Filed electronically with the Securities and
Exchange Commission on July 29, 1996
File No. 2-82632
File No. 811-3699
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
--
Post-Effective Amendment No. 13
--
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17
--
SCUDDER GNMA FUND
-----------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough,
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110-4103
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
--------
X on August 1, 1996 pursuant to paragraph (b)
--------
60 days after filing pursuant to paragraph (a)(i)
--------
on ________________________ pursuant to paragraph (a)(i)
--------
75 days after filing pursuant to paragraph (a)(ii)
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on ________________________ pursuant to paragraph (a)(ii)
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of Rule 485
If appropriate, check the following:
this post-effective amendment designates a new effective
--------
date for a previously filed post-effective amendment
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on May 23, 1996.
<PAGE>
SCUDDER GNMA FUND
Calculation of Registration Fee under the Securities Act of 1933
----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposed Proposed Amount
Amount Maximum Maximum of
Being Offering Price Aggregate Registration
Registered Per Share (1) Offering Price (1,2) Fee (2)
---------- -------------- -------------------- -------
Shares of 1,293,665 $ 14.30 $ 290,000 $ 100.00
Beneficial
Interest,
$.01 Par
Value of
Scudder
GNMA Fund
</TABLE>
This Post-Effective Amendment No. 13 seeks to register 1,293,665 additional
shares of beneficial interest under the Securities Act of 1933.
(1) Computed under Rule 457(d) on the basis of the net asset value per share of
registrant's shares of beneficial interest at the close of business on July 15,
1996. The above calculation shall not be deemed a representation as to the
actual offering price.
(2) Calculated pursuant to Rule 24e-2 under the Investment Company Act of 1940.
(a) Total number of shares redeemed during
previous fiscal year 6,783,441
(b) Total number of shares included in (a)
previously used under Rule 24e-2 this
fiscal year -0-
(c) Total number of shares included in (a)
previously used under Rule 24f-2(c) this
fiscal year 5,510,055
(d) Total number of shares included in (a)
being used to reduce maximum aggregate
offering price in this Post-Effective Amendment 1,273,386
<PAGE>
<TABLE>
<CAPTION>
SCUDDER GNMA FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
<S> <C> <C> <C>
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION
5. Management of the Fund FINANCIAL HIGHLIGHTS
A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser and Transfer agent
TRUSTEES AND OFFICERS
SHAREHOLDER BENEFITS--A team approach to investing
5A. Management Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital
Securities gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax Information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered FUND ORGANIZATION -- Underwriter
TRANSACTION INFORMATION--Purchasing shares, Share price,
Processing time, Minimum balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference-Page 1
<PAGE>
SCUDDER GNMA FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History FUND ORGANIZATION
13. Investment Objectives and THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Brokerage Commissions and Portfolio
Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions and Portfolio
Turnover
18. Capital Stock and Other DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Securities FUND ORGANIZATION
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and Capital
Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
This prospectus sets forth concisely the information about Scudder GNMA Fund, an
open-end management investment company, that a prospective investor should know
before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated August 1, 1996, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
Scudder
GNMA
Fund
Prospectus
August 1, 1996
A pure no-load(TM) (no sales charges) mutual fund which seeks high current
income and safety of principal primarily from GNMA ("Ginnie Mae") securities.
<PAGE>
Expense information
How to compare a Scudder pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder GNMA Fund (the "Fund"). By reviewing this
table and those in other mutual funds' prospectuses, you can compare the Fund's
fees and expenses with those of other funds. With Scudder's pure no-load(TM)
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one fund to another. As a result, all of your investment goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended March 31, 1996.
Investment management fee 0.62%
12b-1 fees NONE
Other expenses 0.32%
----
Total Fund operating expenses 0.94%
====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its
net investment income to shareholders. (As noted above, the Fund has no
redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $30 $52 $115
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.
* You may redeem by writing or calling the Fund. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information
--Redeeming shares."
2
<PAGE>
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated March 31, 1996 and may be obtained without charge by
writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------
1996 1995 1994(c) 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ................... $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44 $15.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income ................. .94 .93 1.12 1.29 1.24 1.23 1.26 1.28 1.30 1.34
Net realized and
unrealized gain
(loss) on investment
transactions ........... .47 (.26) (1.19) .45 .27 .58 .35 (.74) (.83) .11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............... 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54 .47 1.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income ................. (.94) (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.34)
Net realized gains
on investment
transactions ............. - - - - - - - - -(a) (.08)
Tax return of
capital ................ - (.01) - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.42)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period ................ $14.54 $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) ........... 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47 9.81
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ...... 425 429 544 597 350 264 251 242 251 294
Ratio of operating
expenses to average
daily net assets (%) ..... .94 .95 .87 .93 .99 1.04 1.05 1.04 1.04 1.05
Ratio of net investment
income to average
daily net assets (%) ..... 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93 8.63
Portfolio turnover rate
(%) ...................... 157.8 220.5(b) 272.1(b) 87.3(b) 87.1(b) 52.1 71.3 128.4 92.1 58.7
<FN>
(a) Distributions from net realized gains were less than 3/10 of $.01 per share.
(b) The significant increase in the portfolio turnover rate for the year ended March 31, 1994 is primarily
attributable to prepayments. The portfolio turnover rates including mortgage dollar roll transactions were 255.4%,
392.5%, 356.8%, and 147.0%, for the periods ended March 31, 1995, 1994, 1993, and 1992, respectively.
(c) Per share amounts have been calculated using weighted average shares outstanding.
</FN>
</TABLE>
3
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $100 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder GNMA Fund
Investment objectives
o high current income and safety of principal primarily from U.S. Government
mortgage-backed GNMA securities
Investment characteristics
o high quality investments
o convenient participation in the mortgage-backed securities market
o portfolio securities with higher income than normally available from U.S.
Treasury securities of comparable maturities
o historically higher, more stable income than normally available from money
market funds, but greater fluctuations in net asset value due to changes in
interest rates
o historically more price stability than long-term bonds, but greater
fluctuations in income due to shorter effective maturities
o dividends declared daily and distributed monthly
Contents
Investment objectives and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 6
Distribution and performance information 9
Purchases 10
Exchanges and redemptions 11
Fund organization 12
Transaction information 13
Shareholder benefits 16
Investment products and services 19
How to contact Scudder Back cover
Trustees and Officers Back cover
4
<PAGE>
Investment objectives and policies
Scudder GNMA Fund (the "Fund"), a diversified, open-end management investment
company, is designed for investors seeking high current income and safety of
principal from a portfolio of high quality, U.S. Government guaranteed
mortgage-backed securities and U.S. Treasury securities.
The Fund invests primarily in mortgage-backed securities issued or guaranteed by
the Government National Mortgage Association ("GNMA" or "Ginnie Mae"). Such
guarantees are supported by the full faith and credit of the U.S. Government.
These guarantees apply only to the timely payment of both principal and interest
of the GNMA securities held in the Fund's portfolio. These guarantees do not
apply to the market value or yield of mortgage-backed securities or to the value
of Fund shares which will vary in response to interest rate fluctuations and
other market and credit factors. In addition, the Fund may invest in bills,
notes and bonds issued by the U.S. Treasury. Income from U.S. Government
mortgage-backed securities may be lower than that from longer-term lower quality
securities.
The market value of the Fund's investments and correspondingly the Fund's share
price will vary inversely with changes in prevailing interest rates and in
response to other bond market factors, such as changes in the supply and demand
for mortgage-backed securities.
Except as otherwise indicated, the Fund's investment objectives and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's objectives. If there is
a change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objectives will be
met.
Characteristics of GNMA securities
GNMA mortgage-backed securities are backed by pools of individual mortgages.
Mortgage borrowers have the right to prepay their mortgages at any time. A
decline in interest rates may lead to a faster rate of prepayment and expose the
Fund to a lower rate of return upon reinvestment. The prepayment right will also
tend to limit any increase in net asset value of the Fund since the value of the
mortgage-backed securities held by the Fund may not appreciate as rapidly as the
price of long-term, non-callable bonds.
Principal payments received on the Fund's mortgage-backed securities will be
reinvested by the Fund in other securities. Such securities may have a higher or
lower yield than the mortgage-backed securities already held by the Fund,
depending on market conditions.
Investments
Under normal conditions at least 65% of the Fund's total assets are invested in
GNMA securities. Up to 35% of the Fund's total assets may be held in cash, cash
equivalents or invested in securities issued or directly guaranteed by the U.S.
Government, including U.S. Treasury bills, notes and bonds. When the Fund's
investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), determines
that market conditions warrant, the Fund may, for temporary defensive purposes,
invest its assets without limit in short-term U.S. Government obligations.
The Fund may invest in zero coupon securities which pay no cash income and are
issued at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity.
The Fund may invest in when-issued securities and enter into repurchase
agreements fully secured by U.S. Government obligations and dollar roll
5
<PAGE>
Investment objectives and policies (cont'd)
transactions. The Fund may also engage in strategic transactions, as described
below. More information about these investment techniques is provided under
"Additional information about policies and investments."
Why invest in the Fund?
Ginnie Maes are one of the dominant securities on the mortgage-backed securities
market today and the only mortgage-backed securities backed by the full faith
and credit of the U.S. Government. GNMA mortgage-backed securities are created
from pools of government-guaranteed or insured (FHA and VA) mortgages originated
by mortgage bankers, banks, and savings and loan associations. By insuring the
timely payment of principal and interest to investors, GNMA eliminates the
potential credit risks inherent in buying individual whole mortgages.
The standardization of the mortgage market has made it more accessible to a
broader range of investors. While individuals are able to participate directly
in the GNMA market, an initial investment of $25,000 or more is usually
required. In addition, the investor who purchases GNMA mortgage-backed
securities directly must deal with the problem of monthly reinvestment of small
principal repayments and interest as well as a relatively illiquid secondary
market for small holdings of mortgage-backed securities.
Scudder GNMA Fund provides individuals as well as institutional investors with
an easy way to invest in the mortgage-backed securities market. Its dividends
from investment income, which are declared daily and distributed monthly, can be
automatically reinvested into additional shares of the Fund.
An investment in the Fund provides liquidity for the investor, who may redeem at
current net asset value anytime.
Advantages of GNMA securities
GNMA mortgage-backed securities offer three important advantages to investors:
o Full Faith and Credit Backing of the U.S. Government
o High Current Income
o Secondary Market Liquidity
GNMA mortgage-backed securities generally offer high current yields comparable
to those of high quality bonds with long maturities. While many bonds repay
principal only at maturity, GNMA securities repay principal each month. This
means that GNMA securities will have a shorter effective maturity than other
bonds with similar stated final maturities and therefore under normal market
conditions, less price volatility than longer-term bonds.
As the size of the mortgage-backed securities market has grown and investors
have become more familiar with these securities, the secondary market for
mortgage-backed securities has expanded.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(TM)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements,
and may not make loans except through the lending of portfolio securities, the
6
<PAGE>
purchase of debt securities or through repurchase agreements.
In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its total assets, in the aggregate, in securities which are not
readily marketable, restricted securities and repurchase agreements maturing in
more than seven days.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Portfolio turnover rate
Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the Fund. A higher rate
involves greater transaction costs to the Fund and may result in the realization
of net capital gains, which would be taxable to shareholders when distributed.
Dollar roll transactions
The Fund may enter into dollar roll transactions with selected banks and
broker/dealers. Dollar roll transactions are treated as reverse repurchase
agreements for purposes of the Fund's borrowing restrictions and consist of the
sale by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date, at the same
price. In addition, the Fund receives compensation as consideration for entering
into the commitment to repurchase. The compensation is paid in the form of a
fee, or alternatively, a lower price for the security upon its repurchase.
Dollar rolls may be renewed after cash settlement and initially may involve only
a firm commitment agreement by the Fund to buy securities.
When-issued securities
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning taxable income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and broker/dealers.
Under a repurchase agreement, the Fund acquires securities subject to the
seller's agreement to repurchase them at a specified time and price.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates and broad or specific market movements), to manage the effective maturity
or duration of the Fund's portfolio, or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
fixed-income indices and other financial instruments, purchase and sell
financial futures contracts and options thereon, and enter into various interest
rate transactions such as swaps, caps, floors or collars (collectively, all the
above are called "Strategic Transactions"). Strategic Transactions may be used
without limit to attempt to protect against possible changes in the market value
of securities held in or to be purchased for the Fund's portfolio resulting from
7
<PAGE>
Additional information about policies and investments (cont'd)
securities markets fluctuations, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Some Strategic
Transactions may also be used to enhance potential gain although no more than 5%
of the Fund's assets will be committed to Strategic Transactions entered into
for non-hedging purposes. Any or all of these investment techniques may be used
at any time and in any combination, and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Dollar roll transactions. If the broker/dealer to whom the Fund sells the
securities underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase or repurchase the securities may be restricted; the value of
the securities may change adversely over the term of the dollar roll; the
securities that the Fund is required to repurchase may be worth less than the
securities that the Fund originally held; and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs. Dollar roll
transactions necessitate more active trading, resulting in a higher portfolio
turnover rate. A higher rate involves greater brokerage expenses to the Fund and
may result in the realization of net capital gains, which would be taxable to
shareholders when distributed.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase under a
repurchase agreement, the Fund may encounter delay and incur costs, including a
decline in the value of the securities, before being able to sell the
securities.
Zero coupon securities. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities that make current cash distributions of interest.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the purchase or sale of portfolio securities at inopportune times or for
8
<PAGE>
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of a federal excise tax, although an additional
distribution may be made if necessary. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. According to preference, shareholders may receive
distributions in cash or have them reinvested in additional shares of the Fund.
If an investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. Dividends will not qualify for the
dividends-received deduction for corporations because the Fund's income
generally will not consist of dividends paid by U.S. corporations.
The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. The "SEC yield" of the Fund is an
annualized expression of the net income generated by the Fund over a specified
30-day (one month) period, as a percentage of the Fund's share price on the last
day of that period. This yield is calculated according to methods required by
(Continued on page 12)
9
<PAGE>
<TABLE>
<CAPTION>
Purchases
<S> <C>
Opening Minimum initial investment: $1,000; IRAs $500
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional shares Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete Fund name, to
Scudder Funds." the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.
o By Automatic You may arrange to make investments on a regular basis through automatic
Investment Plan deductions from your bank checking account. Please call 1-800-225-5163
($50 minimum) for more information and an enrollment form.
10
<PAGE>
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account;
$100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have redemption
proceeds sent to your predesignated bank account, or redemption proceeds of up
to $50,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically. Call
Withdrawal Plan 1-800-225-5163 for more information and an enrollment form.
</TABLE>
11
<PAGE>
Distribution and performance information (cont'd)
(Continued from page 9)
the Securities and Exchange Commission (the "SEC"), and therefore may not equate
to the level of income paid to shareholders. "Total return" is the change in
value of an investment in the Fund for a specified period. The "average annual
total return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, five
years and ten years as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.
Fund organization
Scudder GNMA Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"). The Fund
was organized as a Massachusetts business trust in March 1983 but did not
commence operations until 1985.
The Fund's activities are supervised by its Board of Trustees. Shareholders have
one vote for each share held on matters on which they are entitled to vote. The
Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Trustees, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Trustee as
if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
For the fiscal year ended March 31, 1996, the Adviser received an investment
management fee of 0.62% of the Fund's average daily net assets. The fee is
graduated so that increases in the Fund's net assets may result in a lower fee
and decreases in the Fund's net assets may result in a higher fee. The fee is
payable monthly, provided the Fund will make such interim payments as may be
requested by the Adviser not to exceed 75% of the amount of the fee then accrued
on the books of the Fund and unpaid.
All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at
Two International Place, Boston, Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Custodian
State Street Bank and Trust Company is the Fund's Custodian.
12
<PAGE>
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. To a limited extent, certain financial institutions may
place orders to purchase shares unaccompanied by payment prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), normally 4:00
p.m. eastern time, and receive that day's price. Please call 1-800-854-8525 for
more information, including the dividend treatment and method and manner of
payment for Fund shares.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases must be for at
least $250 but not more than $250,000. Proceeds in the amount of your purchase
will be transferred from your bank checking account in two or three business
days following your call. For requests received by the close of regular trading
on the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. "AutoBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
13
<PAGE>
Transaction information (cont'd)
your bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
14
<PAGE>
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of trading that day. Purchase and redemption requests received after the
close of regular trading on the Exchange will be executed the following business
day. Purchase orders received by the Fund's transfer agent before the close of
regular trading on the Exchange on any business day generally begin earning
income on the next business day. Redeemed shares earn income on the day the
redemption request is executed.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the Internal Revenue
15
<PAGE>
Transaction information (cont'd)
Service or a broker that withholding is required. The Fund reserves the right to
reject new account applications without a certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a certified Social Security or
tax identification number. A shareholder may avoid involuntary redemption by
providing the Fund with a tax identification number during the 30-day notice
period.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder GNMA 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's
portfolio. 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. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager David H. Glen joined the Fund's portfolio management team
in 1985 and is responsible for setting the Fund's investment strategy and
overseeing security selection for the Fund's portfolio. Mr. Glen has 16 years of
experience in finance and investing, 14 with Scudder. Mark S. Boyadjian,
Portfolio Manager, joined the team in 1995, and contributes his eight years'
experience managing fixed-income securities. Mr. Boyadjian has been with Scudder
since 1989.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
16
<PAGE>
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
17
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income. Many
people can deduct all or part of their contributions from their
taxable income, and all investment earnings accrue on a tax deferred
basis. The Scudder No-Fee IRA charges no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses
and self-employed individuals. The maximum annual contribution to
SEP-IRA accounts is adjusted each year for inflation.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start
with $2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
18
<PAGE>
Investment products and services
<TABLE>
<CAPTION>
<S> <C>
The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder Global Bond Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder High Yield Bond Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Emerging Markets Growth Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Discovery Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Fund
Scudder Medium Term Tax Free Fund Scudder Gold Fund
Scudder New York Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Ohio Tax Free Fund* Scudder International Fund
Scudder Pennsylvania Tax Free Fund* Scudder Latin America Fund
Growth and Income Scudder Pacific Opportunities Fund
Scudder Balanced Fund Scudder Quality Growth Fund
Scudder Growth and Income Fund Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
------------------------------------------------------------------------------------------------------------------------
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan*+++ (a variable annuity) Profit Sharing and
401(k) Plans Money Purchase Pension Plans
------------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++
------------------------------------------------------------------------------------------------------------------------
</TABLE>
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state and local taxes. *Not available
in all states. +++A no-load variable annuity contract provided by Charter
National Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens &
Clark, Inc., are traded on various stock exchanges. ++For information on
Scudder Treasurers Trust(TM), an institutional cash management service that
utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call:
1-800-541-7703.
19
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service Scudder Investor Relations
and transactions 1-800-225-5163
For personalized information Scudder Automated
about your Scudder accounts; Information Line
exchanges and redemptions; (SAIL)
or information on any 1-800-343-2890
Scudder fund
Investment Information:
To receive information Scudder Investor Relations
about the Scudder Funds, 1-800-225-2470
for additional applications
and prospectuses, or for
investment questions
For establishing Scudder Defined
401(k) and 403(b) plans Contribution
Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Visit the Scudder World Wide Web Site at:
http://funds.scudder.com
Trustees and Officers
Daniel Pierce*
President and Trustee
David S. Lee*
Vice President and Trustee
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center for Business Ethics;
President, Driscoll Associates
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; General Partner, TL Ventures
David H. Glen*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
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
Kathryn L. Quirk*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
<PAGE>
SCUDDER GNMA FUND
A Pure No-Load(TM) (No Sales Charges)
Diversified Mutual Fund Which
Seeks High Current Income
and Safety of Principal
Primarily from GNMA
Securities
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STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder GNMA Fund dated August 1,
1996, as amended from time to time, a copy of which may be obtained without
charge by writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
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TABLE OF CONTENTS
Page
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THE FUND'S INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objectives and Policies...................................................................1
Investments and Investment Techniques........................................................................1
Investment Restrictions......................................................................................9
PURCHASES............................................................................................................12
Additional Information About Opening An Account.............................................................12
Additional Information About Making Subsequent Investments by AutoBuy.......................................12
Checks......................................................................................................12
Wire Transfer of Federal Funds..............................................................................13
Share Price.................................................................................................13
Share Certificates..........................................................................................13
Other Information...........................................................................................13
EXCHANGES AND REDEMPTIONS............................................................................................14
Exchanges...................................................................................................14
Redemption by Telephone.....................................................................................15
Redemption by AutoSell......................................................................................15
Redemption by Mail or Fax...................................................................................16
Other Information...........................................................................................16
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................17
The Pure No-Load(TM) Concept................................................................................17
Dividend and Capital Gain Distribution Options..............................................................18
Diversification.............................................................................................18
Scudder Funds Centers.......................................................................................18
Reports to Shareholders.....................................................................................19
Transaction Summaries.......................................................................................19
THE SCUDDER FAMILY OF FUNDS..........................................................................................19
SPECIAL PLAN ACCOUNTS................................................................................................22
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals.............................................................22
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................23
Scudder IRA: Individual Retirement Account.................................................................23
Scudder 403(b) Plan.........................................................................................24
Automatic Withdrawal Plan...................................................................................24
Group or Salary Deduction Plan..............................................................................24
Automatic Investment Plan...................................................................................25
Uniform Transfers/Gifts to Minors Act.......................................................................25
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................25
PERFORMANCE INFORMATION..............................................................................................26
Average Annual Total Return.................................................................................26
Cumulative Total Return.....................................................................................26
Total Return................................................................................................27
Yield.......................................................................................................27
Comparison of Fund Performance..............................................................................27
FUND ORGANIZATION....................................................................................................30
INVESTMENT ADVISER...................................................................................................31
Personal Investments by Employees of the Adviser............................................................33
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TRUSTEES AND OFFICERS................................................................................................34
REMUNERATION.........................................................................................................35
DISTRIBUTOR..........................................................................................................36
TAXES................................................................................................................37
PORTFOLIO TRANSACTIONS...............................................................................................40
Brokerage Commissions.......................................................................................40
Portfolio Turnover..........................................................................................41
NET ASSET VALUE......................................................................................................41
ADDITIONAL INFORMATION...............................................................................................42
Experts.....................................................................................................42
Shareholder Indemnification.................................................................................42
Other Information...........................................................................................42
FINANCIAL STATEMENTS.................................................................................................43
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THE FUND'S INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objectives and policies" and "Additional
information about policies and investments" in the Fund's
prospectus.)
Scudder GNMA Fund (the "Fund" or "Trust") is a pure no-load(TM)
diversified, open-end management investment company. It is a company of the type
commonly known as a mutual fund.
General Investment Objectives and Policies
Scudder GNMA Fund is designed for investors seeking high current income
and safety of principal primarily from a portfolio of high-quality, U.S.
Government guaranteed mortgage-backed securities and U.S. Treasury securities.
The Fund invests primarily in mortgage-backed securities issued or guaranteed by
the Government National Mortgage Association ("GNMA" or "Ginnie Mae"). The Fund
may make long-term investments but may also invest in short- and
intermediate-maturity investments and may engage in strategic transactions.
Under certain market conditions, these strategies may reduce current income. At
any time, the Fund may have a substantial portion of its assets in securities of
a particular type or maturity. The Fund may invest in U.S. Treasury bills,
notes, and bonds; GNMA securities; options on such securities; futures
contracts; repurchase agreements with respect to such securities; dollar rolls;
zero coupon securities; when-issued securities; and cash equivalents.
Some investors may view the Fund as an alternative to a bank
certificate of deposit ("CD"). While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the
Fund--unlike a CD--is not locked away for any period, may be redeemed at any
time without incurring early withdrawal penalties, and may provide a higher
yield.
At least 65% of the Fund's total assets will be invested in
mortgage-backed securities issued or guaranteed by GNMA (which are backed by the
full faith and credit of the U.S. Government). Up to 35% of the Fund's total
assets may be held in cash or invested in (1) securities issued and backed by
the full faith and credit of the U.S. Government, including U.S. Treasury bills,
notes and bonds; (2) securities issued by an agency or instrumentality of the
U.S. Government and backed by the full faith and credit of the U.S. Government,
including but not limited to securities of the Export-Import Bank of the United
States, the General Services Administration and the Washington Metropolitan Area
Transit Authority; (3) repurchase agreements with respect to U.S. Government
securities; (4) dollar rolls and (5) strategic transactions. As used in this
Statement of Additional Information, the term "U.S. Government securities" means
any of the securities referred to in this paragraph, other than repurchase
agreements, dollar rolls, or strategic transactions.
During periods which, in the opinion of the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), require defensive investing, the
Fund may temporarily invest its assets without limit in short-term U.S.
Government securities. The securities in which the Fund may invest are further
described under "Investment objectives and policies" and "Additional information
about policies and investments" in the Fund's prospectus.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market prices of the Fund's investments and there is no assurance that the
Fund's objectives will be achieved. Except as otherwise noted, the Fund's
investment objectives and policies may be changed by the Board of Trustees
without a vote of the shareholders.
Investments and Investment Techniques
GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed securities
representing pro rata ownership of a pool of mortgage loans. These loans, which
are issued by lenders such as mortgage bankers, commercial banks, and savings
and loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool", or group of
mortgages, is assembled and after being approved by GNMA, a U.S. Government
agency within the U.S. Department of Housing and Urban Development, the timely
payment of interest and principal is guaranteed by the full faith and credit of
the U.S. Government.
As mortgage-backed securities, GNMAs differ from many bonds in that
principal is paid back by the borrower over the life of the security rather than
returned in a lump sum at maturity. GNMAs are called "pass-through" securities
<PAGE>
because both interest and principal, including prepayments, are passed through
to the holder of the security (in this case, the Fund).
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may result in capital losses to
the Fund if the mortgages were purchased at a premium. For example, mortgagors
may speed up the rate at which they prepay their mortgages when interest rates
decline sufficiently to encourage refinancing. The Fund, when such prepayments
are passed through to it, may be able to reinvest them only at a lower rate of
interest. The Adviser, in determining the relative attractiveness of GNMAs
compared to alternative fixed-income securities, and in choosing specific GNMA
issues, will have made assumptions as to the likely speed of prepayment. Actual
experience may vary from these assumptions, resulting in a higher or lower
investment return than anticipated.
Dollar Roll Transactions. The Fund may enter into "dollar roll" transactions,
which consist of the sale by the Fund to a bank or broker/dealer (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. The Fund receives compensation from the
counterparty as consideration for entering into the commitment to repurchase.
The compensation is paid in the form of a fee or alternatively, a lower price
for the security upon its repurchase. Dollar rolls may be renewed over a period
of several months with a different repurchase price and a cash settlement made
at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date.
The Fund will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. Government securities or other liquid,
high grade debt obligations in an amount sufficient to meet its purchase
obligations under the transactions. The Fund will also maintain asset coverage
of at least 300% for all outstanding firm commitments, dollar rolls and other
borrowings. Notwithstanding such safeguards, the Fund's overall investment
exposure may be increased by such transactions to the extent that the Fund bears
a risk of loss on the securities it is committed to purchase as well as on the
segregated assets.
Dollar rolls are treated for purposes of the Investment Company Act of
1940, as amended (the "1940 Act"), as borrowings of the Fund because they
involve the sale of a security coupled with an agreement to repurchase. Like all
borrowings, a dollar roll involves costs to the Fund. For example, while the
Fund receives either a fee or alternatively, a lower price for the security upon
its repurchase as consideration for agreeing to repurchase the security, the
Fund forgoes the right to receive all principal and interest payments while the
counterparty holds the security. These payments to the counterparty may exceed
the fee received by the Fund, thereby effectively charging the Fund interest on
its borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of the Fund's
borrowing.
The entry into dollar rolls involves potential risks of loss which are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security which the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
The Trustees of the Fund have adopted guidelines to ensure that those
securities received are substantially identical to those sold. To reduce the
risk of default, the Fund will engage in such transactions only with banks and
broker/dealers selected pursuant to such guidelines.
Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
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<PAGE>
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with short maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holders of the underlying U.S. Government
securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program, as
established by the Treasury Department, is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells.
(See "TAXES.")
When-Issued Securities. The Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which is
generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer and
no interest accrues to the purchaser. To the extent that assets of the Fund are
not invested prior to the settlement of a purchase of securities, a Fund will
earn no income; however, it is intended that the Fund will be fully invested to
the extent practicable and subject to the policies stated herein. When-issued or
forward delivery purchases are negotiated directly with the other party, and are
not traded on an exchange. While when-issued or forward delivery securities may
be sold prior to the settlement date, it is intended that the Fund will purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase securities on a when-issued or forward delivery basis, it
will record the transaction and reflect the value of the security in determining
its net asset value. The Fund does not believe that its net asset value or
income will be adversely affected by its purchase of securities on a when-issued
or forward delivery basis. The Fund will establish a segregated account with the
Fund's custodian in which it will maintain cash, U.S. Government securities and
other high grade debt obligations equal in value to commitments for when-issued
or forward delivery securities. Such segregated securities either will mature
or, if necessary, be sold on or before the settlement date. The Fund will not
enter into such transactions for leverage purposes.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
3
<PAGE>
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
("S&P").
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities is kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on the date of repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the Obligation
itself. Obligations will be held by the Fund's custodian or in the Federal
Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with unsecured debt obligations purchased for
the Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates and broad or specific market movements), to
manage the effective maturity or duration of the Fund's portfolio, or to enhance
potential gain. These strategies may be executed through the use of derivative
contracts. Such strategies are generally accepted as a part of modern portfolio
management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets fluctuations, to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of the Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
4
<PAGE>
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
5
<PAGE>
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers," or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any other nationally recognized statistical
rating organization ("NRSRO") or are determined to be of equivalent credit
quality by the Adviser. The staff of the Securities and Exchange Commission (the
"SEC") currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 10% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including
U.S. Treasury and agency securities, mortgage-backed securities and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in
over-the-counter markets, and on securities indices and futures contracts. All
calls sold by the Fund must be "covered" (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
The Fund may purchase and sell put options on securities, including
U.S. Treasury and agency securities (whether or not it holds the above
securities in its portfolio) and on securities indices and futures contracts
other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
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General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions and multiple
interest rate transactions and any combination of futures, options and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
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transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid, high
grade assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security or financial instrument.
In general, either the full amount of any obligation by the Fund to pay or
deliver securities or assets must be covered at all times by the securities or
instruments required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid, high grade securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid, high grade
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate liquid,
high grade assets equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate liquid, high grade assets equal to the exercise price.
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<PAGE>
OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement, and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement,
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures contract, it could purchase a put option on the same futures contract
with a strike price as high or higher than the price of the contract held. Other
Strategic Transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction no
segregation is required, but if it terminates prior to such time, assets equal
to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. (See
"TAXES.")
Investment Restrictions
Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund which, under the 1940 Act and the rules thereunder and as used in
this Statement of Additional Information, means the lesser of (1) 67% or more of
the voting securities present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy; or (2) more than 50% of the outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund.
As a matter of fundamental policy, unless and to the extent permitted
by exemptive order of the SEC, the Fund may not:
1. with respect to 75% of the value of its total assets taken at
market value, purchase more than 10% of the voting securities
of any one issuer or invest more than 5% of the value of its
total assets in the securities of any one issuer, except
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other
investment companies;
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2. borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;
3. purchase or sell real estate (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of
the Fund's ownership of securities); or purchase or sell
physical commodities or contracts relating to physical
commodities;
4. act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with disposition of portfolio securities of the Fund;
5. make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objectives and policies may be deemed to
be loans;
6. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Fund provided
that collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction; or
7. purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the securities of one or more issuers having
their principal business activities in the same industry,
provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents).
The Fund has made an undertaking with the SEC that if the Fund obtains
an exemptive order of the SEC which would permit the taking of action in
contravention of any policy which may not be changed without a shareholder vote,
the Fund will not take such action unless either (i) the applicable exemptive
order permits the taking of such action without a shareholder vote or (ii) the
staff of the SEC has issued to the Fund a "no action" or interpretive letter to
the effect that the Fund may proceed without a shareholder vote.
The Fund will not as a matter of nonfundamental policy:
(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
one-half of one percent (1/2 of 1%) of the outstanding shares
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or securities or both (taken at market value) of such issuer
and such individuals owning more than one-half of one percent
(1/2 of 1%) of such shares or securities together own
beneficially more than 5% of such shares or securities or
both;
(d) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions and except that the Fund may obtain
such short-term credits as may be necessary for the clearance
of purchases and sales of securities;
(e) invest more than 10% of its total assets in securities which
are not readily marketable, the disposition of which is
restricted under Federal securities laws, or in repurchase
agreements not terminable within seven days.
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors,
except U.S. Government securities and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of
the total assets of the Fund taken at market value;
(g) purchase more than 10% of the voting securities of any one
issuer, except securities issued by the U.S. Government, its
agencies or instrumentalities;
(h) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of
the obligations underlying such put options would exceed 50%
of the Fund's net assets;
(i) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;
(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(k) borrow money in excess of 5% of its total assets (taken at
market value), except for temporary or emergency purposes, or
borrow other than from banks; however, in the case of reverse
repurchase agreements, the Fund may invest in such agreements
with other than banks subject to total asset coverage of 300%
for such agreements and all borrowing;
(l) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's total net assets or more than 2% of its
net assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(m) purchase or sell real estate limited partnership interests; or
(n) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets.
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PURCHASES
(See "Purchases" and "Transaction information" in the Fund's
prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $1,000 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified taxpayer identification number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($1,000 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02101, ABA Number 011000028, DDA Account Number 9903-5552. The investor must
give the Scudder fund name, account name and new account number. Finally, the
investor must send the completed and signed application to the Fund promptly.
The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.
Additional Information About Making Subsequent Investments by AutoBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares by AutoBuy, shareholders should call before 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. AutoBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
AutoBuy and redeem them within seven days of the purchase, the Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.
In order to request purchases by AutoBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoBuy may so indicate on the application.
Existing shareholders who wish to add AutoBuy to their account may do so by
completing an AutoBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
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If shares of the Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a Fund
shareholder, the Fund will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
Wire Transfer of Federal Funds
To purchase shares of the Fund and obtain the same day dividend you
must have your bank forward federal funds by wire transfer and provide the
required account information so as to be available to the Fund prior to twelve
o'clock noon eastern time on that day. If you wish to make a purchase of
$500,000 or more you should notify Scudder Service Corporation (the "Transfer
Agent") of such a purchase by calling 1-800-225-5163. If either the federal
funds or the account information is received after twelve o'clock noon eastern
time, but both the funds and the information are made available before the close
of regular trading on the New York Stock Exchange (the "Exchange") (normally 4
p.m., eastern time) on any business day, shares will be purchased at net asset
value determined on that day but will not receive the dividend; in such cases,
dividends commence on the next business day.
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently the Fund pays a fee for receipt by State Street Bank
and Trust Company (the "Custodian") of "wired funds," but the right to charge
investors for this service is reserved.
Boston banks are presently closed on certain holidays although the
Exchange may be open. These holidays include Martin Luther King, Jr. Day (the
3rd Monday in January), Columbus Day (the 2nd Monday in October) and Veterans'
Day (November 11). Investors are not able to purchase shares by wiring federal
funds on such holidays because the Custodian is not open to receive such federal
funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the purchase order in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will be executed at the next business day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to the Fund's Transfer Agent in Boston by
the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund. Share
certificates now in a shareholder's possession may be sent to the Transfer Agent
for cancellation and credit to such shareholder's account. Shareholders who
prefer may hold the certificates in their possession until they wish to exchange
or redeem such shares.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement
is made at an investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Trustees and the Distributor each has the right to limit the amount
of purchases by, and to refuse to sell to any person, and may suspend or
terminate the offering of shares of the Fund at any time.
The "Tax Identification Number" section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
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<PAGE>
(e.g., from exempt organizations a certification of exempt status) may be
returned to the investor if a correct certified tax identification number and
certain other required certificates are not supplied.
The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in the Fund's
prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $1,000. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain a signature guarantee as described under
"Transaction information--Signature guarantees" in the Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Fund
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
14
<PAGE>
Redemption by Telephone
In order to request redemptions by telephone, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
Shareholders currently receive the right to redeem up to $50,000 to their
address of record automatically, without having to elect it. Shareholders may
also request to have the proceeds mailed or wired to their pre-designated bank
account.
(a) NEW INVESTORS wishing to establish telephone redemption to a
pre-designated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a pre-designated bank account or who want to change the
bank account previously designated to receive redemption
payments should either return a Telephone Redemption Option
Form (available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. A signature and a signature guarantee
are required for each person in whose name the account is
registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in certain retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared.
Redemption by AutoSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoSell program may sell shares of the Fund by telephone. To sell shares
by AutoSell, shareholders should call before 4 p.m. eastern time. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. AutoSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated the following business day. AutoSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.
15
<PAGE>
In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with a signature guarantee.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within seven business days
after receipt by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays of more than seven days of payment for
shares tendered for repurchase or redemption may result, but only until the
purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than a shareholder's cost depending
upon the net asset value at the time of the redemption or repurchase. The Fund
does not impose a redemption or repurchase charge, although a wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemptions of shares, including redemptions undertaken to effect an exchange
for shares of another Scudder fund, may result in tax consequences (gain or
loss) to the shareholder and the proceeds of such redemptions may be subject to
backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment therefore may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted for any reason, (c) during which an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during which the SEC by order permits a
suspension of the right of redemption or a postponement of the date of payment
or of redemption; provided that applicable rules and regulations of the SEC (or
any succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist.
16
<PAGE>
If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Fund may notify the shareholder that,
unless the account balance is brought up to at least $1,000, the Fund will
redeem all shares and close the account sending redemption proceeds to the
shareholder. The shareholder has sixty days to bring the account balance up to
$1,000 before any action will be taken by the Fund. (This policy applies to
accounts of new shareholders, but does not apply to certain Special Plan
Accounts.) The Trustees have the authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" and "Scudder
tax-advantaged retirement plans" in the
Fund's prospectus.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under Rule 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the NASD
Rules of Fair Practice, a mutual fund can call itself a "no-load" fund only if
the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's average
annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
17
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Scudder Load Fund with 0.75% No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund 12b-1 Fee 0.25% 12b-1 Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- ---------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- ---------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
=====================================================================================================================
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Diversification
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification helps reduce
investment risk.
Scudder Funds Centers
Investors may visit any of the Centers maintained by Scudder Investor
Services, Inc. listed in the Fund's prospectus. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or obtain assistance with opening an account, adding monies or
special options to existing accounts, making exchanges within the Scudder Family
of Funds, redeeming shares or opening retirement plans. Checks should not be
mailed to the Centers but should be mailed to "The Scudder Funds" at the address
listed under "How to contact Scudder" in the prospectus.
18
<PAGE>
Reports to Shareholders
The Fund issues to its shareholders semiannual financial statements
(audited annually by independent accountants), including a list of investments
held and statements of assets and liabilities, operations, changes in net assets
and financial highlights.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder High Yield Bond Fund seeks to provide a high level of current
income and, secondarily, capital appreciation through investment
primarily in below investment-grade domestic debt securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.
19
<PAGE>
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high quality.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
- ----------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
20
<PAGE>
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and
foreign issuers. Income is an incidental consideration.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
- ----------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
21
<PAGE>
Scudder Quality Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S.
growth companies.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic Withdrawal
Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Code will be
greatly facilitated if it is in such approved form. Under certain circumstances,
the IRS will assume that a plan, adopted in this form, after special notice to
any employees, meets the requirements of Section 401(a) of the Code.
22
<PAGE>
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,250 for married couples if one spouse has earned income of no
more than $250). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- --------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of --------------------------------------------------------
Contributions 5% 10% 15%
- --------------------------------------------------------------------------------
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
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Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
- --------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of --------------------------------------------------------
Contributions 5% 10% 15%
- --------------------------------------------------------------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Code. In general, employees of tax-exempt organizations described in Section
501(c)(3) of the Code (such as hospitals, churches, religious, scientific, or
literary organizations and educational institutions) or a public school system
are eligible to participate in a 403(b) plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
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Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan. In this case, the minimum initial investment is $500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends and capital
gains distributions" in the Fund's prospectus.)
The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment after
paying the related federal income taxes for which the shareholders may then be
able to claim a credit against their federal income tax liability. (See
"TAXES.")
If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. In certain circumstances, the
Fund may determine that it is in the interest of shareholders to distribute less
than the required amount. (See "TAXES.")
Dividends will be declared daily and distributions of net investment
income will be made monthly. Distributions of net short-term and net long-term
realized capital gains will be made in November or December to prevent
application of a federal excise tax, although an additional distribution may be
made within three months after the Fund's fiscal year end (March 31), if
necessary. Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year, the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
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PERFORMANCE INFORMATION
(See "Distribution and performance
information--Performance information" in
the Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year, five years and for the life of the Fund
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by finding
the average annual compound rates of return of a hypothetical investment over
such periods, according to the following formula (average annual total return is
then expressed as a percentage):
T = (ERV/P)^(1/n) - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable period
Average Annual Total Return for Periods ended March 31, 1996
One Year Five Years Ten Years
Scudder GNMA Fund 10.20% 7.28% 7.82%
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P)-1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable period
Cumulative Total Return for Periods Ended March 31, 1996
One Year Five Years Ten Years
Scudder GNMA Fund 10.20% 42.07% 112.29%
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<PAGE>
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Yield
Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[(a-b/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
The 30-day SEC yield for Scudder GNMA Fund for the Period ended March
31, 1996 was 5.69%.
Quotations of the Fund's performance are historical, show the
performance of a hypothetical investment and are not intended to indicate future
performance of the Fund. Average annual total return, cumulative total return
and yield for the Fund will vary based on changes in market conditions and the
level of the Fund's expenses. An investor's shares when redeemed may be worth
more or less than their original cost.
Investors should be aware that the principal of the Fund is not
insured.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
27
<PAGE>
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
Government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
28
<PAGE>
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
29
<PAGE>
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
FUND ORGANIZATION
(See "Fund organization" in the Fund's prospectus.)
The Fund is a Massachusetts business trust established under the name
Master Investment Services Tax Free Fund pursuant to a Declaration of Trust
dated March 24, 1983. The Declaration of Trust was amended on April 5, 1985 to
change the name of the Fund to Scudder Government Mortgage Securities Fund. The
Declaration of Trust was further amended on December 3, 1987 to change the name
of the Fund to Scudder GNMA Fund. The Fund had not commenced operations prior to
1985. On November 4, 1987, the par value of the shares of beneficial interest of
the Fund was changed from no par value to $.01 par value per share. The Fund's
authorized capital consists of an unlimited number of shares of beneficial
interest of $.01 par value, all of which are of one class and have equal rights
as to voting, dividends and liquidation. Shareholders have one vote for each
share held.
All shares issued and outstanding will be fully paid and nonassessable
by the Fund, and redeemable as described in this Statement of Additional
Information and in the Fund's prospectus. The Trustees have the authority to
issue two or more series of shares and to designate the relative rights and
preferences as between the different series, although they have not exercised
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<PAGE>
this authority. If more than one series of shares were issued and a series were
unable to meet its obligations, the remaining series might have to assume the
unsatisfied obligations of that series.
The Trustees, at their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, or of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
or she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her respective office.
INVESTMENT ADVISER
(See "Fund organization -- Investment adviser" in the Fund's
prospectus.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization is one of the most experienced
investment management firms in the U.S. and currently manages over $6 billion in
GNMA securities. The Adviser invests these assets not only for its mutual funds,
but also for private and institutional clients, such as trusts, foundations,
insurance companies, and corporate pension plans. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928, it introduced the first no-load
mutual fund to the public. In 1953, the Adviser introduced Scudder International
Fund, Inc. the first mutual fund available in the U.S. investing internationally
in securities of issuers in several foreign countries. The firm reorganized from
a partnership to a corporation on June 28, 1985.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, Scudder World Income
Opportunities Fund, Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The
First Iberian Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The
Latin America Dollar Income Fund, Inc. Some of the foregoing companies or trusts
have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $12 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.
The Adviser maintains a large research department, which conducts
continual studies of the factors that affect the position of various industries,
companies, and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and other clients of
the Adviser, but conclusions are based primarily on investigations and critical
31
<PAGE>
analyses by the Adviser's own research specialists. However, the Adviser regards
this information and material as an adjunct to its own research activities. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses by its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") was approved by
the shareholders on November 13, 1990, and last approved by the Trustees on
August 8, 1995. The Agreement is dated November 14, 1990, and will continue in
effect until September 30, 1996, and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Adviser or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of a majority of the Trustees or of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on 60 days' written notice,
and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management consistent with the Fund's investment objectives, policies
and restrictions and determines what securities will be purchased for the
portfolio of the Fund, what portfolio securities will be held or sold by the
Fund, and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Fund's Declaration of Trust and By-Laws, the
1940 Act, the Code and to the Fund's investment objectives, policies and
restrictions, and subject, further, to such policies and restrictions as the
Trustees of the Fund may from time to time establish. The Adviser also advises
and assists the officers of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of its Trustees and the appropriate
committees of the Trustees regarding the conduct of the business of the Fund.
Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to:
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Transfer Agent, pricing agents,
Custodian, accountants and others); preparing and making filings with the SEC
and other regulatory agencies; assisting in the preparation and filing of the
Fund's federal, state and local tax returns, preparing and filing the Fund's
federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees as may duly be elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law and provides the Fund's office space and facilities.
For these services, the Fund pays the Adviser an annual fee equal to
0.65 of 1% on the first $200 million of the Fund's average daily net assets,
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<PAGE>
0.60 of 1% on the next $300 million of such assets and 0.55 of 1% on such assets
in excess of $500 million. The fee is payable monthly, provided the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid.
For the fiscal years ended March 31, 1994, 1995, and 1996, the
management fees incurred by the Fund to the Adviser amounted to $3,812,295,
$2,867,542 and $2,688,700, respectively.
Under the Agreement, the Fund is responsible for all its other
expenses, including fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including expenses of issuance, sale,
underwriting, distribution, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of the Trustees, officers and employees of the Fund who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees and disbursements of custodians. The Fund
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses of shareholders' meetings, the cost of responding
to shareholders' inquiries, and its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.
The Agreement requires the Adviser to reimburse the Fund all or a
portion of advances of its management fee to the extent annual expenses of the
Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which the Fund's shares are offered for sale.
Management has been advised that, while most states have eliminated expense
limitations, the lowest such limitation is currently 2 1/2% of average daily net
assets up to $30 million, 2% of the next $70 million of average daily net assets
and 1 1/2% of average daily net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitations. Any such fee advance required to be
returned to the Fund will be returned as promptly as practicable after the end
of the Fund's fiscal year. However, no fee payment will be made to the Adviser
during any fiscal year which will cause year to date expenses to exceed the
cumulative pro rata expense limitation at the time of such payment.
The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as the Agreement or any
extension, renewal or amendment thereof remains in effect.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
33
<PAGE>
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age and Address Position with Fund Principal Occupation** Services, Inc.
- --------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce (62)+*= President and Trustee Chairman of the Board and Vice President,
Managing Director of Scudder, Director and
Stevens & Clark, Inc. Assistant Treasurer
David S. Lee (62)+*= Vice President and Trustee Managing Director of Scudder, President,
Stevens & Clark, Inc. Assistant Treasurer
and Director
E. Michael Brown (56)+ Trustee Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.
Dawn-Marie Driscoll (50) Trustee Executive Fellow, Center for --
5760 Flamingo Drive Business Ethics; President,
Cape Coral, FL Driscoll Associates; Attorney and
Corporate Director from 1991 to
1996
George M. Lovejoy, Jr. (66)= Trustee President and Director, Fifty --
160 Federal Street Associates
Boston, MA
Wesley W. Marple, Jr. (64)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Avenue University, College of Business
Boston, MA Administration
Jean C. Tempel (53) Trustee General Partner, TL Ventures, --
Ten Post Office Square 1994; President and COO,
Suite 1325 Safeguard Scientifics, Inc.,
Boston, MA 1992-1993; Executive Vice
President and COO, The Boston
Company, 1985-1990
David H. Glen (39)+ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman (63)# Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph (57)+ Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer
and Assistant Clerk
Thomas F. McDonough (49)+ Vice President, Secretary Principal of Scudder, Stevens & Clerk
and Assistant Treasurer Clark, Inc.
34
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age and Address Position with Fund Principal Occupation** Services, Inc.
- --------------------- ------------------ ---------------------- --------------
Pamela A. McGrath (43)+ Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell (50)# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Kathryn L. Quirk (44)# Vice President Managing Director of Scudder, Vice President
Stevens & Clark, Inc.
Coleen Downs Dinneen (36)+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
* Messrs. Lee and Pierce are considered by the Fund and its counsel to be persons who are "interested persons"
of the Adviser or of the Fund (within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been associated with their respective companies
for more than five years, but not necessarily in the same capacity.
= Messrs. Lee, Lovejoy, Marple and Pierce are members of the Executive Committee, which has the power to
declare dividends from ordinary income and distributions of realized capital gains to the same extent as the
Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
# Address: 345 Park Avenue, New York, New York
</TABLE>
As of June 30, 1996, all Trustees and officers as a group owned
beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) 284,829 shares or 1% of the Fund.
Certain accounts for which the Adviser acts as investment adviser owned
1,893,130 shares in the aggregate, or 6.67% of the outstanding shares on June
30, 1996. The Adviser may be deemed to be the beneficial owner of such shares
but disclaims any beneficial ownership in such shares.
To the best of the Fund's knowledge, as of June 30, 1996 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding shares
except as stated above.
The Trustees and officers of the Fund also serve in similar capacities
with other Scudder funds.
REMUNERATION
Several of the officers and Trustees of the Fund may be officers or
employees of the Adviser, Scudder Investor Services, Inc., the Transfer Agent,
Scudder Trust Company or Scudder Fund Accounting Corporation from whom they
receive compensation, as a result of which they may be deemed to participate in
the fees paid by the Fund. The Fund pays no direct remuneration to any officer
of the Fund. However, each of the Fund's Trustees who is not affiliated with the
Adviser will be paid by the Fund. Each of these unaffiliated Trustees receives
an annual Trustee's fee of $4,000 from the Fund and fees of $300 for each
attended Trustees' meeting, audit committee meeting or meeting held for the
purpose of considering arrangements between the Fund and the Adviser or any of
its affiliates. Each unaffiliated Trustee also receives $100 for attending each
committee meeting, other than those set forth above. For the fiscal year ended
March 31, 1996, such fees totaled $34,847.
The following Compensation Table provides, in tabular form, the following data:
Column (1) All Trustees who receive compensation from the Trust.
Column (2) Aggregate compensation received by a Trustee from the Trust.
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<PAGE>
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Trust. Scudder GNMA Fund does not pay its Trustees such benefits.
Column (5) Total compensation received by a Trustee from the Trust, plus
compensation received from all funds managed by Scudder for which a Trustee
serves. The total number of funds from which a Trustee receives such
compensation is also provided in column (5). Generally, compensation received by
a Trustee for serving on the Board of a closed-end fund is greater than the
compensation received by a Trustee for serving on the Board of an open-end fund.
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1995
===================================================================================================================
(1) (2) (3) (4) (5)
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated From Trust and
Name of Person, Compensation from As Part of Fund Annual Benefits Fund Complex Paid
Position the Trust Expenses Upon Retirement to Trustee
===================================================================================================================
<S> <C> <C> <C> <C>
Dawn-Marie Driscoll $8,600 N/A N/A $92,800
Trustee (16 funds)
George M. Lovejoy, Jr. $8,600 N/A N/A $112,900
Trustee (12 funds)
Wesley W. Marple, Jr. $8,600 N/A N/A $93,100
Trustee (15 funds)
Jean C. Tempel $8,600 N/A N/A $92,200
Trustee (15 funds)
</TABLE>
DISTRIBUTOR
The Fund has an underwriting agreement with Scudder Investor Services,
Inc., a Massachusetts corporation, which is a subsidiary of the Adviser, a
Delaware corporation. The Fund's underwriting agreement dated September 10, 1985
will remain in effect until September 30, 1996, and from year to year thereafter
only if its continuance is approved annually by a majority of the members of the
Board of Trustees who are not parties to such agreement or interested persons of
any such party and either by a vote of a majority of the Board of Trustees or a
majority of the outstanding voting securities of the Fund. The underwriting
agreement was last approved by the Trustees on August 8, 1995.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of the registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker/dealer in various
states as required; the fees and expenses of preparing, printing and mailing
prospectuses annually to existing shareholders (see below for expenses relating
to prospectuses paid by the Distributor), notices, proxy statements, reports or
other communications to shareholders of the Fund; the cost of printing and
mailing confirmations of purchases of shares and any prospectuses accompanying
such confirmations; any issuance taxes and/or any initial transfer taxes; a
portion of shareholder toll-free telephone charges and expenses of shareholder
service representatives; the cost of wiring funds for share purchases and
redemptions (unless paid by the shareholder who initiates the transaction); the
cost of printing and postage of business reply envelopes; and a portion of the
cost of computer terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay for all fees and expenses in connection with
its qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
36
<PAGE>
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, and the Trustees
have no current intention of adopting one, the Fund will also pay those fees and
expenses permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
if any, adopted by the Fund, notwithstanding any other provision to the contrary
in the underwriting agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information -- Dividends and
capital gains distributions" and "Transaction information--Tax information,
and Tax identification number" in the Fund's prospectus.)
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, and has qualified as such since its inception.
It intends to continue to qualify for such treatment. Such qualification does
not involve governmental supervision or management of investment practices or
policy.
As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code. The Fund intends to distribute, at least
annually, all of its investment company taxable income and net realized capital
gains.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of Fund
shares owned by the difference between the shareholder's pro rata share of such
gains and the shareholder's tax credit.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year (although investment companies with taxable years ending on
November 30 or December 31 may make an irrevocable election to measure the
required capital gain distribution using their actual taxable year), and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income generally includes interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
At March 31, 1996, the Fund had a net tax basis capital loss
carryforward of approximately $30,082,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until March 31, 2003, the expiration date.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Since no portion of the Fund's income is comprised of dividends from
domestic corporations, none of the income distributions of the Fund are eligible
for the deduction for dividends received by corporations.
37
<PAGE>
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gains
during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on the shareholder's federal income tax return. Dividends declared
in October, November or December with a record date in such a month are deemed
to have been received by shareholders on December 31 if paid in January of the
following year. Redemptions of shares, including exchanges for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and are also subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution of up to
$2,000 or, if less, the amount of the individual's earned income for any taxable
year only if (i) neither the individual nor a spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and a spouse, if applicable) has an adjusted gross income below a
certain level ($40,050 for married individuals filing a joint return, with a
phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and a nonearning spouse) for that year. There
are special rules for determining how withdrawals are to be taxed if an IRA
contains both deductible and nondeductible amounts. In general, a proportionate
amount of each withdrawal will be deemed to be made from nondeductible
contributions; amounts treated as a return of nondeductible contributions will
not be taxable. Also, annual contributions may be made to a spousal IRA even if
the spouse has earnings in a given year if the spouse elects to be treated as
having no earnings (for IRA contribution purposes) for the year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution may nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
In general, no loss is recognized by the Fund upon payment of a premium
in connection with the purchase of a put or call option. The character of any
gain or loss recognized (i.e., long-term or short-term) generally depends, in
the case of a lapse or sale of the option, on the Fund's holding period for the
option, and in the case of an exercise of a put option, on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or a substantially identical security
in the Fund's portfolio. If the Fund writes a put or call option, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as a short-term capital gain or loss. If a call
option written by the Fund is exercised, the character of the gain or loss
depends on the holding period of the underlying security. The exercise of a put
option written by the Fund is not a taxable transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all
listed nonequity options written or purchased by the Fund (including listed
options on debt securities and options on futures contracts), will be governed
by Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term, and on the last
trading day of the Fund's fiscal year, (and generally, on October 31 for
38
<PAGE>
purposes of the 4% excise tax) all outstanding Section 1256 positions will be
marked to market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, foreign currency
gain or loss from foreign currency-related forward contracts, certain futures
contracts and options and similar financial instruments entered into or acquired
by the Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
Fund's portfolio.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. Shareholders will be subject to income tax on such
original issue discount, whether or not they elect to receive their
distributions in cash. In the event that a Fund acquires a debt instrument at a
market discount, it is possible that a portion of any gain recognized on the
disposition of such instrument will be reclassed to ordinary income.
Subchapter M of the Code requires that the Fund realize less than 30%
of its annual gross income from the sale or other disposition of stock,
securities and certain options, futures and forward contracts held for less than
three months. Certain options, futures and forward transactions of the Fund may
increase the amount of gains realized by the Fund that are subject to the 30%
limitation. Accordingly, the amount of such transactions that the Fund may
undertake may be limited.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures contract or nonequity option
governed by Section 1256 which substantially diminishes the Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, the operation of which may cause deferral of losses, adjustments in
the holding periods of securities, and conversion of short-term capital losses
into long-term capital losses, certain tax elections exist for them which reduce
or eliminate the operation of these rules. The Fund will monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
The Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
nonexempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Under the laws of certain states, distributions of investment company taxable
income are taxable to shareholders as dividends, even though a portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by such shareholders, would be exempt from state income
tax.
The Fund is organized as a Massachusetts business trust and, provided
that it qualifies as a regulated investment company for federal income tax
purposes, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
39
<PAGE>
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by the shareholder, where such amounts are treated as
income from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with issuers, underwriters or other broker/dealers. The
Distributor receives no commissions, fees or other remuneration from the Fund
for this service. Allocation of brokerage is supervised by the Adviser.
The Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter. For the fiscal years ended March 31, 1996, 1995 and 1994, the
Fund had no brokerage commissions or underwriting discounts.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions), size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser reviews on a routine basis commission
rates, execution and settlement services performed, making internal and external
comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers/dealers who supply market quotations to the Custodian for appraisal
purposes; or who supply research, market and statistical information to the Fund
or the Adviser and with the custodian, which has agreed to reduce its custodian
fees in an amount normally equal to 1/2 of such commissions (provided such fees
will not be reduced by more than 75%). The term "research, market and
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the availability
of securities or purchasers or sellers of securities; and analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
The Adviser may place brokerage transactions through the Custodian and
a credit against the custodian fee due to State Street Bank and Trust Company
equal to one-half of the commission on any such transaction will be given.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular broker/dealers or groups thereof.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
40
<PAGE>
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.
The Trustees intend to review whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable. Within
the past three years no such recapture has been effected.
Portfolio Turnover
Fund securities may be sold to take advantage of investment
opportunities arising from changing market levels or yield relationships.
Although such transactions involve additional costs in the form of spreads or
commissions, they will be undertaken in an effort to improve the overall
investment return of the Fund, consistent with the Fund's objectives. The
portfolio turnover rates (defined by the SEC as the ratio of the lesser of sales
or purchases to the monthly average value of such securities owned during the
year, excluding all securities whose remaining maturities at the time of
acquisition were one year or less) for the fiscal years ended March 31, 1996 and
1995 were 157.8% and 255.4%, respectively.
Recent economic and market conditions have necessitated more active
trading, resulting in a higher portfolio turnover rate. A higher rate involves
greater transaction costs to the Fund and may result in the realization of net
capital gains, which would be taxable to shareholders when distributed.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
41
<PAGE>
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing.
Shareholder Indemnification
The Fund is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Other Information
The CUSIP number of the Fund is 810903-10-4.
The Fund has a fiscal year end of March 31.
Portfolio securities of the Fund are held separately, pursuant to a
custodian agreement, by the Fund's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02101.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Scudder GNMA Fund" is the designation of the Trustees for the
time being under an Amended and Restated Declaration of Trust dated November 3,
1987, as amended from time to time, and all persons dealing with the Fund must
look solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents nor shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. Upon the initial purchase of shares, the shareholder agrees to be bound by
the Fund's Declaration of Trust, as amended from time to time. The Declaration
of the Trust is on file at the Massachusetts Secretary of State's office in
Boston, Massachusetts.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02210-4103, a wholly-owned subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
42
<PAGE>
assets, 0.0075% of such assets in excess of $150 million, 0.0045% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser, is
the transfer, dividend-paying and shareholder service agent for the Fund and
also provides subaccounting and recordkeeping services for shareholder accounts
in certain retirement and employee benefit plans. The Fund pays Service
Corporation an annual fee of $25.00 for each account maintained for a
shareholder. The fee incurred by the Fund for the year ended March 31, 1996
amounted to $787,701, of which $63,586 was unpaid at March 31, 1996.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $20.40 per shareholder account. The Fund
incurred fees of $_____, $_______ and $_______ during the fiscal years ended
March 31, 1996, 1995 and 1994, respectively.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. This Registration
Statement and its amendments are available for inspection by the public at the
SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the
Fund, together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements are incorporated herein by reference in the
Annual Report to the Shareholders of the Fund dated March 31, 1996 and are
hereby deemed to be a part of this Statement of Additional Information.
43
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder GNMA Fund
Annual Report
March 31, 1996
* A fund designed to provide high current income primarily from high quality
U.S. government mortgage-backed GNMA securities.
* A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER GNMA FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
12 Financial Statements
15 Financial Highlights
16 Notes to Financial Statements
20 Report of Independent Accountants
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder
IN BRIEF
* Scudder GNMA Fund rewarded investors with a total return of 10.20% for
the fiscal year ended March 31, 1996. The Fund's price rose $0.47 per
share to $14.54 at the end of the period, with investors receiving
income totaling $0.94 per share.
* During the period, your Fund performed markedly better than the
average GNMA fund tracked by Lipper, which returned 9.63%.
BAR CHART:
Scudder GNMA Fund Lipper GNMA Fund Average
- -----------------------------------------------
10.20 9.63
* To help protect the Fund's income stream in the face of falling
interest rates during the year, the Fund focused on bonds whose
underlying mortgages were less susceptible to refinancing activity.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Scudder GNMA Fund closed its fiscal year on March 31, 1996, with a solid
total return of 10.20%, reflecting a rise in the Fund's share price and an
attractive level of income to investors. Widespread declines in U.S. interest
rates set the stage for appreciation in bond prices for most of the past 12
months. Subdued economic growth and continued low inflation contributed to the
downward path of interest rates. In our last report to you, we mentioned that
the U.S. dollar's appreciation against the Japanese yen would likely fuel
foreign demand for U.S. securities. Indeed, inflows into U.S. Treasuries soared,
reaching nearly $200 billion by the third quarter of 1995, and contributed to
rising prices and lower yields.
The Fund's total return-orientation translated into an emphasis on price
appreciation while protecting the Fund's income, and was well-suited to make the
most of the hospitable investment climate. This approach resulted in the Fund's
strong return, which outpaced the 9.63% average return of Lipper's universe of
GNMA funds.
As the fiscal year drew to a close, unexpected signs of economic
strength tempered the heady performance of bonds in 1995, despite conflicting
evidence suggesting that domestic growth remains slow and inflation rates
negligible. Until a clear picture of the economy emerges, investor perceptions
about the course of inflation and the shape of the economy may result in
continued volatility. Still, we believe your Fund continues to offer the
opportunity to pursue yields higher than those available from U.S. Treasury
securities while providing relatively steady share prices. Thank you for
choosing Scudder GNMA Fund to help meet your investing needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3
<PAGE>
SCUDDER GNMA FUND
PERFORMANCE UPDATE as of March 31, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER GNMA FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/96 $10,000 Cumulative Annual
-------- ------- ---------- ------
1 Year $11,020 10.20% 10.20%
5 Year $14,207 42.07% 7.28%
10 Year $21,229 112.29% 7.82%
LEHMAN BROTHERS MORTGAGE GNMA INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/96 $10,000 Cumulative Annual
-------- ------- ---------- ------
1 Year $11,084 10.84% 10.84%
5 Year $14,820 48.20% 8.18%
10 Year $23,935 139.35% 9.11%
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 MARCH 31,
Scudder GNMA Fund
Year Amount
- ----------------------
'86 $10,000
'87 $10,981
'88 $11,362
'89 $11,795
'90 $13,193
'91 $14,942
'92 $16,509
'93 $18,475
'94 $18,356
'95 $19,263
'96 $21,229
Lehman Brothers Mortgage GNMA Index
Year Amount
- ----------------------
'86 $10,000
'87 $11,039
'88 $11,736
'89 $12,395
'90 $14,172
'91 $16,150
'92 $18,051
'93 $20,096
'94 $20,321
'95 $21,594
'96 $23,935
The unmanaged Lehman Brothers Mortgage GNMA Index is a market value-
weighted measure of all fixed-rate securities backed by mortgage pools
of the GNMA. Index returns are calculated monthly and assume
reinvestment of dividends. Unlike Fund returns, Index 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 MARCH 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... $15.44 $14.61 $13.87 $14.22 $14.80 $15.07 $15.52 $14.33 $14.07 $14.54
INCOME DIVIDENDS.. $ 1.34 $ 1.30 $ 1.28 $ 1.26 $ 1.23 $ 1.24 $ 1.29 $ 1.12 $ .93 $ .94
CAPITAL GAINS
DISTRIBUTIONS..... $ .08 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 9.81 3.47 3.81 11.86 13.26 10.48 11.91 -0.64 4.94 10.20
INDEX TOTAL
RETURN (%)........ 10.41 6.31 5.62 14.33 13.96 11.77 11.34 1.13 6.26 10.84
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
4
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Government National By the end of the period, the
Mortgage Association 84% Fund eliminated investments in
Cash & Equivalents, net 16% U.S. Treasuries, which
---- enhanced its participation in
100% bond market rallies at various
==== points during the year.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
GNMA COUPONS
- --------------------------------------------------------------------------
6.5% 29%
7.0% 23%
7.5% 5% As interest rates fell, the Fund
8.0% 11% increased investments in lower-
8.5% 3% and higher-coupon bonds to
9.0% 18% help protect the Fund's income
9.5% 5% stream.
10.0% 4%
Greater than 10% 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 17% The Fund increased investments
1-5 years 5% in mortgages with effective
5-10 years 31% maturities between five and 10
Greater than 10 years 47% years for their attractive price
---- and yield characteristics.
100%
====
Weighted average effective maturity: 7 years
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER GNMA FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
In the fiscal year ended March 31, 1996, Scudder GNMA Fund shareholders
enjoyed share price gains on top of solid monthly income as U.S. interest rates
fell. Because interest rates and bond prices move in opposite directions, your
Fund's price appreciated $0.47 per share during the year, while its 30-day net
annualized SEC yield declined to 5.69% at the close of the period from 7.0% a
year earlier.
The combination of the increase in the Fund's share price (to $14.54 on
March 31, 1996, from $14.07 a year earlier) and the reinvestment of monthly
dividend distributions totaling $0.94 per share resulted in a solid 10.20% total
return for the year. By comparison, the unmanaged Lehman Brothers GNMA Index, a
broad market benchmark, posted a return of 10.84% while the 57 GNMA funds
tracked by Lipper noticeably lagged your Fund's performance with an average
return of 9.63%.
Amenable Conditions Foster Recovery in Bond Markets
Following a very challenging year for bonds in 1994, investor sentiment
finally began to change for the better by the start of the Fund's fiscal year,
fueling a recovery in bond markets. Bond prices continued to improve as the
Federal Reserve cut interest rates three times during succeeding months--most
recently in January 1996. The Fed's actions were spurred by evidence that
economic growth had slowed to a more sustainable pace, inflationary pressures
remained in check, and consumers were curtailing their spending. Meanwhile, the
U.S. dollar's long-awaited rise against the Japanese yen provided strength as
foreign investors sought U.S. securities, also driving interest rates lower and
bond prices higher.
In early 1996, however, a confluence of events induced long-term
interest rates to climb. Budget talks in Washington had stalled, quelling hopes
of immediate action on deficit reduction, and Federal Reserve Chairman Greenspan
commented that the economy was not as weak as the market had believed. A spate
of economic indicators seemed to support this view--particularly the March
release of employment data, revealing unexpectedly strong job growth. The
apparent strength of the economy has put further Fed interest rate cuts into
question--at least for the moment.
6
<PAGE>
Balancing Opportunities For Price Appreciation and Income Preservation
The challenges and opportunities of the GNMA market that go hand-in-hand
with falling interest rates underscored the value of the Fund's
total-return-oriented approach during the fiscal year. Recognizing that GNMA
investors count on dependable income and a fair degree of price stability from a
high-quality portfolio, we adhered to total return-oriented strategies
compatible with the conservative underpinnings of the Fund.
As yields fell, we focused on mortgages with longer effective maturities
to help pursue both better price performance and yields. Because longer-maturity
bonds are more sensitive to changes in interest rates than those with shorter
maturities, these longer maturities functioned as a tailwind of sorts to boost
price gains. Gradual steps to move into longer-maturity bonds were already
underway as the period began.
We also devoted attention to safeguarding the Fund's income earnings,
wary of escalating prepayment risk. When homeowners take advantage of lower
rates to refinance their outstanding mortgages, issuers of mortgage-backed
securities are forced to repay principal ahead of schedule, leaving GNMA
investors with cash to invest in a lower-interest-rate environment.
Specifically, we worked to reduce prepayment risk by investing in select
lower-coupon issues--that is, bonds paying lower stated rates of
interest--particularly 6 1/2% and 7% issues. In our estimation, these bonds
would be less prone to refinancing activity unless long-term interest rates fell
dramatically further. Because these lower-coupon bonds were more resistant to
prepayments, they also enjoyed better relative price performance as interest
rates fell.
A focus on seasoned premium mortgages also helped us manage the risks of
prepayment. In particular, we emphasized older mortgage debt with coupons of
around 8% to 10%. The generous income levels of these bonds are evident and
clearly appealing to income-conscious investors. At first glance, however, these
bonds appear exceedingly vulnerable to prepayment, because the cost of the
underlying debt is high compared to today's market rates. But, the underlying
mortgage holders have not refinanced at lower rates despite several
opportunities to do so in prior years. For this reason, these bonds were
statistically less likely to be refinanced, and performed particularly well
price-wise as interest rates declined.
7
<PAGE>
Finally, the Fund's flexibility to invest in U.S. Treasury securities
also worked to its advantage. On and off during the period, we built a position
in Treasuries--at times up to roughly 10% of the portfolio. Treasury investments
heightened the Fund's ability to participate in rising prices. Because
Treasuries cannot be retired prior to maturity, they are immune to the risk of
prepayment, and thus tend to perform better than GNMAs when interest rates fall.
(From an income standpoint, though, GNMAs typically have the edge in the form of
higher relative yields.) By the time interest rates began edging upward in early
1996, we had eliminated Treasuries altogether from the portfolio. In their
stead, we purchased select mortgages with attractive price and yield
characteristics engendered by the recent rise in rates.
Outlook
From our current vantage point, we believe Scudder GNMA Fund is
well-positioned to continue to generate solid total returns that blend a
reasonable level of current income with price stability. The ingredients
typifying attractive bond market conditions--slow economic growth and stable
levels of inflation, for example--remain visible, despite short-term
uncertainty. In addition, the growing debt burden shouldered by average
consumers and the rise in consumer loan delinquency are tending to suppress
consumer spending, thereby restraining economic growth. Meanwhile, prepayment
risk has subsided in the wake of the recent interest rate increases, helping to
keep supply far below 1993's record peaks. And with demand essentially
unchanged, the supply/demand equation remains favorable for GNMAs.
Positives aside, conflicting reports that paint a stronger economic
picture are challenging the view that the aging economic expansion is nearing an
end. The bond market may find it difficult to stage a real recovery without
robust foreign demand for U.S. securities, which was so instrumental last year
in pushing yields down and prices up. We will continue to scrutinize the mosaic
of economic data to help us shape investment strategy through the year. In the
meantime, although the short-term direction of interest rates is unclear, we
expect a reasonably attractive environment for bonds.
8
<PAGE>
In the months ahead, the Fund's share price and income will vary in
response to changes in interest rates and other economic factors. In our view,
the Fund remains a high-quality vehicle for earning attractive income relative
to more stable securities such as money market instruments without undue
exposure to fluctuations in share price.
Sincerely,
Your Portfolio Management Team
/s/David H. Glen /s/Mark Boyadjian
David H. Glen Mark Boyadjian
Scudder GNMA Fund: A Team Approach to Investing
Scudder GNMA 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's portfolio. 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 David H. Glen joined the Fund's portfolio
management team in 1985 and is responsible for setting the Fund's investment
strategy and overseeing security selection for the Fund's portfolio. David has
16 years of experience in finance and investing, 14 with Scudder. Mark S.
Boyadjian, Portfolio Manager, joined the team in 1995, and contributes his eight
years' experience managing fixed-income securities. Mark has been with Scudder
since 1989.
9
<PAGE>
<TABLE>
SCUDDER GNMA FUND
INVESTMENT PORTFOLIO as of March 31, 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Net Assets Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------------------
21.9% REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
50,000,000 Repurchase Agreement with First National
Bank of Chicago dated 3/29/96 at 5.25%,
to be repurchased at $50,021,875 on 4/1/96,
collateralized by a $25,000,000 U.S.
Treasury Note, 7.875%, 7/31/96 and a
$26,245,000 U.S. Treasury Bill, 10/17/96 .......... 50,000,000
43,244,000 Repurchase Agreement with State Street
Bank and Trust Company dated 3/29/96
at 5.15%, to be repurchased at $43,262,559
on 4/1/96, collateralized by a $44,670,000
U.S. Treasury Bill, 6/27/96 ....................... 43,244,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $93,244,000) ................................ 93,244,000
-----------
--------------------------------------------------------------------------------
84.2% GOV'T NATIONAL MORTGAGE ASSOC.*
--------------------------------------------------------------------------------
107,694,147 6.5% with various maturities to 3/15/26 ............ 102,009,802
84,695,708 7% with various maturities to 10/15/24 ............. 82,525,719
18,009,067 7.5% with various maturities to 2/15/24 ............ 18,019,256
40,163,737 8% with various maturities to 12/15/24 ............. 41,097,018
11,100,000 8.5% with various maturities to 8/15/25 ............ 11,592,507
58,777,899 9% with various maturities to 12/15/21 ............. 62,770,292
16,072,302 9.5% with various maturities to 10/15/21 ........... 17,466,833
14,116,612 10% with various maturities to 10/15/21 ............ 15,566,556
432,730 10.5% with various maturities to 8/20/19 ........... 475,462
1,120,148 11.5%with various maturities to 2/15/16 ............ 1,268,300
3,110,275 12% with various maturities to 2/20/16 ............. 3,565,477
253,174 12.5% with various maturities to 10/20/13 .......... 293,839
697,310 13% with various maturities to 10/15/15 ............ 818,900
171,338 13.5% with various maturities to 8/15/14 ........... 203,333
26,241 15% with various maturities to 7/15/12 ............. 31,787
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (Cost $356,008,960) .......... 357,705,081
-----------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
% of
Net Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (Cost $449,252,960) (a) .. 106.1 450,949,081
OTHER ASSETS AND LIABILITIES, NET ................... (6.1) (26,117,076)
----- -----------
NET ASSETS .......................................... 100.0 424,832,005
===== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Cost for federal income tax purposes was $449,252,960. At March 31, 1996,
net unrealized appreciation for all securities based on tax cost was
$1,696,121. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,438,102 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,741,981.
* The investments in mortgage-backed securities of the Government National
Mortgage Association are interests in separate pools of mortgages. All
separate investments in each of these issues which have similar coupon
rates have been aggregated for presentation purposes in the Investment
Portfolio. 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
<PAGE>
<TABLE>
SCUDDER GNMA FUND
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------------
MARCH 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (including repurchase
agreements of $93,244,000) (identified cost
$449,252,960) (Note A) .............................. $450,949,081
Cash .................................................. 1,814
Receivables:
Fund shares sold .................................... 109,160
Interest ............................................ 2,252,594
------------
Total assets ...................................... 453,312,649
LIABILITIES
Payables:
Investments purchased ............................... $26,305,513
Fund shares redeemed ................................ 1,135,683
Dividends ........................................... 617,739
Accrued management fee (Note C) ..................... 222,416
Other accrued expenses (Note C) ..................... 199,293
-----------
Total liabilities ................................. 28,480,644
------------
Net assets, at market value ........................... $424,832,005
============
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments .............. $ 1,696,121
Accumulated net realized loss ....................... (30,497,505)
Shares of beneficial interest ....................... 292,205
Additional paid-in capital .......................... 453,341,184
------------
Net assets, at market value ........................... $424,832,005
============
NET ASSET VALUE, offering and redemption price per share
($424,832,005 / 29,220,534 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) .............................. $14.54
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................ $31,914,294
Expenses:
Management fee (Note C) ............................. $2,688,700
Services to shareholders (Note C) ................... 945,400
Trustees' fees and expenses (Note C) ................ 34,847
Custodian and accounting fees (Note C) .............. 215,191
Reports to shareholders ............................. 88,120
Legal ............................................... 8,262
Auditing ............................................ 43,797
State registration .................................. 29,550
Other ............................................... 15,044 4,068,911
-----------------------------
Net investment income................................ 27,845,383
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT
TRANSACTIONS
Net realized gain from:
Investments ....................................... 9,488,739
Futures ........................................... 2,645,633 12,134,372
----------
Net unrealized appreciation during the period on
investments ....................................... 2,056,915
-----------
Net gain on investment transactions ................. 14,191,287
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ......................................... $42,036,670
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER GNMA FUND
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 27,845,383 $ 30,707,579
Net realized gain (loss) from investment
transactions ........................................ 12,134,372 (34,856,802)
Net unrealized appreciation on
investments during the period ....................... 2,056,915 23,662,007
------------ -------------
Net increase in net assets
resulting from operations ........................... 42,036,670 19,512,784
------------ -------------
Distributions to shareholders from:
Net investment income ($.94
and $.92 per share, respectively) ................... (27,845,383) (30,323,833)
------------ -------------
Tax return of capital ($.01 per share) ................ -- (383,746)
------------ -------------
Fund share transactions
Proceeds from shares sold ............................. 60,759,215 54,359,548
Net asset value of shares issued to share-
holders in reinvestment of distributions ............ 19,805,541 21,482,210
Cost of shares redeemed ............................... (98,890,887) (179,639,479)
------------ -------------
Net decrease in net assets from
Fund share transactions ............................. (18,326,131) (103,797,721)
------------ -------------
DECREASE IN NET ASSETS ................................ (4,134,844) (114,992,516)
Net assets at beginning of period ..................... 428,966,849 543,959,365
------------ -------------
NET ASSETS AT END OF PERIOD ........................... $424,832,005 $ 428,966,849
============ =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ............. 30,493,920 37,951,648
------------ -------------
Shares sold ........................................... 4,154,677 3,907,473
Shares issued to shareholders in
reinvestment of distributions ....................... 1,355,378 1,540,397
Shares redeemed ....................................... (6,783,441) (12,905,598)
------------ -------------
Net decrease in Fund shares ........................... (1,273,386) (7,457,728)
------------ -------------
Shares outstanding at end of period ................... 29,220,534 30,493,920
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------
1996 1995 1994(c) 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ................... $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44 $15.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income ................. .94 .93 1.12 1.29 1.24 1.23 1.26 1.28 1.30 1.34
Net realized and
unrealized gain
(loss) on investment
transactions ........... .47 (.26) (1.19) .45 .27 .58 .35 (.74) (.83) .11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............... 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54 .47 1.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income ................. (.94) (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.34)
Net realized gains
on investment
transactions ............. - - - - - - - - -(a) (.08)
Tax return of
capital ................ - (.01) - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.42)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period ................ $14.54 $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) ........... 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47 9.81
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ...... 425 429 544 597 350 264 251 242 251 294
Ratio of operating
expenses to average
daily net assets (%) ..... .94 .95 .87 .93 .99 1.04 1.05 1.04 1.04 1.05
Ratio of net investment
income to average
daily net assets (%) ..... 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93 8.63
Portfolio turnover rate
(%) ...................... 157.8 220.5(b) 272.1(b) 87.3(b) 87.1(b) 52.1 71.3 128.4 92.1 58.7
<FN>
(a) Distributions from net realized gains were less than 3/10 of $.01 per share.
(b) The significant increase in the portfolio turnover rate for the year ended March 31, 1994 is primarily
attributable to prepayments. The portfolio turnover rates including mortgage dollar roll transactions were 255.4%,
392.5%, 356.8%, and 147.0%, for the periods ended March 31, 1995, 1994, 1993, and 1992, respectively.
(c) Per share amounts have been calculated using weighted average shares outstanding.
</FN>
</TABLE>
15
<PAGE>
SCUDDER GNMA FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder GNMA Fund (the "Fund") 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.
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
March 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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities at
the same price on a fixed date. The Fund receives compensation as consideration
for entering into the commitment to repurchase. The compensation is paid in the
form of a fee, or alternatively, a lower price for the security upon its
repurchase.
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder. Mortgage
dollar rolls may be renewed with a new sale and repurchase price and a cash
settlement made at each renewal without physical delivery of the securities
subject to 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. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At March 31, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $30,082,000 which may be applied
17
<PAGE>
SCUDDER GNMA FUND
- --------------------------------------------------------------------------------
against any realized net taxable capital gains of each succeeding year until
fully utilized or until March 31, 2003, the expiration date.
DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. 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. Therefore, the
Fund intends to distribute these amounts 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 mortgage backed securities. 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 specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
OTHER. Investment security transactions are accounted for on a trade date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued pro rata to maturity.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended March 31, 1996, purchases and sales of U.S. Government
Securities (excluding short-term investments) aggregated $632,654,702 and
$688,491,536, respectively.
The aggregate face value of futures contracts both opened and closed during the
year ended March 31, 1996 was $1,666,411,923.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 also 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 March 31, 1996, the fee pursuant to the Agreement amounted to $2,688,700,
which was equivalent to an annualized effective rate of 0.62% of the Fund's
average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended March 31, 1996, the amount charged to the Fund by SSC aggregated
$787,701 of which $63,586 is unpaid at March 31, 1996.
Effective May 9, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, assumed responsibility for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the year ended March 31, 1996, the amount charged to
the Fund by SFAC aggregated $95,411.
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
March 31, 1996, Trustees' fees and expenses aggregated $34,847.
19
<PAGE>
SCUDDER GNMA FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF SCUDDER GNMA FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
GNMA Fund, including the investment portfolio, as of March 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 March
31, 1996, by correspondence with the custodian and brokers. 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 GNMA Fund as of March 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.
May 3, 1996
20
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
David S. Lee*
Vice President and Trustee
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Consultant and Corporate Director
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; General Partner, TL Ventures
David H. Glen*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
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
Kathryn L. Quirk*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
21
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Emerging Markets Growth Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Discovery Fund
Scudder Medium Term Tax Free Fund Scudder Gold Fund
Scudder New York Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Ohio Tax Free Fund* Scudder International Fund
Scudder Pennsylvania Tax Free Fund* Scudder Latin America Fund
Growth and Income Scudder Pacific Opportunities Fund
Scudder Balanced Fund Scudder Quality Growth Fund
Scudder Growth and Income Fund Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- ------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
- ------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- ------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder 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. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states. +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash management service that utilizes certain portfolios
of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
22
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your Scudder accounts; exchanges and
redemptions; or information on any Scudder fund
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional applications and
prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the Scudder Funds
Centers. Check for a Funds Center near you--they can be found in the following
cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
- --------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided through Scudder Investor Services, Inc.,
Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete information,
including management fees and expenses. Please read it carefully before you invest or send money.
</TABLE>
23
<PAGE>
Celebrating Over 75 Years of Serving Investors
- --------------------------------------------------------------------------------
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 38 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped us become one of
the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
<PAGE>
SCUDDER GNMA FUND
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial highlights for the ten fiscal years ended March 31, 1996
Included in Part B of this Registration Statement:
Investment Portfolio as of March 31, 1996
Statement of Assets and Liabilities as of
March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statements of Changes in Net Assets for the two fiscal years ended March 31, 1995 and
March 31, 1996
Financial Highlights for the ten fiscal
years ended March 31, 1996
Notes to Financial Statements
Report of Independent Accountants
Statements, schedules and historical information other than those listed above have been
omitted since they are either not applicable or are not required.
b. Exhibits:
1. (a)(1) Amended and Restated Declaration of Trust of the Registrant dated
November 3, 1987. (Incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 3 to the Registration Statement.)
(a)(2) Amendment to Amended and Restated Declaration of Trust dated
November 13, 1990. (Incorporated by reference to Exhibit 1(a)(2)
to Post-Effective Amendment No. 8 to the Registration Statement.)
2. (a)(1) Amended and Restated By-Laws of the Registrant dated
April 5, 1985. (Incorporated by reference to Exhibit 2 to
Pre-Effective Amendment No. 2 to the Registration Statement.)
(a)(2) Amendment to Amended and Restated By-Laws of the Registrant dated
August 13, 1991. (Incorporated by reference to Exhibit 2(a)(2) to
Post-Effective Amendment No. 9 to the Registration Statement.)
(a)(3) Amendment to Amended and Restated By-Laws of the Registrant dated
November 11, 1991. (Incorporated by reference to Exhibit 2(a)(3)
to Post-Effective Amendment No. 9 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest, par value
$.01 per share. (Incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 5 to the Registration Statement.)
Part C - Page 1
<PAGE>
5. Investment Management Agreement between Registrant and Scudder, Stevens &
Clark, Inc. dated November 14, 1990. (Incorporated by reference to Exhibit
5 to Post-Effective Amendment No. 8 to the Registration Statement.)
6. Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., formerly Scudder Fund Distributors, Inc., dated September
10, 1985. (Incorporated by reference to Exhibit 6 to Post-Effective
Amendment No. 1 to the Registration Statement.)
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank
and Trust Company dated July 3, 1985. (Incorporated by reference
to Exhibit 8(a) to Post-Effective Amendment No. 1 to the
Registration Statement.)
(a)(2) Amendment dated August 9, 1988 to Custodian Agreement between the
Registrant and State Street Bank and Trust Company dated July 3,
1985. (Incorporated by reference to Exhibit 8(a)(2) to
Post-Effective Amendment No. 6 to the Registration Statement.)
(b) Fee schedule for Exhibit 8(a)(1). (Incorporated by reference to
Exhibit 8(b) to Post-Effective Amendment No. 5 to the Registration
Statement.)
(c) Revised fee schedule for Exhibit 8(a)(1). (Incorporated by
reference to Exhibit 8(c) to Post-Effective Amendment No. 12 to the
Registration Statement.)
9. (a)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989. (Incorporated
by reference to Exhibit 9(a)(1) to Post-Effective Amendment No. 7
to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 9(a)(1). (Incorporated by reference to
Exhibit 9(a)(2) to Post-Effective Amendment No. 7 to the
Registration Statement.)
(a)(3) Revised fee schedule dated October 1, 1995 for Exhibit 9(a)(1) is
filed herein.
(b)(1) COMPASS Service Agreement between the Registrant and Scudder Trust
Company dated January 1, 1990. (Incorporated by reference to
Exhibit 9(b)(1) to Post-Effective Amendment No. 7 to the
Registration Statement.)
(b)(2) COMPASS and Trak 2000 Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995 is filed herein.
(b)(3) Fee Schedule for Exhibit 9(b)(1). (Incorporated by reference to
Exhibit 9(b)(2) to Post-Effective Amendment No. 7 to the
Registration Statement.)
Part C - Page 2
<PAGE>
(b)(4) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990. (Incorporated by reference
to Exhibit 9(b)(3) to Post-Effective Amendment No. 8 to the
Registration Statement.)
(c) Fund Accounting Services Agreement between the Registrant and
Scudder Fund Accounting Corporation dated May 9, 1995.
(Incorporated by reference to Exhibit 9(c) to Post-Effective
Amendment No. 12 to the Registration Statement.)
10. Opinion of Counsel is filed herein.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Inapplicable.
14. (a) Scudder Flexi-Plan for Corporations and Self-Employed Individuals.
(Incorporated by reference to Exhibit 14(a) to Scudder Income Fund
Post-Effective Amendment No. 46 to its Registration Statement on
Form N-1A (File nos. 2-13627 and 811-42)).
(b) Scudder Individual Retirement Plan. (Incorporated by reference to
Exhibit 14(b) to Scudder Income Fund Post-Effective Amendment No.
46 to its Registration Statement on Form N-1A (File nos. 2-13627
and 811-42)).
(c) Scudder Funds 403(b) Plan. (Incorporated by reference to Exhibit
14(c) to Scudder Income Fund Post-Effective Amendment No. 46 to its
Registration Statement on Form N-1A (File nos. 2-13627 and 811-42)).
(d) Scudder Employer-Select 403(b) Plan. (Incorporated by reference to
Exhibit 14(e)(2) to Scudder Income Fund Post-Effective Amendment
No. 43 to its Registration Statement on Form N-1A (File nos.
2-13627 and 811-42)).
(e) Scudder Cash or Deferred Profit Sharing Plan under Section 401(k).
(Incorporated by reference to Exhibit 14(f) to Scudder Income Fund
Post-Effective Amendment No. 43 to its Registration Statement on
Form N-1A (File Nos. 2-13627 and 811-42)).
15. Inapplicable.
16. Schedule for Computation of Performance Quotation.
(Incorporated by reference to Exhibit 16 to Post-Effective Amendment No. 6
to the Registration Statement.)
17. Financial Data Schedule is filed herein.
18. Inapplicable.
</TABLE>
Part C - Page 3
<PAGE>
Power of Attorney filed as part of the signature page of
Post-Effective Amendment No. 8. to the Registration
Statement and as part of the signature page of
Post-Effective Amendment No.12 to the Registration
Statement.
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None.
Item 26. Number of Holders of Securities (as of June 30, 1996)
- -------- -----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Share of beneficial interest, 21,159
par value $.01 per share
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its subsidiaries including Scudder Investor Services, Inc.,
and all of the registered investment companies advised by
Scudder, Stevens & Clark, Inc. insures the Registrant's
Trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV of Registrant's Amended and Restated Declaration of
Trust states as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time of the act or event occurred which gave rise to
the claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3 Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
Part C - Page 4
<PAGE>
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, administrative
or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final
adjudication by the court or other body before which
the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting in
a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office act on
the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person.
Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4.3 may be advanced
by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the
recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
Part C - Page 5
<PAGE>
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an Interested Person of the
Trust (including anyone who has been exempted from being an
Interested Person by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<C> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
President, The Japan Fund, Inc. (investment company)**
Director, Sovereign High Yield Investment Company (investment company)+
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Part C - Page 6
<PAGE>
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust
company)+++ Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Part C - Page 7
<PAGE>
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Vice President & Assistant Secretary, Scudder Realty Holdings
Corporation (a real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Part C - Page 8
<PAGE>
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company)
Boston, MA Trustee, New England Aquarium, Boston, MA
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder International Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Equity Trust (investment company)**
Vice President & Assistant Secretary, Scudder Securities Trust (investment company)*
Vice President & Assistant Secretary, Scudder Funds Trust (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust
(investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Director, Vice President & Secretary, Scudder Fund Accounting Corporation
(in-house fund accounting agent)*
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Part C - Page 9
<PAGE>
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
Part C - Page 10
<PAGE>
<TABLE>
<CAPTION>
(b)
<S> <C> <C> <C>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
E. Michael Brown Assistant Treasurer Trustee
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Paul J. Elmlinger Senior Vice President None
345 Park Avenue
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Vice President and Trustee
Two International Place Treasurer
Boston, MA 02110
Part C - Page 11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Thomas F. McDonough Clerk Vice President, Secretary
Two International Place and Assistant Treasurer
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Senior Vice President Vice President
345 Park Avenue
New York, NY 10154
Edmund J. Thimme Director and Vice President None
345 Park Avenue
New York, NY 10154
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other Compensation
Underwriter Commissions and Repurchases Commissions
----------- ----------- --------------- ----------- ---------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark Inc., Two International Place, Boston, MA 02110-4103.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts. Records relating
to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Part C - Page 12
<PAGE>
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 19th day of July, 1996.
SCUDDER GNMA FUND
By /s/Thomas F. McDonough
----------------------------
Thomas F. McDonough, Vice President,
Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* President (Principal Executive July 19, 1996
Officer) and Trustee
/s/E. Michael Brown
- --------------------------------------
E. Michael Brown* Trustee July 19, 1996
/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll* Trustee July 19, 1996
/s/David S. Lee
- --------------------------------------
David S. Lee* Vice President and Trustee July 19, 1996
/s/George M. Lovejoy, Jr.
- --------------------------------------
George M. Lovejoy, Jr.* Trustee July 19, 1996
/s/Wesley W. Marple, Jr.
- --------------------------------------
Wesley W. Marple, Jr.* Trustee July 19, 1996
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Jean C. Tempel
- --------------------------------------
Jean C. Tempel* Trustee July 19, 1996
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Vice President and Treasurer July 19, 1996
(Principal Financial and Accounting
Officer)
</TABLE>
*By: /s/Thomas F. McDonough
-------------------------
Thomas F. McDonough**
** Attorney-in-fact pursuant to a power of
attorney contained in the signature page of
Post-Effective Amendment No. 8 to the
Registration Statement filed May 29, 1991 and
pursuant to a power of attorney contained in
the signature page of Post-Effective
Amendment No. 13 to the Registration
Statement filed herein.
2
<PAGE>
File No. 2-82632
File No. 811-3699
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 13
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 17
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER GNMA FUND
<PAGE>
SCUDDER GNMA FUND
EXHIBIT INDEX
Exhibit 9(a)(3)
Exhibit 9(b)(2)
Exhibit 10
Exhibit 11
Exhibit 17
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
Scudder Family of Funds
Annual maintenance fee for each account
1/12th of the annual maintenance fee shall be charged and payable each month. It
will be charged for any account which at any time during the month had a share
balance in the fund.
The minimum monthly charge to any portfolio is $1,000.
Money Market Funds $28.90
Monthly Income Funds 25.00
Quarterly Distribution Funds 20.40
Annual Distribution Funds 17.55
Other fees
New Account Set Up $ 5.00 each
Disaster Recovery 0.25 per year
Closed Accounts 1.20 per year
TIN Certificates 0.15 each
TIN Maintenance 0.25 each
Check Writing:
Set Up 5.00 per account
Retail Check Clearance 0.96 per check
Corporate Check Clearance 0.46 per check
Out of pocket expenses shall be reimbursed by the fund to Scudder Service
Corporation or paid directly by the fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits
Lease and maintenance of S.A.I.L. and Easy Access
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the fund
Payment
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
On behalf of the Funds listed on
Attachment A: Scudder Service Company
By: /s/David S. Lee By: /s/Daniel Pierce
David S. Lee Daniel Pierce
Vice President President
Date: October 1, 1995 Date: October 1, 1995
<PAGE>
ATTACHMENT A
TRANSFER AGENCY AND SERVICE AGREEMENT
Money Market Accounts
Scudder California Tax Free Money Fund
Scudder Cash Investment Trust
Scudder New York Tax Free Money Fund
Scudder Tax Free Money Fund
Scudder U.S. Treasury Money Fund
Monthly Income Funds
Scudder California Tax Free Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder High Yield Tax Free Fund
Scudder International Bond Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund
Scudder Massachusetts Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund
Scudder Ohio Tax Free Fund
Scudder Pennsylvania Tax Free Fund
Scudder Short Term Bond Fund
Quarterly Distribution Funds
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder Emerging Markets Income Fund
Scudder Income Fund
<TABLE>
<CAPTION>
Annual Distribution Funds
<S> <C> <C>
Scudder Capital Growth Fund Scudder International Fund
Scudder Development Fund Scudder Latin America Fund
Scudder Global Discovery Fund Scudder Pacific Opportunities Fund
Scudder Global Fund Scudder Quality Growth Fund
Scudder Gold Fund Scudder Small Company Value Fund
Scudder Emerging Markets Growth Fund Scudder Value Fund
Scudder Greater Europe Growth Fund Scudder Zero Coupon 2000 Fund
</TABLE>
dated as of October 6, 1995
revised as of May 8, 1996
Exhibit 9(b)(2)
COMPASS AND TRAK 2000 SERVICE AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 1995, by and
between SCUDDER TRUST COMPANY, a New Hampshire banking corporation ("Trust
Company") and SCUDDER GNMA FUND, a Massachusetts business trust (the "Fund").
WITNESSETH:
WHEREAS, Trust Company is engaged in the business of providing certain
recordkeeping and other services; and
WHEREAS, Trust Company and the Fund entered into a "Compass Service
Agreement," dated January 1, 1990 (the "Former Agreement") under which Trust
Company has been providing certain recordkeeping and other services, and Trust
Company also has been performing certain recordkeeping and other services for
the Fund in connection with the TRAK 2000 system; and
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Trust Company is willing to continue to provide to the Fund
such recordkeeping and other services in connection with the COMPASS and TRAK
2000 systems and in addition is willing to provide certain order processing
services as agent for the Fund; and
WHEREAS, Trust Company and the Fund wish to amend, restate and replace
the Former Agreement with this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Terms of Appointment; Performance of Duties.
1.1. Appointment. Subject to the terms and conditions set
forth in this Agreement, the Fund hereby employs and appoints Trust Company (i)
to act as, and Trust Company agrees to act as, recordkeeping agent with respect
to the authorized and issued shares of beneficial interest of the Fund
("Shares") or units representing such Shares ("Units"), and (ii) to act as an
agent of the Fund for the purpose of receiving requests for the purchase and
redemption of Shares or Units (collectively, "Shares") and communicating such
requests to the Fund's transfer agent ("Transfer Agent"), in connection with
certain retirement and employee benefit plans established under the Internal
Revenue Code of 1986 including but not limited to defined contribution plans,
Section 403(b) plans, individual retirement accounts and deferred compensation
plans (each a "Plan" or collectively the "Plans"), utilizing the Comprehensive
Participant Accounting Services ("COMPASS") or TRAK 2000 system, and established
by plan administrators, employers, trustees, custodians and other persons (each
individually an "Administrator" or collectively the "Administrators") on behalf
of employers (each individually an "Employer" or collectively the "Employers")
and individuals for certain participants in such Plans (each individually a
"Participant" or collectively the "Participants").
1.2. Recordkeeping. Trust Company agrees that it will perform
the following recordkeeping services in connection with the COMPASS and TRAK
<PAGE>
2000 systems in accordance with procedures established from time to time by
agreement between the Fund and Trust Company. Subject to instructions from the
Administrators, Trust Company shall:
(i) receive from Administrators instructions for the purchase of Shares
of the Fund, confirm compliance with such instructions and, as agent of the
respective Administrators, deliver within a reasonable time such instructions
and any appropriate documentation therefor to the Transfer Agent of the Fund
duly appointed by the Trustees of the Fund (the "Transfer Agent");
(ii) record the purchase by Plans of the appropriate number of Shares
or Units and within a reasonable time allocate such Shares or Units among the
Participants' accounts;
(iii) record dividends and capital gains distributions on behalf of
Participants ;
(iv) receive from Administrators instructions for redemption and
repurchase requests and directions, confirm compliance with such instructions
and as agent of the respective Administrators deliver within a reasonable time
such instructions and any appropriate documentation therefor to the Transfer
Agent;
(v) record the redemption or repurchase by Plans of the appropriate
number of Shares or Units and within a reasonable time make the appropriate
adjustments among the Participants' accounts;
(vi) certify to the Fund no less frequently than annually the number of
Participants accounts for which records are maintained hereunder;
(vii) maintain records of account for and advise the Fund and
Administrators and Participants, when appropriate, as to the foregoing;
(viii) maintain all Plan and Participant accounts other than accounts
maintained by the Transfer Agent; and
(ix) maintain and mail administrative reports and Participant
statements.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and Trust Company.
1.3. Order Processing.
(a) In addition to the recordkeeping to be performed in accordance with
Section 1.02 above, the Fund hereby appoints Trust Company, and Trust Company
agrees to act, as the Fund's agent for the purpose of receiving requests for the
purchase and redemption of Shares or Units and communicating such requests to
the Fund's Transfer Agent, subject to and in accordance with the terms of this
Agreement, and as follows:
(i) Trust Company shall receive from the Plans, Plan participants,
Plan sponsors, authorized Plan committees or Plan trustees, according to Trust
Company's agreement with each Plan, by the close of regular trading on the New
York Stock Exchange (the "Close of Trading") each business day that the New York
Stock Exchange is open for business ("Business Day") instructions for the
purchase and redemption of Shares (together, "Instructions"). Instructions
received by Trust Company after the Close of Trading on any Business Day shall
be treated as received on the next Business Day.
2
<PAGE>
(ii) In connection with the COMPASS system, Trust Company shall
compute net purchase requests or net redemption requests to the extent
practicable for Shares of the Fund for each Plan based on Instructions received
each Business Day.
(iii) Trust Company shall communicate purchase and redemption
requests for Shares of the Fund, netted to the extent practicable in accordance
with (ii) above in the case of COMPASS ("Orders"), to the Transfer Agent, for
acceptance by the Fund or its agents, in the manner specified herein, and
promptly deliver, or instruct the Plans (or the Plans' trustees as the case may
be) to deliver, appropriate documentation and, in the case of purchase requests,
payment therefor to the Transfer Agent. Orders shall be based solely on
Instructions received by Trust Company from the Plans, Plan participants, Plan
sponsors, authorized Plan committees or Plan trustees.
(b) Trust Company shall maintain adequate records related to, and
advise the Transfer Agent as to, the foregoing, as instructed by the Fund, or by
the Transfer Agent or other person designated to act on the Fund's behalf. To
the extent required under the 1940 Act and rules thereunder, Trust Company
agrees that such records maintained by it hereunder will be preserved,
maintained and made available in accordance with the provisions of the 1940 Act
and rules thereunder, and copies or, if required, originals will be surrendered
promptly to the Fund, Transfer Agent or other person designated to act on the
Fund's behalf, on and in accordance with its request. Records surrendered
hereunder shall be in machine readable form, except to the extent that Trust
Company has maintained such records only in paper form. This provision shall
survive the termination of this Agreement.
(c) Trust Company shall perform its duties hereunder subject to the
terms and conditions of the Fund's current prospectus; the Fund and the Trust
Company may establish such additional procedures for order processing not
inconsistent with the terms of this Agreement as they reasonably determine to be
necessary or advisable from time to time.
(d) Trust Company acknowledges that it is not authorized by the Fund to
register the transfer of the Fund's Shares or to transfer record ownership of
the Fund's Shares, and that only the Transfer Agent is authorized to perform
such activities.
1.4. Agents of Trust Company. Trust Company may engage one or more
individuals, corporations, partnerships, trusts or other entities (including
affiliates of Trust Company) to act as its subcontractor(s) or agent(s)
("Agents") in providing the services contemplated hereunder. Any such Agent
shall be required to comply with the terms of this Agreement applicable to the
performance of such services it is performing as though it were the Trust
Company. Further, the Trust Company shall be solely responsible for, and assumes
all liability for, the actions and inactions of such Agents in connection with
their performance of such services.
2. Fees and Expenses.
2.1. Fees. For performance by Trust Company of services pursuant to this
Agreement, the Fund agrees to pay Trust Company an annual maintenance fee for
each Participant account as set out in the fee schedule, as amended from time to
time. Such fee schedule and out-of-pocket expenses and advances identified under
Section 2.2 below may be changed from time to time by mutual agreement between
the Fund and Trust Company. The parties hereto acknowledge that the fees payable
hereunder are for administrative and recordkeeping services only and do not
constitute payment in any manner for investment advisory or distribution
services.
3
<PAGE>
2.2. Expenses. In addition to the fee paid under Section 2.1 above, the
Fund agrees to reimburse Trust Company for out-of-pocket expenses or advances
incurred by Trust Company for the items set out in the fee schedule. In
addition, any other expenses incurred by Trust Company, at the request or with
the consent of the Fund, will be reimbursed by the Fund. The Fund agrees to pay
all fees and reimbursable expenses promptly. Postage and the cost of materials
for mailing of administrative reports, Participant statements and other mailings
to all Employer accounts or Participants shall be advanced to Trust Company by
the Fund at least two (2) days prior to the mailing date of such materials or
paid within two (2) days of the receipt by the Fund of a bill therefor.
3. Representations and Warranties of Trust Company.
Trust Company represents and warrants to the Fund that:
(i) It is a banking corporation duly organized and existing and in good
standing under the laws of The State of New Hampshire.
(ii) It has the legal power and authority to carry on its business in any
jurisdiction where it does business.
(iii) It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
(v) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund.
The Fund represents and warrants to Trust Company that:
(i) It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
(ii) It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
(iii) All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
(iv) It is an investment company registered under the 1940 Act.
(v) It makes available its Shares in connection with certain Plans.
(vi) A majority of the Trustees of the Fund who are not interested persons
have made findings to the effect that:
4
<PAGE>
(a) the Agreement is in the best interest of the Fund and its
shareholders;
(b) the services to be performed pursuant to the Agreement are services
required for the operation of the Fund;
(c) Trust Company can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and
(d) the fees charged by Trust Company for such services are fair and
reasonable in the light of the usual and customary charges made by others for
services of the same nature and quality.
(vii) A registration statement under the Securities Act of 1933, as amended
(the "33 Act"), has been filed and has become effective, and appropriate state
securities law filings have been made with respect to all Shares of the Fund
being offered for sale. The Fund shall notify Trust Company (i) if such
registration statement or any state securities registration or qualification has
been terminated or a stop order has been entered with respect to the Shares or
(ii) if such registration statement shall have been amended to cover Shares of
any additional Series (as hereinafter defined in Section 8.1).
5. Indemnification.
5.1. By Fund. Trust Company shall not be responsible for, and the Fund
shall indemnify and hold Trust Company harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of Trust Company or its agents required to be taken
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by Trust Company or its agents of
information, records and documents which (i) are received by Trust Company or
its agents and furnished to it by or on behalf of the Fund, and (ii) have been
prepared and/or maintained by the Fund or any other person or firm (except Trust
Company) on behalf of the Fund.
(d) The reliance on or the carrying out by Trust Company or its agents
of any written instructions or requests of the Fund or any person acting on
behalf of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such state, or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.2. By Trust Company. Trust Company shall indemnify and hold the Fund
harmless from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable to Trust
Company's refusal or failure to comply with the terms of this Agreement, or
which arise out of Trust Company's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
Trust Company hereunder.
5
<PAGE>
5.3. Reliance. At any time Trust Company may apply to any officer of the
Fund for instructions, and may consult with legal counsel (which may also be
legal counsel for the Fund) with respect to any matter arising in connection
with the services to be performed by Trust Company under this Agreement, and
Trust Company shall not be liable and shall be indemnified by the Fund for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. Trust Company and its agents shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided Trust Company or its agents by telephone, in person,
machine-readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund.
5.4. Acts of God. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.5. Procedures. In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. Covenants of the Fund and Trust Company.
6.1. Adequate Facilities. Trust Company hereby agrees to establish and
maintain facilities, personnel, and computer and other facilities and procedures
reasonably acceptable to the Fund for safekeeping of records, for the
preparation or use, and for keeping account of, such records, and for order
processing.
6.2. Insurance. Trust Company shall at all times maintain insurance
coverage which is reasonable and customary in light of its duties hereunder and
its other obligations and activities, and shall notify the Fund of any changes
in its insurance coverage unless the Fund is covered by the same policy and such
change is also applicable to the Fund.
6.3. Records. Trust Company shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable.
6.4. Confidentiality. Trust Company and the Fund agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.5. Inspection. In case of any requests or demands for the inspection of
the records relating to Plan accounts and Participant accounts with the Fund,
6
<PAGE>
Trust Company will endeavor to notify the Fund and to secure instructions from
an authorized officer of the Fund as to such inspection. Trust Company reserves
the right, however, to exhibit such records to any person whenever it is
reasonably advised by counsel to the Fund that it may be held liable for the
failure to exhibit such records to such person.
6.6. Laws Applicable to Fund. Trust Company acknowledges that the Fund, as
a registered investment company under the 1940 Act, is subject to the provisions
of the 1940 Act and the rules and regulations thereunder, and that the offer and
sale of the Fund's Shares are subject to the provisions of federal and state
laws and regulations applicable to the offer and sale of securities. The Fund
acknowledges that Trust Company is not responsible for the Fund's compliance
with such laws, rules and regulations. If the Fund advises Trust Company that a
procedure of Trust Company related to the discharge of its obligations hereunder
has or may have the effect of causing the Fund to violate any of such laws or
regulations, Trust Company shall use its best efforts to develop an alternative
procedure which does not have such effect.
6.7. Relationship to Plans. Trust Company acknowledges to the Fund that, as
the offeror of COMPASS and TRAK 2000, Trust Company does not act as a plan
administrator or as a fiduciary under the Employee Retirement Income Security
Act of 1974, as amended from time to time, with respect to any Plan. Trust
Company shall not be responsible for determining whether the terms of a
particular Plan or the Shares of the Fund are appropriate for the Plan or
Participant and does not guarantee the performance of the Fund.
7. Termination of Agreement.
This Agreement may be terminated by either party on the last day of the
month next commencing after thirty (30) days written notice to the other party.
Upon termination of this Agreement, the Fund shall pay to Trust Company such
fees and expenses as may be due as of the date of such termination. Should the
Fund exercise its right to terminate this Agreement, Trust Company reserves the
right to charge for any other reasonable expenses associated with such
termination.
8. Additional Series of the Fund.
8.1. Establishment of Series. Shares of the Fund are of a single class;
however, Shares may be divided into additional series ("Series") that may be
established from time to time by action of the Trustees of the Fund. If the
context requires and unless otherwise specifically provided herein, the term
"Fund" as used in this Agreement shall mean in addition each separate Series
currently existing or subsequently created, and the term "Shares" shall mean all
shares of beneficial interest of the Fund, whether of a single class or divided
into separate Series of the Fund currently existing or hereinafter created.
8.2. Notice to Trust Company. In the event that the Fund establishes one or
more or additional Series of Shares in addition to the original Series with
respect to which it desires to have Trust Company render services as
recordkeeping agent under the terms hereof, it shall so notify Trust Company in
writing, and upon the effectiveness of a registration statement under the 33 Act
relating to such Series of Shares and unless Trust Company objects in writing to
providing such services, such Series shall be subject to this Agreement.
8.3. Suspension. In the event that the Fund suspends the offering of Shares
of any one or more Series, it shall so notify Trust Company in writing to such
effect.
7
<PAGE>
9. Assignment.
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
10. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
12. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto.
13. Correspondence.
Trust Company will answer correspondence from Administrators relating to
Plan and Plan participant accounts and such other correspondence as may from
time to time be mutually agreed upon and notify the Fund of any correspondence
which may require an answer from the Fund.
14. Further Actions.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
15. Interpretive Provisions.
In connection with the operation of this Agreement, Trust Company and the
Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by the parties and annexed hereto, but no
such provisions shall contravene any applicable federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
16. Miscellaneous.
The name Scudder GNMA Fund is the designation of the Trustees for the time
being under a Declaration of Trust dated November 3, 1987, as amended, and all
persons dealing with the Fund must look solely to the Fund property for the
enforcement of any claims against the Fund as neither the Trustees, officers,
agents nor shareholders assume any personal liability for obligations entered
into on behalf of the Fund. No Series of the Fund shall be liable for any claims
against any other Series of the Fund.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
SCUDDER TRUST COMPANY
By: /s/Dennis M. Cronin, Jr.
-----------------------------------
Dennis M. Cronin, Jr.
Title: Vice President and Treasurer
SCUDDER GNMA FUND
By: /s/David S. Lee
------------------------------------
David S. Lee
Title: Vice President and Trustee
9
EXHIBIT 10
DECHERT, PRICE & RHOADS
TEN POST OFFICE SQUARE SOUTH
BOSTON, MA 02109-4603
TELEPHON: (617) 728-7100
FAX: (617) 426-6567
July 26, 1996
Scudder GNMA Fund
Two International Place
Boston, MA 02110
Re: Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
(SEC File No. 2 - 82632)
Gentlemen:
Scudder GNMA Fund (the "Trust") is a trust created under a written
Declaration of Trust dated March 24, 1983 under the name of Master Investment
Services Tax Free Fund and executed and delivered in Boston, Massachusetts. The
name of the Trust was changed to Scudder Government Mortgage Securities Fund by
an amendment to the Declaration of Trust dated April 5, 1985 and filed with the
Secretary of the Commonwealth of Massachusetts (the "Secretary") on April 8,
1985. The name of the Trust was further changed to Scudder GNMA Fund by an
Amended and Restated Declaration of Trust dated November 3, 1987 and filed with
the Secretary on December 3, 1987. The Declaration of Trust was further amended
by an instrument dated November 13, 1990 and filed with the Secretary on
December 12, 1990. The Amended and Restated Declaration of Trust, as amended, is
referred to as the "Declaration of Trust". The beneficial interest under the
Declaration of Trust is represented by transferable shares, $.01 par value per
share ("Shares"). The Trustees have the powers set forth in the Declaration of
Trust, subject to the terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied with
in the creation of the Trust and that said Declaration of Trust is legal and
valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees are
empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
<PAGE>
Scudder GNMA Fund
July 26, 1996
Page 2
- --------------------------------
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares authorized to be issued under the Declaration of Trust is
unlimited.
By votes adopted on November 8, 1994 and November 14, 1995, the Trustees of
the Trust authorized the President, any Vice President, the Secretary and the
Treasurer, from time to time, to determine the appropriate number of Shares to
be registered, to register with the Securities and Exchange Commission, and to
issue and sell to the public, such Shares.
We understand that you are about to register under the Securities Act of
1933, 1,293,665 Shares by Post-Effective Amendment No. 13 to the Registration
Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of said 1,293,665 Shares, comprising the Shares covered by Post-Effective
Amendment No. 13 to the Registration Statement, has been duly taken, and that
all such Shares may be legally and validly issued for cash, and when sold will
be fully paid and non-assessable by the Trust upon receipt by the Trust or its
agent of consideration for such Shares in accordance with the terms in the
Registration Statement, subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 13 to the Registration
Statement.
Very truly yours,
/S/Dechert, Price & Rhoads
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Scudder GNMA Fund:
We consent to the incorporation by reference in Post-Effective Amendment No. 13
to the Registration Statement of Scudder State GNMA Fund on Form N-1A, of our
report dated May 3, 1996, on our audit of the financial statements and financial
highlights of Scudder GNMA Fund, which report is included in the Annual Report
to Shareholders for the year ended March 31, 1996, which is incorporated by
reference in the Registration Statement.
We also consent to the reference to our Firm under the caption,
"Experts."
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 22, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
GNMA Fund Annual Report for the fiscal year ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 0
<NAME> SCUDDER GNMA FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 449,252,960
<INVESTMENTS-AT-VALUE> 450,949,081
<RECEIVABLES> 2,361,754
<ASSETS-OTHER> 1,814
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 453,312,649
<PAYABLE-FOR-SECURITIES> 26,305,513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,175,131
<TOTAL-LIABILITIES> 28,480,644
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453,633,389
<SHARES-COMMON-STOCK> 29,220,534
<SHARES-COMMON-PRIOR> 30,493,920
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,497,505)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,696,121
<NET-ASSETS> 424,832,005
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,914,294
<OTHER-INCOME> 0
<EXPENSES-NET> 4,068,911
<NET-INVESTMENT-INCOME> 27,845,383
<REALIZED-GAINS-CURRENT> 12,134,372
<APPREC-INCREASE-CURRENT> 2,056,915
<NET-CHANGE-FROM-OPS> 42,036,670
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,845,383)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,154,677
<NUMBER-OF-SHARES-REDEEMED> (6,783,441)
<SHARES-REINVESTED> 1,355,378
<NET-CHANGE-IN-ASSETS> (4,134,844)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (42,631,877)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,688,700
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,068,911
<AVERAGE-NET-ASSETS> 431,427,107
<PER-SHARE-NAV-BEGIN> 14.07
<PER-SHARE-NII> 0.94
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> (0.94)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.54
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
