This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Income
Fund
Semiannual Report
June 30, 1995
o Offers opportunities for a high level of income consistent with the
prudent investment of capital.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER INCOME FUND
--------------------------------------------------------------------------------
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
13 Financial Statements
16 Financial Highlights
17 Notes to Financial Statements
22 Investment Products
and Services
23 How to Contact
Scudder
IN BRIEF
* Bonds rallied sharply in the first half of 1995, as the threat of
inflationary economic growth dissipated. Scudder Income Fund returned
10.79% for the period, more than making up for its -4.43% return in
1994.
* During the period, Scudder Income Fund shifted its focus toward
intermediate-maturity bonds, which have led the rally in the past eight
months.
* In view of the dramatic bond market rally, the Fund benefited from a
longer-than-average duration of 5.35 years as of June 30. The longer
duration allowed the Fund to participate more fully in price
appreciation while capturing higher relative yields as interest rates
dropped.
* The Fund's 30-day net annualized yield as of June 30 stood at 7.30%,
compared with 7.15% at year-end.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
--------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report a 10.79% total return for Scudder Income Fund
in the first six months of the year, especially since it has come on the heels
of a disappointing -4.43% return in 1994 -- one of the worst years for bonds
since the 1920s. Many income investors were tempted to trade out of bonds for
cash in the wake of what seemed like continually falling prices and rising
yields. For those who rode out the price fluctuations and maintained a long-term
investment stance, your patience has been rewarded.
The value of holding on despite the difficult market conditions is
evident in the results of the past six months. The dramatic rally in bonds so
far this year reflects a much more positive interest rate environment than
existed last year. Indeed, the recent easing of interest rates by the Federal
Reserve, coming after a series of rate hikes, testifies to its confidence in the
current trend of slow economic growth and low inflation. While interest rates
have eased in many parts of the globe after rising overall last year, U.S.
investors have responded most enthusiastically to the trend change in the past
six months, as measured by the stronger relative performance of 10-year U.S.
bonds compared with the 10-year bonds of the G-7 nations Canada, France,
Germany, Italy, Japan, and the United Kingdom.
The change in rates over the past eight months and the resultant bond
market rally are reminders of the often short-term nature of dramatic market
fluctuations. While our outlook is for lower rates over the next several months
-- and therefore positive bond market conditions -- over the longer term, we do
expect pockets of market volatility.
If you have questions about your Fund or your investments, please
contact a Scudder Investor Relations representative at 1-800-225-2470. Page 23
provides more information on how to contact Scudder. Thank you for choosing
Scudder Income Fund to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Income Fund
3
<PAGE>
Scudder Income Fund
Performance Update as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Scudder Income Fund
----------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $11,221 12.21% 12.21%
5 Year $15,764 57.64% 9.53%
10 Year $24,982 149.82% 9.59%
LB Aggregate Bond Index
--------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $11,255 12.55% 12.55%
5 Year $15,676 56.76% 9.40%
10 Year $25,961 159.61% 10.00%
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:
Yearly periods ended June 30
Scudder Income Fund
Year Amount
----------------------
85 10000
86 11744
87 12404
88 13171
89 14827
90 15848
91 17483
92 20006
93 22674
94 22264
95 24982
LB Aggregate Bond Index
Year Amount
----------------------
84 10000
85 12001
86 12664
87 13683
88 15355
89 16561
90 18333
91 20907
92 23371
93 23067
94 25961
The Lehman Brothers (LB) Aggregate Bond Index is a market
value-weighted measure of treasury issues, agency issues,
corporate bond issues and mortgage securities. Index returns
assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.
-------------------------------------------------------------------
Returns and Per Share Information
-------------------------------------------------------------------
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 periods ended June 30
----------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
Net Asset Value... $13.19 $12.77 $12.71 $13.13 $12.95 $13.14 $13.79 $14.27 $12.73 $13.43
Income Dividends.. $ 1.28 $ 1.15 $ .82 $ 1.08 $ 1.04 $ 1.02 $ .91 $ .91 $ .84 $ .78
Capital Gains
and Paid-In Capital
Distributions..... -- -- -- -- -- $ .06 $ .27 $ .35 $ .51 $ --
Fund Total
Return (%)........ 17.44 5.62 6.18 12.32 7.13 10.32 14.43 13.33 -1.81 12.21
Index Total
Return (%)........ 20.02 5.55 8.04 12.21 7.84 10.69 14.05 11.79 -1.31 12.55
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
4
<PAGE>
Portfolio Summary as of June 30, 1995
---------------------------------------------------------------------------
Diversification
---------------------------------------------------------------------------
U.S. Gov't & Agencies 36%
Corporate Bonds 28%
U.S. Gov't Agency
Pass-Thrus 11% In the light of declining interest rates,
Foreign Bonds - U.S. we decreased our holdings of mortgage-
$ Denominated 7% backed securities in the second quarter,
Foreign Bonds - Non after increasing them earlier in the year.
U.S. $ Denominated 6%
Asset-Backed Securities 5%
Collateralized Mortgage
Obligations 5%
Cash Equivalents 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
Quality
--------------------------------------------------------------------------
AAA * 63%
AA 11% In a portfolio concentrated in high-
A 9% quality bonds, almost 75% were rated
BBB 17% AA or better at the close of the period.
----
100%
====
Weighted Average Quality: AA
* Category includes cash equivalents
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 9%
1 < 5 years 34% The Fund is shifting its concentration
5 < 8 years 17% to intermediate-maturity bonds due to
8 < 15 years 13% their attractive valuations in the current
Greater than 15 years 27% interest-rate environment.
----
100%
====
Weighted average effective maturity: 10.4 years
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 9.
A monthly Investment Portfolio Summary is available upon request.
5
<PAGE>
SCUDDER INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
--------------------------------------------------------------------------------
Dear Shareholders,
Scudder Income Fund's impressive total return of 10.79% for the six
months ended June 30, 1995, underscores the strength of the overall bond market
rally in recent months. After months of price declines amid repeated interest
rate hikes, we believed that by November 1994 bonds were significantly
undervalued. When rates stabilized that month and then began to turn down in
response to evidence of slow economic growth and nominal inflation, bond yields
began to decline and prices to ascend. In 1995, as evidence mounted that
inflation was not an immediate concern, the trend toward higher bond prices
gathered momentum.
The unmanaged Lehman Brothers Aggregate Bond Index, a benchmark for the
Fund, provided an 11.44% total return for the semiannual period. The Fund's
performance, while strong, did not match that of the Index primarily because of
the portfolio's underweighting in intermediate-term bonds, the best-performing
group for the six-month period. Also, during times of rapidly rising (or
falling) prices, the Fund tends to provide more moderate performance than its
benchmark Index, due to the fact that managed bond portfolios need to maintain
some cash reserves at all times, whereas the Index remains fully invested.
Portfolio Review: A Shift Toward Intermediate-Maturity Holdings
In 1994, the Fund had focused on bonds at the shorter and longer ends
of the maturity spectrum, a strategy designed to provide an optimal mix of
competitive yields and limited price fluctuation in an environment of unstable
but generally rising interest rates. Scudder Income Fund's 1995 strategy has
been to shift toward intermediate bonds. Reallocating the portfolio to focus
more on intermediate-term issues is in keeping with our outlook for a steeper
yield curve (e.g., a situation in which short-term yields move down faster than
long-term yields) as the Federal Reserve moves to a more accommodative policy.
The Fed demonstrated this intent after the close of the semiannual period when
it lowered short-term interest rates in early July, after raising them seven
times in the prior 17 months.
In light of the dramatic bond market rally, the Fund benefited from
extending average duration to 5.35 years as of June 30 from 5.02 years on
December 31, 1994. Duration measures a bond's average weighted maturity by
giving relative weight to each interest payment remaining to maturity and has
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
--------------------------------------------------------------------------------
become the industry standard for calculating bond risk. Generally, the longer
the duration, the more sensitive a portfolio will be to changes in interest
rates. The Fund's positioning by the end of the period was 15% longer than the
Lehman Brothers Aggregate Bond Index, and allowed the Fund to participate more
fully in price appreciation while capturing higher relative yields as interest
rates dropped. (The Fund's 30-day net annualized yield as of June 30 stood at
7.30%, compared with 7.15% at year-end.) We also reduced our position in
mortgage-backed securities during the latter part of the period, which aided
overall portfolio performance. As of June 30, the portfolio held only 16% of
assets in mortgage-backed securities, versus roughly 30% in March.
Mortgage-backed securities tend to underperform other types of bonds during
periods of strong price appreciation because generally the risk of mortgage
prepayment increases as interest rates decline. In June, however, premium coupon
mortgage-backed securities outperformed U.S. Treasuries. We expect these bonds
to continue to perform well on the basis of their high relative yields --
especially if the overall bond market becomes more placid over the near term.
Overall corporate bond selection also helped results in the final three
months of the period, as many issues outperformed Treasuries. At 28% of the
portfolio on June 30, corporates include issues from some of the country's
leading consumer staples, durable goods manufacturing, financial, and
transportation companies.
Meanwhile, the portfolio's recent positions in German and French
government bonds reflect our belief that these issues represent attractive
relative values. The major European bond markets have underperformed U.S.
Treasuries to date this year, and we expect these positions, which total 5.6% of
the portfolio, to provide more price momentum than the U.S. market overall in
the year's second half.
Outlook
The economic statistics released during 1995's second quarter were
weaker than expected and second quarter GDP growth was essentially flat.
Measures of inflation were stable and were referenced by the Federal Reserve as
the primary reason it reduced the federal funds rate on July 6. Globally,
similar patterns of modest economic growth and subdued inflation should provide
7
<PAGE>
SCUDDER INCOME FUND
--------------------------------------------------------------------------------
a favorable environment for bond investors. This outlook is enhanced by our
expectation that growth should remain slow for the next year to 18 months at
least, and that monetary policy should therefore remain conducive to lower
rates. The fact that U.S. interest rates are still comfortably above the
inflation rate suggests they have room to fall.
Scudder Income Fund remains positioned for lower rates, with increased
exposure to intermediate-term issues and a somewhat longer average duration.
Also, we intend to take advantage of any opportunities to move back into
undervalued segments of the mortgage-backed market. Even so, after such
unusually strong bond market returns in the first half, we will be watching for
periods of price correction, which could result from profit-taking or a spate of
higher growth later this year.
In summary, we are not complacent about the strong bond market despite
the outlook for lower interest rates. We view the Portfolio's current
positioning as appropriate in today's environment. It emphasizes both
competitive yields and potential price appreciation, as well as high credit
quality (with the portfolio rated AA overall) and diversification across various
types of issues. Thank you for your continued interest in Scudder Income Fund.
Sincerely,
Your Portfolio Management Team
/s/William M. Hutchinson /s/Stephen A. Wohler
William M. Hutchinson Stephen A. Wohler
8
<PAGE>
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2.1% COMMERCIAL PAPER
-----------------------------------------------------------------------------------
10,924,000 Household Finance Corp., 6.123%, 7/3/95
(Cost $10,924,000)................................. 10,924,000
-----------
35.5% U.S. GOVERNMENT & AGENCIES
-----------------------------------------------------------------------------------
1,800,000 Resolution Trust Corp., Zero Coupon, 1/15/08........ 778,572
3,800,000 Resolution Trust Corp., Zero Coupon, 7/15/08........ 1,585,588
2,800,000 Resolution Trust Corp., Zero Coupon, 1/15/09........ 1,126,860
10,000,000 U.S. Treasury Bond, 7.25%, 5/15/16.................. 10,598,400
36,950,000 U.S. Treasury Bond, 7.875%, 2/15/21................. 42,019,171
25,000,000 U.S. Treasury Note, 5.5%, 7/31/97................... 24,832,000
34,000,000 U.S. Treasury Note, 5.5%, 9/30/97................... 33,739,560
13,000,000 U.S. Treasury Note, 6.875%, 7/31/99................. 13,406,250
10,000,000 U.S. Treasury Note, 7.5%, 11/15/01.................. 10,734,400
23,000,000 U.S. Treasury Note, 6.375%, 8/15/02................. 23,273,010
7,000,000 U.S. Treasury Note, 5.875%, 2/15/04................. 6,828,290
35,000,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 5/15/09 (6.691% (c))(d).... 14,043,400
-----------
TOTAL U.S. GOVERNMENT & AGENCIES
(Cost $178,423,045)................................ 182,965,501
-----------
11.5% U.S. GOVERNMENT AGENCY PASS-THRUS
-----------------------------------------------------------------------------------
34,416,527 Federal Home Loan Mortgage Corp.,
9.5%, with various maturities to 4/1/25............ 36,145,837
21,278,818 Government National Mortgage Association,
10%, 2/15/25....................................... 23,160,504
-----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $58,650,463)................................. 59,306,341
-----------
4.8% COLLATERALIZED MORTGAGE OBLIGATIONS
-----------------------------------------------------------------------------------
13,244,957 Federal Home Loan Mortgage Corp.,
Separate Trading Registered, Principal
only, 5/15/99 (4.51% (c)).......................... 11,233,379
13,554,608 Prudential Home Mortgage Securities Co.,
1993-4 Series A3, 7%, 3/25/23...................... 13,567,316
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $25,400,652)................................. 24,800,695
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
SCUDDER INCOME FUND
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.8% FOREIGN BONDS - U.S. $ DENOMINATED
-----------------------------------------------------------------------------------
2,000,000 British Columbia Hydro & Power, Series GG,
15%, 4/15/11..................................... 2,230,520
1,000,000 British Columbia Hydro & Power, Series FH,
15.5%, 7/15/11................................... 1,152,830
1,000,000 British Columbia Hydro & Power, Series FF,
15.5%, 11/15/11.................................. 1,179,620
7,500,000 KFW International Finance Inc. guaranteed
note, 9.5%, 12/15/00............................. 8,538,900
1,000,000 Province of Ontario debenture, 15.75%, 3/15/12.... 1,199,460
4,425,000 State Development Institute of Hungary,
10.5%, 8/31/00................................... 4,646,250
16,554,000 United Mexican States Tesobonos,
U.S. Dollar Linked, 8/17/95...................... 16,325,444
----------
TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
(Cost $33,980,552)............................... 35,273,024
----------
5.6% FOREIGN BONDS - NON U.S. $ DENOMINATED
-----------------------------------------------------------------------------------
DEM 20,000,000 Federal Republic of Germany, 6.5%, 7/15/03........ 14,013,089
FRF 73,000,000 Government of France, 7.5%, 4/25/05............... 14,907,725
----------
TOTAL FOREIGN BONDS - NON
U.S. $ DENOMINATED (Cost $28,980,356)............ 28,920,814
----------
5.3% ASSET-BACKED SECURITIES
-----------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 0.0% 126,799 Capital Automobile Receivable Asset Trust,
Series A-6, 4.9%, 2/15/98........................ 126,401
----------
CREDIT CARD RECEIVABLES 1.4% 7,000,000 Standard Credit Card Trust, Series 1991-1A,
8.5%, 8/7/97..................................... 7,144,340
----------
HOME EQUITY LOANS 0.4% 1,849,199 Fleet Financial Home Equity Trust,
6.7%, 10/15/06................................... 1,845,154
----------
MANUFACTURED HOUSING
RECEIVABLES 3.5% 8,071,000 Green Tree Financial Corp., 9.2%, 6/15/25......... 8,731,773
8,500,000 Merrill Lynch Mortgage Investors Inc., "B"
9.85%, 7/15/11................................... 9,233,125
----------
17,964,898
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $25,534,991)............................... 27,080,793
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
28.4% CORPORATE BONDS
-----------------------------------------------------------------------------------
CONSUMER STAPLES 7.2% 5,000,000 Borden Inc., 7.875%, 2/15/23...................... 4,789,100
15,000,000 Coca Cola Enterprises, Inc., 8.5%, 2/1/22 (d)..... 16,888,650
15,000,000 RJR Nabisco Inc., 8.625%, 12/1/02................. 15,408,600
-----------
37,086,350
-----------
COMMUNICATIONS 0.8% 4,000,000 Pacific Northwest Bell Telephone Co.
debenture, 7.5%, 12/1/96......................... 4,067,120
-----------
FINANCIAL 2.9% 15,000,000 HSBC Finanz Nederland B.V., 7.4%, 4/15/03......... 15,150,000
-----------
MEDIA 2.4% 12,000,000 Time Warner Inc., 9.125%, 1/15/13................. 12,471,480
-----------
DURABLES 7.8% 10,000,000 Boeing Co., 6.875%, 10/15/43...................... 9,260,500
12,000,000 Ford Motor Co., 8.875%, 1/15/22................... 13,804,440
5,000,000 Ford Motor Credit Co., 6.25%, 2/26/98............. 4,987,100
10,000,000 McDonnell Douglas Corp., 9.75%, 4/1/12............ 11,949,900
-----------
40,001,940
-----------
MANUFACTURING 2.0% 10,000,000 Nova Corp. of Alberta, 7.875%, 4/1/23............. 10,390,500
-----------
TECHNOLOGY 2.1% 10,000,000 Loral Corp., 8.375%, 6/15/24...................... 10,639,000
-----------
TRANSPORTATION 2.5% 10,000,000 AMR Corp., 9.75%, 8/15/21......................... 11,338,000
820,000 Missouri Pacific Railroad Co. Equipment
Trust, Series 21, 14.125%, 3/15/96............... 865,149
770,000 Missouri Pacific Railroad Co. Equipment
Trust, Series 21, 14.125%, 3/15/97............... 867,713
-----------
13,070,862
-----------
UTILITIES 0.7% 3,000,000 Internorth Inc. Note, 9.625%, 3/15/06............. 3,558,450
-----------
TOTAL CORPORATE BONDS (Cost $139,586,147)......... 146,435,702
-----------
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $501,480,206) (a).......................... 515,706,870
===========
<FN>
(a) The cost for federal income tax purposes was $501,480,206. At June 30, 1995,
net unrealized appreciation for all securities based on tax cost was $14,226,664.
This consisted of aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost of $18,138,693 and
aggregate gross unrealized depreciation for all securities in which there was
an excess tax cost over market value of $3,912,029.
(b) Principal amount is stated in U.S. dollars unless otherwise noted.
(c) Bond equivalent yield to maturity; not a coupon rate.
(d) At June 30, 1995 these securities, in part, have been pledged to cover initial
margin requirements for open futures contracts.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SCUDDER INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
--------------------------------------------------------------------------------------
AT JUNE 30, 1995, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS FOLLOWS (NOTE A):
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
30 Year U.S.
Treasury Bonds Sep. 1995 143 16,099,834 16,234,969
----------
Net unrealized depreciation on open futures contracts sold short..... (135,135)
==========
</TABLE>
Included in the portfolio are investments in mortgage or asset-backed
securities which are interests in separate pools of mortgages or
assets. Effective maturities of these investments will be shorter
than stated maturities due to prepayments.
<TABLE>
CURRENCY ABBREVIATIONS
<S> <C>
DEM German deutschemark
FRF French franc
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------------------
JUNE 30, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $501,480,206)
(Note A)................................................... $515,706,870
Cash.......................................................... 1,759
Receivables:
Interest................................................... 9,106,884
Fund shares sold........................................... 322,086
Unrealized appreciation on forward currency
exchange contracts (Notes A and D)......................... 450,393
Other assets.................................................. 4,144
------------
Total assets........................................... 525,592,136
LIABILITIES
Payables:
Fund shares redeemed....................................... $2,882,473
Daily variation margin on open futures
contracts (Note A)..................................... 67,031
Accrued management fee (Note C)............................ 265,322
Other accrued expenses (Note C)............................ 197,227
----------
Total liabilities...................................... 3,412,053
------------
Net assets, at market value................................... $522,180,083
============
NET ASSETS
Net assets consist of:
Undistributed net investment income........................ $ 9,790,709
Net unrealized appreciation (depreciation) on:
Investments............................................ 14,226,664
Futures contracts...................................... (135,135)
Foreign currency related transactions.................. 442,192
Accumulated net realized loss.............................. (10,665,903)
Shares of beneficial interest.............................. 388,893
Additional paid-in capital................................. 508,132,663
------------
Net assets, at market value................................... $522,180,083
============
NET ASSET VALUE, offering and redemption price per share
($522,180,083 / 38,889,322 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized)...................................... $13.43
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER INCOME FUND
-----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
-----------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest................................................. $18,992,175
Expenses:
Management fee (Note C).................................. $ 1,522,708
Services to shareholders (Note C)........................ 676,090
Trustees' fees (Note C).................................. 20,925
Custodian and accounting fees (Note C)................... 76,800
Reports to shareholders.................................. 90,639
State registration....................................... 27,297
Auditing................................................. 22,824
Legal.................................................... 6,550
Other.................................................... 18,402 2,462,235
-----------------------
Net investment income.................................... 16,529,940
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investment transactions.............................. 8,256,794
Foreign currency related transactions................ (94,174)
Futures contracts.................................... (5,359,218) 2,803,402
-----------
Net unrealized appreciation during the period on:
Investments.......................................... 30,488,337
Foreign currency related transactions................ 442,192
Futures contracts.................................... 65,414 30,995,943
-----------------------
Net gain on investments.................................. 33,799,345
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $50,329,285
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1995 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1994
-------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income............................. $ 16,529,940 $ 31,597,928
Net realized gain (loss) from investment
transactions.................................... 2,803,402 (11,342,040)
Net unrealized appreciation (depreciation)
on investment transactions
during the period............................... 30,995,943 (44,189,052)
------------ -------------
Net increase (decrease) in net assets
resulting from operations....................... 50,329,285 (23,933,164)
------------ -------------
Distributions to shareholders:
From net investment income ($.21 and $.76 per
share, respectively)............................ (7,993,168) (28,504,095)
------------ -------------
In excess of net realized gains ($.02 per
share, respectively)............................ -- (770,819)
------------ -------------
Fund share transactions:
Proceeds from shares sold......................... 63,126,608 146,572,410
Net asset value of shares issued to
shareholders in reinvestment of distributions... 6,848,531 24,501,727
Cost of shares redeemed........................... (53,359,572) (163,297,477)
------------ -------------
Net increase in net assets from Fund share
transactions.................................... 16,615,567 7,776,660
------------ -------------
INCREASE (DECREASE) IN NET ASSETS................. 58,951,684 (45,431,418)
Net assets at beginning of period................. 463,228,399 508,659,817
------------ -------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$9,790,709 and $1,253,937, respectively)........ $522,180,083 $ 463,228,399
============ =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period......... 37,601,071 37,090,412
------------ -------------
Shares sold....................................... 4,886,169 11,195,296
Shares issued to shareholders in
reinvestment of distributions................... 532,544 1,951,688
Shares redeemed................................... (4,130,462) (12,636,325)
------------ -------------
Net increase in Fund shares....................... 1,288,251 510,659
------------ -------------
Shares outstanding at end of period............... 38,889,322 37,601,071
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER INCOME FUND
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other
performance information derived from the financial statements.
<CAPTION>
Six Months Ended Years Ended December 31,
June 30, 1995 ---------------------------------------------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period................ $12.32 $13.71 $13.48 $13.91 $12.82 $12.89 $12.41 $12.40 $13.41 $12.82 $11.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment
operations:
Net investment
income................ .43 .84 .90 .95 .93 1.03 1.05 1.07 1.08 1.22 1.29
Net realized and
unrealized gain
(loss) on
investments........... .89 (1.45) .77 (.05) 1.22 (.01) .49 .01 (.99) .59 1.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations............. 1.32 (.61) 1.67 .90 2.15 1.02 1.54 1.08 .09 1.81 2.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net
investment
income................ (.21) (.76) (.87) (.93) (.92) (1.03) (1.06) (1.07) (1.10) (1.22) (1.29)
From paid-in
capital............... -- -- -- -- -- (.06)(a) -- -- -- -- --
From net realized
gains on
investment
transactions.......... -- -- (.45) (.40) (.14) -- -- -- -- -- --
In excess of net
realized gains........ -- (.02) (.12) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (.21) (.78) (1.44) (1.33) (1.06) (1.09) (1.06) (1.07) (1.10) (1.22) (1.29)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period......... $13.43 $12.32 $13.71 $13.48 $13.91 $12.82 $12.89 $12.41 $12.40 $13.41 $12.82
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)......... 10.79** (4.43) 12.58 6.74 17.32 8.32 12.75 8.91 .74 14.75 21.80
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions).... 522 463 509 457 403 302 272 245 242 249 172
Ratio of operating
expenses to average
daily net assets (%)... 1.01* .97 .92 .93 .97 .95 .93 .94 .94 .88 .91
Ratio of net investment
income to average
daily net assets (%)... 6.77* 6.43 6.32 7.05 7.13 8.21 8.23 8.53 8.37 9.12 10.57
Portfolio turnover
rate (%)............... 122.0* 60.3 130.6 121.3 109.6 48.0 63.2 19.6 33.7 24.1 29.9
<FN>
(a) Distribution made (as a result of foreign currency related gains on the disposition of foreign bonds) in order to
avoid the payment of a 4% federal excise tax under Internal Revenue Code section 4982.
* Annualized ** Not annualized
</FN>
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Scudder Income 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
a diversified, open-end management investment company. The policies described
below are followed consistently by the Fund in the preparation of its financial
statements in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days 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. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on interest and
foreign withholding taxes.
17
<PAGE>
SCUDDER INCOME FUND
--------------------------------------------------------------------------------
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 in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in 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. 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 the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity
to profit from favorable exchange rate movements during the term of the
contract.
FUTURES CONTRACTS. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer
or seller agrees to take or make a delivery of a specific amount of an item
at a specified price on a specific date (settlement date). During the period
the Fund sold interest rate futures to hedge against declines in the value
of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security,
and are recorded for financial reporting purposes as unrealized gains or
losses by the Fund. When entering into a closing transaction, the Fund will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. The Fund
accordingly paid no federal income taxes and no federal income tax provision
was required.
At December 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $11,478,000 which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
December 31, 2002, the expiration date.
In addition, from November 1, 1994 through December 31, 1994, the Fund incurred
approximately $1,805,000 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 ended December 31, 1995.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made quarterly. 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.
These differences primarily relate to investments in foreign denominated
investments, post-October loss deferrals and futures. 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.
19
<PAGE>
SCUDDER INCOME 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.
OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
original issue discounts are accreted for both tax and financial reporting
purposes.
B. PURCHASES AND SALES OF SECURITIES
--------------------------------------------------------------------------------
For the six months ended June 30, 1995, purchases and sales of investment
securities (excluding short-term investments and U.S. Government
obligations) aggregated $186,957,267 and $199,044,239, respectively. Purchases
and sales of U.S. Government obligations aggregated $139,311,516 and
$79,615,081, respectively.
The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1995 was $89,156,899 and $112,827,547, respectively.
C. RELATED PARTIES
--------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, 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
0.65% on the first $200,000,000 of average daily net assets, 0.60% on the next
$300,000,000 of such net assets, and 0.55% of such net assets in excess of
$500,000,000, computed and accrued daily and payable monthly. The Agreement
provides that if the Fund's expenses, exclusive of taxes, interest, and
extraordinary expenses, exceed specified limits, such excess, up to the amount
of the management fee, will be paid by the Adviser. For the six months ended
June 30, 1995, the fee pursuant to the Agreement amounted to $1,522,708, which
was equivalent to an annual effective rate of .62% of the Fund's average daily
net assets.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the six months ended June 30, 1995, the amount charged to the Fund by SSC
aggregated $601,229, of which $105,353 is unpaid at June 30, 1995.
Effective January 12, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
wholly-owned subsidiary of the Adviser, assumed responsibility for determining
the daily net asset value per share and maintaining the portfolio and general
accounting records of the Fund. For the six months ended June 30, 1995, the
amount charged to the Fund by SFAC aggregated $35,506, of which $6,217 is unpaid
at June 30, 1995.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the six
months ended June 30, 1995, Trustees' fees aggregated $20,925.
<TABLE>
D. COMMITMENTS
--------------------------------------------------------------------------------
As of June 30, 1995, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized appreciation of
$450,393.
<CAPTION>
NET UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (U.S.$)
-------------------- --------------- --------------- --------------
<S> <C> <C> <C>
DEM 20,286,722 USD 15,119,486 10/23/95 384,975
FRF 71,240,700 USD 14,708,517 10/23/95 65,418
-------
450,393
=======
</TABLE>
21
INVESTMENT PRODUCTS AND SERVICES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
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. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *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, Stevens & Clark, Inc. are traded on various stock
exchanges. ++For information on Scudder Treasurers Trust,(TM) an institutional cash management service that utilizes
certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
22
<PAGE>
HOW TO CONTACT SCUDDER
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For account updates, prices, yields, exchanges, and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided through Scudder Investor
Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete
information, including management fees and expenses. Please read it carefully before you invest or send
money.
</TABLE>
23
<PAGE>
Celebrating Over 75 Years of Serving Investors
--------------------------------------------------------------------------------
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 36 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped us become one of
the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
