Scudder
Pathway Series:
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Annual Report
September 30, 1997
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<PAGE>
In Brief
o For the abbreviated fiscal period ended September 30, 1997, Scudder Pathway
Series Portfolios provided strong total returns that were in line with, or
exceeded, the returns of their respective composite benchmarks.
o Stocks provided strong performance for the period, while fixed income
securities delivered comparatively modest, but respectable, total returns.
o As market volatility increased for domestic stocks during the period, each
Portfolio's broad diversification and strategic asset allocation helped to
mitigate the effects of price fluctuations.
Table of Contents
3 Letter from the Series' President
4 Portfolio Management Discussion
6 Glossary of Investment Terms
Conservative Portfolio
7 Portfolio Highlights
8 Performance Update
9 Portfolio Summary
16 Investment Portfolio
22 Financial Highlights
Balanced Portfolio
10 Portfolio Highlights
11 Performance Update
12 Portfolio Summary
17 Investment Portfolio
23 Financial Highlights
Growth Portfolio
13 Portfolio Highlights
14 Performance Update
15 Portfolio Summary
18 Investment Portfolio
24 Financial Highlights
19 Financial Statements
25 Notes to Financial Statements
27 Report of Independent Accountants
28 Tax Information
28 Officers and Trustees
29 Investment Products and Services
30 Scudder Solutions
2-SCUDDER PATHWAY SERIES
<PAGE>
Letter from the Series' President
Dear Shareholders,
We are pleased to present the first annual report for Scudder Pathway
Series for the abbreviated fiscal period ended September 30, 1997.
The strong performance of Pathway Series Portfolios is gratifying,
especially given an increase in market volatility towards the end of the period.
After the close of the fiscal period, volatility accelerated, as the ripple
effects from the currency crisis in Southeast Asia were felt across the globe.
For the U.S. stock market, which had been viewed by some as amply priced, these
events helped to trigger a 554 point decline in the Dow Jones Industrial Average
on October 27. While the Dow recovered more than 330 points the next day, these
events serve as reminders to investors of the truly global nature of the
investment markets and the price volatility, which can occur.
The good news, we believe, is that U.S. businesses and the economy are
still healthy. In this context, volatility provides many opportunities for the
underlying funds in which Pathway Portfolios invest. In this environment, we
believe a sound approach to building an investment portfolio designed to weather
a range of market conditions is based on careful diversification with exposure
to small-cap, foreign, emerging market, and fixed income securities in addition
to large-cap U.S. stocks. The Pathway Series Portfolios provide this type of
investment program, which, when combined with the habit of investing regularly
and a long-term perspective, can help many investors meet their goals.
For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues 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 wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 31.
Thank you for your investment in Scudder Pathway Series. If you have any
questions about the Series, please call Scudder Investor Relations at
1-800-225-2470, or visit our Internet Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3-SCUDDER PATHWAY SERIES
<PAGE>
Portfolio Management Discussion
We asked Benjamin W. Thorndike, lead portfolio manager of Scudder Pathway
Series, to discuss the market environment and Scudder's investment strategy for
the Pathway Series.
Q: How would you summarize the investment environment for the 10-1/2 month
fiscal period ended September 30, 1997?
A: This was a positive environment. Overall, the stock and bond markets moved
higher, bolstered by a favorable economy, and investors responded with
enthusiasm. Despite this strength, returns for various asset classes diverged
and overall volatility increased. The Pathway Series Portfolios produced solid
returns during this time period while offering some refuge from the swings that
impacted certain asset classes. (Portfolio Highlights containing individual
strategies begin on page 7.)
Q: How did the markets perform?
A: Very well. If you had been away on sabbatical during the period you would
have been delighted on returning to discover that the prices for financial
assets (especially U.S. stocks) had soared. Bond yields moved lower (while
prices moved higher), inflation was a non-factor, the Federal Reserve stayed on
the sidelines and economic growth remained on track. Responding to all of this,
and more, the S&P 500 produced a three-month return of 17.5% for the second
quarter of 1997 (which registers in the top 4% of all quarterly stock market
returns calculated since 1926) and 7.5% for the third quarter. Looking at these
returns you would likely be rested, relaxed and feeling wealthier.
We have no quarrels with "rested" and "wealthy," but the "relaxed" part might be
short lived when you consider the current environment. Beneath the surface, much
changed, and a good deal of it was of the sort that likely raised stress levels
for investors.
Q: What has changed?
A: In particular, the environment outside of the U.S. grew more unsettled. Many
Southeast Asian economies were battered during this period by poorly focused
economic policies and currency instability, and their stock markets tumbled. The
imposition of higher taxes in Japan was a blow to that fragile economy. This
factor, combined with broad exposure on the part of Japanese exporters to
Southeast Asia, sent Japan's stock market lower. In Europe, governments weighed
growth versus austerity, as the pros and cons of European Monetary Union were
debated in political circles and on street corners. Political uncertainty in
that region was the norm. European markets actually performed well, as decent
fundamentals and improvements from restructurings spurred higher equity prices.
Q: How did this affect U.S. investors?
A: For U.S.-focused investors, this might seem like someone else's problem. But,
such a view is naive. The same global dynamic that has opened trade and helped
propel the earnings of U.S. Fortune 500 companies to new heights over the last
few years has raised the vulnerability of U.S. companies to overseas
disappointments. If the rest of the world loses its appetite for our goods, then
the earnings of U.S. companies will suffer. This factor, in conjunction with the
stronger dollar, is already being felt by some exporters, and earnings
4-SCUDDER PATHWAY SERIES
<PAGE>
disappointments for such market stalwarts as Coke and Gillette led to increased
volatility for investors in large U.S. growth stocks.
Q: What is Scudder's outlook for the economy?
A: We expect U.S. economic growth to slow as we near the end of 1997, in synch
with our expectations for a slowing of corporate earnings growth. Inflation
should remain benign and interest rates should continue trending down. And,
after some turmoil abroad over the last few months, we anticipate improving
growth prospects in a number of foreign economies.
Q: And, for the markets?
A: We expect to see the performance of the major asset classes diverge in the
months ahead. The U.S. large-cap stock sector will likely not dominate as the
top performer, as has been the case over the last few years, while small-cap
stocks appear to have better relative growth prospects. We also continue to see
opportunities in the international arena, which we believe offer favorable
diversification benefits. In addition, bonds currently offer attractive values,
and our bond holdings should help to cushion swings in equity prices.
Q: How do you expect to manage the Portfolios in this environment?
A: We will continue to manage each Portfolio according to its objective. We will
also pursue consistent, long-term returns through careful diversification and
asset allocation. Multiple fund holdings in each Portfolio, together with the
diversification of underlying funds, should help smooth out volatility and
provide exposure to a variety of opportunities.
Pathway Series:
A team approach to investing
The Portfolios are managed by a team of Scudder investment professionals who
each play an important role in the Portfolios' management process. Team
members work together to develop investment strategies and select underlying
Funds for each Portfolio. They are supported by Scudder's large staff of
portfolio managers, economists, research analysts, traders and other
investment specialists. All members of the Pathway investment team are members
of Scudder's Global Asset Allocation Committee. This group is responsible for
analyzing the global economy and capital markets, integrating information from
the firm's equity and fixed income specialists, and developing the outlook for
the major markets in which a Portfolio invests.
Lead Portfolio Manager Benjamin W. Thorndike, who has 18 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has
served as a portfolio manager for Scudder Growth and Income Fund. Cornelia
Small, Portfolio Manager, is Director of Global Equity Investments and
Chairman of the Capital Markets Group. Margaret (Peg) Hadzima, Portfolio
Manager, is Director of Scudder's Institutional Group, which includes a focus
on asset allocation strategy. Philip Fortuna, Portfolio Manager, joined
Scudder in 1986 as manager of institutional equity accounts. Maureen Allyn,
Portfolio Manager, is Scudder's Chief Economist, a position she has held since
1989, and is responsible for analyzing both the world and U.S. economies.
5-SCUDDER PATHWAY SERIES
<PAGE>
Glossary of Investment Terms
ASSET ALLOCATION The distribution of an investment
portfolio's assets among the major asset classes,
such as stocks, bonds, and money market instruments.
The asset allocation decision is based on an
investor's objective, investment horizon, and risk
tolerance. An investor with a long-term investment
horizon who is comfortable assuming additional risk
in seeking higher returns may decide to allocate
assets with a higher proportion invested in stocks
than bonds or money markets.
DIVERSIFICATION The spreading of risk by investing in several asset
categories, industry sectors, or individual
securities. An investor with a broadly diversified
portfolio will receive some protection from the price
declines of an individual asset class.
DIVIDEND YIELD With stocks, a company's payment out of
earnings to shareholders divided by its share price.
For example, a stock that sells for $10 and pays
annual dividends totaling $1 has a yield of 10%; if
the stock price goes up to $20, the yield would fall
to 5%. For bonds, the coupon payment (dividend
payment) divided by the current market price.
MARKET CAPITALIZATION The value of a company's outstanding
shares of common stock, determined by the number of
shares outstanding multiplied by the share price
(Shares x Price = Market Capitalization). The
universe of publicly traded companies is frequently
divided into large-, mid-, and small-capitalizations.
In general, "large-cap" stocks tend to be more liquid
than "small-cap" stocks.
OVER/UNDER WEIGHTING Refers to the allocation of assets --
usually by sector, industry, or country -- within a
portfolio relative to a benchmark index, (i.e. the
S&P 500) or an investment universe. For example, an
investment portfolio that overweights financial
stocks holds a higher percentage of finance stocks
than the comparative benchmark.
PRICE-EARNINGS RATIO (P/E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a
company's earnings on a per share basis.
A higher "earnings multiple"indicates a higher
expected growth rate and the potential for greater
price fluctuations.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
6-SCUDDER PATHWAY SERIES
<PAGE>
Portfolio Highlights
Pathway Conservative Portfolio
Pathway Conservative Portfolio seeks current income and secondarily long-term
growth of capital by investing substantially in bond mutual funds, with some
exposure to equity mutual funds.
Performance
This report covers the abbreviated fiscal period from the Portfolio's
commencement of operations on November 15, 1996 to September 30, 1997. During
this 10-1/2 month period, the Portfolio provided a total return of 14.99%,
outperforming its custom benchmark. Returns and the components of this benchmark
are listed on pag 8.
The investment environment was generally favorable, which benefited the
Portfolio's holdings, especially its holdings of domestic stock funds. However,
the strong overall performance of U.S. stocks was accompanied by an increasing
level of price volatility. The Portfolio's conservative approach and
diversification among 11 Scudder funds helped to dampen the effects of this
volatility.
The Portfolio's fixed income holdings benefited as interest rates moved somewhat
lower over the period, despite persistent concerns about accelerating inflation.
Income Fund, at 40% of assets, anchored the fixed income position and
contributed to the Portfolio's income and price appreciation. Smaller positions
in Emerging Markets Income Fund and High Yield Bond Fund also contributed income
and diversification.
Throughout the period, the Portfolio's exposure to the equity markets made a
significant contribution to total return. Large-cap domestic stock funds
provided some of the best returns, and the Portfolio had a significant
two-thirds of the equity fund position invested in this area.
Portfolio Strategy
Over the period, the weighting of fixed income funds was modestly increased and
diversification was broadened in both the equity and fixed income areas. As
concerns of rising interest rates mounted in the first quarter of 1997, the
Portfolio's exposure to bond funds was temporarily reduced from 50% to 45% of
assets in favor of U.S. equity funds. As the relative attractiveness of fixed
income securities increased, the Portfolio's weighting was increased to 55% of
assets by adding to holdings of Income Fund.
Portfolio diversification and exposure to investment opportunity was increased
with the addition of a new fund in both the fixed income and equity portions of
the portfolio. A small position (3% of assets) in High Yield Bond Fund was added
in February. Compared to high quality bonds, high yield bonds typically offer
enhanced income and the opportunity for price appreciation as credit quality
improves. In the equity area, Classic Growth Fund was added in the third
quarter. This Fund, with its focus on well-established leading U.S. companies,
was deemed attractive within the current environment that favors such companies.
7-SCUDDER PATHWAY SERIES
<PAGE>
Performance Update as of September 30, 1997
- -----------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------
Total Return
- -----------------------------------------------------------------
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -----------------------------------------------------------------
SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
- -----------------------------------------------------------------
Life of
Portfolio* $11,499 14.99%
LBAB INDEX (60%), S&P 500 INDEX (25%),
MSCI ALL COUNTRY EX U.S. INDEX (5%),
3-MONTH T-BILL (10%)
- -----------------------------------------------------------------
Total Return
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -------- ------- ----------
Life of
Portfolio* $11,088 10.88%
*The Portfolio commenced operations on November 15, 1996.
Index comparisons begin November 30, 1996.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
Scudder Pathway Series: Conservative Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,000
1/97 $10,143
2/97 $10,236
3/97 $10,092
4/97 $10,261
5/97 $10,566
6/97 $10,847
7/97 $11,254
8/97 $11,006
9/97 $11,357
LBAB Index (60%), S&P 500 Index (25%),
MSCI All Country ex U.S. Index (5%),
3-month T-Bill (10%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,892
1/97 $10,054
2/97 $10,100
3/97 $ 9,938
4/97 $10,211
5/97 $10,462
6/97 $10,687
7/97 $11,087
8/97 $10,839
9/97 $11,113
The Lehman Brothers Aggregate Bond (LBAB) Index is a market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. The S&P 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. The MSCI All Country (ex U.S.) Index is a market value-weighted
measure of stocks of 46 countries. Index returns assume reinvestment
of dividends and do not reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended September 30
- ---------------------------------
1997*
----------
Net Asset Value... $13.27
Income Dividends.. $ .33
Capital Gains
Distributions..... $ .15
Portfolio Total
Return (%)........ 14.99
Blended Index Total
Return (%)........ 10.88
Performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Total return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
8 -- SCUDDER PATHWAY SERIES
<PAGE>
PORTFOLIO SUMMARY as of September 30, 1997
PATHWAY CONSERVATIVE PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Money Market 9%
Fix Income 55%
Equity 36%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were broadly diversified in fixed
income funds with exposure to money market,
investment grade, government, high yield,
and emerging markets securities in addition
to U.S. and international equity securities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
Money Market 0-15%
Fixed Income Funds 40-80%
Equity Funds 20-50%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 40%
- --------------------------------------------
Scudder GNMA Fund 10%
- --------------------------------------------
Scudder Growth and Income Fund 9%
- --------------------------------------------
Scudder Cash Investment Trust 9%
- --------------------------------------------
Scudder Large Company Value Fund 7%
- --------------------------------------------
Scudder International Fund 7%
- --------------------------------------------
Scudder Classic Growth Fund 7%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 3%
- --------------------------------------------
Scudder High Yield Bond Fund 3%
- --------------------------------------------
Scudder Small Company Value Fund 3%
- --------------------------------------------
Scudder Emerging Markets Income Fund 2%
- --------------------------------------------
100%
- --------------------------------------------
Fixed income funds made a solid contribution
to total returns, and were bolstered by the
strong performance of equity funds holdings
for the period.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 16.
A monthly Investment Portfolio Summary is available upon request.
9 -- SCUDDER PATHWAY SERIES
<PAGE>
Portfolio Highlights
Pathway Balanced Portfolio
Pathway Balanced Portfolio seeks a balance of growth and income by investing in
a mix of money market, bond, and equity mutual funds.
Performance
This report covers the 10-1/2 month fiscal period from the Portfolio's
commencement of operations on November 15, 1996 to September 30, 1997. During
this period, the Portfolio provided a total return of 16.67%, in line with its
custom benchmark. Returns and the components of this benchmark are listed on
page 11.
The generally favorable investment environment benefited the Portfolio's
holdings, especially its holdings of domestic stock funds. However, the strong
performance of U.S. stocks was accompanied by an increasing level of price
volatility.
Of the Portfolio's 61% of assets invested in equity funds, domestic equity funds
- -- in particular -- delivered excellent returns. These funds have benefited from
the continuing rally in large-cap stocks. Growth and Income and Classic Growth
funds provided above-average returns while Development Fund, hurt by volatility
in healthcare and technology holdings earlier in the year, trailed the market
averages for the period. The strong performance of domestic equity funds
overshadowed the solid, but more modest returns of International Fund and
Emerging Markets Growth Fund, which provided valuable diversification to the
Portfolio.
The balance of the Portfolio was invested in fixed income funds and the money
market fund -- Cash Investment Trust. Our fixed income holdings benefited as
interest rates moved somewhat lower over the period, despite persistent concerns
about accelerating inflation. Income Fund, at 26% of assets at period end,
remained a key component of the fixed income position and contributed to income
and price appreciation.
Portfolio Strategy
Over the fiscal period, the weighting of fixed income funds was reduced modestly
in the first and third quarters of 1997, as concerns of rising interest rates
mounted. As a result, the Portfolio's exposure to bond funds was reduced to 36%
of assets, primarily by decreasing holdings of GNMA Fund.
While still comprising a significant position within the Portfolio,
International Fund was reduced in February in favor of Growth and Income Fund,
reflecting the continuing momentum of the U.S. stock market. At mid-year,
increases were made to the overall equity position by adding to Growth and
Income, Classic Growth, and Emerging Markets Growth funds, which brought the
equity fund weighting to 61% of assets.
At the end of the period, we initiated a small position in Micro Cap Fund, which
is expected to provide strong long-term total return potential, as well as
additional diversification due to its relatively low correlation to the broader
U.S. stock market as represented by the S&P 500.
10-SCUDDER PATHWAY SERIES
<PAGE>
Performance Update as of September 30, 1997
- -----------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------
Total Return
- -----------------------------------------------------------------
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -----------------------------------------------------------------
SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
TICKER SYMBOL: SPBAX
- -----------------------------------------------------------------
Life of
Portfolio* $11,667 16.67%
- -----------------------------------------------------------------
LBAB INDEX (60%), S&P 500 INDEX (25%),
MSCI ALL COUNTRY EX U.S. INDEX (5%),
3-MONTH T-BILL (10%)
- -----------------------------------------------------------------
Total Return
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -------- ------- ----------
Life of
Portfolio* $11,654 16.54%
*The Portfolio commenced operations on November 15, 1996.
Index comparisons begin November 30, 1996.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
Scudder Pathway Series: Balanced Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,016
1/97 $10,167
2/97 $10,235
3/97 $10,042
4/97 $10,222
5/97 $10,645
6/97 $10,992
7/97 $11,474
8/97 $11,073
9/97 $11,542
LBAB Index (60%), S&P 500 Index (25%),
MSCI All Country ex U.S. Index (5%),
3-month T-Bill (10%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,857
1/97 $10,147
2/97 $10,213
3/97 $ 9,975
4/97 $10,389
5/97 $10,810
6/97 $11,158
7/97 $11,730
8/97 $11,282
9/97 $11,713
The Lehman Brothers Aggregate Bond (LBAB)Index is a market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. The S&P 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. The MSCI All Country (ex U.S.) Index is a market value-weighted
measure of stocks of 46 countries. Index returns assume reinvestment
of dividends and do not reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended September 30
- ---------------------------------
1997*
----------
Net Asset Value... $13.56
Income Dividends.. $ .33
Capital Gains
Distributions..... $ .07
Portfolio Total
Return (%)........ 16.67
Blended Index Total
Return (%)........ 16.54
Performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Total return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
11 -- SCUDDER PATHWAY SERIES
<PAGE>
PORTFOLIO SUMMARY as of September 30, 1997
PATHWAY BALANCED PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Money Market 3%
Fix Income 36%
Equity 61%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were broadly diversified in equity
funds with exposure to U.S. large- and
small-cap, value, and international stocks,
and in fixed income funds with exposure to
money market, investment grade, high yield,
and emerging markets securities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
BALANCED PORTFOLIO
Money Market 0-10%
Fixed Income Funds 25-60%
Equity Funds 40-70%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 26%
- --------------------------------------------
Scudder International Fund 20%
- --------------------------------------------
Scudder Classic Growth Fund 15%
- --------------------------------------------
Scudder Growth and Income Fund 14%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 7%
- --------------------------------------------
Scudder Development Fund 5%
- --------------------------------------------
Scudder High Yield Bond Fund 5%
- --------------------------------------------
Scudder Emerging Markets Income Fund 3%
- --------------------------------------------
Scudder Cash Investment Trust 3%
- --------------------------------------------
Scudder GNMA Fund 2%
- --------------------------------------------
Scudder Micro Cap Fund 0%
- --------------------------------------------
100%
- --------------------------------------------
Equity funds that invest in U.S. stocks of
established companies, such as Classic Growth
Fund and Growth and Income Fund, provided
some of the best returns for the period.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 17.
A monthly Investment Portfolio Summary is available upon request.
12 -- SCUDDER PATHWAY SERIES
<PAGE>
Portfolio Highlights
Pathway Growth Portfolio
Pathway Growth Portfolio seeks long-term growth of capital by investing
primarily in equity mutual funds designed to provide long-term growth. The
Portfolio will also invest a portion of assets in bond funds, which offer the
potential for capital appreciation as well as income.
Performance
This report covers the 10-1/2 month fiscal period from the Portfolio's
commencement of operations on November 15, 1996 to September 30, 1997. During
this period, the Portfolio provided a total return of 20.79%, outperforming its
custom benchmark. Returns and the components of this benchmark are listed on
page 14.
The generally favorable investment environment benefited the Portfolio's
holdings, especially its holdings of domestic stock funds. However, the strong
performance of U.S. stocks was accompanied by an increasing level of price
volatility. The Portfolio's diversification among nine Scudder equity and fixed
income funds helped to dampen the effects of this volatility.
Domestic equities provided excellent returns to investors during the period. The
Portfolio's equity funds, comprising 80% of assets, benefited from the
continuing rally primarily in large-cap stocks. Large Company Growth Fund and
Micro Cap Fund provided returns in the 30-40% range while 21st Century Growth
Fund lagged the market's returns. The strong performance of domestic equity
funds overshadowed the solid, but more modest returns of International Fund and
Emerging Markets Growth Fund, which also provided valuable diversification to
the Portfolio.
The Portfolio's holdings of fixed income funds helped to dampen the effects of
increasing volatility in the domestic equity markets. High Yield Bond Fund (9%
of assets), enjoyed the benefits of increased investor enthusiasm for corporate
bonds that have improving credit quality. A small position in Emerging Markets
Income Fund also delivered outstanding returns, while Income Fund contributed
respectable returns.
Portfolio Strategy
Over the fiscal period, the already modest weighting of fixed income funds was
reduced and equity fund holdings were increased. This reallocation of fund
holdings took place in June by decreasing the weighting of Emerging Markets
Income Fund and increasing exposure to Emerging Markets Growth Fund, as the
latter area appeared to offer more favorable total return potential. In July, a
small reduction in High Yield Bond Fund holdings in favor of Large Company
Growth Fund completed the shift to an increased equity fund exposure.
13-SCUDDER PATHWAY SERIES
<PAGE>
Performance Update as of September 30, 1997
- -----------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------
Total Return
- -----------------------------------------------------------------
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -----------------------------------------------------------------
SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
TICKER SYMBOL: SPGRX
- -----------------------------------------------------------------
Life of
Portfolio* $12,079 20.79%
- -----------------------------------------------------------------
S&P 500 INDEX (25%), MSCI ALL COUNTRY EX U.S. INDEX (5%),
LBAB INDEX (60%), 3-MONTH T-BILL (10%)
- -----------------------------------------------------------------
Total Return
--------------
Period Ended Growth of
9/30/97 $10,000 Cumulative
- -------- ------- ----------
Life of
Portfolio* $11,924 19.24%
*The Portfolio commenced operations on November 15, 1996.
Index comparisons begin November 30, 1996.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
Scudder Pathway Series: Growth Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,057
1/97 $10,302
2/97 $10,336
3/97 $10,058
4/97 $10,285
5/97 $10,909
6/97 $11,357
7/97 $11,855
8/97 $11,340
9/97 $11,939
LBAB Index (60%), S&P 500 Index (25%),
MSCI All Country ex U.S. Index (5%),
3-month T-Bill (10%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,841
1/97 $10,156
2/97 $10,240
3/97 $ 9,993
4/97 $10,498
5/97 $11,037
6/97 $11,474
7/97 $12,112
8/97 $11,514
9/97 $12,047
The Lehman Brothers Aggregate Bond (LBAB)Index is a market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. The S&P 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. The MSCI All Country (ex U.S.) Index is a market value-weighted
measure of stocks of 46 countries. Index returns assume reinvestment
of dividends and do not reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended September 30
- ---------------------------------
1997*
----------
Net Asset Value... $14.15
Income Dividends.. $ .16
Capital Gains
Distributions..... $ .13
Portfolio Total
Return (%)........ 20.79
Blended Index Total
Return (%)........ 19.24
Performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Total return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
14 -- SCUDDER PATHWAY SERIES
<PAGE>
PORTFOLIO SUMMARY as of September 30, 1997
PATHWAY GROWTH PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Money Market 1%
Fix Income 19%
Equity 80%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were broadly diversified in equity funds
with exposure to U.S. large- and small-cap growth,
and international stocks; and in fixed income funds
with exposure to money market, investment grade,
government, high yield, emerging markets securities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
GROWTH PORTFOLIO
Money Market 0-5%
Fixed Income Funds 10-40%
Equity Funds 60-90%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Large Company Growth Fund 26%
- --------------------------------------------
Scudder International Fund 25%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 14%
- --------------------------------------------
Scudder High Yield Bond Fund 9%
- --------------------------------------------
Scudder 21st Century Growth Fund 8%
- --------------------------------------------
Scudder Micro Cap Fund 7%
- --------------------------------------------
Scudder Emerging Markets Income Fund 6%
- --------------------------------------------
Scudder Income Fund 4%
- --------------------------------------------
Scudder Cash Investment Trust 1%
- --------------------------------------------
100%
- --------------------------------------------
Equity funds that invest in U.S. stocks, such
as Micro Cap Fund and Large Company Growth Fund,
provided some of the best returns for the period.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 18. A monthly Investment Portfolio Summary is available
upon request.
15 -- SCUDDER PATHWAY SERIES
<PAGE>
Investment Portfolio as of September 30, 1997
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 8.8%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $1,492,453) ......................................... 1,492,453 1,492,453
----------
Fixed Income 54.8%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder GNMA Fund ....................................................................... 114,079 1,681,526
Scudder Emerging Markets Income Fund .................................................... 25,225 339,271
Scudder Income Fund ..................................................................... 501,176 6,770,893
Scudder High Yield Bond Fund ............................................................ 38,547 504,198
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $9,091,682) 9,295,888
- ------------------------------------------------------------------------------------------------------------------------------
Equity 36.4%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Large Company Value Fund ........................................................ 41,237 1,195,038
Scudder Classic Growth Fund ............................................................. 65,167 1,197,121
Scudder Emerging Markets Growth Fund .................................................... 30,807 501,237
Scudder Growth and Income Fund .......................................................... 52,997 1,553,332
Scudder International Fund .............................................................. 21,803 1,192,603
Scudder Small Company Value Fund ........................................................ 25,599 543,219
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity(Cost $5,405,191) 6,182,550
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $15,989,326) (a) 16,970,891
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $16,000,015. At September 30,
1997, net unrealized appreciation for all securities based on tax cost was
$970,876. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $970,876.
During the period November 15, 1996 (commencement of operations) to
September 30, 1997, purchases and sales of investment securities
(excluding money market investments) aggregated $17,446,416 and
$3,171,000, respectively.
The accompanying notes are an integral part of the financial statements.
16 -- SCUDDER PATHWAY SERIES
<PAGE>
Investment Portfolio as of September 30, 1997
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 3.1%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $5,857,992) ......................................... 5,857,992 5,857,992
-----------
Fixed Income 35.8%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder GNMA Fund ....................................................................... 257,522 3,795,878
Scudder Emerging Markets Income Fund .................................................... 426,941 5,742,362
Scudder Income Fund ..................................................................... 3,677,192 49,678,857
Scudder High Yield Bond Fund ............................................................ 728,643 9,530,646
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $66,876,325) 68,747,743
- ------------------------------------------------------------------------------------------------------------------------------
Equity 61.1%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Classic Growth Fund ............................................................. 1,556,309 28,589,396
Scudder Development Fund ................................................................ 217,041 9,790,724
Scudder Emerging Markets Growth Fund .................................................... 816,516 13,284,712
Scudder Growth and Income Fund .......................................................... 918,173 26,911,644
Scudder International Fund .............................................................. 704,952 38,560,885
Scudder Micro Cap Fund .................................................................. 5,814 105,756
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity(Cost $101,607,674) 117,243,117
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $174,341,991) (a) 191,848,852
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $174,397,794. At September
30, 1997, net unrealized appreciation for all securities based on tax cost
was $17,451,058. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $17,451,058.
During the period November 15, 1996 (commencement of operations) to
September 30, 1997, purchases and sales of investment securities
(excluding money market investments) aggregated $190,501,683 and
$23,022,500, respectively.
The accompanying notes are an integral part of the financial statements.
17 -- SCUDDER PATHWAY SERIES
<PAGE>
Investment Portfolio as of September 30, 1997
Pathway Growth Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 1.1%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $539,977) 539,977 539,977
----------
Fixed Income 18.9%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund 222,751 2,996,005
Scudder Income Fund 143,503 1,938,727
Scudder High Yield Bond Fund 340,191 4,449,696
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $9,080,638) 9,384,428
- ------------------------------------------------------------------------------------------------------------------------------
Equity 80.0%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder 21st Century Growth Fund 282,760 3,964,293
Scudder Emerging Markets Growth Fund 424,477 6,906,246
Scudder International Fund 226,974 12,415,487
Scudder Micro Cap Fund 189,672 3,450,133
Scudder Large Company Growth Fund 497,083 12,899,299
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity(Cost $34,443,844) 39,635,458
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $44,064,459) (a) 49,559,863
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $44,081,245. At September 30,
1997, net unrealized appreciation for all securities based on tax cost was
$5,478,618. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,478,618.
During the period November 15, 1996 (commencement of operations) to
September 30, 1997, purchases and sales of investment securities
(excluding money market investments) aggregated $47,077,499 and
$3,737,518, respectively.
The accompanying notes are an integral part of the financial statements.
18 -- SCUDDER PATHWAY SERIES
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of September 30, 1997
<TABLE>
<CAPTION>
Conservative Balanced Growth
Portfolio Portfolio Portfolio
Assets
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) .............. $ 16,970,891 $191,848,852 $ 49,559,863
Receivable for investments sold .................... -- 200,000 75,000
Receivable on Portfolio shares sold ................ 10,173 404,733 93,829
Income receivable .................................. 18,320 111,017 33,138
--------------- --------------- ----------------
Total assets ....................................... 16,999,384 192,564,602 49,761,830
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................. 18,313 310,848 107,925
Payable for Portfolio shares redeemed .............. 9,390 107,581 79,649
--------------- --------------- ----------------
Total liabilities .................................. 27,703 418,429 187,574
------------------------------------------------------ --------------- --------------- ----------------
Net assets, at market value $ 16,971,681 $192,146,173 $ 49,574,256
------------------------------------------------------ --------------- --------------- ----------------
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................ 78,162 584,477 443,915
Net unrealized appreciation on investments ......... 981,565 17,506,861 5,495,404
Accumulated net realized gain ...................... 249,870 1,339,738 206,721
Paid-in capital .................................... 15,662,084 172,715,097 43,428,216
------------------------------------------------------ --------------- --------------- ----------------
Net assets, at market value $ 16,971,681 $192,146,173 $ 49,574,256
------------------------------------------------------ --------------- --------------- ----------------
Net Asset Value
- -------------------------------------------------------------------------------------------------------------------------------
--------------- --------------- ----------------
Net Asset Value, offering and redemption price per $13.27 $13.56 $14.15
share (outstanding shares of beneficial interest, --------------- --------------- ----------------
$.01 par value, unlimited number of shares
authorized) ...................................... 1,279,306 14,166,739 3,503,263
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 -- SCUDDER PATHWAY SERIES
<PAGE>
Statement of Operations
For the period November 15, 1996 (commencement
of operations) to September 30,1997
<TABLE>
<CAPTION>
Conservative Balanced Growth
Portfolio Portfolio Portfolio
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income distributions from Underlying Funds ......... $ 283,047 $ 2,647,994 $ 452,702
------------------------------------------------------- ---------------- --------------- ---------------
Net investment income 283,047 2,647,994 452,702
------------------------------------------------------- ---------------- --------------- ---------------
Realized and unrealized gain (loss) on investments
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ........................................ 221,457 1,004,816 184,501
Capital gain distributions from Underlying Funds ... 36,736 339,186 29,431
---------------- --------------- ---------------
258,193 1,344,002 213,932
---------------- --------------- ---------------
Net unrealized appreciation on investments during
the period ....................................... 981,565 17,506,861 5,495,404
------------------------------------------------------- ---------------- --------------- ---------------
Net gain on investment transactions 1,239,758 18,850,863 5,709,336
------------------------------------------------------- ---------------- --------------- ---------------
------------------------------------------------------- ---------------- --------------- ---------------
Net increase in net assets resulting from operations $ 1,522,805 $ 21,498,857 $ 6,162,038
------------------------------------------------------- ---------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 -- SCUDDER PATHWAY SERIES
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period November 15, 1996
(commencement of operations)
to September 30, 1997
Conservative Balanced Growth
Increase (Decrease) in Net Assets Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ................................ $ 283,047 $ 2,647,994 $ 452,702
Net realized gains ................................... 258,193 1,344,002 213,932
Net unrealized appreciation on investments during
the period ......................................... 981,565 17,506,861 5,495,404
--------------- --------------- ----------------
Net increase in net assets resulting from operations. 1,522,805 21,498,857 6,162,038
--------------- --------------- ----------------
Distributions to shareholders from:
Net investment income ................................ (204,885) (2,063,517) (8,787)
--------------- --------------- ----------------
Net realized gain on investment transactions ......... (8,323) (4,264) (7,211)
--------------- --------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ............................ 17,529,919 188,966,219 49,883,396
Net asset value of shares issued to shareholders in
reinvestment of distributions ...................... 206,449 2,061,385 15,997
Cost of shares redeemed .............................. (2,099,284) (18,337,507) (6,496,177)
--------------- --------------- ----------------
Net increase in net assets from Portfolio share
transactions ....................................... 15,637,084 172,690,097 43,403,216
--------------- --------------- ----------------
Increase in net assets ............................... 16,946,681 192,121,173 49,549,256
Net assets at beginning of period .................... 25,000 25,000 25,000
--------------- --------------- ----------------
Net assets at end of period (a) ...................... $ 16,971,681 $192,146,173 $ 49,574,256
--------------- --------------- ----------------
Other Information
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............ 2,083 2,083 2,083
--------------- --------------- ----------------
Shares sold .......................................... 1,426,617 15,422,187 3,994,728
Shares issued to shareholders in reinvestment
of distributions ................................... 16,301 160,369 1,342
Shares redeemed ...................................... (165,695) (1,417,900) (494,890)
--------------- --------------- ----------------
Net increase in Portfolio shares ..................... 1,277,223 14,164,656 3,501,180
--------------- --------------- ----------------
Shares outstanding at end of period .................. 1,279,306 14,166,739 3,503,263
--------------- --------------- ----------------
(a) Includes undistributed net investment income of .. $ 78,162 $ 584,477 $ 443,915
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 -- SCUDDER PATHWAY SERIES
<PAGE>
Financial Highlights
Pathway Conservative Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
(commencement
of operations) to
September 30, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------
Net asset value, beginning of period .............................................. $12.00
-----------------
Income from investment operations:
Net investment income ............................................................. .39
Net realized and unrealized gain on investment transactions ....................... 1.36
-----------------
Total from investment operations .................................................. 1.75
-----------------
Less distributions:
From net investment income ........................................................ (.33)
From net realized gain on investments ............................................. (.15)
-----------------
Total distributions ............................................................... (.48)
-----------------
-----------------
Net asset value, end of period .................................................... $13.27
- ---------------------------------------------------------------------------------------------------------------
Total Return (%) .................................................................. 14.99**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................ 17
Ratio of operating expenses to average daily net assets (%) (a) ................... --
Ratio of net investment income to average daily net assets (%) .................... 3.67*
Portfolio turnover rate (%) ....................................................... 42.0*
</TABLE>
(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
22 -- SCUDDER PATHWAY SERIES
<PAGE>
Financial Highlights
Pathway Balanced Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
(commencement of
operations) to
September 30, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------
Net asset value, beginning of period .............................................. $12.00
-----------------
Income from investment operations:
Net investment income ............................................................. .37
Net realized and unrealized gain on investment transactions ....................... 1.59
-----------------
Total from investment operations .................................................. 1.96
-----------------
Less distributions:
From net investment income ........................................................ (.33)
From net realized gain on investments ............................................. (.07)
-----------------
Total distributions ............................................................... (.40)
-----------------
-----------------
Net asset value, end of period .................................................... $13.56
- ---------------------------------------------------------------------------------------------------------------
Total Return (%) .................................................................. 16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................ 192
Ratio of operating expenses to average daily net assets (%) (a) ................... --
Ratio of net investment income to average daily net assets (%) .................... 2.96*
Portfolio turnover rate (%) ....................................................... 24.3*
</TABLE>
(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
23 -- SCUDDER PATHWAY SERIES
<PAGE>
Financial Highlights
Pathway Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
(commencement of
operations) to
September 30, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------
Net asset value, beginning of period ............................................... $12.00
-----------------
Income from investment operations:
Net investment income .............................................................. .29
Net realized and unrealized gain on investment transactions ........................ 2.15
-----------------
Total from investment operations ................................................... 2.44
-----------------
Less distributions:
From net investment income ......................................................... (.16)
From net realized gain on investments .............................................. (.13)
-----------------
Total distributions ................................................................ (.29)
-----------------
-----------------
Net asset value, end of period ..................................................... $14.15
- ---------------------------------------------------------------------------------------------------------------
Total Return (%) ................................................................... 20.79**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................. 50
Ratio of operating expenses to average daily net assets (%) (a) .................... --
Ratio of net investment income to average daily net assets (%) ..................... 2.09*
Portfolio turnover rate (%) ........................................................ 15.1*
</TABLE>
(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
24 -- SCUDDER PATHWAY SERIES
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
The Conservative, Balanced, and Growth Portfolios (the "Portfolios") are each
diversified series of Scudder Pathway Series (the "Trust"). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The series is composed of six separate diversified portfolios, four of
which are currently offered. These portfolios invest primarily in existing
Scudder Funds (the "Underlying Scudder Funds").
These financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates. The
policies described below are followed by each Portfolio in the preparation of
its financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer,
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy 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 Portfolios paid no
federal income taxes and no provision for federal income taxes was required.
Distribution of Income and Gains. Distributions from net investment income from
the Conservative and Balanced Portfolios are declared and paid quarterly in
April, July, October and December. Distributions of net investment income and
net realized gains from the Growth Portfolio are made annually. During any
particular year net realized gains, in excess of available capital loss
carryforwards, would be taxable to each such Portfolio if not distributed and,
therefore, will be distributed to shareholders annually. 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. 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, each Portfolio may periodically make reclassifications
among certain of its capital accounts without impacting the net asset value of
the Portfolio.
The Portfolios use the identified cost 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 of income and capital gains from the Underlying Scudder Funds are
recorded on the ex-dividend date. Income is recorded on the accrual basis.
B. Related Parties
In accordance with the Portfolios' Investment Management Agreement (the
"Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"), the Adviser
regularly provides the Portfolios with continuing investment management
consistent with each Portfolio's investment objective.
25 -- SCUDDER PATHWAY SERIES
<PAGE>
Under the Special Servicing Agreement entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolios, the Adviser arranges for all services pertaining to the operations
of the Portfolios. If the Trustees determine that the aggregate expenses of a
Portfolio are less than the estimated savings to the Underlying Scudder Funds
from the operation of such Portfolio, each of the Underlying Scudder Funds will
bear those expenses in proportion to the average daily value of its shares owned
by the respective Portfolio. Consequently, no Underlying Scudder Funds will be
expected to carry expenses that are in excess of the estimate of savings to the
respective Funds. These estimated savings result from the elimination of
separate shareholder accounts which either currently are or have potential to be
invested in the Underlying Scudder Funds. In the event that the financial
benefits to the Underlying Scudder Funds do not exceed aggregate expenses of any
Portfolio, the Adviser will pay certain costs on behalf of the respective
Portfolio. For the period November 15, 1996 (commencement of operations) to
September 30, 1997, the Adviser paid expenses in the amount of $31, 641 on
behalf of the Conservative Portfolio. In accordance with the Special Servicing
Agreement, no expenses were charged to the Portfolios during the period. The
Adviser has assumed the organization costs of each Portfolio.
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.
The Portfolios do not invest in the Underlying Scudder Funds for the purpose of
exercising management or control; however, investments within the set limits may
represent a significant portion of an Underlying Fund's net assets. At September
30, 1997, the Balanced Portfolio held the following Underlying Funds'
outstanding shares: approximately 47% of the Scudder Classic Growth Fund, 8% of
the Scudder Income Fund, 7% of the Scudder High Yield Bond Fund, and 5% of the
Scudder Emerging Markets Growth Fund. The Growth Portfolio held approximately
13% of the outstanding shares of the Scudder 21st Century Fund at September 30,
1997.
26 -- SCUDDER PATHWAY SERIES
<PAGE>
Report of Independent Accountants
To the Board of Trustees of Scudder Pathway Series and to the Shareholders of
Scudder Pathway Series: Conservative, Balanced and Growth Portfolios:
We have audited the accompanying statement of assets and liabilities of Scudder
Pathway Series: Conservative, Balanced and Growth Portfolios (three of the
portfolios constituting the Scudder Pathway Series), including the investment
portfolios, as of September 30, 1997, and the related statements of operations
for the period November 15, 1996 (commencement of operations) through September
30, 1997, the statements of changes in net assets for the period November 15,
1996 (commencement of operations) through September 30, 1997, and the financial
highlights for the period November 15, 1996 (commencement of operations) through
September 30, 1997. These financial statements and financial highlights are the
responsibility of the Portfolios' 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
September 30, 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 Pathway Series: Conservative, Balanced and Growth Portfolios as of
September 30, 1997, the results of their operations for the period November 15,
1996 (commencement of operations) through September 30, 1997, the changes in
their net assets for the period November 15, 1996 (commencement of operations)
through September 30, 1997, and the financial highlights for the period November
15, 1996 (commencement of operations) through September 30, 1997, in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND, L.L.P.
October 30, 1997
27 -- SCUDDER PATHWAY SERIES
<PAGE>
Tax Information
Pursuant to Section 852 of the Internal Revenue Code, the Conservative,
Balanced, and Growth Portfolios designate long-term capital gain dividends for
the fiscal year ended September 30, 1997 in the amount of $26,918, $288,542, and
$15,495, respectively.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.
Officers and Trustees
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and
Economic Counsellor, The
Conference Board, Inc.
Dr. J. D. Hammond
Trustee; Dean, Smeal College of
Business Administration,
Pennsylvania State University
Richard M. Hunt
Trustee; University Marshal and
Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
28 -- SCUDDER PATHWAY SERIES
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Officers and Trustees
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.
Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
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Investment Products and Services
The Scudder Family of Funds+++
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Money Market
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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+
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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+
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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
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Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
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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
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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
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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#
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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.
29-SCUDDER PATHWAY SERIES
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
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<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:
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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:
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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
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30-SCUDDER PATHWAY SERIES
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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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
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Additional Information on How to Contact Scudder:
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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
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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.
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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.
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31-SCUDDER PATHWAY SERIES
<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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