Scudder
GNMA
Fund
Annual Report
March 31, 1997
Pure No-Load(TM)Funds
A pure no-load(TM) (no sales charges) mutual fund which seeks high current
income and safety of principal primarily from GNMA ("Ginnie Mae") securities.
<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 Report of Independent Accountants
20 Officers and Trustees
21 Investment Products and Services
22 Scudder Solutions
In Brief
o Scudder GNMA Fund provided a 4.81% total return for the 12-month period ended
March 31, 1997, outperforming the average 4.76% return of the 51 GNMA funds
tracked by Lipper Analytical Services.
o At the close of the period, the majority of the Fund was invested in
mortgage-backed securities with coupons in the 7.5% to 8.0% range. These
securities represent newly issued mortgages, which are less likely to be
refinanced than their higher-coupon counterparts, and afford the Fund some
protection from prepayment risk.
o We expect steady to declining volatility in the mortgage-backed market, and
believe that your fund is well positioned in the current economic environment.
2-SCUDDER GNMA FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to present the annual report for Scudder GNMA Fund for
the fiscal year ended March 31, 1997. This report covers a year of solid
performance for your fund, which posted a 4.81% total return for the year and a
6.63% 30-day net annualized SEC yield as of March 31, 1997.
The U.S. financial markets have been making headlines of late, and
investors recently experienced turbulence unlike that which many of them had
ever witnessed. Mortgage-backed securities were hit especially hard by the
Federal Reserve's interest rate hike in March, but have since climbed to their
highest levels in almost two years. Scudder GNMA Fund's value-oriented approach
to investing in the GNMA sector of the market helped it to outperform its peers
for the 12-month period. Although the Fund's share price and income will vary in
response to changes in interest rates and other economic factors, the Fund
invests in GNMA securities backed by the full faith and credit of the U.S.
government. For those investors made uncomfortable by recent market volatility,
Scudder GNMA Fund remains a high-quality vehicle for pursuing attractive income
with safety of principal. Please refer to page 6 for a complete discussion of
your fund's activities and annual performance.
We are especially pleased to announce that Morningstar recently ranked
the Scudder Family of Funds in the top 4 among 20 leading mutual fund companies
for stability in management and conformity to investment style. We are proud of
this achievement and will seek to maintain our reputation of consistent
management and strong performance.
Thank you for your investment in Scudder GNMA Fund. For more
information on Scudder Fund products and services, please call our Investor
Relations representatives at 1-800-225-2470, or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3-SCUDDER GNMA FUND
<PAGE>
PERFORMANCE UPDATE as of March 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/97 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER GNMA FUND
- --------------------------------------
1 Year $10,481 4.81% 4.81%
5 Year $13,478 34.78% 6.15%
10 Year $20,262 102.62% 7.32%
- --------------------------------------
LEHMAN BROTHERS MORTGAGE GNMA INDEX
- --------------------------------------
1 Year $10,600 6.00% 6.00%
5 Year $14,057 40.57% 7.04%
10 Year $22,985 129.85% 8.67%
- -----------------------------------------------------------------
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 MONTH MARCH 31
SCUDDER GNMA FUND
Year Amount
- ----------------------
'87 $10,000
'88 $10,347
'89 $10,741
'90 $12,041
'91 $13,607
'92 $15,034
'93 $16,824
'94 $16,716
'95 $17,542
'96 $19,332
'97 $20,262
LEHMAN BROTHERS MORTGAGE GNMA INDEX
Year Amount
- ----------------------
'87 $10,000
'88 $10,633
'89 $11,231
'90 $12,841
'91 $14,630
'92 $16,351
'93 $18,205
'94 $18,410
'95 $19,563
'96 $21,685
'97 $22,985
The unmanaged Lehman Brothers Mortgage GNMA Index is a value-weighted
measure of 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>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------------------
NET ASSET VALUE... $ 14.61 $ 13.87 $ 14.22 $ 14.80 $ 15.07 $ 15.52 $ 14.33 $ 14.07 $ 14.54 $ 14.29
INCOME DIVIDENDS.. $ 1.30 $ 1.28 $ 1.26 $ 1.23 $ 1.24 $ 1.29 $ 1.12 $ .93 $ .94 $ .93
FUND TOTAL
RETURN (%)........ 3.47 3.81 11.86 13.26 10.48 11.91 -0.64 4.94 10.20 4.81
INDEX TOTAL
RETURN (%)........ 6.31 5.62 14.33 13.96 11.77 11.34 1.13 6.26 10.84 6.00
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
4-SCUDDER GNMA FUND
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Government National
Mortgage Association 97%
Cash & Equivalents, net 3%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Our strategy has been to
maintain a near-fully invested
position with a low cash balance.
- --------------------------------------------------------------------------
GNMA COUPONS
- --------------------------------------------------------------------------
7.0% 3%
7.5% 45%
8.0% 37%
8.5% 8%
9.0% 1%
9.5% 3%
Greater than 9.5% 3%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The majority of the Fund was invested
in mortgage-backed securities with
coupons in the 7.5% to 8.0% range at
the close of the period, affording
some protection from prepayment risk.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 4%
1-5 years 5%
5-10 years 12%
Greater than 10 years 79%
- --------------------------------------
100%
- --------------------------------------
WEIGHTED AVERAGE EFFECTIVE MATURITY: 9.4 YEARS
Our analysis indicates that portions
of the 30-year coupon sector should
perform well in the current environment.
- -----------------------------------------------------------------------------
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-SCUDDER GNMA FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
We are pleased to present Scudder GNMA Fund's annual report, covering the
12-month period through March 31, 1997. For the fiscal year, Scudder GNMA Fund
provided a 4.81% total return, outperforming the average 4.76% return of the 51
GNMA funds tracked by Lipper Analytical Services. The unmanaged Lehman Brothers
GNMA Mortgage Index, the Fund's benchmark, posted a total return of 6.00% for
the same period. The Fund's 30-day net annualized yield as of March 31 was
6.63%.
An Anxious Market
Investors kept a wary eye on the direction of interest rates throughout the
Fund's fiscal year. On March 25th, the Federal Reserve raised short term
interest rates by one quarter of a percentage point as a check against economic
growth and potential accelerating inflation. The rate hike affected both stock
and bond markets severely, taking the wind out of fixed-income securities and
causing the S&P 500 Index to fall roughly 10%, erasing most of 1997's gains.
GNMA securities, which are backed by the full faith and credit of the U.S.
government, are interests in pools of mortgages. Each month, principal and
interest payments from the mortgage pools pass through to investors. If interest
rates fall, homeowners tend to refinance and pay off their existing mortgages
early, and mortgage-backed investors are forced to reinvest money at lower
prevailing rates. If interest rates rise, while principal is typically prepaid
more slowly, GNMA investors may receive lower returns as the result of price
declines on previously issued securities with lower coupon rates. Thus, GNMA
funds tend to perform best in low-volatility interest-rate environments.
During all but the very end of the fiscal year, steady to declining volatility
in the GNMA market prevailed. Your Fund performed strongly versus both its
Lipper peer group and other fixed-income investments. In fact, while Treasury
bonds have produced a loss so far this year, mortgage-backed securities have
proceeded to climb to their highest levels in almost two years.
Portfolio Construction
Scudder GNMA Fund seeks to provide high current income and safety of principal,
and also emphasizes total returns. We strive to consistently outperform our
benchmark index, the Lehman Brothers GNMA Mortgage Index, while controlling the
Fund's exposure to risk by keeping its duration, or its price sensitivity to
interest-rates, equal to that of the index.
Although the Fund lagged the overall GNMA market for the most recent 12-month
period, we continue to implement strategies designed to help minimize risk and
maximize returns. Keeping a close eye on the GNMA market's changing risk profile
in different interest rate environments and using well defined subsets of our
benchmark index as a guide, we construct a portfolio of securities that we
believe are favorably priced in relation to their perceived risk. In other
words, we seek to match the benchmark's overall exposure to interest rate risk
while emphasizing subsections of the GNMA marketplace that we believe are
mispriced.
During the fiscal year, the majority of the portfolio was made up of GNMA
securities with 7.5% to 8% coupons. Securities with coupons in this range
represent newly issued mortgages, which are less likely to be refinanced than
their higher-coupon counterparts, and afford the Fund some protection from
6-SCUDDER GNMA FUND
<PAGE>
prepayment risk. In addition to benefiting from steady to declining volatility,
they offer a competitive yield while minimizing the risk of underperforming the
overall GNMA market in a higher volatility environment. At the close of the
period, approximately 80% of the Fund was invested in 7.5% to 8.0% coupon
securities.
The Coming Months
In the coming months, we expect steady to declining volatility in the
mortgage-backed market. Our analysis indicates that in this environment, the
7.5% and 8% coupon sectors should provide the most attractive performance. We
plan to continue on our current course until we feel that the interest rate
environment is no longer stable. The recent rise in interest rates has made
prepayment risk even less of a threat than it had been for most of the year, and
mortgages continue to offer attractive yields compared with other
intermediate-term fixed-income investments. In fact, since the Fed's action at
the end of March, investor sentiment that the Federal Reserve will not
necessarily deem further interest rate hikes necessary has increased, and
mortgage-backed securities have gained strength.
We believe Scudder GNMA Fund remains a high-quality vehicle for pursuing
attractive income with 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
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 17 years of
experience in finance and investing, 15 with Scudder. Mark S. Boyadjian,
Portfolio Manager, joined the team in 1995, and contributes his nine years'
experience managing fixed-income securities. Mark has been with Scudder since
1989.
7-SCUDDER GNMA FUND
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 2.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at 6.375%
to be repurchased at $10,452,851 on 4/1/97, collateralized by a ------------
$10,442,000 U.S. Treasury Bond, 7.25%, 8/15/22 (Cost $10,451,000) ................ 10,451,000 10,451,000
------------
Government National Mortgage Association 97.0%*
- ------------------------------------------------------------------------------------------------------------------------------
7.0% with various maturities to 6/15/24 ............................................ 12,463,529 11,950,416
7.5% with various maturities to 2/15/27 ............................................ 170,398,525 166,936,028
8.0% with various maturities to 11/15/26 ........................................... 137,465,960 138,024,071
8.5% with various maturities to 11/15/26 ........................................... 28,588,333 29,320,334
9.0% with various maturities to 7/15/17 ............................................ 2,597,847 2,762,470
9.5% with various maturities to 10/15/21 ........................................... 10,321,803 11,126,825
10.0% with various maturities to 12/15/20 .......................................... 6,355,197 6,975,415
10.5% with various maturities to 8/20/19 ........................................... 321,424 355,315
11.5% with various maturities to 1/15/16 ........................................... 877,048 994,712
12.0% with various maturities to 2/20/16 ........................................... 1,759,984 2,021,314
12.5% with various maturities to 10/20/13 .......................................... 176,063 204,287
13.0% with various maturities to 9/15/15 ........................................... 578,190 679,553
13.5% with various maturities to 8/15/14 ........................................... 159,739 188,819
15.0% with various maturities to 7/15/12 ........................................... 21,716 26,471
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $377,010,019) 371,566,030
- ------------------------------------------------------------------------------------------------------------------------------
% of
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $387,461,019)(a) .................................. 99.7 382,017,030
Other Assets and Liabilities, Net .................................................. .3 991,134
----------- ------------
Net Assets ......................................................................... 100.0 383,008,164
=========== ============
</TABLE>
(a) Cost for federal income tax purposes was $387,461,019. At March 31, 1997,
net unrealized depreciation for all securities based on tax cost was
$5,443,989. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,533,955 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$6,977,944.
* 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 March 31, 1997
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $387,461,019) ................ $ 382,017,030
Cash ................................................................. 714
Receivable on Fund shares sold ....................................... 164,630
Interest receivable .................................................. 2,451,628
Other Assets ......................................................... 12,954
----------------
Total assets ......................................................... 384,646,956
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ..................................... 656,834
Dividends payable .................................................... 586,424
Accrued management fee ............................................... 201,397
Other accrued expenses ............................................... 194,137
----------------
Total liabilities .................................................... 1,638,792
-------------------------------------------------------------------------------------------
Net assets, at market value $ 383,008,164
-------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized depreciation on investments ............................... (5,443,989)
Accumulated net realized loss ........................................ (29,207,347)
Paid-in capital ...................................................... 417,659,500
-------------------------------------------------------------------------------------------
Net assets, at market value $ 383,008,164
-------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset value, offering and redemption price per share
($383,008,164 / 26,796,857 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ... $14.29
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9-SCUDDER GNMA FUND
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest ............................................................ $ 30,038,351
-----------------
Expenses:
Management fee ...................................................... 2,532,357
Services to shareholders ............................................ 952,023
Trustees' fees and expenses ......................................... 38,098
Custodian and accounting fees ....................................... 175,959
Reports to shareholders ............................................. 81,205
Legal ............................................................... 17,407
Auditing ............................................................ 42,184
Registration fees ................................................... 27,337
Other ............................................................... 19,384
-----------------
3,885,954
--------------------------------------------------------------------------------------------
Net investment income 26,152,397
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... (2,458,641)
Futures ............................................................. 2,900,537
Options ............................................................. (193,407)
-----------------
248,489
Net unrealized depreciation during the period on investments ........ (7,140,110)
--------------------------------------------------------------------------------------------
Net loss on investment transactions (6,891,621)
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 19,260,776
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10-SCUDDER GNMA FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $26,152,397 $27,845,383
Net realized gain from investment transactions .............. 248,489 12,134,372
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................. (7,140,110) 2,056,915
---------------- ----------------
Net increase in net assets resulting from operations ........ 19,260,776 42,036,670
Distributions to shareholders from net investment income .... (26,152,397) (27,845,383)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................... 70,592,166 60,759,215
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 18,819,045 19,805,541
Cost of shares redeemed ..................................... (124,343,431) (98,890,887)
---------------- ----------------
Net decrease in net assets from Fund share transactions ..... (34,932,220) (18,326,131)
---------------- ----------------
Decrease in net assets ...................................... (41,823,841) (4,134,844)
Net assets at beginning of period ........................... 424,832,005 428,966,849
---------------- ----------------
Net assets at end of period ................................. $383,008,164 $424,832,005
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 29,220,534 30,493,920
---------------- ----------------
Shares sold ................................................. 4,875,126 4,154,677
Shares issued to shareholders in reinvestment of
distributions ............................................. 1,300,541 1,355,378
Shares redeemed ............................................. (8,599,344) (6,783,441)
---------------- ----------------
Net decrease in Fund shares ................................. (2,423,677) (1,273,386)
---------------- ----------------
Shares outstanding at end of period ......................... 26,796,857 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 selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995 1994(c) 1993 1992 1991 1990 1989 1988
----------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $15.44
----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ...... .93 .94 .93 1.12 1.29 1.24 1.23 1.26 1.28 1.30
Net realized and unrealized
gain (loss) on investment
transactions ............ (.25) .47 (.26) (1.19) .45 .27 .58 .35 (.74) (.83)
Total from investment ----------------------------------------------------------------------------------------
operations .............. .68 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54 .47
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income ... (.93) (.94) (.92) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30)
Net realized gains on
investment transactions . -- -- -- -- -- -- -- -- -- --(a)
Tax return of capital ...... -- -- (.01) -- -- -- -- -- -- --
----------------------------------------------------------------------------------------
Total distributions ........ (.93) (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30)
----------------------------------------------------------------------------------------
Net asset value, end of ----------------------------------------------------------------------------------------
period .................. $14.29 $14.54 $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61
----------------------------------------------------------------------------------------------------------------------
Total Return (%) ........... 4.81 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............ 383 425 429 544 597 350 264 251 242 251
Ratio of operating expenses
to average daily net
assets (%) .............. .96 .94 .95 .87 .93 .99 1.04 1.05 1.04 1.04
Ratio of net investment
income to average net
assets (%) .............. 6.44 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93
Portfolio turnover rate (%). 188.0 157.8 220.5(b) 272.1(b) 87.3(b) 87.1(b) 52.1 71.3 128.4 92.1
</TABLE>
(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.
12-SCUDDER GNMA FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder GNMA Fund (the "Fund") is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities 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, is equal to at least 100.5% of the repurchase price.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the year ended
March 31, 1997, 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.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period the Fund wrote call options on futures as a hedge against potential
adverse price movements in the value of portfolio assets and purchased call
options on futures to enhance potential gain.
13-SCUDDER GNMA FUND
<PAGE>
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
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, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $29,207,000 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
14-SCUDDER GNMA FUND
<PAGE>
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 year ended March 31, 1997, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $584,582,689 and $562,458,520, respectively. Purchases and sales of
U.S. Government obligations aggregated $146,007,598 and $144,680,195,
respectively.
The aggregate face value of futures contracts opened and closed during the year
ended March 31, 1997 was $2,114,127,616.
In addition, the Fund wrote and closed written options on futures (premiums
received $268,688).
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.65% on the first
$200,000,000 of average daily net assets, 0.60% on the next $300,000,000 of such
net assets, and 0.55% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly.
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, 1997, the fee pursuant to the Agreement amounted to $2,532,357,
which was equivalent to an annualized effective rate of .62% of the Fund's
average daily net assets.
15-SCUDDER GNMA FUND
<PAGE>
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, 1997, the amount charged to the Fund by SSC aggregated
$601,383 of which $50,115 is unpaid at March 31, 1997.
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 year ended March 31, 1997,
the amount charged to the Fund by STC aggregated $176,074, of which $15,859 is
unpaid at March 31, 1997.
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 year ended
March 31, 1997, the amount charged to the Fund by SFAC aggregated $112,508 of
which $8,809 is unpaid at March 31, 1997.
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, 1997, Trustees' fees and expenses aggregated $38,098.
16-SCUDDER GNMA FUND
<PAGE>
Report of Independent Accountants
To the Trustees and the Shareholders of Scudder GNMA Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
GNMA Fund, including the investment portfolio, as of March 31, 1997, 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, 1997, by correspondence with the custodian. 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, 1997, 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 7, 1997
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intentionally
left blank.
18-SCUDDER GNMA FUND
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intentionally
left blank.
19-SCUDDER GNMA FUND
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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
*Scudder, Stevens & Clark, Inc.
20-SCUDDER GNMA FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +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.
21-SCUDDER GNMA FUND
<PAGE>
<TABLE>
<CAPTION>
Scudder Solutions
Convenient ways to invest, quickly and reliably
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan AutoBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is higher and electronically debited from that account.
fewer when it's lower, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
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Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ---------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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22-SCUDDER GNMA FUND
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ---------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies-with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal CounselSM is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Service, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ---------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Growth, Balanced, Conservative, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. Contact
Scudder Investor Services, Inc., Distributor, for a prospectus which contains more complete
information, including management fees and other expenses. Please read it carefully before you
invest or send money.
</TABLE>
23-SCUDDER GNMA FUND
<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.
62-6-57
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