Scudder
GNMA
Fund
Semiannual Report
September 30, 1996
Pure No-Load(TM) Funds
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>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
8 Investment Portfolio
9 Financial Statements
12 Financial Highlights
13 Notes to Financial Statements
17 Officers and Trustees
18 Investment Products and Services
19 How to Contact Scudder
In Brief
o Scudder GNMA Fund produced a 2.43% total return for the six months ended
September 30, 1996, compared with the 2.19% average total return of the 54 GNMA
funds tracked by Lipper Analytical Services during the same period.
o The Fund also posted a 5.22% total return for the one-year period ended
September 30th. In comparison, the 52 GNMA funds tracked by Lipper Analytical
Services during the same period produced a 4.45% average total return.
o Our process of identifying the sectors offering the best risk/reward tradeoff
led us to focus on discount and current coupon mortgages, allowing the Fund to
capture higher yields while providing protection from prepayment risk.
o In an environment of uncertainty about the direction of interest rates, we
continued to focus on pursuing high current income and safety of principal for
Scudder GNMA Fund investors.
2
<PAGE>
Letter From the Fund's President
Dear Shareholders,
The last six months have been relatively subdued for fixed-income
investors, following the volatile conditions that prevailed in February and
March of 1996. Still, relatively strong economic indicators have kept bond
yields from falling. In this environment, Scudder GNMA Fund produced a 2.43%
total return for the six-month period, and 5.22% for the one-year period ended
September 30th. This compared favorably with the average returns of similar
funds for both periods, as tracked by Lipper Analytical Services.
Mortgage-backed securities remain an attractive investment, and we believe
Scudder GNMA Fund is well-positioned for the future. Bond funds focusing on U.S.
government securities will most likely fare better than their lower-quality
counterparts in the event of an economic slowdown as investors move toward
higher-quality instruments. In addition, mortgage-backed securities currently
offer very compelling yields with respect to other intermediate maturity
fixed-income investments. Please read the accompanying letter from your
Portfolio Management team for more insight on the recent market environment and
the Fund's six-month performance.
For those of you who like to stay informed about the newest fund offerings
by Scudder, we introduced two new equity funds in September. Scudder Classic
Growth Fund seeks long-term capital appreciation with a higher degree of
principal stability than the average growth fund. Scudder 21st Century Growth
Fund takes a more aggressive approach, focusing primarily on emerging growth
companies with the potential to benefit from the rapidly changing industrial and
economic landscape that we foresee. For more information on these and other
Scudder Fund products and services, please turn to page 18.
Thank you for your interest and investment in Scudder GNMA Fund. Please do
not hesitate to contact Investor Relations at 1-800-225-2470 with any questions
regarding your account.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3
<PAGE>
PERFORMANCE UPDATE as of September 30, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
9/30/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER GNMA FUND
- --------------------------------------
1 Year $10,522 5.22% 5.22%
5 Year $13,619 36.19% 6.37%
10 Year $20,817 108.17% 7.61%
- --------------------------------------
LEHMAN BROTHERS MORTGAGE GNMA INDEX
- --------------------------------------
1 Year $10,588 5.88% 5.88%
5 Year $14,170 41.70% 7.21%
10 Year $23,610 136.10% 8.96%
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED SEPTEMBER 30
SCUDDER GMNA FUND
Year Amount
- ----------------------
'86 $10,000
'87 $10,026
'88 $11,230
'89 $12,207
'90 $13,258
'91 $15,286
'92 $17,064
'93 $18,159
'94 $17,533
'95 $19,785
'96 $20,817
LEHMAN BROTHERS MORTGAGE GNMA INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,194
'88 $11,728
'89 $13,055
'90 $14,288
'91 $16,662
'92 $18,566
'93 $19,789
'94 $19,548
'95 $22,299
'96 $23,610
The unmanaged Lehman Brothers Mortgage GNMA Index is a market value-weighted
measure of all fixed-rate securities backed by mortgage pools of the GNMA. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike Fund
returns, Index returns do not reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $14.10 $14.42 $14.35 $14.30 $15.19 $15.61 $15.30 $13.84 $14.61 $14.43
INCOME DIVIDENDS.. $ 1.27 $ 1.32 $ 1.26 $ 1.25 $ 1.22 $ 1.28 $ 1.27 $ .95 $ .95 $ .92
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
FUND TOTAL
RETURN (%)........ .30 12.00 8.70 8.61 15.29 11.63 6.42 -3.45 12.85 5.22
INDEX TOTAL
RETURN (%)........ 1.94 15.04 11.31 9.45 16.61 11.43 6.59 -1.22 14.07 5.88
</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 September 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Government National
Mortgage Association 93%
Cash & Equivalents, net 7%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund is nearly fully invested in GNMA securities
backed by the U.S. government.
- --------------------------------------------------------------------------
GNMA COUPONS
- --------------------------------------------------------------------------
6.5% 14%
7.0% 14%
7.5% 18%
8.0% 20%
8.5% 13%
9.0% 11%
9.5% 4%
Greater than 9.5% 6%
- ---------------------------------------
100%
- ---------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Current coupons of 7.5% to 8% are well-represented in the portfolio.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 8%
1-5 years 5%
5-10 years 34%
Greater than 10 years 53%
- ---------------------------------------
100%
- ---------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
* Weighted average effective maturity: 8.2 years
The Fund has an intermediate average effective maturity of just over
eight years.
For more complete details about the Fund's investment portfolio,
see page 8. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Since March, the bond market environment could be best described with three
words: wait and see. Fixed-income investors waited to see if the Federal Reserve
would raise interest rates. They also waited for clarity as to the direction of
the economy.
Though unpredictable, this environment provided opportunities for Scudder GNMA
Fund to offer its shareholders high current income and safety of principal. A
combination of low supply of and decent demand for GNMA securities resulted in
strong performance versus other fixed-income investments. We focused on both
yield and total return, and took advantage of trading opportunities when
possible during the period. While it has not been a particularly stellar period
for bonds, the Fund posted a total return of 2.43% for the six months and
outperformed the average GNMA fund for the same period, as gauged by the 2.19%
average total return for the 54 GNMA funds tracked by Lipper Analytical
Services. The Fund's performance slightly lagged that of the unmanaged Lehman
Brothers Mortgage GNMA Index, which posted a 2.82% return for the same period.
In comparison, the overall bond market as measured by the unmanaged Lehman
Government/Corporate Index posted a 2.24% return for the six months ended
September 30. Scudder GNMA Fund's 30-day net annualized yield as of September 30
was 6.56%.
The Investment Environment
Even though the Federal Reserve by and large left short-term interest rates
alone in 1996, investors remained uncertain about Fed action going forward.
Stronger than expected economic indicators have supported higher interest rate
levels, preventing any sustained bond market rally.
With mortgage rates hovering between 7.5% and 8.5% during much of the semiannual
period, GNMA investors found mortgage-backed securities with 6.5% to 7% coupons
attractive because they carried little or no refinancing risk. In addition,
newer mortgages -- those in the 7.5% to 8.5% range -- fared well. These
mortgages offered the best yield in the market during the period.
Portfolio Makeup
Coupons in the range of 6.5% to 8% made up 61% of the portfolio at the close of
the period. This allocation was designed to allow the Fund to capture higher
yields while providing protection from prepayment risk. Our process of
identifying the sectors offering the best risk/reward tradeoff led us to focus
in particular on current mortgages. At the end of September, 35% of the Fund's
portfolio was invested in 7.5% to 8% coupons. These relatively new mortgages
offered the highest yields in the mortgage-backed market.
The "seasoned" premium coupon mortgages held by the Fund also provide what we
believe is a favorable tradeoff between risk and reward. They offer generous
income levels and low risk of prepayment, since the holders of these mortgages
have in the past
6
<PAGE>
declined to refinance in the face of many opportunities to do so. At the close
of the period, 32% of the portfolio was invested in premium coupons.
Outlook
The future direction of interest rates continues to be uncertain. We believe the
Fund is well positioned for a number of economic and market conditions. An
economic slowdown, if it should materialize, would most likely create an
excellent environment for fixed-income investments, and one in which
higher-quality bond funds should fare relatively well as investors flock to
quality.
The current climate presents opportunities for investors in mortgage-backed
securities in particular. The recent rise in interest rates greatly reduced
prepayment risk, and rates would have to drop sharply before we began to worry
about a pickup in refinancing. In addition, mortgages continue to offer
attractive yields compared with other intermediate-term fixed income
investments.
We believe Scudder GNMA Fund remains a high-quality vehicle for pursuing
attractive income with relative safety of principal. Thank you for your
continued interest in Scudder GNMA Fund.
Sincerely,
Your Portfolio Management Team
/s/David H. Glen /s/Mark Boyadjian
David H. Glen Mark Boyadjian
7
<PAGE>
Investment Portfolio as of September 30, 1996 (Unaudited)
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Repurchase Agreements 7.3%
- --------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 9/30/96 at 5.7%, to be repurchased
at $29,093,606 on 10/1/96, collateralized by a
$29,122,000 U.S. Treasury Note, 5.125%, 4/30/98
----------
(Cost $29,089,000) ............................... 29,089,000 29,089,000
----------
Government National Mortgage Association 92.7%*
- --------------------------------------------------------------------------------
6.5% with various maturities to 5/15/26 ............ 56,889,401 53,468,289
7.0% with various maturities to 10/15/24 ........... 51,458,706 49,794,525
7.5% with various maturities to 8/15/26 ............ 66,099,317 65,360,922
8.0% with various maturities to 7/15/26 ............ 73,654,369 74,496,638
8.5% with various maturities to 8/15/26 ............ 49,334,272 50,736,846
9.0% with various maturities to 4/15/26 ............ 38,939,118 41,179,602
9.5% with various maturities to 10/15/21 ........... 14,233,565 15,349,909
10.0% with various maturities to 10/15/21 .......... 12,543,044 13,698,724
10.5% with various maturities to 8/20/19 ........... 362,522 402,280
11.5% with various maturities to 1/15/16 ........... 1,003,306 1,145,726
12.0% with various maturities to 2/20/16 ........... 2,564,540 2,976,668
12.5% with various maturities to 10/20/13 .......... 218,459 254,913
13.0% with various maturities to 9/15/15 ........... 636,928 756,352
13.5% with various maturities to 8/15/14 ........... 161,441 193,700
15.0% with various maturities to 7/15/12 ........... 24,918 30,824
- --------------------------------------------------------------------------------
Total Government National Mortgage Association
(Cost $367,592,162) .............................. 369,845,918
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
% of
Net Assets
- --------------------------------------------------------------------------------
Total Investment Portfolio (Cost $396,681,162)(a) .. 100.1 398,934,918
Other Assets and Liabilities, Net .................. (.1) (247,209)
----- -----------
Net Assets ......................................... 100.0 398,687,709
===== ===========
(a) Cost for federal income tax purposes was $396,681,162. At September 30,
1996, net unrealized appreciation for all securities based on tax cost was
$2,253,756. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $3,875,526 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,621,770.
* 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8 - SCUDDER GNMA FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of September 30, 1996 (Unaudited)
Assets
- --------------------------------------------------------------------------------
Investments, at market (including repurchase
agreements of $29,089,000) (identified cost
$396,681,162) (Note A) ..................... $ 398,934,918
Cash ......................................... 875
Receivable on Fund shares sold ............... 140,984
Interest receivable .......................... 2,425,520
Receivable for daily variation margin on
future contracts ........................... 32,813
Other Assets ................................. 4,027
-------------
Total assets ................................. 401,539,137
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed ............. $ 1,812,649
Dividends payable ............................ 625,761
Accrued management fee (Note C) .............. 207,750
Other accrued expenses (Note C) .............. 205,268
-------------
Total liabilities ............................ 2,851,428
---------------------------------------------------------------
Net assets, at market value .................. $ 398,687,709
---------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments ....... $ 2,253,756
Accumulated net realized loss ................ (34,259,622)
Shares of beneficial interest ................ 276,242
Additional paid-in capital ................... 430,417,333
---------------------------------------------------------------
Net assets, at market value .................. $ 398,687,709
---------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset value, offering and redemption price
per share ($398,687,709 / 27,624,185
outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares -------------
authorized) ................................ $ 14.43
-------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 - SCUDDER GNMA FUND
<PAGE>
Statement of Operations
six months ended September 30, 1996 (Unaudited)
Investment Income
- --------------------------------------------------------------------------------
Income:
Interest ..................................... 14,916,788
-------------
Expenses:
Management fee (Note C) ...................... $ 1,276,121
Services to shareholders (Note C) ............ 479,598
Trustees' fees and expenses (Note C) ......... 24,096
Custodian and accounting fees (Note C) ....... 87,497
Reports to shareholders ...................... 49,374
Legal ........................................ 12,586
Auditing ..................................... 22,000
State registration ........................... 19,315
Other ........................................ 7,925
-------------
1,978,512
---------------------------------------------------------------
Net investment income ........................ 12,938,276
---------------------------------------------------------------
Realized and unrealized gain on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................. (6,055,086)
Futures ...................................... 2,486,376
Options ...................................... (193,407)
-------------
(3,762,117)
Net unrealized appreciation during the
period on investments ...................... 557,635
-------------
Net loss on investment transactions .......... (3,204,482)
---------------------------------------------------------------
Net increase in net assets resulting from
operations ................................. $ 9,733,794
---------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10 - SCUDDER GNMA FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended
1996 March 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................ $ 12,938,276 $ 27,845,383
Net realized gain (loss) from investment
transactions ............................... (3,762,117) 12,134,372
Net unrealized appreciation on investment
transactions during the period ............. 557,635 2,056,915
------------- ------------
Net increase in net assets resulting from
operations ................................. 9,733,794 42,036,670
Distributions to shareholders from net
investment income .......................... (12,938,276) (27,845,383)
------------- ------------
Fund share transactions:
Proceeds from shares sold .................... 17,290,206 60,759,215
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 9,232,590 19,805,541
Cost of shares redeemed ...................... (49,462,610) (98,890,887)
------------- ------------
Net decrease in net assets from Fund share
transactions ............................... (22,939,814) (18,326,131)
------------- ------------
Decrease in net assets ....................... (26,144,296) (4,134,844)
Net assets at beginning of period ............ 424,832,005 428,966,849
------------ ------------
Net assets at end of period .................. $398,687,709 $424,832,005
------------ ------------
Other Information
- ----------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .... 29,220,534 30,493,920
------------ ------------
Shares sold .................................. 1,201,819 4,154,677
Shares issued to shareholders in reinvestment
of distributions ........................... 642,567 1,355,378
Shares redeemed .............................. (3,440,735) (6,783,441)
------------ ------------
Net decrease in Fund shares .................. (1,596,349) (1,273,386)
------------ ------------
Shares outstanding at end of period .......... 27,624,185 29,220,534
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11 - SCUDDER GNMA FUND
<PAGE>
Financial Highlights
The following table includes select data for a share outstanding throughout each
period and other performance information derived from the financial statements.
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
1996 Years Ended March 31,
(Unaudited) 1996 1995 1994(c) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, -----------------------------------------------------------------------------------------------------
beginning of period .... $ 14.54 $ 14.07 $ 14.33 $ 15.52 $ 15.07 $ 14.80 $ 14.22 $ 13.87 $ 14.61
-----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .... .46 .94 .93 1.12 1.29 1.24 1.23 1.26 1.28
Net realized and
unrealized gain
(loss) on investment
transactions .......... (.11) .47 (.26) (1.19) .45 .27 .58 .35 (.74)
Total from investment -----------------------------------------------------------------------------------------------------
operations ............. .35 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54
-----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income .. (.46) (.94) (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28)
Net realized gains on
investment transactions - - - - - - - - -
Tax return of capital .... - - (.01) - - - - - -
-----------------------------------------------------------------------------------------------------
Total distributions ...... (.46) (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28)
-----------------------------------------------------------------------------------------------------
Net asset value, end of -----------------------------------------------------------------------------------------------------
period ................. $ 14.43 $ 14.54 $ 14.07 $ 14.33 $ 15.52 $ 15.07 $ 14.80 $ 14.22 $ 13.87
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ......... 2.43** 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81
Ratios and Supplemental Data
Net assets, end of period
($ millions) ........... 399 425 429 544 597 350 264 251 242
Ratio of operating
expenses to average
daily net assets (%) ... .97* .94 .95 .87 .93 .99 1.04 1.05 1.04
Ratio of net investment
income to average net
assets (%) ............. 6.33* 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95
Portfolio turnover rate(%) 166.8* 157.8 220.5(b) 272.1(b) 87.3(b) 87.1(b) 52.1 71.3 128.4
</TABLE>
Years ended March 31,
1988 1987
- -------------------------------------------------
Net asset value, --------------------
beginning of period .... $ 15.44 $ 15.41
--------------------
Income from investment
operations:
Net investment income .... 1.30 1.34
Net realized and
unrealized gain
(loss) on investment
transactions ........... (.83) .11
Total from investment --------------------
operations ............. .47 1.45
--------------------
Less distributions from:
Net investment income . (1.30) (1.34)
Net realized gains on
investment transactions -(a) (.08)
Tax return of capital .... - -
--------------------
Total distributions ...... (1.30) (1.42)
--------------------
Net asset value, end of --------------------
period ................. $ 14.61 $ 15.44
- -------------------------------------------------
Total Return (%) ......... 3.47 9.81
Ratios and Supplemental Data
Net assets, end of period
($ millions) ........... 251 294
Ratio of operating
expenses to average
daily net assets (%) ... 1.04 1.05
Ratio of net investment
income to average net
assets (%) ............ 8.93 8.63
Portfolio turnover rate(%) 92.1 58.7
(a) Distributions from net realized gains were less than 3/10 of $.01 per
share.
(b) The significant increase in the portfolio turnover rate for the year ended
March 31, 1994 is primarily attributable to prepayments. The portfolio
turnover rates including mortgage dollar roll transactions were 255.4%,
392.5%, 356.8%, and 147.0%, for the periods ended March 31, 1995, 1994,
1993, and 1992, respectively.
(c) Per share amounts have been calculated using weighted average shares
outstanding.
* Annualized ** Not annualized
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12 - SCUDDER GNMA FUND
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder GNMA Fund (the "Fund") is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the six months
ended September 30, 1996, the Fund purchased interest rate futures to manage the
duration of the portfolio and sold interest rate futures to hedge against
declines in the value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities at
the same price on a fixed date. The Fund receives compensation as consideration
for entering into the commitment to repurchase. The compensation is paid in the
form of a fee, or alternatively, a lower price for the security upon its
repurchase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13 - SCUDDER GNMA FUND
<PAGE>
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder. Mortgage
dollar rolls may be renewed with a new sale and repurchase price and a cash
settlement made at each renewal without physical delivery of the securities
subject to the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At March 31, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $30,082,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2003, the expiration date.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions in excess of available capital loss
carryforwards would be taxable to the Fund if not distributed. Therefore, the
Fund intends to distribute these amounts to shareholders. An additional
distribution may be made to the extent necessary to avoid the payment of a four
percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in mortgage backed securities. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued pro rata to maturity.
B. Purchases and Sales of Securities
During the six months ended September 30, 1996, purchases and sales of
investment securities (excluding short-term investments) aggregated $327,133,229
and $309,529,207, respectively.
The aggregate face value of futures contracts both opened and closed during the
six months ended September 30, 1996 was $1,404,874,910.
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
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14 - SCUDDER GNMA FUND
<PAGE>
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.65% on the first
$200,000,000 of average daily net assets, 0.60% on the next $300,000,000 of such
net assets, and 0.55% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly.
The Agreement also provides that if the Fund's expenses, exclusive of taxes,
interest and extraordinary expenses, exceed specified limits, such excess, up to
the amount of the management fee, will be paid by the Adviser. For the six
months ended September 30, 1996, the fee pursuant to the Agreement amounted to
$1,276,121, which was equivalent to an annualized effective rate of .62% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended September 30, 1996, the amount charged to the Fund by SSC
aggregated $293,039 of which $48,324 is unpaid at September 30, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended September
30, 1996, the amount charged to the Fund by STC aggregated $84,447, of which
$15,351 is unpaid at September 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended September 30, 1996, the amount charged to the Fund by SFAC aggregated
$58,885 of which $8,846 is unpaid at September 30, 1996.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually, plus
specified amounts for attended board and committee meetings. For the six months
ended September 30, 1996, Trustees' fees and expenses aggregated $24,096.
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15 - SCUDDER GNMA FUND
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intentionally
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16
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
David S. Lee*
Vice President and Trustee
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Jean C. Tempel
Trustee; General Partner,
TL Ventures
David H. Glen*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
17
<PAGE>
Investment Products and Services
The Scudder Family of Funds
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia 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.
18
<PAGE>
How to Contact Scudder
Account Service and Information
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
Scudder Investor Relations
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services
1-800-323-6105
Please address all correspondence to
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Visit the Scudder World Wide Web Site at:
http://funds.scudder.com
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 Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call:
1-800-854-8525.
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.
19
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
