Scudder
Pathway Series:
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Semiannual Report
February 28, 1999
No-Load Funds
For investors seeking professionally managed and diversified portfolios through
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Three no-load portfolios with no commissions to buy, sell, or exchange shares.
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<PAGE>
Scudder Pathway Series
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Conservative Portfolio Date of Inception: 11/15/96 Ticker Symbol: SCPCX
Balanced Portfolio Date of Inception: 11/15/96 Ticker Symbol: SPBAX
Growth Portfolio Date of Inception: 11/15/96 Ticker Symbol: SPGRX
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o During the six-month reporting period, equities rebounded from their October
lows. In the U.S., the most significant returns were concentrated in large
company growth stocks, while value stocks and smaller companies continued to
underperform.
o As investors regained their tolerance for risk, Treasury prices dropped, while
corporate bonds, mortgage-backed securities, and emerging markets bonds
rebounded.
o The Portfolios' broad diversifications allowed investors to participate in the
positive performance of multiple asset classes, and helped to dampen the
volatility that characterized this period.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
3 Letter from the Series' Balanced Portfolio 19 Financial Statements
President 27 Notes to Financial
4 Portfolio Management 10 Portfolio Highlights Statements
Discussion 11 Performance Update 29 Shareholder Meeting
12 Portfolio Summary Results
Conservative 17 Investment Portfolio 32 Officers and Trustees
Portfolio 25 Financial Highlights 33 Investment Products
and Services
7 Portfolio Highlights Growth Portfolio 34 Scudder Solutions
8 Performance Update
9 Portfolio Summary 13 Portfolio Highlights
16 Investment Portfolio 14 Performance Update
24 Financial Highlights 15 Portfolio Summary
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,
The investment backdrop for Scudder Pathway Series has been positive in the
last six months, as financial assets have benefited from continued strong growth
in the United States and the resurgence of investor confidence on a global
basis. Although most asset classes rose in the period, the variation in returns
among sectors was substantial. In the equity market, for example, large company
stocks continued to outperform smaller companies, and growth once again outpaced
value. The picture was mixed overseas as well, where solid returns in Europe
were offset by weakness in Japan and the emerging markets. A similar phenomenon
occurred in the bond market, where mortgage-backed and corporate issues bounced
back strongly while Treasury prices softened.
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 Series remains a compelling choice. For more information on these
portfolios, please see the Portfolio Management Discussion that begins on
page 4.
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
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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 for the six-month period ended February 28, 1999.
Q: While overseas economies have continued to experience weakness in the
past half-year, the United States has been relatively unaffected. To what do you
attribute this phenomenon?
A: From a macroeconomic standpoint, the recent notion that the U.S. is an
"island of prosperity" has so far been correct. Although confidence was shaken
at various points by the crises overseas, growth in the U.S. has so far remained
on a steady track. In the fourth quarter of 1998, in fact, the country's gross
domestic product grew at an astounding 6.0%. Inflation has been virtually
nonexistent, tamed in part by higher productivity and technological innovation.
Consumer spending remains robust, unemployment is low, and the interest rate
outlook is benign. In other words, the investment backdrop would appear to be
ideal.
Despite all of this good news, however, there has been a downside to the
deflationary trend. Declining commodity prices have taken a toll on the bottom
lines of both individual companies and entire regions of the developing world.
Continued weakness in Asia, the inability of Japan's government to repair the
country's economy, and the currency crisis in Brazil all tempered investor
optimism during the reporting period. In addition, the same deflationary forces
that have been so beneficial to U.S. consumers have limited the pricing power of
most companies, weakening their earnings in the process. Reflecting the
dichotomous nature of the investment environment, financial assets of all
stripes have experienced unusually high volatility in the past six months.
Q: How has the stock market reacted to these developments?
A: In light of recent events, it's somewhat misleading to refer to the "stock
market" as a single entity. On the surface, the strong returns of the popular
market averages would appear to indicate that most investors enjoyed excellent
returns during the reporting period. In reality, however, a limited number of
large, familiar growth stocks continued to outperform the broader market by a
wide margin, causing the indices to rise sharply even though many stocks were
flat, or even down, in the period. With corporate earnings under pressure,
market participants flocked to stocks perceived to have the most reliable growth
characteristics. Value stocks were largely overlooked, leading entire sectors
such as energy, natural resources, and capital equipment makers to underperform.
Many small stocks also continued to trail their larger counterparts by a wide
margin, frustrating the many investors who sought to diversify their portfolios
away from high-profile, household names. The end result is that even though the
broader averages moved higher, investors who focused on diversification or
traditional measures of valuation tended to be less successful.
Q: Was the investment picture any different overseas?
A: It depends upon where you were invested. Despite shaky performance for
dollar-based investors in the final two months of the period, European stocks
were boosted by widespread restructuring, consolidation, and optimism
4 - Scudder Pathway Series
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surrounding the launch of the euro. Since the region was relatively unaffected
by the difficulties in the emerging markets, we emphasized Europe in the
international portions of the Pathway portfolios. In Japan, the continued
inability of the government to pull the country out of its economic morass
prevented a sustainable recovery in equities, while emerging markets, in the
aggregate, also posted weak performance over the full six months. As a result,
we maintained an underweighted exposure to both areas. While it can be
misleading to paint the foreign markets with a broad brush, it is reasonable to
say that many of the trends affecting the U.S. market also were key factors in
the performance of overseas equities: the largest companies with the most
reliable earnings growth tended to perform well, while smaller companies and
value stocks generally underperformed.
Q: Did bonds perform well in the disinflationary environment?
A: Yes, they did. Low inflation and reduced government borrowing provided a
boost to the U.S. market, and the healthy economy helped to support the prices
of corporate issues. The crises of the early autumn created severe disruptions,
however, and the reverberations were still being felt as the reporting period
drew to a close. Issues perceived to be immune to recessionary forces, such as
the government debt of the U.S. and larger European countries, rallied in the
fall on a "flight to quality," then gave up ground as investors regained their
tolerance for risk. Conversely, mortgage-backed securities, corporate bonds, and
emerging market debt fell sharply in September and October, then rallied in the
final four months of the period. Despite their rebound, however, these
securities continued to trade at prices that are low on a historical basis in
relation to Treasuries.
Q: What impact did all of these factors have on the Pathway portfolios?
A: In the short term, the tendency for the strongest performance to be
concentrated in narrow sectors of the markets caused the Portfolios to
underperform their benchmarks, although absolute returns were relatively solid.
In addition, the high level of diversification helped to offset the effects of
high volatility in the period. Despite a rapidly changing investment
environment, the Portfolios' allocations remained fairly stable. Our 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
Portfolios 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: How did you adjust the Portfolios during the period?
A: Of the few changes that were made, the most noteworthy is the ongoing,
incremental increase in the Portfolios' exposures to domestic growth stocks. We
continue to believe that in a world where profit growth is becoming increasingly
scarce, investors will be willing to pay for what is perceived to be dependable,
high quality growth. In an environment of intense pricing pressure, we believe
5 - Scudder Pathway Series
<PAGE>
that "quality" will be the key driver of investment performance as competition
makes revenue growth harder to achieve. Assets with high-quality, sustainable
cash flows should continue to be strong performers going forward.
Q: What would you tell investors at this point?
A: The most important concept for investors to keep in mind is that in the
investment world, nothing is forever. Investors in value stocks, small
companies, and corporate bonds have been frustrated for months by increasingly
narrow returns in the equity markets, but money will flow back into these areas
in due course. We urge investors to view these developments from a long-term
perspective, and to recognize the importance of holding multiple asset classes
in their portfolios. In the past, patient investors who focused on
diversification have been rewarded for their efforts, and we are confident that
they will continue to benefit in the future.
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 moderate
exposure to equity funds.
Performance
In the six-month period ended February 28, 1999, the Conservative Portfolio
returned 5.69%, versus a total return of 9.05% for the Portfolio's custom
benchmark. Detailed performance information is listed on Page 8.
Despite the strong returns of the major stock indices, the Portfolio's equity
position posted a mixed performance for the period. On one hand, our weighting
in Classic Growth Fund allowed investors to participate in the excellent returns
posted by large growth companies with strong earnings growth and minimal
exposure to the turbulence overseas. The Fund was ideally positioned for the
investment environment of the last six months. On the other hand, Small Company
Value Fund was down slightly, reflecting the continued weakness in that sector.
In addition, the ongoing tendency of overseas investors to shun value stocks led
to relatively flat returns for International Growth and Income Fund. Over the
long term, however, we believe that both small companies and international
equities will continue to be critical elements of a diversified portfolio.
The Portfolio's heavy weighting in bond funds, which stood at 64% of assets at
the end of the period, contributed positively to returns. Corporate bonds and
mortgage-backed securities, which are heavily represented in the Portfolio,
tumbled in the first two months of the period before rebounding strongly in
November and December. Although performance flattened after the start of the new
year, our weightings in GNMA Fund, Income Fund, and High Yield Bond Fund all
finished with positive returns for the six months.
Portfolio Strategy
Consistent with the long-term investment horizon of the Pathways Series, we made
only minor adjustments to the Portfolio during the reporting period. The slight
changes reflect a shift in favor of a higher quality portfolio that will be
better positioned for an environment of slower growth. We eliminated the small
weightings we held in Emerging Markets Income Fund (2%) and Emerging Markets
Growth Fund (1%) as of August 31, 1998, due to the high level of risk that still
exists in the developing countries. In addition, the slight increase in Classic
Growth Fund and small reductions in domestic, value-oriented offerings such as
Growth and Income Fund and Large Company Value Fund reflect the attractiveness
of strong earnings momentum in a world where corporate profits appear to be
declining.
In the fixed income portion of the Portfolio, we maintained a 7% weighting in
GNMA Fund, based on our belief that the relative stability and attractive yields
of GNMAs continue to offer a favorable combination. In addition, we added to our
position in the Income Fund to capture the benefits of the high relative yields
being offered by corporate bonds in the wake of the autumn crisis.
Other holdings remained essentially unchanged.
7 - Scudder Pathway Series
<PAGE>
Performance Update as of February 28, 1999
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Portfolio Index Comparison
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Total Return
- -----------------------------------------------
Period Ended Growth of Average
2/28/99 $10,000 Cumulative Annual
- -----------------------------------------------
Scudder Pathway Series: Conservative Portfolio
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1 Year $ 10,088 0.88% 0.88%
Life of
Portfolio* $ 12,020 20.20% 8.39%
- -----------------------------------------------
LBAB Index (60%), S&P 500 Index (25%), MSCI
All Country (ex U.S.) Index (5%), 3-month
T-Bill (10%)
- --------------------------------------------
1 Year $ 10,963 9.63% 9.63%
Life of
Portfolio* $ 12,844 28.44% 11.79%
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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* $10000
2/97 $10236
5/97 $10567
8/97 $11006
11/97 $11307
2/98 $11768
5/98 $12028
8/98 $11232
11/98 $11969
2/99 $11871
LBAB Index
Year Amount
- ----------------------
11/96* $10000
2/97 $9963
5/97 $10095
8/97 $10402
11/97 $10757
2/98 $10996
5/98 $11196
8/98 $11499
11/98 $11772
2/99 $11684
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* $10000
2/97 $10110
5/97 $10437
8/97 $10813
11/97 $11204
2/98 $11716
5/98 $12001
8/98 $11778
11/98 $12668
2/99 $12844
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 Standard & Poor's 500 Index is a
capitalization-weighted index of 500 stocks. The index is designed to measure
performance of the broad domestic economy through changes in the aggregate
market value of 500 stocks representing all major industries. 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 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 $12.14 $13.14 $12.51
- -----------------------------------------------------------------------
Income Dividends $ 0.14 $ 0.48 $ 0.54
- -----------------------------------------------------------------------
Capital Gains Distributions $ 0.15 $ 0.30 $ 0.21
- -----------------------------------------------------------------------
Portfolio Total Return (%) 3.64 14.96 0.88
- -----------------------------------------------------------------------
Blended Index Total Return (%) 1.10 15.89 9.63
- -----------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained some of the
Underlying Fund's expenses, the total return for the Portfolio would have been
lower.
8 - Scudder Pathway Series
<PAGE>
Portfolio Summary as of February 28, 1999
Pathway Conservative Portfolio
Asset Allocation
- ----------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Money Market 5%
Fixed Income 64%
Equity 31%
--------------------------------------
100%
======================================
The Portfolio's fixed income position benefited from the positive performance
of corporate bonds and mortgage-backed securities in 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;
adjustments are expected to be modest and infrequent.
Portfolio Holdings
- -------------------------------------------
Scudder Income Fund 45%
----------------------------------------
Scudder Corporate Bond Fund 9%
----------------------------------------
Scudder Classic Growth Fund "S" 9%
----------------------------------------
Scudder GNMA Fund 7%
----------------------------------------
Scudder Growth and Income Fund 7%
----------------------------------------
Scudder International Growth
and Income Fund 6%
----------------------------------------
Scudder Large Company Value Fund 5%
----------------------------------------
Scudder Cash Investment Trust 5%
----------------------------------------
Scudder Small Company Value Fund 4%
----------------------------------------
Scudder High Yield Bond Fund 3%
----------------------------------------
100%
========================================
Slight changes in the Portfolio's asset allocation reflect a focus on high
quality assets in an environment of slower global growth.
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
In the six-month period ended February 28, 1999, the Balanced Portfolio returned
12.52%, versus a total return of 16.79% for the Portfolio's custom benchmark.
Detailed performance information is listed on Page 11. While the high level of
diversification in the Portfolio held back returns during the reporting period,
we believe that the presence of value stocks, international equities, and fixed
income securities will lead to strong risk-adjusted returns over time.
The Portfolio's equity position accounted for a significant portion of the
period's gains. In an environment where investors' primary focus was on earnings
reliability, Classic Growth Fund performed extremely well. By focusing on
industry leaders with strong earnings growth and minimal exposure to the
turbulence overseas, the Fund was ideally positioned for the investment
environment of the last six months. Our weighting in Development Fund, which
focuses on fast growing, medium-sized companies, also benefited from investors'
emphasis on earnings momentum. In addition, Growth and Income Fund and
International Fund both provided solid returns.
The Portfolio's weighting in bond funds, which stood at 38% of assets at the end
of the period, also made a positive contribution to performance. Among the four
funds making up the fixed-income portion of the portfolio, the sector in which
we had the heaviest weighting was corporate bonds. After hurting performance in
the first two months of the period, the fixed-income component rebounded
strongly in November and December. Although the strongest performer was High
Yield Bond Fund, in which we only have 4% of assets, both Corporate Bond Fund
and Income Fund were positioned to take advantage of the rally in corporates as
well.
Portfolio Strategy
Due to the long-term focus of the Portfolio, it is reasonable to expect that few
changes will be made in a period as short as six months. The slight adjustments
we made in the period reflect our view that a higher quality portfolio will be
better positioned for an environment of slower growth. As a result, we added to
Portfolio's growth-oriented funds, boosting the weighting in Classic Growth Fund
to 20% of assets from 19%, and raising Development Fund from 6% to 7%. We also
reduced the weighting in bond funds by two percentage points, in order to take
advantage of the significant values that emerged in the stock market following
the fall correction. Going forward, we intend to maintain a focus on equities
within the context of our diversified approach.
10 - Scudder Pathway Series
<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: Balanced Portfolio
- -----------------------------------------------
1 Year $ 10,184 1.84% 1.84%
Life of
Portfolio* $ 12,238 22.38% 9.25%
- -----------------------------------------------
S&P 500 Index (50%), LBAB Index (35%),
MSCI All Country (ex U.S.) Index (10%),
3-month T-Bill (5%)
- --------------------------------------------
1 Year $ 11,289 12.89% 12.89%
Life of
Portfolio* $ 14,129 41.29% 16.63%
- -----------------------------------------------
* 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* $10000
2/97 $10235
5/97 $10645
8/97 $11074
11/97 $11210
2/98 $11888
5/98 $12178
8/98 $10759
11/98 $11864
2/99 $12107
S&P 500 Index
Year Amount
- ----------------------
11/96* $10000
2/97 $10496
5/97 $11315
8/97 $12048
11/97 $12853
2/98 $14172
5/98 $14789
8/98 $13028
11/98 $15895
2/99 $16969
LBAB Index
Year Amount
- ----------------------
11/96* $10000
2/97 $ 9963
5/97 $10095
8/97 $10402
11/97 $10757
2/98 $10996
5/98 $11196
8/98 $11499
11/98 $11772
2/99 $11684
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* $10000
2/97 $10232
5/97 $10758
8/97 $11229
11/97 $11689
2/98 $12516
5/98 $12904
8/98 $12098
11/98 $13681
2/99 $14129
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. 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 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 $12.18 $13.52 $12.94
- ----------------------------------------------------------------------------
Income Dividends $ 0.16 $ 0.38 $ 0.40
- ----------------------------------------------------------------------------
Capital Gains Distributions $ 0.07 $ 0.21 $ 0.43
- ----------------------------------------------------------------------------
Portfolio Total Return (%) 3.46 16.15 1.84
- ----------------------------------------------------------------------------
Blended Index Total Return (%) 2.32 22.32 12.89
- ----------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained some of the
Underlying Fund's expenses, the total return for the Portfolio would have been
lower.
11 - Scudder Pathway Series
<PAGE>
Portfolio Summary as of February 28, 1999
Pathway Balanced Portfolio
Asset Allocation
- ----------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Money Market 1%
Fixed Income 38%
Equity 61%
--------------------------------------
100%
======================================
The Portfolio's weighting in bond funds was reduced slightly in favor of
equities.
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;
adjustments are expected to be modest and infrequent.
Portfolio Holdings
- --------------------------------------------
Scudder Income Fund 24%
-----------------------------------------
Scudder Classic Growth Fund "S" 20%
-----------------------------------------
Scudder Growth and Income Fund 16%
-----------------------------------------
Scudder International Fund --
International Shares 14%
-----------------------------------------
Scudder Corporate Bond Fund 8%
-----------------------------------------
Scudder Development Fund 7%
-----------------------------------------
Scudder High Yield Bond Fund 4%
-----------------------------------------
Scudder Emerging Markets Growth Fund 3%
-----------------------------------------
Scudder Cash Investment Trust 1%
-----------------------------------------
Scudder Emerging Markets Income Fund 1%
-----------------------------------------
Scudder Small Company Value Fund 1%
-----------------------------------------
Scudder Micro Cap Fund 1%
-----------------------------------------
100%
=========================================
Slight changes in the Portfolio's asset allocation reflect a focus on high
quality assets in an environment of slower global growth.
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. The Portfolio also invests a portion of assets
in bond funds, which offer the potential for capital appreciation as well as
income.
Performance
In the six-month period ended February 28, 1999, the Growth Portfolio returned
19.06%, versus a total return of 21.21% for the Portfolio's custom benchmark.
Detailed performance information is listed on Page 14. It is important to keep
in mind that when the major indices in the U.S. are posting impressive gains, a
diversified approach that includes bonds and international stocks can result in
lower absolute returns. Over the long term, however, our goal of maximizing
risk-adjusted returns should be the most important consideration when assessing
the Portfolio's performance.
The Portfolio's large, 83% weighting in equities provided a significant boost to
its total return. The most significant contributor was Large Company Growth Fund
which, as its name would suggest, was ideally positioned for the rally in
large-cap stocks. Using a bottom-up stockpicking style, the Fund's management
seeks to invest in industry leaders that they believe have the ability to
maintain consistent earnings growth even when the economy is slowing. Our
holding in 21st Century Growth Fund also allowed the Portfolio to benefit from
the market's focus on top-line growth. By focusing on smaller, high-quality
growth companies, particularly in the technology and health care sectors, the
Fund was positioned to capitalize on the environment of the past six months. The
Portfolio's weighting in International Fund also boosted returns by providing
exposure to the rally in European equities.
Although the Portfolio's 16% weighting in bonds had a smaller impact on its
total return than the equity position, a concentration in more aggressive fixed
income funds was helpful due to the nature of the rally that followed the autumn
crises. In that period, corporate bonds performed well, with high-yield issues
pacing the rally. As a result, our focus on these sectors led to positive
returns for the fixed income component, and added stability to the Portfolio
during the period.
Portfolio Strategy
Since we manage the Portfolio with a long-term focus, no significant changes
were implemented in the six-month reporting period. Since August 31, we
increased the weighting in Large Company Growth Fund from 35% to 37% of assets,
maintaining the uptrend that has been in place since the Portfolio's inception.
In addition, 21st Century Growth Fund was increased from 9% of assets to 11%.
Both moves are consistent with our belief that in an environment of weaker
corporate profits, the companies with the most consistent revenues will continue
to post the best stock price performance. Other holdings remained essentially
unchanged over the period.
13 - Scudder Pathway Series
<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: Growth Portfolio
- ---------------------------------------------------
1 Year $ 10,298 2.98% 2.98%
Life of
Portfolio* $ 12,808 28.08% 11.45%
- ---------------------------------------------------
S&P 500 Index (60%), MSCI All Country
(ex U.S.) Index (20%), LBAB Index (15%),
3-month T-Bill (5%)
- ---------------------------------------------------
1 Year $ 11,354 13.54% 13.54%
Life of
Portfolio* $ 14,580 45.80% 18.27%
- ---------------------------------------------------
*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* $10000
2/97 $10336
5/97 $10910
8/97 $11340
11/97 $11399
2/98 $12294
5/98 $12608
8/98 $10633
11/98 $12031
2/99 $12660
S&P 500 Index
Year Amount
- ----------------------
11/96* $10000
2/97 $10496
5/97 $11315
8/97 $12048
11/97 $12853
2/98 $14172
5/98 $14789
8/98 $13026
11/98 $15895
2/99 $16969
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* $10000
2/97 $10278
5/97 $10931
8/97 $11407
11/97 $11805
2/98 $12841
5/98 $13273
8/98 $12028
11/98 $13990
2/99 $14580
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. 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 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 $14.07 $13.86
- -----------------------------------------------------------------------------
Income Dividends $ 0.16 $ 0.21 $ 0.20
- -----------------------------------------------------------------------------
Capital Gains Distributions $ 0.13 $ 0.26 $ 0.43
- -----------------------------------------------------------------------------
Portfolio Total Return (%) 4.57 18.94 2.98
- -----------------------------------------------------------------------------
Blended Index Total Return (%) 2.78 24.94 13.54
- -----------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained some of the
Underlying Fund's expenses, the total return for the Portfolio would have been
lower.
14 - Scudder Pathway Series
<PAGE>
Portfolio Summary as of February 28, 1999
Pathway Growth Portfolio
Asset Allocation
- -----------------------------------------
Money Market 1%
Fixed Income 16%
Equity 83%
--------------------------------------
100%
======================================
The Portfolio's equity position benefited from strong stock market performance
in the period.
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;
adjustments are expected to be modest and infrequent.
Portfolio Holdings
- ---------------------------------------------
Scudder Large Company Growth Fund 37%
------------------------------------------
Scudder International Fund --
International Shares 21%
------------------------------------------
Scudder 21st Century Growth Fund 11%
------------------------------------------
Scudder Micro Cap Fund 10%
------------------------------------------
Scudder Income Fund 5%
------------------------------------------
Scudder Emerging Markets Growth Fund 5%
------------------------------------------
Scudder High Yield Bond Fund 4%
------------------------------------------
Scudder Emerging Markets Income Fund 3%
------------------------------------------
Scudder Corporate Bond Fund 3%
------------------------------------------
Scudder Cash Investment Trust 1%
------------------------------------------
100%
==========================================
Holdings in Large Company Growth Fund and 21st Century Growth Fund allowed
the Portfolio to capitalized on the market's focus on top-line growth.
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 February 28, 1999 (Unaudited)
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
==============================================================================================================================
<S> <C> <C>
Money Market 5.0%
- ------------------------------------------------------------------------------------------------------------------------------
------------
Scudder Cash Investment Trust (Cost $1,539,747) ........................................... 1,539,747 1,539,747
------------
Fixed Income 63.9%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................... 231,566 2,774,157
Scudder GNMA Fund ......................................................................... 148,783 2,194,548
Scudder High Yield Bond Fund .............................................................. 77,078 948,058
Scudder Income Fund ....................................................................... 1,056,346 13,817,002
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $20,252,000) 19,733,765
- ------------------------------------------------------------------------------------------------------------------------------
Equity 31.1%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ........................................................... 126,978 2,660,190
Scudder Growth and Income Fund ............................................................ 85,040 2,186,371
Scudder International Growth and Income Fund .............................................. 151,538 1,807,848
Scudder Large Company Value Fund .......................................................... 56,641 1,544,047
Scudder Small Company Value Fund .......................................................... 81,905 1,408,778
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $9,766,730) 9,607,234
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $31,558,477) (a) 30,880,746
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $31,561,263. At February 28,
1999, net unrealized depreciation for all securities based on tax cost was
$680,517. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $368,361 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $1,048,878.
During the six months ended February 28, 1999, purchases and sales of
investment securities (excluding money market investments) aggregated
$5,059,240 and $3,679,279, respectively.
The accompanying notes are an integral part of the financial statements.
16 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of February 28, 1999 (Unaudited)
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
==============================================================================================================================
<S> <C> <C>
Money Market 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
------------
Scudder Cash Investment Trust (Cost $3,427,073) ........................................... 3,427,073 3,427,073
------------
Fixed Income 37.5%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................... 1,733,750 20,770,330
Scudder Emerging Markets Income Fund ...................................................... 369,995 2,530,764
Scudder High Yield Bond Fund .............................................................. 854,343 10,508,425
Scudder Income Fund ....................................................................... 4,738,252 61,976,340
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $99,557,501) 95,785,859
- ------------------------------------------------------------------------------------------------------------------------------
Equity 61.2%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ........................................................... 2,471,601 51,780,034
Scudder Development Fund .................................................................. 485,949 18,218,235
Scudder Emerging Markets Growth Fund ...................................................... 714,598 7,546,152
Scudder Growth and Income Fund ............................................................ 1,571,384 40,400,277
Scudder International Fund -- International Shares ........................................ 755,416 36,229,729
Scudder Micro Cap Fund .................................................................... 6,179 89,345
Scudder Small Company Value Fund .......................................................... 108,681 1,869,321
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $153,043,185) 156,133,093
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $256,027,759) (a) 255,346,025
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $256,081,273. At February 28,
1999, net unrealized depreciation for all securities based on tax cost was
$735,248. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $8,654,407 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$9,389,655.
During the six months ended February 28, 1999, purchases and sales of
investment securities (excluding money market investments) aggregated
$27,003,009 and $9,600,000, respectively.
The accompanying notes are an integral part of the financial statements.
17 - Scudder Pathway Series
<PAGE>
Investment Portfolio as of February 28, 1999 (Unaudited)
Pathway Growth Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
==============================================================================================================================
<S> <C> <C>
Money Market 1.2%
- ------------------------------------------------------------------------------------------------------------------------------
------------
Scudder Cash Investment Trust (Cost $950,548) ............................................. 950,548 950,548
------------
Fixed Income 15.5%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................................................... 203,646 2,439,683
Scudder Emerging Markets Income Fund ...................................................... 421,715 2,884,528
Scudder High Yield Bond Fund .............................................................. 263,872 3,245,623
Scudder Income Fund 311,344 4,072,382
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $14,811,871) 12,642,216
- ------------------------------------------------------------------------------------------------------------------------------
Equity 83.3%
- ------------------------------------------------------------------------------------------------------------------------------
Scudder 21st Century Growth Fund .......................................................... 630,947 8,732,305
Scudder Emerging Markets Growth Fund ...................................................... 359,645 3,797,847
Scudder International Fund - International Shares ......................................... 356,339 17,090,015
Scudder Large Company Growth Fund ......................................................... 947,654 30,268,059
Scudder Micro Cap Fund .................................................................... 539,688 7,803,890
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity (Cost $63,951,125) 67,692,116
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $79,713,544) (a) 81,284,880
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $79,913,355. At February 28,
1999, net unrealized appreciation for all securities based on tax cost was
$1,371,525. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $6,925,846 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$5,554,321.
During the six months ended February 28, 1999, purchases and sales of
investment securities (excluding money market investments) aggregated
$9,796,713 and $920,000, 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 February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Assets Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) .............. $ 30,880,746 $255,346,025 $ 81,284,880
Receivable for investments sold .................... -- -- 50,000
Receivable for Portfolio shares sold ............... 7,671 149,494 53,260
Income receivable .................................. 36,672 196,685 38,467
---------------- ---------------- ----------------
Total assets ....................................... 30,925,089 255,692,204 81,426,607
Liabilities
- --------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................. 36,501 196,086 88,340
Payable for Portfolio shares redeemed .............. -- 1,399,814 30,227
---------------- ---------------- ----------------
Total liabilities .................................. 36,501 1,595,900 118,567
------------------------------------------------------ ---------------- ---------------- ----------------
Net assets, at market value $ 30,888,588 $254,096,304 $ 81,308,040
------------------------------------------------------ ---------------- ---------------- ----------------
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................ 108,196 253,793 122,396
Net unrealized appreciation (depreciation) on
investments ...................................... (677,731) (681,734) 1,571,336
Accumulated net realized gain (loss) ............... 390,073 8,785,992 3,538,355
Paid-in capital .................................... 31,068,050 245,738,253 76,075,953
------------------------------------------------------ ---------------- ---------------- ----------------
Net assets, at market value $ 30,888,588 $254,096,304 $ 81,308,040
------------------------------------------------------ ---------------- ---------------- ----------------
Net Asset Value
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price ---------------- ---------------- ----------------
per share $12.51 $12.94 $13.86
(outstanding shares of beneficial interest, $.01 ---------------- ---------------- ----------------
par value, unlimited number of shares
authorized) ...................................... 2,468,276 19,639,977 5,865,351
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Pathway Series
<PAGE>
Statement of Operations
for the six months ended February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Investment Income Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income distributions from Underlying Funds ......... $ 667,680 $ 3,590,352 $ 544,677
------------------------------------------------------ ---------------- ---------------- ----------------
Net investment income 667,680 3,590,352 544,677
------------------------------------------------------ ---------------- ---------------- ----------------
Realized and unrealized gain (loss) on investments
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ........................................ (222,114) (2,150,524) 108,969
Capital gain distributions from Underlying Funds ... 610,072 11,027,922 3,742,298
---------------- ---------------- ----------------
387,958 8,877,398 3,851,267
---------------- ---------------- ----------------
Net unrealized appreciation (depreciation) on
investments during the period .................... 599,802 15,284,329 8,285,967
------------------------------------------------------ ---------------- ---------------- ----------------
Net gain (loss) on investment transactions 987,760 24,161,727 12,137,234
------------------------------------------------------ ---------------- ---------------- ----------------
------------------------------------------------------ ---------------- ---------------- ----------------
Net increase (decrease) in net assets resulting
from operations $ 1,655,440 $ 27,752,079 $ 12,681,911
------------------------------------------------------ ---------------- ---------------- ----------------
</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,
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 C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .............................. $ 667,680 $ 970,613 $ 283,047
Net realized gain (loss) ........................... 387,958 684,820 258,193
Net unrealized appreciation (depreciation) on
investments during the period .................... 599,802 (2,259,098) 981,565
---------------- ---------------- ------------------
Net increase (decrease) in net assets resulting
from operations .................................. 1,655,440 (603,665) 1,522,805
---------------- ---------------- ------------------
Distributions to shareholders from:
Net investment income .............................. (614,964) (1,003,113) (204,885)
---------------- ---------------- ------------------
Net realized gain (loss) on investment
transactions ..................................... (503,342) (419,415) (8,323)
---------------- ---------------- ------------------
Portfolio share transactions:
Proceeds from shares sold .......................... 6,973,226 20,371,433 17,529,919
Net asset value of shares issued to shareholders in
reinvestment of distributions .................... 1,099,756 1,391,254 206,449
Cost of shares redeemed ............................ (6,524,226) (7,905,477) (2,099,284)
---------------- ---------------- ------------------
Net increase (decrease) in net assets from
Portfolio share transactions ..................... 1,548,756 13,857,210 15,637,084
---------------- ---------------- ------------------
Increase (decrease) in net assets .................. 2,085,890 11,831,017 16,946,681
Net assets at beginning of period .................. 28,802,698 16,971,681 25,000
Net assets at end of period (including
undistributed net investment income of $108,196, ---------------- ---------------- ------------------
$55,480 and $78,162, respectively) ............... $ 30,888,588 $ 28,802,698 $ 16,971,681
---------------- ---------------- ------------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .......... 2,346,300 1,279,306 2,083
---------------- ---------------- ------------------
Shares sold ........................................ 551,890 1,561,078 1,426,617
Shares issued to shareholders in reinvestment of
distributions .................................... 87,009 107,261 16,301
Shares redeemed .................................... (516,923) (601,345) (165,695)
---------------- ---------------- ------------------
Net increase (decrease) in Portfolio shares ........ 121,976 1,066,994 1,277,223
---------------- ---------------- ------------------
Shares outstanding at end of period ................ 2,468,276 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,
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 C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .............................. $ 3,590,352 $ 6,646,858 $ 2,647,994
Net realized gain (loss) ........................... 8,877,398 9,895,787 1,344,002
Net unrealized appreciation (depreciation) on
investments during the period .................... 15,284,329 (33,472,924) 17,506,861
---------------- ---------------- ------------------
Net increase (decrease) in net assets resulting
from operations .................................. 27,752,079 (16,930,279) 21,498,857
---------------- ---------------- ------------------
Distributions to shareholders from:
Net investment income .............................. (3,725,949) (6,892,334) (2,063,517)
---------------- ---------------- ------------------
Net realized gain (loss) on investment
transactions ..................................... (7,901,241) (3,375,302) (4,264)
---------------- ---------------- ------------------
Portfolio share transactions:
Proceeds from shares sold .......................... 41,586,572 99,139,026 188,966,219
Net asset value of shares issued to shareholders in
reinvestment of distributions .................... 11,541,142 10,228,180 2,061,385
Cost of shares redeemed ............................ (37,627,540) (51,844,223) (18,337,507)
---------------- ---------------- ------------------
Net increase (decrease) in net assets from
Portfolio share transactions ..................... 15,500,174 57,522,983 172,690,097
---------------- ---------------- ------------------
Increase (decrease) in net assets .................. 31,625,063 30,325,068 192,121,173
Net assets at beginning of period .................. 222,471,241 192,146,173 25,000
Net assets at end of period (including
undistributed net investment income of ---------------- ---------------- ------------------
$253,793, $389,390 and $584,477 respectively) .... $254,096,304 $222,471,241 $192,146,173
---------------- ---------------- ------------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .......... 18,453,223 14,166,739 2,083
---------------- ---------------- ------------------
Shares sold ........................................ 3,230,107 7,374,746 15,422,187
Shares issued to shareholders in reinvestment of
distributions ...................................... 893,341 775,089 160,369
Shares redeemed .................................... (2,936,694) (3,863,351) (1,417,900)
---------------- ---------------- ------------------
Net increase (decrease) in Portfolio shares ........ 1,186,754 4,286,484 14,164,656
---------------- ---------------- ------------------
Shares outstanding at end of period ................ 19,639,977 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,
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 C) 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ............................... $ 544,677 $ 1,013,142 $ 452,702
Net realized gain (loss) ............................ 3,851,267 2,860,017 213,932
Net unrealized appreciation (depreciation) on
investments during the period ..................... 8,285,967 (12,210,035) 5,495,404
---------------- ---------------- ------------------
Net increase (decrease) in net assets resulting
from operations ................................... 12,681,911 (8,336,876) 6,162,038
---------------- ---------------- ------------------
Distributions to shareholders from:
Net investment income ............................... (1,107,887) (792,755) (8,787)
---------------- ---------------- ------------------
Net realized gain (loss) on investment
transactions ...................................... (2,384,022) (981,692) (7,211)
---------------- ---------------- ------------------
Portfolio share transactions:
Proceeds from shares sold ........................... 18,202,061 39,332,277 49,883,396
Net asset value of shares issued to shareholders in
reinvestment of distributions ..................... 3,484,723 1,768,653 15,997
Cost of shares redeemed ............................. (13,335,845) (16,796,764) (6,496,177)
---------------- ---------------- ------------------
Net increase (decrease) in net assets from
Portfolio share transactions ...................... 8,350,939 24,304,166 43,403,216
---------------- ---------------- ------------------
Increase (decrease) in net assets ................... 17,540,941 14,192,843 49,549,256
Net assets at beginning of period ................... 63,767,099 49,574,256 25,000
Net assets at end of period (including
undistributed net investment income of $122,396, ---------------- ---------------- ------------------
$685,606 and $443,915, respectively) .............. $ 81,308,040 $ 63,767,099 $ 49,574,256
---------------- ---------------- ------------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ........... 5,240,260 3,503,263 2,083
---------------- ---------------- ------------------
Shares sold ......................................... 1,364,499 2,799,247 3,994,728
Shares issued to shareholders in reinvestment of
distributions ..................................... 251,241 133,685 1,342
Shares redeemed ..................................... (990,649) (1,195,935) (494,890)
---------------- ---------------- ------------------
Net increase (decrease) in Portfolio shares ......... 625,091 1,736,997 3,501,180
---------------- ---------------- ------------------
Shares outstanding at end of period ................. 5,865,351 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
November 15,
For the Eleven 1996
Six Months Ended Months Ended (commencement
February 28, August 31, of operations) to
1999 (a) 1998 (a) September 30,
(Unaudited) (Note C) 1997
============================================================================================================================
<S> <C> <C> <C>
----------------------------------------------------
Net asset value, beginning of period ................................ $12.28 $13.27 $12.00
----------------------------------------------------
Income from investment operations:
Net investment income ............................................... .28 .51 .39
Net realized and unrealized gain on investment transactions ......... .70 (.63) 1.36
----------------------------------------------------
Total from investment operations .................................... .98 (.12) 1.75
----------------------------------------------------
Less distributions:
From net investment income .......................................... (.54) (.57) (.33)
From net realized gain on investments ............................... (.21) (.30) (.15)
----------------------------------------------------
Total distributions ................................................. (.75) (.87) (.48)
----------------------------------------------------
----------------------------------------------------
Net asset value, end of period ...................................... $12.51 $12.28 $13.27
----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................ 5.69** (1.10)** 14.99**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 31 29 17
Ratio of operating expenses to average daily net assets (%) (b) ..... -- -- --
Ratio of net investment income to average daily net assets (%) ...... 4.45* 4.21* 3.67*
Portfolio turnover rate (%) ......................................... 25.6* 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 Funds' 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
November 15,
For the Eleven 1996
Six Months Ended Months Ended (commencement
February 28, August 31, of operations) to
1999 (a) 1998 (a) September 30,
(Unaudited) (Note C) 1997
============================================================================================================================
<S> <C> <C> <C>
----------------------------------------------------
Net asset value, beginning of period ................................. $12.06 $13.56 $12.00
----------------------------------------------------
Income from investment operations:
Net investment income ................................................ .19 .39 .37
Net realized and unrealized gain on investment transactions .......... 1.52 (1.26) 1.59
----------------------------------------------------
Total from investment operations ..................................... 1.71 (.87) 1.96
----------------------------------------------------
Less distributions:
From net investment income ........................................... (.40) (.42) (.33)
From net realized gain on investments ................................ (.43) (.21) (.07)
----------------------------------------------------
Total distributions .................................................. (.83) (.63) (.40)
----------------------------------------------------
----------------------------------------------------
Net asset value, end of period ....................................... $12.94 $12.06 $13.56
----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................. 12.52** (6.78)** 16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................... 254 222 192
Ratio of operating expenses to average daily net assets (%) (b) ...... -- -- --
Ratio of net investment income to average daily net assets (%) ....... 2.98* 3.15* 2.96*
Portfolio turnover rate (%) .......................................... 8.0* 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 Funds' 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
November 15,
For the Eleven 1996
Six Months Ended Months Ended (commencement
February 28, August 31, of operations) to
1999 (a) 1998 (a) September 30,
(Unaudited) (Note C) 1997
============================================================================================================================
<S> <C> <C> <C>
----------------------------------------------------
Net asset value, beginning of period ................................. $12.17 $14.15 $12.00
----------------------------------------------------
Income from investment operations:
Net investment income ................................................ .10 .23 .29
Net realized and unrealized gain on investment transactions .......... 2.22 (1.74) 2.15
----------------------------------------------------
Total from investment operations ..................................... 2.32 (1.51) 2.44
----------------------------------------------------
Less distributions:
From net investment income ........................................... (.20) (.21) (.16)
From net realized gain on investments ................................ (.43) (.26) (.13)
----------------------------------------------------
Total distributions .................................................. (.63) (.47) (.29)
----------------------------------------------------
----------------------------------------------------
Net asset value, end of period ....................................... $13.86 $12.17 $14.15
----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................. 19.06** (10.94)** 20.79**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................... 81 64 50
Ratio of operating expenses to average daily net assets (%) (b) ...... -- -- --
Ratio of net investment income to average daily net assets (%) ....... 1.48* 1.78* 2.09*
Portfolio turnover rate (%) .......................................... 2.5* 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 Funds' expenses.
* Annualized
** Not annualized
26 - Scudder Pathway Series
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
The Conservative, Balanced, and Growth Portfolios (the "Portfolios") are each
diversified series of Scudder Pathway Series (the "Trust"). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The 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").
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 of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
of 1986 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
March, June, September 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
Under the Special Servicing Agreement entered into by 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 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
27 - Scudder Pathway Series
<PAGE>
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 six months
ended February 28, 1999, the Adviser incurred expenses in the amount of $57,960
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.
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 Portfolios 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 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 February
28, 1999, Conservative Portfolio held the following Underlying Funds'
outstanding shares: approximately 8% of the Scudder Corporate Bond Fund. At
February 28, 1999, the Balanced Portfolio held the following Underlying Funds'
outstanding shares: 56% of the Scudder Corporate Bond Fund, 38% of the Scudder
Classic Growth Fund, 8% of the Scudder Income Fund, 7% of the Scudder Emerging
Markets Growth Fund and 5% of the Scudder High Yield Bond Fund. At February 28,
1999, the Growth Portfolio held the following Underlying Funds' outstanding
shares: approximately 21% of the Scudder 21st Century Fund, 8% of the Scudder
Micro Cap Fund and 7% of the Scudder Corporate Bond 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.
D. Lines of Credit
The Portfolios 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
Portfolios may borrow up to a maximum of 33 percent of its net assets under the
agreement.
28 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Conservative Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series:
Conservative Portfolio (the "Fund") was held on 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*
--- ------- ------- -----------------
1,233,322 38,178 56,126 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,182,915 49,759 83,636 11,316
- --------------------------------------------------------------------------------
* 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.
29 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Balanced Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series:
Balanced Portfolio (the "Fund") was held on 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*
--- ------- ------- -----------------
9,340,866 294,870 305,645 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
9,216,308 202,480 511,759 10,834
- --------------------------------------------------------------------------------
* 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.
30 - Scudder Pathway Series
<PAGE>
Shareholder Meeting Results
Pathway Growth Portfolio
A Special Meeting of Shareholders (the "Meeting") of Scudder Pathway Series:
Growth Portfolio (the "Fund") was held on 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*
--- ------- ------- -----------------
2,778,994 109,833 122,939 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
2,656,436 133,010 179,716 42,604
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
31 - Scudder Pathway Series
<PAGE>
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.
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 --
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.
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 -- 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
- ------------------------------------------------------------------------------------------------------------------------------
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
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>
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 $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
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