Scudder
High Yield
Bond Fund
Semiannual Report
July 31, 1999
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No-Load Funds
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A no-load (no sales charges) mutual fund which seeks to provide a high income
and, secondarily, capital appreciation through investment primarily in lower
rated, higher yielding corporate bonds.
SCUDDER
<PAGE>
Scudder High Yield Bond Fund
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Date of Inception: 6/28/96 Total Net Assets Ticker Symbol: SHBDX
as of 7/31/99: $182.2 million
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o Following a promising first quarter, high yield bonds were negatively affected
during the second quarter of 1999 by interest rate and Y2K concerns, worries
over developments in emerging markets, and capital outflows from the sector.
o For the six-month period ended July 31, 1999, Scudder High Yield Bond Fund
provided a total return of 0.11%, roughly in keeping with the 0.91% total return
of the Merrill Lynch High Yield Master Index. On July 31, the fund posted a
10.25% 30-day SEC yield.
o Though the high yield market faces fundamental and technical challenges in the
short run, we plan to take advantage of the attractive value to be had in select
issues over the coming months in light of our constructive long-term outlook.
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 25 Officers and Trustees
8 Glossary of Investment Terms 26 Investment Products and Services
9 Investment Portfolio 27 Scudder Solutions
2 - Scudder High Yield Bond Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
High yield bonds faced a series of fundamental and technical hurdles during
Scudder High Yield Bond Fund's most recent semiannual period, especially during
the second quarter of the year. As a result, high yield market performance was
essentially flat, and your fund's total return for the six-month period was
0.11%. Challenges included concerns over Y2K, recent corporate profit shrinkage,
and a cool reception to some recent high yield bond issuers. As Lead Portfolio
Manager Kelly Babson explains in the interview that follows on page 5, typical
high yield investors seem content to remain on the sidelines until fundamentals
and inherent value reassert themselves. Though we can't predict when an
increased risk -- and yield -- appetite will return to the market, we are
confident that solid, improving high yield credits will continue to reward high
yield investors over the long term.
It should be noted that Daniel Pierce retired in June of this year as
President of Scudder High Yield 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.
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 www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder High Yield Bond Fund
3 - Scudder High Yield Bond Fund
<PAGE>
Performance Update as of July 31, 1999
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Fund Index Comparison
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Total Return
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Period Ended Growth of Average
7/31/99 $10,000 Cumulative Annual
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Scudder High Yield Bond Fund
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1 Year $ 9,975 -0.25% -0.25%
Life of Fund* $ 13,377 33.77% 9.87%
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Merrill Lynch High Yield Master Index
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1 Year $ 10,050 0.50% 0.50%
Life of Fund* $ 12,873 28.73% 8.53%
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* The Fund commenced operations on June 28, 1996.
Index comparisons begin June 30, 1996.
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Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Scudder High Yield Merrill Lynch High
Bond Fund Yield Master Index
6/96* 10000 10000
7/96 9999 10068
1/97 11115 10883
7/97 12002 11705
1/98 12892 12368
7/98 13405 12808
1/99 13357 12756
7/99 13372 12873
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.
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Returns and Per Share Information
- ---------------------------------
Yearly periods ended July 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1996* 1997 1998 1999
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<S> <C> <C> <C> <C>
Net Asset Value $ 11.92 $ 13.00 $ 13.06 $ 11.86
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Income Dividends $ 0.08 $ 1.17 $ 1.19 $ 1.15
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Capital Gains Distributions $ -- $ .03 $ .21 $ --
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Fund Total Return (%) -.75 20.03 11.69 -.25
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Index Total Return (%) .68 16.26 9.42 .50
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</TABLE>
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,
total returns would have been lower.
4 - Scudder High Yield Bond Fund
<PAGE>
Portfolio Summary as of July 31, 1999
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Asset Allocation
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Corporate Bonds 88%
Preferred Stocks 7%
Cash Equivalents 4%
Foreign Bonds 1%
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100%
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In general, the fund maintains a modest cash allocation so that we are
positioned to purchase attractive bond issues as they become available.
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Diversification (Excluding
Cash Equivalents)
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Communications 33%
Media 15%
Manufacturing 13%
Consumer Discretionary 12%
Service Industries 5%
Consumer Staples 4%
Construction 3%
Metals & Minerals 3%
Financial 3%
Other 9%
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100%
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The fund continues to be heavily weighted in telecommunications issues based on
favorable long-term fundamentals.
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Quality
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Cash Equivalents 3%
BBB 2%
BB 16%
B 65%
CCC 5%
Not Rated 9%
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100%
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Weighted Average Quality: B1
A high quality bias negatively affected the fund's performance in the short run,
as BB corporate bonds tracked Treasuries and interest rate movements during the
period.
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Effective Maturity
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 13%
1 through 5 years 15%
5 through 8 years 28%
8 years or greater 44%
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100%
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Weighted Average Effective
Maturity: 6.5 years
A range of maturities is represented in the fund's portfolio.
For more complete details about the Fund's Investment Portfolio, see page 9.
A quarterly Fund Summary and Portfolio Summary 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 present an interview with Scudder High Yield Bond Fund's Lead
Portfolio Manager, Kelly D. Babson.
Q: How has Scudder High Yield Bond Fund performed over its most recent
semiannual period?
A: For the six-month period ended July 31, 1999, Scudder High Yield Bond Fund
posted a 0.11% total return. Over the same period the high yield market as
measured by the Merrill Lynch High Yield Master Index returned 0.91%. Longer
term, the fund's total return was 33.77% since its June 28, 1996 inception,
surpassing the Index's 28.73% return over the same period. On July 31, the fund
offered a 10.25% 30-day SEC yield.
Q: Please trace the recent market environment for high yield bonds.
A: The first quarter of 1999 was fairly positive for high yield bonds, emerging
from the negative environment we experienced last year. But the second quarter
of this year was much more challenging, with concern about the Fed raising
rates, worries over developments in Latin America, rising market default rates,
and significant capital outflows. From a fundamental and a technical
perspective, it became a much more difficult environment in the second quarter,
which is clearly reflected in a flat return for the high yield market so far
this year.
Q: How do the market's fundamentals look?
A: There is short-term fundamental concern about lower-rated corporate issues
given recent increased default rates and downgrade activity. Reflecting this,
more high yield offerings have underperformed in recent months, despite a benign
backdrop of strong economic growth and moderate inflation. That sort of
environment temporarily discourages individual and institutional investors from
looking at riskier asset classes and making incremental allocations to high
yield. It also makes purchasers of high yield bonds, including us, demand higher
yields to hold riskier credits.
Q: What about market "technicals?"
A: Technical factors that should provide some interesting opportunities during
the latter part of this year present challenges at present. Liquidity is
limited, with little two-way flow in the market: For the past nine months
securities dealers have not provided adequate capital to support the market.
There is some demand from collateralized bond obligations and structured
products, but that is very selective.
For the most part we're seeing less willingness on the part of institutions to
increase allocations to riskier sectors going into year end. There is concern
about market volatility relating to Year 2000 issues, and some market
participants have become increasingly defensive in their behavior, seemingly
prepared to sit out the rest of the year. That's not necessarily an environment
that's friendly to high yield. After narrowing pretty aggressively in the first
quarter, spreads (the difference between the average yield of a particular
category of bonds -- in this case high yield bonds -- versus long-term
Treasuries; a narrowing spread for a category indicates better relative
performance) have remained in a fairly stable range over the course of the last
four months.
6 - Scudder High Yield Bond Fund
<PAGE>
Q: How have high yield bonds performed versus Treasury bonds?
A: High yield bonds have outperformed Treasuries throughout the year, as spreads
have narrowed a little less than one percentage point. The bulk of this spread
tightening occurred in the B- and CCC-rated parts of the market, with BB
corporate bonds narrowing more modestly. The high quality parts of the high
yield market, which tend to be more interest-rate driven, did not perform as
well in a rising rate environment. The lower quality portion is more closely
tied to the performance of the U.S. stock market.
Q: What changes to the fund's quality composition did you make over the period?
A: Currently, the fund is strongly oriented towards single B, with nearly 80% of
the portfolio rated B or below. BB exposure has declined from 27% at its peak
earlier this year to 16%. Having too high a quality bias actually detracted from
the fund's performance so far in 1999, because, as I've stated, BB performance
was more closely linked to interest rate movements than were other high yield
credits.
Q: Have you made significant sector allocation changes to the portfolio?
A: The fund continues to be heavily weighted in telecommunications based on a
favorable long-term fundamental outlook for that sector. We continue to add to
forest products, another industry that is coming out of a trough. The fund
continues to be somewhat underweighted in cyclicals because the economy seems to
be late-end in its cycle. Lastly, we've begun to reduce exposure to cable, a
sector which has performed well but where we don't think there's a lot of total
return opportunity going forward.
Q: Where do you see opportunity for high yield bonds over the coming months?
A: BB credits have begun to look more attractive once again relative to
lower-rated credits. We also plan to focus on the B-rated segment of the market,
and continue to try to identify individual credit situations that are improving.
We believe high yield bonds should continue to trade within the range they've
been in since early summer, though they could be hurt short-term by Y2K and
other technical pressures. In addition, the equity market will be a key signal
for the performance of high yield bonds: Any sell-off in equities presents a
risk. Longer term, however, there's great value to be had in solid, improving
high yield credits. We believe Scudder High Yield Bond Fund remains an
attractive vehicle for investors seeking high income and capital appreciation
potential.
7 - 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)
8 - Scudder High Yield Bond Fund
<PAGE>
Investment Portfolio as of July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
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<S> <C> <C>
Repurchase Agreement 3.5%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 7/30/1999
at 5.04%, to be repurchased at $6,330,658 on 8/2/1999, collateralized by a -------------
$6,425,000 U.S. Treasury Note 5.75%, 6/30/2000 (Cost $6,328,000) ....................... 6,328,000 6,328,000
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Foreign Bond -- Non U.S.$ Denominated 0.7%
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Dolphin Telecom PLC, Step-up Coupon 0% to 6/1/2003, 11.625% to 6/1/2008 -------------
(Cost $1,805,703) ......................................................................XEU 2,500,000 1,204,256
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Corporate Bonds 88.4%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 11.8%
Advantica Restaurant Group, 11.25%, 1/15/2008 ............................................ 1,000,000 927,500
Avis Rent A Car, 11%, 5/1/2009 ........................................................... 1,750,000 1,789,375
Carrols Corp., 9.5%, 12/1/2008 ........................................................... 2,150,000 1,881,250
Cinemark USA, Inc., Series D, 9.625%, 8/1/2008 ........................................... 1,000,000 960,000
Circus Circus Enterprises, Inc., 9.25%, 12/1/2005 ........................................ 1,000,000 1,005,000
Cole National Group Inc., 9.875%, 12/31/2006 ............................................. 1,000,000 860,000
Empress Entertainment Inc., 8.125%, 7/1/2006 ............................................. 2,000,000 1,950,000
Finlay Fine Jewelry Co., 8.375%, 5/1/2008 ................................................ 2,250,000 2,148,750
Hollywood Entertainment Corp., 10.625%, 8/15/2004 ........................................ 1,000,000 970,000
Horseshoe Gaming Holdings, 8.625%, 5/15/2009 ............................................. 1,600,000 1,536,000
Mohegan Tribal Gaming Authority, 8.75%, 1/1/2009 ......................................... 900,000 886,500
National Vision Association, Ltd., 12.75%, 10/15/2005 .................................... 2,000,000 1,870,000
Pillowtex Corp., 10%, 11/15/2006 ......................................................... 1,500,000 1,425,000
Pillowtex Corp., 9%, 12/15/2007 .......................................................... 500,000 450,000
Premier Parks Inc., 9.75%, 1/15/2007 ..................................................... 1,500,000 1,556,250
Vail Resorts, Inc., 8.75%, 5/15/2009 ..................................................... 1,200,000 1,152,000
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21,367,625
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Consumer Staples 3.7%
Aurora Foods, Inc., Series D, 9.875%, 2/15/2007 .......................................... 2,125,000 2,204,688
Dyersburg Corp., 9.75%, 9/1/2007 ......................................................... 2,250,000 855,000
Fleming Companies, Inc., 10.625%, 7/31/2007 .............................................. 1,400,000 1,291,500
Jafra Cosmetics International, Inc., 11.75%, 5/1/2008 .................................... 1,500,000 1,297,500
Revlon Consumer Products, 8.625%, 2/1/2008 ............................................... 1,200,000 1,008,000
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6,656,688
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The accompanying notes are an integral part of the financial statements.
9 - Scudder High Yield Bond Fund
<PAGE>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Health 1.6%
Dade International, Inc., 11.125%, 5/1/2006 .............................................. 1,000,000 1,055,000
Express Scripts Inc., 9.625%, 6/15/2009 .................................................. 350,000 358,750
MEDIQ Inc., 11%, 6/1/2008 ................................................................ 1,000,000 790,000
NBTY Inc., 8.625%, 9/15/2007 ............................................................. 925,000 770,063
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2,973,813
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Communications 28.1%
21st Century Telecommunications, Step-up Coupon, 0% to 2/15/2003, 11.75% to 2/15/2008 .... 2,500,000 1,125,000
AMSC Acquistion Co., Inc., 12.25%, 4/1/2008 .............................................. 500,000 390,000
Allegiance Telecom, Inc., Step-up Coupon, 0% to 2/15/2003, 11.75% to 2/15/2008 ........... 3,500,000 2,187,500
American Cellular Corp., 10.5%, 5/15/2008 ................................................ 1,000,000 1,027,500
Call-Net Enterprises, Inc., Step-up Coupon, 0% to 8/15/2003, 8.94% to 8/15/2008 .......... 1,200,000 630,000
Call-Net Enterprises, Inc., Step-up Coupon, 0% to 5/15/2004, 10.8% to 5/15/2009 .......... 1,500,000 795,000
Crown Castle International Corp., 9%, 5/12/2011 .......................................... 500,000 476,250
GST USA Inc., Step-up Coupon 0% to 12/1/2000, 13.875% to 12/15/2005 ...................... 2,500,000 2,125,000
ICG Holdings, Inc., 13.5%, 9/15/2005 ..................................................... 2,000,000 1,760,000
Impsat Corp., 12.375%, 6/15/2008 ......................................................... 1,250,000 940,625
Intermedia Communications, Inc., Step-up Coupon, 0% to 7/1/2002, 11.25% to 7/15/2007 ..... 2,750,000 1,897,500
Level 3 Communications, Inc., 9.125%, 5/1/2008 ........................................... 1,000,000 945,000
Long Distance Direct Holdings, Inc., 12.25%, 4/15/2008 ................................... 1,000,000 520,000
McLeodUSA Inc., 9.25%, 7/15/2007 ......................................................... 2,000,000 1,930,000
McLeodUSA Inc., 9.5%, 11/1/2008 .......................................................... 1,000,000 980,000
Metromedia Fiber Network, Inc., 10%, 11/15/2008 .......................................... 1,000,000 1,010,000
MetroNet Communications Corp., Step-up Coupon, 0% to 6/1/2003, 9.95% to 6/15/2008 ........ 2,150,000 1,634,000
MetroNet Communications Corp., 10.625%, 11/1/2008 ........................................ 1,000,000 1,140,000
NEXTLINK Communications, Inc., Step-up Coupon 0% to 4/15/2003, 9.45% to 4/15/2008 ........ 3,600,000 2,160,000
NTL Communications Corp., 11.5%, 10/1/2008 ............................................... 3,500,000 3,832,500
Nextel Communications, Inc., Step-up Coupon 0% to 2/15/1999, 9.75% to 8/15/2004 .......... 4,000,000 4,050,000
NorthEast Optic Network, Inc., 12.75%, 8/15/2008 ......................................... 250,000 265,000
Orbital Imaging Corp., 11.625%, 3/1/2005 ................................................. 700,000 553,000
Primus Telecommunications Group, Inc., 11.25%, 1/15/2009 ................................. 1,250,000 1,246,875
PSINet Inc., 10%, 2/15/2005 .............................................................. 1,000,000 970,000
PSINet Inc., 11%, 8/1/2009 ............................................................... 530,000 530,000
Qwest Communications International, Step-up Coupon, 0% to 2/1/2000, 8.29% to 2/1/2008 .... 2,750,000 2,064,123
Qwest Communications International, 7.5%, 11/1/2008 ...................................... 850,000 841,143
The accompanying notes are an integral part of the financial statements.
10 - Scudder High Yield Bond Fund
<PAGE>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Rogers Cantel, 9.75%, 6/1/2016 ........................................................... 1,000,000 1,090,000
SBA Communications Corp., Step-up Coupon, 0% to 3/1/2003, 12% to 3/1/2008 ................ 1,850,000 1,091,500
Sprint Spectrum L.P., Senior Note, 11%, 8/15/2006 ........................................ 1,000,000 1,125,320
Star Choice Communications Inc., 13%, 12/15/2005 ......................................... 1,000,000 1,030,000
Tele1 Europe, BV, 13%, 5/15/2009 ......................................................... 500,000 527,500
Telecorp PCS Inc., Step-up coupon, 0% to 4/1/2004, 11.625% to 4/15/2009 .................. 2,750,000 1,526,250
Teligent Inc., 11.5%, 12/1/2007 .......................................................... 2,000,000 1,925,000
Triton Communications LLC, Step-up Coupon, 0% to 5/1/2003, 11% to 5/1/2008 ............... 1,700,000 1,105,000
Versatel Telecom BV, 11.875%, 7/15/2009 .................................................. 1,000,000 980,000
Viatel, Inc., 11.5%, 3/15/2009 ........................................................... 1,000,000 1,015,000
Viatel, Inc., Step-up Coupon, 0% to 4/15/2003, 12.5% to 4/15/2008 ........................ 1,500,000 922,500
WorldCom, Inc., 8.875%, 1/15/2006 ........................................................ 368,000 390,507
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50,754,593
-------------
Financial 2.2%
Bank United Capital Trust, 10.25%, 12/31/2026 ............................................ 1,000,000 950,000
CSBI Capital Trust I, 11.75%, 6/6/2027 ................................................... 957,000 1,023,990
Kappa Beheer BV, 10.625%, 7/15/2009 ...................................................... 300,000 307,500
Ono Finance, PLC, 13%, 5/1/2009 .......................................................... 1,000,000 1,040,000
Spectrasite Holdings, Step-up Coupon, 0% to 4/1/2004, 11.25% to 4/15/2009 ................ 1,250,000 675,000
-------------
3,996,490
-------------
Media 11.1%
Adelphia Communications Corp., 10.5%, 7/15/2004 .......................................... 1,500,000 1,590,000
AMFM Inc., 10.5%, 1/15/2007 .............................................................. 1,650,000 1,777,875
AMFM Inc., 8%, 11/1/2008 ................................................................. 1,000,000 975,000
Big Flower Press Holdings, Inc., 8.625%, 12/1/2008 ....................................... 1,000,000 950,000
Charter Communication Holdings LLC, Step-up Coupon, 0% to 4/1/2004, 9.92% to 4/1/2011 .... 1,500,000 907,500
Diva Systems Corp., Step-up Coupon, 0% to 3/1/2003, 12.625% to 3/1/2008 .................. 1,750,000 350,000
Echostar DBS Corp., 9.25%, 2/1/2006 ...................................................... 1,000,000 1,002,500
Falcon Holding Group, 8.375%, 4/15/2010 .................................................. 1,000,000 988,750
Falcon Holding Group, Step-up Coupon, 0% to 4/15/2003, 9.285% to 4/15/2010 ............... 2,400,000 1,689,000
Golden Sky Systems, 12.375%, 8/1/2006 .................................................... 1,000,000 1,100,000
Outdoor Systems, Inc., 8.875%, 6/15/2007 ................................................. 2,750,000 2,846,250
Panavision Inc., Step-up Coupon, 0% to 2/1/2002, 9.625% to 2/1/2006 ...................... 2,500,000 1,450,000
Radio Unica Corp., Step-up Coupon, 0% to 8/1/2002, 11.75% to 8/1/2006 .................... 1,500,000 967,500
Sinclair Broadcast Group, Inc., 10%, 9/30/2005 ........................................... 1,500,000 1,537,500
The accompanying notes are an integral part of the financial statements.
11 - Scudder High Yield Bond Fund
<PAGE>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
TeleWest Communications PLC, Step-up Coupon, 0% to 10/1/2000, 11% to 10/1/2007 ........... 1,000,000 892,500
TeleWest Communications PLC, Step-up Coupon, 0% to 4/15/2004, 9.25% to 4/15/2009 ......... 1,600,000 992,000
-------------
20,016,375
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Service Industries 4.3%
Coinmach Laundry Corp., 11.75%, 11/15/2005 ............................................... 2,000,000 2,160,000
ImPac Group, Inc., 10.125%, 3/15/2008 .................................................... 750,000 701,250
Integrated Electrical Services, Inc., 9.375%, 2/1/2009 ................................... 700,000 693,000
National Equipment Services, 10%, 11/30/2004 ............................................. 1,500,000 1,545,000
Pierce Leahy Corp., 11.125%, 7/15/2006 ................................................... 650,000 708,500
Verio, Inc., 11.25%, 12/1/2008 ........................................................... 2,000,000 2,040,000
-------------
7,847,750
-------------
Durables 2.1%
Airxcel Inc., 11%, 11/15/2007 ............................................................ 1,750,000 1,750,000
Transdigm, Inc., 10.375%, 12/1/2008 ...................................................... 2,000,000 1,970,000
-------------
3,720,000
-------------
Manufacturing 12.1%
AEP Industries, Inc., 9.875%, 11/15/2007 ................................................. 2,000,000 1,960,000
Ball Corp., 8.25%, 8/1/2008 .............................................................. 1,000,000 987,500
BE Aerospace, Inc., 9.5%, 11/1/2008 ...................................................... 1,000,000 1,015,000
Columbus McKinnon Corp., 8.5%, 4/1/2008 .................................................. 1,000,000 930,000
Congoleum Corp., 8.625%, 8/1/2008 ........................................................ 500,000 460,000
Consolidated Container Capital, Inc., 10.125%, 7/15/2009 ................................. 700,000 712,250
Day International Group, Inc., 9.5%, 3/15/2008 ........................................... 1,000,000 900,000
DeCrane Aircraft Holdings, Inc., 12%, 9/30/2008 .......................................... 1,000,000 1,005,000
Eagle-Picher Holdings, 9.375%, 3/1/2008 .................................................. 1,910,000 993,200
Fairchild Corp., 10.75%, 4/9/2007 ........................................................ 1,000,000 940,000
Filtronic PLC, 10%, 12/1/2005 ............................................................ 1,500,000 1,500,000
Golden Northwest Aluminum, Inc., 12%, 12/15/2006 ......................................... 750,000 780,000
Graham Packaging Co., 8.75%, 1/15/2008 ................................................... 1,000,000 965,000
Grove Holdings LLC, Step-up Coupon, 0% to 5/1/2003, 11.625% to 5/1/2009 .................. 1,000,000 280,000
GS Technologies, 12%, 9/1/2004 ........................................................... 1,000,000 830,000
ISP Holdings Inc., 9.75%, 2/15/2002 ...................................................... 250,000 256,250
ISP Holdings Inc., 9%, 10/15/2003 ........................................................ 500,000 502,500
Oshkosh Truck Corp., 8.75%, 3/1/2008 ..................................................... 1,500,000 1,473,750
Radnor Holdings Corp., 10%, 12/1/2003 .................................................... 2,250,000 2,272,500
The accompanying notes are an integral part of the financial statements.
12 - Scudder High Yield Bond Fund
<PAGE>
Principal Market
Amount (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Terex Corp., 8.875%, 4/1/2008 ............................................................ 1,000,000 950,000
United Defense Industries, Inc., 8.75%, 11/15/2007 ....................................... 1,500,000 1,473,750
United Industrial Corp., 9.875%, 4/1/2009 ................................................ 750,000 675,000
-------------
21,861,700
-------------
Technology 1.9%
Celestica International Inc., 10.5%, 12/31/2006 .......................................... 650,000 695,500
Unisys Corp., 11.75%, 10/15/2004 ......................................................... 2,500,000 2,775,000
-------------
3,470,500
-------------
Energy 2.2%
Abraxas Petroleum Corp., 11.5%, 11/1/2004 ................................................ 1,000,000 630,000
Cliffs Drilling Co., Series D, 10.25%, 5/15/2003 ......................................... 1,000,000 995,000
Lomak Petroleum, Inc., 8.75%, 1/15/2007 .................................................. 250,000 232,500
Ocean Energy, 9.75%, 10/1/2006 ........................................................... 1,000,000 1,030,000
Swift Energy Co., 10.25%, 8/1/2009 ....................................................... 1,000,000 992,358
-------------
3,879,858
-------------
Metals & Minerals 3.0%
Metals USA, Inc., 8.625%, 2/15/2008 ...................................................... 1,000,000 947,500
Pen Holdings, Inc., 9.875%, 6/15/2008 .................................................... 1,000,000 980,000
Renco Metals Inc., Senior Note, 11.5%, 7/1/2003 .......................................... 1,000,000 990,000
Renco Steel Holdings Co., Series B, 10.875%, 2/1/2005 .................................... 1,000,000 870,000
Wells Aluminum Corp., 10.125%, 6/1/2005 .................................................. 1,750,000 1,715,000
-------------
5,502,500
-------------
Construction 3.1%
Hovnanian Enterprises, Inc., 9.125%, 5/1/2009 ............................................ 975,000 955,500
Millar Western Forest Products, 9.875%, 5/15/2008 ........................................ 1,750,000 1,688,750
Nortek, Inc., 9.875%, 3/1/2004 ........................................................... 1,000,000 1,007,500
Nortek, Inc., 9.25%, 3/15/2007 ........................................................... 1,000,000 997,500
Tembec Industries, Inc., 8.625%, 6/30/2009 ............................................... 1,000,000 977,500
-------------
5,626,750
-------------
Transportation 1.2%
Allied Holdings Inc., 8.625%, 10/1/2007 .................................................. 1,300,000 1,196,000
US Air, Inc., 10.375%, 3/1/2013 .......................................................... 1,000,000 1,053,880
-------------
2,249,880
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $170,159,264) 159,924,522
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
13 - Scudder High Yield Bond Fund
<PAGE>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 7.3%
- ------------------------------------------------------------------------------------------------------------------------------
Communications 3.3%
Crown Castle International Corp., 12.75%, 12/15/2010 (c) 1,597 1,656,685
Dobson Communications Corp., 12.25%, 1/15/2008 (c) 2,124 1,943,460
Global Crossing Ltd., 10.5%, 12/1/2008 (c) 20,000 2,080,000
Viatel, Inc., Series A (conv.), 10%, 4/15/2010 (c) 6,138 227,106
-------------
5,907,251
-------------
Financial 0.4%
Walden Residential Properties, Inc., 9.2% 40,000 825,000
-------------
Media 3.3%
Adelphia Communications Corp., Series B, 13%, 7/15/2009 10,000 1,100,000
AMFM Inc., Series E, 12.625%, 10/31/2006 (c) 18,590 2,156,480
CSC Holdings Inc., 11.125%, 4/1/2008 (c) 24,238 2,666,180
-------------
5,922,660
-------------
Manufacturing 0.3%
Day International Group, Inc., 12.25%, 3/15/2010 (c) 581 476,191
- ------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $13,119,286) 13,131,102
- ------------------------------------------------------------------------------------------------------------------------------
Warrants 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
American Mobile Satellite Corp. (expire 4/1/2008)* 500 25,000
Diva Systems Corp. (expire 3/1/2008)* 5,250 42,000
Globalstar LP (expires 2/15/2004)* 1,000 72,000
Long Distance Direct Holdings, Inc. (expire 4/13/2008)* 1,000 2,000
Orbital Imaging (expire 3/1/2005)* 700 21,000
Star Choice Communications Inc. (expire 12/15/2005)* 23,160 57,900
Walden Residential Properties, Inc. (expire 1/1/2002)* 40,000 8,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Warrants (Cost $0) 227,900
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $191,412,253) (a) 180,815,780
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder High Yield Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $191,412,253. At July 31,
1999, net unrealized depreciation for all investment securities based on
tax cost was $10,596,473. This consisted of aggregate gross unrealized
appreciation for all investments in which there was an excess of market
value over tax cost of $2,207,415 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of
tax cost over market value of $12,803,888.
(b) Principal amounts are stated in U.S. dollars unless otherwise noted.
(c) Payment-in-kind security (PIK). In lieu of cash, PIK securities pay
interest/dividends in the form of additional securities.
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 July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $191,412,253) ........ $180,815,780
Receivable for Fund shares sold .............................. 124,184
Dividends and interest receivable ............................ 3,312,205
Deferred organization expenses ............................... 7,363
Other assets ................................................. 1,410
----------------
Total assets ................................................. 184,260,942
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Due to custodian bank ........................................ 64,565
Payable for investments purchased ............................ 992,360
Dividends payable ............................................ 503,792
Payable for Fund shares redeemed ............................. 169,906
Unrealized depreciation on forward currency exchange contracts 9,766
Accrued management fee ....................................... 47,455
Other payables and accrued expenses .......................... 300,202
----------------
Total liabilities ............................................ 2,088,046
-----------------------------------------------------------------------------------
Net assets, at market value $182,172,896
-----------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................... 150,632
Net unrealized appreciation (depreciation) on:
Investments ................................................ (10,596,473)
Foreign currency related transactions ...................... (9,766)
Accumulated net realized gain (loss) ......................... (3,630,885)
Paid-in capital .............................................. 196,259,388
-----------------------------------------------------------------------------------
Net assets, at market value $182,172,896
-----------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
(182,172,896 / 15,365,157 outstanding shares of beneficial
interest, $.01 par value, unlimited number of
shares authorized) ........................................... $11.86
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder High Yield Bond Fund
<PAGE>
Statements of Operations
six months ended July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends ..................................................... $ 682,804
Interest ...................................................... 9,560,317
----------------
............................................................................... 10,243,121
----------------
Expenses:
Management fees ............................................... 715,383
Services to shareholders ...................................... 287,428
Custodian and accounting fees ................................. 38,010
Trustees' fees and expenses ................................... 21,358
Registration fees ............................................. 18,462
Auditing ...................................................... 20,272
Reports to shareholders ....................................... 17,738
Legal ......................................................... 7,602
Amortization of organization expense .......................... 1,932
Other ......................................................... 4,249
----------------
Total expenses before reductions .............................. 1,132,434
Expense reductions ............................................ (365,908)
----------------
Expenses, net ................................................. 766,526
------------------------------------------------------------------------------------
Net investment income 9,476,595
------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................... (2,140,409)
Foreign currency related transactions ......................... 149,477
----------------
(1,990,932)
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................... (7,038,735)
Foreign currency related transactions ......................... (41,636)
----------------
(7,080,371)
------------------------------------------------------------------------------------
Net gain (loss) on investment transactions .................... (9,071,303)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 405,292
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Bond Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) in Net Assets Six Months Eleven Months Year Ended
Ended Ended February 28,
July 31, 1999 January 31, 1998
(Unaduited) 1999 (Note A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ............................ $ 9,476,595 $16,872,138 $ 11,491,089
Net realized gain (loss) from investment
transactions ..................................... (1,990,932) (1,748,908) 2,680,787
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (7,080,371) (9,372,538) 3,474,590
---------------- ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations ........................ 405,292 5,750,692 17,646,466
Distributions to shareholders from:
Net investment income .......................... (9,365,299) (16,930,159) (11,198,598)
---------------- ---------------- ----------------
Net realized gains ............................. -- (1,392,936) (1,527,954)
---------------- ---------------- ----------------
Fund share transactions:
Proceeds from shares sold ........................ 39,267,286 110,837,491 125,593,145
Net asset value of shares issued to
shareholders in reinvestment
of distributions 6,428,562 12,998,607 9,336,191
Cost of shares redeemed .......................... (63,705,335) (78,633,998) (37,271,126)
Redemption fees .................................. 91,888 199,568 120,019
---------------- ---------------- ----------------
Net increase (decrease) in net assets from
Fund share transactions (17,917,599) 45,401,668 97,778,229
---------------- ---------------- ----------------
Increase (decrease) in net assets ................ (26,877,606) 32,829,265 102,698,143
Net assets at beginning of period ................ 209,050,502 176,221,237 73,523,094
Net assets at end of period (including
undistributed net investment income of
$150,632, $39,336, and $320,732 for
July 31, 1999, January 31, 1999, and
February 28, 1998, ---------------- ---------------- ----------------
respectively) ................................. $182,172,896 $209,050,502 $176,221,237
---------------- ---------------- ----------------
Other Information
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ........ 16,863,913 13,323,225 5,759,335
---------------- ---------------- ----------------
Shares sold ...................................... 3,194,603 8,799,750 9,745,318
Shares issued to shareholders in reinvestment
of distributions ............................... 526,285 1,032,136 721,489
Shares redeemed .................................. (5,219,644) (6,291,198) (2,902,917)
---------------- ---------------- ----------------
Net increase (decrease) in Fund shares ........... (1,498,756) 3,540,688 7,563,890
---------------- ---------------- ----------------
Shares outstanding at end of period .............. 15,365,157 16,863,913 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
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
June 28, 1996
Six Months Eleven Months (commencement
Ended Ended Year Ended of operations) to
July 31, 1999 January 31, February 28, February 28,
(Unaudited) 1999 (Note A) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
Net asset value, beginning of period ........ $12.40 $13.23 $12.77 $12.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income ....................... .57 1.08 1.19 .76
Net realized and unrealized gain (loss) on
investment transactions ................... (.56) (.73) .57 .77
---------------------------------------------------------------------
Total from investment operations ............ .01 .35 1.76 1.53
---------------------------------------------------------------------
Less distributions from:
---------------------------------------------------------------------
Net investment income ....................... (.56) (1.10) (1.17) (.76)
---------------------------------------------------------------------
Net realized gains from investment -- (.09) (.14) (.01)
transactions
Total distributions ......................... (.56) (1.19) (1.31) (.77)
Redemption fees ............................. .01 .01 .01 .01
---------------------------------------------------------------------
Net asset value, end of period .............. $11.86 $12.40 $13.23 $12.77
---------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ........................ .11** 2.98** 14.60 13.23(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...... 182 209 176 74
Ratio of operating expenses, net to average
daily net assets (%) ...................... .75* .44* .03 0.00
Ratio of operating expenses before expense
reductions, to average daily net assets (%) 1.11* 1.17* 1.23 1.75*
Ratio of net investment income to average
daily net assets (%) ...................... 9.27* 9.42* 9.28 9.44*
Portfolio turnover rate (%) ................. 51* 83** 113 40*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) 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
A. Significant Accounting Policies
Scudder High Yield 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.
On August 10, 1998, the Board of Trustees of the Trust changed the Fund's fiscal
year end for financial reporting and federal income tax purposes to January 31
from February 28.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Portfolio debt securities
purchased with an original maturity greater than sixty days are valued by
pricing agents approved by the officers of the Trust, 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.
Securities which are traded on U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on which the security is traded
most extensively. If no sale occurred, the security is then valued at the
calculated mean between the most recent bid and asked quotations. If there are
no such bid and asked quotations, the most recent bid quotation is used.
Securities quoted on the Nasdaq Stock Market ("Nasdaq"), for which there have
been sales, are valued at the most recent sale price reported. If there are no
such sales, the value is the most recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another over-the-counter market are valued at
the most recent sale price, or if no sale occurred, at the calculated mean
between the most recent bid and asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid quotation shall be used.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
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 the 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. Sales and
purchases of 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 a forward contract to buy
and a 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. At January 31, 1999, the Fund had a net tax
basis capital loss carryforward of approximately $1,705,000 which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until January 31, 2007, the expiration date. In addition, from
November 1, 1998 through January 31, 1999, the Fund incurred approximately
$10,000 of net realized capital losses. As permitted by tax regulations, the
Fund elected to defer these losses and treat them as arising in the fiscal year
ending January 31, 2000.
Distribution of Income and Gains. Substantially 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. These
differences primarily related to certain securities sold at a loss. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
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.
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.
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.
21 - Scudder High Yield Bond Fund
<PAGE>
B. Purchases and Sales of Securities
For the six months ended July 31, 1999, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $49,437,436 and $70,948,558, 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 approximately 0.70% of
the Fund's average daily net assets computed and accrued daily and payable
monthly. Until June 30, 1998, the Adviser and certain of its subsidiaries agreed
to reimburse or not to impose, respectively, all or a portion of their fees 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 and certain of its
subsidiaries agreed to reimburse or not to impose, respectively, all or a
portion of their fees in order to maintain the annualized expenses of the Fund
at not more than .50% of average daily net assets. Effective January 1, 1999,
the Adviser and certain of its subsidiaries agreed to reimburse or not to
impose, respectively, all or a portion of their fees until April 30, 2000 in
order to maintain the annualized expenses of the Fund at not more than 0.75% of
average daily net assets. For the six months ended July 31, 1999, the Adviser
did not impose a portion of its fee amounting to $365,908 and the amount imposed
aggregated $349,475, of which $47,455 was unpaid at July 31, 1999.
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 imposed fees of $125,396, of which $42,377
was unpaid at July 31, 1999.
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 imposed fees of $11,935, of which $4,314 was unpaid at July 31, 1999.
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 imposed fees of $30,167, of which $9,837 was unpaid at
July 31, 1999.
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 Fund 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 $98,464.
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 $21,358.
22 - Scudder High Yield Bond Fund
<PAGE>
D. Commitments
As of July 31, 1999, the Fund had entered into the following forward foreign
currency exchange contracts resulting in a net unrealized depreciation of
$9,766.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
------------------------------------ ----------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
European Currency Units 1,419,575 USD 1,519,513 10/27/1999 (9,766)
==========
</TABLE>
E. 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.
23 - Scudder High Yield Bond Fund
<PAGE>
This Page
intentionally
left blank.
24 - Scudder High Yield 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.
25 - 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 --
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.
26 - 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 -- 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>
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 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 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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