Scudder
Pathway Series:
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Annual Report
August 31, 1998
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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 A deepening of the crises in the emerging markets and slowing earnings growth
at many U.S. companies resulted in significantly increased market volatility for
equity securities over the abbreviated 11-month fiscal period ended August 31,
1998.
o The unsettled environment sent investors in search of relatively safe havens
- -- primarily U.S. Treasury bonds -- which rallied strongly.
o Each portfolio's broad diversification across multiple asset classes helped to
soften the effects of the sharp market declines toward the end of the period.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
3 Letter from the Series' Balanced Portfolio 19 Financial Statements
President
10 Portfolio Highlights 27 Notes to Financial
4 Portfolio Management Statements
Discussion 11 Performance Update
29 Report of Independent
6 Glossary of Investment 12 Portfolio Summary Accountants
Terms
17 Investment Portfolio 30 Tax Information
Conservative
Portfolio 25 Financial Highlights 32 Officers and Trustees
7 Portfolio Highlights Growth Portfolio 33 Investment Products
and Services
8 Performance Update 13 Portfolio Highlights
34 Scudder Solutions
9 Portfolio Summary 14 Performance Update
16 Investment Portfolio 15 Portfolio Summary
24 Financial Highlights 18 Investment Portfolio
26 Financial Highlights
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2 - Scudder Pathway Series
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Letter from the Series' President
Dear Shareholders,
Over the abbreviated 11-month fiscal period, the economic crises in the
emerging markets spread across the globe, causing investors to seek refuge in
safer havens such as U.S. Treasury bonds and stocks of large, familiar
companies. In the process, other asset classes were driven down. In a
broad-based market downdraft such as this, shares of even fundamentally sound
companies can get hit hard.
As difficult as these sell-offs are to deal with, they can provide
extraordinary opportunities for those willing to endure short-term volatility.
Over the long-term, we believe that stocks with attractive fundamentals will
ultimately return to favor. In this challenging climate, we believe investors
should remain focused on long-term investment goals and practice diversification
across domestic large and small-cap stocks, bonds, and foreign securities.
For this report, we asked lead portfolio manager Ben Thorndike to discuss
the market environment and the investment team's asset allocation strategy for
the 11-month period. The Pathway Series portfolios weathered an oftentimes
difficult and volatile period by maintaining exposure to a broad range of asset
classes and by pursuing a long-term approach. Highlights of the team's strategy
and outlook begin on page 4.
For those of you who are interested in new Scudder funds, we recently
introduced two international funds: Scudder International Growth Fund -- which
seeks to invest in high growth opportunities in both developed and developing
markets, and Scudder International Value Fund -- which seeks to invest in
undervalued foreign securities. For further information on these new funds,
please call Scudder Investor Information at 1-800-225-2470.
Thank you for your investment in Scudder Pathway Series. If you have any
questions about your Fund, please call Scudder Investor Relations at the number
above, or visit our Internet Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3 - Scudder Pathway Series
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Portfolio Management Discussion
We asked Benjamin W. Thorndike, lead portfolio manager of Scudder Pathway
Series, to discuss the market environment and Scudder's investment strategy for
the Pathway Series.
Q: How would you characterize the investment environment for the abbreviated
11-month fiscal period that ended August 31, 1998?
A: As I am sure that many of our shareholders already know, it's been a period
of significantly increasing uncertainty and volatility in the financial markets.
The Asian financial crisis deepened, and in Japan -- a country considered key to
the well-being of Asia -- a lack of fiscal leadership weighed down both the
local market and the region. While investors were somewhat relieved by the slow
but steady pace of U.S. economic growth in the second calendar quarter, a
devaluation of the Russian currency and suspension of debt payments in August
sent shocks through the world's financial markets. While the Dow Jones
Industrial Average has recovered much of the ground lost since the end of the
period, the closing months were a wild ride for many investors.
Q: Have the underlying fundamentals changed dramatically?
A: No. While recently there has been a slowing of global growth, the overall
economic fundamentals of the United States and other parts of the developed
world generally are in good shape. Over the last 10-15 years, in response to
global competition, U.S. businesses have restructured to succeed in the
information age. Europe is not far behind, and even some emerging markets have
made progress. Japan and much of Southeast Asia continue to suffer from
uncorrected financial excesses, but these countries have not kept the rest
Market Index Performance
(11 Months as of August 31, 1998)
- ------------------------------------------------------
Lehman Aggregate Bond 8.96%
Standard & Poor's 500 Composite 2.48
MSCI All Country World (ex. U.S.) -11.90
- ------------------------------------------------------
All indices are unmanaged.
of the world's economies from continuing on a path of healthy, deflationary
growth.
Q: If the economic foundation is solid, why have the markets become more
volatile?
A: The problem lies in the financial markets. Over the last five years liquidity
and credit have been too freely available. Investors and lenders have not
exercised enough caution and analysis of risk has not been a major element in
the investment decision. Over the last year risk has crept back into price
levels, especially in the most risky markets. In the United States, there was a
frequently voiced presumption that the risks materializing in Asia were not
relevant here. This is now changing. Thailand and Russia have each provided
wake-up calls that we live in an integrated world economy and we are all
connected.
Q: In the midst of market gyrations, where did investors turn?
A: Investors bought securities that they believed were relatively safe and
stable -- primarily Treasury securities. This caused the yield on the benchmark
30-year Treasury bond -- which moves in the opposite direction of bond prices --
to decline to new record lows. The "flight to quality" resulted in bond returns
4 - Scudder Pathway Series
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that have recently outdistanced stocks. Overseas, foreign sovereign bonds also
turned in strong performance, but emerging markets equities and bonds
experienced substantial losses.
Q: What do you think investors should do in this environment?
A: It might be easy for some investors to look at what has happened over the
last 11 months and consider heading for the exits, so to speak, with regard to
investing. However, investing has always involved risk -- it just hasn't been as
visible until recently. We believe that recent events have actually created a
number of opportunities for long-term investors. For many companies with solid
earnings and growing businesses, valuations have become more attractive. In
addition, this has been a good opportunity to add to existing holdings at lower
prices.
Q: How will you manage the Portfolios going forward?
A: We will continue to pursue a diversified approach across multiple asset
classes according to the investment objective and risk/reward profile for each
Portfolio. In managing the Portfolios, we tend to ignore the short-term
movements of the markets and focus on the attractiveness of specific asset
classes. Our goal is to provide superior returns over the long term with lower
price fluctuations than less diversified funds. With volatility recently on the
rise, we think this approach can be particularly valuable to investors.
Pathway Series:
A team approach to investing
The Portfolios are managed by a team of Scudder Kemper Investments, Inc. (the
"Adviser") professionals who each play an important role in the Portfolios'
management process. Team members work together to develop investment
strategies and select securities for each Portfolio. They are supported by the
Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging our extensive resources. All members
of the Pathway investment team are members of Scudder's Global Asset
Allocation Committee, which is responsible for analyzing the global economy
and capital markets, integrating information from the firm's equity and fixed
income specialists, and developing the outlook for the major markets in which
a Portfolio invests.
Lead Portfolio Manager Benjamin W. Thorndike, who has 18 years of investment
experience, joined the Adviser in 1983 as a portfolio manager. Philip Fortuna,
Portfolio Manager, joined the Adviser in 1986 as manager of institutional
equity accounts. Maureen Allyn, Portfolio Manager, is the Adviser's Chief
Economist, a position she has held since 1989, and is responsible for
analyzing both the world and U.S. economies. Edward B. Baldini, Portfolio
Manager, joined the Adviser in 1995 as a member of the Growth and Income
Equity Management Group, focused on institutional client management.
5 - Scudder Pathway Series
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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. An investor with a long-term
investment horizon that is comfortable assuming
additional risk in seeking higher returns may decide
to allocate a higher proportion to stocks than bonds
or money markets.
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, e.g., 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)
6 - Scudder Pathway Series
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Portfolio Highlights
Pathway Conservative Portfolio
Pathway Conservative Portfolio seeks current income and, secondarily, long-term
growth of capital by investing substantially in bond mutual funds, with some
exposure to equity mutual funds.
Performance
This report covers the abbreviated fiscal period from October 1, 1997 to August
31, 1998. For the 11-month period the Conservative Portfolio returned -1.10%
versus a 6.22% return for the Portfolio's custom benchmark (detailed performance
information is listed on page 8).
As stock market volatility intensified throughout the period, the Portfolio's
combined 69% weighting in fixed income funds and the money market fund helped to
soften the effects of equity market fluctuations. While equity fund holdings
generally added to performance over the first half of the period, the stock
market's sharp decline at the end of August held back the Portfolio's overall
return for the period.
With interest rates on long-term bonds generally declining over most of the
period and investors seeking a safe haven from the stock market, the Portfolio's
fixed income holdings benefited from a rally in Treasury securities. Income Fund
remained a core holding and contributed positively to performance. A smaller
position in GNMA Fund made a strong contribution to returns, while the small
position in Emerging Markets Income Fund experienced sharply negative returns in
the wake of the crises in the emerging markets.
The Portfolio's holdings of equity funds, at 31% of assets, made a positive
contribution early in the period. However, the sharp stock market declines of
August more than erased any gains, which subtracted from the Portfolio's overall
performance.
Portfolio Strategy
The fixed income fund weighting, at 55% of assets at the beginning of the
period, was increased and diversification was broadened in both the equity and
fixed income areas over the period. As concerns of rising interest rates mounted
in the first quarter of 1998, the Portfolio's exposure to bond funds was
temporarily reduced in favor of U.S. equity funds. As stock valuations rose to
seemingly unsustainable levels in the summer and questions remained about Asia,
the fixed income weighting was increased to 64% of assets by period end. Over
the period, the Portfolio's holdings in Cash Investment Trust -- the money
market fund -- were reduced from 9% of assets to 5% in favor of fixed income
funds that invest in longer maturities. In August, Portfolio diversification was
expanded with the addition of a significant position in Corporate Bond Fund,
which invests in a broad range of investment grade and below investment grade
corporate bonds.
In the equity area, the reduction of International Fund continued throughout the
period. In June a position was established in International Growth and Income
Fund. Other equity fund positions remained diversified with their weights
essentially unchanged over the period.
7 - Scudder Pathway Series
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Performance Update as of August 31, 1998
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Portfolio Index Comparisons
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Total Return
- ----------------------------------------------
Period Ended Growth of Average
8/31/98 $10,000 Cumulative Annual
- ----------------------------------------------
Scudder Pathway Series: CONSERVATIVE PORTFOLIO
- ----------------------------------------------
1 Year $10,205 2.05% 2.05%
Life of
Portfolio* $11,373 13.73% 7.44%
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LBAB INDEX (60%), S&P 500 INDEX (25%),
MSCI ALL COUNTRY (EX U.S.) INDEX (5%),
3-MONTH T-BILL (10%)
- ----------------------------------------------
1 Year $10,893 8.93% 8.93%
Life of
Portfolio* $11,778 17.78% 9.80%
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* The Portfolio commenced operations on November 15, 1996.
Index comparisons begin November 30, 1996.
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Growth of a $10,000 Investment
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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
2/97 $10,236
5/97 $10,567
8/97 $11,006
11/97 $11,307
2/98 $11,768
5/98 $12,028
8/98 $11,232
LBAB Index
Year Amount
- ----------------------
11/96* $10,000
2/97 $9,963
5/97 $10,095
8/97 $10,402
11/97 $10,757
2/98 $10,996
5/98 $11,196
8/98 $11,499
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
2/97 $10,110
5/97 $10,437
8/97 $10,813
11/97 $11,204
2/98 $11,716
5/98 $12,001
8/98 $11,778
The Lehman Brothers Aggregate Bond (LBAB) Index is a market value-weighted
measure of treasury issues, agency issues, corporate bond issues and mortgage-
backed 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.
1997(a) 1998(b)(c)
------------------------
Net Asset Value...... $13.27 $12.28
Income Dividends..... $ .33 $ .57
Capital Gains
Distributions........ $ .15 $ .30
Portfolio Total
Return (%)........... 14.99 -1.10
Blended Index Total
Return (%)........... 10.88 6.22
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.
(a) For the period November 15, 1996 (commencement of operations) to September
30, 1997. Index comparison begins November 30, 1996.
(b) For the eleven month period ended August 31, 1998.
(c) On August 12, 1998, the Board of Trustees of the Portfolio changed the
fiscal year end from September 30 to August 31.
8 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1998
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PATHWAY CONSERVATIVE PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- -----------------------------------------------------------------------------
Money Market 5%
Fixed Income 64%
Equity 31%
- --------------------------------------
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 benefited from declining
interest rates over the period.
- -----------------------------------------------------------------------------
ASSET CLASS RANGES
- -----------------------------------------------------------------------------
Money Market 0-15%
Fixed Income 40-80%
Equity 20-50%
Asset class allocations are derived
from the risk profile for the Portfolio,
changes are expected to be modest
and infrequent.
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PORTFOLIO HOLDINGS
- -----------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 41%
- --------------------------------------------
Scudder Corporate Bond Fund 9%
- --------------------------------------------
Scudder GNMA Fund 9%
- --------------------------------------------
Scudder Growth and Income Fund 8%
- --------------------------------------------
Scudder Large Company Value Fund 6%
- --------------------------------------------
Scudder Classic Growth Fund 6%
- --------------------------------------------
Scudder International Growth
and Income Fund 6%
- -------------------------------------------
Scudder Cash Investment Trust 5%
- --------------------------------------------
Scudder Small Company Value Fund 4%
- --------------------------------------------
Scudder High Yield Bond Fund 3%
- --------------------------------------------
Scudder Emerging Markets Income Fund 2%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 1%
- --------------------------------------------
100%
- --------------------------------------------
The fixed income fund allocation was
increased and diversification was
broadened in both the equity and
fixed income areas over the period.
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For more complete details about the Portfolio's investments, see page 16. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9 - Scudder Pathway Series
<PAGE>
Portfolio Highlights
Pathway Balanced Portfolio
Pathway Balanced Portfolio seeks a balance of growth and income by investing in
a mix of money market, bond, and equity mutual funds.
Performance
This report covers the abbreviated fiscal period from October 1, 1997 to August
31, 1998. For the 11-month period, the Balanced Portfolio returned -6.78% versus
a 3.81% return for the Portfolio's custom benchmark (detailed performance
information is listed on page 11).
As stock market volatility intensified throughout the period, the Portfolio's
fixed income fund holdings helped to soften the effects of equity market
fluctuations. While the Portfolio's equity fund holdings had generally added to
performance over the first half, the stock market's sharp decline in July and
August held back the Portfolio's overall return for the period.
The Portfolio's holdings of equity funds, at 59% of assets, made a mixed
contribution to returns. Domestic equity funds, which had delivered excellent
returns during the first half of the period, declined sharply in the final two
months of the period. Core holdings Classic Growth and Growth and Income funds
underperformed in this difficult environment. Development Fund, which typically
invests in small- and mid-cap stocks was particularly affected by the sharp
declines of small-cap stocks. By contrast, International Fund significantly
outperformed amid the global market turmoil, but the Portfolio's small position
in Emerging Markets Growth Fund experienced significant declines, reflecting the
sharp pullback in this area.
The balance of the Portfolio, at 41% of assets, was invested in fixed income
funds and the money market fund. As interest rates on long-term Treasuries
continued to decline over the period, bond prices rose and the Portfolio's
holdings of fixed income funds generally benefited. Income Fund, at 25% of
assets, continued to anchor the fixed income position while a smaller position
in High Yield Bond Fund trailed the fixed income averages. The small position in
Emerging Markets Income Fund subtracted from overall Portfolio returns,
reflecting the crises in the emerging markets.
Portfolio Strategy
Over the first half of the period, the weighting of fixed income funds was
reduced modestly, as concerns of rising interest rates mounted in the first
quarter of 1998. As a result, the Portfolio's exposure to bond funds was reduced
primarily by decreasing holdings of GNMA Fund. As inflation fears subsided in
the second half, the overall fixed income exposure was increased. Income Fund
was trimmed in favor of a new position in Corporate Bond Fund.
Among the Portfolio's equity fund holdings, International and Emerging Markets
Growth funds were reduced early in the fiscal period, reflecting continued
concerns abroad stemming from the emerging markets crises. In the second half of
the period, Classic Growth and Growth and Income funds were increased for their
emphasis on quality growth stocks and above-average dividend yielding stocks,
respectively.
10 - Scudder Pathway Series
<PAGE>
Performance Update as of August 31, 1998
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Portfolio Index Comparisons
- -----------------------------------------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
8/31/98 $10,000 Cumulative Annual
- ----------------------------------------------
Scudder Pathway Series: BALANCED PORTFOLIO
- ----------------------------------------------
1 Year $ 9,716 -2.84% -2.84%
Life of
Portfolio* $10,876 8.76% 4.80%
- ----------------------------------------------
S&P 500 INDEX (50%), LBAB INDEX (35%),
MSCI ALL COUNTRY (EX U.S.) INDEX (10%),
3-MONTH T-BILL (5%)
- ----------------------------------------------
1 Year $10,774 7.74% 7.74%
Life of
Portfolio* $12,098 20.98% 11.49%
- ----------------------------------------------
* 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
2/97 $10,235
5/97 $10,645
8/97 $11,074
11/97 $11,210
2/98 $11,888
5/98 $12,178
8/98 $10,759
S&P 500 Index
Year Amount
- ----------------------
11/96* $10,000
2/97 $10,496
5/97 $11,315
8/97 $12,048
11/97 $12,853
2/98 $14,172
5/98 $14,789
8/98 $13,028
LBAB Index
Year Amount
- ----------------------
11/96* $10,000
2/97 $9,963
5/97 $10,095
8/97 $10,402
11/97 $10,757
2/98 $10,996
5/98 $11,196
8/98 $11,499
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
2/97 $10,232
5/97 $10,758
8/97 $11,229
11/97 $11,689
2/98 $12,516
5/98 $12,904
8/98 $12,098
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-backed 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.
1997(a) 1998(b)(c)
------------------------
Net Asset Value...... $13.56 $12.06
Income Dividends..... $ .33 $ .42
Capital Gains
Distributions........ $ .07 $ .21
Portfolio Total
Return (%)........... 16.67 -6.78
Blended Index Total
Return (%)........... 16.54 3.81
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.
(a) For the period November 15, 1996 (commencement of operations) to September
30, 1997. Index comparison begins November 30, 1996.
(b) For the eleven month period ended August 31, 1998.
(c) On August 12, 1998, the Board of Trustees of the Portfolio changed the
fiscal year end from September 30 to August 31.
11 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1998
- -----------------------------------------------------------------------------
PATHWAY BALANCED PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------
Money Market 1%
Fixed Income 40%
Equity 59%
- --------------------------------------
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, including exposure to fixed
income funds, helped to dampen the
effects of equity market volatility
during the period.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
Money Market 0-10%
Fixed Income Funds 25-60%
Equity Funds 40-70%
Asset class allocations are derived
from the risk profile for the Portfolio;
changes are expected to be modest
and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 25%
- --------------------------------------------
Scudder Classic Growth Fund 19%
- --------------------------------------------
Scudder Growth and Income Fund 16%
- --------------------------------------------
Scudder International Fund 15%
- --------------------------------------------
Scudder Corporate Bond Fund 9%
- --------------------------------------------
Scudder Development Fund 6%
- --------------------------------------------
Scudder High Yield Bond Fund 4%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 3%
- --------------------------------------------
Scudder Emerging Markets Income Fund 2%
- --------------------------------------------
Scudder Cash Investment Trust 1%
- --------------------------------------------
Scudder Micro Cap Fund 0%
- --------------------------------------------
100%
- --------------------------------------------
International equity fund holdings
were reduced in favor of domestic
equity funds with characteristics that
were expected to weather the
environment of increasing volatility.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
12 - Scudder Pathway Series
<PAGE>
Portfolio Highlights
Pathway Growth Portfolio
Pathway Growth Portfolio seeks long-term growth of capital by investing
primarily in equity mutual funds designed to provide long-term growth. The
Portfolio also invests a portion of assets in bond funds, which offer the
potential for capital appreciation as well as income.
Performance
This report covers the abbreviated fiscal period from October 1, 1997 to August
31, 1998. For the 11-month period the Growth Portfolio returned -10.94% versus a
0.88% return for the Portfolio's custom benchmark (detailed performance
information is listed on page 14).
As stock market volatility increased throughout the period, the Portfolio's
exposure to fixed income funds helped to mitigate some of the price fluctuations
of the equity markets. The Portfolio's holdings of equity funds, at 82% of
assets, made significant gains during the first half of the period. However, the
sharp market declines in July and August more than erased earlier gains. Since
the close of the period, equity funds have rebounded from their August lows, but
volatility has continued.
Overall, stocks of large-cap growth companies provided the best relative returns
in this difficult market environment. The Portfolio's core holding in Large
Company Growth Fund, which invests in large-cap growth stocks, managed to
outperform the S&P 500 Index. Small-cap funds, however, experienced some of the
sharpest declines, and the relatively small positions in 21st Century Growth and
Micro Cap funds were pulled down by this effect. International Fund outperformed
amid the global market turmoil, but the Portfolio's small position in Emerging
Markets Growth Fund experienced significant declines reflecting the sharp
pullback in this area.
The Portfolio's holdings of fixed income funds, at 17% of assets, generally
benefited from the rally in Treasuries. Income Fund was one of the primary
beneficiaries of this environment, while High Yield Bond Fund, which tends to be
correlated with the performance of the equity markets, underperformed the fixed
income averages. The relatively modest position in Emerging Markets Income Fund
suffered sharp losses in the wake of the deepening crises in the emerging
markets. Near the end of the period, a new position was added: Corporate Bond
Fund, which invests in a diversified selection of investment grade and below
investment-grade corporate bonds.
Portfolio Strategy
Over the first half of the fiscal period, the modest weighting of fixed income
funds was increased and equity fund holdings were decreased reflecting the
relatively high valuations of the stock market. As the equity market faltered in
July and August, the equity fund weighting was restored. Over the course of the
period, exposure to international funds was decreased in favor of domestic
equity funds with Large Company Growth increasing from 26% to 35% of assets. In
the fixed income area, Portfolio holdings were relatively unchanged except for
the addition of Corporate Bond Fund, which increased diversification of the
Portfolio's fixed income fund holdings.
13 - Scudder Pathway Series
<PAGE>
Performance Update as of August 31, 1998
- -----------------------------------------------------------------------------
Portfolio Index Comparisons
- -----------------------------------------------------------------------------
Total Return
- ----------------------------------------------
Period Ended Growth of Average
8/31/98 $10,000 Cumulative Annual
- ----------------------------------------------
Scudder Pathway Series: GROWTH PORTFOLIO
- ----------------------------------------------
1 Year $ 9,377 -6.23% -6.23%
Life of
Portfolio* $10,757 7.57% 4.16%
- ----------------------------------------------
S&P 500 INDEX (60%), MSCI ALL COUNTRY (EX
U.S.) INDEX (20%), LBAB INDEX (15%),
3-MONTH T-BILL (5%)
- ----------------------------------------------
1 Year $10,546 5.46% 5.46%
Life of
Portfolio* $12,029 20.29% 11.13%
- ----------------------------------------------
*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
2/97 $10,336
5/97 $10,910
8/97 $11,340
11/97 $11,399
2/98 $12,294
5/98 $12,608
8/98 $10,633
S&P 500 Index
Year Amount
- ----------------------
11/96* $10,000
2/97 $10,496
5/97 $11,315
8/97 $12,048
11/97 $12,853
2/98 $14,172
5/98 $14,789
8/98 $13,028
S&P 500 Index (60%), MSCI All Country (ex U.S.) Index (20%),
LBAB Index (15%), 3-month T-Bill (5%)
Year Amount
- ----------------------
11/96* $10,000
2/97 $10,278
5/97 $10,931
8/97 $11,407
11/97 $11,805
2/98 $12,841
5/98 $13,273
8/98 $12,029
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-backed 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.
1997(a) 1998(b)(c)
------------------------
Net Asset Value...... $14.15 $12.17
Income Dividends..... $ .16 $ .21
Capital Gains
Distributions........ $ .13 $ .26
Portfolio Total
Return (%)........... 20.79 -10.94
Blended Index Total
Return (%)........... 19.24 .88
Performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Total return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. If the Adviser had not maintained some of the
Underlying Fund's expenses, the total return for the Portfolio would have been
lower.
(a) For the period November 15, 1996 (commencement of operations) to September
30, 1997. Index comparison begins November 30, 1996.
(b) For the eleven month period ended August 31, 1998.
(c) On August 12, 1998, the Board of Trustees of the Portfolio changed the
fiscal year end from September 30 to August 31.
14 - Scudder Pathway Series
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1998
- -----------------------------------------------------------------------------
PATHWAY GROWTH PORTFOLIO
- -----------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------
Money Market 1%
Fixed Income 17%
Equity 82%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Portfolio's exposure to fixed
income funds helped to mitigate some
of the price fluctuations of the equity
markets, as stock market volatility
increased.
- -----------------------------------------------------------------------------
ASSET CLASS RANGES
- -----------------------------------------------------------------------------
Money Market 0-5%
Fixed Income Funds 10-40%
Equity Funds 60-90%
Asset class allocations are derived
from the risk profile for the Portfolio;
changes are expected to be modest
and infrequent.
- -----------------------------------------------------------------------------
PORTFOLIO HOLDINGS
- -----------------------------------------------------------------------------
- --------------------------------------------
Scudder Large Company Growth Fund 35%
- --------------------------------------------
Scudder International Fund 23%
- --------------------------------------------
Scudder Micro Cap Fund 9%
- --------------------------------------------
Scudder 21st Century Growth Fund 9%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 6%
- --------------------------------------------
Scudder Income Fund 5%
- --------------------------------------------
Scudder High Yield Bond Fund 5%
- --------------------------------------------
Scudder Emerging Markets Income Fund 4%
- --------------------------------------------
Scudder Corporate Bond Fund 3%
- --------------------------------------------
Scudder Cash Investment Trust 1%
- --------------------------------------------
100%
- --------------------------------------------
Exposure to international funds was
decreased in favor of domestic equity
funds, with Large Company Growth
increasing from 26% to 35% of
assets over the period.
- -----------------------------------------------------------------------------
For more complete details about the Portfolio's investments, see page 18. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
15 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of August 31, 1998
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 4.6%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
Scudder Cash Investment Trust (Cost $1,337,939) ......................................... 1,337,939 1,337,939
-----------
Fixed Income 64.0%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................. 220,833 2,650,000
Scudder Emerging Market Income Fund ..................................................... 75,002 474,763
Scudder GNMA Fund ....................................................................... 167,610 2,502,412
Scudder High Yield Bond Fund ............................................................ 73,554 887,064
Scudder Income Fund ..................................................................... 886,519 11,985,741
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $18,832,388) 18,499,980
- ------------------------------------------------------------------------------------------------------------------------------
Equity 31.4%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ......................................................... 107,836 1,790,083
Scudder Emerging Markets Growth Fund .................................................... 29,458 297,527
Scudder Growth & Income Fund ............................................................ 99,400 2,456,172
Scudder International Growth & Income Fund .............................................. 139,573 1,645,560
Scudder Large Company Value Company ..................................................... 75,592 1,858,045
Scudder Small Company Value Fund ........................................................ 58,696 1,035,983
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $10,028,495) 9,083,370
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $30,198,822) (a) 28,921,289
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $30,207,480. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$1,286,191. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $85,242 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $1,371,433.
During the eleven month period ended August 31, 1998, purchases and sales
of investment securities (excluding money market investments) aggregated
$20,722,169 and $6,674,961, respectively.
The accompanying notes are an integral part of the financial statements.
16 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of August 31, 1998
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 0.8%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
Scudder Cash Investment Trust (Cost $1,840,607) ......................................... 1,840,607 1,840,607
-----------
Fixed Income 40.5%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................. 1,689,084 20,269,005
Scudder Emerging Market Income Fund ..................................................... 759,397 4,806,985
Scudder High Yield Bond Fund ............................................................ 829,309 10,001,461
Scudder Income Fund ..................................................................... 4,096,676 55,387,063
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $95,249,132) 90,464,514
- ------------------------------------------------------------------------------------------------------------------------------
Equity 58.7%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ......................................................... 2,483,028 41,218,270
Scudder Development Fund ................................................................ 430,128 13,338,276
Scudder Emerging Markets Growth Fund .................................................... 755,980 7,635,398
Scudder Growth & Income Fund ............................................................ 1,427,594 35,275,853
Scudder International Fund .............................................................. 686,966 33,365,939
Scudder Micro Cap Fund .................................................................. 5,838 83,888
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $142,099,069) 130,917,624
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $239,188,808) (a) 223,222,745
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $239,243,808. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$16,021,063. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $319,811 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $16,340,874.
During the eleven month period ended August 31, 1998, purchases and sales
of investment securities (excluding money market investments) aggregated
$124,064,721 and $57,147,907, respectively.
The accompanying notes are an integral part of the financial statements.
17 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of August 31, 1998
Pathway Growth Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
Scudder Cash Investment Trust (Cost $813,356) ........................................... 813,356 813,356
-----------
Fixed Income 17.0%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................. 166,667 2,000,000
Scudder Emerging Market Income Fund ..................................................... 395,342 2,502,514
Scudder High Yield Bond Fund ............................................................ 251,809 3,036,813
Scudder Income Fund ..................................................................... 248,106 3,354,416
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $13,183,510) 10,893,743
- ------------------------------------------------------------------------------------------------------------------------------
Equity 81.7%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder 21st Century Growth Fund ........................................................ 541,025 5,491,399
Scudder Emerging Markets Growth Fund .................................................... 371,919 3,756,382
Scudder International Fund .............................................................. 303,840 14,757,497
Scudder Large Company Growth Fund ....................................................... 874,656 22,120,048
Scudder Micro Cap Fund .................................................................. 420,572 6,043,614
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $56,593,804) 52,168,940
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $70,590,670) (a) 63,876,039
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $70,790,647. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$6,914,608. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $55,954 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $6,970,562.
During the eleven month period ended August 31, 1998, purchases and sales
of investment securities (excluding money market investments) aggregated
$38,870,947 and $13,100,000, respectively.
The accompanying notes are an integral part of the financial statements.
18 - Scudder Pathway Series
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1998 (Note C)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Assets Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) ................... $ 28,921,289 $ 223,222,745 $ 63,876,039
Receivable for investments sold ......................... 2,650,000 20,269,005 2,000,000
Receivable for Portfolio shares sold .................... 83,516 292,611 105,382
Income receivable ....................................... 28,085 110,505 34,436
---------------- --------------- ----------------
Total assets ............................................ 31,682,890 243,894,866 66,015,857
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ....................... 2,677,936 20,379,423 2,034,458
Payable for Portfolio shares redeemed ................... 202,256 1,044,202 214,300
---------------- --------------- ----------------
Total liabilities ....................................... 2,880,192 21,423,625 2,248,758
------------------------------------------------------------- ---------------- --------------- ----------------
Net assets, at market value $ 28,802,698 $ 222,471,241 $ 63,767,099
------------------------------------------------------------- ---------------- --------------- ----------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed (overdistributed) net investment income ... 55,480 389,390 685,606
Net unrealized appreciation (depreciation) on
investments ........................................... (1,277,533) (15,966,063) (6,714,631)
Accumulated net realized gain (loss) .................... 505,457 7,809,835 2,071,110
Paid-in capital ......................................... 29,519,294 230,238,079 67,725,014
------------------------------------------------------------- ---------------- --------------- ----------------
Net assets, at market value $ 28,802,698 $ 222,471,241 $ 63,767,099
------------------------------------------------------------- ---------------- --------------- ----------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
---------------- --------------- ----------------
Net Asset Value, offering and redemption price per share $12.28 $12.06 $12.17
(outstanding shares of beneficial interest, $.01 ---------------- --------------- ----------------
par value, unlimited number of shares authorized) ..... 2,346,300 18,453,223 5,240,260
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Pathway Series
<PAGE>
Statement of Operations
for the eleven months ended August 31, 1998 (Note C)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Investment Income Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income distributions from Underlying Funds ................... $ 970,613 $ 6,646,858 $ 1,013,142
----------------------------------------------------------------- ---------------- --------------- ----------------
Net investment income 970,613 6,646,858 1,013,142
----------------------------------------------------------------- ---------------- --------------- ----------------
Realized and unrealized gain (loss) on investments
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments .................................................. 316,802 1,947,388 481,885
Capital gain distributions from Underlying Funds ............. 368,018 7,948,399 2,378,132
---------------- --------------- ----------------
684,820 9,895,787 2,860,017
---------------- --------------- ----------------
Net unrealized appreciation (depreciation) on
investments during the period .............................. (2,259,098) (33,472,924) (12,210,035)
----------------------------------------------------------------- ---------------- --------------- ----------------
Net gain (loss) on investment transactions (1,574,278) (23,577,137) (9,350,018)
----------------------------------------------------------------- ---------------- --------------- ----------------
----------------------------------------------------------------- ---------------- --------------- ----------------
Net increase (decrease) in net assets resulting from operations $ (603,665) $ (16,930,279) $ (8,336,876)
----------------------------------------------------------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
For the 1996
Eleven Months (commencement
Ended of operations) to
August 31, September 30,
Increase (Decrease) in Net Assets 1998 (Note C) 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 970,613 $ 283,047
Net realized gain (loss) ................................. 684,820 258,193
Net unrealized appreciation (depreciation) on
investments during the period .......................... (2,259,098) 981,565
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. (603,665) 1,522,805
---------------- ----------------
Distributions to shareholders from:
Net investment income .................................... (1,003,113) (204,885)
---------------- ----------------
Net realized gain (loss) on investment transactions ...... (419,415) (8,323)
---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ................................ 20,371,433 17,529,919
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 1,391,254 206,449
Cost of shares redeemed .................................. (7,905,477) (2,099,284)
---------------- ----------------
Net increase (decrease) in net assets from Portfolio
share transactions ..................................... 13,857,210 15,637,084
---------------- ----------------
Increase (decrease) in net assets ........................ 11,831,017 16,946,681
Net assets at beginning of period ........................ 16,971,681 25,000
Net assets at end of period (including undistributed
net investment income of $55,480 and $78,162, ---------------- ----------------
respectively) .......................................... $ 28,802,698 $ 16,971,681
---------------- ----------------
Other Information
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ................ 1,279,306 2,083
---------------- ----------------
Shares sold .............................................. 1,561,078 1,426,617
Shares issued to shareholders in reinvestment of
distributions .......................................... 107,261 16,301
Shares redeemed .......................................... (601,345) (165,695)
---------------- ----------------
Net increase (decrease) in Portfolio shares .............. 1,066,994 1,277,223
---------------- ----------------
Shares outstanding at end of period ...................... 2,346,300 1,279,306
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
For the 1996
Eleven Months (commencement
Ended of operations) to
August 31, September 30,
Increase (Decrease) in Net Assets 1998 (Note C) 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 6,646,858 $ 2,647,994
Net realized gain (loss) ................................ 9,895,787 1,344,002
Net unrealized appreciation (depreciation) on
investments during the period ......................... (33,472,924) 17,506,861
----------------- -----------------
Net increase (decrease) in net assets resulting from
operations ............................................ (16,930,279) 21,498,857
----------------- -----------------
Distributions to shareholders from:
Net investment income ................................... (6,892,334) (2,063,517)
----------------- -----------------
Net realized gain (loss) on investment transactions ..... (3,375,302) (4,264)
----------------- -----------------
Portfolio share transactions:
Proceeds from shares sold ............................... 99,139,026 188,966,219
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 10,228,180 2,061,385
Cost of shares redeemed ................................. (51,844,223) (18,337,507)
----------------- -----------------
Net increase (decrease) in net assets from Portfolio
share transactions .................................... 57,522,983 172,690,097
----------------- -----------------
Increase (decrease) in net assets ....................... 30,325,068 192,121,173
Net assets at beginning of period ....................... 192,146,173 25,000
Net assets at end of period (including undistributed
net investment income of $389,390 and $584,477, ----------------- -----------------
respectively) ......................................... $ 222,471,241 $ 192,146,173
----------------- -----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............... 14,166,739 2,083
----------------- -----------------
Shares sold ............................................. 7,374,746 15,422,187
Shares issued to shareholders in reinvestment of
distributions ......................................... 775,089 160,369
Shares redeemed ......................................... (3,863,351) (1,417,900)
----------------- -----------------
Net increase (decrease) in Portfolio shares ............. 4,286,484 14,164,656
----------------- -----------------
Shares outstanding at end of period ..................... 18,453,223 14,166,739
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
Pathway Growth Portfolio
<TABLE>
<CAPTION>
For the Period
November 15,
For the 1996
Eleven Months (commencement
Ended of operations) to
August 31, September 30,
Increase (Decrease) in Net Assets 1998 (Note C) 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 1,013,142 $ 452,702
Net realized gain (loss) ................................ 2,860,017 213,932
Net unrealized appreciation (depreciation) on
investments during the period ......................... (12,210,035) 5,495,404
---------------- -----------------
Net increase (decrease) in net assets resulting from
operations ............................................ (8,336,876) 6,162,038
---------------- -----------------
Distributions to shareholders from:
Net investment income ................................... (792,755) (8,787)
---------------- -----------------
Net realized gain (loss) on investment transactions ..... (981,692) (7,211)
---------------- -----------------
Portfolio share transactions:
Proceeds from shares sold ............................... 39,332,277 49,883,396
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 1,768,653 15,997
Cost of shares redeemed ................................. (16,796,764) (6,496,177)
---------------- -----------------
Net increase (decrease) in net assets from Portfolio
share transactions .................................... 24,304,166 43,403,216
---------------- -----------------
Increase (decrease) in net assets ....................... 14,192,843 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 $685,606 and $443,915. ---------------- -----------------
respectively) ......................................... $ 63,767,099 $ 49,574,256
---------------- -----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............... 3,503,263 2,083
---------------- -----------------
Shares sold ............................................. 2,799,247 3,994,728
Shares issued to shareholders in reinvestment of
distributions ......................................... 133,685 1,342
Shares redeemed ......................................... (1,195,935) (494,890)
---------------- -----------------
Net increase (decrease) in Portfolio shares ............. 1,736,997 3,501,180
---------------- -----------------
Shares outstanding at end of period ..................... 5,240,260 3,503,263
---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Conservative Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
For the November 15,
Eleven Months 1996
Ended (commencement
August 31, of operations) to
1998 (a) September 30,
(Note C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
Net asset value, beginning of period ............................................ $ 13.27 $ 12.00
------------------------------------
Income from investment operations:
Net investment income ........................................................... .51 .39
Net realized and unrealized gain on investment transactions ..................... (.63) 1.36
------------------------------------
Total from investment operations ................................................ (.12) 1.75
------------------------------------
Less distributions:
From net investment income ...................................................... (.57) (.33)
From net realized gain on investments ........................................... (.30) (.15)
------------------------------------
Total distributions ............................................................. (.87) (.48)
------------------------------------
------------------------------------
Net asset value, end of period .................................................. $ 12.28 $ 13.27
------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ............................................................ (1.10)** 14.99**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 29 17
Ratio of operating expenses to average daily net assets (%) (b) ................. -- --
Ratio of net investment income to average daily net assets (%) .................. 4.21* 3.67*
Portfolio turnover rate (%) ..................................................... 31.5* 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
24 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Balanced Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
For the November 15,
Eleven Months 1996
Ended (commencement
August 31, of operations) to
1998 (a) September 30,
(Note C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
Net asset value, beginning of period ............................................ $ 13.56 $ 12.00
------------------------------------
Income from investment operations:
Net investment income ........................................................... .39 .37
Net realized and unrealized gain on investment transactions ..................... (1.26) 1.59
------------------------------------
Total from investment operations ................................................ (.87) 1.96
------------------------------------
Less distributions:
From net investment income ...................................................... (.42) (.33)
From net realized gain on investments ........................................... (.21) (.07)
------------------------------------
Total distributions ............................................................. (.63) (.40)
------------------------------------
------------------------------------
Net asset value, end of period .................................................. $ 12.06 $ 13.56
------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ............................................................ (6.78)** 16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 222 192
Ratio of operating expenses to average daily net assets (%) (b) ................. -- --
Ratio of net investment income to average daily net assets (%) .................. 3.15* 2.96*
Portfolio turnover rate (%) ..................................................... 28.2* 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
25 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
For the November 15,
Eleven Months 1996
Ended (commencement
August 31, of operations) to
1998 (a) September 30,
(Note C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
Net asset value, beginning of period ............................................ $ 14.15 $ 12.00
------------------------------------
Income from investment operations:
Net investment income ........................................................... .23 .29
Net realized and unrealized gain on investment transactions ..................... (1.74) 2.15
------------------------------------
Total from investment operations ................................................ (1.51) 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 .................................................. $ 12.17 $ 14.15
------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ............................................................ (10.94)** 20.79**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 64 50
Ratio of operating expenses to average daily net assets (%) (b) ................. -- --
Ratio of net investment income to average daily net assets (%) .................. 1.78* 2.09*
Portfolio turnover rate (%) ..................................................... 23.8* 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
26 - Scudder Pathway Series
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
The Conservative, Balanced, and Growth Portfolios (the "Portfolios") are each
diversified series of Scudder Pathway Series (the "Trust"). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The series is composed of six separate diversified portfolios, four of
which are currently offered. These portfolios invest primarily in existing
Scudder Funds (the "Underlying Scudder Funds").
These financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates. The
policies described below are followed by each Portfolio in the preparation of
its financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. 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. These
differences primarily relate to investments sold at a loss. 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 changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Portfolios' Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Portfolios and Scudder Kemper
was
27 - Scudder Pathway Series
<PAGE>
approved by the Portfolios' Board of Trustees and by the Portfolios'
Shareholders. The Management Agreement, which is effective December 31, 1997, is
the same in all material respects as the corresponding previous Investment
Management Agreement, except that Scudder Kemper is the new investment adviser
to the Portfolios. In accordance with the Portfolios' Management Agreement with
Scudder Kemper, the Adviser regularly provides the Portfolios with continuing
investment management consistent with each Portfolios' 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 Underlying 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 eleven months ended August 31, 1998, the Adviser
incurred expenses in the amount of $52,557 on behalf of the Conservative
Portfolio. In accordance with the Special Servicing Agreement, no expenses were
charged to the Portfolios during the period. The Adviser has assumed the
organization costs of each Portfolio.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Portfolios' Management Agreement with Scudder Kemper was deemed
to have been assigned and, therefore, terminated. The Board of Trustees of the
Portfolios have approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former Management Agreement,
except for the dates of execution and termination. The Board of Trustees of the
Portfolios will seek shareholder approval of the new investment management
agreement through a proxy solicitation that is currently scheduled to conclude
in mid-December.
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 August
31, 1998, Conservative Portfolio held the following Underlying Funds'
outstanding shares: approximately 10% of the Scudder Corporate Bond Fund
(commenced operations August 31, 1998). The Balanced Portfolio held the
following Underlying Funds' outstanding shares: 78% of the Scudder Corporate
Bond Fund (commenced operations August 31, 1998), 40% of the Scudder Classic
Growth Fund, 7% of the Scudder Income Fund, 5% of the Scudder High Yield Bond
Fund and 6% of the Scudder Emerging Markets Growth Fund. At August 31, 1998, the
Growth Portfolio held the following Underlying Funds' outstanding shares:
approximately 20% of the Scudder 21st Century Fund, 8% of the Scudder Corporate
Bond Fund, 7% of the Scudder Large Company Growth Fund, and 6% of the Scudder
Micro Cap Fund.
C. Year End Change
On August 12, 1998, the Board of Trustees of the Portfolios changed the fiscal
year end from September 30 to August 31.
28 - Scudder Pathway Series
<PAGE>
Report of Independent Accountants
To the Board of Directors and the Shareholders of Scudder International Growth
and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder International Growth and
Income Fund (the "Fund") at August 31, 1998, the results of its operations for
the six months then ended, and the changes in its net assets and the financial
highlights for the six months then ended and for the period June 30, 1997
(commencement of operations) to August 31, 1997, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 9, 1998
29 - Scudder Pathway Series
<PAGE>
Tax Information
The Conservative, Balanced and Growth Portfolios each paid distributions of $.02
per share from net long-term capital gains during its year ended August 31,
1998, none of which represents 20% rate gains. Pursuant to Section 852 of the
Internal Revenue Code, the Conservative, Balanced, and Growth Portfolios
designate long-term capital gain dividends for the fiscal year ended August 31,
1998 in the amount of $400,000, $7,400,000, and $2,400,000, of which 82%, 64%
and 70% represents 20% rate gains, respectively.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.
30 - Scudder Pathway Series
<PAGE>
This Page
intentionally
left blank.
31 - 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; Senior Fellow 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 and Secretary
Kathryn L. Quirk*
Vice President and Assistant
Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
32 - 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 Dividend & Growth 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company 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. ++Only the International 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.
33 - 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
- ------------------------------------------------------------------------------------------------------------------------------
34 - 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 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>
35 - 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 $230 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
United States.
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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