Scudder
GNMA
Fund
Semiannual Report
September 30, 1997
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund which seeks high current
income primarily from U.S. Government guaranteed mortgage-backed ("Ginnie Mae")
securities.
SCUDDER [LOGO]
<PAGE>
In Brief
o For the six-month period ended September 30, 1997, Scudder GNMA Fund provided
a total return of 6.57%. This compares with the 6.70% average return of the 55
GNMA funds tracked by Lipper Analytical Services for the same period. On
September 30, the Fund posted a 6.43% 30-day SEC yield.
o At the close of the period, the majority of the Fund's portfolio was invested
in mortgage-backed securities in the 7.5% to 8.0% range. These securities
represent newly issued mortgages, and are the highest yielding coupons within
the sector.
o We expect steady to declining volatility in the mortgage-backed market to
continue, and believe Scudder GNMA Fund is well positioned to seek favorable
returns in the current environment.
Table of Contents
3 Letter from the Fund's President 11 Financial Statements
4 Performance Update 14 Financial Highlights
5 Portfolio Summary 15 Notes to Financial Statements
6 Portfolio Management Discussion 20 Officers and Trustees
9 Glossary of Investment Terms 21 Investment Products and Services
10 Investment Portfolio 22 Scudder Solutions
2-SCUDDER GNMA FUND
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We're pleased to provide you with this semiannual report on Scudder GNMA
Fund for the period ended September 30, 1997. The Fund posted a 6.57% total
return as of September 30 for the six-month period, roughly in keeping with its
peers as gauged by Lipper Analytical Services. As of September 30, the Fund
offered a 6.43% 30-day SEC yield. With this report, we welcome Mark Boyadjian as
Lead Portfolio Manager of the Fund and also welcome Scott Anthony as Portfolio
Manager. Please read the Portfolio Management Discussion beginning on page 6 for
detailed information about Scudder GNMA Fund's investment philosophy and
process.
For those of you interested in hearing about new products from Scudder, we
would like to take this opportunity to tell you about a recent addition to our
family of funds -- Scudder International Growth and Income Fund. The Fund
employs a yield-oriented approach to international investing and seeks to
provide long-term growth of capital plus current income. Investors who desire
exposure to overseas equities but who wish to take a more conservative approach
to international investing may appreciate the Fund's emphasis on the dividend
paying stocks of well established companies listed on foreign exchanges.
For a complete listing of Scudder's mutual fund offerings, see page 21.
Thank you for your interest and investment in Scudder GNMA Fund. If you
have questions about the Fund, please contact a Scudder Investor Information
representative at 1-800-225-2470.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder GNMA Fund
3-SCUDDER GNMA FUND
<PAGE>
PERFORMANCE UPDATE as of September 30, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
9/30/97 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER GNMA FUND
- --------------------------------------
1 Year $10,905 9.05% 9.05%
5 Year $13,303 33.03% 5.87%
10 Year $22,640 126.40% 8.51%
- --------------------------------------
LEHMAN BROTHERS MORTGAGE GNMA INDEX
- --------------------------------------
1 Year $11,027 10.27% 10.27%
5 Year $14,024 40.24% 6.99%
10 Year $25,538 155.38% 9.82%
- -----------------------------------------------------------------
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 SEPTEMBER 30
SCUDDER GNMA FUND
Year Amount
- ----------------------
'87 $10,000
'88 $11,200
'89 $12,175
'90 $13,223
'91 $15,246
'92 $17,019
'93 $18,112
'94 $17,487
'95 $19,733
'96 $20,762
'97 $22,640
LEHMAN BROTHERS MORTGAGE GNMA INDEX
Year Amount
- ----------------------
'87 $10,000
'88 $11,506
'89 $12,807
'90 $14,016
'91 $16,343
'92 $18,210
'93 $19,411
'94 $19,176
'95 $21,873
'96 $23,159
'97 $25,538
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... $ 14.42 $ 14.35 $ 14.30 $ 15.19 $ 15.61 $ 15.30 $ 13.84 $ 14.61 $ 14.43 $ 14.74
INCOME DIVIDENDS.. $ 1.32 $ 1.26 $ 1.25 $ 1.22 $ 1.28 $ 1.27 $ .95 $ .95 $ .92 $ .96
FUND TOTAL
RETURN (%)........ 12.00 8.70 8.61 15.29 11.63 6.42 -3.45 12.85 5.22 9.05
INDEX TOTAL
RETURN (%)........ 15.04 11.31 9.45 16.61 11.43 6.59 -1.22 14.07 5.88 10.27
</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 September 30, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
(Excludes Cash Equivalents, Net)
- ---------------------------------------------------------------------------
Government National
Mortgage Association 100%
- --------------------------------------
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 fully invested position
to take advantage of favorable
market conditions.
- --------------------------------------------------------------------------
GNMA COUPONS
(Excludes Cash Equivalents, Net)
- --------------------------------------------------------------------------
7.5% 61%
8.0% 39%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
In the current environment of low
to declining volatility, the Fund
focused on newly issued mortgages
of 7.5% and 8%. These GNMAs offer
an incrementally higher level of
income to compensate for any
refinancing risk.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
(Excludes Cash Equivalents, Net)
- --------------------------------------------------------------------------
5-6 years 39%
6-7 years 61%
- --------------------------------------
100%
- --------------------------------------
WEIGHTED AVERAGE EFFECTIVE MATURITY: 6.97 YEARS
We believe 5- to 7-year GNMAs should
perform well in the current market
environment.
- -----------------------------------------------------------------------------
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-SCUDDER GNMA FUND
<PAGE>
Portfolio Management Discussion
We are pleased to present an interview with Scudder GNMA Fund's Portfolio
Management Team, Lead Portfolio Manager Mark Boyadjian and Portfolio Manager
Scott Anthony. Mark assumed the role of Lead Portfolio Manager in March 1997,
when Scott joined the team.
Q: How has Scudder GNMA Fund performed over the past six months?
Mark Boyadjian: For the six months ended September 30, 1997, Scudder GNMA Fund's
total return was 6.57%. For the same period, the GNMA market returned 6.96% as
measured by the unmanaged Lehman Brothers GNMA Index. Over the 12 months ended
September 30, the Fund's total return was 9.05%, compared with the Index's
return of 10.27%. On September 30, the Fund offered a 6.43% 30-day SEC yield.
Q: You've changed the Fund's investment process recently. Can you explain the
new approach?
Mark Boyadjian: One of the most significant changes we've made is that we no
longer try to actively anticipate the direction of interest rates. The reason is
that the majority of GNMA funds have consistently underperformed the unmanaged
Lehman Brothers GNMA benchmark over rolling periods of three years and longer.
Even the top-quartile GNMA funds have been unable to match the Index.
Q: Why is that?
Mark Boyadjian: GNMA portfolio managers all essentially pick from the same pool
of investable government securities, and in order to differentiate their
investment performance most make active interest rate bets. However, GNMAs and
other mortgage-backed securities are continuously "callable" because of the
underlying right that the homeowners (or borrowers) have to refinance their
mortgages at any time. For example, when interest rates fall and the bond market
rallies, a GNMA security will not deliver the same full price appreciation one
would expect from a comparable Treasury bond because the GNMA's underlying
mortgages are prepaid as homeowners refinance, so the GNMAs are in effect called
away. Conversely, when interest rates rise and bond prices decline, homeowners
are less likely to refinance their mortgages at a higher interest rate and thus
the expected average life of the security increases, along with its interest
rate risk. For example, a homeowner with an 8% mortgage rate is not going to
refinance to a 9% mortgage. In summary, the amount of interest rate risk, also
known as duration, for a particular GNMA security can change significantly --
and adversely -- when the level of interest rates changes. Therefore, we believe
that making interest rate bets with mortgage-backed securities is a losing
proposition and, to the extent that most of our peers make active interest rate
bets within the sector, they will most likely continue to underperform the
Lehman GNMA Index.
We believe that it doesn't make sense to make interest rate bets with mortgages
because it's a risk we are not compensated for bearing. Consequently, we avoid
taking the uncompensated risk of guessing the direction of interest rates or
having an interest rate risk (duration) profile that differs from our benchmark,
the Lehman Brothers GNMA Index. We accomplish this by matching the duration of
the portfolio to the Lehman GNMA Index, which we use as our proxy for the GNMA
6-SCUDDER GNMA FUND
<PAGE>
market. By matching the interest rate risk of the Index on a daily basis, we
seek to outperform both the Lehman GNMA Index and other GNMA portfolios, with
greater predictability of return.
Q: In attempting to match the duration of the Index and achieve higher returns,
what is your process?
Mark Boyadjian: We actively manage the volatility of our portfolio's duration
versus the Index. In other words, we seek to predict how the Fund's duration
(and interest rate risk) will change relative to that of the Index for a given
change in interest rates. The portfolio's duration may be either more or less
sensitive to changes in interest rates than the Index, depending on our outlook
for the volatility of the Index duration. If we expect this volatility to be
low, as it has been for most of 1997, we will maintain a profile that has
greater relative duration sensitivity than the Index. That is, for a given
change in interest rates, the total duration of the portfolio would change
(either increase or decrease) more than the Index, requiring that we "rebalance"
the portfolio so that its duration is equivalent to the benchmark. For bearing
this rebalancing risk we receive additional income or yield from the securities
we are invested in. If we correctly predict a period of declining or low
volatility, we should outperform our benchmark due to our income advantage for
bearing the additional risk relative to the Index.
On the other hand, if we project a period of increasing or high volatility, we
will invest in securities which possess less relative duration sensitivity than
the Index. Thus for a given change in interest rates, the total duration of the
portfolio would change less than the Index. Whenever the portfolio's duration
differs from the Index's duration, we rebalance the portfolio by either buying
or selling securities to lengthen or shorten the Fund's duration to bring the
portfolio's duration in line with the Index. What we are managing is the
relative sensitivity of the portfolio's duration to changes in interest rates,
but we are not guessing the direction of interest rates. We are trying to
project whether or not there will be high or low volatility in the duration of
the Index and then position the portfolio to benefit accordingly. It's also
important to explain that in following this strategy, we are not running up
large transaction costs; our purchases and sales are typically executed in small
increments as we fine tune the portfolio.
Q: Scott, what has the market environment for GNMAs been recently?
Scott Anthony: During 1997 interest rates have trended lower, while at the same
time, volatility in the GNMA marketplace has declined significantly. Because of
this, mortgages, which are very sensitive to changes in volatility, have
performed quite well in relationship to Treasuries. The interest rate spread
between GNMAs and comparable Treasuries has narrowed significantly, leading to
substantial outperformance by mortgages. Investors have had a seemingly
insatiable appetite for incremental yield above and beyond Treasuries, and
mortgages have benefited from increased demand from all areas of the market. For
the past 12 months mortgage returns were in double digits, while the relative
risk of mortgages has generally been less than that of most other fixed income
7-SCUDDER GNMA FUND
<PAGE>
securities. This has been a very attractive sector to be invested in.
Q: Given this environment, what has been your strategy?
Mark Boyadjian: As Scott said, during the last six months we've been in a period
of low to declining volatility. Given this environment, the Fund has focused on
newly issued mortgages of 7.5% and 8% that are on the "cusp," or vulnerable to
refinancing if rates fall further. These GNMAs are more sensitive to interest
rates, and in a low volatility environment, they are the type of bonds we want
to be invested in. That's because the Fund is being paid an incrementally higher
level of income to take on the additional level of risk these securities bear.
We were willing to assume this risk because we projected that the volatility of
the Lehman GNMA Index was low or declining, which turned out to be the case.
Q: Can you provide an outlook for the coming months?
Mark Boyadjian: We're excited about the coming months and beyond because we
believe the predictability of the Fund's returns compared with the Index will
continue to increase. We will also continue to apply the disciplined investment
process that I've explained. And we expect the current environment of steady to
declining volatility in the mortgage market to hold for some time. We believe
Scudder GNMA Fund will continue to be appropriate for investors seeking
attractive current income from a portfolio of securities guaranteed by the U.S.
government.
8-SCUDDER GNMA FUND
<PAGE>
Glossary of Investment Terms
COUPON The interest rate on a bond that the issuer (in the case of
mortgage-backed securities, the government) promises to pay to
the holder of the bond until maturity, expressed as an annual
percentage of face value. As an example, a GNMA security with a
10% coupon would pay $100 on a face amount of $1,000 each year.
DURATION A measure of a fixed-income instrument's sensitivity to changes
in interest rates that takes into account the timing and amount
of payments of principal and interest to holders of the
security.
GNMA A security, backed by a pool of individual mortgages and
guaranteed by the Government National Mortgage Association
(Ginnie Mae), which passes through to investors the interest
and principal payments of homeowners. Homeowners make their
mortgage payments to a bank; after deducting a service charge,
the bank forwards the mortgage payments to the holders of GNMA
securities. Ginnie Mae guarantees that investors will receive
timely principal and interest payments even if homeowners do
not make their mortgage payments on time.
30-DAY SEC YIELD The standard yield reference for bond funds, based on
a formula prescribed by the SEC. This annualized yield
calculation reflects the 30-day average of the income earnings
capability of every holding in a given fund's portfolio, net of
expenses, assuming each is held to maturity.
TOTAL RETURN The most common yardstick to measure the performance of a fund.
Total return -- annualized or compound -- is based on a
combination of share price changes plus income and capital gain
distributions, if any, expressed as a percentage gain or loss
in value.
YIELD SPREAD The difference in yield between various types of bonds. A
mortgage-backed security's yield is often measured against the
yield of a Treasury bond of similar maturity as a market
yardstick. If GNMA yield spreads are "narrow," for example, it
often means that GNMA yields have been declining, and prices
rising, compared with Treasury bonds of similar maturity.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
9-SCUDDER GNMA FUND
<PAGE>
Investment Portfolio as of September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 11.8%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/97 at 6.02% to
be repurchased at $45,794,657 on 10/1/97, collateralized by a -------------
$45,425,000 U.S. Treasury Bond, 5.625%, 11/30/98 (Cost $45,787,000) ................... 45,787,000 45,787,000
-------------
Government National Mortgage Association 106.2%*
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru 7.5% with various maturities
to 9/15/27 (b) ........................................................................ 247,328,092 251,621,577
Government National Mortgage Association Pass-thru 8% with various maturities to
5/15/27 (b) (c) ....................................................................... 154,453,813 159,666,629
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $407,220,254) 411,288,206
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $453,007,254) (a) ...................................... 118.0 457,075,206
Other Assets and Liabilities, Net ....................................................... (18.0) (69,835,435)
------ -------------
Net Assets .............................................................................. 100.0 387,239,771
====== =============
</TABLE>
(a) Cost for federal income tax purposes was $453,007,254. At September 30,
1997, net unrealized appreciation for all securities based on tax cost was
$4,067,952. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,067,952.
(b) At September 30, 1997, these pools, in part or in whole, have been
segregated to cover when-issued or forward delivery pools.
(c) When-issued or forward delivery pools included.
* The investments in mortgage-backed securities of the Government National
Mortgage Association are interests in separate pools of mortgages. All
separate investments in each of these issues which have similar coupon
rates have been aggregated for presentation purposes in the Investment
Portfolio. Effective maturities of these investments will be shorter than
stated maturities due to prepayments.
The accompanying notes are an integral part of the financial statements.
10-SCUDDER GNMA FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of September 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (including repurchase agreements of $45,787,000)
(identified cost $453,007,254) ................................... $ 457,075,206
Receivable for investments sold ..................................... 698,537
Receivable on Fund shares sold ...................................... 145,829
Interest receivable ................................................. 2,442,149
Other Assets ........................................................ 10,251
----------------
Total assets ........................................................ 460,371,972
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank ............................................... 164,065
Payable for investments purchased ................................... 580,588
Payable for when-issued and forward delivery pools .................. 71,163,321
Payable for Fund shares redeemed .................................... 137,135
Dividends payable ................................................... 563,957
Accrued management fee .............................................. 201,554
Other payables and accrued expenses ................................. 321,581
----------------
Total liabilities ................................................... 73,132,201
--------------------------------------------------------------------------------------------
Net assets, at market value $ 387,239,771
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments ............... 4,067,952
Accumulated net realized loss ....................................... (26,843,715)
Paid-in capital ..................................................... 410,015,534
--------------------------------------------------------------------------------------------
Net assets, at market value $ 387,239,771
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset value, offering and redemption price per share
($387,239,771 / 26,273,377 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ......................................................... $14.74
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11-SCUDDER GNMA FUND
<PAGE>
Statement of Operations
six months ended September 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................ $ 14,644,111
-----------------
Expenses:
Management fee ...................................................... 1,213,388
Services to shareholders ............................................ 584,463
Trustees' fees and expenses ......................................... 20,591
Custodian and accounting fees ....................................... 58,161
Reports to shareholders ............................................. 31,451
Legal ............................................................... 10,419
Auditing ............................................................ 21,697
Registration fees ................................................... 24,892
Other ............................................................... 5,179
-----------------
1,970,241
---------------------------------------------------------------------------------------------
Net investment income 12,673,870
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... 2,398,498
Futures ............................................................. (34,866)
-----------------
2,363,632
Net unrealized appreciation (depreciation) during the period on
investments ...................................................... 9,511,941
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 11,875,573
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 24,549,443
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12-SCUDDER GNMA FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended
1997 March 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $12,673,870 $26,152,397
Net realized gain from investment transactions ............ 2,363,632 248,489
Net unrealized appreciation (depreciation) on investment
transactions during the period ......................... 9,511,941 (7,140,110)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 24,549,443 19,260,776
Distributions to shareholders from net investment income .. (12,673,870) (26,152,397)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................. 34,945,995 70,592,166
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 9,179,444 18,819,045
Cost of shares redeemed ................................... (51,769,405) (124,343,431)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... (7,643,966) (34,932,220)
---------------- ----------------
Increase (decrease) in net assets ......................... 4,231,607 (41,823,841)
Net assets at beginning of period ......................... 383,008,164 424,832,005
---------------- ----------------
Net assets at end of period ............................... $387,239,771 $383,008,164
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 26,796,857 29,220,534
---------------- ----------------
Shares sold ............................................... 2,401,772 4,875,126
Shares issued to shareholders in reinvestment of
distributions .......................................... 628,840 1,300,541
Shares redeemed ........................................... (3,554,092) (8,599,344)
---------------- ----------------
Net increase (decrease) in Fund shares .................... (523,480) (2,423,677)
---------------- ----------------
Shares outstanding at end of period ....................... 26,273,377 26,796,857
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13-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>
Six Months
Ended
September 30,
1997 Years Ended March 31,
(Unaudited) 1997 1996 1995 1994(c) 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning -----------------------------------------------------------------------------------------------------
of period ......... $14.29 $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 ............ .48 .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 ...... .45 (.25) .47 (.26) (1.19) .45 .27 .58 .35 (.74) (.83)
Total from investment -----------------------------------------------------------------------------------------------------
operations ........ .93 .68 1.41 .67 (.07) 1.74 1.51 1.81 1.61 .54 .47
-----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income ............ (.48) (.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 .. (.48) (.93) (.94) (.93) (1.12) (1.29) (1.24) (1.23) (1.26) (1.28) (1.30)
-----------------------------------------------------------------------------------------------------
Net asset value, end -----------------------------------------------------------------------------------------------------
of period ......... $14.74 $14.29 $14.54 $14.07 $14.33 $15.52 $15.07 $14.80 $14.22 $13.87 $14.61
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ..... 6.57** 4.81 10.20 4.94 (.64) 11.91 10.48 13.26 11.86 3.81 3.47
Ratios and Supplemental Data
Net assets, end of
period ($ millions) 387 383 425 429 544 597 350 264 251 242 251
Ratio of operating
expenses to average
daily net
assets (%) ........ 1.02* .96 .94 .95 .87 .93 .99 1.04 1.05 1.04 1.04
Ratio of net investment
income to average
net assets (%) .... 6.54* 6.44 6.45 6.65 7.35 8.36 8.24 8.49 8.74 8.95 8.93
Portfolio turnover rate
(%) ............... 129.9*(b) 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 211.5%,
255.4%, 392.5%, 356.8%, and 147.0%, for the periods ended September 30,
1997, March 31, 1995, 1994, 1993, and 1992, respectively.
(c) Per share amounts have been calculated using weighted average shares
outstanding.
* Annualized **Not annualized
14-SCUDDER GNMA FUND
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder GNMA Fund (the "Fund") is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market investments having an original maturity of sixty
days or less are valued at amortized cost. All other securities are valued at
their fair value as determined in good faith by the Valuation Committee of the
Board of Trustees.
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 six months
ended September 30, 1997, the Fund sold interest rate futures to hedge against
declines in the value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities at
the same price on a fixed date. The Fund receives compensation as consideration
for entering into the commitment to repurchase. The compensation is paid in the
form of a fee, or alternatively, a lower price for the security upon its
repurchase.
15-SCUDDER GNMA FUND
<PAGE>
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder. Mortgage
dollar rolls may be renewed with a new sale and repurchase price and a cash
settlement made at each renewal without physical delivery of the securities
subject to the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At March 31, 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 from investment transactions in excess of available capital loss
carryforwards would be taxable to the Fund if not distributed. Therefore, the
Fund intends to distribute these amounts to shareholders. An additional
distribution may be made to the extent necessary to avoid the payment of a four
percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in mortgage backed securities. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued pro rata to maturity.
B. Purchases and Sales of Securities
During the six months ended September 30, 1997, purchases and sales of
investment securities (excluding short-term investments and mortgage dollar roll
transactions) aggregated $261,894,162 and $233,252,380, respectively. Purchases
and sales of mortgage dollar roll transactions aggregated $172,084,727 and
$172,914,773, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended September 30, 1997 was $9,750,307.
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
16-SCUDDER GNMA FUND
<PAGE>
determines the securities, instruments, and other contracts relating to
investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Agreement. The management fee payable under the
Agreement is equal to an annual rate of 0.65% on the first $200,000,000 of the
Fund's average daily net assets, 0.60% on the next $300,000,000 of such net
assets, and 0.55% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly. For the six months ended September 30, 1997,
the fee pursuant to the Agreement amounted to $1,213,388, which was equivalent
to an annualized effective rate of .63% of the Fund's average daily net assets.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended September 30, 1997, the amount charged to the Fund by SSC
aggregated $304,377 of which $51,825 is unpaid at September 30, 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 six months ended September
30, 1997, the amount charged to the Fund by STC aggregated $84,391, of which
$13,663 is unpaid at September 30, 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 six months
ended September 30, 1997, the amount charged to the Fund by SFAC aggregated
$33,246 of which $6,285 is unpaid at September 30, 1997.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At September 30, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $63,167.
The Fund pays each Trustee not affiliated with the Adviser $4,800 annually, plus
specified amounts for attended board and committee meetings. For the six months
ended September 30, 1997, Trustees' fees and expenses aggregated $20,591.
17-SCUDDER GNMA FUND
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19-SCUDDER GNMA FUND
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Officers and Trustees
Daniel Pierce*
President and Trustee
David S. Lee*
Trustee and Vice President
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Jean C. Tempel
Trustee; Managing Partner, Technology Equity Partners
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
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder 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
Scudder S&P 500 Index 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 Growth and Income 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, Inc.
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 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 Spain and Portugal 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. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++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
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Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
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 lower and electronically debited from that account.
fewer when it's higher, 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:
- ------------------------------------------------------------------------------------------------------------------------------
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 QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you 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
- ------------------------------------------------------------------------------------------------------------------------------
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
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. 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.
SCUDDER
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