SCUDDER
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ASSET ALLOCATION
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Scudder
Pathway Series:
Conservative Portfolio
Fund #080
Balanced Portfolio
Fund #081
Growth Portfolio
Fund #082
Annual Report
August 31, 1999
For investors seeking professionally managed and diversified portfolios through
investment in a select mix of Scudder funds.
Three no-load portfolios with no commissions to buy, sell, or exchange shares.
<PAGE>
Contents
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4 Letter from the Series' President
6 Portfolio Management Discussion
Conservative Portfolio
12 Portfolio Highlights
14 Performance Update
16 Portfolio Summary
30 Investment Portfolio
38 Financial Highlights
Balanced Portfolio
18 Portfolio Highlights
20 Performance Update
22 Portfolio Summary
31 Investment Portfolio
39 Financial Highlights
Growth Portfolio
24 Portfolio Highlights
26 Performance Update
28 Portfolio Summary
32 Investment Portfolio
40 Financial Highlights
33 Financial Statements
41 Notes to Financial Statements
44 Report of Independent Accountants
45 Tax Information
46 Officers and Trustees
47 Investment Products and Services
49 Scudder Solutions
2
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Scudder Pathway Series
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Conservative Portfolio ticker symbol SCPCX fund number 080
Balanced Portfolio ticker symbol SPBAX fund number 081
Growth Portfolio ticker symbol SPGRX fund number 082
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Date of o While the trend in the global stock markets
Portfolios' has been positive over the past year,
Inception: investors' focus on the potential impact of
11/15/96 higher interest rates has produced
exceptionally high volatility in recent
months.
Total Net
Assets as of o Bonds, which tend to experience weakness
8/31/99 -- when investors are concerned about
inflation, have fallen sharply across all
Conservative: sectors so far in 1999. Corporate bonds,
$28.2 million which have been weighed down by the
additional burden of high levels of new
Balanced: supply coming on the market, were
$247.3 million particularly poor performers.
Growth: o The Portfolios' focus on diversification
$94.1 million helped dampen the effects of the volatility
that has characterized financial market
performance throughout the year.
3
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Letter from the Series' President
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Dear Shareholders,
The past twelve months have been a time of significant change in the global
financial markets. As the crisis period of last fall gave way to a resurgence in
economic growth, concerns that a stronger economy will lead to inflation have
replaced fears of a worldwide recession and possible deflation. Against this
backdrop, bond prices have gradually slipped, while U.S. stocks have experienced
high levels of volatility within the bounds of a broad trading range. Overseas,
Japanese equities have taken over the mantle of market leadership from Europe,
and the emerging markets, which were mired in a crisis for over eighteen months,
have finally begun to recover. As these important shifts have played out,
volatility has been steadily on the increase.
In an environment such as this, it can be very difficult to stay focused on your
investment objectives. Even those who have established a specific time horizon
for their investment may become rattled when an unfavorable economic report
sends the markets into a swoon. However, we believe that the events of the past
year, which include rapid shifts in market leadership among sectors, asset
classes, and geographic areas, substantiate the value of a strategy that
emphasizes diversification and a long-term point of view. For more information
on how Pathway Series incorporates such an approach, please see the Portfolio
Management Discussion that begins on page 6.
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Finally, it should be noted that Daniel Pierce retired in June of this year as
President of Scudder Pathway Series, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's long-standing affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the Pathway Series' team in this capacity, and
look forward to serving your interests.
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-SCUDDER (1-800-728-3337), or visit our Web site at www.scudder.com.
Sincerely,
/s/Kathryn L. Quirk
Kathryn L. Quirk
President,
Scudder Pathway Series
5
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Portfolio Management Discussion
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August 31, 1999
We asked Benjamin W. Thorndike, lead portfolio manager of Scudder Pathway
Series, to discuss the recent market environment and Scudder's investment
strategy for the Pathway Series.
Q: The investment backdrop has changed substantially over the reporting period.
How would you characterize this shift?
A: A resurgence in global growth has been the most important factor in the
financial markets' performance during the past year. At the beginning of 1999,
with the financial crises of August-September 1998 still fresh in investors'
minds, the consensus expectation was that the U.S. economy would weaken, profit
growth would slow, and the economies of Japan and the emerging markets would
remain mired in recession. Many analysts were predicting outright deflation,
where a combination of excessive production and anemic demand would cause prices
to fall, thereby snuffing out the long-running bull market in equities. The
events of the past six months have discredited this notion, however, as the
resilient global economy has come back stronger in the wake of last year's
scare. Accordingly, investor sentiment has rebounded in kind.
The continued strength of the U.S. economy has been one of the primary drivers
of this recovery. Increases in consumption, investment, and property values have
all contributed to the ongoing expansion. Consumer spending figures have been
outstanding, with total sales volume roaring ahead at an 8% clip, a pace that
has been surpassed only once in the last 32 years. Most important, the strength
in the economy has not resulted in inflation, although the possibility that the
tight domestic labor market could ultimately produce price pressures has
prompted the Federal Reserve to raise interest rates twice. The fear that
further rate hikes would be forthcoming was
6
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a key factor in stock price weakness after the close of the reporting period.
Overseas, many of the economies that have been lagging over the last few years
have begun to perk up. Japan, for example, has finally begun to show signs of
life after struggling for the entire decade. Continental Europe is also starting
to break out of its doldrums, and the emerging markets, which suffered from a
series of crises during the second half of 1997 and most of 1998, appear to have
stabilized. Although stronger growth is not always beneficial for the financial
markets, its recent revival has helped to set the stage for a rally in global
stock prices.
Q: In the last report you discussed how the market's gains were narrowly focused
on a small group of large-cap growth stocks. Has the change in the economic
outlook affected this trend?
A: It has to a degree -- value stocks and small companies awoke from their
slumber in April, but the nascent rally lost its luster by early June. Prior to
the second quarter, the market's focus on stocks that could maintain strong
earnings even during times of slow growth was the driving force that enabled
large caps to outperform other sectors of the market. Once it became apparent
that growth was on the upswing, however, investors began to feel more confident
venturing into other sectors of the market. Since the rally in these downtrodden
areas petered out, there has been a lack of distinct leadership in the market.
Although large-cap growth stocks outperformed the broader market over the full
twelve-month reporting period, it has proven much easier to make money in stocks
outside of the so-called "Nifty Fifty" in recent months. In this way, the
revival of the world economy has indeed created a more positive backdrop for the
broader market.
Q: How have foreign stocks reacted to the changing environment?
A: Since we last spoke in February, the investment climate overseas has changed
considerably. Over the past three
7
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years, European stocks surged to new highs on the strength of widespread
restructuring and consolidation. At the same time, Japan's stock market moved
steadily downward as both the public and private sectors failed to develop an
effective solution for the country's malaise. During the last six months,
however, Europe has become less attractive on a relative basis due to political
squabbles, the absence of meaningful structural reform, and the weak performance
of the new currency, the euro. At the same time, the combination of the pickup
in Japan's economy and the restructuring initiated by many of its leading
companies has attracted significant inflows of foreign capital as investors have
sought to increase their underweight positions. Overall, however, the investment
backdrop has been quite favorable -- the accelerating pace of consolidation in
Europe has presented a wide range of investment opportunities, while Japan is
only at the beginning of the restructuring phase that has proven so beneficial
for the U.S. and European markets during the 1990s. In the developing countries,
the resurgence in many of the formerly crisis-ridden economies has sparked
rallies in the downtrodden markets of Asia and Latin America. Consequently, we
believe that the foreign equity markets will continue to provide an excellent
vehicle for diversification going forward.
Q: How were bond prices affected by the strengthening global economy?
A: Bonds have fared poorly so far in 1999, and the fact is that the slump that
has extended across all sectors has left fixed-income investors with nowhere to
hide. Bonds generally thrive in an environment where growth is slow, or even
negative, since such a scenario is thought to reduce the probability of
inflation and, by extension, higher interest rates. Coming into the year,
concerns over a possible global recession had driven bond yields to historical
lows (as their prices rose). Bond yields began to creep upward again as the
recession scenario grew more remote throughout the first quarter, then
accelerated
8
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through the spring as investors began to price in a rate hike by the Federal
Reserve. The yield on the bellwether 30-year Treasury bond rose to a high of
6.28% by August 12, well above its 5.1% level of December 31, 1998. Corporate
bonds were beset by the additional pressure of increased supply flooding into
the market at a time when rate fears were already slowing demand.
Mortgage-backed securities, which were hurt by fears of increasing prepayments
early in the year and rising rates during the summer months, also posted poor
performance.
Q: How did the Pathway portfolios respond?
A: The portfolios performed well overall, but in a period when stocks
outperformed bonds by such a wide margin, it can sometimes be frustrating for
investors to watch their funds go up less than the major equity indices.
However, it is important to keep in mind that we are focused on minimizing risk,
as well as maximizing return. We continue to believe that a diversified approach
will prove valuable over time. The fact that many of the foreign markets have
outperformed the S&P 500 Index over the first eight months of 1999 demonstrates
the importance of a broad exposure to multiple asset classes. Consequently, we
will maintain our strategy of constructing the portfolios' weightings based on
our analysis of long-term factors, and any changes we make to the portfolios
will be gradual.
Q: Did you make any adjustments to the portfolios during the period?
A: Yes, we made a few shifts that reflect our evolving view of the investment
environment. First, we reduced the portfolios' allocation to growth stocks, and
increased their exposure to value. We believe that the Federal Reserve's recent
shift toward higher rates will reinforce the market's expectation that the U.S.
economy is approaching the late stages of its cycle. Under such a scenario,
stronger global growth, above-consensus earnings, and rising inflation tend to
benefit value stocks over the large growth stocks that usually perform well when
the economy is still in
9
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mid-cycle. What's more, value stocks remain inexpensive by historical norms, and
are positioned to benefit from a stabilization of commodity prices. We believe
that a more balanced approach is prudent in this environment.
We have also reduced our positions in the developing countries. Emerging markets
equities have performed well this year, but looking forward, we see some
potential stumbling blocks. Structural reforms have been slow, serious fiscal
imbalances remain in place, and many countries are still heavily dependant on
external financing. With serious questions remaining with respect to growth in
Asia and Latin America, we have found better opportunities in other sectors of
the market.
Q: What is your outlook for the financial markets from here?
A: We believe that investors will continue to focus on the direction of Fed
policy over the remainder of 1999. Although the Fed has already raised interest
rates twice, investors will be on the lookout for signs of incipient inflation.
Consequently, it is likely that the markets will remain volatile, as the
importance of each economic report will be magnified. While rapid fluctuations
are often confusing and unsettling to investors, we urge shareholders to
maintain a focus on their long-term investment objectives regardless of the
short-term direction of the markets. The events of 1999, which include
developments that only a few months ago would have seemed unlikely -- such as
the rallies in Japan and the emerging markets -- demonstrate once again that
even long-standing market trends can reverse unexpectedly. Amid this rapidly
changing environment, we intend to maintain a stable approach to managing the
Pathway Series, and we encourage investors to do the same with their own
portfolios.
10
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Scudder Pathway Series:
A Team Approach to Investing
The portfolios are managed by a team of Scudder Kemper Investments, Inc. (the
"Adviser") professionals, each of whom plays an important role in each
portfolio's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits portfolio investors by bringing
together many disciplines and leveraging our extensive resources. All members of
the Pathway investment team are members of Scudder's Global Asset Allocation
Committee, which is responsible for analyzing the global economy and capital
markets, integrating information from the firm's equity and fixed income
specialists, and developing the outlook for the major markets in which a
portfolio invests.
Lead portfolio manager Benjamin W. Thorndike, who has 18 years of investment
experience, joined the Adviser in 1983 as a portfolio manager.
Portfolio manager Maureen Allyn is the Adviser's chief economist, a position she
has held since 1989, and is responsible for analyzing both the world and U.S.
economies.
Portfolio manager Edward B. Baldini joined the Adviser in 1995 and leads
Scudder's Institutional Asset Allocation Team, which is responsible for setting
domestic and global asset allocation policy for institutional clients.
11
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Portfolio Highlights
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August 31, 1999
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 twelve-month period ended August 31, 1999, the Conservative Portfolio
posted a total return of 7.62%, versus a return of 11.49% for the portfolio's
custom benchmark. Detailed performance information is listed on page 19.
Although the portfolio's position in domestic stock funds stood at only 24% of
total assets as of the end of the period (a weighting that was in line with the
benchmark), these funds provided the most significant boost to returns. Scudder
Classic Growth Fund, which invests primarily in the types of large-cap companies
that have led the market over the past year, was the top performer. Large
Company Value Fund and Growth and Income Fund also performed well, especially in
the second half of the period when value stocks began to recover. Scudder Small
Company Value Fund had the lowest return of the four stock funds we hold, due to
the fact that the companies in its investment universe were deeply out of favor
for most of the year. International Growth and Income, at 6% of total assets,
was similar to domestic value funds in that it struggled through March, then
perked up once global growth began to recover in the final four months of the
period. Overall, the combination of growth and value helped provide a measure of
stability as stock market volatility increased throughout the spring and summer.
The portfolio's large position in bond funds, which has remained between 60% and
64% since the fourth quarter of 1997, offset the performance of its equity
holdings. The fact that Income Fund -- at 48% of total portfolio assets --
provided flat performance for the period was the primary factor in the portfolio
underperforming its benchmark. On the other hand, High Yield Bond Fund
12
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posted strong returns early in the period, and Corporate Bond Fund did well
overall despite the late slump in the corporate sector. GNMA Fund, which was
buffeted by both rate fears and increasing levels of mortgage prepayments by
homeowners, was flat for the period.
Portfolio Strategy
In keeping with the Fund's long-term orientation, we made few significant
changes since the time of the last report in February. Feeling that the extended
rally in high yield issues was largely spent given the threat of higher rates,
we eliminated our 3% position in High Yield Bond Fund. On the equity side, we
believe that value stocks should build on their spring rally due to the
combination of stronger economic growth and their attractive valuations.
Accordingly, we increased our weighting in Large Company Value Fund to 8% of
assets from 6%.
13
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Performance Update
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August 31, 1999
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
LBAB Index (60%),
S&P 500 Index (25%),
MSCI All Country (ex
U.S.) Index (5%),
Scudder Pathway Series: 3-month T-Bill
Conservative Portfolio LBAB Index* (10%)*
11/96** 10000 10000 10000
2/97 10236 9963 10110
8/97 11006 10402 10813
2/98 11768 10996 11716
8/98 11232 11499 11778
2/99 11871 11684 12845
8/99 12088 11588 13131
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Conservative Portfolio
- --------------------------------------------------------------------------------
1 year $ 10,762 7.62% 7.62%
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Life of Portfolio** $ 12,239 22.39% 7.51%
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LBAB Index (60%), S&P 500 Index (25%), MSCI All Country (ex U.S.) Index (5%),
3-month T-Bill (10%)*
- --------------------------------------------------------------------------------
1 year $ 11,149 11.49% 11.49%
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Life of Portfolio** $ 13,131 31.31% 10.41%
- --------------------------------------------------------------------------------
* 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, unlike
Portfolio returns, do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
14
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Returns and Per Share Information
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Scudder Pathway Series: Conservative Portfolio
LBAB Index (60%), S&P 500 Index (25%), MSCI All Country (ex U.S.)
Index (5%), 3-month T-Bill (10%)*
Yearly periods ended August 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE PORTFOLIO TOTAL RETURN (%) AND
BLENDED INDEX TOTAL RETURN (%)
1997** 1998 1999
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 11.45 2.05 7.62
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 8.13 8.93 11.49
- --------------------------------------------------------------------------------
Net Asset Value
($) 12.86 12.28 12.45
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Income
Dividends ($) .33 .57 .55
- --------------------------------------------------------------------------------
Capital Gains
Distributions
($) .15 .30 .21
- --------------------------------------------------------------------------------
* 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, unlike
Portfolio returns, do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
Performance is historical, assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth
more or less than when purchased. If the Adviser had not maintained some of
the Underlying Funds' expenses, the total return for the Portfolio would have
been lower.
15
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Portfolio Summary
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August 31, 1999
Pathway Conservative Portfolio
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Asset Allocation
- --------------------------------------------------------------------------------
Management seeks to
maintain diversified
exposure to stocks,
bonds, and money market
securities.
THE ORIGINAL DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART DATA:
Money Market 5%
Fixed Income 65%
Equity 30%
- ------------------------------------
100%
- ------------------------------------
Asset Class Ranges
Asset class allocations
are derived from the
risk profile of the
portfolio; adjustments
are expected to be
modest and infrequent.
Money Market 0-15%
Fixed Income 40-80%
Equity 20-50%
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16
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Portfolio Holdings
Portfolio shifts reflect
an increased focus on
value stocks in an
environment of stronger
global growth.
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Scudder Income Fund 48%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 9%
- ----------------------------------------------------------
Scudder Large Company Value Fund 8%
- ----------------------------------------------------------
Scudder GNMA Fund 7%
- ----------------------------------------------------------
Scudder Growth and Income Fund "S" 7%
- ----------------------------------------------------------
Scudder International Growth and Income Fund 6%
- ----------------------------------------------------------
Scudder Classic Growth Fund "S" 6%
- ----------------------------------------------------------
Scudder Cash Investment Trust 5%
- ----------------------------------------------------------
Scudder Small Company Value Fund 4%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 30. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
17
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Portfolio Highlights
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August 31, 1999
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 twelve-month period ended August 31, the Balanced Portfolio returned
18.27%, versus 22.42% for its custom benchmark. Detailed performance information
is listed on page 20.
The portfolio's position in equities, which stood at 62% of assets at the close
of the period, was the most important factor in its performance. In an
environment where growth stocks dominated, our more aggressive holdings proved
to be the top performers. Classic Growth Fund, which focuses on large-cap stocks
with strong earnings growth and leading market positions, posted the best return
of the portfolio's holdings. Development Fund, which emphasizes mid-cap growth
names, and 21st Century Growth Fund, which invests in the small-cap growth
sector, also benefited from strong stock selection and a favorable investment
backdrop. Scudder Growth and Income Fund, which employs a value-oriented
approach, provided solid returns and helped the portfolio's overall stability,
especially when leadership was alternating rapidly between the growth and value
sectors during the summer. International Fund and Emerging Markets Growth Fund
also performed well over the course of the year, as the combination of
restructuring, consolidation, and renewed economic growth sparked a rally in
many of the overseas stock markets.
In contrast to the portfolio's equity holdings, many of which outperformed their
benchmarks, the fixed income holdings produced more tepid returns. Income Fund,
which made up the bulk of the position in bonds, underperformed its benchmark,
and was essentially flat for the full period. Corporate Bond Fund provided a
stronger absolute return overall, but was hurt by the slump in corporates during
the spring and summer. Although the
18
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income component of the portfolio has not performed well recently, we continue
to believe that bonds are essential to diversification. In addition, we find the
yields of corporates to be relatively attractive in the wake of the sector's
slump.
Portfolio Strategy
Since we manage the portfolio with a long-term investment horizon, the
adjustments we made are a reflection of our views on the more extended cycles at
work in the financial markets. For instance, we feel that in an environment of
economic expansion, value stocks have become increasingly attractive in relation
to growth stocks. As a result, we moved money out of Classic Growth Fund and
Development Fund, both of which have performed well for us, and added to our
position in Growth and Income Fund. We also eliminated our 4% position in High
Yield Bond Fund and redeployed the proceeds into Income Fund, based on our
belief that a diversified, lower-risk fund will prove more attractive in an
environment of higher interest rates. Looking ahead, we feel that
diversification will take on an even greater importance as the financial markets
sort out the impact of stronger global growth.
19
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
August 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
<TABLE>
<CAPTION>
S&P 500 Index (50%),
LBAB Index (35%),
Scudder Pathway MSCI All Country (ex
Series: Balanced U.S.) Index (10%),
Portfolio S&P 500 Index* LBAB Index* 3-month T-Bill (5%)*
<S> <C> <C> <C> <C>
11/96** 10000 10000 10000 10000
2/97 10235 10496 9963 10232
8/97 11073 12048 10402 11229
2/98 11888 14172 10996 12516
8/98 10759 13026 11499 12098
2/99 12107 16969 11684 14129
8/99 12725 18212 11588 14810
</TABLE>
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Balanced Portfolio
- --------------------------------------------------------------------------------
1 year $ 11,827 18.27% 18.27%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 12,863 28.63% 9.44%
- --------------------------------------------------------------------------------
S&P 500 Index (50%), LBAB Index (35%), MSCI All Country (ex U.S.) Index (10%),
3-month T-Bill (5%)*
- --------------------------------------------------------------------------------
1 year $ 12,242 22.42% 22.42%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 14,810 48.10% 15.35%
- --------------------------------------------------------------------------------
* 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, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
20
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
Scudder Pathway Series: Balanced Portfolio
S&P 500 Index (50%), LBAB Index (35%), MSCI All Country (ex U.S.) Index (10%),
3-month T-Bill (5%)*
Yearly periods ended August 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE PORTFOLIO TOTAL RETURN (%) AND
BLENDED INDEX TOTAL RETURN (%)
BAR CHART DATA:
1997** 1998 1999
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 11.94 -2.84 18.27
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 12.29 7.74 22.42
- --------------------------------------------------------------------------------
Net Asset Value
($) 13.01 12.06 13.42
- --------------------------------------------------------------------------------
Income
Dividends ($) .33 .42 .38
- --------------------------------------------------------------------------------
Capital Gains
Distributions
($) .07 .21 .43
- --------------------------------------------------------------------------------
* 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, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not maintained
some of the Underlying Funds' expenses, the total return for the Portfolio
would have been lower.
21
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
August 31, 1999
Pathway Balanced Portfolio
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
The portfolio's equity
position benefited from
strong stock market
performance over the
period.
THE ORIGINAL DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART DATA:
Money Market 1%
Fixed Income 37%
Equity 62%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Asset Class Ranges
- --------------------------------------------------------------------------------
Asset class allocations
are derived from the
risk profile of the
portfolio; adjustments
are expected to be
modest and infrequent.
Money Market 0-10%
Fixed Income 25-60%
Equity 40-70%
- ------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The portfolio's
- ---------------------------------------------------------- allocation among a
Scudder Income Fund 29% variety of funds
- ---------------------------------------------------------- illustrates management's
Scudder Growth and Income Fund "S" 20% emphasis on
- ---------------------------------------------------------- diversification.
Scudder Classic Growth Fund "S" 19%
- ----------------------------------------------------------
Scudder International Fund -- International Shares 12%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 8%
- ----------------------------------------------------------
Scudder Development Fund 6%
- ----------------------------------------------------------
Scudder Emerging Markets Growth Fund 3%
- ----------------------------------------------------------
Scudder Cash Investment Trust 1%
- ----------------------------------------------------------
Scudder Small Company Value Fund 1%
- ----------------------------------------------------------
Scudder Micro Cap Fund 1%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
</TABLE>
For more complete details about the Fund's investment portfolio, see page 31. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
23
<PAGE>
Portfolio Highlights
- --------------------------------------------------------------------------------
August 31, 1999
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
During the twelve-month period ended August 31, 1999, the Growth Portfolio
returned 31.69%, in line with the 29.77% of its custom benchmark. Over the most
recent three months the portfolio returned 5.65%, versus 2.54% for the
benchmark. The portfolio, which holds 84% of assets in equities, was
well-positioned to take advantage of the strong performance of the global stock
markets over the past year, and to provide strong risk-adjusted returns in a
period of high volatility.
An overweighting in growth-oriented funds had a positive impact on performance
in a period when growth stocks outperformed value stocks by a wide margin. Our
position in Large Company Growth Fund, which benefited from its focus on stocks
with reliable earnings growth characteristics, produced strong returns. As the
volatility of growth stocks increased as the period drew to a close, our newly
established position in Large Company Value Fund helped to dampen the
portfolio's fluctuations. Scudder 21st Century Growth Fund, which invests in
small caps, performed extremely well due to strong stock selection and the
positive performance of the growth sector as a whole. Our positions in
International Fund, Emerging Markets Growth Fund, and Micro Cap Fund all
contributed positively to both total returns and portfolio diversification.
The fixed income component of the portfolio, which made up 15% of assets on
August 31, performed well until inflation fears began to grip the market in the
latter part of the period. Emerging Markets Income Fund, which began the period
at extraordinarily low levels as a result of the emerging markets contagion,
rebounded strongly through
24
<PAGE>
the first quarter of 1999 as the series of rate cuts by the Federal Reserve sent
liquidity flowing back into the developing countries. Corporate Bond Fund also
rebounded from the latter part of 1998 through the spring, but lost ground over
the summer as high levels of new issuance battered the corporate market.
Portfolio Strategy
As always, the changes we made since the February semiannual report were
undertaken with a long-term focus in mind. Consistent with our view that a
greater balance between growth and value is warranted at this juncture, we
reduced our position in Large Company Growth Fund and initiated a position in
Large Company Value Fund. As of August 31 we held 13% of assets in the fund,
versus 0% at the end of February. We also trimmed the portfolio's holding in
Micro Cap Fund, based on our belief that small caps are unlikely to outperform
as long as interest rates are on the upswing. In addition, we cut our weighting
in High Yield Bond Fund to 0% from 5%, in order to reduce our exposure to a
volatile sector that may be vulnerable to a further increase in interest rates.
Other portfolio holdings remain essentially unchanged.
25
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
August 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
S&P 500 Index
(60%), MSCI All
Country (ex U.S.)
Scudder Pathway Index (20%), LBAB
Series: Growth Index (15%), 3-month
Portfolio S&P 500 Index* T-Bill (5%)*
11/96** 10000 10000 10000
2/97 10336 10496 10278
8/97 11340 12048 11407
2/98 12294 14172 12841
8/98 10633 13026 12029
2/99 12660 16969 14580
8/99 14003 18212 15609
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Growth Portfolio
- --------------------------------------------------------------------------------
1 year $ 13,169 31.69% 31.69%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 14,166 41.66% 13.29%
- --------------------------------------------------------------------------------
S&P 500 Index (60%), MSCI All Country (ex U.S.) Index (20%), LBAB Index (15%),
3-month T-Bill (5%)*
- --------------------------------------------------------------------------------
1 year $ 12,977 29.77% 29.77%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 15,609 56.09% 17.57%
- --------------------------------------------------------------------------------
* 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, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
26
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
Scudder Pathway Series: Growth Portfolio
S&P 500 Index (60%), MSCI All Country (ex U.S.) Index (20%), LBAB Index (15%),
3-month T-Bill (5%)*
Yearly periods ended August 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE PORTFOLIO TOTAL RETURN (%) AND
BLENDED INDEX TOTAL RETURN (%)
BAR CHART DATA:
1997** 1998 1999
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 14.72 -6.23 31.69
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 14.07 5.46 29.77
- --------------------------------------------------------------------------------
Net Asset
Value ($) 13.44 12.17 15.33
- --------------------------------------------------------------------------------
Income
Dividends ($) .16 .21 .20
- --------------------------------------------------------------------------------
Capital Gains
Distributions ($) .13 .26 .43
- --------------------------------------------------------------------------------
* 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, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not maintained
some of the Underlying Funds' expenses, the total return for the Portfolio
would have been lower.
27
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
August 31, 1999
Pathway Growth Portfolio
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
A focus on equities
helped the portfolio's
performance in a period
when stocks generally
outperformed bonds by a
wide margin.
THE ORIGINAL DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART DATA:
Money Market 1%
Fixed Income 15%
Equity 84%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Asset Class Ranges
- --------------------------------------------------------------------------------
Asset class allocations
are derived from the
risk profile of the
portfolio; adjustments
are expected to be
modest and infrequent.
Money Market 0-5%
Fixed Income 10-40%
Equity 60-90%
- ------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
The portfolio's
performance was boosted
by the strong returns of
its top holdings.
- ----------------------------------------------------------
Scudder Large Company Growth Fund "S" 32%
- ----------------------------------------------------------
Scudder International Fund -- International Shares 23%
- ----------------------------------------------------------
Scudder Large Company Value Fund 13%
- ----------------------------------------------------------
Scudder 21st Century Growth Fund 11%
- ----------------------------------------------------------
Scudder Income Fund 8%
- ----------------------------------------------------------
Scudder Emerging Markets Income Fund 4%
- ----------------------------------------------------------
Scudder Micro Cap Fund 3%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 3%
- ----------------------------------------------------------
Scudder Emerging Markets Growth Fund 2%
- ----------------------------------------------------------
Scudder Cash Investment Trust 1%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 32. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
29
<PAGE>
Investment Portfolio as of August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
Pathway Conservative Portfolio
- ------------------------------------------------------------------------------------
Money Market 5.3%
- ------------------------------------------------------------------------------------
<S> <C> <C>
-----------
Scudder Cash Investment Trust (Cost $1,493,239) ......... 1,493,239 1,493,239
-----------
- ------------------------------------------------------------------------------------
Fixed Income 64.5%
- ------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................. 226,019 2,574,357
Scudder GNMA Fund ....................................... 141,691 2,006,347
Scudder Income Fund ..................................... 1,088,031 13,633,031
- ------------------------------------------------------------------------------------
Total Fixed Income (Cost $19,416,119) 18,213,735
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Equity 30.2%
- ------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ......................... 73,563 1,658,104
Scudder Growth & Income Fund "S" ........................ 70,913 1,906,850
Scudder International Growth & Income Fund .............. 130,714 1,697,981
Scudder Large Company Value Fund ........................ 73,423 2,152,748
Scudder Small Company Value Fund ........................ 59,071 1,095,763
- ------------------------------------------------------------------------------------
Total Equity (Cost $8,319,323) 8,511,446
- ------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $29,228,681) (a) 28,218,420
- ------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $29,288,993. At August 31,
1999, net unrealized depreciation for all securities based on tax cost was
$1,070,573. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $414,561 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $1,485,134.
During the year ended August 31, 1999, purchases and sales of investment
securities (excluding money market investments) aggregated $8,100,374 and
$9,237,397, respectively.
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
Investment Portfolio as of August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------
Pathway Balanced Portfolio
- ----------------------------------------------------------------------------------------
Money Market 1.1%
- ----------------------------------------------------------------------------------------
<S> <C> <C>
------------
Scudder Cash Investment Trust (Cost $2,593,462) .......... 2,593,462 2,593,462
------------
- ----------------------------------------------------------------------------------------
Fixed Income 37.0%
- ----------------------------------------------------------------------------------------
Scudder Corporate Bond Fund .............................. 1,760,268 20,049,448
Scudder Income Fund ...................................... 5,718,095 71,647,728
- ----------------------------------------------------------------------------------------
Total Fixed Income (Cost $97,169,843) 91,697,176
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Equity 61.9%
- ----------------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" .......................... 2,093,337 47,183,827
Scudder Development Fund ................................. 372,638 14,510,529
Scudder Emerging Markets Growth Fund ..................... 714,598 8,653,778
Scudder Growth & Income Fund "S" ......................... 1,876,848 50,468,437
Scudder International Fund -- International Shares ....... 555,302 30,441,672
Scudder Micro Cap Fund ................................... 6,179 93,979
Scudder Small Company Value Fund ......................... 108,681 2,016,041
- ----------------------------------------------------------------------------------------
Total Equity (Cost $143,517,851) 153,368,263
- ----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $243,281,156) (a) 247,658,901
- ----------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $243,364,482. At August 31,
1999, net unrealized appreciation for all securities based on tax cost was
$4,294,419. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $12,495,938 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$8,201,519.
During the year ended August 31, 1999, purchases and sales of investment
securities (excluding money market investments) aggregated $62,487,741 and
$59,774,473, respectively.
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of August 31, 1999
- ------------------------------------------------------------------------------------
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
Pathway Growth Portfolio
- ------------------------------------------------------------------------------------
Money Market 1.0%
- ------------------------------------------------------------------------------------
<S> <C> <C>
----------
Scudder Cash Investment Trust (Cost $942,833) ........... 942,833 942,833
----------
- ------------------------------------------------------------------------------------
Fixed Income 15.4%
- ------------------------------------------------------------------------------------
Scudder Corporate Bond Fund ............................. 244,860 2,788,959
Scudder Emerging Market Income Fund ..................... 441,403 3,173,690
Scudder Income Fund ..................................... 678,107 8,496,681
- ------------------------------------------------------------------------------------
Total Fixed Income (Cost $16,618,494) 14,459,330
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Equity 83.6%
- ------------------------------------------------------------------------------------
Scudder 21st Century Growth Fund ........................ 558,394 10,441,975
Scudder Emerging Markets Growth Fund .................... 145,176 1,758,075
Scudder International Fund -- International Shares ...... 399,434 21,896,959
Scudder Large Company Growth Fund "S" ................... 865,332 29,429,934
Scudder Large Company Value Fund ........................ 409,443 12,004,867
Scudder Micro Cap Fund .................................. 201,220 3,060,558
- ------------------------------------------------------------------------------------
Total Equity (Cost $68,256,882) 78,592,368
- ------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $85,818,209) (a) 93,994,531
- ------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $86,046,045. At August 31,
1999, net unrealized appreciation for all securities based on tax cost was
$7,948,486. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $11,073,613 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,125,127.
During the year ended August 31, 1999, purchases and sales of investment
securities (excluding money market investments) aggregated $36,896,750 and
$23,001,082, respectively.
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities as of August 31, 1999
- --------------------------------------------------------------------------------
Conservative Balanced Growth
Assets Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Investments at market (for
identified cost, see
accompanying investment
portfolios) ................. $ 28,218,420 $247,658,901 $93,994,531
Receivable for Portfolio shares
sold ........................ 16,378 270,436 113,463
Income receivable .............. 31,539 130,857 20,768
------------ ------------ -----------
Total assets ................... 28,266,337 248,060,194 94,128,762
Liabilities
- --------------------------------------------------------------------------------
Payable for investments
purchased ................... 31,554 130,865 20,778
Payable for Portfolio shares
redeemed .................... 5,731 592,400 11,294
------------ ------------ -----------
Total liabilities .............. 37,285 723,265 32,072
- -------------------------------- ------------ ------------ -----------
Net assets, at market value $ 28,229,052 $247,336,929 $94,096,690
- -------------------------------- ------------ ------------ -----------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment
income ...................... 97,885 401,668 615,278
Net unrealized appreciation
(depreciation) on investments (1,010,261) 4,377,745 8,176,322
Accumulated net realized gain
(loss) ...................... 619,937 13,012,188 5,533,761
Paid-in capital ................ 28,521,491 229,545,328 79,771,329
- -------------------------------- ------------ ------------ -----------
Net assets, at market value $ 28,229,052 $247,336,929 $94,096,690
- -------------------------------- ------------ ------------ -----------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and ------------ ------------ ------------
redemption price per share $12.45 $13.42 $15.33
(outstanding shares of ------------ ------------ ------------
beneficial interest, $.01 par
value, unlimited number of
shares authorized) .......... 2,268,100 18,431,371 6,137,871
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations for the year ended August 31, 1999
- --------------------------------------------------------------------------------
Conservative Balanced Growth
Investment Income Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Income:
Income distributions from
Underlying Funds ............ $ 1,354,107 $ 7,179,392 $ 1,043,924
- --------------------------------------------------------------------------------
Net investment income 1,354,107 7,179,392 1,043,924
- --------------------------------------------------------------------------------
Realized and unrealized gain
(loss) on investments
- --------------------------------------------------------------------------------
Net realized gain (loss):
Investments .................... 11,582 626,225 1,202,395
Capital gain distributions from
Underlying Funds ............ 621,390 12,497,097 4,644,279
----------- ----------- -----------
632,972 13,123,322 5,846,674
----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments
during the period ........... 267,272 20,343,808 14,890,953
- --------------------------------------------------------------------------------
Net gain (loss) on investment
transactions 900,244 33,467,130 20,737,627
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 2,254,351 $40,646,522 $21,781,551
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Conservative Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
November 15, 1996
For the Eleven (commencement of
Increase (Decrease) in Year Ended Months Ended operations) to
Net Assets August 31, 1999 August 31, 1998 September 30, 1997
- --------------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ................. $ 1,354,107 $ 970,613 $ 283,047
Net realized gain (loss) .............. 632,972 684,820 258,193
Net unrealized appreciation
(depreciation) on
investments during the period ...... 267,272 (2,259,098) 981,565
------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations ......................... 2,254,351 (603,665) 1,522,805
------------ ------------ ------------
Distributions to shareholders
from:
Net investment income ................. (1,326,852) (1,003,113) (204,885)
------------ ------------ ------------
Net realized gain on investment
transactions ....................... (503,342) (419,415) (8,323)
------------ ------------ ------------
Portfolio share transactions:
Proceeds from shares sold ............. 12,307,682 20,371,433 17,529,919
Net asset value of shares
issued to shareholders in
reinvestment of distributions ...... 1,800,922 1,391,254 206,449
Cost of shares redeemed ............... (15,106,407) (7,905,477) (2,099,284)
------------ ------------ ------------
Net increase (decrease) in net
assets from Portfolio share
transactions ....................... (997,803) 13,857,210 15,637,084
------------ ------------ ------------
Increase (decrease) in net
assets ............................. (573,646) 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
$97,885, $55,480, and ------------ ------------ ------------
$78,162, respectively) ............. $ 28,229,052 $ 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 ........................... 973,400 1,561,078 1,426,617
Shares issued to shareholders
in reinvestment of
distributions ...................... 142,672 107,261 16,301
Shares redeemed ....................... (1,194,272) (601,345) (165,695)
------------ ------------ ------------
Net increase (decrease) in
Portfolio shares ................... (78,200) 1,066,994 1,277,223
Shares outstanding at end of ------------ ------------ ------------
period ............................. 2,268,100 2,346,300 1,279,306
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Balanced Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
November 15, 1996
For the Eleven (commencement of
Increase (Decrease) in Year Ended Months Ended operations) to
Net Assets August 31, 1999 August 31, 1998 September 30, 1997
- -----------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ................. $ 7,179,392 $ 6,646,858 $ 2,647,994
Net realized gain (loss) .............. 13,123,322 9,895,787 1,344,002
Net unrealized appreciation
(depreciation) on
investments during the period ...... 20,343,808 (33,472,924) 17,506,861
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations ......................... 40,646,522 (16,930,279) 21,498,857
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income ................. (7,186,841) (6,892,334) (2,063,517)
------------- ------------- -------------
Net realized gain on investment
transactions ....................... (7,901,241) (3,375,302) (4,264)
------------- ------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............. 77,180,711 99,139,026 188,966,219
Net asset value of shares
issued to shareholders in
reinvestment of distributions ...... 14,977,593 10,228,180 2,061,385
Cost of shares redeemed ............... (92,851,056) (51,844,223) (18,337,507)
------------- ------------- -------------
Net increase (decrease) in net
assets from Portfolio share
transactions ....................... (692,752) 57,522,983 172,690,097
------------- ------------- -------------
Increase (decrease) in net
assets ............................. 24,865,688 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
$401,668, $389,390, and ------------- ------------- -------------
$584,477, respectively) ............ $ 247,336,929 $ 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 ........................... 5,878,541 7,374,746 15,422,187
Shares issued to shareholders
in reinvestment of
distributions ...................... 1,149,711 775,089 160,369
Shares redeemed ....................... (7,050,104) (3,863,351) (1,417,900)
------------- ------------- -------------
Net increase (decrease) in
Portfolio shares ................... (21,852) 4,286,484 14,164,656
Shares outstanding at end of ------------- ------------- -------------
period ............................. 18,431,371 18,453,223 14,166,739
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Growth Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
November 15, 1996
For the Eleven (commencement of
Increase (Decrease) in Year Ended Months Ended operations) to
Net Assets August 31, 1999 August 31, 1998 September 30, 1997
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ................. $ 1,043,924 $ 1,013,142 $ 452,702
Net realized gain (loss) .............. 5,846,674 2,860,017 213,932
Net unrealized appreciation
(depreciation) on
investments during the period ...... 14,890,953 (12,210,035) 5,495,404
------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations ......................... 21,781,551 (8,336,876) 6,162,038
------------ ------------ ------------
Distributions to shareholders
from:
Net investment income ................. (1,106,885) (792,755) (8,787)
------------ ------------ ------------
Net realized gain on investment
transactions ....................... (2,384,022) (981,692) (7,211)
------------ ------------ ------------
Portfolio share transactions:
Proceeds from shares sold ............. 46,295,932 39,332,277 49,883,396
Net asset value of shares
issued to shareholders in
reinvestment of distributions ...... 3,483,721 1,768,653 15,997
Cost of shares redeemed ............... (37,740,706) (16,796,764) (6,496,177)
------------ ------------ ------------
Net increase (decrease) in net
assets from Portfolio share
transactions ....................... 12,038,947 24,304,166 43,403,216
------------ ------------ ------------
Increase (decrease) in net
assets ............................. 30,329,591 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
$615,278, $685,606, and ------------ ------------ ------------
$443,915, respectively) ............ $ 94,096,690 $ 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 ........................... 3,262,973 2,799,247 3,994,728
Shares issued to shareholders
in reinvestment of
distributions ...................... 251,169 133,685 1,342
Shares redeemed ....................... (2,616,531) (1,195,935) (494,890)
------------ ------------ ------------
Net increase (decrease) in
Portfolio shares ................... 897,611 1,736,997 3,501,180
Shares outstanding at end of ------------ ------------ ------------
period ............................. 6,137,871 5,240,260 3,503,263
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended August 31, 1999(a) 1998(a)(b) 1997(c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.28 $13.27 $12.00
---------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income .57 .51 .39
- ------------------------------------------------------------------------------------
Net realized and unrealized gain on investment
transactions .36 (.63) 1.36
---------------------------
- ------------------------------------------------------------------------------------
Total from investment operations .93 (.12) 1.75
- ------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------
From net investment income (.55) (.57) (.33)
- ------------------------------------------------------------------------------------
From net realized gains on investments (.21) (.30) (.15)
---------------------------
- ------------------------------------------------------------------------------------
Total distributions (.76) (.87) (.48)
- ------------------------------------------------------------------------------------
Net asset value, end of period $12.45 $12.28 $13.27
---------------------------
- ------------------------------------------------------------------------------------
Total Return (%) (d) 7.62 (1.10)** 14.99**
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 28 29 17
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) (e) -- -- --
- ------------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) 4.45 4.21* 3.67*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 28.1 31.5* 42.0*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the eleven months ended August 31, 1998.
(c) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(d) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(e) 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.
* Annualized
** Not annualized
38
<PAGE>
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended August 31, 1999(a) 1998(a)(b) 1997(c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.06 $13.56 $12.00
---------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income .38 .39 .37
- ------------------------------------------------------------------------------------
Net realized and unrealized gain on investment
transactions 1.79 (1.26) 1.59
---------------------------
- ------------------------------------------------------------------------------------
Total from investment operations 2.17 (.87) 1.96
- ------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------
From net investment income (.38) (.42) (.33)
- ------------------------------------------------------------------------------------
From net realized gains on investments (.43) (.21) (.07)
---------------------------
- ------------------------------------------------------------------------------------
Total distributions (.81) (.63) (.40)
- ------------------------------------------------------------------------------------
Net asset value, end of period $13.42 $12.06 $13.56
---------------------------
- ------------------------------------------------------------------------------------
Total Return (%) (d) 18.27 (6.78)** 16.67**
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 247 222 192
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) (e) -- -- --
- ------------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) 2.88 3.15* 2.96*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 24.3 28.2* 24.3*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the eleven months ended August 31, 1998.
(c) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(d) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(e) 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.
* Annualized
** Not annualized
39
<PAGE>
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Pathway Growth Portfolio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended August 31, 1999(a) 1998(a)(b) 1997(c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.17 $14.15 $12.00
---------------------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income .18 .23 .29
- ------------------------------------------------------------------------------------
Net realized and unrealized gain on investment
transactions 3.61 (1.74) 2.15
---------------------------
- ------------------------------------------------------------------------------------
Total from investment operations 3.79 (1.51) 2.44
- ------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------
From net investment income (.20) (.21) (.16)
- ------------------------------------------------------------------------------------
From net realized gains on investments (.43) (.26) (.13)
---------------------------
- ------------------------------------------------------------------------------------
Total distributions (.63) (.47) (.29)
- ------------------------------------------------------------------------------------
Net asset value, end of period $15.33 $12.17 $14.15
---------------------------
- ------------------------------------------------------------------------------------
Total Return (%) (d) 31.69 (10.94)** 20.79**
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 94 64 50
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) (e) -- -- --
- ------------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) 1.26 1.78* 2.09*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 28.0 23.8* 15.1*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the eleven months ended August 31, 1998.
(c) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(d) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(e) 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.
* Annualized
** Not annualized
40
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
August 31, 1999
A. Significant Accounting Policies
The Conservative, Balanced, and Growth Portfolios (the "Portfolios") are each a
diversified series of Scudder Pathways Series (the "Trust") which is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company organized as a Massachusetts business
trust. The series is composed of six separate diversified portfolios, three of
which are currently offered. These portfolios invest primarily in existing
Scudder Funds (the "Underlying Scudder Funds").
The Portfolios' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by each Portfolio in the
preparation of its financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. Money market instruments
purchased with an original maturity of sixty days or less are valued at
amortized cost.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer,
as provided for in the Internal Revenue Code, as amended, 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 federal income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income from
the Conservative and Balanced Portfolios, if any, are made quarterly.
Distributions of net investment income from the Growth Portfolio are made
annually. Net realized gains from investment transactions, in excess of
available capital loss carryforwards, would be taxable to each Portfolio if not
distributed, and, therefore, will be distributed to shareholders at least
annually. An additional distribution may be made to the extent necessary to
avoid 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
41
<PAGE>
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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Income is recorded on the accrual basis.
Distributions of income and capital gains from the Underlying Scudder Funds are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are recorded on an identified cost 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 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 year ended August 31, 1999, the Adviser incurred expenses in
the amount of $45,946 on behalf of the Conservative Portfolio. In accordance
with the Special Servicing Agreement, no expenses were charged to the Portfolios
during the period. The Adviser has assumed the organization costs of each
Portfolio.
The Portfolios do not invest in the Underlying Scudder Funds for the purpose of
exercising management or control; however, investments within the set limits may
represent a significant portion of an Underlying Fund's net assets. At August
31, 1999, Conservative Portfolio held the following Underlying Funds'
outstanding shares: 7% of the Scudder Corporate Bond Fund. At August 31, 1999,
the Balanced Portfolio held the following Underlying Funds' outstanding shares:
51% of the Scudder Corporate Bond Fund, 21% of the Scudder Classic
42
<PAGE>
Growth Fund, 10% of the Scudder Income Fund, and 8% of the Scudder Emerging
Markets Growth Fund. At August 31, 1999, the Growth Portfolio held the following
Underlying Funds' outstanding shares: approximately 14% of the Scudder 21st
Century Fund and 7% of the Scudder Corporate Bond Fund.
C. 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.
43
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of Scudder Pathway Series and to the Shareholders of
Scudder Pathway Series: Conservative, Balanced, and Growth Portfolios:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Pathway Series:
Conservative, Balanced, and Growth Portfolios (three of the portfolios
constituting the Scudder Pathway Series) (the "Funds") at August 31, 1999, the
results of their operations, the changes in their net assets, and the financial
highlights for the periods indicated therein, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 12, 1999
44
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
August 31, 1999
The Conservative, Balanced and Growth Portfolios paid distributions of $0.16,
$0.40, and $0.41, respectively, per share from net long-term capital gains
during the year ended August 31, 1999, of which 81.25%, 64.6%, and 70.7%,
respectively, represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Conservative, Balanced
and Growth Portfolios designate long-term capital gain dividends for the fiscal
year ended August 31, 1999 in the amounts of $520,000, $11,300,000, and
$6,106,000, respectively, of which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-Scudder.
45
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Kathryn L. Quirk* Ann M. McCreary*
o President and Assistant Secretary o Vice President
Dr. Rosita P. Chang Benjamin W. Thorndike*
o Trustee; Professor of Finance, o Vice President
University of Rhode Island
John Millette*
Edgar R. Fiedler o Vice President and Secretary
o Trustee; Senior Fellow and
Economic Counsellor, The John R. Hebble*
Conference Board, Inc. o Treasurer
Peter B. Freeman Caroline Pearson*
o Trustee; Corporate Director and o Assistant Secretary
Trustee
Dr. J. D. Hammond *Scudder Kemper Investments, Inc.
o Trustee; Dean, Smeal College of
Business Administration
Richard M. Hunt
o Trustee; University Marshal and
Senior Lecturer, Harvard University
46
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income Securities, Inc.
</TABLE>
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 or classes thereof 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.
48
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank acount.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
49
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distrbution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
50
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
SCUDDER
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations 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 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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.
