Scudder High Yield Bond Fund
Semiannual Report
August 31, 1996
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund seeking a high level of
current income and, secondarily, capital appreciation through investment
primarily in below investment-grade domestic debt securities.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Portfolio Summary
5 Portfolio Management Discussion
7 Investment Portfolio
9 Financial Statements
12 Financial Highlights
13 Notes to Financial Statements
17 Officers and Trustees
18 Investment Products and Services
19 How to Contact Scudder
In Brief
o For the abbreviated semiannual period beginning with the Fund's June 28, 1996
inception and ending August 31, 1996, Scudder High Yield Bond Fund provided a
total return of 2.51%. The Fund's 30-day SEC yield at the end of the period was
9.53%.
o The Fund's fundamental investment approach has led to an underweighting in
debt of the most cyclical industries and a focus on issuers in such groups as
communications/media, oil and gas, chemicals, and basic industrials.
o The outlook for the high yield corporate bond market remains positive. Spreads
versus U.S. Treasury bonds continue to be attractive, and interest from buyers
such as insurance companies and pension funds should further aid demand.
2 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We welcome you as an investor in Scudder High Yield Bond Fund and are
pleased to present the first shareholder report of the Fund, covering the
abbreviated semiannual period ended August 31, 1996. Going forward, you can
expect to receive regular reports including the annual report, which will follow
the February 28, 1997 conclusion of the Fund's fiscal year.
The Fund is off to a fine start and within just two months has grown to
over $18 million in assets. At the end of the period, the Fund's 30-day SEC
yield was 9.53%.
As outlined in the management discussion that follows, during the Fund's
initial two months of operation, the prices of lower-rated corporate bonds have
benefited from favorable economic conditions and strong demand. While investing
in these issues necessarily involves an additional element of risk, the credit
quality of the high yield market as a whole is greatly improved since the more
speculative days of the 1980s. This has attracted new investors, including
insurance companies and pension funds, reflecting the growing acceptance of high
yield bonds as a viable asset class. We believe Scudder High Yield Bond Fund
provides a carefully managed vehicle through which to access the opportunities
for high income and portfolio diversification offered by this market.
For those of you who like to stay informed about new funds offered by
Scudder, we introduced two new equity funds in September. Scudder Classic Growth
Fund seeks long-term capital appreciation with a higher degree of principal
stability than the average growth fund. Scudder 21st Century Growth Fund takes a
more aggressive approach, focusing primarily on emerging growth companies with
the potential to benefit from the rapidly changing industrial and economic
landscape that we foresee. For more information on these and other Scudder Fund
products and services, please turn to page 18.
Thank you for your interest and investment in Scudder High Yield Bond Fund.
Please do not hesitate to contact Investor Relations at 1-800-225-2470 with any
questions regarding your account.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder High Yield Bond Fund
3 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1996
- -----------------------------
ASSET ALLOCATION
- -----------------------------
Corporate Bonds 81%
U.S. Government
Treasury Obligations 13%
Cash Equivalents 5%
Convertible Preferred
Stocks 1%
- -----------------------------
100%
=============================
The Fund's relatively high
position in cash and U.S.
Treasury obligations was
the temporary result of
asset flows into a new fund.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
DIVERSIFICATION (Corporate
Bonds & Conv. Pref. Stock)
- -----------------------------
Manufacturing 25%
Communications 14%
Media 14%
Consumer Staples 13%
Energy 11%
Consumer Discretionary 8%
Metals & Minerals 7%
Other 8%
- -----------------------------
100%
=============================
The Fund's focus on
credit analysis has lead to
significant positions in
such non-cyclical sectors
as manufacturing and
consumer staples.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
QUALITY
- -----------------------------
U.S. Government
Treasury Obligations 13%
Cash Equivalents 5%
BBB 2%
BB 16%
B 64%
- -----------------------------
100%
=============================
Weighted Average Quality: BB
The Fund is largely
invested in issues that are
of "B" quality according to
the major rating services.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
EFFECTIVE MATURITY
- -----------------------------
Less than 1 year 2%
1 - 5 years 45%
5 - 8 years 36%
8 years or greater 17%
- -----------------------------
100%
- -----------------------------
Weighted average effective
maturity: 5.72 years
A range of maturities are
represented in the portfolio.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
For more complete details about the Fund's Investment Portfolio, see page 7.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
- -------------------------------------------------------------------------------
4 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
For the abbreviated semiannual period beginning with the Fund's June 28, 1996
inception and ending August 31, 1996, Scudder High Yield Bond Fund provided a
total return (price appreciation plus income) of 2.51%. For the same two-month
period, the high yield bond market returned 1.72% as gauged by the unmanaged
Merrill Lynch High Yield Master Index.
Favorable Market Environment
The period covered by this report saw a continuation of the favorable conditions
for lower-rated corporate bonds that have prevailed throughout 1996. High yield
bonds as a group tend to respond to many of the same factors that influence
stocks, and their prices have been the beneficiary of a stronger-than-expected
economy and generally rising U.S. stock market. Economic strength has helped
create a favorable credit outlook for many issuers of lower-rated debt, while at
the same time a benign rate of inflation has made real yields on these issues
all the more attractive.
Supply and demand factors have also provided a tailwind for high yield
investors. The volume of new issues was low for both July and August, and the
calendar for the rest of 1996 appears light as well. On the demand side, strong
mutual fund inflows and increased interest from institutional investors that
have not historically been significant buyers, including pension plans and
insurance companies, have provided a strong underpinning for high yield issues.
These favorable economic conditions and technical factors have been reflected in
higher prices and a tightening of the still significant yield advantage provided
by lower-rated corporates versus U.S. Treasury issues of comparable maturity
(and higher quality). For example, the yield advantage versus the comparable
U.S. Treasury provided by a typical ten-year B-rated corporate bond fell from
nearly 500 basis points (five percentage points) at the start of 1996 to under
400 basis points at the end of August, continuing the trend in place since 1991
(see accompanying chart).
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Price Strength has Narrowed the
Yield Advantage:
Yield Differential of B-rated Corporates vs.
U.S. Treasury Bonds of Comparable Maturity
LINE CHART DATA:
Yield Differential
(Basis Points)
--------------------------------
1/87 516
--------------------------------
470
--------------------------------
448
--------------------------------
420
--------------------------------
1/88 521
--------------------------------
516
--------------------------------
511
--------------------------------
519
--------------------------------
1/89 476
--------------------------------
527
--------------------------------
597
--------------------------------
693
--------------------------------
1/90 716
--------------------------------
724
--------------------------------
787
--------------------------------
1026
--------------------------------
1/91 1055
--------------------------------
728
--------------------------------
626
--------------------------------
603
--------------------------------
1/92 640
--------------------------------
418
--------------------------------
449
--------------------------------
513
--------------------------------
1/93 491
--------------------------------
398
--------------------------------
407
--------------------------------
474
--------------------------------
1/94 423
--------------------------------
416
--------------------------------
401
--------------------------------
381
--------------------------------
1/95 415
--------------------------------
427
--------------------------------
486
--------------------------------
474
--------------------------------
1/96 528
--------------------------------
435
--------------------------------
406
--------------------------------
8/96 380
--------------------------------
Source: Lehman Brothers High Yield Research
Focus on Credit Analysis
In this environment, we have set about the process of building a portfolio of
companies that we believe have positive credit outlooks. Our goal is not merely
to avoid defaults on securities held by the Fund, but also to identify companies
5 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
that are candidates for receiving a credit upgrade from the major rating
agencies. The upgrading of an issuer's credit rating is frequently accompanied
by an increase in the prices of its outstanding debt issues. This boost can
occur when a B-rated issue is upgraded to "BB" or when a BB-rated issue becomes
investment grade (bonds rated "BBB" and above are considered investment grade).
Our focus in managing the Fund is on individual security selection; however, our
fundamental analysis has led us to focus the portfolio on issuers in such
industries as communications/media, oil and gas, chemicals, and basic
industrials. The portfolio is currently underweighted in so-called "cyclical"
industries that are most likely to be adversely affected by any weakening in the
economy that may occur going forward. These would include groups such as retail,
paper/forest products, and homebuilders.
At the end of August, Fund assets totaled more than $18 million and were
invested in 35 high yield corporate issues. The Fund's relatively high position
in cash and U.S. Treasury issues at the end of the period reflects the fact
that, as a new fund, money coming into the Fund from investors has been
relatively high as a proportion of total assets, and takes time to invest.
Nonetheless, the Fund offered a 30-day SEC yield of 9.53% at the end of August,
supported in part by Scudder's waiving payment and reimbursement of all fees and
expenses.
Market Outlook
Remains Positive
The outlook for the high yield corporate bond market remains positive. While
spreads versus U.S. Treasury bonds have moved somewhat towards the narrow end of
their historical range, they continue to be attractive. Moreover, it appears
that non-traditional buyers such as insurance companies will play an increasing
role in the lower-rated debt market going forward, further supporting demand.
Given the current level of the stock market, there is always the risk of a
correction in equities that would spark a "flight to quality" and negatively
impact high yield market sentiment, but we believe this is by no means
inevitable.
In its first two months of operation, Scudder High Yield Bond Fund has provided
competitive returns while building a portfolio of high yield issues based on
fundamental analysis. We will continue to seek high income and capital
appreciation from a carefully selected portfolio of lower-rated corporate bonds.
The Fund remains suitable for investors willing to assume a measure of extra
risk in pursuit of higher income, or for investors seeking to add an additional
element of diversification to a well-rounded investment portfolio.
Sincerely,
Your Portfolio Management Team
/s/Kelly D. Babson /s/Christopher L. Gootkind
Kelly D. Babson Christopher L. Gootkind
/s/Stephen A. Wohler
Stephen A. Wohler
6 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO AS OF AUGUST 31, 1996 (UNAUDITED)
<CAPTION>
PRINCIPAL MARKET
AMOUNT($) VALUE($)
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 4.8%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company
dated 8/30/96 at 5.23%, to be repurchased at $931,541 on
9/3/96, collateralized by a $905,000 U.S. Treasury Bond, ---------
7.5%, 11/15/16 (Cost $931,000) .............................................. 931,000 931,000
---------
U. S. GOVERNMENT TREASURY OBLIGATIONS 12.8%
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 6.625%, 7/31/01 (Cost $2,508,135) ......................... 2,500,000 2,488,675
---------
CORPORATE BONDS 81.0%
- --------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 6.9%
Cinemark USA, Inc., Senior Subordinated Note, 9.625%, 8/1/08 .................. 500,000 497,500
Red Roof Inns, Inc., Senior Note, 9.625%, 12/15/03 ............................ 350,000 336,000
Revlon Consumer Products, Senior Subordinated Note, Series B, 10.5%, 2/15/03 .. 500,000 516,250
---------
1,349,750
---------
CONSUMER STAPLES 10.5%
American Safety Razor Co., Senior Note, 9.875%, 8/1/05 ........................ 500,000 513,750
Bruno's, Inc., Senior Subordinated Note, 10.5%, 8/1/05 ........................ 500,000 506,250
Chiquita Brands International Inc., Senior Note, 10.25%, 11/1/06 .............. 500,000 515,000
WestPoint Stevens Inc., Senior Subordinated Debenture, 9.375%, 12/15/05 ....... 500,000 495,000
---------
2,030,000
---------
COMMUNICATIONS 11.6%
MFS Communications Co., Inc., Step-up Coupon, 1/15/06 ......................... 500,000 338,125
Paging Network. Inc., Senior Subordinated Note, 10.125%, 8/1/07 ............... 400,000 404,000
Sprint Spectrum L.P., Senior Note, 11%, 8/15/06 ............................... 1,000,000 1,010,000
Teleport Communications Group Inc., Senior Note, 9.875%, 7/1/06 ............... 500,000 501,250
---------
2,253,375
---------
FINANCIAL 2.8%
Olympic Financial Ltd., Senior Note, 13%, 5/1/00 .............................. 500,000 542,500
---------
MEDIA 11.6%
Adelphia Communications Corp., Senior Note, 12.5%, 5/15/02 .................... 500,000 515,000
Cablevision Systems Corp., Senior Subordinated Note, 10.75%, 4/1/04 ........... 250,000 256,250
Cablevision Systems Corp., Senior Subordinated Note, 9.875%, 5/15/06 .......... 250,000 243,750
Heritage Media Corp., Senior Subordinated Note, 8.75%, 2/15/06 ................ 400,000 372,000
K-III Communications Corp., Senior Note, 10.25%, 6/1/04 ....................... 400,000 408,000
Tele-Communications, Inc., Senior Note, 7.25%, 8/1/05 ......................... 500,000 457,515
---------
2,252,515
---------
MANUFACTURING 20.2%
Aetna Industries, Inc., Senior Note, 11.875%, 10/1/06 ......................... 500,000 497,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
7 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT($) VALUE($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borden Chemicals & Plastics, L.P., Note, 9.5%, 5/1/05 ......................... 250,000 248,750
Foamex L.P., Senior Subordinated Debenture, 11.875%, 10/1/04 .................. 500,000 525,000
G-I Holdings, Senior Note, Series B, 10%, 2/15/06 ............................. 250,000 243,125
K&F Industries, Inc., Subordinated Note, 10.375%, 9/1/04 ...................... 250,000 253,750
Lear Corp., Subordinated Note, 9.5%, 7/15/06 .................................. 300,000 309,000
NL Industries, Inc., Senior Note, 11.75%, 10/15/03 ............................ 500,000 518,750
Pierce Leahy Corp., Senior Subordinated Note, 11.125%, 7/15/06 ................ 500,000 520,000
Specialty Equipment Co., Senior Subordinated Note, 11.375%, 12/1/03 ........... 750,000 802,500
----------
3,918,375
----------
ENERGY 9.3%
Cliffs Drilling Co., Senior Note, 10.25%, 5/15/03 ............................. 500,000 508,750
Forest Oil Corp.,Senior Subordinated Note, 11.25%, 9/1/03 ..................... 250,000 265,625
MESA Operating Co., Company Guarantee, 10.625%, 7/1/06 ........................ 500,000 522,500
Nuevo Energy Co., Senior Subordinated Note, 9.5%, 4/15/06 ..................... 500,000 502,500
----------
1,799,375
----------
METALS & MINERALS 5.4%
Oregon Steel Mills, Inc., 1st Mortgage, 11%, 6/15/03 .......................... 500,000 528,750
Renco Metals Inc., Senior Note, 11.5%, 7/1/03 ................................. 500,000 526,250
----------
1,055,000
----------
CONSTRUCTION 2.7%
Schuller International Group, Senior Note, 10.875%, 12/15/04 .................. 250,000 271,250
Southdown, Inc., Senior Subordinated Note, 10%, 3/1/06 ........................ 250,000 251,875
----------
523,125
- --------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $15,548,185) 15,724,015
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 1.4%
- --------------------------------------------------------------------------------------------------------
FINANCIAL
----------
Criimi Mae, Inc., "B", 10.875% (Cost $250,000) ................................ 10,000 267,500
----------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $19,237,320)(a) 19,411,190
- --------------------------------------------------------------------------------------------------------
<FN>
(a) The cost for federal income tax purposes was $19,237,320. At August 31, 1996, net unrealized
appreciation for all securities based on tax cost was $173,870. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of market value over tax cost
of $224,189 and aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $50,319.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF AUGUST 31, 1996 (UNAUDITED)
<CAPTION>
ASSETS
- -------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $19,237,320) (Note A) .... $19,411,190
Cash ............................................................. 623
Receivable on Fund shares sold ................................... 157,366
Interest receivable .............................................. 324,064
Due from Adviser (Note C) ........................................ 47,908
Deferred organization expense (Note A) ........................... 21,359
-----------
Total assets ..................................................... 19,962,510
LIABILITIES
- -------------------------------------------------------------------------------------
Payable for investments purchased ................................ $ 1,071,582
Payable for Fund shares redeemed ................................. 1,402
Dividends ........................................................ 24,397
Accrued expenses (Note C) ........................................ 69,017
-----------
Total liabilities ................................................ 1,166,398
-------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $18,796,112
-------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments ....................... $ 173,870
Shares of beneficial interest .................................... 15,503
Additional paid-in capital ....................................... 18,606,739
-------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $18,796,112
-------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price (Note A)
per share ($18,796,112/1,550,262 outstanding shares of
beneficial interest, $.01 par value, unlimited number of -----------
shares authorized) ............................................. $ 12.12
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
FOR THE PERIOD JUNE 28, 1996 (COMMENCEMENT
OF OPERATIONS) TO AUGUST 31, 1996 (UNAUDITED)
<CAPTION>
INVESTMENT INCOME
- -------------------------------------------------------------------------------
<S> <C>
Income:
Interest ..................................................... $181,932
Expenses:
Management fees (Note C) ..................................... 13,847
Services to shareholders (Note C) ............................ 15,176
Custodian and accounting fees (Note C) ....................... 12,910
Trustees' fees and expenses (Note C) ......................... 8,960
Auditing ..................................................... 6,825
State registration ........................................... 6,746
Federal registration ......................................... 6,486
Reports to shareholders ...................................... 5,862
Legal ........................................................ 3,283
Amortization of organization expense (Note A) ................ 789
Other ........................................................ 2,142
--------
Total expenses before reductions ............................. 83,026
Expense reductions (Note C) .................................. (83,026)
--------
Expenses, net ................................................ --
-------------------------------------------------------------------------
NET INVESTMENT INCOME 181,932
-------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------
Net unrealized appreciation during the period on investments . 173,870
--------
Net gain on investment transactions .......................... 173,870
-------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $355,802
-------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE PERIOD
JUNE 28, 1996
(COMMENCEMENT
OF OPERATIONS)
TO AUGUST 31,
1996
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income ..................................... $ 181,932
Net unrealized appreciation on investment
transactions during the period .......................... 173,870
-----------
Net increase in net assets resulting from operations ...... 355,802
-----------
Distributions to shareholders from net investment income .. (181,932)
-----------
Fund share transactions:
Proceeds from shares sold ................................. 18,529,512
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 150,530
Cost of shares redeemed ................................... (59,412)
Redemption fees (Note A) .................................. 412
-----------
Net increase in net assets from Fund share transactions ... 18,621,042
-----------
INCREASE IN NET ASSETS .................................... 18,794,912
Net assets at beginning of period ......................... 1,200
-----------
NET ASSETS AT END OF PERIOD ............................... $18,796,112
-----------
OTHER INFORMATION
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ................. 100
-----------
Shares sold ............................................... 1,542,534
Shares issued to shareholders in reinvestment
of distributions ........................................ 12,493
Shares redeemed ........................................... (4,865)
-----------
Net increase in Fund shares ............................... 1,550,162
-----------
Shares outstanding at end of period ....................... 1,550,262
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<CAPTION>
FOR THE PERIOD
JUNE 28, 1996
(COMMENCEMENT
OF OPERATIONS) TO
AUGUST 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
------
Net asset value, beginning of period .............................. $12.00
------
Income from investment operations:
Net investment income .............................................. .18
Net realized and unrealized gain on investment transactions ........ .12
------
Total from investment operations ................................... .30
------
Less distributions from net investment income ...................... (.18)
Redemption fee (Note A)(d) ......................................... --
------
Net asset value, end of period ..................................... $12.12
- --------------------------------------------------------------------------------
TOTAL RETURN (%)(b) ................................................ 2.51(c)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............................. 19
Ratio of operating expenses, net to average daily net assets (%) ... 0.0
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ..................................... 4.15*
Ratio of net investment income to average daily net assets (%) ..... 9.09*
Portfolio turnover rate (%) ........................................ None
<FN>
(a) Per share amounts have been calculated using the weighted average shares
outstanding during the period.
(b) Total return is higher due to maintenance of the Fund's expenses.
(c) Total return does not reflect the effect of the 1% redemption fee on shares
held less than one year.
(d) Redemption fees were less than one-half of $.01.
* Annualized
** Not annualized
</FN>
</TABLE>
12 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
A. SIGNIFICANT ACCOUNTING POLICIES
Scudder High Yield Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Fund in the preparation of its
financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
Portfolio securities which are traded on U.S. stock exchanges are valued at the
most recent sale price reported on the exchange on which the security is traded
most extensively. If no sale occurred, the security is then valued at the
calculated mean between the most recent bid and asked quotations. If there are
no such bid and asked quotations, the most recent bid quotation is used.
Securities quoted on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System, for which there have been sales, are valued at the
most recent sale price reported on such system. If there are no such sales, the
value is the high or "inside" bid quotation. Securities which are not quoted on
the NASDAQ System but are traded in another over-the-counter market are valued
at the most recent sale price on such market. If no sale occurred, the security
is then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent bid
quotation shall be used.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. The Fund
accordingly paid no federal income taxes and no federal income tax provision was
required.
REDEMPTION FEES. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the lower of cost or the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders. The redemption fee is accounted for as an
addition to paid-in capital.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
declared daily and distributed monthly. During any particular year net realized
gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
13 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
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 reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. All original issue discounts are
accreted for both tax and financial reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
For the period June 28, 1996 (commencement of operations) to August 31, 1996,
purchases of investment securities (excluding short-term investments and U.S.
Government obligations) aggregated $15,793,265. Purchases of U.S. Government
obligations aggregated $2,508,135. There were no sales of investment securities
(excluding short-term investments).
C. RELATED PARTIES
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.70% of the Fund's average daily net assets, 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
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement also provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser. In
addition, the Adviser has agreed not to impose all or a portion of its
management fee until June 30, 1997 in order to maintain the annualized expenses
of the Fund at not more than 0.0% of average daily net assets. For the period
June 28, 1996 (commencement of operations) to August 31, 1996, the Adviser did
not impose all of its management fee amounting to $13,847. Further, due to the
limitations of such Agreement, the Adviser's reimbursement payable to the Fund
for the period June 28, 1996 (commencement of operations) to August 31, 1996,
amounted to $47,908.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
period June 28, 1996 (commencement of operations) to August 31, 1996, SSC did
not impose any of its fee amounting to $8,598.
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 period June 28, 1996
(commencement of operations) to August 31, 1996, STC did not impose any of its
fee amounting to $255.
14 - SCUDDER HIGH YIELD BOND FUND
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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 period June
28, 1996 (commencement of operations) to August 31, 1996, SFAC did not impose
any of its fee amounting to $6,418.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually, plus specified amounts for attended board and committee meetings. For
the period June 28, 1996 (commencement of operations) to August 31, 1996, the
Trustees did not impose a portion of their fee amounting to $6,000, and the fee
imposed amounted to $2,960.
15 - SCUDDER HIGH YIELD BOND FUND
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16 - SCUDDER HIGH YIELD BOND FUND
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<PAGE>
Officers and Trustee
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dudley H. Ladd*
Trustee
David S. Lee*
Vice President and Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration,
Northeastern University, College of Business Administration
Jean C. Tempel
Trustee; General Partner, TL Ventures
Jerard K. Hartman*
Vice President
William M. Hutchinson*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
17 - SCUDDER HIGH YIELD BOND FUND
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Investment Products and Services
The Scudder Family of Funds
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
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. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
18 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
Scudder Investor Relations
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Visit the Scudder World Wide Web Site at:
- --------------------------------------------------------------------------------
http://funds.scudder.com
Or Stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they
can be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call:
1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus
with more complete information, including management fees and expenses. Please
read it carefully before you invest or send money.
19 - SCUDDER HIGH YIELD BOND FUND
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
