SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND
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Scudder High Yield
Bond Fund
Fund #047
Semiannual Report
July 31, 2000
For investors seeking a high level of current income and, secondarily, capital
appreciation through investment primarily in below investment-grade domestic
debt securities.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
14 Glossary of Investment Terms
15 Investment Portfolio
21 Financial Statements
24 Financial Highlights
25 Notes to Financial Statements
31 Shareholder Meeting Results
32 Officers and Trustees
33 Investment Products and Services
35 Account Management Resources
2
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Scudder High Yield Bond Fund
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ticker symbol SHBDX fund number 047
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Date of o The high yield market was beset by increased credit
Inception: downgrades and bond defaults during the fund's most
6/27/96 recent semiannual period.
o Reflecting the difficult market conditions, Scudder
High Yield Bond Fund posted a total return of -2.44%
Total Net for its most recent semiannual period ended July 31,
Assets as 2000. The total return of the fund's benchmark, the
of 7/31/00: Merrill Lynch High Yield Master Index, was -0.08%. On
$134 million July 31, the fund posted an 11.84% 30-day SEC yield.
o We believe that attractive yields-- as well as
increased selectivity and discipline within the high
yield sector-- bode well for market performance going
forward.
3
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Letter from the Fund's President
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Dear Shareholders,
The high yield market is in a rebuilding phase. Following the Russian economic
crisis in July 1998 -- which negatively affected credit markets worldwide -- and
a period of over-financing of risky high yield offerings from 1996-1998 -- the
market has weathered increased credit downgrades and defaults, as well as slim
to negative total returns. Since mid-1998, only companies with the most solid
balance sheets have been able to come to market to obtain high yield financing.
Somewhat surprisingly, the high yield market's difficulties are occurring in the
face of a prolonged U.S. economic expansion, although the breadth of this
expansion for American businesses is narrower than many assume.
Scudder High Yield Bond Fund's recent performance reflects the difficult
environment: For the six-month period ended July 31, 2000, the fund's total
return was -2.44%, compared with the -0.08% return of the fund's benchmark, the
Merrill Lynch High Yield Master Index. Since its inception on June 28, 1996, the
fund has returned 31.72%, compared with the index's 27.66% return over the same
time period.
In looking at the near-term prospects for high yield, we believe there is cause
for optimism. First, the fund's management team believes that a great deal of
the most speculative bonds have been "shaken out" of the high yield market over
the past year. And
4
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although the market's appetite for risk seems subdued at present, its newfound
discipline should reap substantial benefits over time. We look for more credit
upgrades and steadier and more positive market returns in the near future,
though it will likely take time for these positive developments to bear fruit.
But given high coupons, (the fund's 30-day SEC yield was 11.84% as of July 31),
even a neutral price environment could translate into healthy total returns for
high yield investors. For more information concerning the fund's investment
environment, strategy, and outlook, please see the interview that begins on page
10.
Lastly, we would like to welcome Harry E. Resis as the new lead portfolio
manager of Scudder High Yield Bond Fund. Harry has been with Scudder Kemper
Investments since June 1988 and has been a portfolio manager of Kemper High
Yield Bond Fund since September 1992.
If you have any questions regarding Scudder High Yield Bond Fund or any other
Scudder fund, please call Investor Relations at 1-800-SCUDDER. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder High Yield Bond Fund
5
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Performance Update
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July 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Merrill Lynch
Scudder High High Yield
Yield Bond Fund 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
1/00 13496 12764
7/00 13167 12766
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 7/31/2000 $10,000 Cumulative Annual
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Scudder High Yield Bond Fund
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1 year $ 9,847 -1.53% -1.53%
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Life of Fund** $ 13,172 31.72% 6.96%
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Merrill Lynch High Yield Master Index*
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1 year $ 9,917 -.83% -.83%
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Life of Fund** $ 12,766 27.66% 6.16%
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* 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.
** The Fund commenced operations on June 28, 1996. Index comparisons begin
June 30, 1996.
6
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Returns and Per Share Information
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER HIGH YIELD BOND FUND TOTAL RETURN (%) AND
MERRILL LYNCH HIGH YIELD MASTER INDEX* TOTAL RETURN (%)
Yearly periods ended July 31
1996** 1997 1998 1999 2000
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Fund Total
Return (%) -.75 20.03 11.69 -.25 -1.53
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Index Total
Return (%) .68 16.26 9.42 .50 -.83
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Net Asset
Value ($) 11.92 13.00 13.06 11.86 10.51
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Income
Dividends
($) .08 1.17 1.19 1.15 1.18
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Capital
Gains
Distributions
($) -- .03 .21 -- --
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* 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.
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 for the Fund would have
been lower.
** The Fund commenced operations on June 28, 1996. Index comparisons begin
June 30, 1996.
7
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Portfolio Summary
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July 31, 2000
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
In general, the fund
Corporate Bonds 92% carries a modest cash
Preferred Stocks 3% allocation so that we
Cash Equivalents 3% are positioned to
Foreign Bonds 2% purchase attractive new
------------------------------------ and existing bond issues
100% as they become available.
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Diversification
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(Excluding Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
We have begun to
Communications 29% reduce the fund's
Media 15% allocations in
Consumer Discretionary 13% telecommunications
Manufacturing 9% and media, two sectors
Service Industries 7% that underperformed
Financial 4% during the period.
Construction 4%
Metals & Minerals 3%
Consumer Staples 3%
Other 13%
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100%
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8
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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.
The fund continues its
long-term bias toward a
Cash Equivalents 2% significant allocation
BBB 5% in higher-quality
BB 17% securities compared with
B 59% other similar funds.
CCC 8%
Not Rated 9%
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100%
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Weighted Average Quality: B
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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 5% A range of maturities is
1 < 5 years 20% represented within
5 < 8 years 47% the fund's portfolio.
8 years or greater 28%
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100%
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Weighted Average Effective
Maturity: 6.7 years
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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July 31, 2000
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, Harry E. Resis.
Q: How has Scudder High Yield Bond Fund performed over its most recent
semiannual period?
A: For its most recent semiannual period ended July 31, 2000, Scudder High Yield
Bond Fund posted a -2.44% total return. Over the same period the high yield
market as measured by the Merrill Lynch High Yield Master Index returned -0.08%.
The fund's total return was 31.72% since its June 27, 1996, inception,
surpassing the index's 27.66% return over the same period. On July 31, the fund
offered an 11.84% 30-day SEC yield.
Q: The six-month period was a difficult environment for high yield bonds. What
caused this?
A: The high yield market has been weighed down by several factors: The stock
market has been volatile. We've seen a high default rate by historical standards
for high yield issuers during the past six months. Also, the Federal Reserve
Board's moves to increase interest rates six times in the last year negatively
affected our market. Lastly, liquidity, while improved when compared with the
period of the Russian crisis in July 1998, is still weak -- we haven't come
close to the level of trading activity that we experienced prior to the crisis.
These things all add up to negative performance and a wider interest rate spread
for high yield bonds over Treasuries.
Q: What is the interest rate spread between high yield bonds of higher and lower
quality?
A: Our estimate of the spread between B-rated and BB-rated corporate bonds is
280 basis points. That spread got wider during the period, and what that really
means is that BB bonds have outperformed B bonds. The BB segment has been the
best performing sector of high yield during the last six months and beyond.
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Q: Has that affected the fund's strategy?
A: Not really. Although the period was difficult, the fund has benefited longer
term from its bias toward BB-rated bonds. The fund had 17% in BB-rated bonds and
5.2% in investment-grade bonds as of July 31. That's a large percentage in bonds
rated BB and higher compared with most high yield bond funds, but I'm
comfortable with that.
Q: As the new lead portfolio manager of the fund, please describe your
investment philosophy.
A: Favoring credit quality over yield is something that I stress. I'm not
necessarily interested in buying bonds with the highest yield. There are times
when I don't mind holding lots of single B bonds for the fund, but because the
default rate for the high yield bond market as a whole has recently risen to
well above its 20-year average, overweighting BB bonds has been the right
strategy. When I perceive that the high yield market is ready to right itself
and I believe that defaults are about to start declining, we'll add more
lower-quality bonds to the fund's portfolio.
Another reason to own BBs is if you think the interest rate situation is
improving. The BB sector is more closely correlated to Treasuries than any other
segment of high yield. Clearly the Federal Reserve Board is just about done with
its most recent tightening phase, if not completely done. Once interest rates in
Treasuries start to decline and prices rally, that should help the BB sector as
well. So there are a lot of reasons to be in higher-quality securities right
now. I'm cognizant of that and managing the portfolio accordingly.
Q: What has been your strategy during the past six months?
A: One aspect of our strategy is to underweight deferred interest bonds (zero
coupon bonds) which are a more volatile segment of the market. This fund
currently has about 15% of its portfolio in deferred interest bonds, lower than
the fund's peer group. We certainly want to
11
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keep this at or below a peer group weighting. In addition, we are currently
underweighted in chemicals, which are more cyclical in nature, and significantly
underweighted in health care. Health care in the high yield bond market doesn't
offer some of the attractive companies that have been significant contributors
to the stock market's rise. We've also reduced the portfolio's allocation in
telecommunications and media, two of the worst- performing sectors of the high
yield market in recent months.
In addition, the portfolio is overweighted in housing and homebuilders. There
have been many attractive BB-rated bonds in this sector which have contributed
positively to total return performance. Another segment where the fund has a
significant BB overweight is in gaming, which has greatly benefited from the
strong U.S. economy.
Q: How would you assess credit quality in the high yield market at this point?
A: There were far more credit downgrades than upgrades in the high yield market
during the period. This is the result of too many weak credits that came to
market in 1996, 1997, and 1998 when the high yield financing calendar exploded;
in 1998 the calendar was $140 billion, an all-time record. Some credits that
came to the market back then were companies with poor business plans. Although
the economy remains strong, many of these companies are feeling the pain of
credit downgrades and in some cases default. In the case of the fund, we did
avoid many of these companies. The fund's default rate is significantly lower
than that of the market.
Q: What is your outlook for high yield bonds over the coming months?
A: Over the next year or so, I believe the default rate for high yield bonds
will decline substantially. Many of the weaker credits that came to market in
the late 90s should no longer be weighing things down. Only very solid companies
have been able to finance through the high yield
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market in the last year and a half. Going forward, a decline in the default rate
should gradually improve the market's liquidity and total return performance.
Over the coming months, we will continue to focus on the higher-quality portion
of the high yield market. As the market gradually rights itself, we'll explore
expanding our allocation in single B bonds. We believe Scudder High Yield Bond
Fund remains an attractive vehicle for investors seeking high current income.
13
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Glossary of Investment Terms
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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 a face amount of $1,000 each year.
Default Occurs when the issuer of a bond fails to make timely
payment of principal and/or interest. In the event of
default, bondholders may make claims against the assets of
the issuing corporation. DEFAULT RATE refers to the annual
percentage of bonds in a fund that stop making principal
and/or interest payments.
High Yield Bond A bond that has a rating of BB or less and pays a high yield
to compensate for its greater credit risk.
Sector A similar group of bonds or stocks, usually found in one
industry. Some examples of sectors that could be found in a
high yield bond fund or a stock fund at any given time
include airlines, financial services companies, and
telecommunications providers.
30-Day SEC Yield The standard yield reference for bond funds, based on a
formula prescribed by the SEC. This annualized yield
calculation reflects the 30-day average of the income
earnings of every holding in a given fund's portfolio, net
of expenses, assuming each is held to maturity.
Total Return The most common yardstick to measure the performance of a
fund. Total return -- annualized or compound -- is based on a
combination of share price changes plus income and capital
gain distributions, if any, expressed as a percentage gain
or loss in value.
Yield Spread The difference in yield between various types of bonds. A
high yield bond's yield is generally compared to the yield
of a Treasury bond of similar maturity as a valuation
yardstick. If yield spreads are "narrow," for example, it
generally means that high yield bond yields have been
declining, and prices rising.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
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Investment Portfolio as of July 31, 2000 (Unaudited)
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Principal
Amount (b) Value ($)
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Repurchase Agreements 0.5%
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State Street Bank and Trust Company, 6.53%, to be
repurchased at $624,113 on 8/1/2000**
(Cost $624,000) .................................. 624,000 624,000
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U.S. Government & Agencies 2.4%
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U.S. Treasury Bond, 6.5%, 2/15/2010 (Cost $3,097,031) 3,000,000 3,098,910
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Foreign Bonds-- U.S.$ Denominated 2.3%
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AES Corporation, 11.5%, 8/30/2010.................. 260,000 267,800
Dolphin Telecom PLC, Zero Coupon, 5/15/2009........ 1,000,000 330,000
Euramax International, PLC, 11.25%, 10/1/2006 ..... 1,000,000 950,000
Kappa Beheer BV, 10.625%, 7/15/2009................ 490,000 497,350
TFM, S.A. de C.V., 10.25%, 6/15/2007............... 1,000,000 920,000
Total Foreign Bonds -- U.S.$ Denominated (Cost $2,951,024) 2,965,150
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Corporate Bonds 91.9%
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Consumer Discretionary 12.6%
Boca Resorts, Inc., 9.875%, 4/15/2009 ............... 1,700,000 1,598,000
Cinemark USA, Inc., Series D, 9.625%, 8/1/2008 ...... 1,000,000 470,000
Circus Circus Mandalay Resort Group, 6.45%, 2/1/2006 130,000
112,550
Finlay Fine Jewelry Co., 8.375%, 5/1/2008 ........... 2,250,000 2,025,000
Guitar Center Management, 11%, 7/1/2006 ............. 1,350,000 1,309,500
Hollywood Entertainment Corp., 10.63%, 8/15/2004 .... 500,000 410,000
Horseshoe Gaming Holdings, 8.625%, 5/15/2009 ........ 1,510,000 1,434,500
International Game Technology, 8.375%, 5/15/2009 .... 2,000,000 1,920,000
MGM Grand Inc., 9.75%, 6/1/2007 ..................... 1,090,000 1,119,975
Mandalay Resort Group, 10.25%, 8/1/2007 ............. 310,000 312,325
Mohegan Tribal Gaming Authority, 8.125%, 1/1/2006 ... 2,000,000 1,915,000
National Vision Association, Ltd., 12.75%, 10/15/2005 1,830,000
713,700
Park Place Entertainment, Inc., 9.375%, 2/15/2007 ... 1,500,000 1,507,500
Premier Parks Inc., 9.75%, 1/15/2007 ................ 1,500,000 1,503,750
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16,351,800
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Consumer Staples 2.7%
Aurora Foods, Inc., Series D, 9.875%, 2/15/2007 ..... 1,125,000 720,000
Dyersburg Corp., Series B, 9.75%, 9/1/2007 .......... 1,500,000 180,000
The accompanying notes are an integral part of the financial statements.
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Principal
Amount (b) Value ($)
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Fleming Companies, Inc., 10.625%, 7/31/2007 ........... 1,400,000 1,190,000
Jafra Cosmetics International, Inc., 11.75%, 5/1/2008 . 1,500,000 1,440,000
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3,530,000
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Health 0.9%
Dade International, Inc., 11.125%, 5/1/2006 ........... 950,000 375,250
MEDIQ, Inc., 11%, 6/1/2008 ............................ 500,000 25,000
Tenet Healthcare Corp., 9.25%, 9/1/2010 ............... 720,000 739,800
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1,140,050
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Communications 27.3%
Allegiance Telecom, Inc., 12.875%, 5/15/2008 .......... 1,300,000 1,404,000
Call-Net Enterprises, Inc., 9.375%, 5/15/2009 ......... 330,000 171,600
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 5/15/2004, 10.8% to 5/15/2009 ................ 640,000 198,400
Crown Castle International Corp., 10.75%, 8/1/2011 .... 620,000 635,500
Dobson Communications Corp., 10.875%, 7/1/2010 ........ 190,000 186,675
FairPoint Communications, Inc., 12.5%, 5/1/2010 ....... 550,000 555,500
Global Crossing Holdings, Ltd., 9.625%, 5/15/2008 ..... 850,000 828,750
Global Crossing Holdings, Ltd., 9.5%, 11/15/2009 ...... 1,500,000 1,462,500
ICG Holdings, Inc., Step-up Coupon, 0% to 9/15/2000,
13.5% to 9/15/2005 ................................. 1,000,000 935,000
Impsat Corp., 12.375%, 6/15/2008 ...................... 1,250,000 987,500
Level 3 Communications Inc., 9.125%, 5/1/2008 ......... 410,000 352,600
McLeod USA, Inc., 9.25%, 7/15/2007 .................... 2,000,000 1,920,000
MetroNet Communications Corp., Step-up Coupon,
0% to 6/15/2003, 9.95%, 6/15/2008 .................. 2,150,000 1,754,938
Metromedia Fiber Network, Inc., 10%, 11/15/2008 ....... 1,000,000 970,000
Millicom International Cellular, S.A., Step-up Coupon,
0% to 6/1/2001, 13.5% to 6/1/2006 .................. 1,650,000 1,443,750
Nextel Communications, 9.375%, 11/15/2009 ............. 2,060,000 1,987,900
Nextlink Communications, Inc., Step-up Coupon,
0% to 4/15/2003, 9.45% to 4/15/2008 ................ 3,600,000 2,268,000
PSINet Inc., 10%, 2/15/2005 ........................... 1,000,000 815,000
Price Communications Wireless, 9.125%, 12/15/2006 ..... 1,500,000 1,522,500
Primus Telecommunications Group, 11.25%,
1/15/2009 .......................................... 250,000 150,000
Primus Telecommunications Group, 12.75%,
10/15/2009 ......................................... 750,000 450,000
Rogers Cantel, 9.75%, 6/1/2016 ........................ 1,000,000 1,072,500
SBA Communications Corp., Step-up Coupon,
0% to 3/1/2003, 12% to 3/1/2008 .................... 1,850,000 1,341,250
Spectrasite Holdings, Inc., 10.75%, 3/15/2010 ......... 705,000 708,525
Spectrisite Holdings, Inc., Step-up Coupon,
0% to 7/15/2003, 12% to 7/15/2008 .................. 240,000 163,200
The accompanying notes are an integral part of the financial statements.
16
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Principal
Amount (b) Value ($)
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Spectrasite Holdings, Inc., Step-up Coupon,
0% to 4/15/2004, 11.25% to 4/15/2009 ......... 2,000,000 1,190,000
Sprint Spectrum L.P., Senior Note, 11%, 8/15/2006 1,000,000 1,098,060
Star Choice Communications Inc., 13%, 12/15/2005 1,000,000 1,080,000
Telecorp PCS, Inc., 10.625%, 7/15/2010 .......... 360,000 365,400
Telecorp PCS, Inc., Step-up-Coupon, 0% to
4/15/2004, 11.625% to 4/15/2009 .............. 2,750,000 1,828,750
Teligent, Inc., 11.5%, 12/1/2007 ................ 2,000,000 1,500,000
Triton Communications LLC, Step-up Coupon,
0% to 5/1/2003, 11% to 5/1/2008 .............. 1,400,000 1,032,500
Versatel Telecom, 11.875%, 7/15/2009 ............ 1,000,000 985,000
Viatel, Inc., Step-up Coupon, 0% to 4/15/2003,
12.5% to 4/15/2008 ........................... 900,000 333,000
Voicestream Wireless Corp., 10.375%, 11/15/2009 . 1,290,000 1,393,200
Williams Communications Group, Inc., 10.875%,
10/1/2009 .................................... 60,000 56,850
WorldCom, Inc., 8.875%, 1/15/2006 ............... 368,000 379,574
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35,527,922
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Financial 4.0%
Bank United Capital Trust, Series B, 10.25%,
12/31/2026 ................................... 1,000,000 830,000
CSBI Capital Trust I, 11.75%, 6/6/2027 .......... 957,000 1,019,205
Eaton Vance CDO Class C, 13.68%, 7/15/2012 ...... 1,000,000 1,000,000
HMH Properties, Inc., 7.875%, 8/1/2008 .......... 2,100,000 1,900,500
HMH Properties, Inc., 8.45%, 12/1/2008 .......... 400,000 376,000
----------
5,125,705
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Media 14.7%
AMFM Operating Inc., 12.625%, 10/31/2006 ........ 1,859,000 2,137,850
Adelphia Communications Corp., 10.5%, 7/15/2004 . 1,500,000 1,503,750
American Lawyer Media, Inc., 9.75%, 12/15/2007 .. 1,000,000 930,000
Charter Communications Holdings LLC, 8.625%,
4/1/2009 ..................................... 2,250,000 1,968,750
Comcast UK Cable Partners, Ltd., Step-up Coupon,
0% to 11/15/2000, 11.2% to 11/15/2007 ........ 1,500,000 1,395,000
Echostar DBS Corp., 9.375%, 2/1/2009 ............ 2,000,000 1,930,000
NTL, Inc., 11.5%, 10/1/2008 ..................... 2,000,000 2,025,000
Outdoor Systems, Inc., 8.875%, 6/15/2007 ........ 2,750,000 2,805,000
Sinclair Broadcast Group, Inc., 10%, 9/30/2005 .. 1,500,000 1,462,500
TeleWest Communications PLC, Step-up Coupon,
0% to 4/15/2004, 9.625% to 4/15/2009 ......... 1,600,000 880,000
TeleWest Communications PLC, Step-up Coupon,
0% to 10/1/2000, 11% to 10/1/2007 ............ 1,000,000 960,000
The accompanying notes are an integral part of the financial statements.
17
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Principal
Amount (b) Value ($)
--------------------------------------------------------------------------------
United International Holdings, Step-up Coupon,
0% to 2/15/2003, 10.75% to 2/15/2008 ........... 1,400,000 1,036,000
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19,033,850
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Service Industries 7.3%
Avis Rent A Car, 11%, 5/1/2009 .................... 1,750,000 1,833,125
Coinmach Laundry Corp., 11.75%, 11/15/2005 ........ 2,000,000 1,950,000
ImPac Group, Inc., 10.125%, 3/15/2008 ............. 1,830,000 2,049,600
National Equipment Services, 10%, 11/30/2004 ...... 1,500,000 1,230,000
Verio, Inc., 11.25%, 12/1/2008 .................... 1,000,000 1,135,000
Verio, Inc., 10.625%, 11/15/2009 .................. 1,150,000 1,299,500
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9,497,225
----------
Durables 1.7%
Airxcel, 11%, 11/15/2007 .......................... 800,000 544,000
DeCrane Aircraft Holdings, Inc., 12%, 9/30/2008 ... 1,000,000 890,000
Fairchild Corp., 10.75%, 4/15/2009 ................ 460,000 335,800
Federal-Mogul Corp., 7.375%, 1/15/2006 ............ 60,000 48,300
Federal-Mogul Corp., 7.75%, 7/1/2006 .............. 530,000 426,650
----------
2,244,750
----------
Manufacturing 9.0%
American Standard Companies, Inc., 9.25%, 12/1/2016 1,100,000 1,094,500
Ball Corp., 8.25%, 8/1/2008 ....................... 1,000,000 950,000
Congoleum Corp., 8.625%, 8/1/2008 ................. 500,000 300,000
Day International Group, Inc., 9.5%, 3/15/2008 .... 1,000,000 840,000
Delco Remy International, 10.625%, 8/1/2006 ....... 750,000 750,000
Eagle-Picher Holdings, Series B, Step-up Coupon,
0% to 3/1/2003, 11.75% to 3/1/2008 ............. 1,910,000 382,000
GS Technologies, 12%, 9/1/2004 .................... 1,000,000 180,000
Gaylord Container Corp., 9.875%, 2/15/2008 ........ 560,000 336,000
Grove Holdings LLC, Step-up Coupon, 0% to 5/1/2003,
11.625% to 5/1/2009 ............................ 1,000,000 80,000
Huntsman Package, 11.75%, 12/1/2004 ............... 1,288,000 1,294,440
ISP Holdings, Inc., 9.75%, 2/15/2002 .............. 250,000 247,500
ISP Holdings, Inc., 9%, 10/15/2003 ................ 500,000 477,500
Riverwood International Corp., 10.25%, 4/1/2006 ... 540,000 531,900
Riverwood International Corp., 10.625%, 8/1/2007 .. 20,000 19,900
Riverwood International Corp., 10.875%, 4/1/2008 .. 1,670,000 1,528,050
Tenneco Automotive, Inc., 11.625%, 10/15/2009 ..... 2,000,000 1,770,000
Terex Corp., 8.875%, 4/1/2008 ..................... 1,000,000 915,000
U.S. Can Corp., 10.125%, 10/15/2006 ............... 20,000 20,600
----------
11,717,390
----------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
--------------------------------------------------------------------------------
Principal
Amount (b) Value ($)
--------------------------------------------------------------------------------
Technology 0.7%
Exodus Communications, Inc., 11.625%, 7/15/2010 ...... 540,000 542,700
Flextronics International, 9.875%, 7/1/2010 .......... 340,000 345,100
PSINet, Inc., 10%, 2/15/2005 ......................... 90,000 73,350
----------
961,150
----------
Energy 2.9%
Cliffs Drilling Co., Series D, 10.25%, 5/15/2003 ..... 1,000,000 1,010,000
EOTT Energy Partners, 11%, 11/1/2009 ................. 1,750,000 1,793,750
Swift Energy Co., 10.25%, 8/1/2009 ................... 1,000,000 1,015,000
----------
3,818,750
----------
Metals & Minerals 3.2%
MMI Products, Inc., 11.25%, 4/15/2007 ................ 1,250,000 1,234,375
Metals USA, Inc., 8.625%, 2/15/2008 .................. 1,000,000 875,000
Pen Holdings, Inc., 9.875%, 6/15/2008 ................ 1,000,000 800,000
Renco Steel Holdings Co., Series B, 10.875%, 2/1/2005 1,000,000 820,000
Republic Technologies International, 13.75%, 7/15/2009 2,000,000 430,000
----------
4,159,375
----------
Construction 4.0%
Dayton Superior Corp., 13%, 6/15/2009 ................ 130,000 128,700
Hovnanian Enterprises, Inc., 9.125%, 5/1/2009 ........ 975,000 894,563
Lennar Corp., 9.95%, 5/1/2010 ........................ 1,620,000 1,636,200
Millar Western Forest Products, 9.875%, 5/15/2008 .... 725,000 699,625
Nortek, Inc., 9.875%, 3/1/2004 ....................... 1,000,000 960,000
Nortek, Inc., 9.25%, 3/15/2007 ....................... 1,000,000 942,500
----------
5,261,588
----------
Utilities 0.9%
Azurix Corp., 10.375%, 2/15/2007 ..................... 1,225,000 1,130,062
----------
--------------------------------------------------------------------------------
Total Corporate Bonds (Cost $134,333,019) 119,499,617
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
Convertible Preferred Stocks 0.4%
--------------------------------------------------------------------------------
Communications
Telephone/Communications
World Access, Inc. (Cost $1,061,250)................... 666 566,100
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Preferred Stocks 2.2%
--------------------------------------------------------------------------------
Communications 1.7%
Crown Castle International Corp., 12.75%,
12/15/2010 (c) .................................. 1 825
Dobson Communications Corp., 12.25%,
1/15/2008 (c) ................................... 2,399 2,255,060
Viatel, Inc., Series A, 10%, 4/15/2010 (c) ......... 6,138 85,548
----------
2,341,433
----------
Media 0.1%
CSC Holdings Inc., 11.125%, 4/1/2008 (c) ........... 731 77,851
----------
Manufacturing 0.4%
Day International Group, Inc., 12.25%, 3/15/2010 (c) 654 470,880
----------
--------------------------------------------------------------------------------
Total Preferred Stocks (Cost $3,032,623) 2,890,164
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Warrants 0.3%
--------------------------------------------------------------------------------
DeCrane Holdings Co., Warrants (expire 9/30/2008)* 1,000 --
Globalstar LP, Warrants (expire 2/15/2004)* ...... 1,000 25,000
Ono Finance PLC, Warrants (expire 5/31/2009)* .... 1,000 110,000
Orbital Imaging, Warrants (expire 3/1/2005)* ..... 700 14,000
Republic Technologies International, Warrants
(expire 7/15/2009)* ........................... 2,000 20
Star Choice Communications, Warrants
(expire 12/15/2005)* .......................... 23,160 185,280
Total Warrants (Cost $20) ......................... 334,300
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $145,098,967) (a) 129,978,241
--------------------------------------------------------------------------------
* Non-income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $145,098,967. At July 31,
2000, net unrealized depreciation for all investment securities based on
tax cost was $15,120,726. This consisted of aggregate gross unrealized
appreciation for all investments in which there was an excess of value over
tax cost of $1,830,110 and aggregate gross unrealized depreciation for all
investment securities in which there was an excess of tax cost over value
of $16,950,836.
(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.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of July 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Investments in securities, at value (cost $145,098,967) $ 129,978,241
Cash .................................................. 335
Receivable for investments sold ....................... 2,527,422
Interest receivable ................................... 3,046,198
Receivable for Fund shares sold ....................... 92,904
Deferred organization expenses ........................ 3,498
Due from Adviser ...................................... 28,406
Other assets .......................................... 607
------------
Total assets .......................................... 135,677,611
Liabilities
--------------------------------------------------------------------------------
Payable for investments purchased ..................... 318,125
Dividends payable ..................................... 462,283
Payable for Fund shares redeemed ...................... 280,771
Accrued management fee ................................ 190,199
Accrued Trustees' fees and expenses.................... 66,782
Other accrued expenses and payables.................... 173,378
------------
Total liabilities ..................................... 1,491,538
--------------------------------------------------------------------------------
Net assets, at value $ 134,186,073
--------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................... 217,980
Net unrealized appreciation (depreciation) on:
Investments ......................................... (15,120,726)
Accumulated net realized gain (loss) .................. (17,483,239)
Paid-in capital ....................................... 166,572,058
--------------------------------------------------------------------------------
Net assets, at value $ 134,186,073
--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($134,186,073 /
12,762,279 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) $ 10.51
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended July 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends ...................................................... $ 450,218
Interest ....................................................... 7,427,812
---------------
Total Income ................................................... 7,878,030
---------------
Expenses:
Management fee ................................................. 486,416
Services to shareholders ....................................... 153,709
Custodian and accounting fees ........... ...................... 27,827
Auditing ....................................................... 25,447
Legal .......................................................... 6,894
Trustees' fees and expenses .................................... 82,663
Reports to shareholders ........................................ 13,864
Registration fees .............................................. 5,721
Amortization of organization expenses .......................... 1,922
Other .......................................................... 4,101
---------------
Total expenses, before expense reductions 808,564
Expense reductions ............................................. (258,792)
---------------
Total expenses, after expense reductions ....................... 549,772
Net investment income .......................................... 7,328,258
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (7,668,937)
Foreign currency related transactions .......................... 28,385
------------
(7,640,552)
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (3,161,340)
Foreign currency related transactions .......................... (49,495)
------------
(3,210,835)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (10,851,387)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (3,523,129)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
Six Months
Ended July 31, Year Ended
2000 January 31,
Increase (Decrease) in Net Assets (Unaudited) 2000
--------------------------------------------------------------------------------
Operations:
Net investment income .......................... $ 7,328,258 $ 18,265,244
Net realized gain (loss) on investment
transactions ................................ (7,640,552) (7,943,306)
Net unrealized appreciation (depreciation) on
investment transactions during the period ... (3,210,835) (8,384,023)
------------- -------------
Net increase (decrease) in net assets resulting
from operations.............................. (3,523,129) 1,937,915
------------- -------------
Distributions to shareholders from:
Net investment income .......................... (7,472,828) (18,189,409)
------------- -------------
Fund share transactions:
Proceeds from shares sold ...................... 18,302,448 63,141,446
Reinvestment of distributions .................. 4,680,190 12,219,898
Cost of shares redeemed ........................ (31,133,285) (115,045,189)
Redemption fees ................................ 50,231 167,283
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ........................ (8,100,416) (39,516,562)
------------- -------------
Increase (decrease) in net assets .............. (19,096,373) (55,768,056)
Net assets at beginning of period .............. 153,282,446 209,050,502
Net assets at end of period (including
undistributed net investment income of
$217,980 and $362,550, respectively) ........ $ 134,186,073 $ 153,282,446
Other Information
-------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 13,488,128 16,863,913
------------- -------------
Shares sold .................................... 1,689,556 5,264,791
Shares issued to shareholders in reinvestment of
distributions ............................... 435,548 1,029,914
Shares redeemed ................................ (2,850,953) (9,670,490)
------------- -------------
Net increase (decrease) in Fund shares ......... (725,849) (3,375,785)
Shares outstanding at end of
period ...................................... 12,762,279 13,488,128
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
--------------------------------------------------------------------------------
2000(b) 2000(c) 1999(d) 1998(e) 1997(f)
--------------------------------------------------------------------------------
Net asset value, beginning of
period $11.36 $12.40 $13.23 $12.77 $12.00
---------------------------------------------------
--------------------------------------------------------------------------------
Income from investment operations:
--------------------------------------------------------------------------------
Net investment income (a) .57 1.16 1.08 1.19 .76
--------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.84) (1.06) (.73) .57 .77
---------------------------------------------------
--------------------------------------------------------------------------------
Total from investment
operations (.27) .10 .35 1.76 1.53
--------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------
Net investment income (.58) (1.15) (1.10) (1.17) (.76)
--------------------------------------------------------------------------------
Net realized gains on
investment transactions -- -- (.09) (.14) (.01)
---------------------------------------------------
--------------------------------------------------------------------------------
Total distributions (.58) (1.15) (1.19) (1.31) (.77)
--------------------------------------------------------------------------------
Redemption fees 0.00(j) .01 .01 .01 .01
--------------------------------------------------------------------------------
Net asset value, end of period $10.51 $11.36 $12.40 $13.23 $12.77
---------------------------------------------------
--------------------------------------------------------------------------------
Total Return (%) (g) (h) (2.44)** 1.04 2.98** 14.60 13.23**
--------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period
($ millions) 134 153 209 176 74
--------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.12(i)* 1.09 1.17* 1.23 1.75*
--------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) .77(i)* .75 .44* .03 .00*
--------------------------------------------------------------------------------
Ratio of net investment income
(%) 10.57* 9.68 9.42* 9.28 9.44*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 81* 53 83** 113 40*
--------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended July 31, 2000 (Unaudited).
(c) For the year ended January 31, 2000.
(d) For the eleven months ended January 31, 1999. On August 10, 1998, the
Trustees of the Fund changed the fiscal year end from February 28 to
January 31.
(e) For the year ended February 28, 1998.
(f) For the period June 28, 1996 (commencement of operations) to
February 28, 1997.
(g) Total returns would have been lower had certain expenses not been
reduced.
(h) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
(i) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.08% and
.75%, respectively.
(j) Redemption fees were less than $.01 per share.
* Annualized
** Not annualized
24
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder High Yield Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company and is organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sales price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the 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.
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
25
<PAGE>
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.
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.
26
<PAGE>
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, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $6,782,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until January 31,
2007 ($1,674,000) and January 31, 2008 ($5,108,000), the respective expiration
dates, whichever occurs first.
In addition, from November 1, 1999 through January 31, 2000 the Fund incurred
approximately $3,060,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending January 31, 2001.
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 accounting principles generally accepted in
the United States. 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.
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.
27
<PAGE>
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.
B. Purchases and Sales of Securities
During the six months ended July 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $53,384,716 and
$60,288,293, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment 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 0.70% 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 0.50% 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. Effective May 1, 2000, expenses are capped, by
contract, at 0.90% through April 30, 2001. Additionally, the Adviser will cap
expenses voluntarily at 0.75% through September 30, 2000. Certain expenses
incurred in connection with the reorganization are excluded from the expense
limitation. For the six months ended July 31, 2000, the Adviser did not impose a
portion of its fee amounting to $225,793 and the amount imposed aggregated
28
<PAGE>
$260,623, which is equivalent to an annual effective rate of 0.37% of the Fund's
average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended July 31, 2000, the amount charged to the Fund by SSC amounted
to $78,672, of which $17,679 was unpaid at July 31, 2000.
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,
2000, the amount charged to the Fund by STC amounted to $17,971, of which $3,159
was unpaid at July 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended July 31, 2000, the amount charged to the Fund by SFAC amounted to $26,385,
of which $8,764 was unpaid at July 31, 2000.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Fund will be charged expenses that exceed the estimated savings to
such 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, 2000, the
Special Servicing Agreement expense charged to the Fund amounted to $43,082.
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,
2000, the Trustees' fees and expenses aggregated $25,851. In addition, a
one-time fee of $56,812 was accrued for payment of those Directors not
affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $28,406 of such costs.
29
<PAGE>
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. For the six months ended July 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $1,564 and $3,029,
respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated, pro rata based upon net assets, among
each of the Participants. Interest is calculated based on the market rates at
the time of the borrowing. The Fund may borrow up to a maximum of 33 percent of
its net assets under the agreement.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
30
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder High Yield Bond
Fund (the "fund") was held on July 13, 2000, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To elect Trustees of the fund.
Number of Votes:
Trustees For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 7,791,067 268,915
Linda C. Coughlin 7,791,502 268,480
Dawn-Marie Driscoll 7,798,371 261,611
Edgar R. Fiedler 7,794,268 265,714
Keith R. Fox 7,795,448 264,533
Joan E. Spero 7,783,440 276,542
Jean Gleason Stromberg 7,791,021 268,960
Jean C. Tempel 7,795,539 264,443
Steven Zaleznick 7,778,600 281,382
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
7,788,976 107,536 163,470 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
31
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics, Bentley
College
Edgar R. Fiedler
o Trustee; Senior Fellow and Economic
Counsellor, The Conference Board,
Inc.
Keith R. Fox
o Trustee; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Trustee; President, The Doris
Duke Charitable Foundation
Jean Gleason Stromberg
o Trustee; Consultant
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Trustee; President and
Chief Executive Officer,
AARP Services, Inc.
Thomas V. Bruns*
o Vice President
Robert S. Cessine*
o Vice President
William F. Glavin*
o Vice President
Gary A. Langbaum*
o Vice President
James E. Masur*
o Vice President
Ann M. McCreary*
o Vice President
Harry E. Resis*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and
Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
32
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Investment Products and Services
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Scudder Funds
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<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series-- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Choice Series
Scudder Health Care Fund
U.S. Growth and Income Scudder Technology Fund
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
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Retirement Programs and Education Accounts
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Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
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Closed-End Funds
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The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
34
<PAGE>
Account Management Resources
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For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
35
<PAGE>
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Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
36
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Notes
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37
<PAGE>
Notes
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38
<PAGE>
Notes
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39
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
