Scudder
GNMA
Fund
Semiannual Report
September 30, 1998
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund which seeks high current
income primarily from U.S. Government guaranteed mortgage-backed ("Ginnie Mae")
securities.
SCUDDER (logo)
<PAGE>
Scudder GNMA Fund
- --------------------------------------------------------------------------------
Date of Inception: 7/5/85 Total Net Assets as of Ticker Symbol: SGMSX
9/30/98: $395.4 million
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o Scudder GNMA Fund returned 4.97% for the six months ended September 30,
beating the 4.59% average return of the 51 comparable funds tracked by Lipper
Analytical Services for the same period.
o The management team increased the Fund's exposure to Treasuries in an effort
to maintain the portfolio's overall duration and benefit from interest rate
declines.
o Positions in higher coupon mortgage-backed securities that are more sensitive
to prepayments were reduced in favor of newly issued, lower coupon bonds.
S We believe the outlook for GNMAs over the next six months is positive due to
their historically high yields in relation to Treasuries.
Table of Contents
3 Letter from the Fund's President 10 Financial Statements
4 Performance Update 13 Financial Highlights
5 Portfolio Summary 14 Notes to Financial Statements
6 Portfolio Management Discussion 20 Officers and Trustees
8 Glossary of Investment Terms 21 Investment Products and Services
9 Investment Portfolio 22 Scudder Solutions
2 - Scudder GNMA Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to present this semiannual report on the Scudder GNMA Fund
for the six-month period ended September 30, 1998. The Fund posted a 4.97% total
return for the period, beating its unmanaged benchmark, the Lehman Brothers GNMA
Index, which returned 4.28%. As of September 30, the Fund provided a 30-day net
annualized SEC yield of 5.48%. Please read the Portfolio Management Discussion
beginning on page 6 for additional information.
Investors have begun to demonstrate renewed interest in fixed income
securities as anticipation of a possible slowdown in economic and profit growth
have tempered expectations for U.S. equities. Bond mutual funds are often an
attractive vehicle for investors seeking relative safety and consistency of
returns. We believe that Scudder GNMA Fund, with its long-term record of solid
performance, is an excellent fit for many investors seeking these distinct
benefits. Over the long term, a diversified approach to investing which utilizes
multiple asset classes such as international, small-cap, and fixed income
securities, in our opinion, can provide the best opportunity for attractive
returns and reduced risk.
For those of you interested in new Scudder products, we recently introduced
two new products that provide a monthly dividend. Scudder Corporate Bond Fund
will invest in a diversified portfolio of primarily investment grade bonds,
making it a compelling choice for investors seeking high monthly income, as well
as those wishing to increase their fixed income exposure. Scudder Prime Reserves
Money Market Fund, which will pay monthly income while striving to maintain a
stable $1.00 share price, is designed as a vehicle for investors seeking a
higher paying alternative to a traditional savings account. For more information
on these offerings, please do not hesitate to call Investor Relations at
1-800-225-2470.
If you have questions about Scudder GNMA Fund or any other Scudder product,
please call the number above or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3 - Scudder GNMA Fund
<PAGE>
PERFORMANCE UPDATE as of September 30, 1998
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
- --------------------------------------------
Period Ended Growth of Average
9/30/98 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER GNMA FUND
- --------------------------------------------
1 Year $10,878 8.78% 8.78%
5 Year $13,598 35.98% 6.34%
10 Year $21,989 119.89% 8.20%
- --------------------------------------------
LEHMAN BROTHERS GNMA INDEX
- --------------------------------------------
1 Year $10,838 8.38% 8.38%
5 Year $14,257 42.57% 7.35%
10 Year $24,052 140.52% 9.17%
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GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
SCUDDER GNMA FUND
Year Amount
- ----------------------
'88 $10,000
'89 $10,870
'90 $11,806
'91 $13,612
'92 $15,195
'93 $16,171
'94 $15,613
'95 $17,618
'96 $18,537
'97 $20,214
'98 $21,989
LEHMAN BROTHERS MORTGAGE GNMA INDEX
Year Amount
- ----------------------
'88 $10,000
'89 $11,131
'90 $12,181
'91 $14,204
'92 $15,826
'93 $16,870
'94 $16,666
'95 $19,010
'96 $20,127
'97 $22,195
'98 $24,052
The unmanaged Lehman Brothers Mortgage GNMA Index is a 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.
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RETURNS AND PER SHARE INFORMATION
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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 September 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
-------------------------------------------------------------------------------
NET ASSET VALUE... $ 14.35 $ 14.30 $ 15.19 $ 15.61 $ 15.30 $ 13.84 $ 14.61 $ 14.43 $ 14.74 $ 15.09
INCOME DIVIDENDS.. $ 1.26 $ 1.25 $ 1.22 $ 1.28 $ 1.27 $ .95 $ .95 $ .92 $ .96 $ .90
FUND TOTAL
RETURN (%)........ 8.70 8.61 15.29 11.63 6.42 -3.45 12.85 5.22 9.05 8.78
INDEX TOTAL
RETURN (%)........ 11.31 9.45 16.61 11.43 6.59 -1.22 14.07 5.88 10.27 8.38
</TABLE>
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased.
4 - Scudder GNMA Fund
<PAGE>
Portfolio Summary as of September 30, 1998
Diversification
- ---------------------------------------
Government National Mortgage
Association 90%
U.S. Treasury Obligations 7%
Cash Equivalents 3%
------------------------------------
100%
------------------------------------
We increased our holdings in Treasuries in order to add greater interest rate
exposure to the Fund.
GNMA Coupons*
- ---------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
0-Less than 7% 21%
7-Less than 8% 61%
8-Less than 9% 14%
9% or greater 4%
------------------------------------
100%
------------------------------------
*Excludes Cash Equivalents and
U.S. Treasury Obligations
In response to increased prepayment risk, we lowered our weighting in 8% coupon
mortgages, and raised our position in 6%, 6 1/2% and 7% coupons.
Effective Maturity
- ---------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
0-5 years 38%
5-10 years 61%
Greater than 10 years 1%
------------------------------------
100%
------------------------------------
Since newly issued mortgages are less likely to be refinanced, we added to our
holdings in GNMA's with shorter effective maturities.
For more complete details about the Fund's investment portfolio, see page 9. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder GNMA Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Lead Portfolio Manager Richard Vandenberg and
Portfolio Manager Scott Dolan discuss Scudder GNMA Fund's strategy and the
market environment over the six-month period ended September 30, 1998.
Q: How did the Fund perform over the period?
A: The Fund posted a total return of 4.97%, beating the 4.28% return of its
unmanaged benchmark, the Lehman Brothers GNMA Index. This performance also
placed the Fund in the top 25% of the 51 GNMA funds tracked by Lipper Analytical
Services. As of September 30, Scudder GNMA Fund's 30-day net annualized SEC
yield was 5.48%.
Q: What is the investment strategy of the Fund?
A: The Fund seeks to provide high current income with an emphasis on total
return. We actively manage exposure to prepayment risk by analyzing refinancing
expectations and adjusting our weighting between seasoned mortgages, which tend
to have more predictable prepayment characteristics, and those that have been
more recently issued. In addition, we may also buy Treasury notes and bonds that
offer lower yields, but contain no prepayment risk.
When investing for the Fund we employ a "top down" approach, and make four
primary decisions: the portfolio's sensitivity to changes in interest rates
(duration), the Fund's sector allocation between GNMAs and Treasuries, the
vintage and seasoning of the bonds, and the points along the yield curve at
which the Fund should have exposure. When selecting individual mortgage
securities, we seek value through intensive analysis of prepayment expectations,
price relationships among mortgages with different coupons, and projected total
return.
Q: The past six months have been a tumultuous time in the bond market. What
happened?
A: Interest rates moved lower during the period as the financial crisis in Japan
and the Pacific Rim intensified and Russia defaulted on its debt, causing
investors to seek the safe haven of U.S. Treasuries. Lower stock prices and the
much-publicized financial difficulties at large hedge funds and brokerage firms
combined to add further fuel to the rally in bonds. The Federal Reserve
THE PRINTED DOCUMENT CONTAINS A BOXED IN CALLOUT HERE
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How do mortgage-backed securities work?
GNMA securities, like Treasuries, are backed by the full faith and credit of
the U.S. government. Each GNMA bond represents a pool of mortgages from which
investors receive principal and interest payments each month. If interest
rates fall, homeowners tend to refinance and pay off their existing mortgages
early, and mortgage-backed investors are forced to reinvest the proceeds at
lower prevailing rates. Consequently, an increase in prepayments will
generally cause mortgages to underperform. If interest rates rise, principal
will be repaid more slowly, but GNMA investors may receive lower total
returns as the prices of previously issued securities with lower coupon rates
decline. As a result, GNMA funds tend to perform best in stable interest rate
environments.
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6 - Scudder GNMA Fund
<PAGE>
responded to the increasing risks by cutting the Federal Funds rate by a quarter
point, a move that provided additional strength to bond prices amid an
environment of low inflation and robust domestic economic growth. The
combination of these factors led to a decline in long-term interest rates to a
level not seen in over 25 years.
Q: Given the rapid decline in interest rates, were prepayments a factor in
this period?
A: Yes. The frequency of refinancing increased as borrowers took advantage of
low mortgage rates. The activity was particularly strong in higher coupon
mortgages, since homeowners are much more likely to refinance a mortgage that
has become expensive in relation to the prevailing rates. Fears of further
interest rate declines combined with the increased refinancing activity to
severely disrupt the mortgage market, sending GNMA yields to multiyear highs in
relation to the yields on Treasuries. Within the mortgage market, GNMAs
outperformed FNMA and FHLMC mortgages as the greater prepayment protection and
higher credit quality of GNMAs led to stronger demand for those issues. GNMAs
are often an attractive vehicle for investors who place a priority on high
credit quality, but who are seeking higher yields than Treasuries.
Q: In light of this strategy and the unusual environment, how did you
position the Fund?
A: While ordinarily this scenario might place downward pressure on the Fund's
share price, our increased allocation to Treasuries and reduction in higher
coupon mortgages allowed the Fund to participate in the bond market rally.
Expecting a low level of volatility early in the year, we invested nearly 100%
of the portfolio in mortgages to try to capture the full benefit of the sector's
income potential. As the year progressed, our conviction that interest rates
would move lower intensified. Given this view and the growing risk lower
interest rates posed to the mortgage market, we increased our portfolio
allocation in Treasuries to 7.0%. In hindsight, this decision proved to be quite
important as Treasuries dramatically outperformed GNMAs in the time period.
Another critical decision was to reduce the Fund's exposure to higher coupon
7.5% and 8% GNMAs in favor of lower coupon issues. The same concern caused us to
overweight newly issued GNMAs, which tend to refinance less actively than
moderately seasoned issues.
Q: What is your outlook for the GNMA sector of the bond market?
A: We expect the GNMA sector to perform very well over the next six months as
investors become attracted to the historically wide yield spreads of GNMAs
relative to Treasuries. The most notable aspect of the global financial crisis
thus far has been the strong performance of Treasuries in comparison to the
mortgage issues and lower credit quality sectors, such as corporate bonds and
emerging market bonds. In the event the financial markets remain unstable, we
would expect investors would find comfort in the higher credit quality that
GNMAs offer relative to other bond market sectors. It is our expectation that
over the next six months, we will gradually add to our GNMA holdings as the
impact of the current financial crisis becomes clearer. We believe that over
time Scudder GNMA Fund will continue to be appropriate for investors seeking a
conservative, income-producing portion of a well-diversified portfolio.
7 - Scudder GNMA Fund
<PAGE>
Glossary of Investment Terms
COUPON The interest rate on a bond the issuer (in the case
of GNMA securities, the government) promises to pay
to the holder of the bond until maturity, expressed
as an annual percentage of face value. As an example,
a GNMA security with a 10% coupon would pay $100 on
$1,000 of the face amount each year.
DURATION A measure of bond price volatility. Duration can be
defined as the approximate percentage change in price
for a 100-basis point (one single percentage point)
change in yield. A duration of 5, for example, means
that the price of a bond will fall by approximately
5% for a 100-basis point increase in interest rates
(and vice versa).
GNMA A security, backed by a pool of individual mortgages
and guaranteed by the Government National Mortgage
Association (Ginnie Mae), which passes the interest
and principal payments through to investors.
Homeowners make their mortgage payments to a bank;
after deducting a service charge, the bank forwards
the mortgage payments to the holders of GNMA
securities.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This
annualized yield calculation reflects the 30-day
average of the income earnings capability of every
holding in a given fund's portfolio, net of expenses,
assuming each is held to maturity.
TOTAL RETURN The standard yardstick, based on a combination of
share price changes plus income and capital
gain distributions, if any, expressed as a percentage
gain or loss in value.
YIELD CURVE A graph plotting the yields of all bonds of the same
quality with maturities ranging from the
shortest to the longest available. The resulting
curve shows the relationship between short-,
intermediate-, and long-term interest rates.
YIELD SPREAD The difference in yield between two types of bonds.
A mortgage-backed security's yield is often
measured against the yield of a Treasury bond of
similar maturity as a market yardstick.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
8 - Scudder GNMA Fund
<PAGE>
Investment Portfolio as of September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 9/30/1998 at
5.45%, to be repurchased at $10,575,600 on 10/1/1998, collateralized by a ------------
$10,875,000 U.S. Treasury Bond, 3.625%, 1/15/2007 (Cost $10,574,000) .................. 10,574,000 10,574,000
------------
U.S. Treasury Obligations 7.7%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.875%, 11/15/2005 .................................................. 8,000,000 8,718,720
U.S. Treasury Note, 6.125%, 8/15/2007 ................................................... 2,000,000 2,238,740
U.S. Treasury Bond, 6.25%, 8/15/2023 .................................................... 14,400,000 16,481,232
U.S. Treasury Bond, 6.125%, 11/15/2027 .................................................. 2,450,000 2,824,385
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost $29,530,493) 30,263,077
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 91.1%*
- ------------------------------------------------------------------------------------------------------------------------------
6%, 9/15/2028 (c) ....................................................................... 4,700,000 4,720,539
6.5% with various maturities to 9/15/2028 (c) ........................................... 69,465,375 71,070,751
7.0% with various maturities to 9/15/2028 (b) ........................................... 135,140,056 139,493,459
7.5% with various maturities to 9/15/2028 (c) ........................................... 78,562,695 81,481,762
8.0% with various maturities to 12/15/2023 (b) .......................................... 46,957,638 49,067,799
9.0% with various maturities to 12/15/2022 (b) .......................................... 13,535,919 14,563,701
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $355,640,979) 360,398,011
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
% of
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $395,745,472) (a) ...................................... 101.5 401,235,088
Other Assets and Liabilities, Net ....................................................... (1.5) (5,819,670)
------ ------------
Net Assets .............................................................................. 100.0 395,415,418
====== ============
</TABLE>
(a) Cost for federal income tax purposes was $395,745,472. At September 30,
1998, net unrealized appreciation for all securities based on tax cost was
$5,489,616. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,498,178 and unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $8,562.
(b) At September 30, 1998, these pools, in part or in whole, have been
segregated to cover when-issued or forward delivery pools.
(c) When-issued or forward delivery pools included.
* 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.
9 - Scudder GNMA Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of September 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $395,745,472) .............. $ 401,235,088
Cash ............................................................... 27,244
Receivable for investments sold .................................... 26,152,903
Receivable for Fund shares sold .................................... 100,692
Interest receivable ................................................ 2,302,516
Other assets ....................................................... 12,011
----------------
Total assets ....................................................... 429,830,454
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................. 5,149,903
Payable for when-issued and forward delivery pools ................. 28,098,453
Payable for Fund shares redeemed ................................... 280,213
Dividends payable .................................................. 505,343
Accrued management fee ............................................. 203,966
Other payables and accrued expenses ................................ 177,158
----------------
Total liabilities .................................................. 34,415,036
-------------------------------------------------------------------------------------------
Net assets, at market value $ 395,415,418
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments .............. 5,489,616
Accumulated net realized gain (loss) ............................... (18,706,006)
Paid-in capital .................................................... 408,631,808
-------------------------------------------------------------------------------------------
Net assets, at market value $ 395,415,418
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($395,415,418 / 26,198,958 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $15.09
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder GNMA Fund
<PAGE>
Statement of Operations
six months ended September 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................ $ 13,313,085
----------------
Expenses:
Management fee ...................................................... 1,211,902
Services to shareholders ............................................ 408,857
Trustees' fees and expenses ......................................... 20,744
Custodian and accounting fees ....................................... 45,735
Reports to shareholders ............................................. 40,874
Legal ............................................................... 6,206
Auditing ............................................................ 18,775
Registration fees ................................................... 16,060
Other ............................................................... 6,680
----------------
1,775,833
-------------------------------------------------------------------------------------------
Net investment income 11,537,252
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... 2,289,853
Futures ............................................................. 168,280
----------------
2,458,133
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 4,984,324
Futures ............................................................. (7,650)
----------------
4,976,674
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 7,434,807
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 18,972,059
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder GNMA Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended
1998 March 31,
Increase (Decrease) in Net Assets (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ............................................. $ 11,537,252 $ 24,804,253
Net realized gain (loss) from investment transactions ............. 2,458,133 7,697,612
Net unrealized appreciation (depreciation) on
investment transactions during the period ....................... 4,976,674 5,956,931
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ...................................................... 18,972,059 38,458,796
Distributions to shareholders from net investment
income .......................................................... (11,537,252) (24,804,253)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ......................................... 41,010,024 73,746,402
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................... 8,396,060 18,027,356
Cost of shares redeemed ........................................... (53,870,293) (95,991,645)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions .................................................... (4,464,209) (4,217,887)
---------------- ----------------
Increase (decrease) in net assets ................................. 2,970,598 9,436,656
Net assets at beginning of period ................................. 392,444,820 383,008,164
---------------- ----------------
Net assets at end of period ....................................... $395,415,418 $392,444,820
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ......................... 26,503,842 26,796,857
---------------- ----------------
Shares sold ....................................................... 2,754,186 5,020,317
Shares issued to shareholders in reinvestment of
distributions ................................................... 563,384 1,225,867
Shares redeemed ................................................... (3,622,454) (6,539,199)
---------------- ----------------
Net increase (decrease) in Fund shares ............................ (304,884) (293,015)
---------------- ----------------
Shares outstanding at end of period ............................... 26,198,958 26,503,842
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder GNMA Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
1998 Years Ended March 31,
(Unaudited) 1998 1997 1996 1995 1994(b)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net asset value, beginning of period ............... $ 14.81 $ 14.29 $ 14.54 $ 14.07 $ 14.33 $ 15.52
--------------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .44 .94 .93 .94 .93 1.12
Net realized and unrealized gain (loss) on
investment transactions .......................... .28 .52 (.25) .47 (.26) (1.19)
--------------------------------------------------------------------------
Total from investment operations ................... .72 1.46 .68 1.41 .67 (.07)
--------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.44) (.94) (.93) (.94) (.92) (1.12)
Net realized gains on investment transactions ...... -- -- -- -- -- --
Tax return of capital .............................. -- -- -- -- (.01) --
--------------------------------------------------------------------------
Total distributions ................................ (.44) (.94) (.93) (.94) (.93) (1.12)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net asset value, end of period ..................... $ 15.09 $ 14.81 $ 14.29 $ 14.54 $ 14.07 $ 14.33
--------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................... 4.97** 10.44 4.81 10.20 4.94 (.64)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............. 395 392 383 425 429 544
Ratio of operating expenses to average daily
net assets (%) ................................... .92* 1.02 .96 .94 .95 .87
Ratio of net investment income to average net
assets (%) ....................................... 5.96* 6.38 6.44 6.45 6.65 7.35
Portfolio turnover rate (%) ........................ 316.5(a)* 197.2(a) 188.0 157.8 220.5(a) 272.1(a)
</TABLE>
(a) The portfolio turnover rates including mortgage dollar roll transactions
were 331.8%, 250.8%, 255.4% and 392.5%, for the periods ended September 30,
1998, March 31, 1998, 1995 and 1994, respectively.
(b) Per share amounts have been calculated using monthly average shares
outstanding.
* Annualized
** Not annualized
13 - Scudder GMNA Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 other than money market
instruments with an original maturity over sixty days are valued by pricing
agents approved by the officers of the Fund, whose quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
investments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
When-issued and Forward Delivery Securities. The Fund may purchase securities on
a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security 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. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and 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. The Fund will establish a segregated account in which it will
maintain cash and liquid debt securities equal in value to commitments for
when-issued or forward delivery securities.
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, is equal to at least 100.5% of the repurchase 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 six months
ended September 30, 1998, the Fund sold interest rate futures to hedge against
declines in the value of portfolio securities and purchased interest rate
futures to manage the duration of the portfolio.
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.
14 - Scudder GNMA Fund
<PAGE>
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, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
At September 30, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $21,164,000 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.
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.
15 - Scudder GNMA Fund
<PAGE>
B. Purchases and Sales of Securities
During the six months ended September 30, 1998, purchases and sales of
investment securities (excluding short-term investments, mortgage dollar roll
transactions and direct U.S. Government obligations) aggregated $439,362,777 and
$446,003,930, respectively. Purchases and sales of mortgage dollar roll
transactions aggregated $29,336,793 and $29,364,020, respectively. Purchases and
sales of direct U.S. Government obligations aggregated $180,918,022 and
$162,821,742, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended September 30, 1998 was $184,415,478 and $187,414,078, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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 the
Fund's 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. For the six months ended September 30, 1998,
the fees pursuant to these agreements amounted to $1,211,902, of which $203,966
is unpaid at September 30, 1998. This was equivalent to an annualized effective
rate of 0.63% of the Fund's average daily net assets.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
for the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of Board
of Trustees for the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended September 30, 1998, the amount charged to the Fund by SSC
aggregated $285,238, of which $48,426 is unpaid at September 30, 1998.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended September
30, 1998, the amount charged to the Fund by STC aggregated $86,078, of which
$14,612 is unpaid at September 30, 1998.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
16 - Scudder GNMA Fund
<PAGE>
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc.,
expenses from the operation of the Portfolios are borne by the Underlying Funds
based on each Underlying Fund's proportionate share of assets owned by the
Portfolios. No Underlying Funds will be charged expenses that exceed the
estimated savings to each respective Underlying Fund. These estimated savings
result from the elimination of separate shareholder accounts which either
currently are or have potential to be invested in the Underlying Funds. At
September 30, 1998, the Special Servicing Agreement expense charged to the Fund
amounted to $28,309.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended September 30, 1998, the amount charged to the Fund by SFAC aggregated
$39,279, of which $6,773 is unpaid at September 30, 1998.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the six
months ended September 30, 1998, Trustees' fees and expenses aggregated $20,744.
17 - Scudder GNMA Fund
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<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Richard L. Vandenberg*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
20 - Scudder GNMA Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
21 - Scudder GNMA Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
22 - Scudder GNMA Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
23 - Scudder GNMA Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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