Scudder Income Fund
Semiannual Report
June 30, 1996
Pure No-Load(TM) Funds
Offers opportunities for a high level of income consistent with the prudent
investment of capital.
A pure no-load(TM) fund with no commissions to buy, sell,
or exchange shares.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
8 Investment Portfolio
11 Financial Statements
14 Financial Highlights
15 Notes to Financial Statements
18 Investment Products and Services
19 How to Contact Scudder
In Brief
The Scudder Income Fund's total return over the past 12 months was a positive
5.36%. The weak bond market of the first six months of 1996 caused the Fund to
have a slight negative return from January 1, 1996 to June 30, 1996.
In view of an uncertain outlook for interest rates, the Fund assumed an
increasingly defensive stance over the period, lowering portfolio duration from
5.6 to 4.9 years. This strategy limited to a degree the impact of the bear
market in bonds and proved beneficial to the Fund's performance relative to its
peer group.
The Fund is presently maintaining a neutral stance with respect to the direction
of interest rates. However, we do not view current inflation as a threat to the
prices of fixed-income securities, and our long-term view of the bond market is
positive overall.
2 - Scudder Income Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to present the newly redesigned semiannual report for
Scudder Income Fund. The new format, which is being implemented on a test basis
with select Scudder funds, is designed to enhance the attractiveness and
readability of the reports. Let us know what you think.
In this era of electronic information, we have also taken a look at our
abbreviated quarterly reports, which you generally receive during the month
after the end of your fund's first and third fiscal quarters. Going forward, in
lieu of these printed reports, portfolio information will be made available on a
more timely basis -- each month, in most cases -- through Scudder's Web site,
Scudder's automated information line (SAIL), and Investor Relations.
While the past 12 months' total return of 5.36% was positive, the rise in
interest rates in the first six months of 1996 caused bond prices to fall and
resulted in a negative 1.53% total return for the Fund since January 1, 1996.
The one-year return compares favorably with both the average fund in its Lipper
peer group and the overall bond market as reflected by the unmanaged Lehman
Brothers Aggregate Bond Index.
Bond prices generally fell over the first half of 1996, as interest rates
rose sharply on all but the shortest-maturity fixed-income instruments.
Investors have reacted strongly to any sign that the business cycle may fail to
wind down following an extended period of economic expansion. However, while the
markets may vacillate with each conflicting economic indicator, we do not
believe that inflation will accelerate to any meaningful degree, and the
long-term trend of interest rates is downward. Scudder Income Fund, with its
emphasis on quality and diversified approach to investing in the fixed-income
markets, should remain a favored way to earn high current income and participate
in the bond market over the long term.
Thank you for your continued investment in Scudder Income Fund, and please
do not hesitate to call a Scudder Investor Relations representative at
1-800-225-2470 with any questions about your account.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Income Fund
3 - Scudder Income Fund
<PAGE>
PERFORMANCE UPDATE as of June 30, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER INCOME FUND
- ----------------------------------------
1 Year $10,536 5.36% 5.36%
5 Year $15,055 50.55% 8.53%
10 Year $22,412 124.12% 8.40%
LB AGGREGATE BOND INDEX
- --------------------------------------
1 Year $10,502 5.02% 5.02%
5 Year $14,871 48.71% 8.25%
10 Year $22,718 127.18% 8.54%
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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
- ----------------------
'86 $10,000
'87 $10,562
'88 $11,215
'89 $12,625
'90 $13,494
'91 $14,887
'92 $17,035
'93 $19,306
'94 $18,958
'95 $21,272
'96 $22,412
LB AGGREGATE BOND INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,552
'88 $11,402
'89 $12,795
'90 $13,800
'91 $15,277
'92 $17,422
'93 $19,475
'94 $19,221
'95 $21,633
'96 $22,718
The unmanaged 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>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $12.77 $ 12.71 $13.13 $12.95 $13.14 $13.79 $14.27 $12.73 $13.43 $13.19
INCOME DIVIDENDS.. $ 1.15 $ .82 $ 1.08 $ 1.04 $ 1.02 $ .91 $ .91 $ .84 $ .78 $ .86
CAPITAL GAINS AND
PAID-IN CAPITAL
DISTRIBUTIONS..... $ - $ - $ - $ - $ .06 $ .27 $ .35 $ .51 $ - $ .09
FUND TOTAL
RETURN (%)........ 5.62 6.18 12.32 7.13 10.32 14.43 13.33 -1.81 12.21 5.36
INDEX TOTAL
RETURN (%)........ 5.55 8.04 12.21 7.84 10.69 14.05 11.79 -1.31 12.55 5.02
</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 - Scudder Income Fund
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Corporate Bonds 34%
U.S. Gov't Agency Pass Thrus 25%
U.S. Gov't Treasury Obligations 14%
Cash Equivalents 11%
Asset-Backed Securities 8%
Foreign Bonds-U.S.$ Denominated 7%
Collateralized Mortgage Obligations 1%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The portfolio has shifted
assets to the corporate and
mortgage-backed sectors at the
expense of Treasuries.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA* 60%
AA 5%
A 22%
BBB 13%
- -----------------------------
100%
- -----------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Weighted Average Quality: AA
*Category includes cash equivalents
Despite a reduced allocation to
Treasuries, average quality of
portfolio holdings remains a high "AA".
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 12%
1-5 years 30%
5-8 years 11%
8-15 years 28%
Greater than 15 years 19%
---------------------------
100%
- ----------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Weighted average effective maturity: 10.1 years
The Fund has trimmed exposure
to longer maturities in view of
bond market uncertainty.
- -----------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 8.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5 - Scudder Income Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Reflecting a weak bond market, Scudder Income Fund provided a total return of
- -1.53% for the six-month period ended June 30, 1996. This performance, while
negative, compared favorably with the -2.32% average return of the 119 A-rated
corporate bond funds tracked by Lipper Analytical Services, and was roughly in
keeping with the return of -1.21% for the bond market as a whole as gauged by
the unmanaged Lehman Brothers Aggregate Bond Index. For the trailing 12 months,
the Fund's 5.36% return exceeded that of both the Lipper average and the Index,
which measured 4.06% and 5.02%, respectively.
Bond Market Retreats in
Face of Uncertainty
The question overhanging the bond markets for most of the last six months has
concerned where the United States is in its business cycle. Is it near the end,
implying a slowdown and perhaps a recession? If so, this would dictate continued
low inflation, falling interest rates, and rising bond prices. Or has the
economy this time bypassed the traditional end of the cycle, and is there still
risk to fixed-income investors from higher rates as a result of strong growth
and the threat of inflation?
In the face of conflicting signals concerning the direction of the economy and
interest rates, the bond market retreated somewhat over the first half of 1996.
The decline in momentum towards achieving a balanced U.S. budget added to the
negative market sentiment. Yields rose for bonds with maturities of all lengths
(see accompanying chart). Treasury yields for maturities ranging from two to
thirty years ended June in the neighborhood of a full percentage point higher
than their levels at the end of 1995. In general, corporate and mortgage-backed
debt issues outperformed Treasuries during the period.
THE PRINTED VERSION CONTAINS A LINE CHART HERE
CHART TITLE:
Yield Curve Moves Higher
Treasury Yields 12/31/95 vs. 6/30/96
CHART DATA:
12/31/95 6/30/96
-------- -------
3 mos. 5.07 5.15
1 yr 5.13 5.67
2 yrs 5.15 6.11
3 yrs 5.21 6.27
5 ys 5.37 6.46
10 yrs 5.57 6.71
30 yrs 5.96 6.89
Source: Bloomberg
Since the beginning of 1996, yields have risen across the spectrum of
maturities.
Fund Strategy Becomes
More Defensive
In the face of any such move in interest rates, duration -- which measures
sensitivity to changes in rates -- will normally be the key determinant of a
fixed-income portfolio's performance. In view of the uncertain outlook for
rates, the Fund focused on shorter maturities, lowering portfolio duration from
5.6 to 4.9 years over the period. This strategy limited to a degree the impact
of the downturn in bonds and proved beneficial to the Fund's performance
relative to its peer group.
6 - Scudder Income Fund
<PAGE>
In keeping with a more cautious approach to interest rate exposure, the Fund's
position in Treasury securities -- which are highly responsive to changing
interest rate levels -- was lowered over the period from 32% to 14%. We shifted
to higher percentage allocations for corporate debt issues, whose values stand
to benefit from signs of economic strength and the accompanying perception of
lower credit risk, and mortgage-backed securities, which had experienced price
weakness and presented relative value. Corporates and mortgage-backeds
represented 34% and 26% of portfolio assets, respectively, at the end of the
period.
Constructive Outlook for
Fixed-Income Investors
The second half of 1996 kicked off with a scare to the bond market, as the June
employment report reflected a striking drop in the unemployment rate to 5.3% and
a surge in hourly wages was registered as well. In addition, second quarter
growth is expected to be in the 4% range. The market will take time to digest
such robust numbers. In view of this data and the skittish nature of investor
sentiment at the moment, the Fund is presently maintaining its relatively
neutral stance with respect to the direction of interest rates. The portfolio
duration of 4.9 years is roughly in keeping with that of the overall market as
gauged by the unmanaged Lehman Brothers Aggregate Bond Index.
Nonetheless, we are on the whole more bullish than bearish on the bond market.
To begin with, we do not view current inflation as a threat to the prices of
fixed-income securities. In fact, inflation has remained remarkably under
control throughout this growth spurt. We view the expansion as having matured
and we expect the economy to slow during the second half of the year. This
should further reduce any impetus towards inflation and higher rates. Moreover,
with long-term rates over 7%, investors are fairly compensated by the current
level of fixed-income yields. Finally, investors have become accustomed to
unusually strong equity returns, and a setback in the stock market could make
bonds more attractive. Of course, the extent and timing of any action by the
Federal Reserve Board to raise or lower short-term rates is a variable with
respect to the direction of bond prices.
While we believe a cautious stance towards interest rate exposure is warranted
over the near-term, the Fund will seek to benefit from any bond market strength
that emerges after the market has absorbed the latest spate of strong economic
data and as the economy begins to slow. In the meantime, we will continue to
look for opportunities provided by the relative valuation of individual issues
as well as of sectors within the overall bond market. In keeping with the Fund's
prudent investment approach, the average quality of Fund holdings remains a high
"AA". We believe Scudder Income Fund continues to be a sound vehicle for
investors seeking a diversified approach to earning a high level of current
income.
Sincerely,
Your Portfolio Management Team
/s/William M. Hutchinson /s/Stephen A. Wohler
William M. Hutchinson Stephen A. Wohler
7 - Scudder Income Fund
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 8.7%
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 6/28/96 at 5.45%,
to be repurchased at $50,163,772 on 7/1/96, collateralized by a $50,000,000 U.S. Treasury
Note, 7.25%, 11/30/96 (Cost $50,141,000) ................................................ 50,141,000 50,141,000
-----------
Commercial Paper 2.6%
- -----------------------------------------------------------------------------------------------------------------------
General Electric Capital Services Inc., 5.402, 8/14/96 (Cost $14,901,917) ................. 15,000,000 14,901,917
-----------
U. S. Government Treasury Obligations 14.3%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.5%, 9/30/97 ......................................................... 23,000,000 22,892,130
U.S. Treasury Note, 6.875%, 7/31/99 ....................................................... 13,000,000 13,184,860
U.S. Treasury Note, 6%, 10/15/99 .......................................................... 36,000,000 35,623,080
U.S. Treasury Note, 6.125%, 7/31/00 ....................................................... 6,000,000 5,933,460
U.S. Treasury Note, 5.75%, 8/15/03 ........................................................ 5,000,000 4,761,700
- -----------------------------------------------------------------------------------------------------------------------
Total U.S. Government Treasury Obligations (Cost $83,717,851) ............................. 82,395,230
- -----------------------------------------------------------------------------------------------------------------------
U. S. Government Agency Pass-thrus 24.9%
- -----------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 8%, 12/1/09 ........................................ 18,647,532 19,061,135
Federal National Mortgage Association, 7%, 3/1/24 ......................................... 12,000,000 11,542,440
Federal National Mortgage Association, 6.5%, 10/1/25 ...................................... 977,112 913,903
Federal National Mortgage Association, 6.5%, 11/1/25 ...................................... 21,473,524 20,084,402
Federal National Mortgage Association, 7%, 11/1/25 ........................................ 24,857,184 23,909,380
Federal National Mortgage Association, 7%, 12/1/25 ........................................ 28,199,452 27,124,207
Federal National Mortgage Association, 6.5%, 1/1/26 ....................................... 10,772,006 9,152,561
Federal National Mortgage Association, 6.5%, 2/1/26 ....................................... 13,642,208 13,682,298
Government National Mortgage Association, 10%, 2/15/25 .................................... 16,543,559 18,047,864
- -----------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $146,256,015) ............................... 143,518,190
- -----------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Prudential Home Mortgage Securities Co., 1993-4 Series A3, 7%, 3/25/23 (Cost $5,060,510) .. 4,996,493 4,984,001
-----------
Foreign Bonds - U.S.$ Denominated 7.2%
- -----------------------------------------------------------------------------------------------------------------------
Abbey National PLC Global Medium Term Note, 6.69%, 10/17/05 ............................... 10,000,000 9,617,000
British Columbia Hydro & Power, Series FH, 15.5%, 7/15/11 ................................. 1,000,000 1,072,350
British Columbia Hydro & Power, Series FJ, 15.5%, 11/15/11 ................................ 1,000,000 1,099,980
HSBC Finanz Nederland B.V., 7.4%, 4/15/03 ................................................. 15,000,000 15,173,437
KFW International Finance Inc. guaranteed note, 9.5%, 12/15/00 ............................ 7,500,000 8,299,500
Province of Ontario debenture, 15.75%, 3/15/12 ............................................ 1,000,000 1,117,460
State Development Institute of Hungary, 10.5%, 8/31/00 .................................... 4,425,000 4,842,720
- -----------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds - U.S. $ Denominated (Cost $40,402,717) ............................... 41,222,447
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
[Logo Pure No-Load[Trademark] Funds]
8-Scudder Income Fund
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES 7.7%
- -----------------------------------------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 1.7%
Premier Auto Trust Asset Backed Certificate Series 1996-3 A4, 6.75%, 11/6/00 .............. 10,000,000 10,053,125
----------
CREDIT CARD RECEIVABLES 2.7%
Sears Credit Account Master Trust Series 1995-4, 6.25%, 1/15/03 ........................... 15,500,000 15,466,055
----------
HOME EQUITY LOANS 0.2%
Fleet Financial Home Equity Trust Series 1991-2A, 6.7%, 10/15/06 .......................... 1,119,452 1,120,851
----------
MANUFACTURED HOUSING RECEIVABLES 3.1%
Green Tree Financial Corp. Series 1995-1 B2, 9.2%, 6/15/25 ................................ 8,071,000 8,643,537
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/11 ................. 8,500,000 8,932,905
----------
17,576,442
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES (Cost $43,196,751) .......................................... 44,216,473
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 33.7%
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 0.7%
Borden Inc., 7.875%, 2/15/23 .............................................................. 5,000,000 4,091,600
----------
COMMUNICATIONS 2.6%
Pacific Northwest Bell Telephone Co. debenture, 7.5%, 12/1/96 ............................. 4,000,000 4,023,760
TCI Communications, Inc., 8%, 8/1/05 ...................................................... 11,000,000 10,751,730
----------
14,775,490
----------
FINANCIAL 11.8%
BankAmerica Corp., 7.125%, 5/1/06 ......................................................... 2,750,000 2,697,832
Capital One Bank Medium Term Note, 5.95%, 2/15/01 ......................................... 10,000,000 9,513,400
Ford Motor Credit Co. Global Note, 5.625%, 12/15/98 ....................................... 10,000,000 9,787,800
General Electric Capital Services Inc., 7.5%, 8/21/35 ..................................... 9,000,000 8,990,640
NationsBank Corp., 7.25%, 10/15/25 ........................................................ 15,000,000 13,977,750
Southern National Corp., 7.05%, 5/23/03 ................................................... 15,000,000 14,924,850
Wells Fargo & Co., 6.875%, 4/1/06 ......................................................... 8,250,000 7,947,555
----------
67,839,827
----------
MEDIA 4.4%
News America Holdings Inc., 8.5%, 2/15/05 ................................................. 12,000,000 12,613,440
Time Warner Inc., 9.125%, 1/15/13 ......................................................... 12,000,000 12,532,560
----------
25,146,000
----------
DURABLES 6.2%
Boeing Co., 6.875%, 10/15/43 .............................................................. 10,000,000 9,040,800
Comdisco, Inc., senior note, 5.75%, 2/15/01 ............................................... 10,000,000 9,547,400
Ford Motor Credit Co., 6.25%, 2/26/98 ..................................................... 5,000,000 4,990,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
[Logo Pure No-Load[Trademark] Funds]
9-Scudder Income Fund
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
McDonnell Douglas Corp., 9.75%, 4/1/12 .................................................... 10,000,000 11,911,500
-----------
35,489,950
-----------
MANUFACTURING 1.7%
Nova Corp. of Alberta, 7.88%, 4/1/23 ...................................................... 10,000,000 9,986,000
-----------
TECHNOLOGY 4.2%
International Business Machines Corp., 7%, 10/30/45 ....................................... 15,000,000 13,639,200
Loral Corp., 8.375%, 6/15/24 .............................................................. 10,000,000 10,627,700
-----------
24,266,900
-----------
TRANSPORTATION 2.2%
AMR Corp., 9.75%, 8/15/21 ................................................................. 10,000,000 11,604,900
Missouri Pacific Railroad Co. Equipment Trust, Series 21, 14.125%, 3/15/97 ................ 770,000 812,350
-----------
12,417,250
- -----------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $196,047,874) 194,013,017
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $579,724,635) ................................... 575,392,275
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(a) The cost for federal income tax purposes was $579,724,635. At June 30,
1996, net unrealized depreciation for all securities based on tax cost was
$4,332,360. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $6,388,418 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$10,720,778.
</FN>
</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.
The accompanying notes are an integral part of the financial statements.
[Logo Pure No-Load[Trademark] Funds]
10-Scudder Income Fund
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Statement of Assets and Liabilities
as of June 30, 1996 (Unaudited)
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $579,724,635) (Note A) ................ $575,392,275
Cash .......................................................................... 230
Interest receivable ........................................................... 7,360,617
Receivable on Fund shares sold ................................................ 1,581,783
Other assets .................................................................. 4,144
------------
Total assets .................................................................. 584,339,049
LIABILITIES
- --------------------------------------------------------------------------------------------------------
Payable for investments purchased ............................................. $ 11,382,042
Payable for Fund shares redeemed .............................................. 2,181,514
Accrued management fee (Note C) ............................................... 290,121
Other accrued expenses (Note C) ............................................... 294,460
------------
Total liabilities ............................................................. 14,148,137
------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE ................................................... $570,190,912
------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ........................................... $ 8,929,177
Net unrealized depreciation on investments .................................... (4,332,360)
Accumulated distributions in excess of net realized gain ...................... (1,092,838)
Shares of beneficial interest ................................................. 432,239
Additional paid-in capital .................................................... 566,254,694
------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE ................................................... $570,190,912
------------------------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per share ($570,190,912 /
43,223,947 outstanding shares of beneficial interest, $.01 par value, unlimited ------------
number of shares authorized) .................................................. $ 13.19
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
11-SCUDDER INCOME FUND
<PAGE>
<TABLE>
Statement of Operations
six months ended June 30, 1996 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------
Income:
Interest ....................................................... $ 19,724,653
Expenses:
Management fee (Note C) ........................................ 1,749,198
Services to shareholders (Note C) .............................. 771,847
Custodian and accounting fees (Note C) ......................... 91,079
Trustees' fees (Note C) ........................................ 17,814
Reports to shareholders ........................................ 64,432
Auditing ....................................................... 25,075
Legal .......................................................... 4,333
State registration ............................................. 25,510
Other .......................................................... 15,435
------------
2,764,723
--------------------------------------------------------------------------------
NET INVESTMENT INCOME .......................................... 16,959,930
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (853,781)
Futures ........................................................ 2,257,164
Foreign currency related transactions .......................... 1,004,727
------------
2,408,110
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (28,952,956)
Futures ........................................................ 515,514
Foreign currency related transactions .......................... 177,638
------------
(28,259,804)
------------
Net loss on investments ........................................ (25,851,694)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ (8,891,764)
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
12-SCUDDER INCOME FUND
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Operations:
Net investment income .................................................... $ 16,959,930 $ 33,017,096
Net realized gain from investment transactions ........................... 2,408,110 14,545,689
Net unrealized appreciation (depreciation) on investment transactions
during the period ...................................................... (28,259,804) 40,389,666
------------ -------------
Net increase (decrease) in net assets resulting from operations .......... (8,891,764) 87,952,451
------------ -------------
Distributions to shareholders:
From net investment income ($.21 and $.86 per share, respectively) ....... (8,998,760) (34,339,511)
------------ -------------
From net realized gains ($.03 per share) ................................. -- (1,076,384)
------------ -------------
In excess of net realized gains ($.06 per share) ......................... -- (2,464,465)
------------ -------------
Fund share transactions:
Proceeds from shares sold ................................................ 86,083,689 148,070,784
Net asset value of shares issued to shareholders in reinvestment of
distributions .......................................................... 7,883,755 32,942,112
Cost of shares redeemed .................................................. (84,152,956) (116,046,438)
------------ -------------
Net increase in net assets from Fund share transactions .................. 9,814,488 64,966,458
------------ -------------
INCREASE (DECREASE) IN NET ASSETS ........................................ (8,076,036) 115,038,549
Net assets at beginning of period ........................................ 578,266,948 463,228,399
------------ -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment income ------------ -------------
of $8,929,177 and $968,007, respectively) .............................. $570,190,912 $ 578,266,948
------------ -------------
OTHER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ................................ 42,499,531 37,601,071
------------ -------------
Shares sold .............................................................. 6,437,406 11,192,844
Shares issued to shareholders in reinvestment of distributions ........... 601,813 2,478,660
Shares redeemed .......................................................... (6,314,803) (8,773,044)
------------ -------------
Net increase in Fund shares .............................................. 724,416 4,898,460
------------ -------------
Shares outstanding at end of period ...................................... 43,223,947 42,499,531
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
13-SCUDDER INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
The following table includes select data for a share outstanding throughout each period and other performance information derived
from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................. $13.61 $12.32 $13.71 $13.48 $13.91 $12.82 $12.89 $12.41 $12.40 $13.41 $12.82
-------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss ......... .39 .83 .84 .90 .95 .93 1.03 1.05 1.07 1.08 1.22
Net realized and unrealized
gain (loss) on investments (.60) 1.41 (1.45) .77 (.05) 1.22 (.01) .49 .01 (.99) .59
Total from investment
operations ................ (.21) 2.24 (.61) 1.67 .90 2.15 1.02 1.54 1.08 .09 1.81
-------------------------------------------------------------------------------------------
Less distributions:
From net investment
income .................... (.21) (.86) (.76) (.87) (.93) (.92) (1.03) (1.06) (1.07) (1.10) (1.22)
From paid-in capital ........ -- -- -- -- -- -- (.06)(a) -- -- -- --
From net realized gains on
investment transactions ... -- (.03) -- (.45) (.40) (.14) -- -- -- -- --
In excess of net realized
gains ..................... -- (.06) (.02) (.12) -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Total distributions ......... (.21) (.95) (.78) (1.44) (1.33) (1.06) (1.09) (1.06) (1.07) (1.10) (1.22)
-------------------------------------------------------------------------------------------
Net asset value, end of -------------------------------------------------------------------------------------------
period .................... $13.19 $13.61 $12.32 $13.71 $13.48 $13.91 $12.82 $12.89 $12.41 $12.40 $13.41
-------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) ............ (1.53)** 18.54 (4.43) 12.58 6.74 17.32 8.32 12.75 8.91 .74 14.75
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period
($ millions) .............. 570 578 463 509 457 403 302 272 245 242 249
Ratio of operating expenses
to average daily net assets
(%) ....................... .97* .99 .97 .92 .93 .97 .95 .93 .94 .94 .88
Ratio of net investment
income to average daily
net assets (%) ............ 5.97* 6.35 6.43 6.32 7.05 7.13 8.21 8.23 8.53 8.37 9.12
Portfolio turnover rate (%) . 82.3* 128.3 60.3 130.6 121.3 109.6 48.0 63.2 19.6 33.7 24.1
<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 International Revenue Code section 4982.
* Annualized
** Not annualized
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
14-SCUDDER INCOME FUND
<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 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. 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.
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.
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
15-SCUDDER INCOME FUND
<PAGE>
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 six months
ended June 30, 1996, the Fund purchased interest rate futures to manage the
duration of the portfolio and 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.
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.
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
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.
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.
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.
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
16-SCUDDER INCOME FUND
<PAGE>
B. Purchases and Sales of Securities
For the six months ended June 30, 1996, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $166,715,843 and $87,523,600, respectively. Purchases and sales of
U.S. Government obligations aggregated $50,916,621 and $143,430,155,
respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended June 30, 1996 was $2,234,641,360 and $2,251,131,471, 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, 1996, the fee pursuant to
the Agreement amounted to $1,749,198, which was equivalent to an annual
effective rate of .62% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1996, the amount charged to the Fund by SSC aggregated
$330,019, of which $53,783 is unpaid at June 30, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended June 30,
1996, the amount charged to the Fund by STC aggregated $375,480, of which
$125,141 is unpaid at June 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended June 30, 1996, the amount charged to the Fund by SFAC aggregated $51,954,
of which $17,883 is unpaid at June 30, 1996.
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, 1996, Trustees' fees aggregated $17,814.
- --------------------------------------------------------------------------------
PureNo-Load[Trademark]FundsPureNoLoad[Trademark]FundsPureNoLoad[Trademark]Funds
- --------------------------------------------------------------------------------
17-SCUDDER INCOME FUND
<PAGE>
<PAGE>
Investment Products and Services
The Scudder Family of Funds
- --------------------------------------------------------------------------------
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia 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.
18 - Scudder Income Fund
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
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
Visit the Scudder World Wide Web Site at:
- --------------------------------------------------------------------------------
http://funds.scudder.com
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 Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call: 1-800-854-8525.
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.
19 - Scudder Income Fund
<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 40 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
