SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND
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Scudder High Yield
Bond Fund
Fund #047
Annual Report
January 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
16 Glossary of Investment Terms
17 Investment Portfolio
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
33 Report of Independent Accountants
34 Officers and Trustees
35 Investment Products and Services
37 Scudder Solutions
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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 Inception: o High yield bond performance was essentially flat
6/28/96 during the 12 months ended January 31, 2000, as
higher interest rates, tighter bank credit, and Y2K
concerns negatively affected many issuers.
Total Net Assets as o For its most recent fiscal year ended January 31,
of 1/31/00: 2000, Scudder High Yield Bond Fund posted a total
$153 million return of 1.04%. This return outpaced the 0.06% total
return of the Merrill Lynch High Yield Master Index.
On January 31, the fund posted an 11.16% 30-day SEC
yield.
o We believe that attractive yields -- as well as
increased selectivity and discipline that we are
witnessing 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,
Welcome to the year 2000. We're beginning the new year with a new format for
Scudder fund annual reports, which we hope you'll find attractive and easy to
read.
High yield bonds have faced significant challenges during Scudder High Yield
Bond Fund's most recent fiscal year ended January 31, 2000. The difficult
environment is reflected in the fund's 1.04% total return for the 12-month
period ended January 31. As detailed in the interview that begins on page 8,
bonds largely sold off during the period in favor of stocks, as the U.S. Federal
Reserve began to raise interest rates in an attempt to slow the roaring U.S.
economy and prevent a recurrence of higher inflation. High yield issues were
also hurt by tightened bank credit and Y2K concerns.
Another challenge for many high yield issuers is one that spans fixed-income and
equity markets: Though the long-running economic boom and rising stock market
have made many Americans feel richer, this good fortune has not translated into
higher securities prices for many basic industrial companies. Investors'
differentiation between basic industrials versus Internet and other "new
economy" issuers has caused many high yield bonds to trade at yield levels much
higher than what you might expect, given the health of the economy.
Despite these challenges, our near-term outlook for high yield bonds is
constructive. By contrast with the "go-go" mid-90s high
4
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yield bond market, we detect additional discernment by high yield purchasers and
increased quality in high yield issuance. With the higher yields now available,
we are hopeful that investors will return to the high yield market in a more
broadly based fashion over the coming year.
If you have any questions regarding Scudder High Yield Bond Fund or any other
Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder High Yield Bond Fund
5
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Performance Update
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January 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 Yield High Yield
Bond Fund Master Index*
6/96** 10000 10000
7/96 10003 10068
1/97 11119 10883
7/97 12008 11705
1/98 12897 12368
7/98 13411 12808
1/99 13363 12756
7/99 13377 12873
1/00 13502 12764
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Fund Index Comparison
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<TABLE>
<CAPTION>
Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
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Scudder High Yield Bond Fund
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<S> <C> <C> <C>
1 year $ 10,104 1.04% 1.04%
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Life of Fund** $ 13,502 35.02% 8.71%
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Merrill Lynch High Yield Master Index*
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1 year $ 10,006 0.06% 0.06%
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Life of Fund** $ 12,764 27.64% 7.04%
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</TABLE>
* 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
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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 January 31
1997 1998 1999 2000
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Fund Total
Return (%) 11.16 15.99 3.61 1.04
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Index Total
Return (%) 8.83 13.65 3.14 0.06
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Net Asset
Value ($) 12.63 13.24 12.40 11.36
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Income
Dividends
($) .57 1.17 1.19 1.15
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Capital
Gains
Distributions
($) .01 .14 .09 --
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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.
7
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Portfolio Summary
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January 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.
The fund carried a
Corporate Bonds 89% modest cash position
Preferred Stocks 6% during the period.
Cash Equivalents 4%
Foreign Bonds 1%
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100%
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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 continued to
Communications 29% overweigh
Media 17% telecommunications and
Consumer Discretionary 12% media during the period,
Manufacturing 11% as growth prospects for
Service Industries 6% these two sectors are
Metals & Minerals 6% very promising.
Financial 4%
Consumer Staples 3%
Construction 3%
Other 9%
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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 maintained a
Cash Equivalents 4% relatively defensive
BBB 2% strategy through its
BB 11% most recent fiscal year,
B 60% retaining significant
CCC 15% holdings in B-rated
Not Rated 8% bonds.
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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.
A range of maturities is
Less than 1 year 9% represented within the
1 through 5 years 18% fund's portfolio.
5 through 8 years 35%
8 years or greater 38%
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100%
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Weighted Average Effective
Maturity: 6.64 years
For more complete details about the Fund's investment portfolio, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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January 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, Kelly D. Babson.
Q: How has Scudder High Yield Bond performed over its most recent fiscal year?
A: For the 12-month period ended January 31, 2000, Scudder High Yield Bond Fund
posted a 1.04% total return. Over the same period the high yield market as
measured by the Merrill Lynch High Yield Master Index returned 0.06%. The fund's
total return was 35.02% since its June 28, 1996, inception, surpassing the
Index's 27.64% return over the same period. On January 31, the fund offered an
11.16% 30-day SEC yield.
Q: The high yield market endured difficult market conditions during the fund's
most recent fiscal year. Did conditions improve at the close of the period?
A: The fourth quarter of the fund's fiscal year showed some improvement. We had
what typically would be the January rally in November and early December.
Earlier on, in July, August, and September, investors were leaving the riskier
asset classes, concerned over Y2K and rising interest rates. Then, as interest
rate spreads of high yield bonds versus Treasuries widened enough to look
attractive by the end of October, we did see a fairly significant rally in high
yield issues, with some new money coming into the sector. That rally reversed
course, though, from the second week of December through the end of January.
Q: What has the market environment been for high yield bonds?
A: To provide some perspective, in 1998, high yield mutual funds took in about
$20 billion, down from the record set in 1997, but still a healthy number. Last
year, high yield mutual funds took in a little less than $1 billion, a very flat
year, and so far this year they've lost assets. Typically January is a very
strong month for high yield issues, as investors' risk tolerance generally
improves with
10
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the start of the new year. So, we're not seeing the normal seasonal trends right
now, and we believe most of that money is going to the equity market. Partly,
it's because some investors don't want to own bonds in a rising rate
environment, and partly it's that high yield as a sector has endured two years
of subcoupon total returns.
Q: In light of continued favorable economic conditions in the U.S., do you find
the high yield market's recent performance surprising?
A: Imagine that you could flip the calendar back to 1998 and successfully
predict that the economy would continue to grow at a rate of 4% or better,
inflation would remain contained at the 2 to 2 1/2% level, global growth would
accelerate, and equity markets would continue to soar. How would high yield
perform? No one would have predicted what actually happened -- that the high
yield market would experience a significant increase in default rates
approaching early 1990s levels, and subcoupon returns.
Q: Why has high yield underperformed as a sector?
A: With the increase in wealth fueled by the stock market and rising home
prices, a typical individual's balance sheet looks very healthy today. But it's
a paper balance sheet. Individuals and companies have been emboldened to borrow
more, to leverage themselves to a greater degree. The equity market has allowed
individuals and companies to access capital more cheaply and more easily. And
the stock market seemed to go nowhere but up through the end of January. But
that positive sentiment was actually at the margins. It's concentrated in high
growth areas -- in the Internet, in telecomm, and in media companies. It's not
in smokestack America, in basic industrials. Until this year, the Russell 2000
has been limping along. Small cap and value stocks, which have been the bread
and butter of the high yield market, are doing comparatively poorly. These basic
industrial companies are being squeezed by cheap imports and by their inability
to pass through significant
11
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price increases on raw materials to their end customer because of the low
inflation environment overall.
Basic industrials are also having difficulty finding labor at affordable rates,
and they're facing tightened bank lending standards. The equity market is
fueling growth, but value stories are not finding an audience in the equity
market right now. That's why you're seeing a spike up in personal bankruptcies
and an increase in the number of companies that violate cash flow or net worth
covenants in their revolving credit arrangements with banks. Three or four years
ago banks just rolled over this debt, or the company could raise money in the
high yield market. With liquidity more stressed in the high yield market, and
with banks tightening, there's a credit squeeze. The equity advance has not been
very broad and valuations on corporations outside the media, Internet, and
telecomm sectors have been shrinking in many cases. So the move to a new economy
has caught a lot of what were traditionally high yield borrowers and left them
behind, at least temporarily.
Q: How have these changing conditions affected the market?
A: In 1999, we witnessed a growing dispersion in yields within the high yield
sector, and more differentiation by credit quality within high yield bonds. In
1997, spreads between high yield companies of varying degrees of quality were
very tight. Over the last two years (and accelerating quite dramatically in
1999) there has been a "blowout" in dispersion of yields, where the lower
quality and the more challenged borrowers are trading at much wider yield
spreads than before. Better quality companies continue to trade fairly tight to
Treasuries. Investors are being much more risk averse, in light of the spike in
default rates and the reduced recovery values that we're seeing in the market.
12
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Q: Given yield dispersion and a higher default rate within the overall market,
what was the fund's portfolio strategy over the period?
A: Throughout the fund's fiscal year we maintained a relatively defensive
portfolio strategy. Though we do monitor sector allocations within the
portfolio, we generally followed a bottom-up strategy during the period. We
sought to head off potential problems by being well ahead of negative
developments within credits that the fund owns. We maintained a core of BB-rated
securities -- at the high end of our universe's quality spectrum -- despite the
fact that in a rising interest rate environment we would expect BB-rated bonds
to underperform lower-rated credits on a total-return basis. BB-rated and
B-rated bonds within the portfolio posted fairly good performance during the
period as the credit profiles of many of these companies moved toward investment
grade. We also continued to have meaningful CCC exposure in the portfolio, 15%
as of the period's close, concentrated in telecomm and Internet-related
companies. On the subject of credit quality, it's worth noting that Scudder High
Yield Bond Fund has never experienced any bond defaults.
Q: Were there any changes to sector allocations within the portfolio?
A: Sectors were fairly consistent throughout the period. The fund's largest
overweights continued to be in telecommunications and media. That's because the
growth prospects and the potential for credit upgrades within these two sectors
are very promising. As the bulk of the new issuance has been concentrated in
media and telecommunications, to keep up with the market we've had to continue
to increase our allocations in those sectors. In addition, we increased our
weighting in energy, paper, and forest products at the beginning of the year,
which was generally positive from a sector perspective as well as from an
individual security perspective. Areas that we underweighted included health
care, supermarkets,
13
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technology, and retail. These underweights, particularly in health care, helped
fund performance.
Q: What is your outlook for the high yield market over the coming months?
A: I'm optimistic about the market near term. The higher default rate that the
high yield market has experienced is discounted in spreads right now. We believe
that most of the more speculative issuance that recently experienced credit
problems has seen the worst. Because liquidity conditions have become more
challenging, investors are more discriminating about what they'll buy. There's
also more selectivity and discipline in the high yield offerings that are being
brought to market, which bodes well for market fundamentals and technicals going
forward. It will take some time for these positive developments to translate
into meaningful spread tightening and increased total return for high yield
investors. But given the fact that yields are fairly high, we believe that the
income potential from a high yield portfolio is very attractive going forward.
We believe that Scudder High Yield Bond Fund remains an attractive vehicle for
investors seeking high current income as well as capital appreciation potential.
14
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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, each of whom plays 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
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Lead portfolio manager Kelly D. Babson is a portfolio manager in the Adviser's
Global Bond Group, with over 18 years of experience in fixed-income investing
including ten years of high yield portfolio management prior to joining the
Adviser.
15
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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 $1,000 of the face amount each
year.
Default Occurs when the issuer of a bond fails to make timely
payment of principal and/or interest. In the event of
default, bondholders may make claims against the assets of
the issuing corporation. Default rate refers to the annual
percentage of bonds in a fund that stop making principal
and/or interest payments.
High A bond that has a rating of BB or less and pays
Yield Bond a high yield to compensate for its greater credit risk.
Sector A similar group of bonds or stocks, usually found in one
industry. Some examples of sectors that could be found in
a high yield bond fund or a stock fund at any given time
include airlines, financial services companies, and
telecommunications providers.
30-Day SEC Yield The standard yield reference for bond funds,
based on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
Total Return The most common yardstick to measure the
performance of a fund. Total return -- annualized or
compound -- is based on a combination of share price
changes plus income and capital gain distributions, if
any, expressed as a percentage gain or loss in value.
Yield Spread The difference in yield between various types of
bonds. A high yield bond's yield is generally compared to
the yield of a Treasury bond of similar maturity as a
valuation yardstick. If yield spreads are "narrow," for
example, it generally means that high yield bond yields
have been declining, and prices rising.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
16
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Investment Portfolio as of January 31, 2000
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Principal
Amount (b) Value ($)
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Repurchase Agreements 3.3%
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State Street Bank and Trust Company 5.68%, to be
repurchased at $4,979,786 on 2/1/2000 -----------
(Cost $4,979,000)** ................................ 4,979,000 4,979,000
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Foreign Bonds -- Non U.S.$ Denominated 0.7%
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Dolphin Telecom PLC, Step-up Coupon 0% to 6/1/2003, -----------
11.625% to 6/1/2008 (Cost $1,904,344) ......... EUR 2,500,000 1,127,916
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Corporate Bonds 89.4%
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Consumer Discretionary 10.4%
Avis Rent A Car, 11%, 5/1/2009 ........................ 1,750,000 1,811,250
Boca Resorts, Inc., 9.875%, 4/15/2009 ................. 1,200,000 1,122,000
Cinemark USA, Inc., Series D, 9.625%, 8/1/2008 ........ 1,000,000 850,000
Circus Circus Enterprises, Inc., 9.25%, 12/1/2005 ..... 1,000,000 987,500
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 1,323,000
Hollywood Entertainment Corp., 10.63%, 8/15/2004 ...... 1,000,000 895,000
Horseshoe Gaming Holdings, 8.625%, 5/15/2009 .......... 1,000,000 930,000
International Game Technology, 8.375%, 5/15/2009 ...... 1,000,000 930,000
Mohegan Tribal Gaming Authority, 8.125%, 1/1/2006 ..... 2,000,000 1,880,000
National Vision Association, Ltd., 12.75%, 10/15/2005 . 1,830,000 686,250
Premier Parks Inc., 9.75%, 1/15/2007 .................. 1,500,000 1,500,000
Regal Cinemas, Inc., 9.5%, 6/1/2008 ................... 1,000,000 680,000
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15,620,000
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Consumer Staples 3.0%
Aurora Foods, Inc., Series D, 9.875%, 2/15/2007 ....... 1,125,000 1,102,500
Dyersburg Corp., Series B, 9.75%, 9/1/2007 ............ 1,500,000 675,000
Fleming Companies, Inc., 10.625%, 7/31/2007 ........... 1,400,000 1,260,000
Jafra Cosmetics International, Inc., 11.75%, 5/1/2008 . 1,500,000 1,425,000
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4,462,500
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Health 0.7%
Dade International, Inc., 11.125%, 5/1/2006 ........... 1,000,000 975,000
MEDIQ, Inc., 11%, 6/1/2008 ............................ 860,000 129,000
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1,104,000
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Communications 26.4%
21st Century Telecom Group, Inc., Step-up Coupon, 0% to
2/15/2003, 12.25% to 2/15/2008 ..................... 4,975,000 3,407,875
The accompanying notes are an integral part of the financial statements.
17
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<TABLE>
<CAPTION>
Principal
Amount (b) Value ($)
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<S> <C> <C>
Allegiance Telecom, Inc., Step-up Coupon, 0% to
2/15/2003, 11.75% to 2/15/2008 ..................... 3,500,000 2,520,000
American Cellular Corp., 10.5%, 5/15/2008 ............. 1,000,000 1,132,500
Call-Net Enterprises, Inc., Step-up Coupon, 0% to
5/15/2004, 10.8% to 5/15/2009 ...................... 1,500,000 735,000
Filtronic PLC, 10%, 12/1/2005 ......................... 1,500,000 1,406,250
GST USA Inc., Step-up Coupon, 0% to 12/1/2000, 13.875%
to 12/15/2005 ...................................... 2,500,000 1,950,000
Global Crossing, Ltd., 9.625%, 5/15/2008 .............. 850,000 824,500
Impsat Corp., 12.375%, 6/15/2008 ...................... 1,250,000 1,162,500
Level 3 Communications, Inc., 9.125%, 5/1/2008 ........ 1,000,000 920,000
Long Distance Direct Holdings, Inc., 12.25%, 4/15/2008 1,000,000 530,000
McLeod USA, Inc., 9.25%, 7/15/2007 .................... 2,000,000 1,930,000
McLeod USA, Inc., 9.5%, 11/1/2008 ..................... 1,000,000 980,000
MetroNet Communications Corp., Step-up Coupon, 0% to
6/15/2003, 9.95% to 6/15/2008 ...................... 2,150,000 1,687,750
Metromedia Fiber Network, Inc., 10%, 11/15/2008 ....... 1,000,000 997,500
Nextlink Communications, Inc., Step-up Coupon, 0% to
4/15/2003, 9.45% to 4/15/2008 ...................... 3,600,000 2,250,000
Orbital Imaging Corp., Series B, 11.625% to 3/1/2005 .. 700,000 472,500
PSINet Inc., 10% to 2/15/2005 ......................... 1,000,000 985,000
Primus Telecommunications Group, 11.25% to 1/15/2009 .. 1,250,000 1,187,500
Primus Telecommunications Inc., 12.75% to 10/15/2009 .. 750,000 753,750
Rogers Cantel, 9.75%, 6/1/2016 ........................ 1,000,000 1,087,500
SBA Communications Corp., Step-up Coupon, 0% to
3/1/2003, 12% to 3/1/2008 .......................... 1,850,000 1,258,000
Sprint Spectrum L.P., Senior Note, 11%, to 8/15/2006 .. 1,000,000 1,097,740
Star Choice Communications Inc., 13% to12/15/2005 ..... 1,000,000 1,015,000
Telecorp PCS, Inc., Step-up Coupon, 0% to 4/15/2004,
11.625% to 4/15/2009 ............................... 2,750,000 1,739,375
Teligent, Inc., 11.5%, 12/1/2007 ...................... 2,000,000 1,920,000
Triton Communications LLC, Step-up Coupon, 0% to
5/1/2003, 11% to 5/1/2008, ......................... 1,700,000 1,207,000
United Pan-Europe Communication, 11.25% to 11/1/2009 .. 1,135,000 1,117,975
Versatel Telecom, 11.875%, 7/15/2009 .................. 1,000,000 1,015,000
Viatel, Inc., Step-up Coupon, 0% to 4/15/2003, 12.5% to
4/15/2008 .......................................... 1,500,000 877,500
Voicestream Wireless Corp., 10.375%, 11/15/2009 ....... 1,290,000 1,322,250
WorldCom, Inc., 8.875%, 1/15/2006 ..................... 368,000 384,847
------------
39,874,812
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Financial 3.8%
Bank United Capital Trust, Series B, 10.25%, 12/31/2026 1,000,000 889,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
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Principal
Amount (b) Value ($)
- --------------------------------------------------------------------------------
CSBI Capital Trust I, 11.75%, 6/6/2027 ............... 957,000 1,023,990
Kappa Beheer BV, 10.625%, 7/15/2009 .................. 1,000,000 1,030,000
Spectrasite Holdings, Inc., Step-up Coupon, 0% to
4/15/2004, 11.25% to 4/15/2009 .................... 4,750,000 2,731,250
-----------
5,674,340
-----------
Media 14.7%
AMFM Operating, Inc., 12.625%, 10/31/2006 ............ 1,859,000 2,086,728
AMFM Inc., 10.5%, 1/15/2007 .......................... 1,650,000 1,786,125
Adelphia Communications Corp., 10.5%, 7/15/2004 ...... 1,500,000 1,518,750
American Lawyer Media, Inc., 9.75%, 12/15/2007 ....... 1,000,000 950,000
Comcast UK Cable Partners, Ltd., Step-up Coupon, 0% to
11/15/2000, 11.2% to 11/15/2007 ................... 1,500,000 1,417,500
Echostar DBS Corp., 9.375%, 2/1/2009 ................. 1,750,000 1,715,000
Falcon Holding Group, Step-up Coupon, 0% to 4/15/2003,
9.285% to 4/15/2010 ............................... 2,400,000 1,782,000
Falcon Holding Group, 8.375%, 4/15/2010 .............. 1,000,000 1,010,000
NTL, Inc., 11.5%, 10/1/2008 .......................... 3,500,000 3,745,000
Outdoor Systems, Inc., 8.875%, 6/15/2007 ............. 2,750,000 2,808,438
Sinclair Broadcast Group, Inc., 10%, 9/30/2005 ....... 1,500,000 1,443,750
TeleWest Communications, PLC, Step-up Coupon, 0% to
4/15/2004, 9.25% to 4/15/2009 ..................... 1,600,000 960,000
TeleWest Communications, PLC, Step-up Coupon, 0% to
10/1/2000, 11% to 10/1/2007 ....................... 1,000,000 940,000
-----------
22,163,291
-----------
Service Industries 5.4%
Coinmach Laundry Corp., 11.75%, 11/15/2005 ........... 2,000,000 2,065,000
ImPac Group, Inc., 10.125%, 3/15/2008 ................ 750,000 645,000
National Equipment Services, 10%, 11/30/2004 ......... 1,500,000 1,425,000
Pierce Leahy Corp., 11.125%, 7/15/2006 ............... 650,000 692,250
Verio, Inc., 10.625%, 11/15/2009 ..................... 1,150,000 1,184,500
Verio, Inc., 11.25%, 12/1/2008 ....................... 2,000,000 2,100,000
-----------
8,111,750
-----------
Durables 3.0%
Airxcel, 11%, 11/15/2007 ............................. 1,750,000 1,540,000
DeCrane Aircraft Holdings, Inc., 12%, 9/30/2008 ...... 1,000,000 910,000
Fairchild Corp., 10.75%, 4/15/2009 ................... 460,000 381,800
Transdigm, Inc., 10.375%, 12/1/2008 .................. 2,000,000 1,740,000
-----------
4,571,800
-----------
Manufacturing 10.1%
AEP Industries, Inc., 9.875%, 11/15/2007 ............. 1,100,000 946,000
American Standard Companies, Inc., 9.25%, 12/1/2016 .. 1,100,000 1,078,000
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount (b) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Ball Corp., 8.25%, 8/1/2008 ............................ 1,000,000 950,000
Congoleum Corp., 8.625%, 8/1/2008 ...................... 500,000 435,000
Consolidated Container Capital, Inc., 10.125%, 7/15/2009 700,000 700,000
Day International Group, Inc., 9.5%, 3/15/2008 ......... 1,000,000 825,000
Eagle-Picher Holdings, Series B, Step-Up-Coupon
0% to 3/1/2008, 11.75% to 3/1/2008 .................. 1,910,000 706,700
GS Technologies, 12%, 9/1/2004 ......................... 1,000,000 530,000
Grove Holdings LLC, Step-up Coupon, 0% to 5/1/2003,
11.625% to 5/1/2009 ................................. 1,000,000 100,000
Huntsman Package, 11.75%, 12/1/2004 .................... 1,058,000 1,108,255
ISP Holdings Inc., 9%, 10/15/2003 ...................... 500,000 496,250
ISP Holdings Inc., 9.75%, 2/15/2002 .................... 250,000 250,000
Radnor Holdings Corp., 10%, 12/1/2003 .................. 2,250,000 2,160,000
Riverwood International Corp., 10.875%, 4/1/2008 ....... 2,000,000 1,925,000
Tenneco Automotive Inc., 11.625%, 10/15/2009 ........... 2,000,000 2,040,000
Terex Corp., 8.875%, 4/1/2008 .......................... 1,000,000 910,000
-----------
15,160,205
-----------
Technology 1.0%
Exodus Communications, Inc., 10.75%, 12/15/2009 ........ 900,000 915,750
PSINet, Inc., 11%, 8/1/2009 ............................ 530,000 545,900
-----------
1,461,650
-----------
Energy 2.9%
Abraxas Petroleum Corp., 11.5%, 11/1/2004 .............. 700,000 615,300
Cliffs Drilling Co., Series D, 10.25%, 5/15/2003 ....... 1,000,000 1,000,000
EOTT Energy Partners, 11%, 11/1/2009 ................... 1,750,000 1,785,000
Swift Energy Co., 10.25%, 8/1/2009 ..................... 1,000,000 985,000
-----------
4,385,300
-----------
Metals & Minerals 5.0%
MMI Products, Inc., 11.25%, 4/15/2007 .................. 1,250,000 1,281,250
Metals USA, Inc., 8.625%, 2/15/2008 .................... 1,000,000 927,500
Pen Holdings, Inc., 9.875%, 6/15/2008 .................. 1,000,000 930,000
Renco Metals Inc., Senior Note, 11.5%, 7/1/2003 ........ 1,000,000 680,000
Renco Steel Holdings Co., Series B, 10.875%, 2/1/2005 .. 1,000,000 900,000
Republic Tech International, 13.75%, 7/15/2009 ......... 2,000,000 980,000
Wells Aluminum Corp., 10.125%, 6/1/2005 ................ 1,750,000 1,837,500
-----------
7,536,250
-----------
Construction 2.4%
Hovnanian Enterprises, Inc., 9.125%, 5/1/2009 .......... 975,000 872,625
Millar Western Forest Products, 9.875%, 5/15/2008 ...... 875,000 864,063
Nortek, Inc., 9.25%, 3/15/2007 ......................... 1,000,000 952,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount (b) Value ($)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Nortek, Inc., 9.875%, 3/1/2004 ......................... 1,000,000 970,000
----------
3,659,188
----------
Transportation 0.6%
US Air, Inc., 10.375%, 3/1/2013 ........................ 1,000,000 920,000
----------
- -----------------------------------------------------------------------------------
Total Corporate Bonds (Cost $146,353,432) 134,705,086
- -----------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Preferred Stocks 6.3%
- -----------------------------------------------------------------------------------
Communications 2.8%
Crown Castle International Corp., 12.75%, 12/15/2010 (c) 1,699 1,762,510
Dobson Communications Corp., 12.25%, 1/15/2008 (c) ..... 2,258 2,303,160
Viatel, Inc., Series A (conv.), 10%, 4/15/2010 (c) ..... 6,138 226,721
-----------
4,292,391
-----------
Financial 0.6%
Walden Residential Properties, Inc., 9.2%, 1/1/2008 .... 40,000 865,000
-----------
Media 2.6%
Adelphia Communications Corp., Series B, 13%,
7/15/2009 ........................................... 10,000 1,070,000
CSC Holdings Inc., 11.125%, 4/1/2008 (c) ............... 25,604 2,784,435
-----------
3,854,435
-----------
Manufacturing 0.3%
Day International Group, Inc., 12.25%, 3/15/2010 (c) ... 616 474,105
-----------
- -----------------------------------------------------------------------------------
Total Preferred Stocks (Cost $9,336,896) 9,485,931
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Warrants 0.2%
- -----------------------------------------------------------------------------------
Globalstar LP, Warrants (expire 2/15/2004)* ............ 1,000 125,000
Long Distance Direct Holdings, Inc. (expire 4/13/2008)* 1,000 2,000
Ono Finance PLC (expire 5/31/2009)* .................... 1,000 145,000
Orbital Imaging (expire 3/1/2005)* ..................... 700 14,000
Star Choice Communications, Inc. (expire 2/15/2005)* ... 23,160 57,900
Walden Residential Properties, Inc., (expire 1/1/2002)* 40,000 200
- -----------------------------------------------------------------------------------
Total Warrants (Cost $0) 344,100
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ----------------------------------------------------------------------------------
Common Stocks 0.1%
- ----------------------------------------------------------------------------------
<S> <C> <C>
Abraxas Petroleum Corp. .................................. 59,618 80,112
Abraxas Petroleum Corp., (Rights)* ....................... 59,618 71
- ----------------------------------------------------------------------------------
Total Common Stocks (Cost $107,930) 80,183
- ----------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $162,681,602) (a) 150,722,216
- ----------------------------------------------------------------------------------
</TABLE>
* 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 $162,681,602. At January
31, 2000, net unrealized depreciation for all investment securities
based on tax cost was $11,959,386. This consisted of aggregate gross
unrealized appreciation for all investments in which there was an
excess of value over tax cost of $2,279,345 and aggregate gross
unrealized depreciation for all investment securities in which there
was an excess of tax cost over value of $14,238,731.
(b) Principal amounts are stated in U.S. dollars unless otherwise noted.
(c) Payment-in-kind security (PIK). In lieu of cash, PIK securities pay
interest/dividends in the form of additional securities.
Currency Abbreviations
------------------------------------------------------------------------
EUR Euro
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities as of January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $162,681,602) ................ $ 150,722,216
Cash ................................................................... 918
Receivable for investments sold ........................................ 2,819,759
Receivable for Fund shares sold ........................................ 191,988
Interest receivable .................................................... 2,878,464
Unrealized appreciation on forward currency exchange contracts ......... 49,495
Deferred organization expenses ......................................... 5,420
Other assets ........................................................... 779
---------------
Total assets ........................................................... 156,669,039
Liabilities
- ----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 2,000,000
Dividends payable ...................................................... 482,601
Payable for Fund shares redeemed ....................................... 469,488
Accrued management fee ................................................. 141,724
Other accrued expenses and payables .................................... 292,780
---------------
Total liabilities ...................................................... 3,386,593
- ----------------------------------------------------------------------------------------
Net assets, at value $ 153,282,446
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 362,550
Net unrealized appreciation (depreciation) on:
Investments .......................................................... (11,959,386)
Foreign currency related transactions ................................ 49,495
Accumulated net realized gain (loss) ................................... (9,842,687)
Paid-in capital ........................................................ 174,672,474
- ----------------------------------------------------------------------------------------
Net assets, at value $ 153,282,446
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($153,282,446 /
13,488,128 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 11.36
-------------
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended January 31, 2000
- --------------------------------------------------------------------------------
Investment Income
- -------------------------------------------------------------------------------
Interest ....................................................... $ 18,268,076
Dividends ...................................................... 1,412,895
---------------
Total Income ................................................... 19,680,971
---------------
Expenses:
Management fee ................................................. 1,322,621
Services to shareholders ....................................... 496,646
Custodian and accounting fees .................................. 77,762
Auditing ....................................................... 42,569
Legal .......................................................... 14,973
Trustees' fees and expenses .................................... 39,823
Reports to shareholders ........................................ 32,655
Registration fees .............................................. 34,842
Amortization of organization expenses .......................... 3,875
Other .......................................................... 1,035
---------------
Total expenses, before expense reductions ...................... 2,066,801
Expense reductions ............................................. (651,074)
---------------
Total expenses, after expense reductions ....................... 1,415,727
- -------------------------------------------------------------------------------
Net investment income 18,265,244
- -------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (8,196,554)
Foreign currency related transactions .......................... 253,248
---------------
(7,943,306)
---------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (8,401,648)
Foreign currency related transactions .......................... 17,625
---------------
(8,384,023)
- -------------------------------------------------------------------------------
Net gain (loss) on investment transactions (16,327,329)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,937,915
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eleven Months Year Ended
Year Ended Ended January February 28,
Increase (Decrease) in Net Assets January 31, 2000 31, 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ........... $ 18,265,244 $ 16,872,138 $ 11,491,089
Net realized gain (loss) on
investment transactions ...... (7,943,306) (1,748,908) 2,680,787
Net unrealized appreciation
(depreciation) on investment
transactions during the period (8,384,023) (9,372,538) 3,474,590
---------------- ---------------- ---------------
Net increase (decrease) in net
assets resulting from
operations ................... 1,937,915 5,750,692 17,646,466
---------------- ---------------- ---------------
Distributions to shareholders:
From net investment income ...... (18,189,409) (16,930,159) (11,198,598)
From net realized gains ......... -- (1,392,936) (1,527,954)
---------------- ---------------- ---------------
Fund share transactions:
Proceeds from shares sold ....... 63,141,446 110,837,491 125,593,145
Reinvestment of distributions ... 12,219,898 12,998,607 9,336,191
Cost of shares redeemed ......... (115,045,189) (78,633,998) (37,271,126)
Redemption fees ................. 167,283 199,568 120,019
---------------- ---------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. (39,516,562) 45,401,668 97,778,229
---------------- ---------------- ---------------
Increase (decrease) in net assets (55,768,056) 32,829,265 102,698,143
Net assets at beginning of period 209,050,502 176,221,237 73,523,094
Net assets at end of period
(including undistributed net
investment income of $362,550,
$39,336, and $320,732, ---------------- ---------------- ---------------
respectively) ................ $ 153,282,446 $ 209,050,502 $ 176,221,237
---------------- ---------------- ---------------
Other Information
- -----------------------------------------------------------------------------------
Shares outstanding at beginning
of period .................... 16,863,913 13,323,225 5,759,335
---------------- ---------------- ---------------
Shares sold ..................... 5,264,791 8,799,750 9,745,318
Shares issued to shareholders in
reinvestment of distributions 1,029,914 1,032,136 721,489
Shares redeemed ................. (9,670,490) (6,291,198) (2,902,917)
---------------- ---------------- ---------------
Net increase (decrease) in Fund
shares ....................... (3,375,785) 3,540,688 7,563,890
Shares outstanding at end of ---------------- ---------------- ---------------
period ....................... 13,488,128 16,863,913 13,323,225
---------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
2000(b) 1999(c) 1998(d) 1997(e)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.40 $13.23 $12.77 $12.00
--------------------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (a) 1.16 1.08 1.19 .76
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (1.06) (.73) .57 .77
--------------------------------------
- ------------------------------------------------------------------------------------
Total from investment operations .10 .35 1.76 1.53
- ------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------
Net investment income (1.15) (1.10) (1.17) (.76)
- ------------------------------------------------------------------------------------
Net realized gains on investment
transactions -- (.09) (.14) (.01)
--------------------------------------
- ------------------------------------------------------------------------------------
Total distributions (1.15) (1.19) (1.31) (.77)
- ------------------------------------------------------------------------------------
Redemption fees .01 .01 .01 .01
- ------------------------------------------------------------------------------------
Net asset value, end of period $11.36 $12.40 $13.23 $12.77
--------------------------------------
- ------------------------------------------------------------------------------------
Total Return (%) (f) 1.04 2.98**(g) 14.60 13.23**(g)
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 153 209 176 74
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.09 1.17* 1.23 1.75*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .75 .44* .03 0.00*
- ------------------------------------------------------------------------------------
Ratio of net investment income (%) 9.68 9.42* 9.28 9.44*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 83** 113 40*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the year ended January 31, 2000.
(c) 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.
(d) For the year ended February 28, 1998.
(e) For the period June 28, 1996 (commencement of operations) to February
28, 1997.
(f) Total returns would have been lower had certain expenses not been
reduced.
(g) 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
26
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder High Yield Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company and is organized as a Massachusetts business trust.
On August 10, 1998, the Trustees of the Fund changed the fiscal year end from
February 28 to January 31.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. 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.
27
<PAGE>
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
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
28
<PAGE>
opportunity to profit from favorable exchange rate movements during the term of
the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
At January 31, 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 generally accepted accounting principles. As
a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. 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.
29
<PAGE>
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.
B. Purchases and Sales of Securities
During the year ended January 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $94,296,680 and
$138,953,854, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (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. For the
year ended January 31, 2000, the Adviser did not impose a portion of its fee
amounting to $635,231 and the amount imposed aggregated $687,390, which is
equivalent to an annual effective rate of 0.36% of the Fund's average daily net
assets.
30
<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 January 31, 2000, the amount charged to the Fund by SSC amounted to
$240,420, of which $238,359 was unpaid at January 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 year ended January 31,
2000, the amount charged to the Fund by STC amounted to $30,195, of which $9,501
was unpaid at January 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 year ended
January 31, 2000, the amount charged to the Fund by SFAC amounted to $58,203, of
which $4,462 was unpaid at January 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 year ended January 31, 2000, the
Special Servicing Agreement expense charged to the Fund amounted to $77,870.
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 January 31, 2000,
the Trustees' fees and expenses aggregated $39,823.
31
<PAGE>
D. Commitments
As of January 31, 2000, the Fund had entered into the following forward foreign
currency exchange contracts resulting in a net unrealized appreciation of
$49,495.
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
- --------------------------------------------------------------------------------
EUR 1,419,575 U.S. Dollars 1,429,342 2/28/2000 49,495
--------------
E. Expense Off-Set Arrangments
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 year ended January 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $10,938 and $4,905,
respectively, under these arrangements.
F. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based on 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.
32
<PAGE>
Report of Independent Accountants
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To the Trustees of Scudder Portfolio Trust and the Shareholders of Scudder High
Yield Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder High Yield Bond Fund (the
"Fund") at January 31, 2000, the results of its operations, the changes in its
net assets and the financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
March 17, 2000
33
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong* Jean C. Tempel
o President and Trustee o Trustee; Venture Partner,
Internet Capital Group
Henry P. Becton, Jr.
o Trustee; President and General Kelly D. Babson*
Manager, WGBH Educational o Vice President
Foundation
Robert S. Cessine*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, Ann M. McCreary*
Center for Business Ethics, Bentley o Vice President
College
Gary A. Langbaum*
Peter B. Freeman o Vice President
o Trustee; Corporate Director and
Trustee Robert C. Peck*
o Vice President
George M. Lovejoy, Jr.
o Trustee; President and Director, John Millette*
Fifty Associates o Vice President and Secretary
Wesley W. Marple, Jr. John R. Hebble*
o Trustee; Professor of Business o Treasurer
Administration, Northeastern
University, College of Business Caroline Pearson*
Administration o Assistant Secretary
Kathryn L. Quirk* *Scudder Kemper Investments, Inc.
o Trustee; Vice President and
Assistant Secretary
34
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
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>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
36
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.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 your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
37
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal 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 Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
38
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
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
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.
