Scudder
Income
Fund
Semiannual Report
July 31, 1999
No-Load Funds
Seeks a high level of income consistent with the prudent investment of capital.
A no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Scudder Income Fund
- --------------------------------------------------------------------------------
Date of Inception: 4/24/28 Total Net Assets as of Ticker Symbol: SCSBX
7/31/99: $762 million
- --------------------------------------------------------------------------------
o Record levels of new corporate bond issuance and fears of incipient inflation
contributed to a sharp drop in bond prices during the latter half of the
reporting period.
o Fund management remained focused on corporate bonds, particularly non-cyclical
issues in the media, telecommunications, and consumer non-durables sectors. Such
companies tend to have steady, recurring cash flows, and are less affected by
fluctuations in the economy.
o Management's decision to reduce duration and pare back on its position in
corporates helped dampen the effects of the slump in bond prices.
Table of Contents
3 Letter from the Fund's President 14 Financial Statements
4 Performance Update 17 Financial Highlights
5 Portfolio Summary 18 Notes to Financial Statements
6 Portfolio Management Discussion 21 Officers and Trustees
9 Glossary of Investment Terms 22 Investment Products and Services
10 Investment Portfolio 23 Scudder Solutions
2 - Scudder Income Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The domestic economic expansion of the late 1990s has proven to be
beneficial on many levels -- unemployment has fallen, home ownership has climbed
to record levels, and of course, the stock market has soared to four straight
years of gains over 20%. Although inflation has been virtually nonexistent
during this time span, the fear that the strong economy would eventually create
price pressures has been the cause of periodic slumps in the bond market. Most
recently, stronger growth overseas has removed a powerful deflationary force
from the global economy, and has sparked fears that inflation would finally
begin to perk up in the United States. While so far price pressures have only
emerged in specific areas of the economy, such as housing and energy, the
Federal Reserve has nevertheless demonstrated the willingness to act
preemptively to stem inflation before it emerges. In response to these
developments, virtually all sectors of the bond market lost ground during the
period.
While price declines of any kind are always undesirable to bond investors,
the retreat in bond prices over the last few months has been relatively small by
historical measures. Seasoned investors understand that some price fluctuation
is to be expected with bond funds. However, investments with a conservative
approach and an emphasis on value and diversification, such as Scudder Income
Fund, can help to minimize one's exposure during periods of rising rates. For
more information on the recent market environment and the fund's investment
strategy, please turn to the Portfolio Management Discussion on page 6.
Finally, it should be noted that Daniel Pierce retired in June of this year
as President of Scudder Income Fund, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the fund's team in this capacity, and look forward
to serving your interests.
Thank you for your continued investment in Scudder Income Fund. If you have
any questions about your investment, please call Scudder Investor Information at
1-800-SCUDDER (1-800-728-3337) or visit our Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Income Fund
3 - Scudder Income Fund
<PAGE>
Performance Update as of July 31, 1999
- -----------------------------
Fund Index Comparisons
- -----------------------------
Total Return
--------------------------------------------
Period
Ended Growth of Average
7/31/1999 $10,000 Cumulative Annual
--------------------------------------------
Scudder Income Fund
--------------------------------------------
1 Year $ 10,049 .49% .49%
5 Year $ 13,747 37.47% 6.57%
10 Year $ 20,669 106.69% 7.53%
--------------------------------------------
LB Aggregate Bond Index
--------------------------------------------
1 Year $ 10,247 2.47% 2.47%
5 Year $ 14,226 42.26% 7.30%
10 Year $ 21,336 113.36% 7.87%
- ------------------------------------
Growth of a $10,000 Investment
- ------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
LB Aggregate Bond Index Scudder Income Fund
'89 10000 10000
'90 10704 10650
'91 11849 11736
'92 13602 13575
'93 14986 15204
'94 14998 15035
'95 16514 16505
'96 17427 17470
'97 19305 19296
'98 20821 20569
'99 21336 20669
Yearly Periods Ended July 31
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
- -------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
Yearly Periods Ended July 31
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $12.87 $13.09 $13.91 $14.22 $12.79 $13.18 $13.02 $13.44 $13.53 $12.56
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ 1.05 $ 1.04 $ .92 $ .92 $ .80 $ .81 $ .84 $ .80 $ .78 $ .80
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains and Paid-In
Distributions $ -- $ -- $ .25 $ .35 $ .51 $ -- $ .09 $ .10 $ -- $ .24
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 6.50 10.20 15.67 12.01 -1.12 9.78 5.84 10.45 6.60 .49
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 7.04 10.70 14.79 10.18 .08 10.11 5.53 10.78 7.85 2.47
- -----------------------------------------------------------------------------------------------------------------------------
</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. If the Adviser had not maintained the Fund's
expenses, total returns would have been lower.
4 - Scudder Income Fund
<PAGE>
Portfolio Summary as of July 31, 1999
- -------------------
Diversification
- -------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Corporate Bonds 50%
U.S. Treasury Obligations 24%
U.S. Government Agency
Pass-Thrus 11%
Asset Backed Securities 6%
Cash Equivalents 3%
Collateralized Mortgage Obligations 2%
Foreign Bonds -- U.S.$ Denominated 2%
Other 2%
----------------------------------------
100%
----------------------------------------
Management emphasized corporate issues, which continued to offer attractive
yields in relation to other sectors of the bond market.
- --------------
Quality
- --------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
U.S. Government and Agencies 36%
AAA* 8%
AA 7%
A 10%
BBB 21%
BB 10%
B 5%
NR 3%
------------------------------------
100%
------------------------------------
*Category includes cash equivalents
The fund's shift into higher quality securities helped mitigate the effects of
weakness in the bond market.
- ------------------------
Effective Maturity
- ------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 5%
1 through 5 years 30%
5 through 8 years 18%
8 through 15 years 30%
Greater than 15 years 17%
------------------------------------
100%
------------------------------------
Weighted average effective maturity: 9.17 years
As the reporting period progressed, management shifted assets into bonds with
maturities of 3 to 5 years, which became more attractive as the yield curve
flattened.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Income Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Lead Portfolio Manager Robert Cessine discusses
Scudder Income Fund's strategy and the market environment in the six-month
period ended July 31, 1999.
Q: Bond prices declined substantially over the last three months. What factors
contributed to this slump?
A: The primary reason for the weakness in bond prices was the wide divergence
between expectations and reality. At the beginning of the year, the bond
market's strength reflected the consensus view that the global economy was going
to slow substantially, possibly to a point that would spark widespread
deflation. As the year progressed, however, it became increasingly apparent that
growth was picking up. In the United States, employment, retail sales, and
consumer spending reached some of the highest levels of recent years. Energy
prices increased sharply due to OPEC's supply restraints, and other inflation
measures began to show moderate rates of increase. Meanwhile, the resurgence in
foreign growth placed additional upward pressure on global bond yields and
removed a significant deterrent to an interest rate increase by the Federal
Reserve. Bond prices fell as expectations increased that the Fed would have to
raise interest rates, which it did at its meeting on June 30. The Fed's
announcement of a "neutral" rate bias briefly relieved pressure from the market,
but new evidence that inflation may be on the upswing pushed bond yields back to
their previous highs by late July. Against this backdrop, the yield on the
30-year Treasury bond rose from 5.09% on January 31 to 6.10% by July 31.
Corporate issues and mortgage-backed securities suffered the worst damage once
the drop in bond prices began to accelerate in May. Although strong corporate
earnings and a rising stock market provided a positive backdrop for corporate
bond prices early in the year, supply and demand factors drove down prices in
all non-Treasury sectors over the final three months of the reporting period. In
an environment where global fixed income supply is expected to top $5 trillion
for the second straight year, concerns over heavy corporate issuance ahead of
the Year 2000 deadline kept many investors away from the corporate sector. The
effort to condense a year's worth of financing into a nine-month window has put
significant pressure on the market by increasing supply at a time when interest
rate jitters were already sapping demand. Illiquidity was also a major factor in
larger credit spreads, as major broker-dealers were hesitant to take new bonds
into their inventories with memories of last fall's financial crisis still fresh
and the threat of Y2K-induced dislocations only months away. Mortgage-backed
securities, which were hurt by fears of increasing prepayments early in the year
and rising rates during the summer months, also posted poor performance.
Q: How did the fund perform over the period?
A: For the six-month period ended July 31, 1999, the fund produced a total
return of -2.94%, which trailed the -2.50% return of its benchmark, the Lehman
Brothers Aggregate Bond Index. However, the fund's return placed it above the
- -3.51% average return for domestic taxable bond funds, as
6 - Scudder Income Fund
<PAGE>
calculated by Lipper Analytical Services, Inc.^1 We attribute this positive
showing to our conservative approach to duration management and the fact that we
trimmed our position in corporates ahead of the sector's collapse in June and
July.
Q: How have you positioned the fund within the corporate sector?
A: Heading into 1999, we held a favorable view of "spread products," those
issues that trade based on the difference between their yield and the yield on
the U.S. Treasury issue of comparable maturity. We felt that corporates, in
particular, offered significant value at that time. Our overweight position had
a positive impact early in the period when the sector was strong, but we began
to pare back on our holdings late in the first quarter on the belief that the
interest rate environment would take a turn for the worse. The decision to
reduce the fund's weighting in corporates helped performance by lessening the
impact of the sector's weakness throughout the spring. Feeling that the slump
had largely played itself out by mid-June, we began to make selective purchases
of quality issues that had fallen to attractive levels.
We continue to underweight the so-called "smokestack industries" in order to
gain shelter from fluctuations in the economy. We continue to overweight the
consumer non-durables sector, which includes Safeway, Borden, Inc., and Pepsi
Bottling Holdings. The telecommunications and media sectors, which tend to have
non-cyclical revenue streams, were also heavily represented within the
portfolio. Examples of bonds we hold in these sectors are those issued by
Sprint, Time Warner, and TCI Communications. While heavy weighting in bonds with
relatively stable cash flows contributed positively to the fund's performance
over the past two years, such issues tended to underperform during the bond
market's recent slump. A parallel can be drawn to the stock market, where higher
quality names outperformed through 1998 and the first quarter of 1999, but gave
way to cyclicals and other groups of lesser quality once the global economy
began to pick up steam. Despite the recent weakness in these issues, we believe
that a focus on quality will benefit the fund over time.
Q: What has been your strategy with respect to duration?
A: At the beginning of the year, the fund's duration was slightly ahead of that
of its benchmark. While this positioning contributed positively to performance
earlier in the period, we felt that the combination of stronger than expected
growth and heavy corporate bond issuance warranted a more defensive positioning
as the year progressed. Consequently, we reduced the fund's duration to 5.0
years (from 5.21 at the start of the period), which represents a neutral
positioning in comparison to the benchmark. We accomplished this by selling
longer maturity bonds and reinvesting the proceeds into intermediate-term issues
(those with maturities of 3-5 years), which in our view offered a better
combination of risk and reward given the flatter yield curve. Going forward, we
intend to keep duration neutral until such time as we see
- -----------------------------
^1 Lipper Analytical Services, Inc. is an independent analyst of investment
performance. Performance includes reinvestment of dividends and capital gains.
Past performance is not indicative of future results.
7 - Scudder Income Fund
<PAGE>
indications that the economy is slowing, or we gain a clearer indication from
the Fed as to what their next move might be.
Q: In terms of credit quality, how did you position the portfolio?
A: The fund's average credit quality as of July 31 was AA. This positioning had
little impact on relative performance; however, our decision to trim the fund's
weighting in high yield issues from 19% to 15% hurt us in the latter part of the
period. Our belief that the strong recent performance of high yield issues has
left them highly vulnerable to the troubles plaguing the rest of the bond market
prompted us to move money out of the sector and reinvest it in BBB-rated bonds.
This move proved to be premature, however, since the high yield sector continued
to outperform while the rest of the bond market stumbled.
Q: What is your outlook for the bonds over the remainder of 1999?
A: We currently hold a neutral outlook on the fixed income markets. On one hand,
we are concerned about the strength of the U.S. economy and the tight labor
markets, factors that could potentially result in a higher rate of inflation. It
is important to remember that the acceleration of inflation may be more
important to market participants than its current low level. On the other hand,
we believe that from the standpoint of a long-term investment horizon, i.e., one
that extends beyond the Year 2000, the recent slump in corporates and
mortgage-backed securities has produced some intriguing opportunities. Both Y2K
and the overabundance of supply are essentially short-term phenomena that should
disappear by year-end, a fact that makes current yield levels attractive on both
a relative and an absolute basis. Going forward, we will strive to capitalize on
these values, and will continue to seek the optimal balance of risk and return.
8 - Scudder Income Fund
<PAGE>
Glossary of Investment Terms
CONSUMER NON-DURABLES Products bought by consumers that are
expected to last less than three years, such
as food and drugs. Sales of non-durables
generally tend to be less sensitive to
economic fluctuations.
CYCLICALS Companies whose earnings are closely tied to
the business cycle. Cyclical industries
include steel, cement, paper, machinery, and
autos.
DEFLATION A decline in the prices of goods and
services. The opposite of inflation,
deflation usually has a negative effect on
output and employment.
DURATION A measure of bond price volatility. Duration
can be defined as the approximate percentage
change in price for a 100 basis point (one
single percentage point) change in market
interest rate levels. A duration of 5, for
example, means that the price of a bond
should rise by approximately 5% for a one
percentage point drop in interest rates, and
fall by 5% for a one percentage point rise
in interest rates.
LIQUIDITY A characteristic of an investment or an
asset referring to the ease of
convertibility into cash within a reasonably
short period of time. A stock that is liquid
has enough shares outstanding and a
substantial enough market capitalization to
allow large purchases and sales to occur
without causing a significant move in its
market price as a result
YIELD SPREAD The difference in yield between two types of
bonds. A mortgage-backed security's yield is
often measured against the yield of a
Treasury bond of similar maturity as a
market yardstick. If GNMA yield spreads are
"narrow," for example, it typically means
that GNMA yields have been declining, and
prices rising, compared with Treasury bonds
of similar maturity.
(Sources: Scudder Kemper Investments, Inc; Barron's Dictionary of Finance and
Investment Terms)
9 - Scudder Income Fund
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of July 31, 1999 (Unaudited)
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 3.3%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 7/30/1999 at 5.04%, to be
repurchased at $24,627,339 on 8/2/1999, collateralized by a $22,750,000 U.S. Treasury Bond, -----------
7.25%, 5/15/2016 (Cost $24,617,000) ....................................................... 24,617,000 24,617,000
-----------
U.S. Government & Agencies 23.9%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.75%, 6/30/2001 ........................................................ 10,350,000 10,367,802
U.S. Treasury Note, 5.625%, 12/31/2002 ...................................................... 5,000,000 4,971,100
U.S. Treasury Note, 5.5%, 5/31/2003 ......................................................... 10,000,000 9,871,900
U.S. Treasury Note, 6.5%, 10/15/2006 ........................................................ 12,000,000 12,281,280
U.S. Treasury Note, 4.75%, 11/15/2008 ....................................................... 5,000,000 4,562,500
U.S. Treasury Note, 3.93%, 1/15/2009 ........................................................ 16,000,000 16,006,811
U.S. Treasury Note, 5.5%, 5/15/2009 ......................................................... 13,000,000 12,610,000
U.S. Treasury Bond, 10.75%, 8/15/2005 ....................................................... 27,000,000 33,340,680
U.S. Treasury Bond, 9.375%, 2/15/2006 ....................................................... 15,000,000 17,662,500
U.S. Treasury Bond, 7.25%, 5/15/2016 ........................................................ 29,000,000 31,569,110
U.S. Treasury Bond, 6.25%, 8/15/2023 ........................................................ 11,500,000 11,393,970
U.S. Treasury Bond, 3.68%, 4/15/2028 ........................................................ 15,750,000 15,118,492
- ------------------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $189,866,395) 179,756,145
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Pass-thrus 11.0%
- ------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 8.0% with various maturities to 2/1/2013 ............. 18,387,607 18,833,752
Federal National Mortgage Association, 6.5%, 3/1/2028 ....................................... 38,563,606 36,719,784
Government National Mortgage Association Pass-thru, 7.5%, 11/15/2027 ........................ 4,883,989 4,876,321
Government National Mortgage Association Pass-thru, 7.0% with various maturities to 5/1/2029 22,938,445 22,357,644
- ------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $86,038,501) 82,787,501
- ------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 1.7%
- ------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Series 1997-QS12 A7, 7.25%, 11/25/2027 (Cost $13,395,306) . 13,173,012 12,985,709
-----------
Foreign Bonds -- U.S.$ Denominated 2.1%
- ------------------------------------------------------------------------------------------------------------------------
PacifiCorp Australia LLC, 6.15%, 1/15/2008 .................................................. 9,000,000 8,514,180
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................................... 8,000,000 7,474,880
- ------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds -- U.S.$ Denominated (Cost $16,736,870) 15,989,060
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Income Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
Asset Backed 5.7%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Receivables 1.9%
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003 ............. 7,000,000 6,943,125
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 7,471,373 7,492,367
-----------
14,435,492
-----------
Credit Card Receivables 1.3%
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ............................... 10,000,000 9,693,700
-----------
Manufactured Housing Receivables 2.5%
Green Tree Financial Corp., Series 1997-1 B2, 7.76%, 3/15/2028 ................ 4,250,000 3,081,250
Green Tree Financial Corp., Series 1998-2 B1, 7.36%, 10/1/2020 ................ 5,000,000 4,068,750
Green Tree Financial Corp., Series 1998-2 B1, 7.17%, 1/15/2029 ................ 5,000,000 3,959,375
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/2011 ... 7,633,123 7,652,206
-----------
18,761,581
- ---------------------------------------------------------------------------------------------------------
Total Asset Backed (Cost $46,201,284) 42,890,773
- ---------------------------------------------------------------------------------------------------------
Corporate Bonds 49.9%
- ---------------------------------------------------------------------------------------------------------
Consumer Staples 6.0%
Bass America Inc., 6.625%, 3/1/2003 ........................................... 9,500,000 9,381,155
Borden Inc., 7.875%, 2/15/2023 ................................................ 5,000,000 3,987,550
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 .............................. 10,000,000 9,018,000
Racers-Kellogg, 5.75%, 2/2/2001 ............................................... 10,000,000 9,965,000
Safeway Inc., 6.05%, 11/15/2003 ............................................... 6,000,000 5,797,860
Westpoint Stevens, Inc., 7.875%, 6/15/2005 .................................... 7,000,000 6,807,500
-----------
44,957,065
-----------
Health 0.4%
Tenet Healthcare Corp., 8.625%, 1/15/2007 ..................................... 3,000,000 2,910,000
-----------
Communications 4.4%
AT&T Corp., 6%, 3/15/2009 ..................................................... 7,000,000 6,501,178
Qwest Communications International, 7.5%, 11/1/2008 ........................... 10,000,000 9,895,800
Sprint Capital Corp., 6.125%, 11/15/2008 ...................................... 10,000,000 9,194,700
Sprint Capital Corp., 6.375%, 5/1/2009 ........................................ 8,000,000 7,640,000
-----------
33,231,678
-----------
Financial 12.1%
Bank United Capital Trust, 10.25%, 12/31/2026 ................................. 4,250,000 4,037,500
Boeing Capital Corp., 6.75%, 12/23/2003 ....................................... 10,000,000 10,067,600
Capital One Bank, 6.57%, 1/27/2003 ............................................ 5,000,000 4,903,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Income Fund
<PAGE>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------
Commerce Bancorporation, 11.75%, 6/6/2027 ........... 6,200,000 6,634,000
First USA Bank, 5.85%, 2/22/2001 .................... 9,750,000 9,675,705
First Union Institutional Capital II, 7.85%, 1/1/2027 14,000,000 13,321,420
General Electric Capital Corp., 6.02%, 5/4/2001 ..... 9,000,000 8,955,000
GS Escrow Corp., 7%, 8/1/2003 ....................... 7,000,000 6,714,190
Home Savings of America, 6%, 11/1/2000 .............. 10,000,000 9,941,000
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ............ 8,000,000 7,277,200
Prudential Insurance Co., 6.375%, 7/23/2006 ......... 10,000,000 9,667,900
-----------
91,194,515
-----------
Media 9.1%
Cablevision Systems Corp., 7.875%, 2/15/2018 ........ 10,000,000 9,291,500
Chancellor Media Corp., 8%, 11/1/2008 ............... 6,000,000 5,850,000
Charter Communication Holdings LLC, 8.25%, 4/1/2007 . 7,000,000 6,632,500
News America Holdings Inc., 9.25%, 2/1/2013 ......... 10,000,000 11,103,900
Outdoor Systems, Inc., 8.875%, 6/15/2007 ............ 10,000,000 10,350,000
TCI-Communications, Inc., 8%, 8/1/2005 .............. 11,250,000 11,855,925
Time Warner Inc., 9.125%, 1/15/2013 ................. 12,000,000 13,521,240
-----------
68,605,065
-----------
Service Industries 0.5%
Allied Waste North America, 7.375%, 1/1/2004 ........ 3,500,000 3,272,500
-----------
Durables 2.1%
Lear Corp., 7.96%, 5/15/2005 ........................ 8,000,000 7,836,000
Martin Marietta Corp., 6.5%, 4/15/2003 .............. 8,000,000 7,814,800
-----------
15,650,800
-----------
Manufacturing 2.2%
Apache Corp., 7.7%, 3/15/2026 ....................... 2,000,000 1,964,320
Graham Packaging Co., 8.75%, 1/15/2008 .............. 5,150,000 4,969,750
Xerox Corp., 5.5%, 11/15/2003 ....................... 10,000,000 9,537,000
-----------
16,471,070
-----------
Technology 1.0%
Raytheon Co., 6%, 12/15/2010 ........................ 8,000,000 7,258,800
-----------
Energy 5.6%
Anadarko Petroleum Corp., 7%, 11/15/2027 ............ 11,600,000 10,365,064
Barrett Resources Corp., 7.55%, 2/1/2007 ............ 6,700,000 6,381,750
Conoco, Inc., 6.35%, 4/15/2009 ...................... 5,500,000 5,236,275
Lomak Petroleum, Inc., 8.75%, 1/15/2007 ............. 5,000,000 4,650,000
The accompanying notes are an integral part of the financial statements.
12 - Scudder Income Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ......... 5,000,000 4,853,950
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ............. 6,500,000 4,923,750
Texas Eastern Transmission Corp., 10%, 8/15/2001 ........... 5,500,000 5,865,255
-----------
42,276,044
-----------
Construction 0.4%
Nortek, Inc., 9.125%, 9/1/2007 ............................. 3,250,000 3,233,750
-----------
Transportation 2.2%
Allied Holdings Inc., 8.625%, 10/1/2007 .................... 4,000,000 3,680,000
Continental Airlines Inc., 6.795%, 8/2/2018 ................ 8,000,000 7,569,600
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ........... 5,000,000 5,125,000
-----------
16,374,600
-----------
Utilities 3.9%
Houston Light & Power Capital Trust II, 8.257%, 2/1/2037 ... 6,500,000 6,110,000
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ............... 13,000,000 13,111,930
Public Service Co. of Colorado, 6%, 4/15/2003 .............. 10,000,000 9,747,600
-----------
28,969,530
- ---------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $391,091,422) 374,405,417
- ---------------------------------------------------------------------------------------
Other 2.4%
- ---------------------------------------------------------------------------------------
New Jersey Economic Development Authority, 7.425%, 2/15/2029 3,500,000 3,511,725
Riverside Loan Trust I, 7.438%, 7/16/2008 .................. 15,000,000 14,316,915
- ---------------------------------------------------------------------------------------
Total Other (Cost $18,500,000) 17,828,640
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $786,446,778) (a) 751,260,245
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $786,675,997. At July 31,
1999, net unrealized depreciation for all securities based on tax cost was
$35,415,752. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,460,549 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$37,876,301.
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 may be shorter than stated
maturities due to prepayments. All separate investments in the Federal
National Mortgage Association and the Government National Mortgage
Association issues which have similar coupon rates have been aggregated for
presentation purposes in the investment portfolio.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Income Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $786,446,778) ....... $ 751,260,245
Interest receivable ......................................... 12,314,097
Receivable for Fund shares sold ............................. 495,261
Other receivables and assets ................................ 10,303
-------------
Total assets ................................................ 764,079,906
Liabilities
- -----------------------------------------------------------------------------------------------
Due to custodian bank ....................................... 3,186
Payable for Fund shares redeemed ............................ 989,271
Accrued management fee ...................................... 91,981
Other payables and accrued expenses ......................... 1,161,375
-------------
Total liabilities ........................................... 2,245,813
-----------------------------------------------------------------------------
Net assets, at market value $ 761,834,093
-----------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ......................... 4,727,080
Net unrealized appreciation (depreciation) on investments ... (35,186,533)
Accumulated net realized gain (loss) ........................ (7,149,984)
Paid-in capital ............................................. 799,443,530
-----------------------------------------------------------------------------
Net assets, at market value $ 761,834,093
-----------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($761,834,093 / 60,633,755 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares -------------
authorized) ............................................... $12.56
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Income Fund
<PAGE>
Statement of Operations
six months ended July 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- ---------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest ...................................................... $ 26,962,661
------------
Expenses:
Management fee ................................................ 2,293,474
Services to shareholders ...................................... 3,168,064
Custodian and accounting fees ................................. 65,658
Trustees' fees and expenses ................................... 18,967
Reports to shareholders ....................................... 72,013
Auditing ...................................................... 25,461
Legal ......................................................... 4,092
Registration fees ............................................. 33,029
Other ......................................................... 15,413
------------
Total expenses before reductions .............................. 5,696,171
Expense reductions ............................................ (2,034,504)
------------
Expenses, net ................................................. 3,661,667
------------------------------------------------------------------------------
Net investment income 23,300,994
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment transactions ......... (4,262,218)
------------
Net unrealized appreciation (depreciation) during the period on
investments ................................................. (42,157,592)
------------------------------------------------------------------------------
Net gain (loss) on investments (46,419,810)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(23,118,816)
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Income Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months For the One
Ended Month Ended Year Ended
July 31, 1999 January 31, 1999 December 31,
Increase (Decrease) in Net Assets (Unaudited) (Note A) 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .......................... $ 23,300,994 $ 4,044,321 $ 45,678,014
Net realized gain (loss) from investment
transactions ................................ (4,262,218) (1,400,330) 14,304,429
Net unrealized appreciation (depreciation) on
investment transactions during the period ... (42,157,592) 4,596,618 (15,559,064)
------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................. (23,118,816) 7,240,609 44,423,379
------------- ------------- -------------
Distributions to shareholders:
From net investment income ..................... (23,623,871) -- (44,503,457)
------------- ------------- -------------
From net realized gain (loss) .................. -- -- (14,183,125)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ...................... 142,792,389 33,147,329 334,489,016
Net asset value of shares issued to shareholders
in reinvestment of distributions ............ 21,324,164 1,359 53,731,519
Cost of shares redeemed ........................ (141,268,628) (60,589,752) (263,283,739)
------------- ------------- -------------
Net increase (decrease) in net assets from Fund
share transactions .......................... 22,847,925 (27,441,064) 124,936,796
------------- ------------- -------------
Increase (decrease) in net assets .............. (23,894,762) (20,200,455) 110,673,593
Net assets at beginning of period .............. 785,728,855 805,929,310 695,255,717
Net assets at end of period (including
undistributed net investment income of
$4,727,080, $5,049,957, and $1,022,643, ------------- ------------- -------------
respectively) ............................... $ 761,834,093 $ 785,728,855 $ 805,929,310
------------- ------------- -------------
Other Information
-------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ...... 58,833,586 60,884,669 51,662,855
------------- ------------- -------------
Shares sold .................................... 11,052,618 2,505,854 24,661,783
Shares issued to shareholders in reinvestment of
distributions ............................... 1,673,039 107 4,016,366
Shares redeemed ................................ (10,925,488) (4,557,044) (19,456,335)
------------- ------------- -------------
Net increase (decrease) in Fund shares ......... 1,800,169 (2,051,083) 9,221,814
------------- ------------- -------------
Shares outstanding at end of period ............ 60,633,755 58,833,586 60,884,669
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - 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>
Six Months For the One
Ended Month Ended
July 31, January 31, Years Ended December 31,
1999(a) 1999(a)
(Unaudited) (Note A) 1998(a) 1997(a) 1996(a) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 13.36 $ 13.24 $ 13.46 $ 13.15 $ 13.61 $ 12.32 $ 13.71
Income from investment operations: ------------------------------------------------------------------------------
Net investment income ............................ .39 .07 .81 .80 .80 .83 .84
Net realized and unrealized gain (loss) on
investments .................................... (.79) .05 .00(c) .31 (.36) 1.41 (1.45)
Total from investment operations ................. (.40) .12 .81 1.11 .44 2.24 (.61)
Less distributions:
From net investment income ....................... (.40) -- (.79) (.79) (.81) (.92) (.78)
From net realized gains on investment transactions -- -- (.24) (.01) (.09) (.03) --
------------------------------------------------------------------------------
Total distributions .............................. (.40) -- (1.03) (.80) (.90) (.95) (.78)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net asset value, end of period ................... $ 12.56 $ 13.36 $ 13.24 $ 13.46 $ 13.15 $ 13.61 $ 12.32
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................. (2.94)**(b) .91**(b) 6.11(b) 8.66 3.41 18.54 (4.43)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........... 762 786 806 695 579 578 463
Ratio of operating expenses, net to average daily
net assets (%) ................................. .95* .95* .99 1.18 .98 .99 .97
Ratio of operating expenses before expense
reductions, to average daily net assets (%) .... 1.48* 1.50* 1.33 1.18 .98 .99 .97
Ratio of net investment income to average daily
net assets (%) ................................. 6.05* 5.85* 5.98 6.00 6.01 6.35 6.43
Portfolio turnover rate (%) ...................... 61.3* 20.6** 125.7 61.9 66.9 128.3 60.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Amount is less than one half of $.01.
* Annualized
** Not annualized
17 - 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") which is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
organized as a Massachusetts business trust.
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 purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Fund, whose quotations reflect broker/dealer-supplied valuations
and electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required. At January 31, 1999 the Fund had a net tax
basis capital loss carryforward of approximately $2,700,000 which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until January 31,2007, the expiration date.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually. The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Original issue discounts are accreted for both tax and financial reporting
purposes.
Expenses. Expenses arising in connection with a specific Fund are allocated to
that Fund. Other Trust expenses are allocated between the Funds in proportion to
their relative net assets.
18 - Scudder Income Fund
<PAGE>
B. Purchases and Sales of Securities
During the six months ended July 31, 1999, purchases and sales of investment
securities (excluding short-term investments and direct U.S. Government
Obligations) aggregated $106,778,572 and $123,534,223, respectively. Purchases
and sales of direct U.S. Government obligations aggregated $120,464,457 and
$110,368,906, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or 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. Effective March 2, 1998, the Adviser has
agreed to maintain the annualized expenses of the Fund at not more than 0.95% of
average daily net assets until April 30, 2000. Accordingly, for the six months
ended July 31, 1999, the Adviser did not impose a portion of its management fee
aggregating $2,034,504 and the amount imposed aggregated $258,970, which was
equivalent to an annualized effective rate of 0.07% 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 July 31, 1999, the amount charged to the Fund by SSC aggregated
$390,498, of which $57,394 is unpaid at July 31, 1999.
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 July 31,
1999, the amount charged to the Fund by STC aggregated $1,692,487, of which
$576,331 is unpaid at July 31, 1999.
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 July 31, 1999, the amount charged to the Fund by SFAC aggregated $47,305,
of which $15,537 is unpaid at July 31, 1999.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. For the six months ended July
31, 1999, the Special Servicing Agreement expense charged to the Fund amounted
to $490,126.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the six
months ended July 31, 1999, Trustees' fees and expenses aggregated $18,967.
19 - Scudder Income Fund
<PAGE>
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata based on assets among each of the Participants.
Interest is calculated based on the market rates at the time of the borrowing.
The Fund may borrow up to a maximum of 33 percent of its net assets under the
agreement.
20 - Scudder Income Fund
<PAGE>
Officers and Trustees
Lynn S. Birdsong*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Venture Partner,
Venture Capital Group
Kelly D. Babson*
Vice President
William M. Hutchinson*
Vice President
Valerie F. Malter*
Vice President
Ann M. McCreary*
Vice President
John Millette*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, 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
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market^+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free^+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
22 - Scudder Income Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-SCUDDER
Please address all written correspondence to: The Scudder Funds, P.O. Box 2291, Boston, Massachusetts 02107-2291
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23 - Scudder Income Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $280 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
