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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
Semiannual Report
February 29, 2000
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.
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Contents
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4 Letter from the Series' President
6 Portfolio Management Discussion
10 Glossary of Investment Terms
Conservative Portfolio
11 Portfolio Highlights
13 Performance Update
15 Portfolio Summary
29 Investment Portfolio
37 Financial Highlights
Balanced Portfolio
17 Portfolio Highlights
19 Performance Update
21 Portfolio Summary
30 Investment Portfolio
38 Financial Highlights
Growth Portfolio
23 Portfolio Highlights
25 Performance Update
27 Portfolio Summary
31 Investment Portfolio
39 Financial Highlights
32 Financial Statements
40 Notes to Financial Statements
43 Officers and Trustees
44 Investment Products and Services
46 Scudder Solutions
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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 Portfolios' o Growth stocks -- particularly those in the
Inception: 11/15/96 technology, communications, and biotech sectors --
provided outstanding performance over the period,
while value
stocks and bonds continued to suffer.
Total Net Assets as o Management continued to utilize a long-term investment
of 2/29/00 -- strategy that focuses on diversification and
risk-adjusted returns.
Conservative:
$27 million o The Balanced Portfolio finished in the top 15% of 483
balanced funds over the six months ended February 29,
Balanced: 2000, while the Growth Portfolio finished in the top
$280 million 3% of 498 multi-cap value funds as of the same date,
according to Lipper Analytical Services.^1
Growth:
$122 million
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended February 29, 2000, Scudder Pathway
Balanced Portfolio's Lipper ranking was 70 out of 483 funds for the six-month
period, and 54 out of 467 funds for the one-year period. The Scudder Pathway
Growth Portfolio's Lipper ranking was 11 out of 498 funds for the six-month
period and 8 out of 481 for the one-year period.
3
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Letter from the Series' President
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Dear Shareholders,
Over the past five years, the U.S. stock market -- as measured by the S&P 500
index and, more recently, the Nasdaq -- has outperformed all other asset classes
and geographic regions by a wide margin. Contrary to expectations,
diversification has not produced a significant benefit in terms of returns and
risk management during this period. We believe that this experience is an
anomaly, and that over the long run the value of diversification remains strong.
In fact, we are convinced that the case for diversification has rarely been more
compelling than it is at present.
We continue to believe that diversification will add value even though the
fundamentals of the U.S. equity market remain favorable. A combination of low
inflation, high productivity, and powerful economic growth signals a healthy
environment in the United States. However, the changing perceptions of risk, the
tremendous benefits of technology, and the pace of global restructuring and
reform have led to an unprecedentedly low risk premium for the U.S. stock market
versus both domestic bonds and the equity markets of Europe and Japan. We
therefore encourage investors to avoid the temptation of chasing the latest
"hot" sector of the market, and to instead focus on the long-term benefits of
owning a diversified portfolio that invests in bonds, U.S. stocks, and overseas
equities. A focus on diversification can help you position your portfolio to
outperform over time, no matter how rapidly the investment backdrop may be
changing.
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The management team of the Pathways Series portfolios incorporates these themes
into its investment strategy. Utilizing a long-term view and an emphasis on
risk-adjusted returns, management seeks to build positions in a wide range of
asset classes in order to improve long-term performance through diversification.
This strategy has worked well over the past year, during which Lipper Analytical
Services ranked the Balanced Portfolio in the top 15% of balanced funds, and the
Growth Portfolio in the top 3% of mid-cap value funds. For more information on
management's investment strategy and view on current market conditions, please
turn to the Portfolio Management Discussion that begins on page 6.
Thank you for your continued investment in Scudder Pathway Series. For current
information on the funds or your account, visit our Web site at www.scudder.com.
There you'll find a wealth of information, including the most recent fund
performance, the most recent news on Scudder products and services, and the
opportunity to perform account transactions. You can also speak with the one of
our representatives by calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Kathryn L. Quirk
Kathryn L. Quirk
President,
Scudder Pathway Series
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Portfolio Management Discussion
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February 29, 2000
In the following interview, Benjamin Thorndike, portfolio manager of Scudder
Pathway Series, discusses the recent market environment and the portfolios'
current investment strategy.
Q: Over the past six months, the stock market has been dominated by high-growth
issues while the vast majority of stocks have lagged. What factors have been
driving this trend?
A: The divergence that has developed in the U.S. stock market is remarkable by
any measure. Investors have bid growth stocks of all sizes to unprecedented
heights, with virtually no regard for traditional measures of valuation.
Technology and biotech stocks have been the leaders, driving the tech-heavy
Nasdaq average to a gain of 71.45% over the past six months. At the same time,
however, the majority of stocks in the market have actually fallen as cash has
flowed out of "old economy" stocks into those more representative of the "new,"
technology-driven economy. Stocks in the manufacturing, food, retail, and
financial sectors have come under heavy selling pressure in the process.
The primary reason for the divergence between growth stocks and the rest of the
market has been the rise in interest rates. The powerful growth of the U.S.
economy has raised fears that tight labor markets and high levels of consumer
confidence will cause the demand for goods and services to outstrip the
available supply, which in turn would cause a pickup in inflation. To counteract
this process, the U.S. Federal Reserve has raised short-term interest rates four
times since June of 1999. However, the continued strength of the economy has
raised expectations that several more increases will be necessary to dampen
potential inflation pressures. Fearing that higher rates will eventually bring
about a slowdown in the economy, investors have moved into stocks whose earnings
are less dependent on economic growth. As a result, cutting-edge companies that
are poised for rapid profit growth have attracted more buyers than more
traditional companies whose earnings tend to fluctuate with the economy.
6
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Q: Bonds have not performed as well over the period. What factors are at work in
that area of the market?
A: While the booming U.S. economy has provided an excellent backdrop for growth
stocks, it has been a distinct negative for bonds. In an environment where
confidence is high, energy prices are rising, and gross domestic product is
climbing at an annual pace of 6.9% (in the fourth quarter of 1999), it is
natural that bond prices -- which tend to thrive when the economy is slowing --
would experience weakness. These factors were reflected in the performance of
the 30-year Treasury bond yield, which moved from 6.02% on August 31, 1999 to a
high of 6.75% by January 18, 2000. (Bond yields move inversely to their prices.)
The upward climb in bond yields was stalled in early February when the U.S.
Treasury announced plans to buy back existing bonds and curtail new issuance in
order to reduce the national debt. Believing that the Treasury would focus its
efforts on longer-term bonds, investors rushed into that sector of the market to
capitalize on a potential imbalance of supply and demand. The yield on the
30-year bond fell to 6.08% by the end of the period, but the most notable aspect
of the bond market's unusual fluctuations was the "inversion" of the yield
curve. While longer-term bonds ordinarily carry higher yields to compensate
investors for the risk of lending money over a longer period, the yields on
shorter-term bonds moved significantly higher than those with more extended
maturities during the month of February. Other sectors of the bond market --
such as corporates and mortgage-backed securities -- were disrupted by the
volatility in government bonds, but still managed to outperform over the full
six months.
Q: How did foreign stocks perform during the reporting period?
A: The overseas markets have tracked the U.S. fairly closely in the sense that
technology, media, and communications shares have produced the best returns
7
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while other sectors have lagged. This trend has held true in both the major
markets as well as the developing countries, and underscores the fact that the
explosive growth of technology is a global phenomenon. The major European
markets staged a powerful rally beginning in mid-October and extending into the
new year, driving Germany's DAX Index to a gain of 45.04% and France's CAC-40 to
an advance of 34.90%. Japan's benchmark Nikkei-225 Index continued to grind
higher behind strength in the country's tech sector, but the ongoing questions
surrounding the state of the country's economy limited the index's gain to
14.47% for the six months. Most of the emerging markets performed very well on
the strength of a sharp runup in the final two months of 1999. Despite the
strong gains in the international markets, we continue to find plentiful
opportunities to take advantage of the important long-term trends we have
mentioned in the past, such as restructuring and consolidation. We expect that
the wealth of positive changes emerging on the corporate level will continue to
provide excellent stockpicking opportunities going forward.
Q: Did you make any shifts in the portfolios during the period?
A: Our adjustments, which were relatively small, reflected the evolution of our
long-term outlook rather than a response to the short-term fluctuations of the
financial markets. The most important change we made during the reporting period
was to reallocate a portion of the portfolios' assets in U.S. equities to the
overseas markets. The reason for this move is that in the U.S., the environment
is becoming less favorable -- the potential for inflation is rising, interest
rates are going up, and valuations are beginning to appear full. On the
international side, however, the macroeconomic environment is more positive. The
Asian economies are improving, growth is strong, and valuations are more
attractive. As a result, we moved assets out of both the
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growth and value segments of the U.S. market, and raised our weighting overseas.
The portfolios also have a slightly higher weighting in bonds than they did six
months ago. We believe that the combination of the powerful gains in stocks and
the poor performance of bonds has created an opportunity to take advantage of
the attractive relative value of the fixed income markets. While a rally in
bonds may not occur until later in the year, we believe that the sector will be
poised for strong performance once the Fed relaxes its vigilant posture toward
interest rates, and we wish to be positioned to benefit accordingly.
Q: What is your outlook for the financial markets at this juncture?
A: Until investors are convinced that the Federal Reserve has completed its
tightening cycle, it is likely that the interest rate picture will be the most
important factor driving market performance. The conventional wisdom says that
this environment will support continued strong performance from growth stocks,
while creating a challenging investment backdrop for both bonds and value
stocks. Growth stocks have reached valuation levels that make them vulnerable to
disappointments. Although many investors may tinker with their portfolio
allocations in response to these trends, we continue to believe that
diversification will remain crucial for those who are planning to invest for the
long haul. As long-term investors ourselves, we recognize that no trend is
permanent, and that sectors which are out of favor one quarter may come roaring
back the next. We therefore intend to keep the Pathways Series portfolios widely
diversified among a variety of investments, and we encourage investors to do the
same with their own portfolios.
9
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Glossary of Investment Terms
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Diversification The spreading of risk by investing in several asset
categories, industry sectors, or individual securities. An
investor with a broadly diversified portfolio will likely
receive some protection from the price declines of an
individual asset class.
Growth Stock Stock of a company that has displayed above-average earnings
growth and is expected to continue to increase profits
faster than the overall market. Stocks of such companies
usually trade at higher valuations and experience more price
volatility than the market as a whole. Distinct from value
stock.
Inverted Yield An unusual situation where short-term interest rates are
Curve higher than long-term interest rates. An inverted curve
results when a surge in demand for short-term credit drives
up short-term rates, while long-term rates move up more
slowly since borrowers are not willing to commit themselves
to pay high rates for many years. This scenario is often
indicative of negative sentiment concerning a country's
economic health.
Restructuring The general term for major corporate changes aimed at
greater efficiency and adaptation to changing markets.
Cost-cutting initiatives, debt retirement, management
realignments, and the sale of non-core businesses are all
developments frequently associated with corporate
restructuring.
Value Stock A company whose stock price does not fully reflect its
intrinsic value, as indicated by price/earnings ratio,
price/book value ratio, dividend yield, or some other
valuation measure, relative to its industry or the market
overall. Value stocks tend to display less price volatility
and may carry higher dividend yields. Distinct from growth
stock.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Investment
Terms)
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Portfolio Highlights
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February 29, 2000
Pathway Conservative Portfolio
Pathway Conservative Portfolio seeks current income and, secondarily, long-term
growth of capital by investing substantially in bond mutual funds, with moderate
exposure to equity funds.
Performance
In the six-month period ended February 29, 2000, the Conservative Portfolio
produced a total return of 0.83%, versus a return of 3.33% for the Portfolio's
custom benchmark. Detailed performance information is listed on page 13
The Portfolio holds a substantial weighting in bonds and value stocks, two asset
classes that were hurt by rising interest rates. In contrast, it holds only a
small weighting (6% of net assets) in growth stocks. While this is consistent
with the Portfolio's conservative investment style, it held back performance
during a period in which growth stocks provided outstanding returns. Although
the Portfolio has underperformed over the last six months, we believe that it
remains well-positioned to provide strong, risk-adjusted returns for investors
who are looking for a conservative, long-term investment vehicle.
Performance was impacted by the negative returns of our positions in Growth and
Income Fund, Large Company Value Fund, and Small Company Value Fund. On the plus
side, the Portfolio gained a boost from our positions in Classic Growth Fund,
which focuses on large company growth stocks; and International Growth and
Income Fund, which benefited from the strong returns of the overseas markets.
Nevertheless, the equity portion of the Portfolio (32% of net assets) produced
negative returns overall.
The Portfolio's position in bond funds held up relatively well in an unfavorable
interest rate environment. Income Fund, at 49% of net assets, provided steady
returns, while GNMA Fund and Corporate Bond Fund each provided exposure to areas
of the bond market that were less
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vulnerable to rising rates. Although all three funds suffered losses in their
share prices, the income they produced was enough to allow each to finish with a
positive return for the period.
Portfolio Strategy
We made minor changes to the Portfolio's composition over the period, which is
consistent with our long-term orientation. Over time, the fundamental tenets of
conservative investing -- such as emphasizing bonds and concentrating the equity
position in value stocks -- remain stable. The adjustments we make to the
Portfolio's weightings are therefore incremental, and designed to take advantage
of long-term shifts in the investment environment. The most notable shift was
our decision to increase our weighting in International Growth and Income Fund
to 8% of net assets from 6% on June 30, 1999. We felt that boosting our position
in international stocks was prudent given the increasingly attractive
macroeconomic environment overseas.
We are encouraged by the attractive valuations that have emerged among bonds and
value stocks. In this environment, we urge you to maintain a focus on your
long-term goals, and avoid the temptation to move assets into sectors that have
posted attractive returns in the short term, but which may not be consistent
with your investment needs.
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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%),
Scudder Pathway MSCI All Country
Series: Conservative (ex U.S.) Index (5%),
Portfolio LBAB Index* 3-month T-Bill (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
2/00 12188 11811 13569
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Fund Index Comparison
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<TABLE>
<CAPTION>
Total Return
Growth of Average
Period ended 2/29/2000 $10,000 Cumulative Annual
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Scudder Pathway Series: Conservative Portfolio
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<S> <C> <C> <C>
1 year $ 10,267 2.67% 2.67%
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Life of Portfolio** $ 12,341 23.41% 6.60%
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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%)*
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1 year $ 10,564 5.64% 5.64%
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Life of Portfolio** $ 13,569 35.69% 9.85%
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</TABLE>
* 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.
13
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER PATHWAY
SERIES: CONSERVATIVE PORTFOLIO TOTAL RETURN (%) AND LBAB INDEX (60%), S&P 500
INDEX (25%), MSCI ALL COUNTRY (EX U.S.) INDEX (5%), 3-MONTH T-BILL (10%)* TOTAL
RETURN (%)
Yearly periods ended February
1997** 1998 1999 2000
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Portfolio
Total
Return (%) 3.64 14.96 0.88 2.67
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Blended
Index Total
Return (%) 1.10 15.89 9.63 5.64
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Net Asset
Value ($) 12.14 13.14 12.51 11.96
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Income
Dividends
($) 0.14 0.48 0.54 0.68
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Capital
Gains
Distributions
($) 0.15 0.30 0.21 0.21
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* 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.
14
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Portfolio Summary
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February 29, 2000
Pathway Conservative Portfolio
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Management seeks to
Money Market 5% maintain diversified
Fixed Income 63% exposure to stocks,
Equity 32% bonds, and money market
- ------------------------------------ securities.
100%
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Asset Class Ranges
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Asset class allocations
Money Market 0-15% are derived from the
Fixed Income 40-80% risk profile of the
Equity 20-50% portfolio; adjustments
- ------------------------------------ are expected to be
modest and infrequent.
15
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Portfolio Holdings
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The fund remains
conservatively
positioned, with an
emphasis on funds that
invest in bonds and
value stocks.
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Scudder Income Fund 49%
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Scudder International Growth and Income Fund 8%
- ----------------------------------------------------------
Scudder Large Company Value Fund 8%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 7%
- ----------------------------------------------------------
Scudder GNMA Fund 7%
- ----------------------------------------------------------
Scudder Growth and Income Fund "S" 7%
- ----------------------------------------------------------
Scudder Classic Growth Fund "S" 6%
- ----------------------------------------------------------
Scudder Cash Investment Trust 5%
- ----------------------------------------------------------
Scudder Small Company Value Fund 3%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 29. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
16
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Portfolio Highlights
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February 29, 2000
Pathway Balanced Portfolio
Pathway Balanced Portfolio seeks a balance of growth and income by investing in
a mix of money market, bond, and equity mutual funds.
Performance
In the six-month period ended February 29, 2000, the Balanced Portfolio produced
a total return of 11.23%, versus a return of 4.55% for the Portfolio's custom
benchmark. The Portfolio finished in the top 15% of 478 balanced funds,
according to Lipper Analytical Services. Detailed performance information is
listed on page 19.
We are pleased with the performance of both the equity and fixed-income portions
of the Balanced Portfolio. On the equity side, we gained a significant benefit
from domestic growth stocks and overseas equities. The Portfolio's position in
the Development Fund (7% of net assets) was the top performer of the eight funds
we hold. Development Fund, which holds a large weighting in technology stocks,
invests in the types of fast-growing growth stocks that (as a group) have
provided outstanding performance over the past year. Classic Growth Fund, in
which we hold 17% of net assets, was also well-positioned to benefit from the
surge in growth stocks.
International Fund (16% of net assets) was a strong performer that was boosted
by substantial positions in the technology and communications sectors. Emerging
Markets Growth Fund, in which we hold only a limited position (3%), was also
boosted by improving economic growth and the important structural changes that
are taking place overseas. The only Portfolio holdings to produce negative
returns were those that invest in value stocks. Both Growth and Income Fund (15%
of net assets) and Small Company Value Fund (1%) were hurt by the poor
performance of most stocks outside of the hot technology, telecom, and media
sectors.
The Portfolio's fixed-income position fulfilled its purpose of producing income
and augmenting portfolio stability in
17
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a period of high volatility for the financial markets. While the absolute
returns of both Income Fund and Corporate Bond Fund were small in comparison to
the powerful gains in growth stocks, both funds held up relatively well in an
environment of rising interest rates. We believe that the bond portion of the
Portfolio will add more significantly to returns once it becomes apparent that
the Federal Reserve is through raising rates.
Portfolio Strategy
As always, our goal is to provide strong, risk-adjusted returns over time by
using long-term investment themes and a focus on diversification to determine
the optimal portfolio allocation. Over the most recent six-month period, the
most notable shift we made was to increase our weighting in funds that invest
overseas. We believe that the combination of strong growth, subdued inflation,
and the important changes taking place on the corporate level -- such as
restructuring and consolidation -- have made the overseas markets an
increasingly attractive place to invest. Since domestic equities have climbed to
rich valuations amid a deteriorating investment environment, we felt that the
time was right to trim our weighting in U.S. stock funds and reallocate the
proceeds to the Portfolio's international holdings. We also used the funds from
our sales of our U.S. equity holdings to increase the Portfolio's position in
bond funds to 38% of net assets from 37% at the beginning of the period. Given
the slump in bond prices over the past year, we felt that the sector had become
increasingly attractive. We believe that the Portfolio is well-positioned to
prosper in the environment we see developing over the remainder of 2000.
18
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Performance Update
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February 29, 2000
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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:
S&P 500 Index (50%),
LBAB Index (35%),
Scudder Pathway MSCI All Country (ex U.S.)
Series: Balanced S&P 500 Index (10%), 3-month
Portfolio Index* LBAB Index* T-Bill (5%)*
11/96** 10000 10000 10000 10000
2/97 10235 10496 9963 10232
8/97 11074 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
2/00 14153 18962 11811 15484
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Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 2/29/2000 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Balanced Portfolio
- --------------------------------------------------------------------------------
1 year $ 11,691 16.91% 16.91%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 14,307 43.07% 11.50%
- --------------------------------------------------------------------------------
S&P 500 Index (50%), LBAB Index (35%), MSCI All Country (ex U.S.) Index (10%),
3-month T-Bill (5%)*
- --------------------------------------------------------------------------------
1 year $ 10,959 9.59% 9.59%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 15,484 54.84% 14.40%
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* 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.
19
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER PATHWAY
SERIES: BALANCED PORTFOLIO TOTAL RETURN (%) AND THE S&P 500 INDEX (50%),
LBAB INDEX (35%), MSCI ALL COUNTRY (EX U.S.) INDEX (10%), 3-MONTH T-BILL (5%)*
INDEX TOTAL RETURN (%)
1997** 1998 1999 2000
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 3.46 16.15 1.84 16.91
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 2.32 22.32 12.89 9.59
- --------------------------------------------------------------------------------
Net Asset
Value ($) 12.18 13.52 12.94 13.93
- --------------------------------------------------------------------------------
Income
Dividends ($) 0.16 0.38 0.40 0.48
- --------------------------------------------------------------------------------
Capital Gains
Distributions ($) 0.07 0.21 0.43 0.69
- --------------------------------------------------------------------------------
* 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.
20
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
February 29, 2000
Pathway Balanced Portfolio
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
The portfolio's
weighting in equities
increased slightly
during the reporting
period.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Money Market 2%
Fixed Income 38%
Equity 60%
- ------------------------------------
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%
- ------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
The portfolio gained
strong performance from
funds that invest in
growth stocks both in
the U.S. and overseas.
- ----------------------------------------------------------
Scudder Income Fund 30%
- ----------------------------------------------------------
Scudder Classic Growth Fund "S" 17%
- ----------------------------------------------------------
Scudder International Fund -- International Shares 16%
- ----------------------------------------------------------
Scudder Growth and Income Fund "S" 15%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 8%
- ----------------------------------------------------------
Scudder Development Fund 7%
- ----------------------------------------------------------
Scudder Emerging Markets Growth Fund 3%
- ----------------------------------------------------------
Scudder Cash Investment Trust 2%
- ----------------------------------------------------------
Scudder Small Company Value Fund 1%
- ----------------------------------------------------------
Scudder Micro Cap Fund 1%
- ----------------------------------------------------------
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.
22
<PAGE>
Portfolio Highlights
- --------------------------------------------------------------------------------
February 29, 2000
Pathway Growth Portfolio
Pathway Growth Portfolio seeks long-term growth of capital by investing
primarily in equity mutual funds. The Portfolio also invests a portion of assets
in bond funds, which offer the potential for capital appreciation as well as
income.
Performance
In the six-month period ended February 29, 2000, the Growth Portfolio produced a
total return of 22.43%, versus a return of 6.09% for the Portfolio's custom
benchmark. We are pleased to report that the Portfolio finished in the top 3% of
500 multi-cap value funds, according to Lipper Analytical Services. Detailed
performance information is listed on page 25.
The Portfolio's strong performance was driven by its substantial positions in
funds that invest in growth stocks and international equities. We gained the
strongest performance from 21st Century Growth Fund, which invests in
fast-growing small company stocks and holds 39% of its assets in the technology
sector. Although we held only 7% of net assets in the fund on February 29, its
strong gain provided a significant boost to Portfolio returns. In addition, we
benefited from a significant weighting (31% of net assets) in Large Company
Growth Fund, which was also propelled by the strong performance of growth
issues. On the downside, Large Company Value Fund was the Portfolio's only
position that produced a negative return in the period.
Our holdings in funds that invest in overseas equities also provided strong
performance. We held 25% in International Fund, which was boosted by the rally
in technology and communications shares worldwide. The Portfolio's other
international holding -- Emerging Markets Growth Fund -- also rose on the
strength of improving global growth.
As a group, the Portfolio's fixed-income holdings provided solid returns despite
the poor showing of the U.S. bond market. Our top performer in this group was
Emerging
23
<PAGE>
Markets Income Fund, which benefited from the improving economic backdrop in the
developing countries. Income Fund and Corporate Bond Fund produced more subdued
returns, but nevertheless contributed to overall portfolio stability and
diversification.
Portfolio Strategy
Consistent with our goal of providing long-term growth of capital, we employ a
fairly aggressive strategy that focuses on growth-oriented mutual funds. We make
few changes when managing the Portfolio; instead, we seek to hold positions in
asset classes most likely to produce strong growth over time. Any adjustments we
make to the Portfolio are designed to position the fund to take advantage of
themes that we believe will play out over the longer term. Over the most recent
six-month period, for example, we increased our weighting in funds that invest
overseas. We believe that the combination of strong growth, subdued inflation,
and important changes taking place on the corporate level -- such as
restructuring and consolidation -- have increased the attractiveness of the
international markets. Since domestic equities have climbed to rich valuations
amid a deteriorating interest rate outlook, we felt that the time was right to
decrease our weighting in U.S. stocks and redeploy assets overseas. We also
increased the Portfolio's cash balance from 1% of net assets on August 31 to 5%
at the end of February. While ordinarily we strive to keep a low cash position
in order to maximize the Portfolio's growth potential, we believe that it was
prudent to use the rally in domestic small caps to trim our position in that
sector. With a larger reserve of cash, we believe that we will gain greater
flexibility going forward. We are on the lookout for an opportunity to put the
cash to work in bonds, which we believe are becoming increasingly attractive in
the wake of their extended decline.
24
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
February 29, 2000
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
S&P 500 Index (50%),
LBAB Index (35%),
Scudder Pathway MSCI All Country (ex U.S.)
Series: Growth S&P 500 Index (10%), 3-month
Portfolio 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
2/00 17144 18962 16559
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 2/29/2000 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Growth Portfolio
- --------------------------------------------------------------------------------
1 year $ 13,542 35.42% 35.42%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 17,344 73.44% 18.22%
- --------------------------------------------------------------------------------
S&P 500 Index (60%), MSCI All Country (ex U.S.) Index (20%), LBAB Index (15%),
3-month T-Bill (5%)*
- --------------------------------------------------------------------------------
1 year $ 11,358 13.58% 13.58%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 16,559 65.59% 16.79%
- --------------------------------------------------------------------------------
* 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.
25
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER PATHWAY
SERIES: GROWTH PORTFOLIO TOTAL RETURN (%) AND THE S&P 500 INDEX (60%),
MSCI ALL COUNTRY (EX U.S.) INDEX (20%), LBAB INDEX (15%), 3-MONTH T-BILL (5%)*
INDEX TOTAL RETURN (%)
1997** 1998 1999 2000
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 4.57 18.94 2.98 35.42
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 2.78 24.94 13.54 13.58
- --------------------------------------------------------------------------------
Net Asset
Value ($) 12.25 14.07 13.86 17.59
- --------------------------------------------------------------------------------
Income
Dividends ($) 0.16 0.21 0.20 0.29
- --------------------------------------------------------------------------------
Capital Gains
Distributions ($) 0.13 0.26 0.43 0.89
- --------------------------------------------------------------------------------
* 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.
26
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
February 29, 2000
Pathway Growth Portfolio
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
Management has trimmed
the portfolio's
weighting in equities,
and slightly increased
its position in bonds
and money market
securities.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Money Market 5%
Fixed Income 14%
Equity 81%
- ------------------------------------
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%
- ------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
The portfolio's focus on
funds that invest in
growth stocks, both in
the U.S. and abroad,
proved beneficial to
performance.
- ----------------------------------------------------------
Scudder Large Company Growth Fund "S" 31%
- ----------------------------------------------------------
Scudder International Fund -- International Shares 25%
- ----------------------------------------------------------
Scudder Large Company Value Fund 15%
- ----------------------------------------------------------
Scudder Income Fund 9%
- ----------------------------------------------------------
Scudder 21st Century Growth Fund 7%
- ----------------------------------------------------------
Scudder Cash Investment Trust 5%
- ----------------------------------------------------------
Scudder Emerging Markets Income Fund 3%
- ----------------------------------------------------------
Scudder Corporate Bond Fund 3%
- ----------------------------------------------------------
Scudder Emerging Markets Growth Fund 2%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page 31. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
28
<PAGE>
Investment Portfolio as of February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Pathway Conservative Portfolio
- --------------------------------------------------------------------------------
Money Market 4.8%
- --------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $1,304,787) .. 1,304,787 1,304,787
- --------------------------------------------------------------------------------
Fixed Income 63.3%
- --------------------------------------------------------------------------------
Scudder Corporate Bond Fund ...................... 176,183 1,971,484
Scudder GNMA Fund ................................ 141,350 1,976,075
Scudder Income Fund .............................. 1,092,776 13,441,147
Total Fixed Income (Cost $18,789,708) ............ 17,388,706
- --------------------------------------------------------------------------------
Equity 31.9%
- --------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" .................. 63,957 1,625,792
Scudder Growth & Income Fund "S" ................. 75,649 1,888,191
Scudder International Growth & Income Fund ....... 159,622 2,156,492
Scudder Large Company Value Fund ................. 88,081 2,150,056
Scudder Small Company Value Fund ................. 59,141 939,167
Total Equity (Cost $9,076,540) ................... 8,759,698
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $29,171,035) (a) 27,453,191
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $29,231,347. At February 29,
2000, net unrealized depreciation for all securities based on tax cost was
$1,778,156. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$404,498 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value of $2,182,654.
During the six months ended February 29, 2000, purchases and sales of
investment securities (excluding money market investments) aggregated
$3,028,853 and $2,885,000, respectively.
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
Investment Portfolio as of February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Pathway Balanced Portfolio
- --------------------------------------------------------------------------------
Money Market 2.0%
- --------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $5,562,443) . 5,562,443 5,562,443
- --------------------------------------------------------------------------------
Fixed Income 38.3%
- --------------------------------------------------------------------------------
Scudder Corporate Bond Fund ..................... 1,987,934 22,244,978
Scudder Income Fund ............................. 7,016,310 86,300,617
Total Fixed Income (Cost $115,637,621) ........... 108,545,595
- --------------------------------------------------------------------------------
Equity 59.7%
- --------------------------------------------------------------------------------
Scudder Classic Growth Fund "S" ................. 1,958,852 49,794,024
Scudder Development Fund ........................ 364,725 19,461,709
Scudder Emerging Markets Growth Fund ............ 623,438 9,351,576
Scudder Growth & Income Fund "S" ................ 1,723,249 43,012,302
Scudder International Fund-- International
Shares ....................................... 659,042 45,829,781
Scudder Micro Cap Fund .......................... 6,179 96,760
Scudder Small Company Value Fund ................ 108,812 1,727,927
Total Equity (Cost $146,389,854) ................. 169,274,079
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $267,589,918) (a) 283,382,117
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $267,673,244. At February 29,
2000, net unrealized appreciation for all securities based on tax cost was
$15,708,873. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$26,925,143 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $11,216,270.
During the six months ended February 29, 2000, purchases and sales of
investment securities (excluding money market investments) aggregated
$44,176,634 and $28,465,000, respectively.
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
Investment Portfolio as of February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Pathway Growth Portfolio
- --------------------------------------------------------------------------------
Money Market 5.3%
- --------------------------------------------------------------------------------
Scudder Cash Investment Trust (Cost $6,628,476) ...... 6,628,476 6,628,476
- --------------------------------------------------------------------------------
Fixed Income 14.3%
- --------------------------------------------------------------------------------
Scudder Corporate Bond Fund .......................... 303,586 3,397,123
Scudder Emerging Market Income Fund .................. 461,675 3,744,186
Scudder Income Fund .................................. 887,992 10,922,302
Total Fixed Income (Cost $20,029,695) 18,063,611
- --------------------------------------------------------------------------------
Equity 80.4%
- --------------------------------------------------------------------------------
Scudder 21st Century Growth Fund ..................... 249,328 8,960,834
Scudder Emerging Markets Growth Fund ................. 145,175 2,177,632
Scudder International Fund-- International Shares .... 452,949 31,498,102
Scudder Large Company Growth Fund "S" ................ 908,567 39,004,788
Scudder Large Company Value Fund ..................... 801,324 19,560,314
- --------------------------------------------------------------------------------
Total Equity (Cost $77,607,144) 101,201,670
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $104,265,315) (a) 125,893,757
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $104,493,151. At February 29,
2000, net unrealized appreciation for all securities based on tax cost was
$21,400,606. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$26,320,529 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $4,919,923.
During the six months ended February 29, 2000, purchases and sales of investment
securities (excluding money market investments) aggregated $22,852,975 and
$15,049,893, respectively.
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Conservative Balanced Growth
Assets Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Investments in securities at
value (for cost, see
accompanying investment
portfolios) ................... $ 27,453,191 $283,382,117 $125,893,757
Receivable for Portfolio shares
sold .......................... 17,709 236,208 244,114
Income receivable ................ 27,821 144,258 47,608
------------ ------------ ------------
Total assets ..................... 27,498,721 283,762,583 126,185,479
Liabilities
- --------------------------------------------------------------------------------
Payable for Portfolio shares
redeemed ...................... 276,689 3,536,140 4,143,805
------------ ------------ ------------
Total liabilities ................ 276,689 3,536,140 4,143,805
Net assets, at value ............. $ 27,222,032 $280,226,443 $122,041,674
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed investment income .. 4,095 74,880 161,049
Net unrealized appreciation
(depreciation) on investments . (1,717,843) 15,792,199 21,628,442
Accumulated net realized gain
(loss) ........................ 413,645 12,501,162 6,791,326
Paid-in capital .................. 28,522,135 251,858,202 93,460,857
Net assets, at value $ 27,222,032 $280,226,443 $122,041,674
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and
redemption price per share $ 11.96 $ 13.93 $ 17.59
(outstanding shares of
beneficial interest, $.01 par
value, unlimited number of
shares authorized) ............ 2,275,960 20,114,030 6,936,566
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations for the six months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Conservative Balanced Growth
Investment Income Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Income:
Income distributions from
Underlying Funds .............. $ 693,870 $ 3,982,631 $ 1,424,976
Net investment income 693,870 3,982,631 1,424,976
Realized and unrealized gain
(loss) on investments
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................... (13,048) 5,628,147 4,958,382
Capital gain distributions from
Underlying Funds .............. 302,921 6,307,929 2,185,460
------------ ------------ ------------
289,873 11,936,076 7,143,842
------------ ------------ ------------
Net unrealized appreciation
(depreciation) on investments
during the period ............. (707,582) 11,414,454 13,452,120
Net gain (loss) on investment
transactions (417,709) 23,350,530 20,595,962
Net increase (decrease) in net
assets resulting from operations $ 276,161 $ 27,333,161 $ 22,020,938
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Conservative Portfolio
- ------------------------------------------------------------------------------------
Six Months
Ended February
29, 2000 Year Ended
Increase (Decrease) in Net Assets (Unaudited) August 31, 1999
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income ............................. $ 693,870 $ 1,354,107
Net realized gain (loss) on investment transactions 289,873 632,972
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (707,582) 267,272
------------ ------------
Net increase (decrease) in net assets resulting
from operations ................................ 276,161 2,254,351
------------ ------------
Distributions to shareholders from:
Net investment income ............................. (905,406) (1,326,852)
------------ ------------
Net realized gains ................................ (496,165) (503,342)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ......................... 5,477,890 12,307,682
Reinvestment of distributions ..................... 1,386,611 1,800,922
Cost of shares redeemed ........................... (6,746,111) (15,106,407)
------------ ------------
Net increase (decrease) in net assets from
Portfolio share transactions ................... 118,390 (997,803)
------------ ------------
Increase (decrease) in net assets ................. (1,007,020) (573,646)
Net assets at beginning of period ................. 28,229,052 28,802,698
Net assets at end of period (including
undistributed net investment income of $4,095
and $97,885, respectively)...................... $ 27,222,032 $ 28,229,052
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 2,268,100 2,346,300
------------ ------------
Shares sold ....................................... 445,176 973,400
Shares issued to shareholders in reinvestment of
distributions .................................. 113,620 142,672
Shares redeemed ................................... (550,936) (1,194,272)
------------ ------------
Net increase (decrease) in Portfolio shares ....... 7,860 (78,200)
Shares outstanding at end of period ............... 2,275,960 2,268,100
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
- ------------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Balanced Portfolio
- ------------------------------------------------------------------------------------
Six Months
Ended February
29, 2000 Year Ended
Increase (Decrease) in Net Assets (Unaudited) August 31, 1999
- ------------------------------------------------------------------------------------
Operations:
Net investment income ............................. $ 3,982,631 $ 7,179,392
Net realized gain (loss) on investment
transactions ................................... 11,936,076 13,123,322
Net unrealized appreciation (depreciation) on
investments during the period .................. 11,414,454 20,343,808
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ 27,333,161 40,646,522
------------- -------------
Distributions to shareholders from:
Net investment income ............................. (5,439,334) (7,186,841)
------------- -------------
Net realized gains ................................ (12,447,102) (7,901,241)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ......................... 57,483,873 77,180,711
Reinvestment of distributions ..................... 17,837,018 14,977,593
Cost of shares redeemed ........................... (51,878,102) (92,851,056)
------------- -------------
Net increase (decrease) in net assets from
Portfolio share transactions ................... 23,442,789 (692,752)
------------- -------------
Increase (decrease) in net assets ................. 32,889,514 24,865,688
Net assets at beginning of period ................. 247,336,929 222,471,241
Net assets at end of period (including
undistributed net investment income of $74,880
and $401,668, respectively) .................... $ 280,226,443 $ 247,336,929
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 18,431,371 18,453,223
------------- -------------
Shares sold ....................................... 4,152,832 5,878,541
Shares issued to shareholders in reinvestment of
distributions .................................. 1,280,488 1,149,711
Shares redeemed ................................... (3,750,661) (7,050,104)
------------- -------------
Net increase (decrease) in Portfolio shares ....... 1,682,659 (21,852)
Shares outstanding at end of period ............... 20,114,030 18,431,371
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- ------------------------------------------------------------------------------------
Statements of Changes in Net Assets -- Pathway Growth Portfolio
- ------------------------------------------------------------------------------------
Six Months
Ended February
29, 2000 Year Ended
Increase (Decrease) in Net Assets (Unaudited) August 31, 1999
- ------------------------------------------------------------------------------------
Operations:
Net investment income ............................. $ 1,424,976 $ 1,043,924
Net realized gain (loss) on investment
transactions ................................... 7,143,842 5,846,674
Net unrealized appreciation (depreciation) on
investments during the period .................. 13,452,120 14,890,953
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ 22,020,938 21,781,551
------------- -------------
Distributions to shareholders from:
Net investment income ............................. (1,933,359) (1,106,885)
------------- -------------
Net realized gains ................................ (5,886,277) (2,384,022)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ......................... 31,831,834 46,295,932
Reinvestment of distributions ..................... 7,810,481 3,483,721
Cost of shares redeemed ........................... (25,898,633) (37,740,706)
------------- -------------
Net increase (decrease) in net assets from
Portfolio share transactions ................... 13,743,682 12,038,947
------------- -------------
Increase (decrease) in net assets ................. 27,944,984 30,329,591
Net assets at beginning of period ................. 94,096,690 63,767,099
Net assets at end of period (including
undistributed net investment income of $161,049
and $615,278, respectively) .................... $ 122,041,674 $ 94,096,690
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 6,137,871 5,240,260
------------- -------------
Shares sold ....................................... 1,866,005 3,262,973
Shares issued to shareholders in reinvestment of
distributions .................................. 445,549 251,169
Shares redeemed ................................... (1,512,859) (2,616,531)
------------- -------------
Net increase (decrease) in Portfolio shares ....... 798,695 897,611
Shares outstanding at end of period ............... 6,936,566 6,137,871
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<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
- --------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $12.45 $12.28 $13.27 $12.00
--------------------------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .30(a) .57(a) .51(a) .39
- --------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (.19) .36 (.63) 1.36
--------------------------------------
- --------------------------------------------------------------------------------
Total from investment operations .11 .93 (.12) 1.75
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.39) (.55) (.57) (.33)
- --------------------------------------------------------------------------------
Net realized gains on investment
transactions (.21) (.21) (.30) (.15)
--------------------------------------
- --------------------------------------------------------------------------------
Total distributions (.60) (.76) (.87) (.48)
- --------------------------------------------------------------------------------
Net asset value, end of period $11.96 $12.45 $12.28 $13.27
--------------------------------------
- --------------------------------------------------------------------------------
Total Return (%) (e) .83** 7.62 (1.10)** 14.99**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 28 29 17
- --------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) (f) -- -- -- --
- --------------------------------------------------------------------------------
Ratio of net investment income (%) 4.91* 4.45 4.21* 3.67*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 21* 28 32* 42*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 12, 1998 the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) 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
37
<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
- --------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $13.42 $12.06 $13.56 $12.00
-------------------------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .21(a) .38(a) .39(a) .37
- --------------------------------------------------------------------------------
Net realized and unrealized gain on
investment transactions 1.29 1.79 (1.26) 1.59
------------------------------------
- --------------------------------------------------------------------------------
Total from investment operations 1.50 2.17 (.87) 1.96
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.30) (.38) (.42) (.33)
- --------------------------------------------------------------------------------
Net realized and gains on investment
transactions (.69) (.43) (.21) (.07)
-------------------------------------
- --------------------------------------------------------------------------------
Total distributions (.99) (.81) (.63) (.40)
- --------------------------------------------------------------------------------
Net asset value, end of period $13.93 $13.42 $12.06 $13.56
-------------------------------------
- --------------------------------------------------------------------------------
Total Return (%) (e) 11.23** 18.27 (6.78)** 16.67**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 280 247 222 192
- --------------------------------------------------------------------------------
Ratio of expenses (%) (f) -- -- -- --
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.08* 2.88 3.15* 2.96*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 22* 24 28* 24*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 31, 1998 the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) 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 Growth Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $15.33 $12.17 $14.15 $12.00
-------------------------------------
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .21(a) .18(a) .23(a) .29
- --------------------------------------------------------------------------------
Net realized and unrealized gain on
investment transactions 3.23 3.61 (1.74) 2.15
-------------------------------------
- --------------------------------------------------------------------------------
Total from investment operations 3.44 3.79 (1.51) 2.44
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.29) (.20) (.21) (.16)
- --------------------------------------------------------------------------------
From net realized gains on investment
transactions (.89) (.43) (.26) (.13)
-------------------------------------
- --------------------------------------------------------------------------------
Total distributions (1.18) (.63) (.47) (.29)
- --------------------------------------------------------------------------------
Net asset value, end of period $17.59 $15.33 $12.17 $14.15
-------------------------------------
- --------------------------------------------------------------------------------
Total Return (%) (e) 22.43** 31.69 (10.94)** 20.79**
- --------------------------------------------------------------------------------
Ratios to Average Net Asssets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 122 94 64 50
- --------------------------------------------------------------------------------
Ratio of expenses (%) (f) -- -- -- --
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.56* 1.26 1.78* 2.09*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 28* 28 24* 15*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 12, 1998, the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) 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>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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
40
<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. (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 six months ended February 29, 2000, the Adviser incurred
expenses in the amount of $50,292 on behalf of the Conservative Portfolio. In
accordance with the Special Servicing Agreement, no expenses were charged to the
Portfolios during the period.
The Portfolios do not invest in the Underlying Scudder Funds for the purpose of
exercising management or control; however, investments within the set limits may
represent a significant portion of an Underlying Fund's net assets. At February
29, 2000, Conservative Portfolio held the following Underlying Funds'
outstanding shares: approximately 5% of the Scudder Corporate Bond Fund and 6%
of the Scudder International Growth and Income Fund. At February 29, 2000, the
Balanced Portfolio held the following Underlying Funds' outstanding shares:
approximately 53% of the Scudder Corporate Bond Fund,
41
<PAGE>
30% of the Scudder Classic Growth Fund, 13% of the Scudder Income Fund, and 8%
of the Scudder Emerging Markets Growth Fund. At February 29, 2000, the Growth
Portfolio held the following Underlying Funds' outstanding shares: approximately
8% of the Scudder Corporate Bond Fund.
C. Lines of Credit
The Portfolios and several Scudder Funds (the "Participants") share in a $1
billion 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 based on net assets, 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.
42
<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 Robert C. Peck*
o Trustee; Corporate Director and o Vice President
Trustee
Caroline Pearson*
Dr. J. D. Hammond o Assistant Secretary
o Trustee; Dean, Smeal College of
Business Administration *Scudder Kemper Investments, Inc.
Richard M. Hunt
o Trustee; University Marshal and
Senior Lecturer, Harvard University
43
<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 Health 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>
44
<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. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, 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.
45
<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 account.
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.
46
<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 distribution 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
47
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 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 over 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.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Services Group
