Scudder
Pathway Series:
International Portfolio
Semiannual Report
March 31, 1998
Pure No-Load(TM) Funds
A mutual fund which seeks maximum total return by investing in a select mix of
international and global Scudder Funds.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Pathway Series: International Portfolio
- --------------------------------------------------------------------------------
Date of Inception: 11/15/96 Total Net Assets as of Ticker Symbol: SPIPX
3/31/98: $10.2 million
- --------------------------------------------------------------------------------
o International Portfolio exceeded the performance of its composite benchmark
for the six-month, 12-month, and since-inception periods as of March 31, 1998.
For the six-month period the Portfolio returned 4.17%, versus a 2.84% return for
its composite benchmark.
o For the six-month period, European equity market performance outdistanced that
of every other region in the world, including the United States, as attractive
valuations, corporate restructurings, and positive sentiment surrounding the
impending EMU sent stocks higher.
o Despite a strong rebound in the first quarter of 1998, the Asian markets
reported negative returns for the six-month period as a result of the protracted
financial crisis there.
Table of Contents
3 Letter from the Series' President 11 Financial Statements
4 Performance Update 14 Financial Highlights
5 Portfolio Summary 15 Notes to Financial Statements
6 Portfolio Management Discussion 17 Shareholder Meeting Results
8 Glossary of Investment Terms 20 Officers and Trustees
9 Portfolio Highlights 21 Investment Products and Services
10 Investment Portfolio 22 Scudder Solutions
2 - Scudder Pathway Series: International Portfolio
<PAGE>
Letter from the Series' President
Dear Shareholders,
The six-month period covered by this report was a good test for the Pathway
Series: International Portfolio. The period began under the cloud of the Asian
financial crisis and the market correction in October. Concerns eased by the
beginning of 1998, as the anticipated flood of cheap imports from Asia and
sharply lower corporate earnings for U.S. corporations failed to appear.
Meanwhile, the U.S. economy remains healthy and things are looking up in many
foreign markets, especially Europe.
With valuations of U.S. stocks at relatively high levels, we think that the
International Portfolio provides timely diversification for investors with
significant domestic holdings. The Portfolio provides a convenient way to gain
exposure to the many opportunities we believe exist in the foreign markets.
Starting on page, lead portfolio manager Ben Thorndike discusses these
opportunities and how the Portfolio is positioned to take advantage of the
environment abroad.
At the beginning of 1998, the Series' investment adviser changed its name
to Scudder Kemper Investments, Inc. from Scudder, Stevens & Clark, Inc.,
reflecting the acquisition of a majority interest in Scudder by Zurich Insurance
Company, and the combining of Scudder's business with that of Zurich Kemper
Investments, Inc. We think this combination is very positive, and will provide
the management team with expanded resources in managing the Portfolio.
For those of you who are interested in new Scudder products, we recently
introduced three new industry sector funds that comprise the Choice Series:
Scudder Financial Services Fund, Scudder Health Care Fund, and Scudder
Technology Fund. In addition, April 6th marked the debut of our latest entrant
in the growth and income category, Scudder Real Estate Investment Fund. For
further information on any of these new funds, please call 1-800-225-2470.
Thank you for your continued investment in Scudder Pathway Series:
International Portfolio. If you have any questions about your account, please
call Scudder Investor Relations at the toll-free number above, or visit our Web
site at http://funds.scudder.com.
Sincerely,
/s/ Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3 - Scudder Pathway Series: International Portfolio
<PAGE>
PERFORMANCE UPDATE as of March 31, 1998
- -----------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------
SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
- -----------------------------------------------
Total Return
- -----------------------------------------------
Period Ended Growth of Average
3/1/98 $10,000 Cumulative Annual
- -----------------------------------------------
1 Year $ 11,614 16.14% 16.14%
Life of
Portfolio* $ 12,145 21.45% 15.21%
- -----------------------------------------------
MSCI ALL COUNTRY (EX U.S.) INDEX (75%),
JP MORGAN NON-U.S. GLOBAL GOVERNMENT BOND
INDEX (20%), 3-MONTH T-BILL (5%)
- -----------------------------------------------
Total Return
- -----------------------------------------------
Period Ended Growth of Average
3/1/98 $10,000 Cumulative Annual
- -----------------------------------------------
1 Year $ 11,283 12.83% 12.83%
Life of
Portfolio* $ 11,039 10.39% 7.71%
- -----------------------------------------------
*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:
Scudder Pathway Series: International Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,141
3/97 $10,388
6/97 $11,470
9/97 $11,581
12/97 $10,848
3/98 $12,064
MSCI All Country (ex U.S.) Index
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,880
3/97 $ 9,872
6/97 $11,153
9/97 $11,041
12/97 $10,048
3/98 $11,424
MSCI All Country (ex U.S.) Index (75%),
JP Morgan Non-U.S. Global Government Bond
Index (20%), 3-month T-Bill (5%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,900
3/97 $ 9,784
6/97 $10,787
9/97 $10,734
12/97 $10,002
3/98 $11,039
The MSCI All Country (ex U.S.) Index is a market value-weighted
measure of stocks of 46 countries. The JP Morgan Non-U.S. Global
Government Bond Index is a market value-weighted measure of bonds
excluding U.S. bonds. 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 March 31
- -----------------------------
<TABLE>
<S> <C> <C>
1997* 1998
--------------------
Net Asset Value...... $12.19 $13.59
Income Dividends..... $ .25 $ .16
Capital Gains
Distributions........ $ .10 $ .35
Portfolio Total
Return (%)........... 4.57 16.14
Blended Index Total
Return (%)........... -2.16 12.83
</TABLE>
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.
If the Adviser had not maintained some of the Underlying Funds' expenses,
the total return for the Portfolio would have been lower.
4 - Scudder Pathway Series: International Portfolio
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1998
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Money Market 4%
Fix Income 11%
Equity 85%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
An emphasis on international
equity funds anchored the
Portfolio, despite a slight
increase in the money market
fund's weighting.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
Money Market 0-20%
Fixed Income Funds 0-40%
Equity Funds 60-100%
Portfolio allocations are derived
from the risk profile for the
Fund; changes are expected to
be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY FUND
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder International Fund 62%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 9%
- --------------------------------------------
Scudder Greater Europe Growth Fund 9%
- --------------------------------------------
Scudder Emerging Markets Income Fund 6%
- --------------------------------------------
Scudder Latin America Fund 5%
- --------------------------------------------
Scudder International Bond Fund 5%
- --------------------------------------------
Scudder Cash Investment Trust 4%
- --------------------------------------------
100%
- --------------------------------------------
The European equity markets,
which outperformed the U.S.
equity markets for the six-month
period, were well represented in
our holdings of International
Fund and Greater Europe Growth
Fund.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 10. A monthly Investment Portfolio Summary is available
upon request.
5 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Management Discussion
In the following interview, Ben Thorndike, lead portfolio manager of Scudder
Pathway Series, discusses the market environment and the team's investment
strategy during the six-month report period.
Q: The fourth quarter of 1997 and the first quarter of 1998 were two contrasting
environments for investors. How would you summarize this six-month period?
A: The deepening crisis in Asia heightened concerns over slowing earnings growth
in the United States, which is a significant exporter to Asia. Sharply lower
currencies in Asia and other regions have the effect of making U.S. exports more
expensive to foreign customers. Investors worried about this in the fourth
quarter, especially for companies that derive a major portion of their revenues
from sales to the region.
Q: The first quarter of 1998 was a different story, wasn't it?
A: Yes, market sentiment reversed in the first quarter. The domestic and foreign
equity markets managed to shrug off concerns over Asia, at least temporarily,
and the major market indices continued to move up strongly. In fact, many people
don't realize that the foreign equity markets in aggregate outperformed U.S.
equities 14.71% versus 13.95% during the first quarter. While six-month returns
were mixed across the regions, Europe recorded a 20.39% return, besting the
17.84% return of the U.S. stock market for the six-month period.^1 The Asian and
emerging markets continued to struggle, reporting negative returns for the same
period.
Q: What is contributing to Europe's strong showing?
A: We believe attractive valuations and compelling earnings prospects for 1998
are driving the performance of many European markets. There are several factors
that are facilitating this positive environment. Many European companies are
restructuring in anticipation of EMU (European Monetary Union) and the region's
economic integration. It's partly generational, but we're also seeing new
management teams revamp companies in recognition that, in many cases, past
management approaches are not competitive in today's global marketplace.
Q: Asia's stellar equity market performance in the first quarter of 1998
suggests that the worst is over. Is this true?
A: That statement underestimates the depth and seriousness of the situation in
Asia. The financial cleanup will be very difficult because it will require the
economic equivalent of major surgery. Asia has a massive problem in a system
that has grossly misallocated capital. We don't expect government spending and
exports to rescue the region any time soon. IMF (International Monetary Fund)
requirements will produce their own impediments to growth, and political and
social upheaval is inevitable. Asia will recover, but it will take time. A
linchpin is, of course, Japan. Without meaningful economic stimulus in Japan,
recovery in Asia will be delayed because of the region's economic
interdependency. Longer term, the stage may be set for renewed growth on a more
stable base including freer markets, rather than government support of key
industries.
- --------------
^1 Morgan Stanley Capital International indices: EAFE,
USA, and Europe for the periods ended March 31, 1998.
6 - Scudder Pathway Series: International Portfolio
<PAGE>
Performance^1
Total returns for the periods ended March 31, 1998
---------------------------------------------------
6-month 12-month
---------------------------------------------------
Europe 20.39% 42.01%
USA 17.84 47.98
Europe, Australia, and 4.93 16.85
Far East (EAFE)
Pathway International 4.17 16.14
Portfolio
Emerging Markets Bonds 0.87 17.98
International Bonds -0.29 2.84
EMF Latin America -11.59 -37.04
Emerging Markets Free -13.15 -15.27
Japan -18.11 -11.69
Far East -19.18 -15.80
The Portfolio's diversified approach to investing internationally was
particularly valuable in an environment of negative return in many overseas
markets.
- --------------
^1 Total return performance as of 3/31/98. Indices are unmanaged, include
reinvestment of dividends, and do not represent the performance of any Scudder
fund. Unlike fund returns, indices do not reflect fees and expenses. Source:
Morgan Stanley Capital International Equity Indices except as noted:
International Bonds -- JP Morgan Non-U.S. Global Government Bond and Emerging
Market Bonds -- JP Morgan EMBI+ Composite. Past performance is no guarantee of
future returns.
Q: Latin America is generally on much better footing than Asia, but the markets
posted declines ranging from 10 to 20% over the six months. Why?
A: The fall of Asian currencies has made Asian goods significantly less
expensive on the global markets, and Latin American companies must compete
against these lower priced goods. In addition, many investors wondered if some
Latin American currencies would be the next domino to fall at the hands of
currency traders, and subsequently moved out of these stocks. While the outcome
of the Asian crisis is still pending, we believe the prognosis for Latin America
is much better.
7 - Scudder Pathway Series: International Portfolio
<PAGE>
Glossary of Investment Terms
ASSET ALLOCATION The distribution of 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. For example, an investor with a
long-term investment horizon that is
comfortable assuming additional risk in
seeking higher returns may decide to allocate
a higher proportion to stocks than bonds or
money markets.
CURRENCY DEVALUATION A significant decline of a currency's value
relative to other currencies, such as the
U.S. dollar. This may be prompted by trading
or central bank intervention (or the lack of
intervention) in the currency markets. For
U.S. investors who are investing overseas, a
devaluation of a foreign currency can have
the effect of reducing the total return of
their investment.
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.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and
earnings on balance sheets and income
statements. Distinct from technical analysis,
which evaluates the attractiveness of a stock
based on historical price and trading volume
movements, rather than the financial results
of the underlying company.
INTERNATIONAL MONETARY FUND The IMF is an organization focused on
lowering trade barriers and stabilizing
currencies. While helping developing nations
pay their debts, the IMF usually imposes
tough guidelines aimed at lowering inflation,
cutting imports, and raising exports.
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.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
8 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Highlights
Pathway International Portfolio
Pathway International Portfolio seeks to maximize total return by investing in a
select mix of established international mutual funds.
International Portfolio exceeded the performance of its composite benchmark for
the six-month, 12-month, and since-inception periods as of March 31, 1998. For
the six-month period the Portfolio returned 4.17%, versus a 2.84% return for its
composite benchmark.
The Portfolio's positive performance was significant given the weak market
environments in Asia and Latin America over the six-month period. Holdings in
six international funds provided broad diversification and exposure to the many
opportunities in established, emerging, and regional markets. At the end of the
period, the Portfolio's allocation was 4% of assets invested in the money market
fund, 11% in international fixed income funds, and 85% in international equity
funds. These allocations changed only slightly over the six-month period as a
few minor adjustments were made within the equity portion of the Portfolio.
The Portfolio's core holding of International Fund, which typically invests in
established companies in the major world markets, was reduced from 66% to 62% of
assets. This Fund underperformed its benchmark during the period, but was offset
by the 28.47% return of Greater Europe Growth Fund, a holding which was
increased from 5% to 9% of assets. As the financial crisis in Asia continued to
expand, we also made small reductions in our exposure to Emerging Markets Growth
Fund and eliminated our holding of Pacific Opportunities Fund, which had
constituted 2% of assets at the beginning of the period.
Fixed income fund weightings remained steady throughout the period, with the
majority of holdings invested in Emerging Markets Income Fund. This Fund, which
typically invests in high yielding securities in developing markets, provided
especially strong returns in the first quarter of 1998 and has continued to be
an important contributor to Portfolio performance. International Bond Fund,
which invests primarily in established world markets, comprised 5% of assets,
and underperformed its benchmark for the six-month period.
Looking ahead, U.S. equity valuations remain high, profits are slowing, and Asia
is still troubled. Is it time to run and hide? Probably not. In fact, we believe
the opportunity for investing internationally is heightened by this environment.
While the U.S. stock market indices seem to be breaking into new territory every
other day, it is likely this trend will not continue indefinitely. The foreign
markets offer an attractive alternative, providing improved diversification for
investors with substantial domestic equity holdings and less overall downside
risk. It is a time for investors to manage the current environment of increased
volatility through adequate exposure to small-cap equity, fixed income and,
especially, international investments. We think investors who ride out the
current environment of volatility will receive further rewards down the road.
9 - Scudder Pathway Series: International Portfolio
<PAGE>
Investment Portfolio as of March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Money Market 4.1%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------
Scudder Cash Investment Trust (Cost $418,778) ........................................... 418,778 418,778
-----------
Fixed Income 10.8%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund .................................................... 52,074 608,748
Scudder International Bond Fund ......................................................... 49,185 492,833
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $1,168,082) 1,101,581
- ------------------------------------------------------------------------------------------------------------------------------
Equity 85.1%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Emerging Markets Growth Fund .................................................... 63,024 921,407
Scudder Greater Europe Growth Fund ...................................................... 35,687 920,015
Scudder International Fund .............................................................. 120,842 6,291,053
Scudder Latin America Fund .............................................................. 19,009 521,227
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $8,512,344) 8,653,702
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $10,099,204) (a) 10,174,061
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $10,122,306. At March 31,
1998, net unrealized appreciation for all securities based on tax cost was
$51,755. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$222,846 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $171,091.
The accompanying notes are an integral part of the financial statements.
10 - Scudder Pathway Series: International Portfolio
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $10,099,204) ................... $ 10,174,061
Receivable for Portfolio shares sold ................................... 14,486
Income receivable ...................................................... 3,961
----------------
Total assets ........................................................... 10,192,508
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 3,875
Payable for Portfolio shares redeemed .................................. 1,879
----------------
Total liabilities ...................................................... 5,754
--------------------------------------------------------------------------------------------
Net assets, at market value $ 10,186,754
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 24,002
Net unrealized appreciation (depreciation) on investments .............. 74,857
Accumulated net realized gain (loss) ................................... 644,239
Paid-in capital ........................................................ 9,443,656
--------------------------------------------------------------------------------------------
Net assets, at market value $ 10,186,754
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($10,186,754 / 749,747 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ..... $13.59
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Operations
for the six months ended March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Income distributions from Underlying Funds ............................. $ 97,202
--------------------------------------------------------------------------------------------
Net investment income 97,202
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ............................................................ 62,929
Capital gain distributions from Underlying Funds ....................... 816,916
-----------------
879,845
-----------------
Net unrealized appreciation (depreciation) during the period on
investments .......................................................... (652,016)
--------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 227,829
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 325,031
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
Six Months Nov. 15, 1996
Ended (commencement
March 31, of operations)
1998 to September 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ................................................... $ 97,202 $ 61,993
Net realized gain (loss) ................................................ 879,845 45,130
Net unrealized appreciation (depreciation) on investments during
the period ............................................................ (652,016) 726,873
----------------- ------------------
Net increase (decrease) in net assets resulting from operations ......... 325,031 833,996
----------------- ------------------
Distributions to shareholders from:
Net investment income ................................................... (126,802) (8,391)
----------------- ------------------
Net realized gains on investment transactions ........................... (277,380) (3,356)
----------------- ------------------
Portfolio share transactions:
Proceeds from shares sold ............................................... 2,589,621 12,327,560
Net asset value of shares issued to shareholders in reinvestment
of distributions ...................................................... 368,824 10,929
Cost of shares redeemed ................................................. (4,420,585) (1,457,693)
----------------- ------------------
Net increase (decrease) in net assets from Portfolio share
transactions .......................................................... (1,462,140) 10,880,796
----------------- ------------------
Increase (decrease) in net assets ....................................... (1,541,291) 11,703,045
Net assets at beginning of period ....................................... 11,728,045 25,000
Net assets at end of period (including undistributed net ----------------- ------------------
investment income of $24,002 and $53,602, respectively) ............... $10,186,754 $11,728,045
----------------- ------------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............................... 863,241 2,083
----------------- ------------------
Shares sold ............................................................. 201,436 971,043
Shares issued to shareholders in reinvestment of distributions .......... 30,182 918
Shares redeemed ......................................................... (345,112) (110,803)
----------------- ------------------
Net increase (decrease) in Portfolio shares ............................. (113,494) 861,158
----------------- ------------------
Shares outstanding at end of period ..................................... 749,747 863,241
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Pathway Series: International Portfolio
<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>
For the Period
Six Months Nov. 15, 1996
Ended (commencement of
March 31, operations) to
1998 September 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period ......................................... $13.59 $12.00
Income from investment operations: -----------------------------------
Net investment income ........................................................ .12 .31
Net realized and unrealized gain on investment transactions .................. .39 1.63(b)
-----------------------------------
Total from investment operations ............................................. .51 1.94
Less distributions: -----------------------------------
From net investment income ................................................... (.16) (.25)
From net realized gain on investments ........................................ (.35) (.10)
-----------------------------------
Total distributions .......................................................... (.51) (.35)
-----------------------------------
-----------------------------------
Net asset value, end of period ............................................... $13.59 $13.59
-----------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Return (%) (d) ......................................................... 4.17** 16.58**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................................... 10 12
Ratio of operating expenses to average daily net assets (%) (c) .............. -- --
Ratio of net investment income to average daily net assets (%) ............... 1.91* 1.23*
Portfolio turnover rate (%) .................................................. 50.3* 35.1*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and
repurchases of Portfolio shares in relation to fluctuating market values
during the period.
(c) 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.
(d) Total return would have been lower if the Adviser had not maintained some
of the Underlying Funds' expenses.
* Annualized
** Not annualized
14 - Scudder Pathway Series: International Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
The International Portfolio (the "Portfolio") is a 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").
The Portfolio'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 by the 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. Money market instruments
purchased with an original maturity of sixty days or less are valued at
amortized cost.
Federal Income Taxes. The Portfolio's policy is to comply with the requirements
of the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Portfolio paid no federal income taxes and no
provision for federal income taxes was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains, in excess of
available capital loss carryforwards, would be taxable to the 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, the Portfolio may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Portfolio.
The Portfolio uses 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. Purchases and Sales of Securities
During the six months ended March 31, 1998, purchases and sales of investment
securities (excluding money market investments) aggregated $2,486,947 and
$3,717,215, respectively.
15 - Scudder Pathway Series: International Portfolio
<PAGE>
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Portfolio's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Portfolio and Scudder Kemper
was approved by the Trust's Board of Trustees and by the Portfolio's
Shareholders. The Management Agreement, which is effective December 31, 1997, is
the same in all material respects as the corresponding previous Investment
Management Agreement, except that Scudder Kemper is the new investment adviser
to the Portfolio.
In accordance with the Management Agreement with Scudder Kemper, the Adviser
regularly provides the Portfolio with continuing investment management
consistent with the Portfolio's investment objective.
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
Portfolio, the Adviser arranges for all services pertaining to the operations of
the Portfolio. If the Trustees determine that the aggregate expenses of the
Portfolio are less than the estimated savings to the Underlying Scudder Funds
from the operation of the Portfolio, each of the Underlying Scudder Funds will
bear those expenses in proportion to the average daily value of its shares owned
by the 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 the 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 the
Portfolio, the Adviser will pay certain costs, on behalf of the Portfolio. For
the six months ended March 31, 1998, the Adviser incurred expenses in the amount
of $97,169. In accordance with the Special Servicing Agreement, no expenses were
charged to the Portfolio during the period. The Adviser has assumed the
Portfolio's organizational costs.
16 - Scudder Pathway Series: International Portfolio
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series
International Portfolio (the "Fund") was held on October 24, 1997, at the office
of Scudder Kemper Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.),
Two International Place, Boston, Massachusetts 02110. At the Meeting, as
adjourned and reconvened, the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below). With
regard to certain proposals, it was recommended that the Meeting be reconvened
in order to provide shareholders with an additional opportunity to return their
proxies. The date of the reconvened meeting at which the matters were decided is
noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
443,784 20,111 19,184 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Dr. Rosita P. Chang 467,676 15,403
Edgar R. Fiedler 468,570 14,510
Peter B. Freeman 467,178 15,902
Dr. J. D. Hammond 468,397 14,682
Richard M. Hunt 467,438 15,641
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
424,456 28,383 21,062 9,178
17 - Scudder Pathway Series: International Portfolio
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
432,333 25,393 19,826 9,178
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Borrowing 429,962 25,034 18,905 9,178
5.2 Senior securities 431,260 15,156 27,485 9,178
5.3 Underwriting of securities 434,794 11,622 27,485 9,178
5.4 Investment in real estate 431,388 15,028 27,485 9,178
5.5 Purchase of physical 431,611 14,805 27,485 9,178
commodities
5.6 Loans 434,703 11,713 27,485 9,178
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
458,212 3,627 21,240
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
18 - Scudder Pathway Series: International Portfolio
<PAGE>
This Page
intentionally
left blank.
19 - Scudder Pathway Series: International Portfolio
<PAGE>
Officers and Trustees
Daniel Pierce*
President
Dr. Rosita P. Chang
Trustee; Professor of Finance,
University of Rhode Island
Edgar R. Fiedler
Trustee; Vice President and
Economic Counsellor, The
Conference Board, Inc.
Peter B. Freeman
Trustee; Corporate Director and
Trustee
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, Secretary and
Treasurer
Kathryn L. Quirk*
Vice President and Assistant
Secretary
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
20 - Scudder Pathway Series: International Portfolio
<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
Scudder Real Estate Investment 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.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. +++ +++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 Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
21 - Scudder Pathway Series: International Portfolio
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 previously designated.
Distributions Direct
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 Pathway Series: International Portfolio
<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 8,000 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
</TABLE>
23 - Scudder Pathway Series: International Portfolio
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]