Scudder
Corporate
Bond Fund
Semiannual Report
July 31, 1999
No-Load Funds
A no-load (no sales charges) mutual fund seeking a high level of current income
through investment primarily in investment-grade corporate debt securities.
SCUDDER
<PAGE>
Scudder Corporate Bond Fund
- --------------------------------------------------------------------------------
Date of Inception: 8/31/98 Total Net Assets as of Ticker Symbol: SCCBX
7/31/99: $39.1 million
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o The combination of higher interest rates and record levels of new supply
coming to the market caused corporate bond prices to tumble during the period.
o Fund management remained focused on non-cyclical issues in the media,
telecommunications, and consumer non-durables sectors.
o The fund began the period with a slightly aggressive stance with respect to
duration and credit quality, but adopted a more defensive positioning once it
became apparent that the Federal Reserve had adopted a bias toward higher
interest rates.
Table of Contents
3 Letter from the Fund's President 14 Financial Statements
4 Performance Update 17 Financial Highlights
5 Portfolio Summary 18 Notes to Financial Statements
6 Portfolio Management Discussion 21 Officers and Trustees
9 Glossary of Investment Terms 22 Investment Products and Services
10 Investment Portfolio 23 Scudder Solutions
2 - Scudder Corporate Bond Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Corporate bonds, which were buoyed in the first quarter by the combination
of strong growth and a stable interest rate backdrop, encountered increasingly
difficult conditions as the year progressed. Fears of inflation sent the rate on
the 30-year Treasury bond past 6%, and a flood of new corporate bond issuance
upset the balance of supply and demand in the market. The resulting disruptions,
while undoubtedly unnerving even to seasoned fixed income investors, have
created an excellent buying opportunity for those who possess a long-term
investment horizon. Corporate bond yields have not risen to attractive levels
despite the fact no evidence yet exists to substantiate the fears of inflation.
In addition, both Y2K and the overabundance of supply are essentially short-term
phenomena that should dissipate by year end. Given the potentially ephemeral
nature of the market's recent jitters, we urge investors to maintain a focus on
their investment needs and long-term objectives.
The management team of Scudder Corporate Bond Fund continues to take a
steady, long-term approach to managing the portfolio. In seeking investments
that should provide both solid performance and lower levels of volatility over
time, they have focused on bonds issued by companies with stable cash flows,
strong balance sheets, and non-cyclical businesses. We believe that over time,
such an approach will allow the fund to outperform both its benchmark index and
its peers.
Finally, it should be noted that Daniel Pierce retired in June of this year
as President of Scudder Corporate Bond Fund, at which time I assumed that role
and its responsibilities. We are fortunate that Dan's longstanding affiliation
with Scudder is ongoing, and that we will continue to benefit from his counsel
going forward. I am pleased to join the fund's team in this capacity, and look
forward to serving your interests.
Thank you for your continued investment in Scudder Corporate Bond Fund. If
you have any questions about your investment, please call Scudder Investor
Information at 1-800-SCUDDER (1-800-728-3337) or visit our Web site at
www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Corporate Bond Fund
3 - Scudder Corporate Bond Fund
<PAGE>
Performance Update as of July 31, 1999
- -----------------------------------------------
Fund Index Comparison
- -----------------------------------------------
Total Return
--------------------------------------------
Period Ended Growth of
7/31/1999 $10,000 Cumulative
--------------------------------------------
Scudder Corporate Bond Fund
--------------------------------------------
Life of Fund* $ 10,252 2.52%
--------------------------------------------
Lehman Brothers Corporate Intermediate Bond
Index
--------------------------------------------
Life of Fund* $ 10,224 2.24%
--------------------------------------------
* The Fund commenced operations on August 31, 1998.
- -----------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Lehman Brothers
Corporate Intermediate Scudder Corporate
Bond Index Bond Fund
---------- ---------
8/31* 10000 10000
9/30 10299 10292
10/31 10217 10178
11/30 10296 10406
12/31 10341 10433
1/31 10423 10553
2/28 10246 10359
3/31 10341 10421
4/30 10382 10472
5/31 10266 10324
6/30 10257 10278
7/31 10224 10252
The Lehman Brothers Corporate Intermediate Bond Index is a subset of the Lehman
Brothers Corporate Bond Index with maturities of less than 10 years, calculated
on a total return basis. Index returns assume reinvested dividends and, unlike
Fund returns, do not reflect any fees or expenses.
- ---------------------------------------------------
Returns and Per Share Information
- ---------------------------------------------------
Period Ended July 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
1999*
- --------------------------------------------------------------------------------
Net Asset Value $ 11.49
- --------------------------------------------------------------------------------
Income Dividends $ .77
- --------------------------------------------------------------------------------
Capital Gains Distributions $ .05
- --------------------------------------------------------------------------------
Fund Total Return (%) 2.52
- --------------------------------------------------------------------------------
Index Total Return (%) 2.24
- --------------------------------------------------------------------------------
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 Fund would have been lower.
4 - Scudder Corporate Bond Fund
<PAGE>
Portfolio Summary as of July 31, 1999
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Diversification
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Corporate Bonds 74%
U.S. Government & Treasury
Obligations 11%
Cash Equivalents 6%
Foreign Bonds -- U.S. $
Denominated 4%
U.S. Government Agency Pass-Thrus 4%
Asset Backed 1%
----------------------------------------
100%
----------------------------------------
The fund remains focused on high-quality corporate bonds. Government issues are
held in place of a larger cash position.
- --------------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
U.S. Government Agencies &
Treasury Obligations 14%
AAA* 13%
AA 6%
A 22%
BBB 23%
BB 12%
B 9%
NR 1%
--------------------------------------
100%
--------------------------------------
* Category includes cash equivalents
Management trimmed its position in lower quality issues on the belief that the
high yield sector is vulnerable at this juncture.
- --------------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 6%
1 through 5 years 41%
5 through 8 years 13%
8 through 15 years 32%
Greater than 15 years 8%
------------------------------------
100%
------------------------------------
Weighted average effective maturity:
7.4 years
As the reporting period progressed, management shifted assets into bonds with
maturities of 3 to 5 years, which became more attractive as the yield curve
flattened.
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 Corporate Bond Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Lead Portfolio Manager Robert Cessine discusses
Scudder Corporate Bond Fund's strategy and the market environment during the
six-month period ended July 31, 1999.
Q: The corporate market has been hit hard in recent months. What factors have
contributed to the sector's poor performance?
A: Corporate bonds have lost ground for two primary reasons: rising interest
rates and high levels of new issuance. When the reporting period began, the
investment backdrop for bonds was still relatively benign. The fear of global
deflation was keeping interest rates down, and the improving earnings outlook
for U.S. companies was providing support for the corporate market. As the year
progressed, however, it became increasingly apparent that the global economy was
not going to slow. Growth in the U.S. picked up at the same time as the
economies of Asia and Europe began to show signs of life, a development that the
bond market viewed as a distinct negative in light of booming real estate prices
and a tight labor market. Interest rates rose sharply in the second quarter as
the market discounted a quarter-point rate increase by the Federal Reserve. The
Fed's announcement of a "neutral" rate bias briefly relieved pressure from the
market, but new evidence that inflation was on the upswing pushed bond yields
back to their previous highs by late July.
Corporate bonds were also troubled by a wave of new issuance as U.S. companies
rushed to complete their 1999 financing before the fourth quarter, when
liquidity is expected to dry up ahead of Y2K. The effort to condense a year's
worth of financing into a nine-month window put significant pressure on the
market by increasing supply at a time when interest rate jitters were already
sapping demand. In a development that is reminiscent of last year's financial
crisis, dealers were extremely reluctant to take on new inventory, further
decreasing liquidity in the corporate market. While excess supply has been
causing significant disruptions recently, it is important to keep in mind that
the problem is only short-term in nature. Supply and demand should come back
into balance as rates adjust to the market environment, and the Year 2000 issue
will pass in a matter of a few months. Consequently, we view the recent slump in
the corporate sector as an outstanding opportunity to pick up quality issues at
attractive prices.
Q: How has the fund performed in this environment?
A: The fund posted a total return of -2.85% for the six-month period ended July
31, compared to a -1.91% return for its unmanaged benchmark, the Lehman Brothers
Corporate Intermediate Bond Index. The fund's return ranked ahead of the -3.05%
average return of all funds in the "Corporate Debt BBB-rated" category, as
measured by Lipper Analytical Services, Inc.^1 We attribute the fund's favorable
showing against its peers to strong individual security selection and a
conservative approach with respect to duration, which proved beneficial in a
difficult environment.
- --------------------
^1 Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends
and capital gains. Past performance is not indicative of future
results.
6 - Scudder Corporate Bond Fund
<PAGE>
Q: In the last report, you discussed the relative attractiveness of non-cyclical
issues. Are you still focusing your efforts on this area?
A: Yes. Despite the strength in the economy, we feel that it is best to seek a
cushion from the volatility associated with the so-called "smokestack"
industries. Instead, we emphasize bonds issued by companies with strong balance
sheets and steady, recurring cash flows. We maintained an overweight position in
the consumer non-durables sector, which includes supermarkets such as Safeway,
as well as Revlon and Tricon Global Restaurants. We have also held on to our
positions in the media and telecommunications sectors, which also tend to have
non-cyclical revenue streams. Examples of bonds we hold within these industries
are those issued by Sprint, AT&T, and TCI-Communications. While these bonds
contributed positively to the fund's performance in the first six months of its
existence, they began to give up some ground during the latter part of the
period. A parallel can be drawn to the stock market, where higher quality names
outperformed through 1998 and the first quarter of 1999, but gave way to
cyclicals and other groups of lesser quality once the global economy appeared to
be picking up steam. Despite the recent weakness in these issues, we believe
that a focus on quality will benefit the fund over time.
Q: How has the fund's position in the energy sector affected performance?
A: Our holdings in this area have been solid performers over the last six
months, particularly when oil prices were rising sharply during March and April.
Although some would consider the oils to be cyclical, we found their value
sufficiently compelling to establish a position in the sector when the fund
first opened last year. Our patient approach allowed us to benefit when these
bonds finally began to rally during the spring. High yield issues such as
Anadarko Petroleum, Barrett Resources, and Louis Dreyfus Natural Gas have
performed particularly well for us. Despite its recent run-up, we believe that
the energy sector continues to boast attractive yields, and should have
additional upside potential from here.
Q: What was your strategy with respect to duration?
A: After being slightly longer than the benchmark early in the period, we
reduced the fund's duration to a more neutral level once it became apparent that
the Fed had adopted a bias toward higher interest rates. By selling
longer-maturity bonds and reinvesting the proceeds into issues with maturities
of three to five years, which we felt offered a better trade-off of risk and
return in light of the flattening yield curve, we were able to reduce the fund's
risk exposure. We intend to keep duration neutral until such time as we see
signs of a slowing in the economy, or we get a clearer indication from the Fed
as to what its future course of action might be.
Q: What has been the fund's approach with regard to credit quality?
A: Early in the period, our aggressive positioning helped us take advantage of
the strong performance of the high yield area. We trimmed our position in this
area from 27% of assets to 21% (versus a potential maximum of 35%) during June
and July, and added to our holdings in BBB-rated bonds. While this move proved
premature, we believe that
7 - Scudder Corporate Bond Fund
<PAGE>
the strong recent performance of high-yield issues has left them vulnerable to
the troubles plaguing the rest of the bond market, as well as to a potential
correction in the richly valued U.S. stock market.
Q: What is your outlook for corporate bonds over the rest of 1999?
A: We believe that from the standpoint of a long-term investment horizon, i.e.,
one that extends beyond the year 2000, the recent slump in corporates has
created some intriguing values. Although we are encouraged by strong profit
growth, low inflation, and attractive valuations, we nevertheless remain
cautious. It is important to remember that the acceleration of inflation may
prove to be more important to market participants than its current low level.
Consequently, we will continue to seek the optimal balance of risk and return by
positioning the fund defensively and utilizing intensive fundamental analysis to
take advantage of values as they emerge.
8 - Scudder Corporate Bond Fund
<PAGE>
Glossary of Investment Terms
CONSUMER NON-DURABLES Products bought by consumers that are expected to
last less than three years, such as food and drugs.
Sales of non-durables generally tend to be less
sensitive to economic fluctuations.
CYCLICALS Companies whose earnings are closely tied to the
business cycle. Cyclical industries include steel,
cement, paper, machinery, and autos.
DEFLATION A decline in the prices of goods and services. The
opposite of inflation, deflation usually has a
negative effect on output and employment.
DURATION A measure of bond price volatility. Duration can be
defined as the approximate percentage change in price
for a 100 basis point (one single percentage point)
change in market interest rate levels. A duration of
5, for example, means that the price of a bond should
rise by approximately 5% for a one percentage point
drop in interest rates, and fall by 5% for a one
percentage point rise in interest rates.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time. A stock
that is liquid has enough shares outstanding and a
substantial enough market capitalization to allow
large purchases and sales to occur without causing a
significant move in its market price as a result.
WEIGHTING (OVER/UNDER) Refers to the allocation of assets -- usually in
terms of sectors, industries, or countries -- within
a portfolio relative to the portfolio's benchmark
index or investment universe.
YIELD SPREAD The difference in yield between two types of bonds. A
mortgage- backed security's yield is often measured
against the yield of a Treasury bond of similar
maturity as a market yardstick. If GNMA yield spreads
are "narrow," for example, it typically means that
GNMA yields have been declining, and prices rising,
compared with Treasury bonds of similar maturity.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
9 - Scudder Corporate Bond Fund
<PAGE>
Investment Portfolio as of July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 6.1%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 7/30/1999 at 5.04%, to be
repurchased at $2,319,974 on 8/2/1999, collateralized by a $2,355,000 U.S. Treasury Note,
5.5%, 3/31/2003 (Cost $2,319,000) ......................................................... 2,319,000 2,319,000
U. S. Government & Treasury Obligations 10.5%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 .......................................... 1,000,000 978,120
U.S. Treasury Note, 5.875%, 11/30/2001 ...................................................... 1,000,000 1,004,060
U.S. Treasury Note, 5.625%, 12/31/2002 ...................................................... 500,000 497,110
U.S. Treasury Note, 6.25%, 2/15/2003 ........................................................ 1,000,000 1,012,810
U.S. Treasury Note, 3.93%, 1/15/2009 ........................................................ 500,000 500,212
Total U. S. Government & Treasury Obligations (Cost $4,113,374) 3,992,312
U. S. Government Agency Pass-thrus 3.6%
- ------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 6.5%, 3/1/2028 (Cost $1,454,891) ..................... 1,446,135 1,376,992
Foreign Bonds - U. S.$ Denominated 4.2%
- ------------------------------------------------------------------------------------------------------------------------------
PacifiCorp Australia, 6.15%, 1/15/2008 ...................................................... 1,000,000 946,020
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................................... 500,000 467,180
Tembec Industries, Inc., 8.625%, 6/30/2009 .................................................. 200,000 195,500
Foreign Bonds - U. S.$ Total Denominated (Cost $1,702,720) 1,608,700
Asset Backed 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
Automobile Receivables
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003 (Cost $500,000) ........... 500,000 495,938
Corporate Bonds 74.3%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 2.9%
Finlay Fine Jewelry Co., 8.375%, 5/1/2008 ................................................... 250,000 238,750
Harrah's Operating Co., Inc., 7.875%, 12/15/2005 ............................................ 250,000 238,750
NBTY Inc., 8.625%, 9/15/2007 ................................................................ 150,000 124,875
Tricon Global Restaurants, 7.65%, 5/15/2008 ................................................. 500,000 487,250
----------
1,089,625
----------
Consumer Staples 7.8%
Bass America Inc., 6.625%, 3/1/2003 ......................................................... 500,000 493,745
Dyersburg Corp., 9.75%, 9/1/2007 ............................................................ 250,000 95,000
Fleming Companies, Inc., 10.625%, 7/31/2007 ................................................. 250,000 230,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Corporate Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ........................................ 500,000 450,900
Revlon Consumer Products, 8.625%, 2/1/2008 .............................................. 300,000 252,000
Safeway Inc., 6.05%, 11/15/2003 ......................................................... 500,000 483,155
The Great Atlantic & Pacific Tea Co., Inc., 7.7%, 1/15/2004 ............................. 1,000,000 975,450
---------
2,980,875
---------
Communications 11.2%
Allegiance Telecom, Inc., 12.875%, 5/15/2008 ............................................ 250,000 270,000
AT&T Corp., 6%, 3/15/2009 ............................................................... 500,000 464,370
Intermedia Communications, Inc., 8.875%, 11/1/2007 ...................................... 250,000 228,750
Level 3 Communications, 9.125%, 5/1/2008 ................................................ 250,000 236,250
McLeodUSA Inc., 8.125%, 2/15/2009 ....................................................... 500,000 451,250
Qwest Communications International, 7.5%, 11/1/2008 ..................................... 1,000,000 989,580
SBA Communications Corp., Step-up Coupon, 0% to 3/1/2003, 12% to 3/1/2008 ............... 400,000 236,000
Sprint Capital Corp., 5.875%, 5/1/2004 .................................................. 500,000 483,750
Sprint Capital Corp., 6.125%, 11/15/2008 ................................................ 1,000,000 919,470
---------
4,279,420
---------
Financial 15.9%
Bank United, 8%, 3/15/2009 .............................................................. 500,000 472,495
Bank United Capital Trust, 10.25%, 12/31/2026 ........................................... 250,000 237,500
Capital One Bank, 6.57%, 1/27/2003 ...................................................... 250,000 245,150
First Union Institutional Capital II, 7.85%, 1/1/2027 ................................... 1,000,000 951,530
First USA Bank, 5.85%, 2/22/2001 ........................................................ 250,000 248,095
Ford Motor Credit Co., 6.125%, 4/28/2003 ................................................ 500,000 487,050
General Electric Capital Corp., 6.02%, 5/4/2001 ......................................... 1,000,000 995,000
Home Savings of America, 6%, 11/1/2000 .................................................. 1,000,000 994,100
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ................................................ 500,000 454,825
Prudential Insurance Co., 6.375%, 7/23/2006 ............................................. 1,000,000 966,790
---------
6,052,535
---------
Media 7.4%
Chancellor Media Corp., 8%, 11/1/2008 ................................................... 500,000 487,500
Charter Communication Holdings LLC, 8.25%, 4/1/2007 ..................................... 500,000 473,750
News America Holdings Inc., 9.25%, 2/1/2013 ............................................. 500,000 555,195
Outdoor Systems, Inc., 8.875%, 6/15/2007 ................................................ 250,000 258,750
TCI-Communications, Inc., 8%, 8/1/2005 .................................................. 1,000,000 1,053,860
---------
2,829,055
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Corporate Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 3.2%
Allied Waste North America, 7.375%, 1/1/2004 ........................................... 250,000 233,750
Cendant Corp., 7.75%, 12/1/2003 ........................................................ 500,000 501,200
Integrated Electrical Services, Inc., 9.375%, 2/1/2009 ................................. 500,000 495,000
---------
1,229,950
---------
Durables 1.3%
Lear Corp., 7.96%, 5/15/2005 ........................................................... 500,000 489,750
---------
Manufacturing 6.4%
AEP Industries Inc., 9.875%, 11/15/2007 ................................................ 250,000 245,000
Lyondell Chemical Co., 9.875%, 5/1/2007 ................................................ 500,000 509,375
Radnor Holdings Corp., 10%, 12/1/2003 .................................................. 250,000 252,500
TRW, Inc., 6.625%, 6/1/2004 ............................................................ 500,000 490,550
Xerox Corp., 5.5%, 11/15/2003 .......................................................... 1,000,000 953,700
---------
2,451,125
---------
Technology 3.7%
IBM Corp., 5.1%, 11/10/2003 ............................................................ 1,000,000 947,700
Raytheon Co., 6%, 12/15/2010 ........................................................... 500,000 453,675
---------
1,401,375
---------
Energy 9.4%
Anadarko Petroleum Corp., 7%, 11/15/2027 ............................................... 700,000 625,478
Barrett Resources Corp., 7.55%, 2/1/2007 ............................................... 300,000 285,750
Conoco Inc., 5.9%, 4/15/2004 ........................................................... 750,000 723,255
Louis Dreyfus Natural Gas Corp., 6.875%, 12/1/2007 ..................................... 500,000 441,075
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ..................................... 1,000,000 970,790
Texas Eastern Transmission Corp., 10%, 8/15/2001 ....................................... 500,000 533,205
----------
3,579,553
----------
Construction 0.6%
Nortek, Inc., 9.125%, 9/1/2007 ......................................................... 250,000 248,750
----------
Utilities 4.5%
CalEnergy Co., Inc, 7.23%, 9/15/2005 ................................................... 500,000 493,850
Houston Light & Power Capital Trust II, 8.257%, 2/1/2037 ............................... 250,000 235,000
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ........................................... 1,000,000 1,008,610
----------
1,737,460
Total Corporate Bonds (Cost $29,731,258) 28,369,473
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $39,821,243) (a) 38,162,415
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Corporate Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $39,821,243. At July 31,
1999, net unrealized depreciation for all investment securities based on
tax cost was $1,658,828. This consisted of aggregate gross unrealized
appreciation for all investments in which there was an excess of market
value over tax cost of $111,371 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of
tax cost over market value of $1,770,199.
Included in the portfolio are investments in mortgage or asset-backed
securities which are interests in separate pools of mortgages or assets.
Effective maturities of these investments may be shorter than stated
maturities due to prepayments. All separate investments in the Federal
National Mortgage Association and the Government National Mortgage
Association issues which have similar coupon rates have been aggregated
for presentation purposes in the investment portfolio.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Corporate Bond Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $39,821,243) ................ $ 38,162,415
Cash ................................................................ 430
Interest receivable ................................................. 619,693
Receivable for Fund shares sold ..................................... 25,167
Due from Adviser .................................................... 435,281
Other assets ........................................................ 3,524
----------------
Total assets ........................................................ 39,246,510
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................... 26,690
Other payables and accrued expenses ................................. 97,966
----------------
Total liabilities ................................................... 124,656
Net assets, at market value ......................................... $ 39,121,854
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ........... (1,658,828)
Accumulated net realized gain (loss) ................................ (192,098)
Paid-in capital ..................................................... 40,972,780
Net assets, at market value ......................................... $ 39,121,854
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($39,121,854 /
3,406,144 outstanding shares of beneficial interest, $.01 par
value, unlimited number of shares authorized) $11.49
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Corporate Bond Fund
<PAGE>
Statement of Operations
six months ended July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Income:
<S> <C>
Interest ............................................................ $ 1,342,073
----------------
Expenses:
Management fees ..................................................... 123,648
Services to shareholders ............................................ 190,412
Custodian and accounting fees ....................................... 21,177
Trustees' fees and expenses ......................................... 15,204
Reports to shareholders ............................................. 7,059
Auditing ............................................................ 10,679
Legal ............................................................... 3,258
Registration fees ................................................... 19,729
Other ............................................................... 3,439
----------------
Total expenses before reductions .................................... 394,605
Expense reductions .................................................. (394,605)
----------------
Expenses, net ....................................................... --
Net investment income 1,342,073
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ........................... (187,831)
Net unrealized appreciation (depreciation) during the period on
investments ....................................................... (2,278,372)
Net gain (loss) on investment transactions (2,466,203)
Net increase (decrease) in net assets resulting from operations $ (1,124,130)
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Corporate Bond Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
Six Months August 31, 1998
Ended (commencement of
July 31, 1999 operations) to
Increase (Decrease) in Net Assets (Unaudited) January 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income ........................... $ 1,342,073 $ 901,007
Net realized gain (loss) from investment
transactions .................................. (187,831) 141,244
Net unrealized appreciation (depreciation) on
investment transactions during the period...... (2,278,372) 619,544
---------------- ----------------
Net increase (decrease) in net assets
resulting from operations...................... (1,124,130) 1,661,795
Distributions to shareholders from:
Net investment income ......................... (1,342,073) (901,007)
---------------- ----------------
Net realized gains ............................ (63,549) (81,962)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ....................... 9,555,170 36,901,098
Net asset value of shares issued to
shareholders in reinvestment of distributions . 1,268,548 956,646
Cost of shares redeemed ......................... (5,887,978) (1,821,904)
---------------- ----------------
Net increase (decrease) in net assets from
Fund share transactions ......................... 4,935,740 36,035,840
---------------- ----------------
Increase (decrease) in net assets ............... 2,405,988 36,714,666
Net assets at beginning of period ............... 36,715,866 1,200
Net assets at end of period ..................... $39,121,854 $ 36,715,866
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ....... 2,991,753 100
---------------- ----------------
Shares sold ..................................... 802,937 3,063,041
Shares issued to shareholders in reinvestment
of distributions............................... 107,683 78,297
Shares redeemed ................................. (496,229) (149,685)
---------------- ----------------
Net increase (decrease) in Fund shares .......... 414,391 2,991,653
Shares outstanding at end of period ............. 3,406,144 2,991,753
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Corporate 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
August 31, 1998
Six Months Ended (commencement of
July 31, 1999 operations) to
(Unaudited) January 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period .............................................. $12.27 $12.00
Income from investment operations:
Net investment income (loss) ...................................................... .41 .36
Net realized and unrealized gain (loss) on investment transactions ................ (.76) .30
Total from investment operations .................................................. (.35) .66
Less distributions from:
Net investment income ............................................................. (.41) (.36)
Net realized gains from investment transactions ................................... (.02) (.03)
Total distributions ............................................................... (.43) (.39)
Net asset value, end of period .................................................... $11.49 $12.27
- ---------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) .............................................................. (2.85)** 5.53**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................ 39 37
Ratio of operating expenses, net to average daily net assets (%) .................. 0.00* 0.00*
Ratio of operating expenses before expense reductions, to average daily
net assets (%) .................................................................. 2.07* 2.55*
Ratio of net investment income to average daily net assets (%) .................... 7.06* 6.96*
Portfolio turnover rate (%) ....................................................... 50.6* 96.7*
</TABLE>
(a) Total returns would have been lower had expenses not been reduced.
* Annualized
** Not annualized
17 - Scudder Corporate Bond Fund
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder Corporate Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Fund, whose quotations reflect broker/dealer-supplied valuations
and electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. Net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed, and, therefore,
will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund. Investment Transactions and Investment Income.
Investment transactions are accounted for on the trade date. Interest income is
recorded on the accrual basis. Realized gains and losses from investment
transactions are recorded on an identified cost basis. All discounts are
accreted for both tax and financial reporting purposes.
Expenses. Expenses arising in connection with a specific Fund are allocated to
that Fund. Other Trust expenses are allocated between the Funds in proportion to
their relative net assets.
18 - Scudder Corporate Bond Fund
<PAGE>
B. Purchases and Sales of Securities
During the six months ended July 31, 1999, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $7,671,913 and $4,962,093, respectively. Purchases and sales of U.S.
Government obligations aggregated $4,161,250 and $4,127,305, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment 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 management fee
payable under the Agreement is equal to an annual rate of 0.65%. The Adviser and
certain of its subsidiaries have agreed to reimburse or not to impose,
respectively, all of their fees payable by the Fund until April 30, 2000 in
order to maintain the annualized expenses of the Fund at not more than 0.0% of
average daily net assets. For the six months ended July 31, 1999 the Adviser did
not impose any portion of its management fee amounting to $123,648. Further, the
Fund's reimbursement due from the Adviser for the six months ended July 31, 1999
amounted to $435,281.
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 July 31, 1999, SSC did not impose any of its fees amounting to
$15,648.
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 July 31,
1999, STC did not incur any fees.
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 July 31, 1999, SFAC did not impose any of its fees amounting to $18,750.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. For the six months ended July
31, 1999, the Special Servicing Agreement expense charged to the Fund amounted
to $174,846.
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 July 31,
1999, the Trustee's fees and expenses aggregated $15,204.
19 - Scudder Corporate Bond Fund
<PAGE>
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
20 - Scudder Corporate Bond Fund
<PAGE>
Officers and Trustees
Lynn S. Birdsong*
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; Venture Partner,
Venture Capital Group
Kelly D. Babson*
Vice President
William M. Hutchinson*
Vice President
Valerie F. Malter*
Vice President
Ann M. McCreary*
Vice President
John Millette*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
21 - Scudder Corporate 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 --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market^+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free^+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 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 Select 1000 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
22 - Scudder Corporate 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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
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-SCUDDER
Please address all written correspondence to: The Scudder Funds, P.O. Box 2291, Boston, Massachusetts 02107-2291
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23 - Scudder Corporate Bond Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $280 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. Scudder Kemper Investments has a rich heritage of
innovation, integrity, and client-focused service. In 1997, Scudder, Stevens &
Clark, Inc., founded 80 years ago as one of the nation's first investment
counsel organizations, joined the Zurich Financial Services Group. As a result,
Zurich's subsidiary, Zurich Kemper Investments, Inc., with 50 years of mutual
fund and investment management experience, was combined with Scudder.
Headquartered in New York, Scudder Kemper Investments offers a full range of
investment counsel and asset management capabilities, based on a combination of
proprietary research and disciplined, long-term investment strategies. With its
global investment resources and perspective, the firm seeks opportunities in
markets throughout the world to meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
