Scudder
Pathway Series:
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Semiannual Report
March 31, 1998
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<PAGE>
Scudder Pathway Series
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Conservative Portfolio Date of Inception: 11/15/96 Ticker Symbol: SCPCX
Balanced Portfolio Date of Inception: 11/15/96 Ticker Symbol: SPBAX
Growth Portfolio Date of Inception: 11/15/96 Ticker Symbol: SPGRX
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o For the six-month period ended March 31, 1998, Scudder Pathway Series
Portfolios provided positive returns in an increasingly volatile environment.
o Market weakness in the fourth quarter of 1997 gave way to strong performance
in the first quarter of 1998, as fears subsided over the Asian crisis and
economic growth remained healthy.
o Bond prices generally rose over the six months as the benchmark 30-year
Treasury yield slipped below 6%, federal borrowing continued to shrink, and
inflation remained benign.
o Overseas, European bourses on average bested the U.S. stock market, while the
Far East (including the Japanese) and Latin American markets continued to
struggle with the effects of the Asian financial crisis.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
3 Letter from the Series' Balanced Portfolio 20 Financial Statements
President
11 Portfolio Highlights 28 Notes to Financial
4 Portfolio Management Statements
Discussion 12 Performance Update
30 Shareholder Meeting
7 Glossary of Investment 13 Portfolio Summary Results
Terms
18 Investment Portfolio 36 Officers and Trustees
Conservative
Portfolio 26 Financial Highlights 37 Investment Products
and Services
8 Portfolio Highlights Growth Portfolio
38 Scudder Solutions
9 Performance Update 14 Portfolio Highlights
10 Portfolio Summary 15 Performance Update
17 Investment Portfolio 16 Portfolio Summary
25 Financial Highlights 19 Investment Portfolio
27 Financial Highlights
</TABLE>
2 - Scudder Pathway Series
<PAGE>
Letter from the Series' President
Dear Shareholders,
The six-month period covered by this report was a good test for the Pathway
Series Portfolios. 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.
While valuations of U.S. stocks are relatively high from our standpoint, we
think that many opportunities remain for long-term investors. Given the ongoing
uncertainties surrounding Asia and the potential for volatility to reemerge in
the months ahead, we believe the Pathway Series Portfolios offer a convenient
and diversified way to navigate the complexities of the markets. On the
following pages, lead portfolio manager Ben Thorndike discusses the market
environment and the team's approach to seeking consistent and superior returns
over the long term while managing overall portfolio risk.
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 Portfolios.
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. 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
<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 Asian crisis heightened concerns over slowing earnings growth
in the United States, a significant exporter to Asia. Sharply lower currencies
in Asia and other regions have had the effect of making U.S. exports more
expensive to foreign customers. Investors worried about this in the fourth
quarter, especially with respect to companies that derive a major portion of
their revenues from sales to Asia.
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 the United
States, the economy continued to expand at a healthy clip, and inflation and
interest rates were benign. Large-cap stocks retained their leadership role, as
investors have sought their favorable qualities and liquidity. At the same time,
small-caps have turned in attractive but more modest returns. While value stocks
were the big winners for the calendar year 1997, large-cap growth stocks have
been the best performers since the beginning of the year. Overall, the U.S.
stock market continues to deliver impressive performance, with a 17.22%
six-month return and a 48.00% 12-month return for the S&P 500 Index as of March
31, 1998.
Q: Fixed income securities play an important role in reducing overall portfolio
volatility. How did this sector perform?
A: Interest rates rose ever so slightly in the fourth quarter of 1997, but
slipped below 6% for the remainder of the six-month period. Despite continued
reports of strong economic growth, the benign inflation environment provided
downward pressure on yields and support for bond prices. This low rate
environment has been a boon to home sales as well as mortgage refinancings. High
yield corporate bonds, which have been influenced positively by the healthy
economy and a rising equity market, continued to experience strong demand from
investors. While domestic and established foreign bond market returns have been
attractive, emerging markets bonds have outperformed both year-to-date.
Q: Why did each Portfolio underperform its respective composite benchmark?
A: The last six months was a unique period in which short-term market activity
did not favor our longer-term, diversified investment approach. We are not at
all discouraged by this performance because our strategy entails gradual,
long-term investment allocations. As a result, the Portfolios may underperform
their benchmarks during short periods. It's worth noting, however, that the
performance since inception of each Portfolio relative to its benchmark is more
competitive than for the six-month period.
4 - Scudder Pathway Series
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Market Performance^1
Total returns for the periods ended March 31, 1998
---------------------------------------------------
6-month 12-month
---------------------------------------------------
S&P 500 Index 17.22% 48.00%
Small-cap stocks 6.37 42.01
International equities 5.73 18.61
Emerging markets equities -12.41 -13.44
U.S. bonds 4.55 11.99
U.S. high yield bonds 5.44 14.77
International bonds -0.29 2.84
Emerging markets bonds 0.87 17.98
Cash 2.64 5.58
Q: You've increased the exposure to fixed income funds in each Portfolio. Why?
A: This gradual shift over the six months reflects our belief in the relatively
attractive values presented by fixed income securities and the potential for
further bond market gains. In addition, we have been concerned about the
relatively high valuations of many U.S. stocks, which have provided excellent
returns. This does not mean we are abandoning our significant commitment to
equity funds. In fact, each Portfolio still maintains substantial holdings in
this area according to allowable ranges. The increase was accomplished by
investing cash flows and reducing our allocation to the money market fund in
some cases.
Q: Some think that the foreign stock markets are attractively valued compared to
the U.S. stock market.
What do you think?
A: We believe there are a number of foreign markets which offer relatively
attractive values versus domestic equities. In fact, many people don't realize
that the foreign equity markets in aggregate outperformed U.S. equities 14.71%
versus 13.94% during the first quarter.2 While it may take more time to work out
the problems in Asia, we think there are a number of foreign markets that have
great growth prospects going forward. In each Portfolio we have exposure to
these markets through several international and regional funds, as appropriate
to each Portfolio's investment objective.
- ----------
^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.
Definitions: Small-cap -- Russell 2000; International -- MSCI Europe, Australia,
and Far East; Emerging Market Equities -- MSCI Emerging Markets Free; U.S. Bonds
- -- Lehman Brothers Aggregate Bond; U.S. High Yield Bonds -- Merrill Lynch High
Yield; International Bonds -- JP Morgan Non-U.S. Global Government Bond;
Emerging Market Bonds -- JP Morgan EMBI+ Composite; and Cash -- Lehman Brothers
3-month Treasury bill. Past performance is no guarantee of future returns.
^2 Morgan Stanley Capital International indices: EAFE and USA for the three
months ended March 31, 1998.
5 - Scudder Pathway Series
<PAGE>
Q: What is your outlook?
A: Equity valuations remain high; profits are slowing; and Asia is still
troubled. Is it time to run and hide? Probably not. We think the powerful forces
of growth and disinflation will continue to lure domestic and foreign investors
toward U.S. financial assets. In a slow growth environment with little
inflation, we believe interest rates can move lower. We believe it is a time for
investors to diversify their portfolios and to accept the current environment of
increased volatility. Longer term, investors who can ride it out will likely
receive still further rewards.
The Pathway Approach
The Pathway Series is designed to provide investors with convenient,
economical options that incorporate professional management into
diversified, long-term portfolios. Each Portfolio is managed with the
following investment principles in mind:
o Diversification -- The multiple fund holdings of each Portfolio, in
combination with the diversification of the underlying funds, help to
smooth out volatility and provide exposure to a variety of
opportunities.
o Tailored Asset Allocation -- Ranges for all major asset classes have
been established for each Portfolio. These ranges are derived from
the risk profile which is deemed appropriate for each Portfolio's
objective.
o Equity Emphasis -- In each Portfolio we believe that at most times
equities will play an important role, given their long-term,
favorable return characteristics.
o Global Opportunities -- Many promising opportunities lie beyond the
boundaries of the United States. Therefore, a global emphasis is
imbedded in our fund selection process.
o Long-Term View -- We believe market timing is at best an uncertain,
and at worst, a disastrous investment strategy. Accordingly, asset
class shifts within the Portfolios are expected to be modest and
infrequent.
These principles, combined with the expertise applied to the management
of the underlying fund portfolios, are designed to create a complete
investment program and serve as a core component in an investor's
portfolio.
6 - Scudder Pathway Series
<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 who is
comfortable assuming additional risk in
seeking higher returns may decide to allocate
a higher proportion to 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 likely
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.
GROWTH STOCK Stock of a company that has displayed
above-average earnings growth and is expected
to continue to increase profits rapidly going
forward.
MARKET CAPITALIZATION The value of a company's outstanding shares
of common stock, determined by multiplying
the number of shares outstanding by the share
price (Shares x Price = Market
Capitalization). The universe of publicly
traded companies is frequently divided into
large-, mid-, and small-capitalizations.
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.
VALUE STOCK A company whose stock price does not fully
reflect its intrinsic value, as indicated by
price/earnings ratio, price/book value ratio,
dividend yield, or some other valuation
measure, relative to its industry or the
market overall. Value stocks tend to display
less price volatility and may carry higher
dividend yields.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
7 - 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.
For the six-month period ended March 31, 1998, the Portfolio provided a total
return of 5.27%, which compares to the 4.55% return of the unmanaged Lehman
Aggregate Bond Index and the 7.45% return of the Portfolio's composite benchmark
for the same six-month period. Longer term, the Portfolio's performance from its
commencement of operations has exceeded that of its composite benchmark.
Equity funds comprise a minority holding in the Portfolio, but they made a
significant contribution to performance over the six months. As valuations of
U.S. stocks rose along with a corresponding increase in perceived risk, we
gradually increased our emphasis on fixed income funds and the money market
fund, and reduced the equity fund weighting. Fixed-income securities, on their
own merits, appear to offer value, and fit well with the Portfolio's
conservative approach. As a result, we reduced the Portfolio's allocation of
equity funds from 36% to 32% of assets and increased fixed income fund holdings
from 55% to 62% over the six months ended March 31,1998. Holdings of the money
market fund declined from 9% to 6% over the same period.
The majority of the Portfolio's fixed income investments were invested in Income
Fund -- a diversified, primarily investment grade bond fund. We maintained a
smaller position in GNMA Fund -- a fund that invests primarily in Government
National Mortgage Association securities. Together, these two funds were
valuable holdings during the volatile period in a stock market. The Portfolio
also continued to hold modest positions in Emerging Markets Income Fund and High
Yield Bond Fund, both of which outperformed their respective investment
universes during the period. Representing the Portfolio's most conservative
holding, Cash Investment Trust -- a money market fund -- constituted 6% of
assets at the end of the period.
The equity portion of the Portfolio -- which represented smaller, but
significant holdings -- overall provided strong returns and valuable
diversification. The volatile and rapidly changing nature of the U.S. stock
market during the six months was difficult for many investors, with stock funds
most closely replicating the S&P 500 Index providing the best returns. Small
overseas positions in International Fund and Emerging Markets Growth Fund
provided additional diversification to the Portfolio.
8 - Scudder Pathway Series
<PAGE>
Performance Update as of March 31, 1998
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Portfolio Index Comparisons
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SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
- ----------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $11,846 18.46% 18.46%
Life of
Portfolio* $12,105 21.05% 14.94%
- ----------------------------------------------
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 Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $11,984 19.84% 19.84%
Life of
Portfolio* $11,915 19.15% 14.06%
- ----------------------------------------------
* 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: Conservative Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,000
3/97 $10,093
6/97 $10,847
9/97 $11,357
12/97 $11,436
3/98 $11,956
LBAB Index
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,907
3/97 $ 9,852
6/97 $10,215
9/97 $10,554
12/97 $10,865
3/98 $11,033
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 $ 9,893
3/97 $ 9,942
6/97 $10,662
9/97 $11,088
12/97 $11,331
3/98 $11,915
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 March 31
- -----------------------------
<TABLE>
<S> <C> <C>
1997* 1998
----------------
Net Asset Value... $11.97 $13.21
Income Dividends.. $ .14 $ .62
Capital Gains
Distributions..... $ .15 $ .30
Portfolio Total
Return (%)........ 2.19 18.46
Blended Index Total
Return (%)........ -.58 19.84
</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 Fund's expenses, the total return for the Portfolio would have been
lower.
9 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1998
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PATHWAY CONSERVATIVE PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- -----------------------------------------------------------------------------
Money Market 6%
Fix Income 62%
Equity 32%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Portfolio's emphasis on fixed
income funds was enhanced by
the strong performance of its
domestic equity fund holdings.
- -----------------------------------------------------------------------------
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 46%
- --------------------------------------------
Scudder GNMA Fund 10%
- --------------------------------------------
Scudder Growth and Income Fund 10%
- --------------------------------------------
Scudder Classic Growth Fund 7%
- --------------------------------------------
Scudder Large Company Value Fund 7%
- --------------------------------------------
Scudder Cash Investment Trust 6%
- --------------------------------------------
Scudder International Fund 4%
- --------------------------------------------
Scudder High Yield Bond Fund 4%
- --------------------------------------------
Scudder Small Company Value Fund 3%
- --------------------------------------------
Scudder Emerging Markets Income Fund 2%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 1%
- --------------------------------------------
100%
- --------------------------------------------
Income Fund, which anchors the
Portfolio's holdings, was increased
over the six-month period due to the
relatively attractive long-term
characteristics of this area.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 17. A
monthly Investment Portfolio Summary is available upon request.
10 - 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.
For the six-month period ended March 31, 1998, the Portfolio provided a total
return of 5.59%, which compares to the 10.66% return of the Portfolio's
composite benchmark for the same six-month period. Because our strategy entails
gradual, long-term investment allocations, we expect that the Portfolio may
underperform its benchmark during short periods. Longer term, the Portfolio's
performance since inception has been more competitive than for the six-month
period, and we believe the recent underperformance is a short-term phenomenon.
Although equity funds continue to comprise a majority holding in the Portfolio,
we reduced our overall equity and money market fund positions throughout the
period in favor of fixed income funds. At the end of the period, the proportion
invested in equity versus fixed income funds stood at 55% and 43%, respectively.
These changes were made as a result of the rising valuations of U.S. stocks and
a corresponding increase in perceived risk. Fixed-income securities, by
contrast, offer value and defensive qualities.
The Portfolio's domestic equity fund holdings benefited from the strong
performance of the U.S. stock market during the six months, and our allocation
there remained unchanged throughout the period. Growth and Income Fund and
Classic Growth Fund were solid contributors to performance in this area, but
lagged the top returns of large-cap stocks. Development Fund, which invests in
small- and mid-cap growth stocks, also benefited, but provided more modest
returns. Reductions in the equity fund allocation were achieved by reducing the
Portfolio's international equity holdings. International Fund's positive
performance was tempered by the Asian market fallout, which also contributed to
Emerging Markets Growth Fund's negative return for the period.
Among the Portfolio's fixed income fund holdings, Income Fund anchored the
Portfolio during an increasingly volatile environment for equities. This Fund
was the principal vehicle for our increased emphasis on fixed income funds. We
maintained a smaller position in High Yield Bond Fund, which continued to
outperform its benchmark, and relatively small positions in Emerging Markets
Income Fund and GNMA Fund, which remained unchanged over the six months. At the
end of the period, Cash Investment Trust -- the money market fund -- represented
2% of assets.
11 - Scudder Pathway Series
<PAGE>
Performance Update as of March 31, 1998
- -----------------------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------------------
SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
- ----------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $12,137 21.37% 21.37%
Life of
Portfolio* $12,319 23.19% 16.41%
- ----------------------------------------------
S&P 500 INDEX (50%), LBAB INDEX (35%),
MSCI ALL COUNTRY (EX U.S.) INDEX (10%),
3-MONTH T-BILL (5%)
- ----------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $12,919 29.19% 29.19%
Life of
Portfolio* $12,896 28.96% 21.05%
- ----------------------------------------------
* 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: Balanced Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,016
3/97 $10,042
6/97 $10,992
9/97 $11,543
12/97 $11,352
3/98 $12,187
S&P 500 Index
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,802
3/97 $10,064
6/97 $11,823
9/97 $12,708
12/97 $13,074
3/98 $14,897
LBAB Index
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,907
3/97 $ 9,852
6/97 $10,215
9/97 $10,554
12/97 $10,865
3/98 $11,033
S&P 500 Index (50%), LBAB Index (35%),
MSCI All Country (ex U.S.) Index (10%),
3-month T-Bill (5%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,858
3/97 $ 9,982
6/97 $11,106
9/97 $11,654
12/97 $11,846
3/98 $12,896
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 Lehman Brothers Aggregate Bond
(LBAB) Index is a market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. 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 March 31
- -----------------------------
<TABLE>
<S> <C> <C>
1997* 1998
----------------
Net Asset Value... $11.95 $13.76
Income Dividends.. $ .16 $ .48
Capital Gains
Distributions..... $ .07 $ .21
Portfolio Total
Return (%)........ 1.50 21.37
Blended Index Total
Return (%)........ -.18 29.19
</TABLE>
Performance is historical and 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 Fund's expenses, the total return for the Portfolio would have been
lower.
12 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1998
- -----------------------------------------------------------------------------
PATHWAY BALANCED PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------
Money Market 2%
Fix Income 43%
Equity 55%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Portfolio's balanced approach
to investing in fixed income and
equity funds was enhanced by the
strong performance of domestic
equities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
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 31%
- --------------------------------------------
Scudder International Fund 16%
- --------------------------------------------
Scudder Classic Growth Fund 15%
- --------------------------------------------
Scudder Growth and Income Fund 15%
- --------------------------------------------
Scudder High Yield Bond Fund 6%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 5%
- --------------------------------------------
Scudder Development Fund 4%
- --------------------------------------------
Scudder Emerging Markets Income Fund 3%
- --------------------------------------------
Scudder Cash Investment Trust 2%
- --------------------------------------------
Scudder GNMA Fund 2%
- --------------------------------------------
Scudder Micro Cap Fund 1%
- --------------------------------------------
100%
- --------------------------------------------
Income Fund and International
Fund were increased over the
period due to their relatively
attractive long-term
characteristics.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 18. A
monthly Investment Portfolio Summary is available upon request.
13 - 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 in bond funds, which offer the potential for capital
appreciation as well as income.
For the six-month period ended March 31, 1998, the Portfolio provided a total
return of 6.48%, which compares to the 11.80% return of the Portfolio's
composite benchmark for the same six-month period. Because our strategy entails
gradual, long-term investment allocations, we expect that the Portfolio may
underperform its benchmark during short periods. Longer term, the Portfolio's
performance since inception has been more competitive than for the six-month
period, and we believe the recent underperformance is a short-term phenomenon.
The strong performance of the U.S. equity market benefited many equity
investors, but the performance of most growth funds trailed. In this
environment, we pursued a long-term strategy aimed at reducing risk and taking
advantage of attractive valuations in the fixed income area. This entailed
increasing the Portfolio's fixed income fund holdings and reducing equity fund
holdings. As a result, our overall equity position declined from 80% to 74% of
assets over the six months and fixed income funds rose from 19% to 25% of
assets; holdings in the money market fund closed the period at 1% of assets.
Decreasing the Portfolio's equity fund exposure was implemented as a result of
concerns over the relatively high valuations of U.S. stocks and the
corresponding level of perceived risk.
The Portfolio's largest holding, Large Company Growth Fund, was a direct
beneficiary of the strong stock market and we increased the Portfolio's exposure
to this Fund. Smaller positions in 21st Century Growth Fund and Micro Cap Fund
also contributed to performance, but to a lesser extent. In the international
area, we reduced our allocation to both funds: International Fund's performance
was held back by the crisis in Asia, which also contributed to Emerging Markets
Growth Fund's negative return for the period.
The fixed income portion of the Portfolio served as an anchor during this period
of increased volatility in the equity markets. As interest rates generally
declined over the six months, we increased holdings of Income Fund. We also
maintained our commitment to High Yield Bond Fund and Emerging Markets Income
Fund, which continued to provide attractive returns and diversification.
14 - Scudder Pathway Series
<PAGE>
Performance Update as of March 31, 1998
- -----------------------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------------------
SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
- ----------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $12,640 26.40% 26.40%
Life of
Portfolio* $12,861 28.61% 20.12%
- ----------------------------------------------
S&P 500 INDEX (60%), MSCI ALL COUNTRY (EX
U.S.) INDEX (20%), LBAB INDEX (15%),
3-MONTH T-BILL (5%)
- ----------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
3/31/97 $10,000 Cumulative Annual
- ----------------------------------------------
1 Year $13,322 33.22% 33.22%
Life of
Portfolio* $13,331 33.31% 24.10%
- ----------------------------------------------
*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: Growth Portfolio
Year Amount
- ----------------------
11/96* $10,000
12/96 $10,058
3/97 $10,058
6/97 $11,357
9/97 $11,939
12/97 $11,560
3/98 $12,713
S&P 500 Index
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,802
3/97 $10,064
6/97 $11,823
9/97 $12,708
12/97 $13,074
3/98 $14,897
S&P 500 INDEX (60%), MSCI ALL COUNTRY (EX
U.S.) INDEX (20%), LBAB INDEX (15%),
3-MONTH T-BILL (10%)
Year Amount
- ----------------------
11/96* $10,000
12/96 $ 9,845
3/97 $10,007
6/97 $11,369
9/97 $11,924
12/97 $11,972
3/98 $13,331
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. The Lehman Brothers
Aggregate Bond (LBAB) Index is a market value-weighted measure of treasury
issues, agency issues, corporate bond issues and mortgage securities. 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... $11.92 $14.55
Income Dividends.. $ .16 $ .21
Capital Gains
Distributions..... $ .13 $ .26
Portfolio Total
Return (%)........ 1.75 26.40
Blended Index Total
Return (%)........ .00 33.22
</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 Fund's expenses, the total return for the Portfolio would have been
lower.
15 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1998
- -----------------------------------------------------------------------------
PATHWAY GROWTH PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------
Money Market 1%
Fixed Income 25%
Equity 74%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Despite a slight increase in the
Portfolio's emphasis on fixed
income funds, the Portfolio
continued to emphasize domestic
growth and international equity
funds.
- -----------------------------------------------------------------------------
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 28%
- --------------------------------------------
Scudder International Fund 20%
- --------------------------------------------
Scudder High Yield Bond Fund 10%
- --------------------------------------------
Scudder 21st Century Growth Fund 9%
- --------------------------------------------
Scudder Micro Cap Fund 9%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 8%
- --------------------------------------------
Scudder Income Fund 8%
- --------------------------------------------
Scudder Emerging Markets Income Fund 7%
- --------------------------------------------
Scudder Cash Investment Trust 1%
- --------------------------------------------
100%
- --------------------------------------------
Large Company Growth Fund,
benefited from the favorable
environment for large-cap U.S.
stocks, and continued to anchor
the Portfolio's equity fund
exposure.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 19. A
monthly Investment Portfolio Summary is available upon request.
16 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of March 31, 1998 (Unaudited)
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 6.1%
- ---------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $1,707,736) ............ 1,707,736 1,707,736
-----------
Fixed Income 62.0%
- ---------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund ....................... 49,564 579,409
Scudder GNMA Fund .......................................... 190,089 2,815,212
Scudder High Yield Bond Fund ............................... 85,623 1,137,075
Scudder Income Fund ........................................ 957,709 12,862,033
- ---------------------------------------------------------------------------------------
Total Fixed Income (Cost $17,310,910) 17,393,729
- ---------------------------------------------------------------------------------------
Equity 31.9%
- ---------------------------------------------------------------------------------------
Scudder Classic Growth Fund ................................ 99,407 1,988,137
Scudder Emerging Markets Growth Fund ....................... 26,609 389,025
Scudder Growth & Income Fund ............................... 83,649 2,549,619
Scudder International Fund ................................. 22,380 1,165,121
Scudder Large Company Value Fund ........................... 66,536 1,994,761
Scudder Small Company Value Fund ........................... 37,898 864,070
- ---------------------------------------------------------------------------------------
Total Equity (Cost $7,780,339) 8,950,733
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $26,798,985) (a) 28,052,198
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $26,809,674. At March 31,
1998, net unrealized appreciation for all securities based on tax cost was
$1,242,524. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,295,137 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$52,613. During the six months ended March 31, 1998, purchases and sales
of investment securities (excluding money market investments) aggregated
$11,624,281 and $1,100,000, respectively.
The accompanying notes are an integral part of the financial statements.
17 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of March 31, 1998 (Unaudited)
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 2.0%
- ---------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $4,882,732) ........... 4,882,732 4,882,732
------------
Fixed Income 42.5%
- ---------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund ...................... 595,499 6,961,389
Scudder GNMA Fund ......................................... 296,798 4,395,584
Scudder High Yield Bond Fund .............................. 1,037,643 13,779,903
Scudder Income Fund ....................................... 5,721,301 76,837,079
- ---------------------------------------------------------------------------------------
Total Fixed Income (Cost $101,211,729) 101,973,955
- ---------------------------------------------------------------------------------------
Equity 55.5%
- ---------------------------------------------------------------------------------------
Scudder Classic Growth Fund ............................... 1,856,107 37,122,145
Scudder Development Fund .................................. 289,388 12,437,909
Scudder Emerging Markets Growth Fund ...................... 752,419 11,000,361
Scudder Growth & Income Fund .............................. 1,140,817 34,772,096
Scudder International Fund ................................ 719,730 37,469,142
Scudder Micro Cap Fund .................................... 5,838 110,799
- ---------------------------------------------------------------------------------------
Total Equity (Cost $116,242,368) 132,912,452
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $222,336,829) (a) 239,769,139
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $222,392,632. At March 31,
1998, net unrealized appreciation for all securities based on tax cost was
$17,376,507. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $18,789,043 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,412,536. During the six months ended March 31, 1998, purchases and
sales of investment securities (excluding money market investments)
aggregated $62,721,069 and $14,400,000, respectively.
The accompanying notes are an integral part of the financial statements.
18 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of March 31, 1998 (Unaudited)
Pathway Growth Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 1.1%
- ---------------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $756,309) ............... 756,309 756,309
-----------
Fixed Income 24.9%
- ---------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund ........................ 358,662 4,192,759
Scudder High Yield Bond Fund ................................ 517,066 6,866,637
Scudder Income Fund ......................................... 412,993 5,546,502
- ---------------------------------------------------------------------------------------
Total Fixed Income (Cost $16,628,814) 16,605,898
- ---------------------------------------------------------------------------------------
Equity 74.0%
- ---------------------------------------------------------------------------------------
Scudder 21st Century Growth Fund ............................ 365,758 5,530,257
Scudder Emerging Markets Growth Fund ........................ 361,948 5,291,673
Scudder International Fund .................................. 259,891 13,529,930
Scudder Large Company Growth Fund ........................... 660,392 18,907,040
Scudder Micro Cap Fund ...................................... 325,574 6,179,396
- ---------------------------------------------------------------------------------------
Total Equity (Cost $43,083,177) 49,438,296
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $60,468,300) (a) 66,800,503
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $60,485,086. At March 31,
1998, net unrealized appreciation for all securities based on tax cost was
$6,315,417. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $7,005,341 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$689,924. During the six months ended March 31, 1998, purchases and sales
of investment securities (excluding money market investments) aggregated
$20,471,352 and $4,700,000, respectively.
The accompanying notes are an integral part of the financial statements.
19 - Scudder Pathway Series
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Assets Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) ................. $ 28,052,198 $239,769,139 $ 66,800,503
Receivable for investments sold ....................... 50,000 500,000 200,000
Receivable for Portfolio shares sold .................. 7,316 1,269,639 83,116
Income receivable ..................................... 30,221 149,538 54,111
--------------- --------------- ----------------
Total assets .......................................... 28,139,735 241,688,316 67,137,730
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................... 80,220 649,908 254,325
Payable for Portfolio shares redeemed ................. -- 210,719 90,876
Dividends payable ..................................... 7,829 9,285 --
--------------- --------------- ----------------
Total liabilities ..................................... 88,049 869,912 345,201
--------------------------------------------------------- ---------------- --------------- ----------------
Net assets, at market value $ 28,051,686 $240,818,404 $ 66,792,529
--------------------------------------------------------- ---------------- --------------- ----------------
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed (overdistributed) net investment income . (7,493) 64,901 276,385
Net unrealized appreciation (depreciation) on
investments ......................................... 1,253,213 17,432,310 6,332,203
Accumulated net realized gain ......................... 260,339 6,386,246 1,952,243
Paid-in capital ....................................... 26,545,627 216,934,947 58,231,698
--------------------------------------------------------- ---------------- --------------- ----------------
Net assets, at market value $ 28,051,686 $240,818,404 $ 66,792,529
--------------------------------------------------------- ---------------- --------------- ----------------
Net Asset Value
- -------------------------------------------------------------------------------------------------------------------------------
---------------- --------------- ----------------
Net Asset Value, offering and redemption price per share $13.21 $13.76 $14.55
---------------- --------------- ----------------
(outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) .. 2,122,880 17,499,983 4,589,320
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Pathway Series
<PAGE>
Statement of Operations
six months ended March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Investment Income Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income distributions from Underlying Funds ......... $ 599,871 $ 4,587,410 $ 625,225
------------------------------------------------------- ---------------- --------------- ----------------
Net investment income 599,871 4,587,410 625,225
------------------------------------------------------- ---------------- --------------- ----------------
Realized and unrealized gain (loss) on investments
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ........................................ 70,095 649,029 416,157
Capital gain distributions from Underlying Funds ... 359,789 7,772,781 2,311,057
---------------- --------------- ---------------
429,884 8,421,810 2,727,214
---------------- --------------- ---------------
Net unrealized appreciation (depreciation) on
investments during the period .................... 271,648 (74,551) 836,799
------------------------------------------------------- ---------------- --------------- ----------------
Net gain on investment transactions 701,532 8,347,259 3,564,013
------------------------------------------------------- ---------------- --------------- ----------------
------------------------------------------------------- ---------------- --------------- ----------------
Net increase in net assets resulting from operations $ 1,301,403 $ 12,934,669 $ 4,189,238
------------------------------------------------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
1996
(commencement
Six Months of
Ended operations) to
March 31, 1998 September 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 599,871 $ 283,047
Net realized gain (loss) ................................ 429,884 258,193
Net unrealized appreciation (depreciation) on
investments during the period ......................... 271,648 981,565
---------------- ----------------
Net increase in net assets resulting from operations .... 1,301,403 1,522,805
---------------- ----------------
Distributions to shareholders from:
Net investment income ................................... (685,526) (204,885)
---------------- ----------------
Net realized gain on investment transactions ............ (419,415) (8,323)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ............................... 12,651,909 17,529,919
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 1,082,890 206,449
Cost of shares redeemed ................................. (2,851,256) (2,099,284)
---------------- ----------------
Net increase in net assets from Portfolio share
transactions .......................................... 10,883,543 15,637,084
---------------- ----------------
Increase in net assets .................................. 11,080,005 16,946,681
Net assets at beginning of period ....................... 16,971,681 25,000
Net assets at end of period (including undistributed
(overdistributed) net investment income of ($7,493) ---------------- ----------------
and $78,162, respectively) ............................ $ 28,051,686 $ 16,971,681
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............... 1,279,306 2,083
---------------- ----------------
Shares sold ............................................. 976,467 1,426,617
Shares issued to shareholders in reinvestment of
distributions ......................................... 83,865 16,301
Shares redeemed ......................................... (216,758) (165,695)
---------------- ----------------
Net increase in Portfolio shares ........................ 843,574 1,277,223
---------------- ----------------
Shares outstanding at end of period ..................... 2,122,880 1,279,306
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
1996
(commencement
Six Months of
Ended operations) to
March 31, 1998 September 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 4,587,410 $ 2,647,994
Net realized gain (loss) ................................ 8,421,810 1,344,002
Net unrealized appreciation (depreciation) on
investments during the period ......................... (74,551) 17,506,861
---------------- ----------------
Net increase in net assets resulting from operations .... 12,934,669 21,498,857
---------------- ----------------
Distributions to shareholders from:
Net investment income ................................... (5,106,986) (2,063,517)
---------------- ----------------
Net realized gain on investment transactions ............ (3,375,302) (4,264)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ............................... 62,595,565 188,966,219
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 8,455,171 2,061,385
Cost of shares redeemed ................................. (26,830,886) (18,337,507)
---------------- ----------------
Net increase in net assets from Portfolio share
transactions ............................................ 44,219,850 172,690,097
---------------- ----------------
Increase in net assets .................................. 48,672,231 192,121,173
Net assets at beginning of period ....................... 192,146,173 25,000
Net assets at end of period (including undistributed
net investment income of $64,901 and $584,477, ---------------- ----------------
respectively) ......................................... $240,818,404 $192,146,173
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............... 14,166,739 2,083
---------------- ----------------
Shares sold ............................................. 4,710,331 15,422,187
Shares issued to shareholders in reinvestment of
distributions ......................................... 646,049 160,369
Shares redeemed ......................................... (2,023,136) (1,417,900)
---------------- ----------------
Net increase in Portfolio shares ........................ 3,333,244 14,164,656
---------------- ----------------
Shares outstanding at end of period ..................... 17,499,983 14,166,739
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Growth Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
1996
(commencement
Six Months of
Ended operations) to
March 31, 1998 September 30,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 625,225 $ 452,702
Net realized gain (loss) ................................ 2,727,214 213,932
Net unrealized appreciation (depreciation) on
investments during the period ......................... 836,799 5,495,404
---------------- ----------------
Net increase in net assets resulting from operations .... 4,189,238 6,162,038
---------------- ----------------
Distributions to shareholders from:
Net investment income ................................... (792,755) (8,787)
---------------- ----------------
Net realized gain on investment transactions ............ (981,692) (7,211)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ............................... 21,170,344 49,883,396
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 1,768,653 15,997
Cost of shares redeemed ................................. (8,135,515) (6,496,177)
---------------- ----------------
Net increase in net assets from Portfolio share
transactions .......................................... 14,803,482 43,403,216
---------------- ----------------
Increase in net assets .................................. 17,218,273 49,549,256
Net assets at beginning of period ....................... 49,574,256 25,000
Net assets at end of period (including undistributed
net investment income of $276,385 and $443,915, ---------------- ----------------
respectively) ......................................... $ 66,792,529 $ 49,574,256
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............... 3,503,263 2,083
---------------- ----------------
Shares sold ............................................. 1,546,932 3,994,728
Shares issued to shareholders in reinvestment of
distributions ......................................... 133,685 1,342
Shares redeemed ......................................... (594,560) (494,890)
---------------- ----------------
Net increase in Portfolio shares ........................ 1,086,057 3,501,180
---------------- ----------------
Shares outstanding at end of period ..................... 4,589,320 3,503,263
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Conservative Portfolio
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
Six Months Ended (commencement
March 31, 1998 of operations) to
(Unaudited) September 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------------
Net asset value, beginning of period .......................................... $13.27 $12.00
----------------------------------------
Income from investment operations:
Net investment income ......................................................... .37 .39
Net realized and unrealized gain on investment transactions ................... .30 1.36
----------------------------------------
Total from investment operations .............................................. .67 1.75
----------------------------------------
Less distributions:
From net investment income .................................................... (.43) (.33)
From net realized gain on investments ......................................... (.30) (.15)
----------------------------------------
Total distributions ........................................................... (.73) (.48)
----------------------------------------
----------------------------------------
Net asset value, end of period ................................................ $13.21 $13.27
- -------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) .......................................................... 5.27** 14.99**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 28 17
Ratio of operating expenses to average daily net assets (%) (b) ............... -- --
Ratio of net investment income to average daily net assets (%) ................ 5.63* 3.67*
Portfolio turnover rate (%) ................................................... 11.2* 42.0*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) 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.
(c) Total return would have been lower if the Adviser had not maintained some
Underlying Fund's expenses.
* Annualized
** Not annualized
25 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Balanced Portfolio
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
Six Months Ended (commencement of
March 31, 1998 operations) to
(Unaudited) September 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
----------------------------------------
<S> <C> <C>
Net asset value, beginning of period $13.56 $12.00
----------------------------------------
Income from investment operations:
Net investment income .28 .37
Net realized and unrealized gain on investment transactions .45 1.59
----------------------------------------
Total from investment operations .73 1.96
----------------------------------------
Less distributions:
From net investment income (.32) (.33)
From net realized gain on investments (.21) (.07)
----------------------------------------
Total distributions (.53) (.40)
----------------------------------------
----------------------------------------
Net asset value, end of period $13.76 $13.56
- -------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) 5.59** 16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) 241 192
Ratio of operating expenses to average daily net assets (%) (b) -- --
Ratio of net investment income to average daily net assets (%) 4.25* 2.96*
Portfolio turnover rate (%) 13.7* 24.3*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) 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.
(c) Total return would have been lower if the Adviser had not maintained some
Underlying Fund's expenses.
* Annualized
** Not annualized
26 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Growth Portfolio
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
Six Months Ended (commencement of
March 31, 1998 operations) to
(Unaudited) September 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------------
Net asset value, beginning of period $14.15 $12.00
----------------------------------------
Income from investment operations:
Net investment income .16 .29
Net realized and unrealized gain on investment transactions .71 2.15
----------------------------------------
Total from investment operations .87 2.44
----------------------------------------
Less distributions:
From net investment income (.21) (.16)
From net realized gain on investments (.26) (.13)
----------------------------------------
Total distributions (.47) (.29)
----------------------------------------
----------------------------------------
Net asset value, end of period $14.55 $14.15
- -------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) 6.48** 20.79**
Ratios and Supplemental Data
Net assets, end of period ($ millions) 67 50
Ratio of operating expenses to average daily net assets (%) (b) -- --
Ratio of net investment income to average daily net assets (%) 2.30* 2.09*
Portfolio turnover rate (%) 17.5* 15.1*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) 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.
(c) Total return would have been lower if the Adviser had not maintained some
Underlying Fund's expenses.
* Annualized
** Not annualized
27 - Scudder Pathway Series
<PAGE>
Notes to Financial Statements (Unaudited)
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. Money market instruments
purchased with an original 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, 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
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
28 - Scudder Pathway Series
<PAGE>
changed its name to Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and Zurich resulted in the
termination of each Portfolio's Investment Management Agreement with Scudder.
However, a new Investment Management Agreement (the "Management Agreement")
between each Portfolio and Scudder Kemper was approved by the Trust's Board of
Trustees and by the Portfolio's Shareholders. Each 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 applicable Portfolio.
In accordance with the Management Agreements with Scudder Kemper, the Adviser
regularly provides the Portfolios with continuing investment management
consistent with each 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
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 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 any
Portfolio, the Adviser will pay certain costs on behalf of the respective
Portfolio. For the six months ended March 31, 1998, the Adviser incurred
expenses in the amount of $35,467 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.
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 March 31,
1998, the Balanced Portfolio held the following Underlying Funds' outstanding
shares: approximately 37% of the Scudder Classic Growth Fund, 10% of the Scudder
Income Fund, 8% of the Scudder High Yield Bond Fund, and 5% of the Scudder
Emerging Markets Growth Fund. At March 31, 1998, the Growth Portfolio held the
following Underlying Funds' outstanding shares: approximately 15% of the Scudder
21st Century Fund and 5% of the Scudder Large Company Growth Fund.
29 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Conservative Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series
Conservative 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*
--- ------- ------- -----------------
786,758 11,541 39,056 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Dr. Rosita P. Chang 825,191 12,165
Edgar R. Fiedler 829,743 7,613
Peter B. Freeman 829,617 7,739
Dr. J. D. Hammond 829,639 7,716
Richard M. Hunt 829,743 7,613
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*
--- ------- ------- -----------------
748,523 25,432 62,614 786
30 - Scudder Pathway Series
<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*
--- ------- ------- -----------------
772,481 19,647 59,675 786
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 772,728 27,564 36,277 786
5.2 Senior securities 777,000 22,211 37,358 786
5.3 Underwriting of securities 776,622 22,583 37,364 786
5.4 Investment in real estate 774,001 25,204 37,364 786
5.5 Purchase of physical 773,941 25,204 37,424 786
commodities
5.6 Loans 773,941 25,204 37,424 786
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
782,566 5,685 49,104
* 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.
31 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Balanced Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series
Balanced 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*
--- ------- ------- -----------------
6,706,359 149,307 96,084 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Dr. Rosita P. Chang 6,817,934 133,817
Edgar R. Fiedler 6,814,638 137,113
Peter B. Freeman 6,813,992 137,759
Dr. J. D. Hammond 6,818,265 133,486
Richard M. Hunt 6,815,607 136,144
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. (Approved December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,882,052 237,625 162,506 8,143
32 - Scudder Pathway Series
<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*
--- ------- ------- -----------------
6,928,266 206,400 147,517 8,143
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 6,574,640 222,315 146,652 8,143
5.2 Senior securities 6,577,354 142,128 224,126 8,143
5.3 Underwriting of securities 6,580,782 138,696 224,129 8,143
5.4 Investment in real estate 6,579,822 140,722 223,064 8,143
5.5 Purchase of physical 6,576,898 139,604 227,106 8,143
commodities
5.6 Loans 6,577,617 137,819 228,171 8,143
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
6,674,463 72,409 204,879
* 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.
33 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Growth Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series
Growth 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*
--- ------- ------- -----------------
1,616,361 87,327 27,957 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Dr. Rosita P. Chang 1,640,573 91,073
Edgar R. Fiedler 1,640,855 90,790
Peter B. Freeman 1,640,706 90,940
Dr. J. D. Hammond 1,640,583 91,062
Richard M. Hunt 1,640,583 91,062
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. (Approved December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,814,156 120,388 72,084 18,612
34 - Scudder Pathway Series
<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*
--- ------- ------- -----------------
1,833,014 119,615 54,000 18,612
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 1,547,497 113,323 52,213 18,612
5.2 Senior securities 1,550,140 57,854 105,039 18,612
5.3 Underwriting of securities 1,550,249 56,134 106,649 18,612
5.4 Investment in real estate 1,550,009 57,985 105,039 18,612
5.5 Purchase of physical 1,550,117 57,400 105,515 18,612
commodities
5.6 Loans 1,550,117 57,400 105,515 18,612
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
1,616,802 29,988 84,855
* 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.
35 - Scudder Pathway Series
<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.
36 - Scudder Pathway Series
<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.
37 - Scudder Pathway Series
<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
- ------------------------------------------------------------------------------------------------------------------------------
38 - Scudder Pathway Series
<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>
39 - Scudder Pathway Series
<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
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