This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder GNMA Fund
Annual Report
March 31, 1995
* A fund designed to provide high current income primarily from high quality
U.S. government mortgage-backed GNMA securities.
* A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER GNMA FUND
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
11 Financial Statements
14 Financial Highlights
15 Notes to Financial Statements
19 Report of Independent Accountants
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder
HIGHLIGHTS
* After rising throughout the spring and summer, long-term interest rates
peaked in November 1994 and have since declined.
* Indications of economic weakness in recent months have eased investors'
fears of rising inflation, and bond prices have begun to recover from their
1994 lows.
* Scudder GNMA Fund's 4.94% total return for the 12-months through March 31,
1995, reflects a recently improved environment for fixed-income investments
and mortgage-backed securities in particular.
* During the year, mortgage refinancing (which hindered returns on mortgage
investments in 1993) slowed dramatically as mortgage rates rose, rendering
refinancing less attractive.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
The likelihood of inflationary economic growth has diminished in recent
months, after creating so much turmoil for the world's investment markets in
1994. Indications of weakness in certain segments of the economy combined with
the Federal Reserve Board's most recent interest-rate increase has assured many
investors that inflation will not be a serious concern. Bond prices have begun
to recover, yields have declined from their November highs, and bond mutual
funds have enjoyed positive net subscriptions after several months of
redemptions. For the three months ended March 31, mortgage-backed securities, as
measured by the unmanaged Lehman Brothers Mortgage GNMA Index, returned 5.27% on
average, more than making up for the -1.50% return reported for all of 1994.
The rise in interest rates over the past year and a half has
highlighted a challenge for income funds: to provide shareholders with the
higher income available from bonds while protecting against price erosion. Rates
should remain relatively stable if economic growth continues to slacken in the
United States. Nevertheless, additional interest-rate increases are not out of
the question, given some lingering inflationary concerns: Commodity prices
continue to rise, factory production is still pushing the limits of capacity,
and the dollar has fallen to record lows against the Japanese yen and German
mark.
Additional uncertainty regarding interest rates may, of course, spark
episodes of volatility for fixed-income markets. Your portfolio managers will
continue to concentrate their efforts on fundamental investment research and
security selection as a means to generate high current income and attractive
total returns. As always, please call an Investor Relations representative at
1-800-225-2470 if you have questions about your Fund. Page 23 provides more
information on how to contact Scudder. Thank you for choosing Scudder GNMA Fund
to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3
<PAGE>
Scudder GNMA Fund
Performance Update as of March 31, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Scudder GNMA Fund
----------------------------------------
Total Return
Period Growth -------------
Ended of Average
3/31/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $10,494 4.94% 4.94%
5 Year $14,601 46.01% 7.86%
Life of
Fund* $21,297 112.97% 8.07%
Lehman Brothers Mortgage GNMA Index
--------------------------------------
Total Return
Period Growth -------------
Ended of Average
3/31/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $10,626 6.26% 6.26%
5 Year $15,236 52.36% 8.78%
Life of
Fund* $25,185 151.85% 10.03%
*The Fund commenced operations on July 5, 1985.
Index comparisons begin on July 31, 1985.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended March 31
Scudder GNMA Fund
Year Amount
----------------------
7/31/85* 10000
86 11169
87 12264
88 12690
89 13173
90 14735
91 16689
92 18438
93 20634
94 20502
95 21515
Lehman Brothers Mortgage GNMA Index
Year Amount
----------------------
7/31/85* 10000
86 11663
87 12875
88 13689
89 14457
90 16530
91 18837
92 21054
93 23438
94 23701
95 25185
The unmanaged Lehman Brothers Mortgage GNMA Index is a market
value-weighted measure of all fixed rate securities backed by
mortage pools of the GNMA. Index returns are calculated monthly
and assume reinvestment of dividends. Unlike Fund returns, Index
returns do not reflect any fees or expenses.
-----------------------------------------------------------------
Returns and Per Share Information
-----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended March 31
-----------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986* 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value... $15.41 $15.44 $14.61 $13.87 $14.22 $14.80 $15.07 $15.52 $14.33 $14.07
Income Dividends.. $ 1.12 $ 1.34 $ 1.30 $ 1.28 $ 1.26 $ 1.23 $ 1.24 $ 1.29 $ 1.12 $ .93
Capital Gains
Distributions..... $ -- $ .08 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Fund Total
Return (%)........ 10.56 9.81 3.47 3.81 11.86 13.26 10.48 11.91 -0.64 4.94
Index Total
Return (%)........ 16.64 10.41 6.31 5.62 14.33 13.96 11.77 11.34 1.13 6.26
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased.
4
<PAGE>
Portfolio Summary as of March 31, 1995
---------------------------------------------------------------------------
Diversification
---------------------------------------------------------------------------
Government National
Mortgage Association 86% We reduced the Fund's cash holdings
U.S. Treasury Obligations 8% in recent months to take advantage
Cash & Equivalents, net 6% of rising bond prices.
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
GNMA Coupons
--------------------------------------------------------------------------
7.0% 22%
7.5% 28%
8.0% 10% With interest rates at current
8.5% 8% levels, lower coupon mortgages
9.0% 8% are least likely to be refinanced.
9.5% 6%
10% 16%
Greater than 10% 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
Effective Maturity
--------------------------------------------------------------------------
Less than 1 year 7%
1 < 6 years 17% The Fund's longer average effective
6 < 10 years 18% maturity reflects a significantly
Greater than 10 years 58% improved investment environment.
----
100%
====
Weighted average effective maturity: 9 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 9. A monthly Investment Portfolio Summary is available
upon request.
5
<PAGE>
SCUDDER GNMA FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Scudder GNMA Fund returned a positive 4.94% in the 12 months ended March
31, 1995, outpacing the 4.80% average return for the 48 GNMA funds tracked by
Lipper Analytical Services. The Fund's return reflects $0.93 per share in income
distributions paid during the period, which more than offset a $0.26 decline in
net asset value to $14.07 on March 31. By contrast, the unmanaged Lehman
Brothers Mortgage GNMA Index reported a 6.26% return. For information on
performance over longer periods, please turn to page 4.
The Fund's fiscal year bridges two distinct periods for the U.S. bond
market. In early 1994, the Federal Reserve Board began raising short-term
interest rates in an effort to slow what it considered unsustainable economic
growth. Inflationary concerns and rising short-term interest rates created an
overwhelmingly negative sentiment among investors, who proceeded to push bond
prices lower and yields higher. In truth, inflation remained benign, but
investors continued to focus on evidence pointing to its potential acceleration.
(Bond investors dislike inflation because it weakens the purchasing power of
future income payments from their fixed-income investments.) Bond prices
continued to decline, and Scudder GNMA Fund's net asset value fell to an
all-time low of $13.60 in November.
Emphasis On Capital Preservation
During this period of uncertainty, our chief concern was to preserve the
principal value of your shares. Initially, we increased the Fund's holdings of
cash and short-term securities to nearly 30% of total assets. As the year
progressed and the pace of further interest-rate increases slowed, we reduced
our short-term holdings and purchased a number of high-coupon bonds, primarily
in the 8.5% to 9.0% range. In addition to providing an attractive level of
income, these bonds historically have displayed relative price stability in a
rising interest-rate environment. As an added defensive measure, we purchased
bonds with relatively short effective maturities -- less than 10 years on
average. The combination of higher coupons and shorter effective maturities
enabled us to keep our average coupon rate high and our duration relatively low,
just 4.2 years at the end of August. Duration measures a bond's average weighted
maturity by giving relative weight to each interest payment remaining to
maturity and has become the industry standard for calculating bond risk.
Generally, the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.
6
<PAGE>
A Kinder, Gentler Bond Market
Investor psychology has changed considerably since the end of November. The
Fed's 0.75 percentage point increase in the discount rate in November finally
convinced many investors of the central bank's resolve to fight inflation. But
more importantly, preliminary evidence surfaced suggesting that economic growth
had begun to slow as a result of previous monetary tightening. With inflation no
longer an immediate concern, fixed-income investors cautiously returned to the
bond market in late 1994. Since then, bond prices have risen, yields on
long-term instruments have declined, and bond mutual funds have received net new
investment dollars after months of net redemptions. Scudder GNMA Fund's net
asset value increased $0.47 in the four months since November 30.
A sharp reduction in the supply of new issues has also supported the prices
of mortgage-backed securities in recent months. Prepayments of home mortgages,
which hindered returns on mortgage investments in 1993 and early 1994, have all
but ceased now that rates have reached levels common before the refinancing
boom. All told, the supply of new issues declined by 90% from January 1994 to
January 1995.
Emphasis On Total Return
To take advantage of the more favorable current investment environment, we
have sought to enhance the Fund's total return potential by selling holdings of
short-maturity securities and investing the proceeds in longer-maturity bonds,
particularly those maturing in five to 10 years. As a result, the Fund's average
effective maturity has risen from 6.6 years at the beginning of the period to
just over 8.7 years on March 31.
While the Fund has become somewhat more aggressive with regard to
maturities, we have continued our cautious stance toward prepayments. In our
view, prepayments are unlikely for a large segment of the mortgage-backed
securities market, but remain a risk for securities in the 9% to 10% coupon
range. (Presumably, owners of mortgages with even higher interest rates have had
ample opportunity to refinance and, for one reason or another, are choosing not
to.) To help protect the portfolio from the disruptive effects of prepayments,
we invested in securities above and below the 9% to 10% coupon range, with
almost a quarter of total net assets in 7.5% coupon mortgages.
7
<PAGE>
Outlook
We believe shareholders have cause for continued cautious optimism.
Inflation remains subdued, and the Fed's more restrictive monetary policy should
eventually slow the pace of economic activity, a process that historically has
resulted in rising bond prices. In our view, the mortgage-backed securities
market is a "buyers market." The price declines of 1994 have left bonds
undervalued in our opinion, providing investors with the opportunity for capital
appreciation. However, we caution that at this point rising bond prices are far
from assured. Economic growth remains solid despite indications to the contrary.
Additionally, the U.S. dollar's decline relative to the Japanese yen and German
mark has the potential to create price volatility in fixed-income markets as
foreign investors move much-needed capital to more stable currencies. As these
issues play out in the financial markets, we will continue to evaluate the
effectiveness of our investment approach in achieving high current income and
positive total returns for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/David H. Glen /s/Robert E. Pruyne
David H. Glen Robert E. Pruyne
Scudder GNMA Fund: A Team Approach to Investing
Scudder GNMA Fund is managed by a team of Scudder investment professionals
who each play an important role in the Fund's management process. Team members
work together to develop investment strategies and select securities for the
Fund's portfolio. They are supported by Scudder's large staff of economists,
research analysts, traders, and other investment specialists who work in
Scudder's offices across the United States and abroad. We believe our team
approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager David H. Glen joined Scudder GNMA Fund's portfolio
management team in 1985 and is responsible for setting the Fund's investment
strategy and overseeing security selection for the Fund's portfolio. David has
15 years of experience in finance and investing, 13 with Scudder. Robert E.
Pruyne, Portfolio Manager, has filled many important roles in Scudder's
fixed-income department since he joined the firm in 1958. Bob also serves as a
Portfolio Manager for Scudder Cash Investment Trust and Scudder U.S. Treasury
Money Fund.
8
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO AS OF MARCH 31, 1995
-------------------------------------------------------------------------------------------
<CAPTION>
% OF PRINCIPAL MARKET
NET ASSETS AMOUNT ($) VALUE ($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12.6% REPURCHASE AGREEMENT
---------------------------------------------------------------------------
53,841,000 Repurchase Agreement with State Street Bank
and Trust Company dated 3/31/95 at 6%,
to be repurchased at $53,867,921 on 4/3/95,
collateralized by a $55,670,000 U.S. Treasury
Note, 4%, 1/31/96 (Cost $53,841,000)............ 53,841,000
-----------
8.3% U.S. TREASURY OBLIGATIONS
---------------------------------------------------------------------------
25,000,000 U.S. Treasury Note, 7.5%, 5/15/02............... 25,488,250
10,000,000 U.S. Treasury Note, 7.25%, 8/15/04.............. 10,001,600
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $35,432,032)............................. 35,489,850
-----------
86.0% GOV'T NATIONAL MORTGAGE ASSOC. *
---------------------------------------------------------------------------
88,453,877 7% with various maturities to 6/15/24........... 82,731,795
105,548,337 7.5% with various maturities to 11/15/24 (b).... 101,854,145
37,737,625 8% with various maturities to 10/15/23.......... 37,383,646
27,774,378 8.5% with various maturities to 8/15/24......... 28,156,276
30,023,586 9% with various maturities to 2/15/25........... 30,994,765
20,710,538 9.5% with various maturities to 3/15/25......... 21,790,398
54,100,921 10% with various maturities to 3/15/25.......... 58,000,761
587,799 10.5%, 8/20/19.................................. 626,741
1,406,768 11.5% with various maturities to 1/15/16........ 1,561,512
3,898,385 12% with various maturities to 2/20/16.......... 4,339,927
310,894 12.5%, 10/20/13................................. 343,538
897,553 13% with various maturities to 11/15/14......... 1,013,113
222,848 13.5% with various maturities to 8/15/14........ 252,375
29,435 15% with various maturities to 7/15/12.......... 34,089
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (Cost $369,501,693)....... 369,083,081
-----------
-------------------------------------------------------------------------------------------
% of
Net Assets
-------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (Cost $458,774,725) (a). 106.9 458,413,931
OTHER ASSETS AND LIABILITIES, NET.................. (6.9) (29,447,082)
----- -----------
NET ASSETS......................................... 100.0 428,966,849
===== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
SCUDDER GNMA FUND
--------------------------------------------------------------------------------
(a) Cost for federal income tax purposes was $458,774,725. At March 31, 1995,
net unrealized depreciation for all securities based on tax cost was
$360,794. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,471,588 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,832,382.
(b) Mortgage Dollar Roll Included (See Note A in Notes to Financial Statements).
* 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.
10
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
------------------------------------------------------------------------------------
MARCH 31, 1995
------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (including repurchase agreements
of $53,841,000) (identified cost $458,774,725)
(Note A)............................................... $458,413,931
Cash..................................................... 731,888
Receivables:
Investments sold....................................... 79,805,207
Fund shares sold....................................... 204,646
Interest............................................... 2,894,891
------------
Total assets ....................................... 542,050,563
LIABILITIES
Payables:
Investments purchased.................................. $82,186,464
Investments purchased-mortgage dollar rolls (Note A)... 29,212,500
Fund shares redeemed................................... 554,883
Distributions.......................................... 700,885
Accrued management fee (Note C)........................ 223,839
Other accrued expenses (Note C)........................ 205,143
-----------
Total liabilities................................... 113,083,714
------------
Net assets, at market value.............................. $428,966,849
============
NET ASSETS
Net assets consist of:
Unrealized depreciation on investments................. $ (360,794)
Accumulated net realized loss.......................... (42,631,877)
Shares of beneficial interest.......................... 304,939
Additional paid-in capital............................. 471,654,581
------------
Net assets, at market value.............................. $428,966,849
============
NET ASSET VALUE, offering and redemption price per share
($428,966,849 / 30,493,920 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized).................................. $ 14.07
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER GNMA FUND
-------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1995
-------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest................................................. $ 35,090,663
Expenses:
Management fee (Note C).................................. $ 2,867,542
Services to shareholders (Note C)........................ 1,075,033
Trustees' fees (Note C).................................. 38,192
Custodian fees........................................... 170,676
Reports to shareholders.................................. 97,181
Legal.................................................... 21,618
Auditing................................................. 40,008
State registration....................................... 47,234
Other.................................................... 25,600 4,383,084
--------------------------
Net investment income.................................... 30,707,579
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss from:
Investments............................................ (34,402,487)
Options................................................ (454,315) (34,856,802)
------------
Net unrealized appreciation during the period on:
Investments............................................ 23,223,317
Options................................................ 438,690 23,662,007
--------------------------
Net loss on investment transactions...................... (11,194,795)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ 19,512,784
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income............................. $ 30,707,579 $ 46,255,703
Net realized loss from investment
transactions.................................... (34,856,802) (5,085,198)
Net unrealized appreciation (depreciation) on
investments during the period................... 23,662,007 (42,660,723)
------------- -------------
Net increase (decrease) in net assets
resulting from operations....................... 19,512,784 (1,490,218)
------------- -------------
Distributions to shareholders from:
Net investment income ($.92
and $1.12 per share, respectively).............. (30,323,833) (46,255,703)
------------- -------------
Tax return of capital ($.01 per share)............ (383,746) --
------------- -------------
Fund share transactions:
Proceeds from shares sold......................... 54,359,548 238,869,665
Net asset value of shares issued to share-
holders in reinvestment of distributions........ 21,482,210 32,621,418
Cost of shares redeemed........................... (179,639,479) (276,712,621)
------------- -------------
Net decrease in net assets from
Fund share transactions......................... (103,797,721) (5,221,538)
------------- -------------
DECREASE IN NET ASSETS............................ (114,992,516) (52,967,459)
Net assets at beginning of period................. 543,959,365 596,926,824
------------- -------------
NET ASSETS AT END OF PERIOD
(including accumulated distributions in
excess of net investment income of
$877,740 at March 31, 1994)..................... $ 428,966,849 $ 543,959,365
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period......... 37,951,648 38,457,940
------------- -------------
Shares sold....................................... 3,907,473 15,586,141
Shares issued to shareholders in
reinvestment of distributions................... 1,540,397 2,143,231
Shares redeemed................................... (12,905,598) (18,235,664)
------------- -------------
Net decrease in Fund shares....................... (7,457,728) (506,292)
------------- -------------
Shares outstanding at end of period............... 30,493,920 37,951,648
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER GNMA FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
JULY 5, 1985
(COMMENCEMENT
YEARS ENDED MARCH 31, OF OPERATIONS)
------------------------------------------------------------------------------- TO MARCH 31,
1995 1994(d) 1993 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period................. $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44 $15.41 $15.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income............... .93 1.12 1.29 1.24 1.23 1.26 1.28 1.30 1.34 1.12
Net realized and
unrealized gain
(loss) on investment
transactions......... (.26) (1.19) .45 .27 .58 .35 (.74) (.83) .11 .41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............. .67 (.07) 1.74 1.51 1.81 1.61 .54 .47 1.45 1.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income............... (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.34) (1.12)
Net realized gains
on investment
transactions......... -- -- -- -- -- -- -- --(a) (.08) -- (a)
Tax return of
capital.............. (.01) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.42) (1.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period.............. $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44 $15.41
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)......... 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47 9.81 10.56**
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions).... 429 544 597 350 264 251 242 251 294 154
Ratio of operating
expenses to average
daily net assets (%)... .95 .87 .93 .99 1.04 1.05 1.04 1.04 1.05 1.02*(b)
Ratio of net investment
income to average
daily net assets (%)... 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93 8.63 10.11*
Portfolio turnover rate
(%).................... 220.5(c) 272.1(c) 87.3(c) 87.1(c) 52.1 71.3 128.4 92.1 58.7 123.8*
<FN>
* Annualized ** Not annualized
(a) Distributions from net realized gains were less than 3/10 of $.01 per share.
(b) The Adviser did not impose a portion of its fee amounting to $.019 per share.
(c) The significant increase in the portfolio turnover rate for the year ended March 31, 1994 is primarily attributable
to prepayments. The portfolio turnover rates including mortgage dollar roll transactions were 255.4%, 392.5%, 356.8%,
and 147.0%, for the periods ended March 31, 1995, 1994, 1993, and 1992, respectively.
(d) Per share amounts have been calculated using weighted average shares outstanding.
</TABLE>
14
<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 policies described
below are followed consistently by the Fund in the preparation of its financial
statements in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write (sell) call and
put options on futures contracts which are traded for bona fide hedging
purposes. The liability representing the Fund's obligation under an exchange
traded written call or put option is valued at the last sale price or, in the
absence of a sale, the mean between the closing bid and asked quotations or at
the most recent asked quotation if no bid and asked quotations are available.
Exchange traded purchased options are valued at the last sales price or, in the
absence of a sale, the mean between the closing bid and asked quotations or at
the most recent bid quotation if no bid and asked quotations are available.
15
<PAGE>
SCUDDER GNMA FUND
--------------------------------------------------------------------------------
MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities
at the same price on a fixed date. The Fund receives compensation as
consideration for entering into the commitment to repurchase. The compensation
is paid in the form of a fee, or alternatively, a lower price for the security
upon its repurchase.
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder. Mortgage
dollar rolls may be renewed with a new sale and repurchase price and a cash
settlement made at each renewal without physical delivery of the securities
subject to the contract.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At March 31, 1995, the Fund had a net tax basis capital loss carryforward of
approximately $36,291,000 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.
In addition, from November 1, 1994 through March 31, 1995, the Fund incurred
approximately $6,341,000 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 March 31, 1996.
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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in mortgage backed securities. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period.
Accordingly, the Fund may periodically make reclassifications among certain
of its capital accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
OTHER. Investment security transactions are accounted for on a trade date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued pro rata to maturity.
B. PURCHASES AND SALES OF SECURITIES
--------------------------------------------------------------------------------
During the year ended March 31, 1995, purchases and sales of U.S. Government
Securities (excluding short-term investments and mortgage dollar roll
transactions) aggregated $876,572,123 and $897,292,808, respectively. Purchases
and sales of mortgage dollar roll transactions aggregated $162,267,315 and
$163,214,743, respectively.
C. RELATED PARTIES
--------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.65% on the first
$200,000,000 of average daily net assets, 0.60% on the next $300,000,000 of such
net assets, and 0.55% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly.
17
<PAGE>
SCUDDER GNMA FUND
--------------------------------------------------------------------------------
The Agreement also provides that if the Fund's expenses, exclusive of taxes,
interest and extraordinary expenses, exceed specified limits, such excess,
up to the amount of the management fee, will be paid by the Adviser. For the
year ended March 31, 1995, the fee pursuant to the Agreement amounted to
$2,867,542, which was equivalent to an annualized effective rate of 0.62% of
the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended March 31, 1995, the amount charged to the Fund by SSC
aggregated $843,236, of which $66,614 is unpaid at March 31, 1995.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended March 31, 1995, Trustees' fees aggregated $38,192.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF SCUDDER GNMA FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
GNMA Fund, including the investment portfolio, as of March 31, 1995, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the nine years in the period then ended
and for the period July 5, 1985 (commencement of operations) to March 31, 1986.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder GNMA Fund as of March 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the nine years
in the period then ended and for the period July 5, 1985 (commencement of
operations) to March 31, 1986 in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 12, 1995
19
The next page is blank.
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
David S. Lee*
Vice President and Trustee
Cuyler W. Findlay*
Trustee
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Jean C. Tempel
Trustee; Director, Executive Vice President and Manager, Safeguard
Scientifics, Inc.
David H. Glen*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Robert E. Pruyne*
Vice President
Kathryn L. Quirk*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
21
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
The Scudder Family of Funds
<C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc. are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
22
<PAGE>
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For account updates, prices, yields,
exchanges, and redemptions SCUDDER
AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
To receive information about the
Scudder funds, for additional
applications and prospectuses, or for
investment questions SCUDDER INVESTOR
RELATIONS 1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an Institutional Funds,* funds
institutional cash management designed to meet the broad
service for corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
23
<PAGE>
Celebrating 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 36 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
