This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder GNMA Fund
Annual Report
March 31, 1996
* A fund designed to provide high current income primarily from high quality
U.S. government mortgage-backed GNMA securities.
* A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER GNMA FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
12 Financial Statements
15 Financial Highlights
16 Notes to Financial Statements
20 Report of Independent Accountants
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder
IN BRIEF
* Scudder GNMA Fund rewarded investors with a total return of 10.20% for
the fiscal year ended March 31, 1996. The Fund's price rose $0.47 per
share to $14.54 at the end of the period, with investors receiving
income totaling $0.94 per share.
* During the period, your Fund performed markedly better than the
average GNMA fund tracked by Lipper, which returned 9.63%.
BAR CHART:
Scudder GNMA Fund Lipper GNMA Fund Average
- -----------------------------------------------
10.20% 9.63%
* To help protect the Fund's income stream in the face of falling
interest rates during the year, the Fund focused on bonds whose
underlying mortgages were less susceptible to refinancing activity.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Scudder GNMA Fund closed its fiscal year on March 31, 1996, with a solid
total return of 10.20%, reflecting a rise in the Fund's share price and an
attractive level of income to investors. Widespread declines in U.S. interest
rates set the stage for appreciation in bond prices for most of the past 12
months. Subdued economic growth and continued low inflation contributed to the
downward path of interest rates. In our last report to you, we mentioned that
the U.S. dollar's appreciation against the Japanese yen would likely fuel
foreign demand for U.S. securities. Indeed, inflows into U.S. Treasuries soared,
reaching nearly $200 billion by the third quarter of 1995, and contributed to
rising prices and lower yields.
The Fund's total return-orientation translated into an emphasis on price
appreciation while protecting the Fund's income, and was well-suited to make the
most of the hospitable investment climate. This approach resulted in the Fund's
strong return, which outpaced the 9.63% average return of Lipper's universe of
GNMA funds.
As the fiscal year drew to a close, unexpected signs of economic
strength tempered the heady performance of bonds in 1995, despite conflicting
evidence suggesting that domestic growth remains slow and inflation rates
negligible. Until a clear picture of the economy emerges, investor perceptions
about the course of inflation and the shape of the economy may result in
continued volatility. Still, we believe your Fund continues to offer the
opportunity to pursue yields higher than those available from U.S. Treasury
securities while providing relatively steady share prices. Thank you for
choosing Scudder GNMA Fund to help meet your investing needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3
<PAGE>
SCUDDER GNMA FUND
PERFORMANCE UPDATE as of March 31, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER GNMA FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/96 $10,000 Cumulative Annual
-------- ------- ---------- ------
1 Year $11,020 10.20% 10.20%
5 Year $14,207 42.07% 7.28%
10 Year $21,229 112.29% 7.82%
LEHMAN BROTHERS MORTGAGE GNMA INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/96 $10,000 Cumulative Annual
-------- ------- ---------- ------
1 Year $11,084 10.84% 10.84%
5 Year $14,820 48.20% 8.18%
10 Year $23,935 139.35% 9.11%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED MARCH 31,
Scudder GNMA Fund
Year Amount
- ----------------------
'86 $10,000
'87 $10,981
'88 $11,362
'89 $11,795
'90 $13,193
'91 $14,942
'92 $16,509
'93 $18,475
'94 $18,356
'95 $19,263
'96 $21,229
Lehman Brothers Mortgage GNMA Index
Year Amount
- ----------------------
'86 $10,000
'87 $11,039
'88 $11,736
'89 $12,395
'90 $14,172
'91 $16,150
'92 $18,051
'93 $20,096
'94 $20,321
'95 $21,594
'96 $23,935
The unmanaged Lehman Brothers Mortgage GNMA Index is a market value-
weighted measure of all fixed-rate securities backed by mortgage pools
of the GNMA. Index returns are calculated monthly and assume
reinvestment of dividends. Unlike Fund returns, Index returns do not
reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED MARCH 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
--------------------------------------------------------------------------------
NET ASSET VALUE... $15.44 $14.61 $13.87 $14.22 $14.80 $15.07 $15.52 $14.33 $14.07 $14.54
INCOME DIVIDENDS.. $ 1.34 $ 1.30 $ 1.28 $ 1.26 $ 1.23 $ 1.24 $ 1.29 $ 1.12 $ .93 $ .94
CAPITAL GAINS
DISTRIBUTIONS..... $ .08 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 9.81 3.47 3.81 11.86 13.26 10.48 11.91 -0.64 4.94 10.20
INDEX TOTAL
RETURN (%)........ 10.41 6.31 5.62 14.33 13.96 11.77 11.34 1.13 6.26 10.84
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
4
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Government National By the end of the period, the
Mortgage Association 84% Fund eliminated investments in
Cash & Equivalents, net 16% U.S. Treasuries, which
---- enhanced its participation in
100% bond market rallies at various
==== points during the year.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
GNMA COUPONS
- --------------------------------------------------------------------------
6.5% 29%
7.0% 23%
7.5% 5% As interest rates fell, the Fund
8.0% 11% increased investments in lower-
8.5% 3% and higher-coupon bonds to
9.0% 18% help protect the Fund's income
9.5% 5% stream.
10.0% 4%
Greater than 10% 2%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 17% The Fund increased investments
1-5 years 5% in mortgages with effective
5-10 years 31% maturities between five and 10
Greater than 10 years 47% years for their attractive price
---- and yield characteristics.
100%
====
Weighted average effective maturity: 7 years
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER GNMA FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
In the fiscal year ended March 31, 1996, Scudder GNMA Fund shareholders
enjoyed share price gains on top of solid monthly income as U.S. interest rates
fell. Because interest rates and bond prices move in opposite directions, your
Fund's price appreciated $0.47 per share during the year, while its 30-day net
annualized SEC yield declined to 5.69% at the close of the period from 7.0% a
year earlier.
The combination of the increase in the Fund's share price (to $14.54 on
March 31, 1996, from $14.07 a year earlier) and the reinvestment of monthly
dividend distributions totaling $0.94 per share resulted in a solid 10.20% total
return for the year. By comparison, the unmanaged Lehman Brothers GNMA Index, a
broad market benchmark, posted a return of 10.84% while the 57 GNMA funds
tracked by Lipper noticeably lagged your Fund's performance with an average
return of 9.63%.
Amenable Conditions Foster Recovery in Bond Markets
Following a very challenging year for bonds in 1994, investor sentiment
finally began to change for the better by the start of the Fund's fiscal year,
fueling a recovery in bond markets. Bond prices continued to improve as the
Federal Reserve cut interest rates three times during succeeding months--most
recently in January 1996. The Fed's actions were spurred by evidence that
economic growth had slowed to a more sustainable pace, inflationary pressures
remained in check, and consumers were curtailing their spending. Meanwhile, the
U.S. dollar's long-awaited rise against the Japanese yen provided strength as
foreign investors sought U.S. securities, also driving interest rates lower and
bond prices higher.
In early 1996, however, a confluence of events induced long-term
interest rates to climb. Budget talks in Washington had stalled, quelling hopes
of immediate action on deficit reduction, and Federal Reserve Chairman Greenspan
commented that the economy was not as weak as the market had believed. A spate
of economic indicators seemed to support this view--particularly the March
release of employment data, revealing unexpectedly strong job growth. The
apparent strength of the economy has put further Fed interest rate cuts into
question--at least for the moment.
6
<PAGE>
Balancing Opportunities For Price Appreciation and Income Preservation
The challenges and opportunities of the GNMA market that go hand-in-hand
with falling interest rates underscored the value of the Fund's
total-return-oriented approach during the fiscal year. Recognizing that GNMA
investors count on dependable income and a fair degree of price stability from a
high-quality portfolio, we adhered to total return-oriented strategies
compatible with the conservative underpinnings of the Fund.
As yields fell, we focused on mortgages with longer effective maturities
to help pursue both better price performance and yields. Because longer-maturity
bonds are more sensitive to changes in interest rates than those with shorter
maturities, these longer maturities functioned as a tailwind of sorts to boost
price gains. Gradual steps to move into longer-maturity bonds were already
underway as the period began.
We also devoted attention to safeguarding the Fund's income earnings,
wary of escalating prepayment risk. When homeowners take advantage of lower
rates to refinance their outstanding mortgages, issuers of mortgage-backed
securities are forced to repay principal ahead of schedule, leaving GNMA
investors with cash to invest in a lower-interest-rate environment.
Specifically, we worked to reduce prepayment risk by investing in select
lower-coupon issues--that is, bonds paying lower stated rates of
interest--particularly 6 1/2% and 7% issues. In our estimation, these bonds
would be less prone to refinancing activity unless long-term interest rates fell
dramatically further. Because these lower-coupon bonds were more resistant to
prepayments, they also enjoyed better relative price performance as interest
rates fell.
A focus on seasoned premium mortgages also helped us manage the risks of
prepayment. In particular, we emphasized older mortgage debt with coupons of
around 8% to 10%. The generous income levels of these bonds are evident and
clearly appealing to income-conscious investors. At first glance, however, these
bonds appear exceedingly vulnerable to prepayment, because the cost of the
underlying debt is high compared to today's market rates. But, the underlying
mortgage holders have not refinanced at lower rates despite several
opportunities to do so in prior years. For this reason, these bonds were
statistically less likely to be refinanced, and performed particularly well
price-wise as interest rates declined.
7
<PAGE>
Finally, the Fund's flexibility to invest in U.S. Treasury securities
also worked to its advantage. On and off during the period, we built a position
in Treasuries--at times up to roughly 10% of the portfolio. Treasury investments
heightened the Fund's ability to participate in rising prices. Because
Treasuries cannot be retired prior to maturity, they are immune to the risk of
prepayment, and thus tend to perform better than GNMAs when interest rates fall.
(From an income standpoint, though, GNMAs typically have the edge in the form of
higher relative yields.) By the time interest rates began edging upward in early
1996, we had eliminated Treasuries altogether from the portfolio. In their
stead, we purchased select mortgages with attractive price and yield
characteristics engendered by the recent rise in rates.
Outlook
From our current vantage point, we believe Scudder GNMA Fund is
well-positioned to continue to generate solid total returns that blend a
reasonable level of current income with price stability. The ingredients
typifying attractive bond market conditions--slow economic growth and stable
levels of inflation, for example--remain visible, despite short-term
uncertainty. In addition, the growing debt burden shouldered by average
consumers and the rise in consumer loan delinquency are tending to suppress
consumer spending, thereby restraining economic growth. Meanwhile, prepayment
risk has subsided in the wake of the recent interest rate increases, helping to
keep supply far below 1993's record peaks. And with demand essentially
unchanged, the supply/demand equation remains favorable for GNMAs.
Positives aside, conflicting reports that paint a stronger economic
picture are challenging the view that the aging economic expansion is nearing an
end. The bond market may find it difficult to stage a real recovery without
robust foreign demand for U.S. securities, which was so instrumental last year
in pushing yields down and prices up. We will continue to scrutinize the mosaic
of economic data to help us shape investment strategy through the year. In the
meantime, although the short-term direction of interest rates is unclear, we
expect a reasonably attractive environment for bonds.
8
<PAGE>
In the months ahead, the Fund's share price and income will vary in
response to changes in interest rates and other economic factors. In our view,
the Fund remains a high-quality vehicle for earning attractive income relative
to more stable securities such as money market instruments without undue
exposure to fluctuations in share price.
Sincerely,
Your Portfolio Management Team
/s/David H. Glen /s/Mark Boyadjian
David H. Glen Mark Boyadjian
Scudder GNMA Fund: A Team Approach to Investing
Scudder GNMA Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager David H. Glen joined the Fund's portfolio
management team in 1985 and is responsible for setting the Fund's investment
strategy and overseeing security selection for the Fund's portfolio. David has
16 years of experience in finance and investing, 14 with Scudder. Mark S.
Boyadjian, Portfolio Manager, joined the team in 1995, and contributes his eight
years' experience managing fixed-income securities. Mark has been with Scudder
since 1989.
9
<PAGE>
<TABLE>
SCUDDER GNMA FUND
INVESTMENT PORTFOLIO as of March 31, 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Net Assets Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------------------
21.9% REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
50,000,000 Repurchase Agreement with First National
Bank of Chicago dated 3/29/96 at 5.25%,
to be repurchased at $50,021,875 on 4/1/96,
collateralized by a $25,000,000 U.S.
Treasury Note, 7.875%, 7/31/96 and a
$26,245,000 U.S. Treasury Bill, 10/17/96 .......... 50,000,000
43,244,000 Repurchase Agreement with State Street
Bank and Trust Company dated 3/29/96
at 5.15%, to be repurchased at $43,262,559
on 4/1/96, collateralized by a $44,670,000
U.S. Treasury Bill, 6/27/96 ....................... 43,244,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $93,244,000) ................................ 93,244,000
-----------
--------------------------------------------------------------------------------
84.2% GOV'T NATIONAL MORTGAGE ASSOC.*
--------------------------------------------------------------------------------
107,694,147 6.5% with various maturities to 3/15/26 ............ 102,009,802
84,695,708 7% with various maturities to 10/15/24 ............. 82,525,719
18,009,067 7.5% with various maturities to 2/15/24 ............ 18,019,256
40,163,737 8% with various maturities to 12/15/24 ............. 41,097,018
11,100,000 8.5% with various maturities to 8/15/25 ............ 11,592,507
58,777,899 9% with various maturities to 12/15/21 ............. 62,770,292
16,072,302 9.5% with various maturities to 10/15/21 ........... 17,466,833
14,116,612 10% with various maturities to 10/15/21 ............ 15,566,556
432,730 10.5% with various maturities to 8/20/19 ........... 475,462
1,120,148 11.5%with various maturities to 2/15/16 ............ 1,268,300
3,110,275 12% with various maturities to 2/20/16 ............. 3,565,477
253,174 12.5% with various maturities to 10/20/13 .......... 293,839
697,310 13% with various maturities to 10/15/15 ............ 818,900
171,338 13.5% with various maturities to 8/15/14 ........... 203,333
26,241 15% with various maturities to 7/15/12 ............. 31,787
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (Cost $356,008,960) .......... 357,705,081
-----------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
% of
Net Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (Cost $449,252,960) (a) .. 106.1 450,949,081
OTHER ASSETS AND LIABILITIES, NET ................... (6.1) (26,117,076)
----- -----------
NET ASSETS .......................................... 100.0 424,832,005
===== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Cost for federal income tax purposes was $449,252,960. At March 31, 1996,
net unrealized appreciation for all securities based on tax cost was
$1,696,121. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,438,102 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,741,981.
* The investments in mortgage-backed securities of the Government National
Mortgage Association are interests in separate pools of mortgages. All
separate investments in each of these issues which have similar coupon
rates have been aggregated for presentation purposes in the Investment
Portfolio. Effective maturities of these investments will be shorter than
stated maturities due to prepayments.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER GNMA FUND
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------------
MARCH 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (including repurchase
agreements of $93,244,000) (identified cost
$449,252,960) (Note A) .............................. $450,949,081
Cash .................................................. 1,814
Receivables:
Fund shares sold .................................... 109,160
Interest ............................................ 2,252,594
------------
Total assets ...................................... 453,312,649
LIABILITIES
Payables:
Investments purchased ............................... $26,305,513
Fund shares redeemed ................................ 1,135,683
Dividends ........................................... 617,739
Accrued management fee (Note C) ..................... 222,416
Other accrued expenses (Note C) ..................... 199,293
-----------
Total liabilities ................................. 28,480,644
------------
Net assets, at market value ........................... $424,832,005
============
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments .............. $ 1,696,121
Accumulated net realized loss ....................... (30,497,505)
Shares of beneficial interest ....................... 292,205
Additional paid-in capital .......................... 453,341,184
------------
Net assets, at market value ........................... $424,832,005
============
NET ASSET VALUE, offering and redemption price per share
($424,832,005 / 29,220,534 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) .............................. $14.54
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................ $31,914,294
Expenses:
Management fee (Note C) ............................. $2,688,700
Services to shareholders (Note C) ................... 945,400
Trustees' fees and expenses (Note C) ................ 34,847
Custodian and accounting fees (Note C) .............. 215,191
Reports to shareholders ............................. 88,120
Legal ............................................... 8,262
Auditing ............................................ 43,797
State registration .................................. 29,550
Other ............................................... 15,044 4,068,911
-----------------------------
Net investment income................................ 27,845,383
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT
TRANSACTIONS
Net realized gain from:
Investments ....................................... 9,488,739
Futures ........................................... 2,645,633 12,134,372
----------
Net unrealized appreciation during the period on
investments ....................................... 2,056,915
-----------
Net gain on investment transactions ................. 14,191,287
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ......................................... $42,036,670
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER GNMA FUND
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 27,845,383 $ 30,707,579
Net realized gain (loss) from investment
transactions ........................................ 12,134,372 (34,856,802)
Net unrealized appreciation on
investments during the period ....................... 2,056,915 23,662,007
------------ -------------
Net increase in net assets
resulting from operations ........................... 42,036,670 19,512,784
------------ -------------
Distributions to shareholders from:
Net investment income ($.94
and $.92 per share, respectively) ................... (27,845,383) (30,323,833)
------------ -------------
Tax return of capital ($.01 per share) ................ -- (383,746)
------------ -------------
Fund share transactions
Proceeds from shares sold ............................. 60,759,215 54,359,548
Net asset value of shares issued to share-
holders in reinvestment of distributions ............ 19,805,541 21,482,210
Cost of shares redeemed ............................... (98,890,887) (179,639,479)
------------ -------------
Net decrease in net assets from
Fund share transactions ............................. (18,326,131) (103,797,721)
------------ -------------
DECREASE IN NET ASSETS ................................ (4,134,844) (114,992,516)
Net assets at beginning of period ..................... 428,966,849 543,959,365
------------ -------------
NET ASSETS AT END OF PERIOD ........................... $424,832,005 $ 428,966,849
============ =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ............. 30,493,920 37,951,648
------------ -------------
Shares sold ........................................... 4,154,677 3,907,473
Shares issued to shareholders in
reinvestment of distributions ....................... 1,355,378 1,540,397
Shares redeemed ....................................... (6,783,441) (12,905,598)
------------ -------------
Net decrease in Fund shares ........................... (1,273,386) (7,457,728)
------------ -------------
Shares outstanding at end of period ................... 29,220,534 30,493,920
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------
1996 1995 1994(c) 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ................... $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44 $15.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income ................. .94 .93 1.12 1.29 1.24 1.23 1.26 1.28 1.30 1.34
Net realized and
unrealized gain
(loss) on investment
transactions ........... .47 (.26) (1.19) .45 .27 .58 .35 (.74) (.83) .11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............... 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54 .47 1.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income ................. (.94) (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.34)
Net realized gains
on investment
transactions ............. - - - - - - - - -(a) (.08)
Tax return of
capital ................ - (.01) - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30) (1.42)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period ................ $14.54 $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61 $15.44
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) ........... 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47 9.81
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ...... 425 429 544 597 350 264 251 242 251 294
Ratio of operating
expenses to average
daily net assets (%) ..... .94 .95 .87 .93 .99 1.04 1.05 1.04 1.04 1.05
Ratio of net investment
income to average
daily net assets (%) ..... 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93 8.63
Portfolio turnover rate
(%) ...................... 157.8 220.5(b) 272.1(b) 87.3(b) 87.1(b) 52.1 71.3 128.4 92.1 58.7
<FN>
(a) Distributions from net realized gains were less than 3/10 of $.01 per share.
(b) The significant increase in the portfolio turnover rate for the year ended March 31, 1994 is primarily
attributable to prepayments. The portfolio turnover rates including mortgage dollar roll transactions were 255.4%,
392.5%, 356.8%, and 147.0%, for the periods ended March 31, 1995, 1994, 1993, and 1992, respectively.
(c) Per share amounts have been calculated using weighted average shares outstanding.
</FN>
</TABLE>
15
<PAGE>
SCUDDER GNMA FUND
NOTES TO FINANCIAL STATEMENTS
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A. SIGNIFICANT ACCOUNTING POLICIES
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Scudder GNMA Fund (the "Fund") is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
FUTURES CONTRACTS. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the year ended
March 31, 1996, the Fund purchased interest rate futures to manage the duration
of the portfolio and sold interest rate futures to hedge against declines in the
value of portfolio securities.
16
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NOTES TO FINANCIAL STATEMENTS
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Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund each
day, dependent on the daily fluctuations in the value of the underlying
security, and are recorded for financial reporting purposes as unrealized gains
or losses by the Fund. When entering into a closing transaction, the Fund will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities at
the same price on a fixed date. The Fund receives compensation as consideration
for entering into the commitment to repurchase. The compensation is paid in the
form of a fee, or alternatively, a lower price for the security upon its
repurchase.
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder. Mortgage
dollar rolls may be renewed with a new sale and repurchase price and a cash
settlement made at each renewal without physical delivery of the securities
subject to the contract.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At March 31, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $30,082,000 which may be applied
17
<PAGE>
SCUDDER GNMA FUND
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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
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During the year ended March 31, 1996, purchases and sales of U.S. Government
Securities (excluding short-term investments) aggregated $632,654,702 and
$688,491,536, respectively.
The aggregate face value of futures contracts both opened and closed during the
year ended March 31, 1996 was $1,666,411,923.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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C. RELATED PARTIES
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Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.65% on the first
$200,000,000 of average daily net assets, 0.60% on the next $300,000,000 of such
net assets, and 0.55% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly.
The Agreement also provides that if the Fund's expenses, exclusive of taxes,
interest and extraordinary expenses, exceed specified limits, such excess, up to
the amount of the management fee, will be paid by the Adviser. For the year
ended March 31, 1996, the fee pursuant to the Agreement amounted to $2,688,700,
which was equivalent to an annualized effective rate of 0.62% of the Fund's
average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended March 31, 1996, the amount charged to the Fund by SSC aggregated
$787,701 of which $63,586 is unpaid at March 31, 1996.
Effective May 9, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, assumed responsibility for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the year ended March 31, 1996, the amount charged to
the Fund by SFAC aggregated $95,411.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually, plus
specified amounts for attended board and committee meetings. For the year ended
March 31, 1996, Trustees' fees and expenses aggregated $34,847.
19
<PAGE>
SCUDDER GNMA FUND
REPORT OF INDEPENDENT ACCOUNTANTS
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TO THE TRUSTEES AND THE SHAREHOLDERS OF SCUDDER GNMA FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
GNMA Fund, including the investment portfolio, as of March 31, 1996, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder GNMA Fund as of March 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the ten years in the
period then ended in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 3, 1996
20
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
David S. Lee*
Vice President and Trustee
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Consultant and Corporate Director
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Jean C. Tempel
Trustee; General Partner, TL Ventures
David H. Glen*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
21
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Emerging Markets Growth Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Discovery Fund
Scudder Medium Term Tax Free Fund Scudder Gold Fund
Scudder New York Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Ohio Tax Free Fund* Scudder International Fund
Scudder Pennsylvania Tax Free Fund* Scudder Latin America Fund
Growth and Income Scudder Pacific Opportunities Fund
Scudder Balanced Fund Scudder Quality Growth Fund
Scudder Growth and Income Fund Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- ------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
- ------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- ------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------
For complete information on any of the above Scudder funds, including management fees and expenses, call or write for a
free prospectus. Read it carefully before you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states. +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash management service that utilizes certain portfolios
of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
22
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your Scudder accounts; exchanges and
redemptions; or information on any Scudder fund
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional applications and
prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the Scudder Funds
Centers. Check for a Funds Center near you--they can be found in the following
cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
- --------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided through Scudder Investor Services, Inc.,
Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete information,
including management fees and expenses. Please read it carefully before you invest or send money.
</TABLE>
23
<PAGE>
Celebrating Over 75 Years of Serving Investors
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Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 38 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped us become one of
the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
