manufacturer of motorcycles
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
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Portfolio Management Discussion
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July 31, 2000
We asked portfolio managers Sewall Hodges and J.C. Cabrera to discuss the recent
market environment and their investment strategy during the twelve-month period
ended July 31, 2000.
Q: How have growth stocks been affected by the volatility that has characterized
the market environment during the past year?
A: In general, growth stocks have been the most volatile sector of the market.
During the final two months of 1999 and the first quarter of this year, growth
stocks -- as a group -- staged an explosive rally on the strength of favorable
liquidity conditions, a strong economy, and wildly enthusiastic investor
sentiment. This environment was extremely positive for the fund, which focuses
on the types of fast-growing companies that were in favor during this period.
However, the rally quickly reversed course in mid-March due to fears that the
Federal Reserve would be forced to raise interest rates more than the markets
had anticipated. Investors unloaded their most speculative, richly-valued
holdings, and many former high-fliers fell as much as 50-80%. Among the biggest
losers were the "dot-coms" and other Internet stocks that had led the market
higher throughout the winter. While the fund seeks to hold only companies with
strong fundamentals, the collapse in the tech sector nonetheless took a toll on
its share price because the correction hurt all growth stocks regardless of
their quality.
Although the market rebounded during June and July, the divergence between the
winners and losers was substantial. In a demonstration of the fragile nature of
the current market environment, several of our holdings -- such as Symbol
Technologies, Excel Technology, and Pericom Semiconductor -- fell 20% or more in
July even though there was no news to spark moves of this magnitude. However,
several of the fund's holdings produced positive double-digit returns during
this phase. In our view, this shows that we have entered a "stockpicker's
market," an environment that is far removed from the euphoria of the first
quarter.
10
<PAGE>
Q: How did the fund perform during this period?
A: During the twelve-month period ended July 31, 2000, the fund returned 29.22%,
which beat the 9.00% return of its unmanaged benchmark, the S&P 500 Index. The
fund's overweight position in technology stocks, combined with our strong
stockpicking within this area, was the most important contributor to its
outperformance. The S&P 500 Index divides the tech sector into two groups:
technology-electronics and technology-services. During the past twelve months,
we held, on average, 32% of the fund's net assets in tech-electronics, versus
20% for the S&P 500. Our holdings in this area returned 100%, soundly beating
the 52% return of the tech-electronics component of the index. The fund's
performance was similarly strong in the tech-services group. The portfolio had
an average weighting of 20% in this area -- versus 8.5% for the S&P -- and our
holdings returned 45%, versus 5% for similar holdings in the benchmark. This
divergence accounted for the majority of the fund's outperformance in relation
to the S&P. Our top performers in the tech area include Network Appliance
(+532.6%), Mercury Interactive (330.4%), and Sanmina (184.4%). Performance was
also helped by our participation in initial public offerings.
On the down side, fund returns were dampened by our underweight position in
health care stocks, particularly the large-cap pharmaceuticals that have done so
well during the first seven months of 2000. More recently, the fund has also
been hurt by its underweighting in the financial sector. Many stocks in the
group have rallied on hopes for an end to the Fed's tightening cycle, but we
have not been
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Fund Weightings by Market Capitalization
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Percent of fund's net assets in: 7/31/00 1/31/00
--------------------------------------------------------------------------------
Large-cap 47.7% 42.4%
Mid-cap 37.0% 45.6%
Small-cap 15.3% 12.0%
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Small-cap is defined as stocks with market capitalizations of $2 billion or
less; large-cap is defined as stocks with market capitalizations of $7 billion
or more.
11
<PAGE>
positioned to participate. On the individual stock level, notable losers include
VISX, Abercrombie and Fitch, TJX Companies, and Mutual Risk Management.
Q: Please review the fund's investment strategy.
A: We strive to invest in companies with the strongest growth potential and
lowest downside risk. Size isn't a factor; the fund is invested in stocks of all
market capitalizations. We look for companies that, in our view, have the lowest
probability of disappointments, since investing in companies solely on the basis
of their growth potential can expose the portfolio to unnecessarily high levels
of risk.
We focus on stocks with three primary characteristics: rapid revenue growth,
solid products, and skilled management teams. Strong revenue growth, especially
unit growth, is very important because it is often a leading indicator of a
company's prospects. Many companies with high revenue growth rates offer
tremendous return potential. On the other hand, a company that lacks rapid
revenue growth may never have an earnings growth rate that is competitive.
Second, we look for companies with products or services that have the potential
to generate strong sales. We analyze the products of each company in which we
consider making an investment, and compare them to the products of their
competitors. We also look closely at the growth rate of the industry in which
the company does business. This is a very important step, since the strength of
a company's products is ultimately the determining factor in its unit sales
growth.
Finally, we look for companies with innovative management teams. We also search
for signs of weakness, such as the departure of key employees or changes in top
management. We invest a great deal of time in getting to know the management
teams of the companies we hold in the portfolio. In our view, strong management
is a critical component of a company's potential.
12
<PAGE>
Q: The fund holds 10.2% of its net assets in cash and cash equivalents. What is
the reason for this relatively large position?
A: Our sizeable position in cash is not a result of top-down analysis. We never
try to make "bets" on the direction of the broader market, because such an
approach is not consistent with our strengths as stockpickers. The cash position
began to build during the winter because the stocks in our investment universe
had soared to valuation levels that we believed to be unsupportable. As we
received new inflows or trimmed our existing holdings, we opted to keep the
proceeds in cash rather than buy stocks that we believed to be expensive, an
approach that helped us during the market correction of April and May. We
continue to hold a substantial position in cash because growth stocks are
extremely vulnerable to disappointments at this juncture, and we wish to buy
only the companies in which we have the highest level of confidence.
Q: What is your outlook for growth stocks?
A: Although it appears that the worst of the market's interest rate concerns are
now behind us, we feel that there are a number of factors that could lead to
further volatility throughout the remainder of the year. First, there is the
issue of the upcoming elections, which could sway the market since there is as
yet no consensus on which party will gain the upper hand in either Congress or
the presidency. Second, we believe that there will be a significant amount of
tax-loss selling at year-end. The bifurcated nature of the market's performance
so far in 2000 means that most money managers have some big
--------------------------------------------------------------------------------
Scudder Development Fund Versus The S&P 500
--------------------------------------------------------------------------------
Scudder
Development Fund S&P 500
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Weighted-average market capitalization $29.8 billion $138.6 billion
P/E ratio, 2000 estimated earnings 50.6x 15.6x
P/E ratio, 2001 estimated earnings 38.8x 13.3x
--------------------------------------------------------------------------------
13
<PAGE>
winners in their portfolios. In an effort to minimize taxable gains, investors
may sell their losing positions, a dynamic that could put pressure on the market
as the year draws to a close. Finally, we are concerned with the high level of
uncertainty that is plaguing many industries. As former highfliers in the
e-commerce, Internet infrastructure, semiconductor, and wireless sectors have
come back to earth, the areas where growth managers can invest with confidence
has become increasingly narrow.
Despite these issues, we remain confident in our ability to find the best growth
stocks that the market has to offer. The events of this year have shown that as
investors are becoming much more discriminating, they will no longer reward
companies with no earnings and bad business plans. We believe that this trend
works to our advantage, since it increases the importance of strong individual
stock selection. Although an emphasis on growth stocks may expose the fund to
short-term volatility, we feel that over the long term, our shareholders will be
rewarded by our focus on companies with strong revenue growth, popular products,
and top-notch management teams.
14
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Scudder Development Fund:
A Team Approach to Investing
Scudder Development Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Lead portfolio manager Sewall F. Hodges joined the Adviser in 1995 and assumed
responsibility for the fund's day-to-day management and overall investment
strategies in 1999. Mr. Hodges has 14 years of experience in global analysis and
portfolio management.
Portfolio manager J.C. Cabrera joined the Adviser in
1999 and the fund in 1999. Mr. Cabrera has 11 years of
portfolio management experience.
15
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<TABLE>
<CAPTION>
Glossary of Investment Terms
--------------------------------------------------------------------------------
<S> <C>
Bottom-Up Investing An investment style that focuses on the use of research to
Style assess the performance of individual companies before
considering the impact of economic trends. This approach,
which is the opposite of "top-down" investing, assumes that
the most significant determinant of performance is
individual stock selection, rather than industry or country
allocation.
Growth Stock Stock of a company that has displayed above average earnings
growth and is expected to continue to increase profits
faster than the overall market. Stocks of such companies
usually trade at higher valuations and experience more price
volatility than the market as a whole. Distinct from value
stock.
Market The market 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-capitalization. "Large-cap" stocks tend to be more
liquid.
Top-Down Investing A method in which the investor first looks at trends in the
Style general economy (or, in the case of international investing,
the economies of several countries), and next selects
companies or industries that stand to benefit from those
trends. Opposite of bottom-up investing.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
</TABLE>
(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
<PAGE>
Investment Portfolio as of July 31, 2000
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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Repurchase Agreements 6.7%
-----------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette, 6.53%, to be
repurchased at $24,295,406 on 8/1/2000** ................................... 24,291,000 24,291,000
State Street Bank and Trust Company, 6.53%, to be
repurchased at $30,010,443 on 8/1/2000** ................................... 30,005,000 30,005,000
Total Repurchase Agreements (Cost $54,296,000) ................................. 54,296,000
-----------------------------------------------------------------------------------------------------------
Short-Term Investments 3.7%
-----------------------------------------------------------------------------------------------------------
Student Loan Marketing Association, 6.43%, 8/1/2000
(Cost $30,000,000) ......................................................... 30,000,000 30,000,000
[GRAPHIC OMITTED]
Shares
----------------------------------------------------------------------------------------------------------
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Convertible Preferred Stocks 0.0%
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Health
Medical Supply & Specialty
InterVentional Technologies, Inc."G"* (Manufacturer of minimally invasive
disposable microsurgical devices and systems for treatment of cardiovascular
disease) (b) (c) (Cost $1,200,000) ......................................... 120,000 283,200
----------
-----------------------------------------------------------------------------------------------------------
Common Stocks 89.6%
-----------------------------------------------------------------------------------------------------------
Consumer Discretionary 4.2%
Department & Chain Stores 2.0%
Kohl's Corp.* (Operator of a chain of specialty
department stores) ......................................................... 281,400 15,969,450
----------
Recreational Products 2.2%
Harley-Davidson, Inc. (Manufacturer of motorcycles) ........................... 398,000 17,860,250
----------
Health 8.6%
Biotechnology 3.6%
Immunex Corp.* (Biopharmaceutical company) .................................... 392,900 19,915,119
Invitrogen Corp.* (Developer of research kits) ................................ 56,900 3,570,475
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
--------------------------------------------------------------------------------
<S> <C> <C>
QLT, Inc.* (Developer of pharmaceutical
products) ........................................ 93,200 6,141,474
------------
29,627,068
------------
Medical Supply & Specialty 5.0%
Andrx Corp.* (Formulates and commercializes generic
controlled-released oral pharmaceuticals) ........ 317,400 24,777,038
Medtronic, Inc. (Manufacturer of cardiac pacemakers) 303,054 15,474,695
------------
40,251,733
------------
Communications 6.2%
Telephone/Communications 5.9%
Adelphia Business Solutions, Inc.* (Provider of
communication services) .......................... 220,600 3,171,125
BroadWing, Inc.* (Provider of various communication
services) ........................................ 329,000 8,636,250
Pinnacle Holdings, Inc.* (Real estate investment
trust which provides rental space to wireless
communications providers) ........................ 70,600 3,966,838
Time Warner Telecom, Inc. "A"* (Provider of
telecommunications services) ..................... 521,700 32,312,794
------------
48,087,007
------------
Miscellaneous 0.3%
Corvis Corp.* (Designer and manufacturer of
communications products) ......................... 30,300 2,494,542
------------
Media 2.6%
Broadcasting & Entertainment
Citadel Communications Corp.* (Radio broadcaster) ... 264,300 7,912,481
Univision Communication, Inc.* (Spanish-language
broadcaster in the United States) ................ 105,300 13,083,525
------------
20,996,006
------------
Service Industries 9.5%
EDP Services 4.7%
CSG Systems International, Inc.* (Provider of billing
solutions, software and services for customer care
and billing functions) ........................... 169,800 9,031,238
Fiserv, Inc.* (Provider of data processing services) 344,600 19,232,988
PSINet, Inc.* (Provider of Internet access services) 284,700 4,964,456
Sapient Corp.* (Producer of flexible information
technology applications) ......................... 40,900 4,652,375
------------
37,881,057
------------
Miscellaneous Commercial Services 4.8%
Concord EFS, Inc.* (Provider of electronic
transaction authorization, processing, settlement
and transfer services) ........................... 1,249,200 34,353,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Internap Network Services Corp.* (Provider of
centrally managed Internet connectivity services
targeted at businesses) ........................... 137,300 4,683,217
------------
39,036,217
------------
Durables 2.5%
Telecommunications Equipment
ANTEC Corp.* (Developer and supplier of optical
transmission equipment for cable TV) .............. 193,200 7,305,375
Spectrasite Holdings, Inc.* (Developer of tower
networks for the wireless communications industry) 393,700 8,366,125
Tellabs, Inc.* (Manufacturer of voice data
communications equipment) ......................... 75,800 4,927,000
------------
20,598,500
------------
Manufacturing 1.5%
Electrical Products 0.8%
Nanometrics, Inc.* (Manufacturer of products for
advanced integrated circuit, flat panel display and
magnetic heads) ................................... 195,300 6,676,819
------------
Industrial Specialty 0.7%
Corning, Inc. (Specialty glass manufacturer) ......... 24,600 5,754,863
------------
Technology 52.1%
Computer Software 8.9%
Advanced Digital Information Corp.* (Software
producer -- provides products that organize,
protect and retrieve electronic data) ............. 240,000 3,360,000
Davox Corp.* (Developer of management systems for
call center operations) ........................... 291,300 2,448,741
Evolving Systems, Inc.* (Provider of software
applications to the telecommunications industry) .. 351,300 1,844,325
HNC Software, Inc.* (Developer, marketer and
supporter of client-server software solutions for
mission-critical decision applications) ........... 99,100 4,372,788
Information Architects Corp.* (Provider of Web-based
digital content and information management
solutions) ........................................ 483,800 3,084,225
Intuit, Inc.* (Leading provider of financial software
for households and small businesses) .............. 265,600 9,030,400
MetaCreations Corp.* (Provider of graphics
applications) ..................................... 187,400 2,213,663
Microsoft Corp.* (Developer of computer software) .... 211,800 14,786,288
PeopleSoft, Inc.* (Manufacturer of human resource
management software) .............................. 626,500 13,665,531
SAP AG (Sponsored ADR) (Computer software
manufacturer) ..................................... 128,200 7,147,150
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Verity, Inc.* (Developer and supporter of software tools
and applications for locating information on various
networks and databases) ............................. 204,200 7,440,538
VocalTec, Ltd. (Producer of software for audio
communications on the Internet) ..................... 145,600 2,684,500
------------
72,078,149
------------
Diverse Electronic Products 3.3%
Dell Computer Corp.* (Developer and manufacturer of
IBM compatible personal computers) .................. 192,600 8,462,363
Natural MicroSystems Corp.* (Designer, manufacturer
and marketer of integrated hardware and software
products) ........................................... 49,200 5,482,725
Solectron Corp.* (Manufacturer of computer products
and subsystems) ..................................... 310,400 12,513,000
------------
26,458,088
------------
EDP Peripherals 12.5%
Mercury Interactive Corp.* (Producer of automated
software testing tools) ............................. 528,000 52,412,250
Network Appliance, Inc.* (Designer and manufacturer
of network data storage devices) .................... 406,800 35,061,075
Symbol Technologies, Inc. (Manufacturer of bar code
laser scanners) ..................................... 356,700 14,223,413
------------
101,696,738
------------
Electronic Components/Distributors 3.2%
Jabil Circuit, Inc.* (Designer and manufacturer of
circuit board assemblies for original equipment
manufacturers) ...................................... 277,200 13,877,325
SanDisk Corp.* (Manufacturer of flash memory data
storage products) ................................... 66,300 4,226,625
Vishay Intertechnology, Inc.* (Manufacturer of
electronic components) .............................. 245,000 7,579,688
------------
25,683,638
------------
Office/Plant Automation 0.8%
3Com Corp.* (Manufacturer of data networking systems) .. 89,500 1,213,844
Palm, Inc.* (Provider of handheld computing devices) ... 132,747 5,177,133
------------
6,390,977
------------
Precision Instruments 2.9%
Credence Systems Corp.* (Manufacturer of
semiconductor testing equipment) .................... 193,600 8,276,400
Excel Technology, Inc.* (Producer of laser systems) .... 97,500 3,705,000
Photon Dynamics, Inc.* (Supplier of test, inspection
and repair systems for the flat panel manufacturing
industry) ........................................... 216,800 11,707,200
------------
23,688,600
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
Semiconductors 20.5%
Atmel Corp.* (Developer and manufacturer of
integrated circuits) .................................. 343,600 10,286,525
California Micro Devices Corp.* (Designer of
electronic circuitry) ................................. 150,200 3,482,763
Elantec Semiconductor, Inc.* (Designer and
manufacturer of analog integrated circuits) ........... 72,800 5,300,750
Intel Corp. (Producer of semiconductor memory
circuits) ............................................. 259,400 17,314,950
Intersil Holding Corp.* (Designer and manufacturer of
semiconductors for communications and power
management end-user markets) .......................... 227,000 13,009,938
Linear Technology Corp. (Manufacturer of integrated
circuits) ............................................. 216,400 11,956,100
Pericom Semiconductor Corp.* (Developer of integrated
circuits) ............................................. 179,900 9,534,700
QLogic Corp.* (Manufacturer of semiconductor and
input/output products) ................................ 70,000 5,215,000
SDL, Inc.* (Designer and manufacturer of
semiconductor lasers) ................................. 14,500 5,032,406
Sanmina Corp.* (Provider of electronics contract
manufacturing services) ............................... 444,400 41,273,650
Silicon Storage Technology, Inc.* (Designer of memory
chips) ................................................ 214,200 13,534,763
Siliconix, Inc.* (Manufacturer of discrete and
integrated semiconductor products) .................... 45,600 2,476,650
Vitesse Semiconductor Corp.* (Manufacturer of digital
integrated circuits) .................................. 490,200 29,228,175
-------------
167,646,370
-------------
Energy 2.4%
Oil & Gas Production
Anadarko Petroleum Corp. (Explorer and producer of
crude oil and natural gas) ............................ 183,100 8,754,469
Nabors Industries, Inc.* (Land drilling contractor) ...... 264,200 10,997,317
-------------
19,751,786
-------------
----------------------------------------------------------------------------------------
Total Common Stocks (Cost $497,277,738) 728,627,858
----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $582,773,738) (a) 813,207,058
----------------------------------------------------------------------------------------
</TABLE>
* 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 $582,790,605. At July 31,
2000, net unrealized appreciation for all securities based on tax cost
was $230,416,453. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $297,239,279 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $66,822,826.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
(b) Securities valued in good faith by the Valuation Committee of the Board
of Trustees at fair value amounted to $283,200 (0.03% 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 July 31, 2000 aggregated
$1,200,000. 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 July 31,
2000, amounted to $283,200 which represents 0.03% of net assets.
Information concerning such restricted securities at July 31, 2000, is
as follows:
Security Acquisition Cost ($)
Date
--------------------------------------------------- ------------ -----------
InterVentional Technologies, Inc. "G" ............ 3/6/1995 1,200,000
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $582,773,738) ................ $ 813,207,058
Cash ................................................................... 3,004
Receivable for investments sold ........................................ 3,489,366
Interest receivable .................................................... 9,849
Receivable for Fund shares sold ........................................ 16,461,331
Due from Adviser ....................................................... 29,378
Other receivables ...................................................... 609,059
Other assets ........................................................... 4,660
---------------
Total assets ........................................................... 833,813,705
Liabilities
----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 2,366,900
Payable for Fund shares redeemed ....................................... 3,349,439
Accrued management fee ................................................. 733,555
Accrued Trustees' fees and expenses .................................... 59,839
Other accrued expenses and payables .................................... 522,484
---------------
Total liabilities ...................................................... 7,032,217
----------------------------------------------------------------------------------------
Net assets, at value $ 826,781,488
----------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments .......................................................... 230,433,320
Other receivables .................................................... (1,243,014)
Accumulated net realized gain (loss) ................................... 100,984,533
Paid-in capital ........................................................ 496,606,649
----------------------------------------------------------------------------------------
Net assets, at value $ 826,781,488
----------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($826,781,488 /
18,405,407 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 44.92
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
--------------------------------------------------------------------------------
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $3,784) ............ $ 1,138,378
Interest ....................................................... 2,436,575
---------------
Total Income ................................................... 3,574,953
---------------
Expenses:
Management fee ................................................. 7,883,702
Services to shareholders ....................................... 2,981,390
Custodian and accounting fees .................................. 116,923
Auditing ....................................................... 40,771
Legal .......................................................... 20,059
Trustees' fees and expenses .................................... 94,077
Reports to shareholders ........................................ 135,104
Other expenses ................................................. 8,235
---------------
Total expenses, before expense reductions ...................... 11,280,261
Expense reductions ............................................. (55,770)
---------------
Total expenses, after expense reductions ....................... 11,224,491
--------------------------------------------------------------------------------
Net investment income (loss) (7,649,538)
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 178,801,640
Foreign currency related transactions .......................... (3,759)
---------------
178,797,881
---------------
Net unrealized appreciation (depreciation) during the period on:
Investments and other receivables .............................. 27,795,926
Foreign currency related transactions .......................... 3,364
---------------
27,799,290
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions 206,597,171
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 198,947,633
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Month
Year Ended July Ended July 31, Year Ended
Increase (Decrease) in Net Assets 31, 2000 1999 June 30, 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ (7,649,538) $ (698,861) $ (6,849,870)
Net realized gain (loss) on
investment transactions .... 178,797,881 159,681 157,147,002
Net unrealized appreciation
(depreciation) on investment
transactions during the period 27,799,290 (31,346,662) (70,623,956)
---------------- ---------------- ---------------
Net increase (decrease) in net
assets resulting from
operations ................... 198,947,633 (31,885,842) 79,673,176
Distributions to shareholders
from net realized gains ..... (113,693,597) -- (70,435,632)
---------------- ---------------- ---------------
Fund share transactions:
Proceeds from shares sold ....... 890,418,676 65,351,061 1,005,318,406
Reinvestment of distributions ... 106,660,992 -- 67,536,828
Cost of shares redeemed ......... (971,630,792) (91,895,521) (1,152,988,975)
---------------- ---------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. 25,448,876 (26,544,460) (80,133,741)
---------------- ---------------- ---------------
Increase (decrease) in net assets 110,702,912 (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 ..... $ 826,781,488 $ 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 ..................... 20,022,688 1,563,492 27,091,983
Shares issued to shareholders in
reinvestment of distributions 2,595,791 -- 1,902,446
Shares redeemed ................. (22,000,974) (2,191,163) (30,868,119)
---------------- ---------------- ---------------
Net increase (decrease) in Fund
shares ....................... 617,505 (627,671) (1,873,690)
Shares outstanding at end of
period ....................... 18,405,407 17,787,902 18,415,573
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<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)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $40.26 $42.06 $41.67 $39.02 $45.56 $37.35
----------------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss)
(a) (.42) (.04) (.35) (.41) (.40) (.38)
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions 11.58 (1.76) 4.49 6.94 (1.66) 12.79
----------------------------------------------------
------------------------------------------------------------------------------------
Total from investment
operations 11.16 (1.80) 4.14 6.53 (2.06) 12.41
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net realized gains on
investment transactions (6.50) -- (3.75) (3.88) (4.48) (4.20)
----------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (6.50) -- (3.75) (3.88) (4.48) (4.20)
------------------------------------------------------------------------------------
Net asset value, end of period $44.92 $40.26 $42.06 $41.67 $39.02 $45.56
----------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) 29.22 (4.33)** 11.65 17.86 (4.93) 35.26
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 827 716 775 845 862 1,040
------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.41(f) 1.52* 1.51 1.41 1.36 1.24
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.40(f) 1.52* 1.51 1.41 1.36 1.24
------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) (.95) (1.09)* (.94) (.99) (1.02) (.91)
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 100 4* 97(e) 52 52 59
------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the year ended July 31, 2000.
(c) For the one month ended July 31, 1999. On June 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.
(f) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.40%
and 1.39%, respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
26
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
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 June 7, 1999, the Fund changed its fiscal year end for financial reporting
and federal income tax purposes to July 31 from June 30.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States 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.
27
<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. Earnings and profits distributed to shareholders on redemption of Fund
shares ("tax equalization") may be utilized by the Fund, to the extent
permissible, as part of the Fund's dividends paid deduction on its federal
income tax return.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in
28
<PAGE>
the United States. These differences primarily relate to net investment losses
incurred by the Fund. 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.
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.
Other. At July 31, 2000, other receivables of $609,059 (0.1% of net assets) with
a cost of $1,852,073 have been valued in good faith by the Valuation Committee
of the Board of Trustees.
B. Purchases and Sales of Securities
During the year ended July 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $753,663,045 and
$919,300,351, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objective, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is 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. For the year ended July 31,
2000, the fee pursuant to this Agreement amounted to $7,883,702, 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
year ended July 31, 2000, the amount charged to the Fund by SSC aggregated
$1,102,679, of which $109,908 is unpaid at July 31, 2000.
29
<PAGE>
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended July 31, 2000,
the amount charged to the Fund by STC aggregated $1,183,775, of which $93,373 is
unpaid at July 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
July 31, 2000, the amount charged to the Fund by SFAC aggregated $105,995, of
which $9,905 is unpaid at July 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 year ended July 31,
2000, the Special Servicing Agreement expense charged to the Fund amounted to
$212,059.
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 year ended July 31, 2000, Trustees' fees and expenses aggregated $35,321. In
addition, a one-time fee of $58,756 was accrued for payment to those Trustees
not affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $29,378 of such costs.
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. During the year ended July 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $8,267 and $18,125,
respectively, under these arrangements.
30
<PAGE>
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank 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 upon 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.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
31
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Scudder Securities Trust and the
Shareholders of Scudder Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Development Fund (the
"Fund") at July 31, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
September 19, 2000
32
<PAGE>
Tax Information
--------------------------------------------------------------------------------
The Fund paid distributions of $6.50 per share from net long-term capital gains
during its year ended July 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$180,000,000 as capital gain dividends for its year ended July 31, 2000, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
33
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Development Fund
(the "fund") was held on July 13, 2000, 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 elect Trustees of the fund.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 7,980,253 218,710
Linda C. Coughlin 7,980,168 218,796
Dawn-Marie Driscoll 7,982,510 216,453
Edgar R. Fiedler 7,962,968 235,995
Keith R. Fox 7,974,215 224,749
Joan E. Spero 7,971,563 227,400
Jean Gleason Stromberg 7,983,071 215,892
Jean C. Tempel 7,972,020 226,943
Steven Zaleznick 7,980,396 218,568
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
7,970,930 112,844 115,190 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* 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.
34
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin* J. Brooks Dougherty*
o President and Trustee o Vice President
Henry P. Becton, Jr. James M. Eysenbach*
o Trustee; President, WGBH o Vice President
Educational Foundation
James E. Fenger*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, William F. Glavin*
Center for Business Ethics, Bentley o Vice President
College
Sewall F. Hodges*
Edgar R. Fiedler o Vice President
o Trustee; Senior Fellow and Economic
Counsellor, The Conference Board, James E. Masur*
Inc. o Vice President
Keith R. Fox Ann M. McCreary*
o Trustee; General Partner, o Vice President
The Exeter Group of Funds
Howard S. Schneider*
Joan E. Spero o Vice President
o Trustee; President, The Doris
Duke Charitable Foundation John Millette*
o Vice President and Secretary
Jean Gleason Stromberg
o Trustee; Consultant Kathryn L. Quirk*
o Vice President and
Jean C. Tempel Assistant Secretary
o Trustee; Managing Director,
First Light Capital, LLC John R. Hebble*
o Treasurer
Steven Zaleznick
o Trustee; President and Brenda Lyons*
Chief Executive Officer, o Assistant Treasurer
AARP Services, Inc.
Caroline Pearson*
Thomas V. Bruns* o Assistant Secretary
o Vice President
*Scudder Kemper Investments, Inc.
Peter Chin*
o Vice President
35
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series-- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Choice Series
Scudder Health Care Fund
U.S. Growth and Income Scudder Technology Fund
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
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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 IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
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Closed-End Funds
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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>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
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<PAGE>
Account Management Resources
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For shareholders of Scudder funds including those in the AARP Investment Program
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- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.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 you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
38
<PAGE>
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Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after 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 Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
39
<PAGE>
About the Fund's Adviser
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.
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
