Scudder
Pathway Series:
International Portfolio
Semiannual Report
February 28, 1999
No-Load Funds
A mutual fund which seeks maximum total return by investing in a select mix of
international and global Scudder Funds.
A no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Pathway Series: International Portfolio
- --------------------------------------------------------------------------------
Date of Inception: 11/15/96 Total Net Assets as Ticker Symbol: SPIPX
of 2/28/99: $8.1 million
- --------------------------------------------------------------------------------
o For the six-month period ended February 28, 1999, Scudder Pathway Series:
International Portfolio returned 6.73%, reflecting the mixed performance of
foreign investments.
o While slowing growth negatively impacted corporate earnings outside of the
United States, the process of restructuring and reform taking place throughout
the world continued to be a positive investment theme for a number of individual
companies.
o The Portfolio provided diversification by offering exposure to a variety of
asset classes, investment styles, and regions.
Table of Contents
3 Letter from the Series' President 11 Financial Statements
4 Performance Update 14 Financial Highlights
5 Portfolio Summary 15 Notes to Financial Statements
6 Portfolio Management Discussion 17 Shareholder Meeting Results
8 Glossary of Investment Terms 20 Officers and Trustees
9 Portfolio Highlights 21 Investment Products and Services
10 Investment Portfolio 22 Scudder Solutions
2 - Scudder Pathway Series: International Portfolio
<PAGE>
Letter from the Series' President
Dear Shareholders,
While the strong growth of the domestic economy has helped to send major
U.S. stock indices to new highs over the last six months, the investment
backdrop overseas has been much more diverse. On one hand, the European markets
have risen higher and the developing Asian economies have started showing signs
of recovery. On the other hand, however, Brazil has experienced a currency
devaluation, and Japan has so far been unable to get its economy back on track.
Further complicating the picture for international investors, large stocks
continued to outperform smaller companies, and growth once again outpaced value.
At times such as these, when the markets are volatile and substantial
differences exist in the returns of various regions and asset classes, the
importance of diversification is paramount. Today, more than ever, it is
necessary to take a long-term approach that offers exposure to a variety of
sectors and focuses on risk management. For investors who wish to have a
professionally managed portfolio of funds that is designed to effectively
navigate the twists and turns of the financial markets, we believe that the
Pathway International Portfolio remains a compelling choice. For more
information on the Fund, please see the Portfolio Management Discussion that
begins on page 6.
For those of you who are interested in new Scudder products, we are pleased
to introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of providing long term outperformance compared
to their benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
Thank you for your continued investment in Scudder Pathway Series. If you
have any questions about your investment, please call Scudder Investor
Information at 1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3 - Scudder Pathway Series: International Portfolio
<PAGE>
Performance Update as of February 28, 1999
- -----------------------------------------------
Portfolio Index Comparison
- -----------------------------------------------
Total Return
- -----------------------------------------------
Period Ended Growth of Average
2/28/99 $10,000 Cumulative Annual
- -----------------------------------------------
Scudder Pathway Series: International Portfolio
- -----------------------------------------------
1 Year $ 9,554 -4.46% -4.46%
Life of
Portfolio* $ 11,159 11.59% 4.92%
- -----------------------------------------------
MSCI All Country (ex U.S.) Index (75%),
JP Morgan Non-U.S. Global Government Bond
Index (20%), 3-month T-Bill (5%)
- --------------------------------------------
1 Year $ 10,376 3.76% 3.76%
Life of
Portfolio* $ 11,199 11.99% 5.17%
- -----------------------------------------------
* The Portfolio commenced operations on November 15,
1996. Index comparisons begin November 30, 1996.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here, illustrating the
Growth of a $10,000 Investment. The data points from the graph are
as follows:
Scudder Pathway Series: International Portfolio
Year Amount
- ----------------------
11/96* $10000
2/97 $10439
5/97 $10984
8/97 $10959
11/97 $10686
2/98 $11603
5/98 $12304
8/98 $10386
11/98 $11061
2/99 $11085
MSCI All Country (ex U.S.) Index
Year Amount
- ----------------------
11/96* $10000
2/97 $ 9889
5/97 $10563
8/97 $10511
11/97 $ 9942
2/98 $11050
5/98 $11272
8/98 $ 9728
11/98 $11090
2/99 $11212
MSCI All Country (ex U.S.) Index (75%), JP Morgan Non-U.S. Global Government
Bond Index (20%), 3-month T-Bill (5%)
Year Amount
- ----------------------
11/96* $10000
2/97 $ 9807
5/97 $10329
8/97 $10288
11/97 $ 9938
2/98 $10793
5/98 $10984
8/98 $ 9924
11/98 $11157
2/99 $11199
The MSCI All Country (ex U.S.) Index is a market value-weighted measure of
stocks of 46 countries. The JP Morgan Non-U.S. Global Government Bond Index is a
market value-weighted measure of bonds excluding U.S. bonds. Index returns
assume reinvestment of dividends and do not reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here, illustrating the Portfolio
Total Return (%) and Blended Index Total Return (%) with the exact data points
listed in the table below.
Yearly periods ended February 28
1997* 1998 1999
- ------------------------------------------------------------------------
Net Asset Value $12.25 $13.07 $11.21
- ------------------------------------------------------------------------
Income Dividends $ .25 $ .16 $ .10
- ------------------------------------------------------------------------
Capital Gains Distributions $ .10 $ .35 $ 1.21
- ------------------------------------------------------------------------
Portfolio Total Return (%) 5.09 11.15 -4.46
- ------------------------------------------------------------------------
Blended Index Total Return (%) -1.93 10.05 3.76
- ------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained some of the
Underlying Funds' expenses, the one year and life of Portfolio total returns for
the Portfolio would have been lower.
4 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Summary as of February 28, 1999
Asset Allocation
- ----------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Money Market 2%
Fixed Income 14%
Equity 84%
--------------------------------------
100%
======================================
The Portfolio maintained an emphasis on equity funds during the period.
Asset Class Ranges
- ----------------------------------------
Money Market 0-20%
Fixed Income 10-40%
Equity 60-100%
Portfolio allocations are derived from the risk profile of the Fund; changes
are expected to be modest and infrequent.
Portfolio Holdings
- ------------------------------------------
Scudder International Fund --
International Shares 56%
------------------------------------------
Scudder International Growth
and Income Fund 23%
------------------------------------------
Scudder International Bond Fund 10%
------------------------------------------
Scudder Emerging Markets Income Fund 3%
------------------------------------------
Scudder Greater Europe Growth Fund 3%
------------------------------------------
Scudder Emerging Markets Growth Fund 3%
------------------------------------------
Scudder Cash Investment Trust 2%
------------------------------------------
100%
==========================================
Despite the Fund's short-term relative underperformance, we believe that a
combination of fixed income securities, growth, and value can provide
investors with valuable diversification over time.
For more complete details about the Portfolio's investments, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Management Discussion
We asked Benjamin W. Thorndike, lead portfolio manager of Scudder Pathway Series
International Portfolio, to discuss the overseas market environment and
Scudder's investment strategy in the six-month period ended February 28, 1999.
Q: The international markets have produced a wide range of returns in the
last six months. What region has performed the best?
A: Europe's equity markets, which provided the strongest returns, were boosted
by the ongoing process of restructuring, cost-cutting, and consolidation taking
place on the corporate level. In addition, the reduction in Eurozone interest
rates to 3% was a significant positive for both stocks and bonds. Although we
remain heavily invested in Europe due to the region's strong fundamental
underpinnings, we trimmed our overweighted position somewhat as reasons for
caution began to emerge. Growth in the core European countries -- such as
Germany, France, and Italy -- began to slow, hurting sentiment at a time when
the leftward shift in the region's governments has investors on edge. The
markets also reacted negatively to the initial weakness in the euro, which was a
symptom of the region's slowing growth. Given the confluence of factors
affecting the European markets, it is reasonable to expect that stock market
performance will begin to slow somewhat from its torrid pace of the last three
years.
Q: The problems in the developing countries were one of the primary causes
of the global market correction last autumn. Have you witnessed any improvements
in these areas?
A: Although emerging markets equities remained extremely volatile during the
six-month period, the crisis mentality that characterized the autumn downturn
has dissipated somewhat. During the depths of the correction, investors feared
that the problems in Russia and Brazil would spill over into the established
economies by increasing the number of bad loans in their banking systems. By
mid-October, however, a series of interest rate cuts by major central banks
helped investors to gradually regain their tolerance for the higher level of
risk associated with emerging markets investing. We believe that the events of
last fall represent a historical extreme that is not likely to be repeated.
In fact, these difficulties have led to some positive fundamental changes.
Although large scale crises are often very nerve-wracking to investors while
they are taking place, they can also induce the painful, but necessary, reforms
that will lead to greater long-term strength. In the Pacific Basin, corporations
have been increasingly willing to undertake aggressive restructuring, which
should have a positive effect on their earnings power and valuations. Equally as
important, many of the region's governments have joined the private sector in
moving away from the Japanese business model in favor of a more growth-oriented
path. In Latin America, meanwhile, the fallout associated with the
6 - Scudder Pathway Series: International PortfoliO
<PAGE>
currency devaluation in Brazil has affected markets throughout the entire
region. While the devaluation has exacerbated Brazil's economic difficulties in
the short term, it has also created a sense of urgency for its government to
institute meaningful reforms.
Q: In the U.S. stock market, large company growth stocks have been the market
leaders. Has this been the case in Europe, as well?
A: Yes -- investors' aversion to small companies and value stocks has been a
global phenomenon. In a disinflationary environment where the economies of so
many nations have struggled, corporations' pricing power has declined, and their
profits have suffered. As a result, investors have become increasingly willing
to pay high price-to-earnings multiples for companies whose earnings are
perceived to be the most reliable, particularly those in high-growth sectors
such as health care and technology. Conversely, they have been avoiding
companies that are not as well positioned for this environment, such as
chemicals producers, energy companies, and manufacturing firms, all of which
tend to be included in the value category. The focus on large-cap growth names
has been prominent in Europe and the United States, and to a lesser extent,
throughout the rest of the world as well.
Q: What impact did all of these factors have on the Pathway International
Portfolio?
A: In the short term, the tendency for the strongest performance to be
concentrated in narrow sectors of the markets caused the Portfolio to
underperform its benchmark, although its high level of diversification helped to
offset the effects of volatility. Our position in foreign bonds, which was aided
significantly by the drop in global interest rates, also helped dampen share
price fluctuations. Portfolio weightings are determined by an analysis of
long-term factors and are designed to take advantage of trends that are expected
to play out over extended periods of three to five years, or possibly even
longer. Any changes that we make to the Portfolio are undertaken gradually, and
are based on our long-term outlook rather than the ephemeral moods of the
market. In all market conditions, we will continue to focus on our goal of
providing strong risk-adjusted returns over the long term.
Q: What is your outlook for the foreign markets at this juncture?
A: For investors who are assessing the value of foreign securities in their
portfolios, it helps to consider what the markets have been through in the past
two years -- a crisis in Asia, a recession in Japan, and currency devaluations
in Russia and Brazil, just to name a few of the watershed events of the period.
Even in the midst of these events, a diversified approach that encompassed a
variety of countries and investment styles has allowed investors to withstand
the turbulence by providing favorable risk-adjusted returns. We believe the
positive changes taking place throughout the world will provide significant
opportunities for patient investors to benefit from the ongoing restructuring in
Europe, as well as the recovery in the emerging markets. In this environment, we
urge investors to focus on the continuing importance of foreign securities in a
diversified portfolio.
7 - Scudder Pathway Series: International Portfolio
<PAGE>
Glossary of Investment Terms
CURRENCY DEVALUATION A significant decline of a currency's value
relative to other currencies, such as the U.S.
dollar, typically resulting from the cessation of a
country's central bank intervention in the currency
markets. For U.S. investors who are investing
overseas, a devaluation of a foreign currency can
reduce the total return of their investment.
DEFENSIVE SECURITIES Stocks and bonds that are more conservative
than average, and tend to perform better
than the overall market when that market is weak.
Often, non-cyclical stocks are used to establish a
defensive position, since they tend not to be as
severely affected during economic slowdowns.
DISINFLATION The slowing down of the rate at which prices
increase. This phenomenon is generally associated
with a slowing economy, and is distinct from
deflation, which is an outright decline in prices.
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.
GROWTH STOCK Stock of a company that has displayed above average
earnings growth and is expected to continue to
increase profits rapidly going forward. Stocks of
such companies usually trade at higher multiples to
earnings (see price/earnings ratio) and experience
more price volatility than the market as a whole.
Distinct from value stock.
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. Distinct from growth stock.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually in
terms of sectors, industries, or countries
-- within a portfolio relative to the portfolio's
benchmark index or investment universe.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
8 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Highlights
Pathway International Portfolio
Pathway International Portfolio seeks to maximize total return by investing in a
select mix of established international mutual funds.
Performance
In the six-month period ended February 28, 1999, the International Portfolio
returned 6.73%, versus a total return of 12.84% for the Portfolio's custom
benchmark. Detailed performance information is listed on page 4.
The Portfolio continued to provide investors with diversified exposure to the
foreign markets. International Fund, which remains the core holding of the
Portfolio at 56% of assets, was well positioned in an environment where price
pressures, slower growth, and uncertain capital markets threatened corporate
profits. The best performer among the Portfolio's equity components in the
period, International Fund was overweighted in sectors with more reliable
revenue streams, such as telecommunications, utilities, media, and retail.
Greater Europe Growth Fund, which tends to invest in the larger growth names
that have been performing well in recent months, was also well positioned for
the investment environment. International Growth and Income Fund, on the other
hand, was hurt by its exposure to such traditional value sectors as oil and
basic materials. Despite the Fund's short-term relative underperformance, we
believe that over time a combination of growth and value can provide investors
with valuable diversification. Overall, the Fund's equity exposure decreased
from 88% of assets to 84% in the period.
The Fund's fixed income weighting, which we increased from 10% of assets to 14%,
contributed positively to returns. International Bond Fund, which invests in
high-quality debt from established economies, benefited from the strong
performance of government debt in a period marked by low inflation and falling
interest rates. Emerging Markets Income Fund also rose strongly as the bonds of
developing countries recovered from the extremely low levels they reached in
September.
Portfolio Strategy
With an eye toward our long-term objectives, we made several important changes
in the Portfolio. In an effort to better position it for an environment of
slower global growth, we increased its overall quality by trimming the weighting
in emerging markets securities. In addition, we reduced the significant
overweighting in European equities, which has served the Portfolio well since
its inception. Feeling that an environment of slowing growth on the continent
warranted a more conservative posture, we cut our holdings in Greater Europe
Growth Fund from 12% of assets to 3%, and increased our position in
International Growth and Income Fund from 10% to 23%. Going forward, we believe
that these decisions will improve the Portfolio's risk profile by offering a
greater level of diversification.
9 - Scudder Pathway Series: International Portfolio
<PAGE>
Investment Portfolio as of February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value ($)
==============================================================================================================================
<S> <C> <C>
Money Market 2.2%
- ------------------------------------------------------------------------------------------------------------------------------
-------------
Scudder Cash Investment Trust (Cost $177,438) ............................................... 177,438 177,438
-------------
Fixed Income 13.4%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund ........................................................ 39,755 271,927
Scudder International Bond Fund ............................................................. 78,429 815,658
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $1,259,617) 1,087,585
- ------------------------------------------------------------------------------------------------------------------------------
Equity 84.4%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Emerging Markets Growth Fund ........................................................ 19,090 201,588
Scudder Greater Europe Growth Fund .......................................................... 8,701 229,885
Scudder International Fund -- International Shares .......................................... 94,900 4,551,415
Scudder International Growth and Income Fund ................................................ 155,750 1,858,102
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $7,079,689) 6,840,990
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $8,516,744) (a) 8,106,013
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $8,542,714. At February 28,
1999, net unrealized depreciation for all securities based on tax cost was
$436,701. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $20,856 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $457,557.
The accompanying notes are an integral part of the financial statements.
10 - Scudder Pathway Series: International Portfolio
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of February 28, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $8,516,744) ..................... $ 8,106,013
Receivable for Portfolio shares sold .................................... 72
Income receivable ....................................................... 3,556
----------------
Total assets ............................................................ 8,109,641
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ....................................... 3,587
----------------
Total liabilities ....................................................... 3,587
---------------------------------------------------------------------------------------------
Net assets, at market value $ 8,106,054
---------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ............ (134,757)
Net unrealized appreciation (depreciation) on investments ............... (410,731)
Accumulated net realized gain (loss) .................................... (541,805)
Paid-in capital ......................................................... 9,193,347
---------------------------------------------------------------------------------------------
Net assets, at market value $ 8,106,054
---------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($8,106,054
/ 723,428 outstanding shares of beneficial interest, $.01 par value, ----------------
unlimited number of shares authorized) ................................ $11.21
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Operations
for the six months ended February 28, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Income distributions from Underlying Funds ............................. $ 62,969
---------------------------------------------------------------------------------------------
Net investment income 62,969
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ............................................................ (1,121,249)
Capital gain distributions from Underlying Funds ....................... 500,887
----------------
(620,362)
----------------
Net unrealized appreciation (depreciation) during the period on
investments .......................................................... 1,191,838
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 571,476
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 634,445
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
November 15,
Six Months For the Eleven 1996
Ended Months Ended (commencement
February 28, August 31, of operations) to
1999 1998 September 30,
Increase (Decrease) in Net Assets (Unaudited) (Note D) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ................................ $ 62,969 $ 134,059 $ 61,993
Net realized gain (loss) ............................. (620,362) 1,088,134 45,130
Net unrealized appreciation (depreciation) on
investments during the period ...................... 1,191,838 (2,329,442) 726,873
---------------- ---------------- ----------------
Net increase (decrease) in net assets resulting
from operations .................................... 634,445 (1,107,249) 833,996
---------------- ---------------- ----------------
Distributions to shareholders from:
Net investment income ................................ (78,827) (126,802) (8,391)
---------------- ---------------- ----------------
Net realized gain (loss) on investment transactions .. (953,730) (277,380) (3,356)
---------------- ---------------- ----------------
Portfolio share transactions:
Proceeds from shares sold ............................ 5,213,431 5,040,380 12,327,560
Net asset value of shares issued to shareholders in
reinvestment of distributions ...................... 981,241 368,824 10,929
Cost of shares redeemed .............................. (6,514,550) (6,801,774) (1,457,693)
---------------- ---------------- ----------------
Net increase (decrease) in net assets from
Portfolio share transactions ....................... (319,878) (1,392,570) 10,880,796
---------------- ---------------- ----------------
Increase (decrease) in net assets .................... (717,990) (2,904,001) 11,703,045
Net assets at beginning of period .................... 8,824,044 11,728,045 25,000
Net assets at end of period (including accumulated
distributions in excess of net investment income of
$134,757 and undistributed net investment income of ---------------- ---------------- ----------------
$63,920 and $53,602, respectively) ................. $ 8,106,054 $ 8,824,044 $11,728,045
---------------- ---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ............ 754,142 863,241 2,083
---------------- ---------------- ----------------
Shares sold .......................................... 440,401 378,568 971,043
Shares issued to shareholders in reinvestment of
distributions ...................................... 85,325 30,182 918
Shares redeemed ...................................... (556,440) (517,849) (110,803)
---------------- ---------------- ----------------
Net increase (decrease) in Portfolio shares .......... (30,714) (109,099) 861,158
---------------- ---------------- ----------------
Shares outstanding at end of period .................. 723,428 754,142 863,241
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Pathway Series: International Portfolio
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
November 15,
Six Months For the Eleven 1996
Ended Months Ended (commencement
February 28, August 31, of operations) to
1999 (a) 1998 (a) September 30,
(Unaudited) (Note D) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
Net asset value, beginning of period ................................ $11.70 $13.59 $12.00
------------------------------------------------------
Income from investment operations:
Net investment income ............................................... .08 .17 .31
Net realized and unrealized gain (loss) on investment transactions .. .74 (1.55) 1.63 (b)
------------------------------------------------------
Total from investment operations .................................... .82 (1.38) 1.94
------------------------------------------------------
Less distributions:
From net investment income .......................................... (.10) (.16) (.25)
From net realized gain (loss) on investments ........................ (1.21) (.35) (.10)
------------------------------------------------------
Total distributions ................................................. (1.31) (.51) (.35)
------------------------------------------------------
------------------------------------------------------
Net asset value, end of period ...................................... $11.21 $11.70 $13.59
------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (d) ................................................ 6.73** (10.31)** 16.58**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 8 9 12
Ratio of operating expenses to average daily net assets (%) (c) ..... -- -- --
Ratio of net investment income to average daily net assets (%) ...... 1.46* 1.42* 1.23*
Portfolio turnover rate (%) ......................................... 151.1* 52.0* 35.1*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and
repurchases of Portfolio shares in relation to fluctuating market values
during the period.
(c) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
(d) Total return would have been lower if the Adviser had not maintained some
of the Underlying Funds' expenses.
* Annualized
** Not annualized
14 - Scudder Pathway Series: International Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
The International Portfolio (the "Portfolio") is a diversified series of Scudder
Pathway Series (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Trust is composed of six separate
diversified portfolios, four of which are currently offered. These portfolios
invest primarily in existing Scudder Funds (the "Underlying Scudder Funds").
The Portfolio's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Portfolio in the preparation of
its financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. Money market instruments
purchased with an original maturity of sixty days or less are valued at
amortized cost.
Federal Income Taxes. The Portfolio's policy is to comply with the requirements
of the Internal Revenue Code of 1986, as amended, which are applicable to
regulated investment companies and to distribute all of its taxable income to
its shareholders. The Portfolio accordingly paid no federal income taxes and no
provision for federal income taxes was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains, in excess of
available capital loss carryforwards, would be taxable to the Portfolio if not
distributed and, therefore, will be distributed to shareholders annually. An
additional distribution may be made to the extent necessary to avoid the payment
of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. 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, the Portfolio may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Portfolio.
The Portfolio uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of income and capital gains from the Underlying Scudder Funds are
recorded on the ex-dividend date. Income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the six months ended February 28, 1999, purchases and sales of investment
securities (excluding money market investments) aggregated $6,363,618 and
$7,173,116, respectively.
C. Related Parties
Under the Special Servicing Agreement entered into by the Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Underlying Scudder
Funds, Scudder Service Corporation, Scudder Fund Accounting Corporation, Scudder
Investor Services, Inc., Scudder Trust Company and the Portfolio, the Adviser
arranges for all services pertaining to the
15 - Scudder Pathway Series: International Portfolio
<PAGE>
operation of the Portfolio. If the Trustees determine that the aggregate
expenses of the Portfolio are less than the estimated savings to the Underlying
Scudder Funds from the operation of the Portfolio, each of the Underlying
Scudder Funds will bear those expenses in proportion to the average daily value
of its shares owned by the Portfolio. Consequently, no Underlying Scudder Funds
will be expected to carry expenses that are in excess of the estimate of savings
to the respective 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 the Portfolio, the Adviser will pay certain costs, on behalf of the
Portfolio. For the six months ended February 28, 1999, the Adviser incurred
expenses in the amount of $83,924. In accordance with the Special Servicing
Agreement, no expenses were charged to the Portfolio during the period. The
Adviser has assumed the Portfolio's organizational costs.
Effective 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 Portfolio's Management Agreement with Scudder Kemper was deemed
to have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Portfolio 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.
D. Year End Change
On August 12, 1998, the Board of Trustees of the Portfolio changed the fiscal
year end from September 30 to August 31.
E. Line of Credit
The Portfolio and several Scudder Funds (the "Participants") share in a $850
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Portfolio
may borrow up to a maximum of 33 percent of its net assets under the agreement.
16 - Scudder Pathway Series: International Portfolio
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series:
International Portfolio (the "Fund") was held on December 15, 1998, at the
office of Scudder Kemper Investments, Inc., Two International Place, Boston,
Massachusetts 02110. At the Meeting the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
478,948 8,087 9,783 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
440,343 11,819 16,075 28,581
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
17 - Scudder Pathway Series: International Portfolio
<PAGE>
This Page
intentionally
left blank.
18 - Scudder Pathway Series: International Portfolio
<PAGE>
This Page
intentionally
left blank.
19 - Scudder Pathway Series: International Portfolio
<PAGE>
Officers and Trustees
Daniel Pierce*
President
Dr. Rosita P. Chang
Trustee; Professor of Finance,
University of Rhode Island
Edgar R. Fiedler
Trustee; 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
Kathryn L. Quirk*
Vice President and Assistant
Secretary
Ann M. McCreary*
Vice President
Thomas W. Joseph*
Vice President
Benjamin W. Thorndike*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
20 - Scudder Pathway Series: International Portfolio
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
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 Corporate Bond 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
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. +++ +++ +++A no-load variable
annuity contract issued by Glenbrook Life and Annuity Company and underwritten
by Allstate Financial Services, Inc., sold by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on various other stock
exchanges.
21 - Scudder Pathway Series: International Portfolio
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
22 - Scudder Pathway Series: International Portfolio
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 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>
23 - Scudder Pathway Series: International Portfolio
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
[LOGO]
