Scudder
Income
Fund
Annual Report
December 31, 1996
Pure No-Load 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
9 Investment Portfolio
12 Financial Statements
15 Financial Highlights
16 Notes to Financial Statements
19 Report of Independent Accountants
20 Tax Information
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder
In Brief
o Scudder Income Fund's total return over the past 12 months was a positive
3.41%, besting the average performance of 110 A-rated corporate debt funds as
tracked by Lipper Analytical Services, Inc.
o Morningstar assigned the Fund an overall 4-star rating for its risk-adjusted
performance among 1,670 fixed-income funds as of December 31, 1996(1).
o With an uncertain outlook for interest rates, your Fund's management team
pursued a defensive strategy of shortening portfolio duration from 5.6 to 4.8
years. This strategy helped to limit the negative effects of higher interest
rates on portfolio holdings.
o Treasury securities were reduced and corporate bonds, mortgage securities
and cash equivalents were increased.
(1)Source: Morningstar. Ratings are subject to change monthly and are calculated
from the Fund's 3-, 5-, and 10-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor that
reflects Fund performance below 90-day T-bill returns. In an investment
category, 10% of funds receive 5 stars and the next 22.5% receive 4 stars. In
the fixed-income category, the Fund received a 3-star rating for the one-year
period; a 3-star rating for the three-year period; a 3-star rating for the
five-year period; and a 4-star rating for the ten-year period. In the
fixed-income category there were 1,104; 597; and 242 funds for the three-,
five-, and ten-year periods, respectively. Past performance is no guarantee of
future results.
2-Scudder Income Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
As detailed in the management discussion which follows, bond investors
experienced price declines in 1996 as interest rates closed the period higher
than a year ago. For the 12 months ended December 31, 1996, Scudder Income Fund
provided a positive total return of 3.41%, including dividend income and price
changes. This return bested the average performance of 110 A-rated corporate
debt bond funds according to Lipper Analytical Services, Inc. During this period
bond returns for nearly all investors were modest compared to the double-digit
returns of 1995.
It's worth noting that despite the gyrations of the bond market in 1996,
real yields -- the current yield minus the inflation rate -- have been near
historical highs. With inflation running at 3.3% in 1996, real yields were
significantly above the historical norm of about 2%. Thus, investors received
relatively attractive income even in a low yield environment. We believe Scudder
Income Fund's impressive long-term record of consistent performance is evidence
of our ability to manage fixed-income investments successfully in varying market
conditions. Of course, past performance is no guarantee of future results, but
we think your Fund can continue to provide attractive income and valuable
diversification.
As part of Scudder's ongoing efforts to meet the needs of investors, we
recently launched an innovative new product called Scudder Pathway Series.
Pathway Series is a "fund of funds," comprised of four distinct portfolios:
Conservative, Balanced, Growth, and International. Each portfolio invests in a
select mix of Scudder Funds, providing flexibility, diversification, and
simplicity for regular and retirement plan investors. For more information on
Scudder Fund products and services, please turn to page 22.
Thank you for your continued investment in Scudder Income Fund. If you have
any questions about your investment, please call a Scudder Investor Relations
representative at 1-800-225-2470 or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Income Fund
3-Scudder Income Fund
<PAGE>
PERFORMANCE UPDATE as of December 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER INCOME FUND
- ----------------------------------------
1 Year $10,341 3.41% 3.41%
5 Year $14,079 40.79% 7.08%
10 Year $22,131 121.31% 8.27%
LB AGGREGATE BOND INDEX
- --------------------------------------
1 Year $10,363 3.63% 3.63%
5 Year $14,050 40.50% 7.03%
10 Year $22,547 125.47% 8.46%
- -----------------------------------------------------------------
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 $10,074
'88 $10,971
'89 $12,369
'90 $13,399
'91 $15,719
'92 $16,778
'93 $18,889
'94 $18,053
'95 $21,401
'96 $22,131
LB AGGREGATE BOND INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,276
'88 $11,086
'89 $12,697
'90 $13,384
'91 $16,048
'92 $17,236
'93 $18,916
'94 $18,365
'95 $21,757
'96 $22,547
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 December 31
<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... $12.40 $12.41 $12.89 $12.82 $13.91 $13.48 $13.71 $12.32 $13.61 $13.15
INCOME DIVIDENDS.. $ 1.10 $ 1.07 $ 1.06 $ 1.03 $ .92 $ .93 $ .87 $ .76 $ .86 $ .81
CAPITAL GAINS AND
PAID-IN CAPITAL
DISTRIBUTIONS..... $ - $ - $ - $ 0.06 $ .14 $ .40 $ .57 $ .02 $ .09 $ .09
FUND TOTAL
RETURN (%)........ 0.74 8.91 12.75 8.32 17.32 6.74 12.58 -4.43 18.54 3.41
INDEX TOTAL
RETURN (%)........ 2.76 7.88 14.53 8.96 16.00 7.40 9.75 -2.92 18.47 3.63
</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 December 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Corporate Bonds 37%
U.S. Gov't Agency Pass Thrus 26%
Cash Equivalents 12%
U.S. Gov't Treasury Obligations 10%
Asset-Backed Securities 8%
Foreign Bonds-U.S.$ Denominated 7%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
We reduced Trasuries and redeployed assets in corporate,
mortgage and short-term securities.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA* 56%
AA 4%
A 20%
BBB 20%
- -----------------------------
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
The portfolio's high quality emphasis was maintained throughout the period.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 16%
1-5 years 25%
5-8 years 11%
8-15 years 27%
Greater than 15 years 21%
---------------------------
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: 10.0 years
Shortening duration helped to limit the effects of higher
interest rates on the portfolio.
- -----------------------------------------------------------------------
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>
Dear Shareholders,
Stronger-than-expected economic growth in the first half of 1996 resulted in
higher interest rates and lower bond prices for the year. However, the increase
in rates from point to point did not fully reflect the increased price
volatility that pervaded the bond markets during the year. Despite this
challenging environment, Scudder Income Fund provided a total return of 3.41%
for the 12-month period ended December 31, 1996. This performance was in keeping
with the return of two widely used, broadly diversified bond market benchmarks
- -- the unmanaged Lehman Brothers Aggregate Bond Index and the Lehman Brothers
Government Corporate Index which returned 3.63% and 2.90%, respectively. The
Fund's total return represents a decrease in its net asset value from $13.61 at
the end of 1995 to $13.15 on December 31, 1996, as well as per share income and
capital gain distributions of $0.81 and $0.09, respectively.
Market Overview
Bonds provided positive but modest total returns in 1996. Yields rose during the
first half of the year and moderated in the second half, but still ended the
year higher. Illustrative of this trend is the benchmark 30-year US Treasury
bond yield, which began the year at 5.95%, peaked at 7.18% in July, and fell
back to 6.64% by year end. Because bond prices move in the opposite direction of
yields, bonds generally ended the year lower.
One of the principal concerns of bond investors during the first half of 1996
was the level of economic growth. Leading into 1996 there were indications that
economic growth was slowing. On January 31 the Federal Reserve lowered the
federal funds rate, a move typically intended to stimulate growth. Many bond
investors expected this to set the stage for further rate cuts in 1996. However,
growth turned out to be much stronger than expected with the release of an
employment report in March. Subsequent reports confirmed the economy's strength,
causing yields to rise and bond prices to decline throughout the first half of
1996.
The level of economic growth is an important influence on the bond markets. Its
effect on bonds is counterintuitive: strong growth can spark higher inflation
rates causing yields to rise and prices to decline; slow growth can raise
concerns of a recession, causing yields to decline and bond prices to rise. We
witnessed both rising and falling rates during the period as investors attempted
to sort out conflicting economic reports. In the second half of the year, growth
moderated enabling yields to ease and bond prices to rise, but they did not
return to levels seen at the beginning of 1996.
A Defensive Strategy
During the 12-month period we managed the portfolio actively, seeking to
capitalize on shifts in relative valuation among the Treasury, mortgage, and
corporate sectors. Our strategy in this changing environment was defensive. We
attempted to reduce the Fund's sensitivity to changes in interest rates by
shortening the Fund's duration from 5.6 to 4.8 years. Shorter duration
securities tend to be less sensitive to changes in interest rates and experience
more limited price changes than longer duration securities. We achieved a
6-Scudder Income Fund
<PAGE>
shorter portfolio duration primarily by reducing our holdings of Treasury
securities from 32% to 10% of assets, with most of the reduction occurring
during the first half of the year. We redeployed assets in several areas,
including corporate bonds, mortgage securities, and short-term cash equivalents.
Minimizing Exposure
to Volatility
Years of managing fixed-income investments have taught us that certain bonds
tend to perform better in particular market environments than others. We attempt
to position the portfolio in sectors that we believe are attractively valued and
offer the best potential for performance given the current and expected
environment.
Corporate bonds turned out to be the strongest performing sector of the bond
market in 1996. We held an overweighted position in corporates at the beginning
of the year and continued to add to our position throughout 1996. On December
31, 1995, corporate bonds comprised 29% of assets; a year later corporates had
risen to 37% of assets. In selecting corporate bonds for the portfolio, we
carefully evaluate the quality of each bond, giving consideration to the
issuer's financial condition and ability to make interest payments. We
maintained the Fund's high quality portfolio composition, closing the year with
an average quality rating of 'AA.'
Mortgage securities also constituted an increasing share of the portfolio during
the year, rising from 18% to 26% of assets. These securities, which typically
offer higher yields than Treasuries, became increasingly attractive values as
interest rates rose in the first half of the year. We added mortgage securities
to the portfolio primarily between March and July. These securities played a
significant role in providing stability, diversification, and attractive income
to the Fund.
Throughout the year we maintained a relatively steady position in foreign bonds,
which totaled 7% of assets at the end of the period. Our foreign holdings were
high quality corporate and government bonds with comparable quality ratings to
our U.S. corporate bond holdings. As the year progressed, we eliminated
positions in non-dollar bonds in favor of U.S. dollar-denominated bonds. U.S.
dollar-denominated foreign bonds offered protection from changes in foreign
currencies and typically have similar performance to domestic corporate bonds.
While we tend not to emphasize cash equivalents in our management of the Fund,
short-term investments such as repurchase agreements and commercial paper played
a significant role in dampening price volatility during the year. These high
quality, short-term securities provided excellent liquidity, price stability,
and flexibility to the portfolio. At the end of the period, these securities
represented 12% of assets.
Outlook
Our overall economic outlook for the U.S. remains positive. The U.S. federal
budget deficit stands at 1.6% of Gross Domestic Product, a low level that is the
envy of our European and Asian allies. Continued incremental improvement on the
U.S. budget and entitlement fronts is expected. Net household wealth has
7-Scudder Income Fund
<PAGE>
expanded dramatically over the past two years due to the rising stock market.
The banking, brokerage and insurance industries are all healthy. There are no
major excesses in the corporate sector, and inventories are being managed well.
Unemployment is low, and inflation is relatively stable, with the Consumer Price
Index closing the year at a 3.3% annual rate. Foreign investors were significant
purchasers of Treasury securities during the year, a supportive trend we expect
to continue in 1997 because of the strong U.S. dollar and lower rates abroad.
We anticipate at least a neutral environment for bond investors. We believe
economic growth will decelerate, which should be a positive factor for bonds, as
it relieves upward pressure on interest rates. Even if growth turns out to be
stronger-than- expected, we believe inflation will remain under control. Longer
term, if the current enthusiasm for the stock market wanes, we could see renewed
interest in bonds for their attractive yields and relative price stability.
While there are always uncertainties about the economy and the markets in the
short-term, fixed-income investments continue to offer investors relative
stability and income. Going forward, we believe Scudder Income Fund will
continue to serve a valuable function in a well- balanced and diversified
investment portfolio.
Sincerely,
Your Portfolio Management Team
/s/William M. Hutchinson /s/Stephen A. Wohler
William M. Hutchinson Stephen A. Wohler
Scudder Income Fund:
A Team Approach to Investing
Scudder Income Fund is managed by a team of Scudder investment professionals who
each play an important role in the Fund's management process. Team members work
together to develop investment strategies and select securities for the Fund.
They are supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in Scudder's offices across
the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager William M. Hutchinson has been responsible for the Fund's
day-to-day operations and overall investment strategy since he joined Scudder in
1986. Bill has over 20 years of investment experience. Stephen A. Wohler,
Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Steve has over 16 years' experience managing
fixed-income investments and has been with Scudder since 1979.
8-Scudder Income Fund
<PAGE>
Investment Portfolio as of December 31, 1996
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 11.6%
- ---------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/96
at 6.7%, to be repurchased at $38,753,420 on 1/2/97, collateralized
by a $38,199,000 U.S. Treasury Note, 6.75%, 5/31/99 .............. 38,739,000 38,739,000
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/96
at 6.7%, to be repurchased at $27,718,314 on 1/2/97, collateralized
by a $28,159,000 U.S. Treasury Note, 5.875%, 6/30/00 ............. 27,708,000 27,708,000
- ---------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $66,447,000) 66,447,000
- ---------------------------------------------------------------------------------------------------------
U. S. Government Treasury Obligations 10.0%
U.S. Treasury Note, 5.5%, 9/30/97 .................................. 23,000,000 22,996,320
U.S. Treasury Note, 6.875%, 7/31/99 ................................ 13,000,000 13,264,030
U.S. Treasury Note, 5.875%, 11/15/99 ............................... 22,000,000 21,913,980
- ---------------------------------------------------------------------------------------------------------
Total U.S. Government Treasury Obligations (Cost $58,794,991) 58,174,330
- ---------------------------------------------------------------------------------------------------------
U. S. Government Agency Pass-thrus 26.10%
- ---------------------------------------------------------------------------------------------------------
Government National Mortgage Association, 10%, 2/15/25 ............. 14,776,235 16,274,545
Government National Mortgage Association, 8.5%,
with various maturities to 10/15/25 .............................. 24,147,615 25,042,380
Federal National Mortgage Association, 8%, 12/1/09 ................. 16,977,584 17,488,098
Federal National Mortgage Association, 6.5%,
with various maturities to 2/1/26 ................................ 29,796,919 28,454,832
Federal National Mortgage Association, 7%,
with various maturities to 8/1/26 ................................ 63,772,269 62,389,403
- ---------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $149,279,146) 149,649,258
- ---------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 0.3%
- ---------------------------------------------------------------------------------------------------------
Prudential Home Mortgage Securities Co.,
1993-4 Series A3, 7%, 3/25/23 (Cost $1,816,809) .................. 1,793,825 1,787,655
-----------
Foreign Bonds - U.S.$ Denominated 6.9%
- ---------------------------------------------------------------------------------------------------------
Abbey National PLC, Global Medium Term Note, 6.69%, 10/17/05 ....... 10,000,000 9,823,100
HSBC Finanz Nederland B.V., 7.4%, 4/15/03 .......................... 15,000,000 15,282,900
KFW International Finance Inc., Guaranteed Note, 9.5%, 12/15/00 .... 7,500,000 8,318,925
Province of Ontario, Debenture, 15.75%, 3/15/12 .................... 1,000,000 1,080,900
State Development Institute of Hungary, 10.5%, 8/31/00 ............. 4,425,000 4,909,228
- ---------------------------------------------------------------------------------------------------------
Total Foreign Bonds -- U.S. $ Denominated (Cost $38,247,188) 39,415,053
- ---------------------------------------------------------------------------------------------------------
Asset Backed Securities 7.7%
- ---------------------------------------------------------------------------------------------------------
Automobile Receivables 1.8%
Premier Auto Trust Asset Backed Certificate,
Series 1996-3A4, 6.75%, 11/6/00 .................................. 10,000,000 10,112,500
-----------
Credit Card Receivables 2.7%
Sears Credit Account Master Trust II, Series 1995-4A, 6.25%, 1/15/03 15,500,000 15,562,930
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - SCUDDER INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Equity Loans 0.1%
Fleet Financial Home Equity Trust, Series 1991-2A, 6.7%, 10/15/06 .. 710,978 714,422
-----------
Manufactured Housing Receivables 3.1%
Green Tree Financial Corp., Series 1995-1 B2, 9.2%, 6/15/25 ........ 8,071,000 8,799,912
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/11 8,500,000 8,975,405
-----------
17,775,317
- ---------------------------------------------------------------------------------------------------------
Total Asset Backed Securities (Cost $42,789,171) 44,165,169
- ---------------------------------------------------------------------------------------------------------
Corporate Bonds 37.4%
- ---------------------------------------------------------------------------------------------------------
Consumer Staples 0.8%
Borden Inc., 7.875%, 2/15/23 ....................................... 5,000,000 4,440,150
-----------
Financial 14.9%
Capital One Bank Medium Term Note, 5.95%, 2/15/01 .................. 10,000,000 9,658,400
ERP Operating L.P. Note, 7.57%, 8/15/26 ............................ 2,200,000 2,244,484
First Union Capital II, 7.85%, 1/1/27 .............................. 15,000,000 14,863,050
Ford Motor Credit Co., 6.25%, 2/26/98 .............................. 5,000,000 5,012,450
Ford Motor Credit Co. Global Note, 5.625%, 12/15/98 ................ 10,000,000 9,894,400
Highwoods/Forsyth L.P., 7%, 12/1/06 ................................ 15,000,000 14,793,300
Southern National Corp., 7.05%, 5/23/03 ............................ 15,000,000 15,135,900
Spieker Properties, Inc., 7.875%, 12/1/16 .......................... 5,000,000 4,962,500
Susa Partnership L.P., 7.125%, 11/1/03 ............................. 1,000,000 992,850
Wells Fargo & Co., 6.875%, 4/1/06 .................................. 8,250,000 8,112,473
-----------
85,669,807
-----------
Media 6.4%
News America Holdings Inc., 8.5%, 2/15/05 .......................... 12,000,000 12,851,400
Tele-Communications, Inc., 8%, 8/1/05 .............................. 11,000,000 10,784,840
Time Warner Inc., 9.125%, 1/15/13 .................................. 12,000,000 13,100,400
-----------
36,736,640
-----------
Durables 5.9%
Boeing Co., 6.875%, 10/15/43 ....................................... 10,000,000 9,420,200
Comdisco, Inc., Senior Note, 5.75%, 2/15/01 ........................ 10,000,000 9,679,900
Northrop Grumman Corp., 7.875%, 3/1/26 ............................. 15,000,000 15,034,950
-----------
34,135,050
-----------
Manufacturing 2.7%
Nova Corp. of Alberta, 7.88%, 4/1/23 ............................... 10,000,000 10,529,000
Philips Electronics NV, 7.25%, 8/15/13 ............................. 5,000,000 4,875,750
-----------
15,404,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 4.4%
International Business Machines Corp., 7%, 10/30/45 ................ 15,000,000 14,111,400
Loral Corp., 8.375%, 6/15/24 ....................................... 10,000,000 11,070,100
-----------
25,181,500
-----------
Transportation 2.3%
AMR Corp., 9.75%, 8/15/21 .......................................... 10,000,000 12,253,300
Missouri Pacific Railroad Co. Equipment Trust, Series 21, 14.125%, 3/15/97 770,000 782,782
-----------
13,036,082
- ---------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $213,160,067) 214,603,979
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $570,534,372) (a) 574,242,444
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $570,534,372. At December 31,
1996, net unrealized appreciation for all securities based on tax cost was
$3,708,072. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $8,796,540 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$5,088,468.
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.
11 - SCUDDER INCOME FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1996
Assets
- --------------------------------------------------------------------------------
Investments, at market (including repurchase
agreements of $66,447,000) (identified cost
$570,534,372) (Note A) .................... $574,242,444
Cash ...................................... 295
Receivable for investments sold ........... 14,900,738
Interest receivable ....................... 6,574,756
Receivable on Fund shares sold ............ 652,177
Other assets .............................. 4,144
-------------
Total assets .............................. 596,374,554
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ......... $ 15,028,654
Payable for Fund shares redeemed .......... 2,327,967
Accrued management fee (Note C) ........... 296,838
Other accrued expenses (Note C) ........... 201,593
-------------
Total liabilities ......................... 17,855,052
--------------------------------------------------------------
Net assets, at market value $578,519,502
--------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ....... 618,802
Net unrealized appreciation on investments 3,708,072
Accumulated net realized loss ............. (2,402,226)
Paid-in capital ........................... 576,594,854
--------------------------------------------------------------
Net assets, at market value $578,519,502
--------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and
redemption price per share
($578,519,502/43,994,954 outstanding shares
of beneficial interest, $.01 par
-------------
value, unlimited number of shares authorized) $13.15
-------------
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER INCOME FUND
<PAGE>
Statement of Operations
year ended December 31, 1996
Investment Income
-------------------------------------------------------------------------------
Income:
Interest .................................. $ 40,229,832
Expenses:
Management fee (Note C) ................... 3,516,782
Services to shareholders (Note C) ......... 1,653,778
Custodian and accounting fees (Note C) .... 164,477
Trustees' fees (Note C) ................... 37,761
Reports to shareholders ................... 129,846
Auditing .................................. 46,966
Legal ..................................... 19,178
Registration fees ......................... 41,220
Other ..................................... 20,027
-------------
5,630,035
--------------------------------------------------------------
Net investment income 34,599,797
--------------------------------------------------------------
Realized and unrealized gain (loss) on investments
-------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................... 363,879
Futures ................................... 3,835,954
Options ................................... (104,962)
Foreign currency related transactions ..... 1,004,727
-------------
5,099,598
Net unrealized appreciation (depreciation)
during the period on:
Investments ............................... (20,912,524)
Futures ................................... 515,514
Foreign currency related transactions ..... 177,638
-------------
(20,219,372)
--------------------------------------------------------------
Net loss on investments (15,119,774)
--------------------------------------------------------------
Net increase in net assets resulting
from operations $ 19,480,023
--------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER INCOME FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income $ 34,599,797 $ 33,017,096
Net realized gain from investment transactions 5,099,598 14,545,689
Net unrealized appreciation (depreciation) on investment
transactions (20,219,372) 40,389,666
during the period
------------- -------------
Net increase in net assets resulting from operations 19,480,023 87,952,451
------------- -------------
Distributions to shareholders:
From net investment income (35,051,118) (34,339,511)
------------- -------------
From net realized gains (3,898,759) (1,076,384)
------------- -------------
In excess of net realized gains -- (2,464,465)
------------- -------------
Fund share transactions:
Proceeds from shares sold 167,697,618 148,070,784
Net asset value of shares issued to shareholders in
reinvestment of 34,318,821 32,942,112
distributions
Cost of shares redeemed (182,294,031) (116,046,438)
------------- -------------
Net increase in net assets from Fund share transactions 19,722,408 64,966,458
------------- -------------
Increase (decrease) in net assets 252,554 115,038,549
Net assets at beginning of period 578,266,948 463,228,399
------------- -------------
Net assets at end of period (including undistributed net
investment income of $618,802 and $968,007, respectively) $578,519,502 $578,266,948
------------- -------------
Other Information
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period 42,499,531 37,601,071
------------- -------------
Shares sold 12,592,757 11,192,844
Shares issued to shareholders in reinvestment of 2,612,478 2,478,660
distributions
Shares redeemed (13,709,812) (8,773,044)
------------- -------------
Net increase in Fund shares 1,495,423 4,898,460
------------- -------------
Shares outstanding at end of period 43,994,954 42,499,531
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER INCOME FUND
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended December 31,
1996(a) 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------------
<S> <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
-------------------------------------------------------------------------------------------
Income from investment operations: .80 .83 .84 .90 .95 .93 1.03 1.05 1.07 1.08
Net investment income
Net realized and unrealized gain
(loss) on investments .......... (.36) 1.41 (1.45) .77 (.05) 1.22 (.01) .49 .01 (.99)
-------------------------------------------------------------------------------------------
Total from investment operations .44 2.24 (.61) 1.67 .90 2.15 1.02 1.54 1.08 .09
-------------------------------------------------------------------------------------------
Less distributions: .............. (.81) (.86) (.76) (.87) (.93) (.92) (1.03) (1.06) (1.07) (1.10)
From net investment income
From paid-in capital ............. -- -- -- -- -- -- (.06)(b) -- -- --
From net realized gains on ....... (.09) (.03) -- (.45) (.40) (.14) -- -- -- --
investment transactions
In excess of net realized gains .. -- (.06) (.02) (.12) -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Total distributions .............. (.90) (.95) (.78) (1.44) (1.33) (1.06) (1.09) (1.06) (1.07) (1.10)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net asset value, end of
period ......................... $13.15 $13.61 $12.32 $13.71 $13.48 $13.91 $12.82 $12.89 $12.41 $12.40
- -------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................. 3.41 18.54 (4.43) 12.58 6.74 17.32 8.32 12.75 8.91 .74
Ratios and Supplemental Data
Net assets, end of period ........ 579 578 463 509 457 403 302 272 245 242
($ millions)
Ratio of operating expenses to ... .98 .99 .97 .92 .93 .97 .95 .93 .94 .94
average daily net assets (%)
Ratio of net investment income to 6.01 6.35 6.43 6.32 7.05 7.13 8.21 8.23 8.53 8.37
average daily net assets (%)
Portfolio turnover rate (%) ...... 66.9 128.3 60.3 130.6 121.3 109.6 48.0 63.2 19.6 33.7
</TABLE>
(a) Based on montly average shares outstanding during the period.
(b) 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.
15 - SCUDDER INCOME FUND
<PAGE>
Notes to Financial Statements
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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
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
16 - SCUDDER INCOME FUND
<PAGE>
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 year ended
December 31, 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. In addition, from November 1, 1996 through December 31, 1996, the Fund
incurred approximately $104,000 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, 1997.
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.
17 - SCUDDER INCOME FUND
<PAGE>
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.
B. Purchases and Sales of Securities
For the year ended December 31, 1996, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $259,619,860 and $186,351,324, respectively. Purchases and sales of
U.S. Government obligations aggregated $88,441,339 and $205,265,545,
respectively.
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1996 was $3,507,115,593 and $3,523,605,704, 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 year ended December 31, 1996, the fee pursuant to
the Agreement amounted to $3,516,782, which was equivalent to an annual
effective rate of 0.61% 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
year ended December 31, 1996, the amount charged to the Fund by SSC aggregated
$693,316, of which $67,951 is unpaid at December 31, 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 year ended December 31,
1996, the amount charged to the Fund by STC aggregated $872,411, of which
$97,965 is unpaid at December 31, 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 year ended
December 31, 1996, the amount charged to the Fund by SFAC aggregated $97,111, of
which $8,061 is unpaid at December 31, 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 year ended
December 31, 1996, Trustees' fees aggregated $37,761.
18 - SCUDDER INCOME FUND
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders of Scudder Income Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Income Fund, including the investment portfolio, as of December 31, 1996, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Income Fund as of December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the ten years in
the period then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 3, 1997
19 - SCUDDER INCOME FUND
<PAGE>
Tax Information
The Fund paid distributions of $.05 per share from long-term capital gains
during its year ended December 31, 1996. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $1,926,541 as capital gain dividends for its
fiscal year ended December 31, 1996.
20 - SCUDDER INCOME FUND
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
David S. Lee*
Vice President and Trustee
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University, College
of Business Administration
Jean C. Tempel
Trustee; Director, General Partner, TL Ventures
Kelly D. Babson*
Vice President
Jerard K. Hartman*
Vice President
William M. Hutchinson*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
*Scudder, Stevens & Clark, Inc.
21-Scudder Income Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U. S. Income
- ------------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
Retirement Programs
- -------------------
IRA
SEP IRA
SIMPLE IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan * +++ +++
(a variable annuity)
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed from expected
least to most risk. +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.
22-Scudder Income Fund
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges,
and an overview of all the services available to you
Scudder Electronic Account Services --
http://funds.scudder.com
For information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment
questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services
- --------------------------------------------------------------------------------
To receive information about this discount brokerage service and
to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
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 Chicago San Francisco
Boston New York
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.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** 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.
23-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 over 40 pure no loadO 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.
SCUDDER
