Scudder
GNMA
Fund
Annual Report
January 31, 1999
No-Load Funds
A no-load (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
1/31/99: $393.1 million
- --------------------------------------------------------------------------------
o Despite instability in September and October, GNMAs posted a solid performance
during the ten-month reporting period. High relative yields and positive supply
and demand fundamentals helped the sector to rebound following the turbulence of
early autumn.
o The Fund sought to minimize prepayment risk by continuing to focus on GNMAs
with lower coupons and reducing exposure to coupons of 8% and higher. Management
also emphasized more recently issued mortgages, which are less likely to be
refinanced.
o Fundamentals for the mortgage sector remain strong, with low inflation and
high relative yields providing reasons for optimism.
o The Fund maintained its four-star rating from Morningstar(TM) for its
risk-adjusted performance among 1,505 taxable bond funds as of January 31,
1999^1.
Table of Contents
3 Letter from the Fund's President 14 Notes to Financial Statements
4 Performance Update 18 Report of Independent Accountants
5 Portfolio Summary 19 Shareholder Meeting Results
6 Portfolio Management Discussion 20 Officers and Trustees
9 Investment Portfolio 21 Investment Products and Services
10 Financial Statements 22 Scudder Solutions
13 Financial Highlights
^1 Source: Morningstar. Ratings are subject to change monthly and are
calculated from the Fund's 3-, 5-, and 10-year average annual returns in
excess of 90-day Treasury bill returns with appropriate fee adjustments,
and a risk factor that reflects Fund performance below 90-day T-bill
returns. In an investment category, the top 10% of funds receive 5 stars
and the next 22.5% receive 4 stars. In the taxable bond category, the Fund
received a 4-star rating for the three-year period, a 3-star rating for the
five-year period and a 4-star rating for the ten-year period among 1,505;
1004; and 372 funds, respectively. Past performance is no guarantee of
future results.
2 - Scudder GNMA Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to present the annual report for Scudder GNMA Fund. In the
ten-month period ended January 31, 1999, the Fund's total return of 5.87%
compared favorably with the 5.96% return of its benchmark, the Lehman Brothers
GNMA Index. Using a strategy that involves intensive analysis of both individual
securities and the mortgage sector as a whole, the management team effectively
guided the Fund through a period that was marked by a worldwide financial crisis
in the third quarter of 1998. For more information on the market environment,
investment strategy, and outlook of the Fund's management team, please turn to
the Portfolio Management Discussion on page 6.
We believe that Scudder GNMA Fund, with its long-term record of solid
performance, is an excellent option for investors seeking monthly income,
consistent returns, and relative safety. Backed by the U.S. government, GNMAs
can provide healthy yields to investors who are willing to accept a degree of
principal fluctuation. Scudder GNMA Fund can serve as a valuable portfolio
component for investors seeking exposure to this segment of the fixed-income
market.
For your information, we have changed Scudder GNMA Fund's fiscal year end
to January 31 as part of a larger effort to create efficiencies and reduce the
costs of producing Scudder Fund regulatory materials such as shareholder reports
and prospectuses. You will now receive July 31 semiannual reports and January 31
annual reports for the Fund.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, which invests in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
focuses on stocks of small U.S. companies. Using a combination of quantitative
and fundamental research, the funds emphasize companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate.
Thank you for your continued investment in Scudder GNMA Fund. If you have
any questions about your investment, please call Scudder Investor Information at
1-800-225-2470, 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 January 31, 1999
- ---------------------
Fund Index Comparison
- ---------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
1/31/99 $10,000 Cumulative Annual
- ---------------------------------------------------
Scudder GNMA Fund
- ---------------------------------------------------
1 Year $ 10,643 6.43% 6.43%
5 Year $ 13,514 35.14% 6.21%
10 Year $ 21,889 118.89% 8.15%
- ---------------------------------------------------
Lehman Brothers Mortgage GNMA Index
- ---------------------------------------------------
1 Year $ 10,665 6.65% 6.65%
5 Year $ 14,236 42.36% 7.32%
10 Year $ 23,993 139.93% 9.15%
- ---------------------------------------------------
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Lehman Brothers
Mortgage GNMA Index Scudder GNMA Fund
'89 10000 10000
'90 11289 11026
'91 12774 12410
'92 14424 13863
'93 15885 15299
'94 16853 16197
'95 16812 15787
'96 19412 18173
'97 20501 18901
'98 22499 20566
'99 23993 21889
Yearly periods ended January 31
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
- ---------------------------------
Yearly periods ended March 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 | 1999(a)(b)
- ------------------------------------------------------------------------------------------------------------------|-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 14.22 $ 14.80 $ 15.07 $ 15.52 $ 14.33 $ 14.07 $ 14.54 $ 14.29 $ 14.81 | $ 14.93
- ------------------------------------------------------------------------------------------------------------------|-------------
Income Dividends $ 1.26 $ 1.23 $ 1.24 $ 1.29 $ 1.12 $ .93 $ .94 $ .93 $ .94 | $ .73
- ------------------------------------------------------------------------------------------------------------------|-------------
Fund Total Return (%) 11.86 13.26 10.48 11.91 -0.64 4.94 10.20 4.81 10.44 | 5.87
- ------------------------------------------------------------------------------------------------------------------|-------------
Index Total Return (%) 14.33 13.96 11.77 11.34 1.13 6.26 10.84 6.00 11.15 | 5.96
- ------------------------------------------------------------------------------------------------------------------|-------------
</TABLE>
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased.
(a) For the ten months ended January 31, 1999.
(b) On August 10, 1998, the Board of Trustees of the Fund changed the fiscal
year end from March 31 to January 31.
4 - Scudder GNMA Fund
<PAGE>
Portfolio Summary as of January 31, 1999
- ---------------
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Government National Mortgage
Association 91%
U.S. Treasury Obligations 6%
Cash Equivalents 3%
--------------------------------------
100%
--------------------------------------
Management increased the Fund's weighting in GNMAs to take
advantage of their attractive yields relative to Treasuries.
- -------------
GNMA Coupons*
- -------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
0-Less than 7% 28%
7-Less than 8% 59%
8% or greater 13%
--------------------------------------
100%
--------------------------------------
*Excludes Cash Equivalents and U.S.
Treasury Obligations
In order to minimize prepayment risk, exposure to bonds with
coupons of 8% and higher was reduced.
- ------------------
Effective Maturity
- ------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
0-5 years 37%
5-8 years 44%
Greater than 8 years 19%
--------------------------------------
100%
--------------------------------------
The duration of the Fund's mortgage holdings was increased
in the period.
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 Vandenburg and
Portfolio Manager Scott Dolan discuss Scudder GNMA Fund's strategy and the
market environment in the ten-month period ended January 31, 1999.
Q: The bond market has experienced a lot of ups and downs in the past year. How
has this affected GNMAs?
A: With a stable interest rate environment as a backdrop, GNMAs performed
relatively well in the first half of the year. In September and October,
however, mortgages suffered when the global financial crisis sparked a "flight
to quality" from higher yielding securities into the relative safety of
Treasuries. Although GNMAs are backed by the full faith and credit of the U.S.
government, the unwillingness of investors and brokers to add to their positions
at the depth of the crisis drained liquidity from the bond market. The decline
was further exacerbated by the sharp drop in Treasury yields, which hurt GNMAs
by sparking an increase in mortgage refinancing activity.
Since then, market conditions have improved due to several key developments.
First, the return of relative stability in the global financial markets reversed
the flight into Treasuries, leading to a rise in interest rates that
subsequently reduced fears of prepayments. As investors regained their
confidence and gradually recovered their tolerance for risk, bonds that are
evaluated by their yield spread (the amount by which their yield exceeds that of
the comparable Treasury) began to rebound. GNMAs, in particular, offered the
attractive combination of high relative yields and strong credit quality. At the
same time as investor demand was increasing, supplies were shrinking as higher
interest rates slowed the pace of new mortgage issuance. The combination of
these factors helped to spark a rebound in GNMAs during the final three months
of the reporting period.
Q: You mentioned that lower interest rates can be a negative for GNMAs. Why is
this?
A: For an investor to better understand the performance of mortgages, it is
helpful to consider them from the standpoint of a homeowner. GNMAs are pools of
individual mortgages that pass through interest and principal payments from
homeowners, who make their financial decisions based on the prevailing interest
rates. If rates fall, as they did in the early autumn, homeowners will tend to
refinance their mortgages more frequently, forcing investors to reinvest the
proceeds at lower prevailing rates. On the other hand, higher interest rates
will reduce the threat of prepayment, but GNMA investors will receive lower
returns as the prices of previously issued securities with lower coupon rates
decline. As a result, GNMA funds tend to perform best when interest rates are
relatively stable, as they were in the first half of the reporting period.
Q: How did the Fund perform in this environment?
A: The Fund posted a total return of 5.87% for the ten-month period ended
January 31, compared to the 5.96% return of its unmanaged benchmark, the Lehman
Brothers GNMA Index. This performance placed the Fund in the top 29% of the 51
funds tracked by Lipper Analytical Services for the ten month period. As of
January 31, Scudder GNMA Fund's 30-day net annualized SEC yield was 4.83%.
6 - Scudder GNMA Fund
<PAGE>
Q: What is the investment strategy of the Fund?
A: We strive to provide high current income, with an emphasis on total return.
We actively manage 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. We may also invest in Treasury securities, which offer lower yields but
tend to perform better than GNMAs when interest rates are falling.
When managing the portfolio, we employ a top-down approach that focuses on four
key factors: the portfolio's sensitivity to changes in interest rates
(duration), the allocation between GNMAs and Treasuries, the vintage and
seasoning of the bonds, and the Fund's positioning with respect to the yield
curve. To identify the strongest securities available, we conduct an intensive
analysis of the prepayment expectations of individual bonds, the price
relationships among mortgages with different coupons, and projected total
return.
Q: How did you position the Fund throughout the year?
A: The changes we made in the portfolio's weighting in Treasuries had a
beneficial effect on Fund performance during the reporting period. In the first
half of 1998, we took advantage of a stable interest rate environment to invest
the portfolio almost entirely in mortgages. By the middle of the year we began
to add Treasuries, which helped to counteract the weakness in mortgages during
the crises. Seeking to capitalize on the high yields GNMAs were offering by the
end of October, we
7 - Scudder GNMA Fund
<PAGE>
increased the duration of our mortgage position, and reduced it in the Treasury
portion. This strategy allowed us to participate in the rally in GNMAs without
significantly altering the portfolio weightings. As a result of these decisions,
we were able to mitigate the effects of volatility in the bond market as the
year progressed.
We have continued to reduce exposure to high-coupon mortgages, which are
particularly susceptible to prepayment risk since homeowners are more likely to
refinance when the interest rate they are paying exceeds the market rate by a
wide margin. In the last five months, we trimmed the Fund's weighting in GNMAs
with coupons of 8% or higher from 18% of assets to 13%, and increased exposure
to coupons of less than 7% from 21% to 28%. At the end of the period the Fund
was overweight in 6% and 6.5% coupon mortgages, which in our view continue to
offer an attractive risk-return profile. We have also maintained an emphasis on
more recently issued GNMAs, since their refinancing activity is generally slower
than that of more seasoned issues.
Q: What is your outlook for GNMAs?
A: Even though mortgages have rebounded in recent months, we remain optimistic
on the potential for further gains in the sector. In the aggregate, the U.S.
bond market appears attractive on a global basis due to its high real yields in
a low inflation environment. GNMAs, in particular, stand to benefit from yields
that remain at historically high levels in relation to Treasuries. Although
seasonal factors are likely to cause a rise in prepayments as the summer
approaches, we are encouraged by the fact that prepayment activity has begun to
flatten recently. Looking ahead, the most significant risk to GNMAs is continued
strength in the domestic economy, which could potentially lead to inflation and
higher interest rates. Over the long-term, however, we believe the relative
stability and attractive yields of GNMAs will continue to offer a favorable
combination for fixed-income investors.
Scudder GNMA Fund:
A Team Approach to Investing
Scudder GNMA Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals, each of whom plays 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 the Adviser's large staff of economists, research analysts, traders, and
other investment specialists who work in our offices across the United States
and abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging our extensive resources.
Richard L. Vandenberg, Lead Portfolio Manager, joined the Adviser as a
portfolio manager in 1996, and is responsible for setting the Fund's
investment strategy and overseeing security selection for the Fund's
portfolio. Prior to 1996, Mr. Vandenberg had been a portfolio manager for
several investment management firms for over 22 years. Scott E. Dolan,
Portfolio Manager, joined the Adviser in 1989. Mr. Dolan has four years of
experience in compliance analysis and account administration and has been a
portfolio manager since 1993.
8 - Scudder GNMA Fund
<PAGE>
Investment Portfolio as of January 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
==============================================================================================================================
<S> <C> <C>
Repurchase Agreements 2.8%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 1/29/1999
at 4.7%, to be repurchased at $10,856,250 on 2/1/1999, collateralized by a ----------------
$10,230,000 U.S. Treasury Note, 6.25%, 2/15/2003 (Cost $10,852,000) .................... 10,852,000 10,852,000
----------------
U.S. Treasury Obligations 6.0%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond, 8.125%, 8/15/2021 .................................................... 9,250,000 12,562,610
U.S. Treasury Note, 6.125%, 8/15/2007 .................................................... 10,000,000 10,939,100
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost $23,276,977) 23,501,710
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 92.5%*
- ------------------------------------------------------------------------------------------------------------------------------
6.0% with various maturities to1/20/2029 (b) ............................................. 19,691,263 19,445,880
6.5% with various maturities to1/15/2029 (b) (c) ......................................... 81,573,152 82,521,521
7.0% with various maturities to1/20/2029 (b) (c) ......................................... 121,102,724 124,031,132
7.5% with various maturities to12/15/2028 (b) (c) ........................................ 87,548,284 90,434,424
8.0% with various maturities to 9/15/2027 (b) (c) (d) .................................... 45,301,827 47,276,338
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $361,932,618) 363,709,295
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of
Net Assets
==============================================================================================================================
<S> <C> <C>
Total Investment Portfolio (Cost $396,061,595) (a) ....................................... 101.3 398,063,005
Other Assets and Liabilities, Net ........................................................ (1.3) (5,001,692)
------- ----------------
Net Assets ............................................................................... 100.0 393,061,313
======= ================
</TABLE>
(a) Cost for federal income tax purposes was $396,319,710. At January 31,
1999, net unrealized appreciation for all securities based on tax cost was
$1,743,295. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,057,014 and unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $313,719.
(b) At January 31, 1999, these pools, in part or in whole, have been
segregated to cover when-issued or forward delivery pools.
(c) When-issued or forward delivery pools included.
(d) At January 31, 1999, these securities have been pledged to cover, in whole
or in part, initial margin requirements for open futures contracts.
(e) At January 31, 1999, open short futures contracts purchased were as
follows:
<TABLE>
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond March 1999 108 13,726,602 13,824,000
-----------
Total unrealized depreciation on open short futures contracts purchased ..... (97,398)
===========
</TABLE>
* 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 January 31, 1999
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $396,061,595) ................... $ 398,063,005
Receivable for investments sold ......................................... 39,101,151
Receivable for Fund shares sold ......................................... 92,940
Interest receivable ..................................................... 2,719,899
Other assets ............................................................ 12,419
----------------
Total assets ............................................................ 439,989,414
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for when-issued and forward delivery pools ...................... 45,656,380
Payable for daily variation margin on open futures contracts ............ 22,046
Payable for Fund shares redeemed ........................................ 290,270
Dividends payable ....................................................... 464,399
Accrued management fee .................................................. 214,238
Other payables and accrued expenses ..................................... 280,768
----------------
Total liabilities ....................................................... 46,928,101
---------------------------------------------------------------------------------------------
Net assets, at market value $ 393,061,313
---------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments ............................................................. 2,001,410
Futures ................................................................. (97,398)
Accumulated net realized gain (loss) .................................... (19,324,201)
Paid-in capital ......................................................... 410,481,502
---------------------------------------------------------------------------------------------
Net assets, at market value $ 393,061,313
---------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($393,061,313 / 26,319,381 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ...... $14.93
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder GNMA Fund
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Ten Months
Ended
January 31, Year Ended
1999 March 31,
Investment Income (Note E) 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest .............................................. $ 22,210,355 $ 28,776,301
---------------- ----------------
Expenses:
Management fee ........................................ 2,042,022 2,433,157
Services to shareholders .............................. 746,886 1,116,217
Trustees' fees and expenses ........................... 26,841 39,469
Custodian and accounting fees ......................... 71,908 152,741
Reports to shareholders ............................... 88,786 76,793
Legal ................................................. 9,018 51,493
Auditing .............................................. 40,582 43,021
Registration fees ..................................... 29,273 25,834
Other ................................................. 10,048 33,323
---------------- ----------------
3,065,364 3,972,048
---------------------------------------------------------------------------------------------
Net investment income 19,144,991 24,804,253
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................... 1,904,570 7,829,007
Futures ............................................... (56,982) (131,395)
---------------- ----------------
1,847,588 7,697,612
Net unrealized appreciation (depreciation) during
the period on:
Investments ........................................... 1,496,118 5,949,281
Futures ............................................... (105,048) 7,650
---------------- ----------------
1,391,070 5,956,931
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 3,238,658 13,654,543
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 22,283,649 $ 38,458,796
---------------------------------------------------------------------------------------------
</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>
Ten Months
Ended
January 31,
1999 Years Ended March 31,
Increase (Decrease) in Net Assets (Note E) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ................................. $ 19,144,991 $ 24,804,253 $ 26,152,397
Net realized gain (loss) from investment
transactions ........................................ 1,847,588 7,697,612 248,489
Net unrealized appreciation (depreciation) on
investment transactions during the period ........... 1,391,070 5,956,931 (7,140,110)
---------------- ---------------- ----------------
Net increase (decrease) in net assets resulting
from operations ..................................... 22,383,649 38,458,796 19,260,776
Distributions to shareholders from net
investment income ................................... (19,144,991) (24,804,253) (26,152,397)
---------------- ---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................. 74,346,313 73,746,402 70,592,166
Net asset value of shares issued to shareholders
in reinvestment of distributions .................... 14,012,577 18,027,356 18,819,045
Cost of shares redeemed ............................... (90,981,055) (95,991,645) (124,343,431)
---------------- ---------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions .................................. (2,622,165) (4,217,887) (34,932,220)
---------------- ---------------- ----------------
Increase (decrease) in net assets ..................... 616,493 9,436,656 (41,823,841)
Net assets at beginning of period ..................... 392,444,820 383,008,164 424,832,005
---------------- ---------------- ----------------
Net assets at end of period ........................... $393,061,313 $392,444,820 $383,008,164
---------------- ---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............. 26,503,842 26,796,857 29,220,534
---------------- ---------------- ----------------
Shares sold ........................................... 4,984,258 5,020,317 4,875,126
Shares issued to shareholders in reinvestment of
distributions ....................................... 939,252 1,225,867 1,300,541
Shares redeemed ....................................... (6,107,971) (6,539,199) (8,599,344)
---------------- ---------------- ----------------
Net increase (decrease) in Fund shares ................ (184,461) (293,015) (2,423,677)
---------------- ---------------- ----------------
Shares outstanding at end of period ................... 26,319,381 26,503,842 26,796,857
---------------- ---------------- ----------------
</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>
Ten Months
Ended
January 31,
1999 Years Ended March 31,
(Note E) 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 ........................... .73 .94 .93 .94 .93 1.12
Net realized and unrealized gain (loss) on
investment transactions ....................... .12 .52 (.25) .47 (.26) (1.19)
-------------------------------------------------------------------------
Total from investment operations ................ .85 1.46 .68 1.41 .67 (.07)
-------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (.73) (.94) (.93) (.94) (.92) (1.12)
Tax return of capital ........................... -- -- -- -- (.01) --
-------------------------------------------------------------------------
Total distributions ............................. (.73) (.94) (.93) (.94) (.93) (1.12)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net asset value, end of period .................. $14.93 $ 14.81 $ 14.29 $ 14.54 $ 14.07 $ 14.33
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................ 5.87** 10.44 4.81 10.20 4.94 (.64)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......... 393 392 383 425 429 544
Ratio of operating expenses to average daily
net assets (%) ................................ .94* 1.02 .96 .94 .95 .87
Ratio of net investment income to average
daily net assets (%) .......................... 5.87* 6.38 6.44 6.45 6.65 7.35
Portfolio turnover rate (%) ..................... 280.8(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 289.9%, 250.8%, 255.4% and 392.5% for the periods ended January 31,
1999, March 31, 1998, 1995 and 1994, respectively.
(b) Per share amounts have been calculated using monthly average shares
outstanding.
* Annualized
** Not annualized
13 - Scudder GNMA Fund
<PAGE>
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 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 is equal to at least 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 ten months
ended January 31, 1999, 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 January 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $18,017,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until January 31,
2003, the expiration date. In addition, from November 1, 1998 through January
31, 1999, the Fund incurred approximately $1,150,000 of net realized capital
losses. As permitted by tax regulations, the Fund intends to elect to defer
these losses and treat them as arising in the fiscal year ended January 31,
2000.
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 ten months ended January 31, 1999, purchases and sales of investment
securities (excluding short-term investments, mortgage dollar roll transactions
and direct U.S. Government obligations) aggregated $612,807,392 and
$639,057,692, 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 $291,880,410 and
$279,793,332, respectively. During the year ended March 31, 1998, purchases and
sales of investment securities (excluding short-term investments, mortgage
dollar roll transactions and direct U.S. Government obligations) aggregated
$721,728,275 and $718,605,250, respectively. Purchases and sales of mortgage
dollar roll transactions aggregated $252,982,540 and $253,820,092, respectively.
Purchases and sales of direct U.S. Government obligations aggregated $22,165,806
and $12,214,562, respectively.
The aggregate face value of futures contracts opened and closed during the ten
months ended January 31, 1999 was $312,633,386 and $301,905,384, respectively.
The aggregate face value of futures contracts opened and closed during the year
ended March 31, 1998 was $31,328,953 and $28,330,353, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.65% on the first
$200,000,000 of 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 ten months
ended January 31, 1999, the fees pursuant to these agreements amounted to
$2,042,022, of which $214,238 is unpaid at January 31, 1999. This was equivalent
to an annualized effective rate of 0.63% of the Fund's average daily net assets.
For the year ended March 31, 1998, the fees pursuant to these agreements
amounted to $2,433,157, which was equivalent to an annualized effective rate of
0.63% of the Fund's average daily net assets.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries plc ("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 Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees of the Fund approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former Management Agreement,
except for the dates of execution and termination.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
ten months ended January 31, 1999, the amount charged to the Fund by SSC
aggregated $485,001, of which $96,549 is unpaid at January 31, 1999. For the
year ended March 31, 1998, the amount charged to the Fund by SSC aggregated
$597,013.
16 - Scudder GNMA Fund
<PAGE>
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 ten months ended January
31, 1999, the amount charged to the Fund by STC aggregated $146,387, of which
$28,190 is unpaid at January 31, 1999. For the year ended March 31, 1998, the
amount charged to the Fund by STC aggregated $170,217.
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 ten months
ended January 31, 1999, the amount charged to the Fund by SFAC aggregated
$69,236, of which $7,612 is unpaid at January 31, 1999. For the year ended March
31, 1998, the amount charged to the Fund by SFAC aggregated $68,114.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At January 31, 1999, the
Special Servicing Agreement expense charged to the Fund amounted to $25,190. At
March 31, 1998, the Special Servicing Agreement expense charged to the Fund
amounted to $111,455.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the ten
months ended January 31, 1999, Trustees' fees and expenses aggregated $26,841.
For the year ended March 31, 1998, Trustees' fees and expenses aggregated
$39,469.
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
E. Year End Change
On August 10, 1998, the Board of Trustees of the Fund changed the fiscal year
end from March 31 to January 31.
17 - Scudder GNMA Fund
<PAGE>
Report of Independent Accountants
To the Trustees and the Shareholders of Scudder GNMA Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder GNMA Fund (the "Fund") at
January 31, 1999, the results of its operations for the ten months then ended
and for the year ended March 31, 1998, the changes in its net assets for the ten
months ended January 31, 1999 and for each of the two years in the period ended
March 31, 1998, and the financial highlights for the ten months ended January
31, 1999 and for each of the five years in the period ended March 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
March 12, 1999
18 - Scudder GNMA Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder GNMA Fund (the
"Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
15,363,223 536,003 659,976 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
13,973,459 788,115 925,806 871,822
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
19 - Scudder GNMA Fund
<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
Thomas W. Joseph*
Vice President
Ann M. McCreary*
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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. +++ +++ +++A no-load variable
annuity contract issued by Glenbrook Life and Annuity Company and underwritten
by Allstate Financial Services, Inc., sold by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on various other stock
exchanges.
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
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
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 $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 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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