Scudder
High Yield
Bond Fund
Annual Report
February 28, 1998
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund seeking a high level of
current income and, secondarily, capital appreciation through investment
primarily in below investment-grade domestic debt securities.
SCUDDER (logo)
<PAGE>
Scudder High Yield Bond Fund
- --------------------------------------------------------------------------------
Date of Inception: 6/28/96 Total Net Assets as of Ticker Symbol: SHBDX
2/28/98: $176.2 million
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o For its most recent fiscal year ended February 28, 1998, Scudder High Yield
Bond Fund provided a total return of 14.60%. This compares favorably with the
12.54% return of the Merrill Lynch High Yield Master Index. On February 28, the
Fund posted a 9.01% 30-day SEC yield.
o High yield bonds continued their strong performance as demand from individual,
mutual fund, and institutional investors exceeded a record supply of bonds.
o During the most recent semiannual period, the Fund's position was increased in
telecommunications bonds, which are benefiting from strong demand for their
issuers' services, and reduced in the financial and energy sectors.
Table of Contents
3 Letter from the Fund's President 20 Notes to Financial Statements
4 Performance Update 23 Report of Independent Accountants
5 Portfolio Summary 24 Tax Information
6 Portfolio Management Discussion 25 Shareholder Meeting Results
10 Glossary of Investment Terms 28 Officers and Trustees
11 Investment Portfolio 29 Investment Products and Services
16 Financial Statements 30 Scudder Solutions
19 Financial Highlights
2 - Scudder High Yield Bond Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder High Yield Bond Fund's
performance over its most recent fiscal year ended February 28, 1998. The Fund
posted a strong 14.60% total return for the period, outpacing the 12.54% return
of the Merrill Lynch High Yield Master Index. As of February 28, 1998, the Fund
provided a 9.01% 30-day SEC yield. As explained in the portfolio management
discussion beginning on page 6, the strength of the economy and the stock
market, low inflation and interest rates, and substantial demand for high yield
bonds from individuals, mutual funds, and institutions have all contributed to a
healthy high yield marketplace.
For those of you who are interested in new Scudder products, we recently
introduced three new industry sector funds as a part of our Choice Series:
Scudder Financial Services Fund, which seeks long-term growth by investing in
financial services companies in the U.S. and abroad; Scudder Health Care Fund,
which seeks long-term growth from health care companies located around the
world; and Scudder Technology Fund, which pursues long-term growth by investing
in companies that develop, produce, or distribute technology-related products or
services. In addition, April 6, 1998, marked the debut of our newest entrant in
the growth and income category: Scudder Real Estate Investment Fund, investing
in equity securities of companies in the real estate industry. Please see pages
29 through 31 for more information on Scudder products and services.
Lastly, at the start of 1998 the Fund's investment adviser changed its name
to Scudder Kemper Investments, Inc., from Scudder, Stevens & Clark, Inc.,
pursuant to the acquisition of a majority interest in Scudder, Stevens & Clark
by Zurich Insurance Company, and the combining of Scudder's business with that
of Zurich Kemper Investments, Inc.
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 Website at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder High Yield Bond Fund
3 - Scudder High Yield Bond Fund
<PAGE>
PERFORMANCE UPDATE as of February 28, 1998
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FUND INDEX COMPARISONS
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Total Return
Period Growth --------------
Ended of Average
2/28/97 $10,000 Cumulative Annual
- ------------------------------------------
SCUDDER HIGH YIELD BOND FUND
- ------------------------------------------
1 Year $11,460 14.60% 14.60%
Life of Fund* $12,975 29.75% 16.87%
- ------------------------------------------
MERRILL LYNCH HIGH YIELD MASTER INDEX
- ------------------------------------------
1 Year $11,254 12.54% 12.54%
Life of Fund* $12,418 24.18% 13.89%
- ------------------------------------------
*The Fund commenced operation on June 28, 1996.
Index comparisons begin June 30, 1996.
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GROWTH OF A $10,000 INVESTMENT
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A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER HIGH YIELD BOND FUND
Year Amount
- ----------------------
6/96* $10,004
8/96 $10,251
11/96 $10,795
2/97 $11,323
5/97 $11,515
8/97 $12,013
11/97 $12,391
2/98 $12,975
MERRILL LUNCH HIGH YIELD MASTER INDEX
Year Amount
- ----------------------
6/96* $10,000
8/96 $10,172
11/96 $10,717
2/97 $11,035
5/97 $11,260
8/97 $11,685
11/97 $12,071
2/98 $12,418
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
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A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIOD ENDED FEBRUARY 28
1997* 1998
----------------------
NET ASSET VALUE... $ 12.77 $ 13.23
INCOME DIVIDENDS.. $ .76 $ 1.17
CAPITAL GAINS
DISTRIBUTIONS..... $ .01 $ .14
FUND TOTAL
RETURN (%)........ 13.23 14.60
INDEX TOTAL
RETURN (%)........ 10.49 12.54
Performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Total return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the life of Fund
period would have been lower.
4 - Scudder High Yield Bond Fund
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PORTFOLIO SUMMARY as of February 28, 1998
- -----------------------------
ASSET ALLOCATION
- -----------------------------
Corporate Bonds 88%
Preferred Stocks 7%
Cash Equivalents 4%
Foreign Bonds --
U.S.$ Denominated 1%
- -----------------------------
100%
=============================
In general, the Fund
maintains a modest cash
position so that we are
positioned to purchase
attractive new and existing
bond issues as they
become available.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
DIVERSIFICATION (Excluding
Cash Equivalents)
- -----------------------------
Communications 22%
Manufacturing 17%
Media 12%
Consumer Discretionary 9%
Consumer Staples 7%
Energy 6%
Service Industries 5%
Metals & Minerals 4%
Financial 3%
Other 15%
- -----------------------------
100%
=============================
During the most recent
fiscal year, the Fund
increased its holdings in
telecommunications
issues -- demand for
telecommunications
services is growing
tremendously and this
subsector's bonds have
performed well.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
QUALITY
- -----------------------------
Cash Equivalents 4%
BBB 1%
BB 15%
B 72%
CCC 1%
Not Rated 7%
- -----------------------------
100%
=============================
Weighted Average Quality: B
The Fund continues to
focus on select B-rated
credits, which typically
carry a yield advantage
over BB-rated bonds.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
EFFECTIVE MATURITY
- -----------------------------
Less than 1 year 11%
1 - 5 years 11%
5 - 8 years 57%
8 years or greater 21%
- -----------------------------
100%
- -----------------------------
Weighted average effective
maturity: 6.5 years
A range of maturities is
represented in the
Fund's portfolio.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
For more complete details about the Fund's Investment Portfolio, see page 11.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
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5 - Scudder High Yield Bond Fund
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Portfolio Management Discussion
For a discussion of Scudder High Yield Bond Fund's performance and strategy over
its first full fiscal year, we are pleased to once again present an interview
with Scudder High Yield Bond Fund's Lead Portfolio Manager, Kelly D. Babson.
Kelly has managed the Fund since its inception on June 28, 1996.
Q: How has Scudder High Yield Bond Fund performed over its most recent fiscal
year?
For the 12-month period ended February 28, 1998, Scudder High Yield Bond Fund
posted a total return of 14.60%. For the same period, the high yield bond market
returned 12.54% as measured by the unmanaged Merrill Lynch High Yield Master
Index. The Fund's total return was 29.75% since its June 28, 1996, inception,
outperforming the Index's return of 24.18% over the same period. On February 28,
1998 the Fund offered a 9.01% 30-day SEC yield.
Q: What accounts for the Fund's performance?
First, we've been experiencing a vibrant high yield market -- the economic
environment has been strong, and the tremendous performance of the equity market
has allowed many high yield issuers to raise additional capital in the equity
markets. This, in turn, permitted higher coupon debt to be called at premium
prices. We have also benefited from the general move downward in interest rates
and the current low inflation environment.
In addition to these macroeconomic factors, the steady growth of mutual funds,
the formation of many new collateralized bond obligations (which use high yield
bonds as a collateral pool for pass-through structures), and growing interest
from "crossover" investors have created significant additional demand for high
yield bonds in the last year and a half. The supply of high yield bonds in 1997
was considerable -- over $120 billion, compared to $75 billion in 1996. And
we're running well ahead of 1997's pace this year.
Default rates for high yield bonds have also been low, reducing the risk premium
associated with high yield bonds. The result of all these factors has been the
narrowing of yield spreads (the difference between the average interest rates of
high yield bonds and Treasury securities at a given maturity), and strong
performance for the high yield market.
Q: How has the high yield bond market been affected by the Asian crisis?
There is a segment of the high yield market that is exposed to Asia. Our
strategy was to underweight metals and paper companies, because of concerns over
the possible "dumping" of commodity supply by Asian companies into these
markets. Away from those two areas, many of the credits are relatively
insulated. Actually, one of the things that helped spur the high yield rally in
January was that investors saw the U.S. market as an attractive alternative to
emerging markets.
Q: You've talked in the past about focusing on finding credits that are
candidates for a ratings upgrade. How successful has this effort been?
That has worked out well, and has made an important contribution to our
performance. Our ratio of upgrades to downgrades in bonds held in the Fund's
portfolio is 7 to 1 over the life of the Fund. By contrast, the ratio for the
overall market is between 1 to 1 and 2 to 1. We continue to look for companies
that are reducing the amount of debt on
6 - Scudder High Yield Bond Fund
<PAGE>
their balance sheets and moving up the ratings spectrum, and trying to find them
early.
Q: What changes in industry focus have you made over the past fiscal year?
The major change has been an increasing portfolio overweighting of
telecommunications, particularly in competitive local exchange carriers (CLECs).
In a low inflation environment where many companies have little pricing power,
one of the questions we've asked is, "How do companies improve their bottom
line? How do they improve their cash flow?" The answer is that it needs to come
largely through internally generated growth. And telecommunications is one of
the areas where we see tremendous growth potential. You see it in the
performance of the stocks and you can certainly see it in the performance of the
bonds. The worldwide demand for telecommunications services is growing
tremendously.
Q: Can you give an example of a competitive local exchange carrier the Fund has
invested in?
Teleport is one -- the company was purchased by AT&T at the beginning of this
year. Following the merger with AT&T, Teleport's debt was upgraded to investment
grade, resulting in substantial price appreciation. Competitive local exchange
carriers tend to be fairly small companies, and relatively early in their
development stage. They compete against the incumbent Baby Bells, the local
carrier of your region for business customers and high-volume users. The
acquisition of CLECs such as Teleport provides an attractive means for
long-distance carriers to get into the local markets.
THE PRINTED DOCUMENT HAS A LINE CHART HERE
LINE CHART TITLE:
Yield "Spreads" Narrow to Near Historic Levels
Yield Differential of B-rated Corporates vs.
U.S. Treasury Bonds of Comparable Maturity
LINE CHART DATA:
Yield Differential
(Basis Points)
------------------
2/88 514
481
487
478
474
556
645
12/89 815
769
767
811
1086
761
729
591
12/91 579
455
461
478
498
447
405
452
12/93 439
367
413
424
400
433
482
454
12/95 515
435
384
380
417
325
336
311
347
2/98 336
Source: Lehman Brothers High Yield Research
In terms of other sectors, we continued to be significantly overweighted in
basic industrial and business services, a core focus of the portfolio. That
position has been very consistent, and should continue to be.
We've also increased slightly our weightings in media and cable, but not
substantially. We added some exposure to radio broadcasters, many of which have
the ability to raise equity capital and deleverage.
Q: Where did the Fund reduce exposure?
We reduced our weighting in finance over the course of the last fiscal year.
With the market's concerns over subprime lenders, especially those on the auto
and home equity side, that sector has underperformed.
7 - Scudder High Yield Bond Fund
<PAGE>
We also reduced exposure to the energy sector at the beginning of this year, and
are now at a market weighting. Energy prices have declined, and the ability of
these companies to generate incremental cash flow and improve their balance
sheets is fairly well tapped out.
Q: What is your outlook for the high yield market and the Fund over the coming
months?
The outlook continues to be positive. However, I would hesitate to predict a
year as strong as the last one. We start out with a market that seems fairly
valued following a significant rally in the bond market. The Fund should earn
the coupon rate on its underlying securities, and we hope to earn additional
return through credit improvements and upgrades.
I think there are some issues that the high yield market will have to come to
grips with over the course of the next year. One of them is the slight decline
in overall credit quality in new high yield issues, with more CCC and nonrated
credit issues coming to market. Leverage ratios are also marginally higher than
they were a year ago. This all adds up to a high yield market that seems willing
to take more risk; that may change if we start to encounter some problems on the
credit front. If liquidity starts to dry up and banks show less willingness to
lend, there's additional risk. In early 1998 the equity market temporarily
stalled out, and we saw bond prices decline for companies that we had expected
to raise equity capital, but couldn't.
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Scudder High Yield Bond Fund:
A Team Approach to Investing
Scudder High Yield Bond Fund is managed by a team of Scudder Kemper
Investments, Inc. ("the Adviser") professionals, who each play an important
role in the Fund's management process. Team members work together to develop
investment strategies and select securities for the Fund's portfolio. They are
supported by a large staff of economists, research analysts, traders and other
investment specialists who work in our offices across the United States and
abroad. The Adviser believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging its extensive resources.
Kelly D. Babson, Lead Portfolio Manager, is a portfolio manager in the
Adviser's Global Bond Group, with over 16 years of experience in fixed-income
investing including ten years of high yield portfolio management prior to
joining the Adviser. Stephen A. Wohler, Portfolio Manager, is currently
Director of the Adviser's Global Bond Group, overseeing all fixed-income
investing for the firm. He is the Active Value Product Leader, as well as a
member of the portfolio management teams for Scudder Income Fund and Scudder
Zero Coupon 2000 Fund.
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8 - Scudder High Yield Bond Fund
<PAGE>
Although we don't see storm clouds over the horizon, we recognize that the high
yield markets have benefited greatly over the last several years from sustained
domestic economic growth, rising equity market valuations, and low default
rates. We will continue to actively monitor each of the credits we hold to
detect any early signs of disappointing business developments and be selective
in our purchases for the Fund as we pursue the Fund's objectives of high current
yield and capital appreciation for our investors.
9 - 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)
10 - Scudder High Yield Bond Fund
<PAGE>
Investment Portfolio as of February 28, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 4.0%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 2/27/98 at 5.63%, to be
repurchased at $6,950,259 on 3/2/98, collateralized by a $4,744,000 U.S. Treasury ------------
Bond, 12%, 8/15/13 (Cost $6,947,000) .................................................. 6,947,000 6,947,000
------------
Foreign Bonds - U.S. $ Denominated 1.1%
- ------------------------------------------------------------------------------------------------------------------------------
Fage Dairy Industry SA, 9%, 2/1/07 ...................................................... 1,250,000 1,212,500
Petroleos Mexicanos SA, 8.85%, 9/15/07 .................................................. 700,000 717,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds - U.S.$ Denominated (Cost $1,924,321) 1,930,000
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes 88.2%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 8.8%
COMPUSA Inc., 9.5%, 6/15/00 ............................................................. 500,000 517,500
Cinemark USA, Inc., Series B, 9.625%, 8/1/08 ............................................ 1,000,000 1,060,000
Cinemark USA, Inc., Series D, 9.625%, 8/1/08 ............................................ 1,000,000 1,052,500
Cole National Group Inc., 9.875%, 12/31/06 .............................................. 2,000,000 2,160,000
Friendly Ice Cream Corp., 10.5%, 12/1/07 ................................................ 1,000,000 1,052,500
Mrs. Fields Inc., 10.125%, 12/1/04 ...................................................... 1,500,000 1,500,000
North Atlantic Trading Co., 11%, 6/15/04 ................................................ 1,000,000 1,045,000
Pillowtex Corp., 10%, 11/15/06 .......................................................... 1,500,000 1,627,500
Pillowtex Corp., 9%, 12/15/07 ........................................................... 500,000 520,000
Premier Parks Inc., 9.75%, 1/15/07 ...................................................... 1,500,000 1,620,000
Signature Resorts, Inc., 9.75%, 10/1/07 ................................................. 2,000,000 2,060,000
Zale Corp., 8.5%, 10/1/07 ............................................................... 1,250,000 1,278,125
------------
15,493,125
------------
Consumer Staples 6.4%
Aurora Foods, Inc., Series B, 9.875%, 2/15/07 ........................................... 1,125,000 1,200,938
Aurora Foods, Inc., Series D, 9.875%, 2/15/07 ........................................... 1,000,000 1,067,500
Chiquita Brands International Inc., Senior Note, 10.25%, 11/1/06 ........................ 1,250,000 1,368,750
Dyersburg Corp., 9.75%, 9/1/07 .......................................................... 2,500,000 2,637,500
Polymer Group, Inc., 9%, 7/1/07 ......................................................... 1,000,000 1,022,500
Revlon Consumer Products, 8.625%, 2/1/08 ................................................ 2,500,000 2,481,250
Sun World International, 11.25%, 4/15/04 ................................................ 1,250,000 1,356,250
------------
11,134,688
------------
Health 1.3%
NBTY Inc., 8.625%, 9/15/07 .............................................................. 2,250,000 2,317,500
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 21.7%
21st Century Telecommunications, Step-up Coupon, 0% to 2/15/03, 12.25% to 2/15/08 ....... 4,000,000 2,200,000
Comcast Cellular, 9.5%, 5/1/07 .......................................................... 2,500,000 2,625,000
Crown Castle International Corp., Step-up Coupon, 0% to 11/1/02, 10.625% to 11/15/07 .... 2,100,000 1,396,500
Facilicom International Inc., 10.5%, 1/15/08 ............................................ 1,500,000 1,533,750
Focal Communications Corp., Step-up Coupon, 0% to 2/15/03, 12.125% to 2/15/08 ........... 1,750,000 949,375
GST USA Inc., Step-up Coupon, 0% to 12/1/00, 13.875% to 12/15/05 ........................ 2,500,000 2,012,500
Globalstar LP, 11.375%, 2/15/04 ......................................................... 1,000,000 1,030,000
Intermedia Communications, Inc., Step-up Coupon, 0% to 7/1/02, 11.25% to 7/15/07 ........ 2,750,000 2,021,250
Intermedia Communications, Inc., 8.875%, 11/1/07 ........................................ 1,500,000 1,575,000
Iridium LLC Capital Corp., 11.25%, 7/15/05 .............................................. 2,250,000 2,306,249
McLeodUSA Inc., 9.25%, 7/15/07 .......................................................... 2,000,000 2,140,000
Nextel Communications, Inc., Step-up Coupon, 0% to 9/1/02, 10.65% to 9/15/07 ............ 4,000,000 2,580,000
Orbital Imaging Corp., 11.625%, 3/1/05 .................................................. 700,000 722,750
Paging Network Inc., Senior Subordinate Note, 10.125%, 8/1/07 ........................... 1,500,000 1,560,000
RCN Corp., 10%, 10/15/07 ................................................................ 1,000,000 1,053,750
RCN Corp., Step-up Coupon, 0% to 2/15/03, 9.8% to 2/15/08 ............................... 2,250,000 1,366,875
SBA Communications Corp., Step-up Coupon, 0% to 3/1/03, 12% to 3/1/08 ................... 4,250,000 2,380,000
Sprint Spectrum L.P., Senior Note, 11%, 8/15/06 ......................................... 1,000,000 1,142,500
Sprint Spectrum L.P., Step-up Coupon, 0% to 8/1/01, 12.5% to 8/15/06 .................... 2,000,000 1,620,000
Star Choice Comm, 13%, 12/15/05 ......................................................... 1,000,000 1,042,500
Teleport Communications Group, Inc., Step-up Coupon, 0% to 7/1/01, 11.125% to 7/1/07 .... 2,750,000 2,365,000
Teligent Inc., 11.5%, 12/1/07 ........................................................... 2,000,000 2,055,000
WorldCom, Inc., 8.875%, 1/15/06 ......................................................... 368,000 401,289
------------
38,079,288
------------
Financial 1.7%
Bank United Capital Trust, 10.25%, 12/31/26 ............................................. 1,000,000 1,055,000
Commerce Bancorporation, 11.75%, 6/6/27 ................................................. 957,000 1,014,420
Delta Financial Corp., 9.5%, 8/1/04 ..................................................... 1,000,000 978,750
------------
3,048,170
------------
Media 6.5%
Adelphia Communications Corp., 10.5%, 7/15/04 ........................................... 1,500,000 1,661,250
American Lawyer Media, Inc., 9.75%, 12/15/07 ............................................ 1,250,000 1,312,500
Cablevision Systems Corp., 9.25%, 11/1/05 ............................................... 1,000,000 1,065,000
Diva Systems Corp., Step-up Coupon, 0% to 3/1/03, 12.625% to 3/1/08 ..................... 1,750,000 958,125
Outdoor Systems, Inc., 8.875%, 6/15/07 .................................................. 3,000,000 3,165,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Panavision Inc., Step-up Coupon, 0% to 2/1/02, 9.625% to 2/1/06 ......................... 2,500,000 1,750,000
Sun Media Corp., 9.5%, 2/15/07 .......................................................... 325,000 352,625
Sun Media Corp., 9.5%, 5/15/07 .......................................................... 1,000,000 1,090,000
------------
11,354,500
------------
Service Industries 5.2%
Allied Waste Industries, Inc., Step-up Coupon, 0% to 6/1/02, 11.3% to 6/1/07 ............ 1,265,000 923,450
Allied Waste North America, 10.25%, 12/1/06 ............................................. 1,500,000 1,672,500
ATC Group Services, Inc., 12%, 1/15/08 .................................................. 750,000 768,750
Borg-Warner Security Corp., 9.625%, 3/15/07 ............................................. 1,275,000 1,351,500
Hydrochem Industrial, 10.375%, 8/1/07 ................................................... 1,000,000 1,055,000
Loomis Fargo & Co., 10%, 1/15/04 ........................................................ 1,000,000 1,020,000
National Equipment Services, 10%, 11/30/04 .............................................. 1,500,000 1,597,500
Pierce Leahy Corp., 11.125%, 7/15/06 .................................................... 650,000 743,438
------------
9,132,138
------------
Manufacturing 17.8%
AEI Holding Co., Inc., 10%, 11/15/07 .................................................... 2,000,000 2,105,000
AEP Industries, Inc., 9.875%, 11/15/07 .................................................. 2,250,000 2,385,000
Amphenol Corp., 9.875%, 5/15/07 ......................................................... 2,500,000 2,718,750
BE Aerospace, Inc., 8%, 3/1/08 .......................................................... 1,000,000 995,000
Clark Materials Handling Corp., 10.75%, 11/15/06 ........................................ 2,000,000 2,140,000
Eagle-Picher Holdings Co., Step-up Coupon, 0% to 3/1/03, 11.75% to 3/1/08 ............... 910,000 520,975
Eagle-Picher Industries, 9.375%, 3/1/08 ................................................. 500,000 502,500
GSI Group, Inc., 10.25%, 11/1/07 ........................................................ 1,500,000 1,597,500
Graham Packaging Co., 8.75%, 1/15/08 .................................................... 2,000,000 2,020,000
ISP Holdings Inc., 9.75%, 2/15/02 ....................................................... 250,000 266,875
ISP Holdings Inc., 9%, 10/15/03 ......................................................... 500,000 525,000
K & F Industries, Inc., 9.25%, 10/15/07 ................................................. 1,500,000 1,567,500
LDM Technologies Inc., 10.75%, 1/15/07 .................................................. 1,750,000 1,903,125
Oshkosh Truck Corp., 8.75%, 3/1/08 ...................................................... 1,500,000 1,511,250
Prestolite Electric Inc., 9.625%, 2/1/08 ................................................ 500,000 511,250
Radnor Holdings Corp., 10%, 12/1/03 ..................................................... 2,500,000 2,625,000
Sovereign Specialty Chemicals, 9.5%, 8/1/07 ............................................. 1,000,000 1,050,000
Specialty Equipment Co., Senior Subordinate Note, 11.375%, 12/1/03 ...................... 1,950,000 2,106,000
Tracor, Inc., 8.5%, 3/1/07 .............................................................. 1,500,000 1,548,750
United Defense Industries, Inc., 8.75%, 11/15/07 ........................................ 1,500,000 1,530,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Werner Holdings Co., Inc., 10%, 11/15/07 ................................................ 1,000,000 1,055,000
------------
31,184,475
------------
Technology 3.2%
Celestica International Inc., 10.5%, 12/31/06 ........................................... 1,000,000 1,070,000
Fairchild Semiconductor Corp., 10.125%, 3/15/07 ......................................... 1,500,000 1,578,750
Unisys Corp., 11.75%, 10/15/04 .......................................................... 2,500,000 2,900,000
------------
5,548,750
------------
Energy 6.0%
Abraxas Petroleum Corp., 11.5%, 11/1/04 ................................................. 1,000,000 1,060,000
Belden & Blake Corp., 9.875%, 6/15/07 ................................................... 1,250,000 1,253,125
Bellwether Exploration Co., 10.875%, 4/1/07 ............................................. 1,500,000 1,612,500
Chesapeake Energy Corp., 10.5%, 6/1/02 .................................................. 1,000,000 1,065,000
Chesapeake Energy Corp., 7.875%, 3/15/04 ................................................ 1,500,000 1,455,000
Cliffs Drilling Co., Series B, 10.25%, 5/15/03 .......................................... 1,250,000 1,350,000
Cliffs Drilling Co., Series D, 10.25%, 5/15/03 .......................................... 1,000,000 1,085,000
Dailey International, Inc., 9.5%, 2/15/08 ............................................... 500,000 507,500
Ocean Energy, 9.75%, 10/1/06 ............................................................ 1,000,000 1,097,500
------------
10,485,625
------------
Metals & Minerals 4.0%
AK Steel Corp., 9.125%, 12/15/06 ........................................................ 2,000,000 2,115,000
Metals USA Inc., 8.625%, 2/15/08 ........................................................ 1,000,000 1,000,000
Renco Metals Inc., Senior Note, 11.5%, 7/1/03 ........................................... 1,000,000 1,070,000
Renco Steel Holdings Co., 10.875%, 2/1/05 ............................................... 1,000,000 1,012,500
Wells Aluminum Corp., 10.125%, 6/1/05 ................................................... 1,750,000 1,876,875
------------
7,074,375
------------
Construction 1.7%
Nortek, Inc., 9.875%, 3/1/04 ............................................................ 1,000,000 1,042,500
Nortek, Inc., 9.25%, 3/15/07 ............................................................ 1,000,000 1,037,500
Triangle Pacific, 10.5%, 8/1/03 ......................................................... 850,000 896,750
------------
2,976,750
------------
Transportation 3.3%
Allied Holdings Inc., 8.625%, 10/1/07 ................................................... 2,000,000 2,050,000
Atlantic Express, Inc., 10.75%, 2/1/04 .................................................. 1,500,000 1,612,500
Hvide Marine, Inc., 8.375%, 2/15/08 ..................................................... 1,000,000 998,750
US Air, Inc., 10.375%, 3/1/13 ........................................................... 1,000,000 1,123,830
------------
5,785,080
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder High Yield Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities 0.6%
Cal Energy Co., Inc., 9.5%, 9/15/06 ..................................................... 1,000,000 1,077,360
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $149,470,086) 154,691,824
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 6.7%
- ------------------------------------------------------------------------------------------------------------------------------
Communications 0.1%
Globalstar LP, Warrants (expire 2/15/04)* ............................................... 1,000 130,000
------------
Financial 1.2%
Cal Fed Bancorp Inc., Series A .......................................................... 40,000 1,102,500
Walden Residential Properties, Inc. ..................................................... 40,000 1,050,000
Walden Residential Properties, Inc., Warrants (expire 1/1/02)* .......................... 40,000 40,000
------------
2,192,500
------------
Media 5.4%
Chancellor Media Corp. .................................................................. 15,000 1,785,000
SFX Broadcasting, Inc., Series E ........................................................ 15,947 1,881,731
Time Warner, Inc., Series M ............................................................. 2,000 2,277,500
Adelphia Communications Corp., Series B, 13%, 7/15/09 ................................... 10,000 1,160,000
Cablevision Systems Corp. ............................................................... 20,564 2,364,859
------------
9,469,090
- ------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $11,172,337) 11,791,590
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $169,513,744) (a) 175,360,414
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security
(a) The cost for federal income tax purposes was $169,513,744. At
February 28, 1998, net unrealized appreciation for all investment
securities based on tax cost was $5,846,670. This consisted of
aggregate gross unrealized appreciation for all investments in which
there was an excess of market value over tax cost of $6,090,474 and
aggregate gross unrealized depreciation for all investment
securities in which there was an excess of tax cost over market
value of $243,804.
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 February 28, 1998
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $169,513,744) .................. $175,360,414
Cash ................................................................... 979
Receivable for investments sold ........................................ 1,786,622
Dividends and interest receivable ...................................... 3,074,290
Receivable on Fund shares sold ......................................... 218,959
Due from Adviser ....................................................... 386,163
Deferred organization expenses ......................................... 12,854
Other assets ........................................................... 632
----------------
Total assets ........................................................... 180,840,913
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 3,714,992
Payable for Fund shares redeemed ....................................... 450,055
Dividends payable ...................................................... 348,275
Other payables and accrued expenses .................................... 106,354
----------------
Total liabilities ...................................................... 4,619,676
---------------------------------------------------------------------------------------------
Net assets, at market value $176,221,237
---------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 320,732
Net unrealized appreciation (depreciation) on investment securities .... 5,846,670
Accumulated net realized gain .......................................... 1,262,306
Paid-in capital ........................................................ 168,791,529
---------------------------------------------------------------------------------------------
Net assets, at market value $176,221,237
---------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($176,221,237 /13,323,225 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ....... $13.23
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder High Yield Bond Fund
<PAGE>
Statement of Operations
year ended February 28, 1998
<TABLE>
<CAPTION>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest ............................................................... $ 10,933,494
Dividends .............................................................. 590,781
----------------
11,524,275
Expenses:
Management fees ........................................................ 868,780
Services to shareholders ............................................... 407,861
Custodian and accounting fees .......................................... 74,982
Trustees' fees and expenses ............................................ 39,875
Registration fees ...................................................... 33,796
Auditing ............................................................... 38,241
Reports to shareholders ................................................ 32,347
Legal .................................................................. 15,808
Amortization of organization expense ................................... 4,150
Other .................................................................. 5,430
----------------
Total expenses before reductions ....................................... 1,521,270
Expense reductions ..................................................... (1,488,084)
----------------
Expenses, net .......................................................... 33,186
---------------------------------------------------------------------------------------------
Net investment income 11,491,089
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities .................... 2,680,787
Net unrealized appreciation (depreciation) during the period on
investments ............................................................ 3,474,590
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 6,155,377
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 17,646,466
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Bond Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
June 28, 1996
(commencement of
Year Ended operations) to
February 28, February 28,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 11,491,089 $ 2,225,750
Net realized gain (loss) from investment transactions .... 2,680,787 163,385
Net unrealized appreciation (depreciation) on investment
transactions during the period ......................... 3,474,590 2,372,080
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 17,646,466 4,761,215
Distributions to shareholders from:
Net investment income .................................. (11,198,598) (2,225,750)
---------------- ----------------
Net realized gains ..................................... (1,527,954) (53,912)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................ 125,593,145 73,427,768
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 9,336,191 1,710,360
Cost of shares redeemed .................................. (37,271,126) (4,114,570)
Redemption fees .......................................... 120,019 16,783
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 97,778,229 71,040,341
---------------- ----------------
Increase (decrease) in net assets ........................ 102,698,143 73,521,894
Net assets at beginning of period ........................ 73,523,094 1,200
Net assets at end of period (including undistributed net ---------------- ----------------
investment income of $320,732 at February 28, 1998) .... $176,221,237 $73,523,094
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................ 5,759,335 100
---------------- ----------------
Shares sold .............................................. 9,745,318 5,951,910
Shares issued to shareholders in reinvestment of
distributions .......................................... 721,489 136,821
Shares redeemed .......................................... (2,902,917) (329,496)
---------------- ----------------
Net increase (decrease) in Fund shares ................... 7,563,890 5,759,235
---------------- ----------------
Shares outstanding at end of period ...................... 13,323,225 5,759,335
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder High Yield Bond Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
June 28, 1996
(commencement of
Year ended February operations) to
28, 1998 February 28, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------------
Net asset value, beginning of period .......................................... $12.77 $12.00
-----------------------------------------
Income from investment operations:
Net investment income ......................................................... 1.19 .76
Net realized and unrealized gain on investment transactions ................... .57 .77
-----------------------------------------
Total from investment operations .............................................. 1.76 1.53
-----------------------------------------
Less distributions from:
Net investment income ...................................................... (1.17) (.76)
Net realized gains from investment transactions ............................ (.14) (.01)
-----------------------------------------
Total distributions ........................................................... (1.31) (.77)
-----------------------------------------
Redemption fees ............................................................... .01 .01
-----------------------------------------
Net asset value, end of period ................................................ $13.23 $12.77
-----------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) .......................................................... 14.60 13.23(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 176 74
Ratio of operating expenses, net to average daily net assets (%) .............. .03 0.00
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ................................................................. 1.23 1.75*
Ratio of net investment income to average daily net assets (%) ................ 9.28 9.44*
Portfolio turnover rate (%) ................................................... 112.7 39.8*
</TABLE>
(a) Total return would have been lower had certain expenses not been reduced.
(b) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
19 - Scudder High Yield Bond Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder High Yield Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Fund in the preparation of its
financial statements.
Security Valuation. Portfolio debt securities other than money market securities
are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq System, for which there have been sales,
are valued at the most recent sale price reported on such system. If there are
no such sales, the value is the most recent bid quotation. Securities which are
not quoted on the Nasdaq System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used. All other securities are valued at
their fair value as determined in good faith by the Valuation Committee of the
Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly the Fund paid no federal income taxes and no federal
income tax provision was required.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.
Distribution of Income and Gains. Substantially all of the net investment income
is declared daily and distributed monthly. During any particular year net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income
20 - Scudder High Yield Bond Fund
<PAGE>
(loss) and net realized gain (loss) on investment transactions for a reporting
period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. All discounts are accreted for both tax
and financial reporting purposes.
B. Purchases and Sales of Securities
For the year ended February 28, 1998, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $211,508,918 and $120,508,139, respectively. Purchases and sales of
U.S. Government obligations aggregated $13,776,796 and $13,776,270,
respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, the Fund pays the Adviser a
fee equal to an annual rate of 0.70% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objectives, policies, and restrictions. The Adviser determines the
securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Adviser agreed not to impose all of its management fee
until December 31, 1997 in order to maintain the annualized expenses of the Fund
at not more than 0.0% of average daily net assets. Effective January 1, 1998,
the Adviser agreed not to impose all or a portion of its management fee until
June 30, 1998 in order to maintain the annualized expenses of the Fund at not
more than 0.25% of average daily net assets. For the year ended February 28,
1998, the Adviser did not impose any of its management fee, which amounted to
$868,780. Further, due to the limitations of such Agreement, the Adviser's
reimbursement payable to the Fund for the year ended February 28, 1998, amounted
to $386,163.
21 - Scudder High Yield Bond Fund
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended February 28, 1998, SSC did not impose any of its fee, which amounted
to $178,661.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At February 28, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $157,801.
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 year ended February 28,
1998, STC did not impose any of its fee, which amounted to $7,775.
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 year ended
February 28, 1998, SFAC did not impose any of its fee, which amounted to
$46,705.
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 year ended February 28, 1998,
the Trustee's fees and expenses aggregated $39,875.
22 - Scudder High Yield Bond Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Portfolio Trust and the Shareholders of Scudder High
Yield Bond Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
High Yield Bond Fund, including the investment portfolio, as of February 28,
1998, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for the year
ended February 28, 1998 and for the period June 28, 1996 (commencement of
operations) to February 28, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder High Yield Bond Fund as of February 28, 1998, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year ended February 28, 1998 and for the period
June 28, 1996 (commencement of operations) to February 28, 1997, in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
April 15, 1998
23 - Scudder High Yield Bond Fund
<PAGE>
Tax Information
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.
The Fund paid distributions of $0.02 per share from net long-term capital gains
during its year ended February 28, 1998, of which 11% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$558,642 as capital gain dividends for its year ended February 28, 1998, of
which 23.15% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.
24 - Scudder High Yield Bond Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder High Yield Bond
Fund (the "Fund") was held on October 24, 1997, at the office of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), Two International
Place, Boston, Massachusetts 02110. At the Meeting, as adjourned and reconvened,
the following matters were voted upon by the shareholders (the resulting votes
for each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide shareholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,162,540 198,573 167,260 17,947
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Henry P. Becton, Jr. 6,357,755 170,618
Dawn-Marie Driscoll 6,357,022 171,351
Peter B. Freeman 6,356,586 171,787
George M. Lovejoy, Jr. 6,356,915 171,458
Dr. Wesley W. Marple, Jr. 6,356,591 171,782
Daniel Pierce 6,356,729 171,644
Kathryn L. Quirk 6,344,912 183,461
Jean C. Tempel 6,356,722 171,651
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,004,222 282,412 223,792 17,947
25 - Scudder High Yield Bond Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,179,294 253,585 210,921 17,947
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Diversification 6,059,045 233,083 218,298 17,947
5.2 Borrowing 6,046,250 242,237 221,939 17,947
5.3 Senior securities 6,055,820 233,897 220,709 17,947
5.4 Concentration 6,054,656 234,430 221,340 17,947
5.5 Underwriting of securities 6,053,000 200,948 256,478 17,947
5.6 Investment in real estate 6,054,877 201,786 253,763 17,947
5.7 Purchase of physical 6,043,812 209,524 257,090 17,947
commodities
5.8 Lending 6,052,793 201,569 256,064 17,947
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
6,211,399 105,255 211,719
* 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.
26 - Scudder High Yield Bond Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder High Yield Bond Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration,
Northeastern University, College
of Business Administration
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Kelly D. Babson*
Vice President
Jerard K. Hartman*
Vice President
William M. Hutchinson*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Stephen A. Wohler*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder High Yield Bond Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.
29 - Scudder High Yield Bond Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder High Yield Bond Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder High Yield Bond Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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