Scudder
High Yield
Bond Fund
Semiannual Report
August 31, 1998
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.
SCUDDER (logo)
<PAGE>
Scudder High Yield Bond Fund
- --------------------------------------------------------------------------------
Date of Inception: 6/28/96 Total Net Assets as of Ticker Symbol: SHBDX
8/31/98: $185.6 million
- --------------------------------------------------------------------------------
o High yield bonds endured significant price declines in July and August as
volatility in the U.S. stock market and emerging markets and concern over the
economy caused some institutional investors to reduce their exposure to
higher-risk assets.
o For its most recent semiannual period ended August 31, 1998, Scudder High
Yield Bond Fund provided a total return of -3.77%. This is consistent with the
- -1.31% return of the Merrill Lynch High Yield Master Index. On August 31, the
Fund posted a 10.07% 30-day SEC yield.
o During the most recent semiannual period, the quality of the Fund's
telecommunications exposure was upgraded and defensive issues such as
broadcasting and cable companies with strong cash flow generation capabilities
were added.
Table of Contents
3 Letter from the Fund's President 16 Financial Statements
4 Performance Update 19 Financial Highlights
5 Portfolio Summary 20 Notes to Financial Statements
6 Portfolio Management Discussion 24 Officers and Trustees
9 Glossary of Investment Terms 25 Investment Products and Services
10 Investment Portfolio 26 Scudder Solutions
2 - Scudder High Yield Bond Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
After several years of above average returns, the past six months have been
difficult for high yield investments. For the six months ended August 31, 1998,
Scudder High Yield Bond Fund posted a -3.77% total return as high yield bond
prices declined in the face of stock market volatility and uncertainty over the
global economic outlook. The Fund's -3.77% return compares favorably with the
- -4.87% average return of similar funds over the same time period as compiled by
Lipper Analytical Services, Inc. As Lead Portfolio Manager Kelly Babson states
in the interview beginning on page 6, the Fund's approach to researching
individual issuers served it well on a relative basis during a period of
significant price declines for the high yield market. The high yield bond market
appears to have discounted a U.S. recession and high default rates for its
issuers -- two occurrences which we do not anticipate. Looking beyond the near
term, we are optimistic that high yield bonds will once again provide superior
results.
For those of you interested in new Scudder funds, we recently introduced two
international funds: Scudder International Growth Fund -- which seeks to invest
in high growth opportunities in both developed and developing markets, and
Scudder International Value Fund -- which seeks to invest in undervalued foreign
securities. Please see pages 25 through 28 for more information on Scudder
products and services.
If you have any questions regarding Scudder High Yield Bond Fund or any other
Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit
Scudder's Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder High Yield Bond Fund
3 - Scudder High Yield Bond Fund
<PAGE>
PERFORMANCE UPDATE as of August 31, 1998
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
8/31/97 $10,000 Cumulative Annual
- ------------------------------------------
SCUDDER HIGH YIELD BOND FUND
- ------------------------------------------
1 Year $10,394 3.94% 3.94%
Life of Fund* $12,486 24.86% 10.73%
- ------------------------------------------
MERRILL LYNCH HIGH YIELD MASTER INDEX
- ------------------------------------------
1 Year $10,488 4.88% 4.88%
Life of Fund* $12,255 22.55% 9.83%
- ------------------------------------------
*The Fund commenced operation on June 28, 1996.
Index comparisons begin June 30, 1996.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER HIGH YIELD BOND FUND
Year Amount
- ----------------------
6/96* $10,004
8/96 $10,246
11/96 $10,790
2/97 $11,318
5/97 $11,510
8/97 $12,008
11/97 $12,386
2/98 $12,970
5/98 $13,177
8/98 $12,481
MERRILL LUNCH HIGH YIELD MASTER INDEX
Year Amount
- ----------------------
6/96* $10,000
8/96 $10,172
11/96 $10,717
2/97 $11,035
5/97 $11,260
8/97 $11,685
11/97 $12,071
2/98 $12,418
5/98 $12,672
8/98 $12,255
The Merrill Lynch High Yield Master Index is an unmanaged index broadly
reflective of below-investment grade corporate bonds. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect any fees or
expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED AUGUST 31
1996* 1997 1998
--------------------------------
NET ASSET VALUE... $ 12.12 $ 12.91 $ 12.07
INCOME DIVIDENDS.. $ .18 $ 1.17 $ 1.19
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .03 $ .21
FUND TOTAL
RETURN (%)........ 2.51 17.19 3.94
INDEX TOTAL
RETURN (%)........ 1.72 14.86 4.88
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained the Fund's expenses,
the total return for the one year and life of Fund periods would have been
lower.
4 - Scudder High Yield Bond Fund
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1998
- -----------------------------
ASSET ALLOCATION
- -----------------------------
Corporate Bonds 90%
Cash Equivalents 5%
Preferred Stocks 4%
Foreign Bonds 1%
- -----------------------------
100%
=============================
Over the six month period
ended August 31 we
allowed the Fund's cash
position to build up based
on liquidity concerns and
our desire to have the
flexibility to invest in
select issues when high
yield bonds are attractively
priced.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
DIVERSIFICATION (Excluding
Cash Equivalents)
- -----------------------------
Communications 26%
Manufacturing 15%
Media 13%
Consumer Discretionary 8%
Consumer Staples 8%
Service Industries 7%
Energy 4%
Metals & Minerals 4%
Financial 3%
Other 12%
- -----------------------------
100%
=============================
We moved to a relatively
higher quality exposure
within the telecommunica-
tions sector during the
period, and added to the
Fund's media position, par-
ticularly in broadcasting
and cable. Both broadcast-
ing and cable tend to be
relatively defensive indus-
tries, and we believe they
continue to have strong
cash flow generation capa-
bilities along with the po-
tential for credit upgrades.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
QUALITY
- -----------------------------
Cash Equivalents 5%
A 1%
BB 18%
B 66%
CCC 3%
Not Rated 7%
- -----------------------------
100%
=============================
Weighted Average Quality: B
The Fund took a more
defensive posture in light
of recent market volatility,
using new money to
purchase BB bonds, and in
some cases upgrading
from B to BB credits.
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 9%
1 - 5 years 11%
5 - 8 years 30%
8 years or greater 50%
- -----------------------------
100%
- -----------------------------
Weighted average effective
maturity: 7.2 years
A range of maturities is
represented in the
Fund's 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 10.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
- -------------------------------------------------------------------------------
5 - Scudder High Yield Bond Fund
<PAGE>
Portfolio Management Discussion
For an overview of Scudder High Yield Bond Fund's performance, strategy, and
outlook, we once again present an interview with Scudder High Yield Bond Fund's
Lead Portfolio Manager, Kelly D. Babson. Kelly has managed the Fund since its
inception on June 28, 1996.
Q: How did Scudder High Yield Bond Fund perform during the six months
ended August 30, 1998?
For the six-month period ended August 31, 1998, Scudder High Yield Bond Fund
posted a total return of -3.77%. For the same period, the high yield bond market
returned -1.31% as measured by the unmanaged Merrill Lynch High Yield Master
Index. The Fund's total return was 24.86% since its June 28, 1996, inception,
outperforming the Index's return of 22.55% over the same period. On August 31,
the Fund offered a 10.07% 30-day SEC yield.
Q: High yield investors saw the market sell off substantially in July
and August. What factors caused this?
It's evident that the high level of volatility in the stock market is impacting
the performance of the high yield market. Particularly in August, the
correlation between the high yield bond and stock markets was high, more so than
you might expect given a positive growth U.S. economic environment, declining
interest rates, and a U.S. high yield market that still can boast a relatively
low default rate. The depth of the high yield response to stock market activity
was also attributable to volatility in emerging markets and to market
participants' concerns about deflation and a global economic slowdown. Technical
factors, principally a lack of liquidity in an increasingly risk-averse
environment, also pressured the high yield market.
There clearly has been a dramatic reevaluation of the appropriate pricing of
"risky" assets. And in this environment, we've seen high yield bonds sell off
relatively indiscriminately, particularly in the last three weeks of August when
the market moved most dramatically. When the difference between the yields on
high yield bonds and Treasuries of equivalent maturity is unusually large on a
historical basis, it does create some opportunities. As we sort through those
opportunities, we work to determine what an adequate yield premium should be in
exchange for assuming liquidity and credit risks.
Q: What is your strategy in the current environment?
While we haven't altered our bottom-up-oriented approach to security selection,
we have taken a more defensive posture and sought to upgrade overall portfolio
quality. During the six-month period, we used new money coming into the Fund to
purchase BB credits, and also upgraded in some cases from lower quality B to BB
bonds. We left our CCC and nonrated exposure relatively unchanged. Lastly, we
allowed the Fund's cash position to build based on some liquidity concerns and
our desire to have the flexibility to invest in select issues when interest
rates spreads are relatively wide.
Q: Are you still committed to higher-risk sectors such as
telecommunications?
Yes. But we've moved to a relatively higher quality exposure within the
telecommunications sector and sold some issues we considered most speculative.
Some of the more speculative names have large capital needs going forward which
6 - Scudder High Yield Bond Fund
<PAGE>
might be difficult to fund in the current higher volatility investment
environment. At this juncture we're very comfortable with the names that we own
and would consider adding to many of them at the current wider yield spreads
versus Treasury bonds. Our overall weighting in telecommunications is about the
same as at the start of the period, despite the fact that telecommunications'
market capitalization has increased substantially as a percentage of the overall
high yield market.
Q: What changes, if any, did you make to other sector weightings?
We have added to media, particularly in broadcasting and cable which tend to be
relatively defensive industries and continue to have strong cash flow generation
capabilities and potential for credit upgrades from the ratings agencies.
With the persistent declines in commodity prices, we have continued to reduce
the Fund's exposure to oil and gas issues, and are now well underweight there.
Our exposure in that sector is limited to higher quality issues. We'll be
looking for positive news on the global growth front (which translates to higher
demand for oil and gas) or extreme cutbacks in production (which we're unlikely
to see) before we can expect a real rebound in that sector.
Q: How about in other commodity sectors?
Likewise, in commodity areas such as paper and steel, we continue to have very
modest exposure despite very high current yields. There may be some
opportunities there going forward, but again because these companies are so
directly impacted by exports from emerging countries whose currencies have
declined sharply, the outlook for commodity prices in these areas isn't
favorable either.
The consumer area has been a bright spot, as U.S. consumers have continued to
spend. We're beginning to see some weakness in retail numbers for the first time
in years, but nothing dramatic. We have been underweight in the direct retail
sector, based on questions we had about particular high yield issuers, rather
than on the sector itself. The Fund also has some consumer goods exposure, which
we're very comfortable with. And we might look to add home builders. We had been
concerned about home builders earlier in the year when the Federal Reserve was
leaning toward actually raising rates to slow U.S. economic growth. The
possibility that the Fed may enact a series of rate cuts (the Fed lowered the
federal funds rate by 0.25% on September 29, 1998) would be positive for home
builders, so we're considering adding to our exposure there but will focus on
higher quality issuers within the sector.
Q: How else would further interest rate cuts affect the high yield
bond market?
The current flatness of the yield curve (i.e., there is little difference
between short-, medium-, and long-term interest rates) has been challenging for
leveraged borrowers as it makes it difficult to attract capital away from
shorter-term, lower-risk securities. A steepening of the yield curve if the Fed
significantly lowers rates would be positive. It would create a better borrowing
environment for many of our issuers and it would be good for the stock market.
7 - Scudder High Yield Bond Fund
<PAGE>
Q: What is your outlook for the high yield market over the next six
months?
I think the longer view, and I'll include six months in that, is relatively
positive. As I've said, interest rate spreads versus comparable Treasuries are
at extremely wide levels now. They discount to a large degree recession and much
higher default rates, which we are not forecasting. Equity market volatility and
developments in emerging markets will probably continue to challenge us for the
next couple of months or more. Looking beyond the end of this year, the high
yield market is now priced to support a narrowing of yield spreads (which would
translate into higher prices for high yield bonds), though probably not to the
tight levels reached in April of this year. As I've said, the risk premium built
into the market today is fairly extreme relative to the real fundamentals.
While we recognize that we are in a riskier investment environment than six
months ago, it's important to note that Scudder High Yield Bond Fund's
investment process is unchanged. We are fundamental research/bottom-up credit
selectors, and we believe that our investment philosophy has served us well
through the recent period of volatility. Our goal is to respond to a dynamic
environment in a prudent way. We believe that over time the Fund's portfolio
will reflect good value in the marketplace.
8 - Scudder High Yield Bond Fund
<PAGE>
Glossary of Investment Terms
COUPON The interest rate on a bond that the issuer (in the
case of high yield bonds, a corporation) promises to
pay to the holder of the bond until maturity,
expressed as an annual percentage of face value. As
an example, a bond with a 10% coupon will pay $100 on
$1,000 of the face amount each year.
CYCLICAL A cyclical security is one whose price tends to rise
when the U.S. economy is expanding and to fall when
the economy is contracting. Examples of cyclical
industries are automobiles, housing, and paper.
Noncyclical securities-- including food, insurance,
and health care companies-- are typically not as
affected by changes in U.S. economic performance.
DEFAULT Occurs when the issuer of a bond fails to make
timely payment of principal and/or interest. In the
event of default, bondholders may make claims
against the assets of the issuing corporation.
Default rate refers to the annual percentage of
bonds in a fund that stop making principal and/or
interest payments.
HIGH YIELD BOND A bond that has a rating of BB or less and pays a
high yield to compensate for its greater credit risk.
SECTOR A similar group of bonds or stocks, usually found in
one industry. Some examples of sectors that could be
found in a high yield bond fund or a stock fund at
any given time include airlines, financial services
companies, and telecommunications providers.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
TOTAL RETURN The most common yardstick to measure the performance
of a fund. Total return -- annualized or compound --
is based on a combination of share price changes plus
income and capital gain distributions, if any,
expressed as a percentage gain or loss in value.
YIELD SPREAD The difference in yield between various types of
bonds. A high yield bond's yield is generally
compared to the yield of a Treasury bond of similar
maturity as a valuation yardstick. If yield spreads
are "narrow," for example, it generally means that
high yield bond yields have been declining, and
prices rising.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance
and Investment Terms)
9 - Scudder High Yield Bond Fund
<PAGE>
Investment Portfolio as of August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 5.0%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 8/31/1998 at
5.75%, to be repurchased at $9,019,440 on 9/1/1998, collateralized by a -----------
$9,145,000 U.S. Treasury Bond, 5.875%, 1/31/1999 (Cost $9,018,000) .................... 9,018,000 9,018,000
-----------
Foreign Bonds -- U.S.$ Denominated 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
Petroleos Mexicanos SA, 8.85%, 9/15/2007 (Cost $699,321) ................................ 700,000 532,000
-----------
Foreign Bonds -- Non U.S.$ Denominated 0.7%
- ------------------------------------------------------------------------------------------------------------------------------
Dolphin Telecom PLC, Step-up Coupon 0% to 6/1/2003, 11.50% to 6/1/2008 -----------
(Cost $1,627,125) ..................................................................... XEU 2,500,000 1,205,612
-----------
Corporate Bonds and Notes 89.4%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 8.0%
Cinemark USA, Inc., Series D, 9.625%, 8/1/2008 .......................................... 2,000,000 2,010,000
Clearview Cinema Group, Inc., 10.875%, 6/1/2008 ......................................... 1,200,000 1,284,000
Cole National Group Inc., 9.875%, 12/31/2006 ............................................ 2,000,000 2,100,000
Empress Entertainment, Inc., 8.125%, 7/1/2006 ........................................... 750,000 727,500
Empress Entertainment, Inc., 8.125%, 7/1/2006 ........................................... 1,250,000 1,212,500
Finlay Fine Jewelry Co., 8.375%, 5/1/2008 ............................................... 2,250,000 1,980,000
Pillowtex Corp., 10%, 11/15/2006 ........................................................ 1,500,000 1,560,000
Pillowtex Corp., 9%, 12/15/2007 ......................................................... 500,000 490,000
Premier Parks Inc., 9.75%, 1/15/2007 .................................................... 1,500,000 1,545,000
Signature Resorts, Inc., 9.75%, 10/1/2007 ............................................... 2,000,000 1,700,000
-----------
14,609,000
-----------
Consumer Staples 7.8%
Advantica Restaurant Group, 11.25%, 1/15/2008 ........................................... 1,000,000 1,010,000
Aurora Foods, Inc., Series D, 9.875%, 2/15/2007 ......................................... 2,125,000 2,188,750
Chiquita Brands International Inc., Senior Note, 10.25%, 11/1/2006 ...................... 1,250,000 1,312,500
Dyersburg Corp., 9.75%, 9/1/2007 ........................................................ 2,250,000 2,092,500
Jafra Cosmetics International, Inc., 11.75%, 5/1/2008 ................................... 1,500,000 1,350,000
La Petite Holdings, 10%, 5/15/2008 ...................................................... 1,000,000 955,000
Purina Mills, Inc., 9%, 3/15/2010 ....................................................... 2,000,000 2,000,000
Revlon Consumer Products, 8.625%, 2/1/2008 .............................................. 2,200,000 2,084,500
Sun World International, 11.25%, 4/15/2004 .............................................. 1,250,000 1,312,500
-----------
14,305,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 1.6%
MEDIQ Inc., 11%, 6/1/2008 ............................................................... 1,000,000 950,000
NBTY Inc., 8.625%, 9/15/2007 ............................................................ 2,000,000 1,915,000
-----------
2,865,000
-----------
Communications 24.1%
21st Century Telecommunications, Step-up Coupon, 0% to 2/15/2003, 12.25% to
2/15/2008 ............................................................................. 2,500,000 1,250,000
Allegiance Telecom, Inc., 12.875%, 5/15/2008 ............................................ 1,750,000 1,653,750
American Cellular Corp., 10.5%, 5/15/2008 ............................................... 1,000,000 920,000
AMSC Acquisition Co., Inc., 12.25%, 4/1/2008 ............................................ 500,000 335,000
Birch Telecom Inc., 14%, 6/15/2008 ...................................................... 1,000,000 880,000
Call-Net Enterprises, Inc., 8.94%, 8/15/2008 ............................................ 1,200,000 684,000
Comcast Cellular, 9.5%, 5/1/2007 ........................................................ 1,500,000 1,447,500
Crown Castle International Corp., Step-up Coupon, 0% to 11/1/2002, 10.625% to
11/15/2007 ............................................................................ 2,100,000 1,218,000
Exodus Communications Inc., 11.25%, 7/1/2008 ............................................ 750,000 675,000
GST USA Inc., Step-up Coupon, 0% to 12/1/2000, 13.875% to 12/15/2005 .................... 2,500,000 1,850,000
Globalstar LP, 11.375%, 2/15/2004 ....................................................... 1,000,000 800,000
Impsat Corp., 12.375%, 6/15/2008 ........................................................ 1,250,000 1,025,000
Intermedia Communications, Inc., 8.875%, 11/1/2007 ...................................... 1,250,000 1,212,500
Intermedia Communications, Inc., Step-up Coupon, 0% to 7/1/2002, 11.25% to
7/15/2007 ............................................................................. 2,750,000 1,897,500
Iridium LLC Capital Corp., 11.25%, 7/15/2005 ............................................ 2,000,000 1,560,000
Level 3 Communications, Inc., 9.125%, 5/1/2008 .......................................... 1,750,000 1,526,875
Long Distance Direct Holdings, Inc., 12.25%, 4/15/2008 .................................. 1,000,000 870,000
McLeodUSA Inc., 9.25%, 7/15/2007 ........................................................ 2,000,000 1,960,000
McLeodUSA Inc., 8.375%, 3/15/2008 ....................................................... 500,000 460,000
McLeodUSA Inc., Exchange Shares, 8.375%, 3/15/2008 ...................................... 500,000 460,000
MetroNet Communications Corp., Step-up Coupon, 0% to 6/1/2003, 9.95% to 6/15/2008 ....... 2,150,000 1,107,250
Nextel Communications, Inc., Step-up Coupon, 0% to 2/15/1999, 9.75% to 8/15/2004 ........ 2,500,000 2,431,250
NEXTLINK Communications, Inc., Step-up Coupon, 0% to 4/15/2003, 9.45% to
4/15/2008 ............................................................................. 3,600,000 1,800,000
NorthEast Optic Network, Inc., 12.75%, 8/15/2008 ........................................ 250,000 240,000
Orbital Imaging Corp., 11.625%, 3/1/2005 ................................................ 700,000 672,000
Pinnacle Holdings, Inc., 10%, 3/15/2008 ................................................. 2,000,000 1,000,000
Price Communications Wireless, 9.125%, 12/15/2006 ....................................... 550,000 511,500
PSINet Inc., 10%, 2/15/2005 ............................................................. 1,000,000 980,000
Qwest Communications International, Step-up Coupon, 0% to 2/1/2000, 8.29% to
2/1/2008 .............................................................................. 2,750,000 1,938,750
RCN Corp., 10%, 10/15/2007 .............................................................. 1,000,000 925,000
SBA Communications Corp., Step-up Coupon, 0% to 3/1/2003, 12% to 3/1/2008 ............... 3,850,000 2,002,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sprint Spectrum L.P., Senior Note, 11%, 8/15/2006 ....................................... 1,000,000 1,115,000
Sprint Spectrum L.P., Step-up Coupon, 0% to 8/1/2001, 12.5% to 8/15/2006 ................ 2,000,000 1,660,000
Star Choice Communications Inc., 13%, 12/15/2005 ........................................ 1,000,000 920,000
Teligent Inc., 11.5%, 12/1/2007 ......................................................... 2,000,000 1,840,000
Triton Communications LLC, Step-up Coupon, 0% to 5/1/2003, 11% to 5/1/2008 .............. 1,700,000 782,000
Viatel, Inc., 12.5%, 4/15/2008 .......................................................... 1,500,000 750,000
WorldCom, Inc., 8.875%, 1/15/2006 ....................................................... 368,000 399,056
-----------
43,758,931
-----------
Financial 2.3%
Bank United Capital Trust, 10.25%, 12/31/2026 ........................................... 1,000,000 1,055,000
Commerce Bancorporation, 11.75%, 6/6/2027 ............................................... 957,000 1,023,990
GS Escrow Corp., 7.125%, 8/1/2005 ....................................................... 1,250,000 1,209,350
HMH Properties, 7.875%, 8/1/2008 ........................................................ 1,000,000 940,000
-----------
4,228,340
-----------
Media 8.3%
Adelphia Communications Corp., 10.5%, 7/15/2004 ......................................... 1,500,000 1,605,000
CSC Holdings, Inc., 7.625%, 7/15/2018 ................................................... 750,000 685,703
Cablevision Systems Corp., 9.25%, 11/1/2005 ............................................. 1,000,000 1,032,500
Diva Systems Corp., Step-up Coupon, 0% to 3/1/2003, 12.625% to 3/1/2008 ................. 1,750,000 612,500
Falcon Holding Group, 8.375%, 4/15/2010 ................................................. 875,000 848,750
Falcon Holding Group, Step-up Coupon, 0% to 4/15/2003, 9.285% to 4/15/2010 .............. 2,400,000 1,512,000
Golden Sky Systems, 12.375%, 8/1/2006 ................................................... 1,000,000 970,000
Interep National Radio, 10%, 7/1/2008 ................................................... 2,000,000 1,920,000
Mediacom, 8.5%, 4/15/2008 ............................................................... 1,000,000 945,000
Outdoor Systems, Inc., 8.875%, 6/15/2007 ................................................ 2,750,000 2,763,750
Panavision Inc., Step-up Coupon, 0% to 2/1/2002, 9.625% to 2/1/2006 ..................... 2,500,000 1,375,000
Radio Unica Corp., Step-up Coupon, 0% to 8/1/2002, 11.75% to 8/1/2006 ................... 1,500,000 855,000
-----------
15,125,203
-----------
Service Industries 6.2%
Allied Waste Industries, Inc., Step-up Coupon, 0% to 6/1/2002, 11.3% to 6/1/2007 ........ 1,265,000 910,800
Allied Waste North America, 10.25%, 12/1/2006 ........................................... 1,500,000 1,642,500
Borg-Warner Security Corp., 9.625%, 3/15/2007 ........................................... 1,275,000 1,396,125
Coinmach Laundry Corp., 11.75%, 11/15/2005 .............................................. 2,000,000 2,180,000
Hydrochem Industrial, 10.375%, 8/1/2007 ................................................. 1,000,000 960,000
ImPac Group, Inc., 10.125%, 3/15/2008 ................................................... 750,000 705,000
National Equipment Services, 10%, 11/30/2004 ............................................ 1,500,000 1,395,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Penhall Acquisition Corp., 12%, 8/1/2006 ................................................ 1,500,000 1,305,000
Pierce Leahy Corp., 11.125%, 7/15/2006 .................................................. 650,000 698,750
-----------
11,193,175
-----------
Manufacturing 14.4%
AEP Industries, Inc., 9.875%, 11/15/2007 ................................................ 2,000,000 1,870,000
Ball Corporation, 7.75%, 8/1/2006 ....................................................... 1,000,000 980,000
Ball Corporation, 8.25%, 8/1/2008 ....................................................... 1,000,000 982,500
Clark Materials Handling Corp., 10.75%, 11/15/2006 ...................................... 2,000,000 2,070,000
Columbus McKinnon Corp., 8.5%, 4/1/2008 ................................................. 1,000,000 880,000
Day International Group, Inc., 9.5%, 3/15/2008 .......................................... 1,000,000 915,000
Eagle-Picher Industries, 9.375%, 3/1/2008 ............................................... 1,910,000 888,150
Graham Packaging Co., 8.75%, 1/15/2008 .................................................. 1,000,000 970,000
Grove Holdings LLC, Step-up Coupon, 0% to 5/1/2003, 11.625% to 5/1/2009 ................. 1,000,000 460,000
Grove Worldwide LLC, 9.25%, 5/1/2008 .................................................... 400,000 368,000
ISP Holdings Inc., 9.75%, 2/15/2002 ..................................................... 250,000 261,250
ISP Holdings Inc., 9%, 10/15/2003 ....................................................... 500,000 515,000
K & F Industries, Inc., 9.25%, 10/15/2007 ............................................... 1,500,000 1,470,000
L-3 Communications Corp., 8.5%, 5/15/2008 ............................................... 1,000,000 977,500
LDM Technologies Inc., 10.75%, 1/15/2007 ................................................ 1,750,000 1,540,000
Oshkosh Truck Corp., 8.75%, 3/1/2008 .................................................... 1,500,000 1,410,000
Prestolite Electric, Inc., 9.625%, 2/1/2008 ............................................. 500,000 500,000
R.H. Donnelly, 9.125%, 6/1/2008 ......................................................... 700,000 672,000
Radnor Holdings Corp., 10%, 12/1/2003 ................................................... 2,250,000 2,205,000
Repap New Brunswick, 9%, 6/1/2004 ....................................................... 2,000,000 1,840,000
Republic Group, Inc., 9.5%, 7/15/2008 ................................................... 1,000,000 935,000
Specialty Equipment Co., Senior Subordinate Note, 11.375%, 12/1/2003 .................... 1,950,000 2,062,125
United Defense Industries, Inc., 8.75%, 11/15/2007 ...................................... 1,500,000 1,470,000
-----------
26,241,525
-----------
Technology 2.7%
Celestica International Inc., 10.5%, 12/31/2006 ......................................... 650,000 689,000
Fairchild Semiconductor Corp., 10.125%, 3/15/2007 ....................................... 1,500,000 1,320,000
Unisys Corp., 11.75%, 10/15/2004 ........................................................ 2,500,000 2,825,000
-----------
4,834,000
-----------
Energy 3.1%
Abraxas Petroleum Corp., 11.5%, 11/1/2004 ............................................... 1,000,000 880,000
Bellwether Exploration Co., 10.875%, 4/1/2007 ........................................... 2,250,000 2,227,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cliffs Drilling Co., Series D, 10.25%, 5/15/2003 ........................................ 1,000,000 1,065,000
Dailey International, Inc., 9.5%, 2/15/2008 ............................................. 50,000 42,000
Ocean Energy, 9.75%, 10/1/2006 .......................................................... 1,000,000 970,000
Seven Seas Petroleum, 12.5%, 5/15/2005 .................................................. 500,000 455,000
-----------
5,639,500
-----------
Metals & Minerals 4.1%
AK Steel Corp., 9.125%, 12/15/2006 ...................................................... 1,000,000 1,000,000
Metals USA Inc., 8.625%, 2/15/2008 ...................................................... 1,000,000 900,000
NSM Steel Ltd., 12%, 2/1/2006 ........................................................... 1,000,000 650,000
NSM Steel Ltd., 12.25%, 2/1/2008 ........................................................ 500,000 325,000
Pen Holdings Inc., 9.875%, 6/15/2008 .................................................... 1,000,000 975,000
Renco Metals Inc., Senior Note, 11.5%, 7/1/2003 ......................................... 1,000,000 1,020,000
Renco Steel Holdings Co., Series B, 10.875%, 2/1/2005 ................................... 1,000,000 930,000
Wells Aluminum Corp., 10.125%, 6/1/2005 ................................................. 1,750,000 1,697,500
-----------
7,497,500
-----------
Construction 3.1%
Millar Western Forest Products, 9.875%, 5/15/2008 ....................................... 1,750,000 1,347,500
Nortek, Inc., 9.875%, 3/1/2004 .......................................................... 1,000,000 985,000
Nortek, Inc., 9.25%, 3/15/2007 .......................................................... 1,000,000 950,000
Schuler Homes, Inc., 9%, 4/15/2008 ...................................................... 1,500,000 1,395,000
Triangle Pacific, 10.5%, 8/1/2003 ....................................................... 850,000 858,500
-----------
5,536,000
-----------
Transportation 2.5%
Allied Holdings Inc., 8.625%, 10/1/2007 ................................................. 2,000,000 1,890,000
Atlantic Express, Inc., 10.75%, 2/1/2004 ................................................ 1,500,000 1,567,500
US Air, Inc., 10.375%, 3/1/2013 ......................................................... 1,000,000 1,144,320
-----------
4,601,820
-----------
Utilities 1.2%
Cal Energy Co., Inc., 9.5%, 9/15/2006 ................................................... 1,000,000 1,148,810
Niagara Mohawk Power Corp., 7.75%, 10/1/2008 ............................................ 1,000,000 995,000
-----------
2,143,810
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $173,741,723) 162,579,554
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 4.6%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 0.0%
Globalstar LP, Warrants (expire 2/15/2004)* ............................................. 1,000 40,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial 0.6%
Walden Residential Properties, Inc. ..................................................... 40,000 960,000
Walden Residential Properties, Inc., Warrants (expire 1/1/2002)* ........................ 40,000 40,000
-----------
1,000,000
-----------
Media 3.7%
Adelphia Communications Corp., Series B, 13%, 7/15/2009 ................................. 10,000 1,120,000
Cablevision Systems Corp. ............................................................... 21,724 2,438,477
SFX Broadcasting, Inc., Series E ........................................................ 16,451 1,924,728
Time Warner, Inc., Series M ............................................................. 1,000 1,142,500
-----------
6,625,705
-----------
Manufacturing 0.3%
Day International Group, Inc. ........................................................... 515 489,250
- ------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $7,998,885) 8,154,955
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Communications 0.0%
Orbital Imaging, Warrants (expire 3/1/2005)* ............................................ 700 28,000
American Mobile Satellite Corp., Warrants (expire 4/1/2008)* ............................ 500 3,500
Star Choice Communications Inc., Warrants (expire 12/15/2005)* .......................... 23,160 44,004
-----------
75,504
-----------
Metals & Minerals 0.0%
NSM Steel, Ltd., Warrants (expire 2/1/2008)* ............................................ 316,546 3,165
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $0) 78,669
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $193,085,054) (a) 181,568,790
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $193,085,054. At August 31,
1998, net unrealized depreciation for all investment securities based on
tax cost was $11,516,264. This consisted of aggregate gross unrealized
appreciation for all investments in which there was an excess of market
value over tax cost of $1,584,344 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of
tax cost over market value of $13,100,608.
(b) Principal amounts are stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
-----------------------------------------------------
XEU European Currency Unit
The accompanying notes are an integral part of the financial statements.
15 - Scudder High Yield Bond Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $193,085,054) ................ $ 181,568,790
Cash ................................................................. 943
Receivable for investments sold ...................................... 4,424,976
Dividends and interest receivable .................................... 3,716,765
Receivable for Fund shares sold ...................................... 799,519
Due from Adviser ..................................................... 386,248
Deferred organization expenses ....................................... 10,911
Other assets ......................................................... 48,321
----------------
Total assets ......................................................... 190,956,473
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Dividends payable .................................................... 481,322
Payable for Fund shares redeemed ..................................... 4,669,594
Unrealized depreciation on forward currency exchange contracts ....... 38,398
Other payables and accrued expenses .................................. 152,194
----------------
Total liabilities .................................................... 5,341,508
-------------------------------------------------------------------------------------------
Net assets, at market value $ 185,614,965
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................. 272,724
Net unrealized appreciation (depreciation) on:
Investments ........................................................ (11,516,264)
Foreign currency related transactions .............................. (38,398)
Accumulated net realized gain ........................................ 401,364
Paid-in capital ...................................................... 196,495,539
-------------------------------------------------------------------------------------------
Net assets, at market value $ 185,614,965
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($185,614,965 / 15,383,742 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ........................................................ $12.07
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder High Yield Bond Fund
<PAGE>
Statement of Operations
six months ended August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends ............................................................ $ 587,848
Interest ............................................................. 8,802,171
----------------
9,390,019
Expenses:
Management fees ...................................................... 684,351
Services to shareholders ............................................. 232,873
Custodian and accounting fees ........................................ 40,315
Trustees' fees and expenses .......................................... 24,589
Registration fees .................................................... 19,096
Auditing ............................................................. 18,730
Reports to shareholders .............................................. 15,100
Legal ................................................................ 7,719
Amortization of organization expense ................................. 1,943
Other ................................................................ 3,658
----------------
Total expenses before reductions ..................................... 1,048,374
Expense reductions ................................................... (718,119)
----------------
Expenses, net ........................................................ 330,255
-------------------------------------------------------------------------------------------
Net investment income 9,059,764
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... 499,840
Foreign currency related transactions ................................ 32,154
----------------
531,994
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................... (17,362,934)
Foreign currency related transactions ................................ (38,398)
----------------
(17,401,332)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (16,869,338)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (7,809,574)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Bond Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
August 31, Year Ended
1998 February 28,
Increase (Decrease) in Net Assets (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ......................................... $ 9,059,764 $ 11,491,089
Net realized gain (loss) from investment transactions ......... 531,994 2,680,787
Net unrealized appreciation (depreciation) on
investment transactions during the period ................... (17,401,332) 3,474,590
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .................................................. (7,809,574) 17,646,466
Distributions to shareholders from:
Net investment income ....................................... (9,107,772) (11,198,598)
---------------- ----------------
Net realized gains .......................................... (1,392,936) (1,527,954)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ..................................... 64,119,551 125,593,145
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 7,547,017 9,336,191
Cost of shares redeemed ....................................... (44,071,976) (37,271,126)
Redemption fees ............................................... 109,418 120,019
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................ 27,704,010 97,778,229
---------------- ----------------
Increase (decrease) in net assets ............................. 9,393,728 102,698,143
Net assets at beginning of period ............................. 176,221,237 73,523,094
Net assets at end of period (including undistributed
net investment income of $272,724 and $320,732, ---------------- ----------------
respectively) ............................................... $ 185,614,965 $ 176,221,237
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ..................... 13,323,225 5,759,335
---------------- ----------------
Shares sold ................................................... 4,901,238 9,745,318
Shares issued to shareholders in reinvestment of
distributions ............................................... 583,475 721,489
Shares redeemed ............................................... (3,424,196) (2,902,917)
---------------- ----------------
Net increase (decrease) in Fund shares ........................ 2,060,517 7,563,890
---------------- ----------------
Shares outstanding at end of period ........................... 15,383,742 13,323,225
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder High Yield Bond Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Six Months June 28, 1996
Ended (commencement
August 31, Year Ended of operations) to
1998 February 28, February 28,
(Unaudited) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------
Net asset value, beginning of period ...................................... $ 13.23 $ 12.77 $ 12.00
---------------------------------------------------
Income from investment operations:
Net investment income ..................................................... .60 1.19 .76
Net realized and unrealized gain (loss) on investment transactions ........ (1.07) .57 .77
---------------------------------------------------
Total from investment operations .......................................... (.47) 1.76 1.53
---------------------------------------------------
Less distributions from:
Net investment income ..................................................... (.61) (1.17) (.76)
Net realized gains from investment transactions ........................... (.09) (.14) (.01)
---------------------------------------------------
Total distributions ....................................................... (.70) (1.31) (.77)
---------------------------------------------------
Redemption fees ........................................................... .01 .01 .01
---------------------------------------------------
Net asset value, end of period ............................................ $ 12.07 $ 13.23 $ 12.77
---------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ...................................................... (3.77)** 14.60 13.23(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................... 186 176 74
Ratio of operating expenses, net to average daily net assets (%) .......... .34* .03 0.00
Ratio of operating expenses before expense reductions, to average
daily net assets (%) .................................................... 1.07* 1.23 1.75*
Ratio of net investment income to average daily net assets (%) ............ 9.27* 9.28 9.44*
Portfolio turnover rate (%) ............................................... 103.1* 112.7 39.8*
</TABLE>
(a) Total return would have been lower had certain expenses not been reduced.
(b) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
19 - 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 other than money market
instruments with an original maturity over sixty days are valued by pricing
agents approved by the officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost.
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market, Inc. ("Nasdaq"), for which
there have been sales, are valued at the most recent sale price reported on such
system. If there are no such sales, the value is the most recent bid quotation.
Securities which are not quoted on Nasdaq 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, is equal to at least 100.5% of the repurchase price.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and certain
expenses at the daily rates of exchange prevailing on the respective dates
of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
20 - Scudder High Yield Bond Fund
<PAGE>
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge against changes in exchange rates
relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
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.
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 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. Substantially all of the net investment income
is 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.
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 discounts are accreted for both tax
and financial reporting purposes.
21 - Scudder High Yield Bond Fund
<PAGE>
B. Purchases and Sales of Securities
For the six months ended August 31, 1998, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $106,606,709 and $87,179,067, respectively. Purchases and sales of
U.S. Government obligations aggregated $7,988,125 and $8,009,297, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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. Until June 30, 1998, the Adviser agreed not to impose all or a
portion of its management fee in order to maintain the annualized expenses of
the Fund at not more than 0.25% of average daily net assets. Effective July 1,
1998, the Adviser agreed not to impose all or a portion of its management fee
until December 31, 1998 in order to maintain the annualized expenses of the Fund
at not more than 0.50% of average daily net assets. For the six months ended
August 31, 1998, the Adviser did not impose a portion of its fee amounting to
$632,579 and the fee imposed amounted to $51,772. Further, due to the
limitations of such Agreement, the Adviser's reimbursement payable to the Fund
at August 31, 1998, amounted to $386,248.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, each Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved new investment management agreements with Scudder
Kemper, which are substantially identical to the former investment management
agreements, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management agreements through a proxy solicitation that is currently scheduled
to conclude in mid-December.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended August 31, 1998, SSC imposed fees of $54,040, all of which was
unpaid at August 31, 1998 and did not impose fees amounting to $65,707.
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. At August 31, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $30,744.
22 - Scudder High Yield Bond Fund
<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 six months ended August 31,
1998, STC imposed fees of $3,236, all of which was unpaid at August 31, 1998 and
did not impose fees amounting to $3,577.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended August 31, 1998, SFAC imposed fees of $14,076, all of which was unpaid at
August 31, 1998 and did not impose fees amounting to $16,256.
The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the six months ended August 31,
1998, the Trustee's fees and expenses aggregated $24,589.
D. Commitments
As of August 31, 1998, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of $38,398.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
------------------------------------- ----------------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
European Currency Units 1,419,575 U.S. Dollars 1,558,949 11/30/98 (38,398)
===========
</TABLE>
23 - Scudder High Yield Bond Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director
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
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Kelly D. Babson*
Vice President
Jerard K. Hartman*
Vice President
William M. Hutchinson*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Stephen A. Wohler*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - Scudder High Yield Bond Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
25 - Scudder High Yield Bond Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder High Yield Bond Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
27 - Scudder High Yield Bond Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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