Filed with the Securities and Exchange Commission on May 15, 1997
File No. 33-86070
File No. 811-8606
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
Scudder Pathway Series
----------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
X immediately upon filing pursuant to paragraph (b)
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on November 15, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(i)
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on ___________ pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on ____________ pursuant to paragraph (a)(ii) of Rule 485
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The Registrant has filed a declaration registering an indefinite amount
of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. The Registrant intends to file the notice required by Rule 24f-2 for
its most recent fiscal year on or about November 26, 1997.
<PAGE>
SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
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<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information NOT APPLICABLE
4. General Description of Registrant COVER PAGE
INVESTMENT OBJECTIVES AND POLICIES
WHY INVEST IN PATHWAY SERIES?
DESCRIPTION OF THE UNDERLYING SCUDDER FUNDS
INFORMATION ABOUT POLICIES, INVESTMENTS AND RISKS
INVESTMENT RESTRICTIONS OF PATHWAY SERIES
RISKS OF INVESTING IN THE PORTFOLIOS
PATHWAY SERIES ORGANIZATION
5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
PATHWAY SERIES ORGANIZATION--Investment adviser, Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund SHAREHOLDER BENEFITS--A team approach to investing
Performance
6. Capital Stock and Other SecuritiesDISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital gains
distributions
PATHWAY SERIES ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line, Dividend
reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered PATHWAY SERIES ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Minimum balances, Third party
transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference- Page 1
<PAGE>
SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
CROSS-REFERENCE SHEET
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History PATHWAY SERIES ORGANIZATION
13. Investment Objectives and PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation NOT APPLICABLE
18. Capital Stock and Other PATHWAY SERIES ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED
BY PATHWAY SERIES--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference- Page 2
<PAGE>
SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- --------------------- ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information NOT APPLICABLE
4. General Description of Registrant COVER PAGE
INVESTMENT OBJECTIVES AND POLICIES
WHY INVEST IN PATHWAY SERIES?
DESCRIPTION OF THE UNDERLYING SCUDDER FUNDS
INFORMATION ABOUT POLICIES, INVESTMENTS AND RISKS
INVESTMENT RESTRICTIONS OF PATHWAY SERIES
RISKS OF INVESTING IN THE PORTFOLIOS
PATHWAY SERIES ORGANIZATION
5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
PATHWAY SERIES ORGANIZATION--Investment adviser, Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund SHAREHOLDER BENEFITS--A team approach to investing
Performance
6. Capital Stock and Other SecuritiesDISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital gains
distributions
PATHWAY SERIES ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line, Dividend
reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered PATHWAY SERIES ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Minimum balances, Third party
transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference- Page 3
<PAGE>
SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
CROSS-REFERENCE SHEET
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History PATHWAY SERIES ORGANIZATION
13. Investment Objectives and PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation NOT APPLICABLE
18. Capital Stock and Other PATHWAY SERIES ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED
BY PATHWAY SERIES--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference- Page 4
<PAGE>
SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- --------------------- ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information NOT APPLICABLE
4. General Description of Registrant COVER PAGE
INVESTMENT OBJECTIVES AND POLICIES
WHY INVEST IN PATHWAY SERIES?
DESCRIPTION OF THE UNDERLYING SCUDDER FUNDS
INFORMATION ABOUT POLICIES, INVESTMENTS AND RISKS
INVESTMENT RESTRICTIONS OF PATHWAY SERIES
RISKS OF INVESTING IN THE PORTFOLIOS
PATHWAY SERIES ORGANIZATION
5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
PATHWAY SERIES ORGANIZATION--Investment adviser, Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund SHAREHOLDER BENEFITS--A team approach to investing
Performance
6. Capital Stock and Other SecuritiesDISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital gains
distributions
PATHWAY SERIES ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line, Dividend
reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered PATHWAY SERIES ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Minimum balances, Third party
transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference- Page 5
<PAGE>
SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
CROSS-REFERENCE SHEET
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History PATHWAY SERIES ORGANIZATION
13. Investment Objectives and PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation NOT APPLICABLE
18. Capital Stock and Other PATHWAY SERIES ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED
BY PATHWAY SERIES--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference- Page 6
<PAGE>
SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- ------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information NOT APPLICABLE
4. General Description of Registrant COVER PAGE
INVESTMENT OBJECTIVES AND POLICIES
WHY INVEST IN PATHWAY SERIES?
DESCRIPTION OF THE UNDERLYING SCUDDER FUNDS
INFORMATION ABOUT POLICIES, INVESTMENTS AND RISKS
INVESTMENT RESTRICTIONS OF PATHWAY SERIES
RISKS OF INVESTING IN THE PORTFOLIOS
PATHWAY SERIES ORGANIZATION
5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
PATHWAY SERIES ORGANIZATION--Investment adviser, Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund SHAREHOLDER BENEFITS--A team approach to investing
Performance
6. Capital Stock and Other SecuritiesDISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital gains
distributions
PATHWAY SERIES ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line, Dividend
reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered PATHWAY SERIES ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Minimum balances, Third party
transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference- Page 7
<PAGE>
SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
CROSS-REFERENCE SHEET
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History PATHWAY SERIES ORGANIZATION
13. Investment Objectives and PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation NOT APPLICABLE
18. Capital Stock and Other PATHWAY SERIES ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED
BY PATHWAY SERIES--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference- Page 8
A-8
<PAGE>
This prospectus sets forth concisely the information about Scudder Pathway
Series: Conservative Portfolio, Balanced Portfolio and Growth Portfolio (each, a
"Portfolio," collectively the "Portfolios"), each a diversified open-end
management investment company, that a prospective investor should know before
investing. Scudder Pathway Series is composed of four separate Portfolios, three
of which are offered herein, with distinctly different investment objectives.
Each Portfolio seeks to accomplish its objective by investing primarily in a
number of other Scudder funds (the "Underlying Scudder Funds"). Please retain
this prospectus for future reference.
If you require more detailed information, a combined Statement of Additional
Information dated November 15, 1996, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has been
filed with the Securities and Exchange Commission and is available along with
other related materials on the SEC's Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 7.
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
Scudder
Pathway Series:
Conservative
Portfolio
Balanced Portfolio
Growth Portfolio
Prospectus
November 15, 1996
As Revised
May 14, 1997
Three pure no-load(TM) (no sales charges) mutual funds offering a broad range of
investment opportunities each by investing in a select mix of Scudder Funds.
<PAGE>
Expense information
This information is designed to help you understand the various costs and
expenses that an investor in the Portfolios will bear directly or indirectly.
With Scudder's pure no-load(TM) portfolios and funds, you pay no commissions to
purchase or redeem shares, or to exchange from one portfolio or fund to
another. As a result, all of your investment goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in each Portfolio for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Portfolio operating expenses: Estimated expenses paid by a Portfolio
before it distributes its net investment income, expressed as a percentage
of a Portfolio's average daily net assets for the initial fiscal period.
Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
----
Total Portfolio operating expenses** NONE
Each Portfolio is expected to operate at a zero expense level. However, each
Portfolio's shareholders will indirectly bear that Portfolio's pro rata share of
fees and expenses incurred by the Underlying Scudder Funds in which the
Portfolio is invested. The investment returns of each Portfolio, therefore, will
be net of that Portfolio's share of the expenses of the Underlying Scudder Funds
in which the Portfolio is invested. The chart on page 3 shows the expense ratios
of each Underlying Scudder Fund after fee waiver or reimbursement where
applicable, as of its most recent fiscal year end.
- ----------------
* You may redeem by writing or calling a Portfolio. If you wish to receive
your redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
** The payment of each Portfolio's pro rata share of expenses is subject to
the Special Servicing Agreement. Please refer to "Portfolio organization--
Special Servicing Agreement."
2
<PAGE>
Expense Ratios of the
Underlying Scudder Funds
Underlying Scudder Funds Expense Ratio
------------------------ -------------
Money Market Fund
Scudder Cash Investment Trust 0.83%
Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.44%
Scudder Global Bond Fund+ 1.00%
Scudder GNMA Fund 0.96%
Scudder High Yield Bond Fund+ 0.00%
Scudder Income Fund 0.98%
Scudder International Bond Fund 1.26%
Scudder Short Term Bond Fund 0.80%
Equity Mutual Funds
Scudder Classic Growth Fund+ 1.25%
Scudder Development Fund 1.24%
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.60%
Scudder Global Fund 1.34%
Scudder Gold Fund 1.50%
Scudder Greater Europe Growth Fund+ 1.97%
Scudder Growth and Income Fund 0.78%
Scudder International Fund 1.15%
Scudder Large Company Growth Fund 1.07%
Scudder Large Company Value Fund 0.92%
Scudder Latin America Fund 1.96%
Scudder Micro Cap Fund+ 1.75%
Scudder Pacific Opportunities Fund 1.75%
Scudder Small Company Value Fund 1.50%
Scudder 21st Century Growth Fund+ 1.75%
Scudder Value Fund+ 1.25%
The Japan Fund 1.16%
Based on the foregoing, the ranges for the average weighted expense ratio borne
by the Conservative Portfolio, Balanced Portfolio and Growth Portfolio are
expected to be 0.16% to 1.72%, 0.31% to 1.83% and 0.47% to 1.94%, respectively.
Ranges are provided since the average assets of the Portfolios invested in each
of the Underlying Scudder Funds will fluctuate.
Example
Using the midpoint of the ratios set forth above, the total pro rata expenses
relating to a $1,000 investment, assuming a 5% annual return and redemption at
the end of each period, are listed below. Investors do not pay these expenses
directly; they are paid by each Underlying Scudder Fund before it distributes
its net investment income to a Portfolio. (As noted above, the Portfolios have
no redemption fees of any kind.)
Portfolio 1 Year 3 Years
--------- ------ -------
Conservative Portfolio $10 $30
Balanced Portfolio 11 34
Growth Portfolio 12 38
See "Portfolio organization--Special Servicing Agreement" for an explanation of
the Special Servicing Agreement. This example assumes that each Portfolio
reinvests all dividends and distributions paid by the Underlying Scudder Funds.
This example should not be considered a representation of past or future
expenses or returns. Actual expenses and returns of each Underlying Scudder Fund
vary from year to year and may be higher or lower than those shown.
+ The following funds maintained their expenses at the following rates for their
respective fiscal periods: Scudder Classic Growth Fund: 1.25%, Scudder
Emerging Markets Growth Fund: 2.00%, Scudder Global Bond Fund: 1.00%, Scudder
Greater Europe Growth Fund: 1.50%, Scudder High Yield Bond Fund: 0.00%,
Scudder Micro Cap Fund: 1.75%, Scudder 21st Century Growth Fund: 1.75% and
Scudder Value Fund: 1.25%. If the Adviser had not maintained the Funds'
expenses, the total return for the period would have been lower. Please see
the appropriate Underlying Scudder Fund prospectus for details.
3
<PAGE>
Financial Highlights
Pathway Conservative Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Semiannual Report dated March 31, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period .................. $12.00
---------------------
Income from investment operations:
Net investment income ................................. .16
Net realized and unrealized gain on investment
transactions ........................................ .10(a)
---------------------
Total from investment operations ...................... .26
---------------------
Less distributions:
From net investment income ............................ (.14)
From net realized gain on investments ................. (.15)
---------------------
Total distributions ................................... (.29)
---------------------
---------------------
Net asset value, end of period ........................ $11.97
- --------------------------------------------------------------------------------
Total Return (%) ...................................... 2.19**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 9.9
Ratio of operating expenses to average daily net
assets (%) (b) ...................................... --
Ratio of net investment income to average daily net
assets (%) .......................................... 3.3*
Portfolio turnover rate (%) ........................... 58.2*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
4
<PAGE>
Financial Highlights
Pathway Balanced Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Semiannual Report dated March 31, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ................... $12.00
---------------------
Income from investment operations:
Net investment income .................................. .18
Net realized and unrealized gain on investment
transactions ......................................... -- (a)
---------------------
Total from investment operations ....................... .18
---------------------
Less distributions:
From net investment income ............................. (.16)
From net realized gain on investments .................. (.07)
---------------------
Total distributions .................................... (.23)
---------------------
---------------------
Net asset value, end of period ......................... $11.95
- --------------------------------------------------------------------------------
Total Return (%) ....................................... 1.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................. 127.9
Ratio of operating expenses to average daily net
assets (%) (b) ....................................... --
Ratio of net investment income to average daily net
assets (%) ........................................... 3.1*
Portfolio turnover rate (%) ............................ 58.0*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
5
<PAGE>
Financial Highlights
Pathway Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Semiannual Report dated March 31, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 12.00
---------------------
Income from investment operations: ...................... .20
Net investment income
Net realized and unrealized gain on investment
transactions .......................................... .01(a)
---------------------
Total from investment operations ........................ .21
---------------------
Less distributions:
From net investment income .............................. (.16)
From net realized gain on investments ................... (.13)
---------------------
Total distributions ..................................... (.29)
---------------------
---------------------
Net asset value, end of period .......................... $ 11.92
- --------------------------------------------------------------------------------
Total Return (%) ........................................ 1.75**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 27.0
Ratio of operating expenses to average daily net
assets (%) (b) ........................................ --
Ratio of net investment income to average daily net
assets (%) ............................................ 3.2*
Portfolio turnover rate (%) ............................. 12.1*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
6
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $115 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds and offers IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Pathway Series
Investment Objective for Conservative Portfolio
o primarily current income and secondarily long-term growth of capital
Investment Objective for Balanced Portfolio
o a balance of growth and income
Investment Objective for Growth Portfolio
o long-term growth of capital
Investment Characteristics of Scudder Pathway Series
o professionally managed portfolios which allocate their investments among
select Scudder Funds
o provides exposure to a wide range of asset classes, securities and markets
around the globe
o no added fees or expenses associated with the operation of Scudder Pathway
Series
o appropriate for IRA, 401(k) and other retirement plans
Contents
Investment objectives and policies 8
Why invest in the Portfolios? 9
Description of the Underlying
Scudder Funds 10
Information about policies,
investments and risks 22
Investment restrictions of the Portfolios 24
Risks of investing in the Portfolios 24
Distribution and performance information 25
Portfolio organization 26
Transaction information 28
Shareholder benefits 32
Trustees and Officers 35
Investment products and services 36
How to contact Scudder 37
Purchases 38
Exchanges and redemptions 39
Appendix
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Investment objectives and policies
Scudder Pathway Series ("the Trust") (also known as "the Series") consists of
four professionally managed, diversified portfolios, three of which are
described in this prospectus. The Portfolios invest primarily in a select mix of
Scudder Funds. The Portfolios' investment objectives are as follows:
o Pathway Conservative Portfolio seeks to provide current income and,
secondarily, long-term growth of capital. In pursuit of these objectives, the
Portfolio, under normal market conditions, will invest substantially in bond
mutual funds, but will have some exposure to equity mutual funds.
o Pathway Balanced Portfolio seeks to provide investors with a balance of
growth and income. It seeks this objective by investing in a mix of money
market, bond and equity mutual funds.
o Pathway Growth Portfolio seeks to provide investors with long-term growth of
capital. In pursuing this objective, the Portfolio will, under normal market
conditions, invest predominantly in equity mutual funds designed to provide
long-term growth. Many of the Portfolio's bond mutual fund holdings offer the
potential for capital appreciation as well as income.
The Scudder Funds in which the Portfolios may invest are referred to as the
"Underlying Scudder Funds," (see table). Some of these Underlying Scudder Funds
are equity mutual funds, which invest primarily in stocks to achieve growth.
Other Underlying Scudder Funds are bond mutual funds, which invest for income
and, in some cases, appreciation as well. The portfolio management team for each
Portfolio allocates investments based on the outlook of the Portfolios'
investment adviser, Scudder, Stevens & Clark, Inc. ("the Adviser"), for the
financial markets, world economies and the relative performance potential of the
Underlying Scudder Funds.
Under normal market conditions, the Portfolios will invest according to the
following guidelines:
o Pathway Conservative Portfolio will invest 40-80% of total assets in bond
mutual funds; 20-50% of total assets in equity mutual funds; and 0-15% of
total assets in a money market fund, cash, or cash equivalents.
o Pathway Balanced Portfolio will invest 40-70% of total assets in equity
mutual funds; 25-60% of total assets in bond mutual funds; and 0-10% of total
assets in a money market fund, cash, or cash equivalents.
o Pathway Growth Portfolio will invest 60-90% of total assets in equity mutual
funds; 10-40% of total assets in bond mutual funds; and 0-5% of total assets
in a money market fund, cash, or cash equivalents.
------------------------------------------------------
Underlying Scudder Funds in which the Portfolios may
invest
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Equity Mutual Funds
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder Large Company Growth Fund
Scudder Large Company Value Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Bond Mutual Funds
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Money Market Fund
Scudder Cash Investment Trust
------------------------------------------------------
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The Portfolios will purchase or sell shares of Underlying Scudder Funds to: (a)
accommodate purchases and sales of a Portfolio's shares, (b) change the
percentages of a Portfolio's assets invested in each of the Underlying Scudder
Funds in response to changing market conditions, and (c) maintain or modify the
allocation of a Portfolio's assets in accordance with the investment mix
described above. If, as a result of appreciation or depreciation, the percentage
of a Portfolio's assets invested in the above categories exceeds or is less than
the applicable range, the Adviser will consider, in its discretion, whether to
reallocate the assets of the Portfolio to comply with the stated ranges.
Further, to provide for redemptions or for temporary defensive purposes, the
Portfolios may invest without limit in cash or cash equivalents, including
repurchase agreements, commercial paper and other types of money market
instruments.
Except as otherwise indicated, the Portfolios' investment objectives and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether a particular Portfolio remains an appropriate investment in light of
their then current financial position and needs. There can be no assurance that
a Portfolio's objective will be met.
For information about the investment objectives of each of the Underlying
Scudder Funds, please refer to "Description of the Underlying Scudder Funds."
For information about purchasing, exchanging or redeeming shares, refer to
"Transaction information," "Purchases" and "Exchanges and redemptions."
Why invest in the Portfolios?
The Portfolios of Scudder Pathway Series are designed for individuals and
institutions who prefer to have their asset allocation decisions made by
professional money managers, appreciate the advantages of broad diversification,
and are looking for a core investment for their retirement portfolio.
The primary advantages of Scudder Pathway Series for investors are convenience
and economy. Pathway provides an investor access to many Scudder Funds without
the required minimum investment for each. Through a single pure no-load(TM)
investment, they will be able to achieve broad diversification in pursuit of one
of three distinct objectives.
o Pathway Conservative Portfolio is comprised mainly of investments in Scudder
domestic and global bond funds, and, to a lesser extent, equity funds. This
combination of investments can provide income and modest growth potential for
Pathway investors. The Conservative Portfolio is designed to meet the needs
of investors with a time horizon of 3-5 years or more.
o Pathway Balanced Portfolio allocates assets among Scudder domestic and global
equity and bond funds, seeking a blend of current income and capital
appreciation. The Balanced Portfolio is designed to meet the needs of
investors with a time horizon of at least 5-10 years.
o Pathway Growth Portfolio pursues long-term growth by allocating assets
primarily among Scudder's growth-oriented equity funds, and, to a lesser
extent, bond funds. The Growth Portfolio is designed to meet the needs of
investors with a time horizon of 10 years or more.
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<PAGE>
Why invest in the Portfolios? (cont'd)
These three Pathway Portfolios are managed so that each can serve as a complete
investment program or as a core part of a larger portfolio, and may be most
appropriate for long-term investors planning for retirement, particularly
investors in tax-advantaged retirement accounts including IRAs, 401(k) corporate
employee savings plans and 403(b) non-profit organization savings plans.
The proliferation of mutual funds over the last several years and the increased
responsibilities shouldered by employees for managing their retirement and other
long-term assets have left many investors in search of a simple means to manage
their investments. With new investment categories emerging each year and with
each mutual fund reacting differently to political, economic and business
events, many investors are forced to make complex investment decisions with
limited experience, time or personal resources. The Portfolios offer broad
diversification and ongoing professional asset allocation.
Each of the Pathway Portfolios invests in a select group of pure no-load(TM)
Scudder Funds suited to the Portfolio's particular investment objective. The
allocation of assets within each Portfolio is determined by the Adviser
according to fundamental and quantitative investment analysis. Shifts will be
made among Underlying Scudder Funds and asset classes based on the Adviser's
then current outlook for the financial markets and the world's economies.
Because the assets will be adjusted only periodically and only within
pre-determined ranges designed to ensure broad diversification, there should not
be any sudden large-scale changes in asset allocation. The Series is not
designed as a market timing vehicle, but rather as a cost-effective and simple
approach to helping investors meet retirement and other long-term goals.
The Portfolios can invest in a variety of existing international and global
Underlying Scudder Funds and expect to invest some portion of assets in foreign
markets at all times. The Adviser believes this ongoing commitment to global
investment management differentiates the Series from other funds of funds and
asset allocation products. Adding an international component to a long-term
portfolio can increase diversification and lower volatility, while enhancing and
providing the most consistent returns over time.
In addition, the Portfolios offer all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(TM) funds and provides a wide range of services to help investors meet
their investment needs. Please refer to "Investment products and services" for
additional information.
Description of the Underlying Scudder Funds
The following is a concise description of the investment objectives and
practices for each of the Underlying Scudder Funds. There can be no assurance
that the Underlying Scudder Funds' objectives will be met. Additional
information regarding the investment practices of the Underlying Scudder Funds
is located in the section entitled "Additional information about policies and
investments," in the Appendix to this prospectus, in the sections entitled "The
Fund's Investment Objectives and Policies" and "Glossary" in the Statement of
Additional Information and in the prospectuses of each of the Underlying Scudder
Funds. Prospectuses for the Underlying Scudder Funds may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. No offer is made in this
prospectus of shares of any of the Underlying Scudder Funds.
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<PAGE>
The following Underlying Scudder Fund is the money market fund in which a
Portfolio may invest and will likely serve as the primary cash reserve portion
of each Portfolio.
Scudder Cash Investment Trust is a diversified investment company which seeks to
maintain stability of capital and, consistent therewith, to maintain liquidity
of capital and to provide current income. The Fund seeks to maintain a constant
net asset value of $1.00 per share. Shares of the Fund are not insured or
guaranteed by the U.S. Government and there can be no assurance that a stable
net asset value will be maintained.
The Fund purchases U.S. dollar-denominated money market securities. All of the
Fund's portfolio securities must meet certain quality criteria at the time of
purchase. Generally, the Fund may purchase only securities which are rated, or
issued by a company with comparable securities rated, within the two highest
quality rating categories of one or more of the following rating agencies:
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") and Fitch
Investors Service, Inc. ("Fitch") or, if unrated, the credit quality of the
security is deemed equivalent, in the opinion of the Adviser, to the rated
securities mentioned above. Amendments have been proposed to the federal rules
regulating quality, maturity and diversification requirements of money market
funds, like the Fund. If the amendments are adopted, the Fund intends to comply
with such new requirements.
The maturity of each investment in the Fund's portfolio is 397 calendar days or
less, except in the case of U.S. Government securities which may have maturities
of up to 762 calendar days. The dollar-weighted average maturity of the Fund's
portfolio varies with money market conditions, but is always 90 days or less. As
a money market fund with a short-term maturity, the Fund's income fluctuates
with changes in interest rates but its price is expected to remain fixed at
$1.00 per share.
The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.
Scudder Emerging Markets Income Fund is a non-diversified investment company
which seeks to provide high current income. As a secondary objective, the Fund
seeks long-term capital appreciation. In pursuing these goals, the Fund invests
primarily in high-yielding, high-risk debt securities issued by governments and
corporations in emerging markets.
The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any one of the following: International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
To reduce currency risk, the Fund invests at least 65% of its assets in U.S.
dollar-denominated debt securities. Therefore, no more than 35% of the Fund's
assets may be invested in debt securities denominated in foreign currencies. By
focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade.
The Fund may invest up to 5% of its net assets in non-performing securities
whose quality is comparable to securities rated as low as D by S&P or C by
Moody's. Please refer to the attached Appendix for further information.
The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. Investments in emerging markets can be volatile. The
Fund's share price and yield can fluctuate daily in response to political
events, changes in the perceived creditworthiness of emerging nations,
fluctuations in interest rates and, to a certain extent, movements in foreign
currencies.
Scudder Global Bond Fund is a non-diversified investment company which seeks to
provide total return with an emphasis on current income by investing primarily
11
<PAGE>
Description of the Underlying Scudder Funds (cont'd)
in high-grade bonds denominated in foreign currencies and the U.S. dollar. As a
secondary objective, the Fund seeks capital appreciation.
The Fund will invest principally in a managed portfolio of high-grade
intermediate- and long-term bonds denominated in the U.S. dollar and foreign
currencies, including bonds denominated in the European Currency Unit (ECU).
(Intermediate-term bonds generally have maturities between three and eight
years, and long-term bonds generally have maturities of greater than eight
years.) Portfolio investments will be selected on the basis of, among other
things, yields, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the globe, taking into account the
ability to hedge a degree of currency or local bond price risk. At least 65% of
the Fund's investments will consist of high-grade debt securities, which are
those rated in one of the three highest rating categories of one of the major
U.S. rating services or, if unrated, considered to be of equivalent quality in
local currency terms as determined by the Adviser. The Fund may also invest up
to 15% of its net assets in debt securities rated BBB by S&P or Baa by Moody's
and lower, or unrated securities considered to be of equivalent quality by the
Adviser. Securities rated below Baa by Moody's or BBB by S&P are commonly
referred to as "junk bonds." The Fund will not invest in any securities rated B
or lower.
The Fund may invest in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities; obligations issued or guaranteed
by foreign national governments, their agencies, instrumentalities or political
subdivisions; and debt securities issued or guaranteed by supranational
organizations such as the European Investment Bank, Inter-American Development
Bank and The World Bank. The Fund may also invest in non-government securities
including corporate debt securities, bank or bank holding company obligations
(e.g., certificates of deposit and bankers acceptances), and mortgage and other
asset-backed issues.
Scudder GNMA Fund is a diversified investment company which seeks to provide
high current income and safety of principal from a portfolio of high quality,
U.S. Government guaranteed mortgage-backed securities and U.S. Treasury
securities. Under normal conditions, the Fund invests at least 65% of its total
assets in mortgage-backed securities issued or guaranteed by the Government
National Mortgage Association ("GNMA" or "Ginnie Mae"). Such guarantees are
supported by the full faith and credit of the U.S. Government. These guarantees
apply only to the timely payment of both principal and interest of the GNMA
securities held in the Fund's portfolio. Up to 35% of the Fund's total assets
may be held in cash, cash equivalents or invested in securities issued or
directly guaranteed by the U.S. Government, including U.S. Treasury bills, notes
and bonds.
The market values of the Fund's investments and correspondingly the Fund's share
price will vary inversely with changes in prevailing interest rates and in
response to other bond market factors, such as changes in the supply and demand
for mortgage-backed securities.
Scudder High Yield Bond Fund is a diversified investment company which seeks a
high level of current income and, secondarily, capital appreciation through
investment primarily in below investment-grade domestic debt securities. In
pursuit of its investment objectives, the Fund, under normal market conditions,
invests at least 65% of its total assets in high yield, below investment-grade
domestic debt securities, sometimes referred to as "junk" bonds. Such bonds
involve a greater risk of default and price volatility than U.S. Government
12
<PAGE>
bonds and other high quality fixed-income securities. Please refer to the
attached Appendix for further information.
The Fund defines "domestic debt securities" as securities of companies domiciled
in the U.S. or organized under the laws of the U.S. or for which the U.S.
trading market is a primary market. The Fund may invest up to 25% of its total
assets in foreign securities, including those of emerging markets. The Fund
considers "emerging markets" to include any country that is defined as an
emerging or developing economy by any one of the International Bank for
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. The Fund invests primarily
in medium- and long-term fixed- income securities. However, there is no
limitation as to weighted average maturity of the Fund's portfolio and no
restriction on the maturity of any individual security held in the portfolio.
Scudder Income Fund is a diversified investment company which seeks a high level
of income, consistent with the prudent investment of capital, through a flexible
investment program emphasizing high-grade bonds.
The Fund invests primarily in a broad range of high-grade, income-producing
securities such as corporate bonds and government securities. Under normal
market conditions, the Fund will invest at least 65% of its assets in securities
rated within the three highest quality rating categories of Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa and A) or Standard & Poor's ("S&P") (AAA, AA
and A), or if unrated, in bonds judged by the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), to be of comparable quality at
the time of purchase. The Fund may invest up to 20% of its assets in debt
securities rated lower than Baa or BBB or, if unrated, of equivalent quality as
determined by the Adviser, but will not purchase bonds rated below B by Moody's
or S&P or their equivalent.
Scudder International Bond Fund is a non-diversified investment company which
seeks to provide income primarily by investing in a managed portfolio of
high-grade debt securities denominated in foreign currencies. As a secondary
objective, the Fund seeks protection and possible enhancement of principal value
by actively managing currency, bond market and maturity exposure and by security
selection.
To achieve its objectives, the Fund primarily invests in a managed portfolio of
high-grade debt securities denominated in foreign currencies, including bonds
denominated in the European Currency Unit (ECU). Portfolio investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund will normally invest at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund will invest no more
than 35% of the value of its total assets in U.S. debt securities. The Fund will
invest no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.
Please refer to the attached Appendix for further information.
Scudder Short Term Bond Fund is a diversified investment company which seeks to
provide a high level of income consistent with a high degree of principal
stability by investing primarily in high quality, short-term bonds. The
dollar-weighted average effective maturity of the Fund's portfolio may not
exceed three years. The net asset value of the Fund is expected to fluctuate
with changes in interest rates and bond market conditions, although this
fluctuation should be more moderate than that of a fund with a longer average
maturity. The Adviser, however, will attempt to minimize principal fluctuation
through, among other things, diversification, credit analysis and security
13
<PAGE>
Description of the Underlying Scudder Funds (cont'd)
selection, and adjustment of the Fund's average portfolio maturity.
The Fund emphasizes high quality investments. Under normal market conditions, at
least 65% of the Fund's net assets will be invested in (1) obligations of the
U.S. Government, its agencies or instrumentalities, and (2) debt securities
rated, at the time of purchase, in one of the two highest categories of S&P or
Moody's.
In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.
The following Underlying Scudder Fund is an equity mutual fund which seeks a
combination of income and growth of capital.
Scudder Growth and Income Fund is a diversified investment company which seeks
long-term growth of capital, current income and growth of income. The Fund
attempts to achieve its investment objective by investing primarily in
dividend-paying common stocks, preferred stocks and securities convertible into
common stocks of companies with long-standing records of earnings growth. The
Fund may also purchase securities which do not pay current dividends but which
offer prospects for growth of capital and future income. Convertible securities
(which may be current coupon or zero coupon securities) are bonds, notes,
debentures, preferred stocks and other securities which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The Fund may also invest in nonconvertible preferred stocks
consistent with its objective.
The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.
Scudder Classic Growth Fund is a diversified investment company which seeks to
provide long-term growth of capital and to keep the value of its shares more
stable than other growth mutual funds.
Under normal market conditions, the Fund invests primarily in a diversified
portfolio of common stocks which the Adviser believes offers above-average
appreciation potential yet, as a portfolio, offers the potential for less share
price volatility than other growth mutual funds.
In seeking such investments, the Adviser focuses its investment in high quality,
medium-to-large sized U.S. companies with leading competitive positions.
The Fund allocates its investments widely among different industries and
companies, and adjusts its portfolio securities based on long-term investment
considerations as opposed to short-term trading. While the Fund emphasizes U.S.
investments, it can commit a portion of assets to the equity securities of
foreign growth companies that meet the criteria applicable to domestic
investments.The Fund can purchase other types of equity securities including
securities convertible into common stocks, preferred stocks, rights and
warrants. The Fund may invest up to 20% of its net assets in debt securities
when the Adviser anticipates that the capital appreciation on debt securities is
likely to equal or exceed the capital appreciation on common stocks over a
selected time, such as during periods of unusually high interest rates.
Scudder Development Fund is a diversified investment company which seeks
long-term growth of capital by investing primarily in securities of emerging
growth companies. The Fund generally invests in equity securities, including
common stocks and convertible securities, of relatively small or little-known
companies, commonly referred to as emerging growth companies, that the Adviser
believes have above-average earnings growth potential and/or may receive greater
market recognition.
To help reduce risk, the Fund allocates its investments among many companies and
different industries. In selecting industries and companies for investment, the
14
<PAGE>
Adviser will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of governmental
regulation or deregulation, management and other factors.
While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings when the anticipated performance of
foreign securities is believed by the Adviser to offer equal or more potential
than domestic alternatives in keeping with the investment objective of the Fund.
However, the Fund has no current intention of investing more than 20% of its net
assets in foreign securities.
Scudder Emerging Markets Growth Fund is a non-diversified investment company
which seeks long-term growth of capital primarily through equity investment in
emerging markets around the globe. The Fund will invest in the Asia-Pacific
region, Latin America, less developed nations in Europe, the Middle East and
Africa, focusing investments in countries and regions where there appear to be
the best value and appreciation potential, subject to considerations of
portfolio diversification and liquidity. At least 65% of the Fund's total assets
will be invested in the equity securities of emerging market issuers. The Fund
considers "emerging markets" to include any country that is defined as an
emerging or developing economy by any one of the International Bank for
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. The Fund intends to
allocate its investments among at least three countries at all times, and does
not expect to concentrate in any particular industry. The Fund deems an issuer
to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market; or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Under normal market conditions, the Fund may invest up to 35%
of its assets in equity securities of issuers in the U.S. and other developed
markets.
Scudder Global Discovery Fund is a diversified investment company which seeks
above-average capital appreciation over the long term by investing primarily in
the equity securities of small companies located throughout the world.
In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies which offer the potential for above-average returns relative
to larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically the Far East, Latin
15
<PAGE>
Description of the Underlying Scudder Funds (cont'd)
America and lesser developed countries in Europe, as well as in firms operating
in developed economies, such as those of the United States, Japan and Western
Europe.
Under normal circumstances, the Fund invests at least 65% of its total assets in
the equity securities of small companies. While the Adviser believes that
smaller, lesser-known companies can offer greater growth potential than larger,
more established firms, the former also involve greater risk and price
volatility. To help reduce risk, the Fund expects, under normal market
conditions, to diversify its portfolio widely by company, industry and country.
The Fund intends to allocate investments among at least three countries at all
times, one of which may be the U.S. The Fund invests primarily in companies
whose individual equity market capitalization would place them in the same size
range as companies in approximately the lowest 20% of world market
capitalization as represented by the Salomon Brothers Broad Market Index, an
index comprised of equity securities of more than 6,500 small-, medium- and
large-sized companies based in 22 markets around the globe. Based on this
policy, the companies held by the Fund typically will have individual equity
market capitalizations of between approximately $50 million and $2 billion
(although the Fund will be free to invest in smaller capitalization issues that
satisfy the Fund's size standard). Furthermore, the median market capitalization
of the companies in which the Fund invests will not exceed $750 million.
The Fund may invest up to 35% of its total assets in equity securities of larger
companies located throughout the world and in investment-grade debt securities
if the Adviser determines that the capital appreciation of debt securities is
likely to exceed the capital appreciation of equity securities. The Fund may
invest up to 5% of its net assets in debt securities rated below
investment-grade.
Scudder Global Fund is a diversified investment company which seeks long-term
growth of capital through a diversified portfolio of marketable securities,
primarily equity securities, including common stocks, preferred stocks and debt
securities convertible into common stocks. The Fund invests on a worldwide basis
in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It also may invest in the debt securities of U.S. and foreign
issuers.
The Fund will be invested usually in securities of issuers located in at least
three countries, one of which may be the U.S. It is expected that investments
will include companies of varying size as measured by assets, sales or
capitalization. The Fund generally invests in equity securities of established
companies listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, convertible and non-convertible preferred stock,
and fixed-income securities of governments, government agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be investment-grade, except that the Fund
may invest up to 5% of its total assets in debt securities rated below
investment-grade.
Scudder Gold Fund is a non-diversified investment company which seeks maximum
return (principal change and income) consistent with investing in a portfolio of
gold-related equity securities and gold.
The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in (1) equity securities (defined as common stock,
investment-grade preferred stock and debt securities that are convertible into
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or exchangeable for common stock) of U.S. and foreign companies primarily
engaged in the exploration, mining, fabrication, processing or distribution of
gold, (2) gold bullion, and (3) gold coins. A company will be considered
"primarily engaged" in a business or an activity if it devotes or derives at
least 50% of its assets, revenues and/or operating earnings from that business
or activity. The remaining 35% of the Fund's assets may be invested in any
precious metals other than gold; in equity securities of companies engaged in
activities primarily relating to precious metals and minerals other than gold;
in investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals; in
certain debt securities, a portion of the return on which is indexed to the
price of precious metals. In addition, the Fund may engage in Strategic
Transactions and, to a limited extent, may invest in illiquid and restricted
securities.
Up to 10% of the Fund's total assets may be invested directly in gold, silver,
platinum and palladium bullion and in gold and silver coins. In addition, the
Fund's assets may be invested in wholly owned subsidiaries of the Scudder Mutual
Funds, Inc., of which the Fund is a series, that invest in gold, silver,
platinum and palladium bullion and in gold and silver coins.
Scudder Greater Europe Growth Fund is a non-diversified investment company which
seeks long-term growth of capital through investments primarily in the equity
securities of European companies. Although its focus is on long-term growth, the
Fund may provide current income principally through holdings in dividend-paying
securities.
The Fund will invest, under normal market conditions, at least 80% of its total
assets in the equity securities of European companies. The Fund defines a
European company as follows:
o A company organized under the laws of a European country or for which the
principal securities trading market is in Europe; or
o A company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in its most
recent fiscal year represents (directly or indirectly through subsidiaries)
assets or activities located in Europe.
The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Within this 20% limit, the Fund may invest
in debt securities which are unrated, rated, or the equivalent of those rated
below investment-grade.
When, in the opinion of the Adviser, market conditions warrant, the Fund may
hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity.
Scudder International Fund is a diversified investment company which seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities. The Fund invests in companies, wherever
organized, which do business primarily outside the United States. The Fund
intends to diversify investments among several countries and to have represented
in the portfolio, in substantial proportions, business activities in not less
than three different countries. The Fund does not intend to concentrate
investments in any particular industry.
The Fund's investments are generally denominated in foreign currencies. The
strength or weakness of the U.S. dollar against these currencies is responsible
for part of the Fund's investment performance.
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Description of the Underlying Scudder Funds (cont'd)
The Fund may invest up to 20% of its total assets in investment-grade debt
securities except that the Fund may not invest more than 5% of its total assets
in debt securities which are rated below investment-grade.
Scudder Large Company Growth Fund is a diversified investment company which
seeks to provide long-term growth of capital through investment primarily in the
equity securities of seasoned, financially-strong U.S. growth companies.
The Fund's equity investments consist of common stocks, preferred stocks and
securities convertible into common stocks of companies which are of
above-average financial quality and offer the prospect for above-average growth
in earnings, cash flow or assets relative to the overall market as defined by
the Standard & Poor's 500 Composite Price Index ("S&P 500").
The Fund invests at least 65% of its total assets in the equity securities of
seasoned, financially- strong U.S. growth companies which are considered to be
of above-average financial quality. The common stocks issued by these companies
qualify, at the time of purchase, for one of the three highest equity ranking
categories (A+, A or A-) of S&P or, if not ranked by S&P, are judged to be of
comparable quality by the Adviser. Rankings by S&P are not an appraisal of a
company's creditworthiness, as is true for S&P's debt security ratings, nor are
these rankings intended as a forecast of future stock market performance. In
addition to using S&P rankings of earnings and dividends of common stocks, the
Adviser conducts its own analysis of a company's history, current financial
position, and earnings prospects.
The Fund allocates its investments among different industries and companies, and
adjusts its portfolio securities based on long-term investment considerations as
opposed to short-term trading. While the Fund emphasizes U.S. investments, it
can commit a portion of assets to the equity securities of foreign growth
companies which meet the criteria applicable to domestic investments. The Fund
may invest in convertible securities which must be investment-grade.
Scudder Large Company Value Fund is a diversified investment company which seeks
to maximize long-term capital appreciation through a value-driven investment
program. The Fund invests in marketable securities, principally common stocks
and, consistent with its objective of long-term capital appreciation, preferred
stocks. The Fund is free to invest in a wide range of marketable securities
which the Adviser believes offer the potential for long-term, above-average
appreciation. The Fund will normally invest at least 65% of its assets in the
equity securities of large U.S. companies, i.e. those with $1 billion or more in
total market capitalization. The Fund looks for companies whose securities
appear to present a favorable relationship between market price and opportunity.
These may include securities of companies whose fundamentals or products may be
of only average promise. The Fund may invest up to 20% of its net assets in debt
securities when management anticipates that the capital appreciation on debt
securities is likely to equal or exceed the capital appreciation on common
stocks over a selected time, such as during periods of unusually high interest
rates. Such debt securities may be rated below investment-grade, or of
equivalent quality as determined by the Adviser. However, the Fund will invest
no more than 10% of its net assets in securities rated B or lower.
Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.
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The Fund involves above-average investment risk. The Fund seeks to benefit from
economic and political trends emerging throughout Latin America. These trends
are supported by governmental initiatives designed to promote freer trade and
market-oriented economies. The Adviser believes that efforts by Latin American
countries to, among other things, reduce government spending and deficits,
control inflation, lower trade barriers, stabilize currency exchange rates,
increase foreign and domestic investment and privatize state-owned companies,
will set the stage for attractive investment returns over time.
At least 65% of the Fund's total assets will be invested in the securities of
Latin American issuers, and 50% of the Fund's total assets will be invested in
Latin American equity securities. To meet its objective to provide long-term
capital appreciation, the Fund normally invests at least 65% of its total assets
in equity securities. The Fund considers Latin American countries to include
Mexico, Central America, South America and the Spanish-speaking islands of the
Caribbean. The Fund defines securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin American country
or for which the principal securities trading market is in Latin America;
o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o Securities of companies, wherever organized, when at least 50% of an issuer's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in Latin America; or
o Securities of Latin American issuers, as defined above, in the form of
depositary shares.
The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities, and which are unrated, rated or the equivalent of those rated below
investment-grade although the Fund will not invest more than 10% of its net
assets in securities rated B or lower by Moody's and S&P and may invest in
securities rated C by Moody's or D by S&P. Please refer to the attached Appendix
for further information.
Scudder Micro Cap Fund is a diversified investment company which seeks long-term
growth of capital by investing primarily in a diversified portfolio of U.S.
micro-capitalization ("micro-cap") common stocks.
The Fund seeks to provide long-term growth of capital by investing, under normal
market conditions, at least 80% of its assets in common stocks issued by U.S.
micro-cap companies. The Fund will typically invest in companies that, at the
time of purchase, are smaller than the smallest stocks in the Russell 2000 Index
at its annual reconstitution. The median market capitalization (i.e., current
stock price times shares outstanding) of the portfolio is not expected to exceed
$125 million.
While the Fund invests predominantly in common stocks, it can purchase other
types of securities, including preferred stocks, convertible or non-convertible
securities, rights and warrants. Securities may be listed on national exchanges
or traded over-the-counter. The Fund may invest up to 20% of its assets in U.S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.
Scudder Pacific Opportunities Fund is a non-diversified investment company which
seeks long-term growth of capital through investment primarily in the equity
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Description of the Underlying Scudder Funds (cont'd)
securities of Pacific Basin companies, excluding Japan.
The Fund invests, under normal market conditions, at least 65% of its assets in
the equity securities of Pacific Basin companies. Pacific Basin countries
include Australia, the Peoples Republic of China, India, Indonesia, Malaysia,
New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as well as Hong
Kong, Singapore, South Korea and Taiwan--the so-called "four tigers." The Fund
may invest in other countries in the Pacific Basin when their markets become
sufficiently developed. The Fund will not, however, invest in Japanese
securities. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry. The Fund defines securities of Pacific Basin companies as
follows:
o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific Basin;
or
o Securities of companies, wherever organized, when at least 50% of a company's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in the Pacific Basin.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of U.S. and other non-Pacific Basin issuers (excluding Japan).
The Fund may invest up to 35% of its total assets in foreign and domestic
high-grade debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.
Scudder Small Company Value Fund is a diversified investment company which
invests for long-term growth of capital by seeking out undervalued stocks of
small U.S. companies. In pursuit of long-term growth of capital, the Fund
invests, under normal circumstances, at least 80% of its assets in the common
stock of small U.S. companies. The Fund will invest in securities of companies
that are similar in size to those in the Russell 2000(R) Index of small stocks.
The median market capitalization (i.e., current stock price times shares
outstanding) of the portfolio will be below $500 million. The Fund may continue
to hold securities which have grown in market capitalization above the Russell
2000(R) Index, but will generally not add to these holdings.
Companies represented in the portfolio of the Fund typically have the following
characteristics:
o Attractive valuations relative to the Russell 2000 Index--a widely used
benchmark of small stock performance--based on measures such as price to
earnings, price to book value and price to cash flow ratios.
o Favorable trends in earnings growth rates and stock price momentum.
While the Fund invests predominantly in common stocks, it can purchase other
types of equity securities including preferred stocks (either convertible or
nonconvertible), rights and warrants. Securities may be listed on national
exchanges or, more commonly, traded over-the-counter. The Fund may invest up to
20% of its assets in U.S. Treasury, agency and instrumentality obligations, may
enter into repurchase agreements and may engage in strategic transactions, using
such derivatives contracts as index options and futures, to increase stock
market participation, enhance liquidity and manage transaction costs.
Scudder 21st Century Growth Fund is a diversified investment company which seeks
long-term growth of capital by investing primarily in the securities of emerging
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growth companies poised to be leaders in the 21st century.
The Fund generally invests in equity securities, including common stocks and
convertible securities, of relatively small or little-known companies, commonly
referred to as emerging growth companies, with market capitalization typically
below $750 million. The Adviser believes these companies are well-positioned for
above-average earnings growth and/or greater market recognition. Such favorable
prospects may be a result of new or innovative products or services a given
company is developing or provides, products or services that have the potential
to impact significantly the industry in which the company competes or to change
dramatically customer behavior into the 21st century.
To help reduce risk in its search for high quality, emerging growth companies,
the Adviser allocates the Fund's investments among many companies and different
industries in the U. S. and, where opportunity warrants, abroad as well.
Emerging growth companies are those with the ability, in the Adviser's opinion,
to expand earnings per share by at least 15% per annum over the next three to
five years at a minimum.
Scudder Value Fund is a diversified investment company which seeks long-term
growth of capital through investment in undervalued equity securities. The Fund
invests primarily in the equity securities of medium- to large-sized domestic
companies with annual revenues or market capitalization of at least $600
million. The Adviser uses in-depth fundamental research and a proprietary
computerized quantitative model to identify companies that are currently
undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change. The Fund invests in the securities of companies that,
in the opinion of its Adviser, are undervalued in the marketplace in relation to
current and estimated future earnings and dividends. These companies generally
sell at price-earnings ratios below the market average, as defined by the S&P
500. The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks. While the Fund emphasizes U.S. investments, it can invest its
assets in securities of foreign companies which meet the same criteria
applicable to domestic investments. The Fund may invest up to 20% of its total
assets in debt obligations, including zero coupon securities, may enter into
repurchase agreements and may also engage in strategic transactions for hedging
purposes and to seek to increase gain.
The debt securities in which the Fund may invest may be rated below
investment-grade, although the Fund will invest no more than 10% of its net
assets in securities rated B or lower by S&P or Moody's, and may not invest more
than 5% of its net assets in securities rated C by Moody's or D by S&P.
The Japan Fund is a diversified mutual fund which seeks to achieve long-term
capital appreciation by investing primarily in equity securities (including
American Depositary Receipts) of Japanese companies. Equity securities are
defined as common and preferred stock, debt securities convertible into common
stock (sometimes referred to as "convertible debentures") and common stock
purchase warrants.
Under normal conditions, the Fund will invest at least 80% of its assets in
Japanese securities, that is, securities issued by entities that are organized
under the laws of Japan ("Japanese companies"), securities of affiliates of
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<PAGE>
Description of the Underlying Scudder Funds (cont'd)
Japanese companies, wherever organized or traded, and securities of issuers not
organized under the laws of Japan but deriving 50% or more of their revenues
from Japan. These securities may include debt securities (Japanese government
debt securities and debt securities of Japanese companies) when the Adviser
believes that the potential for capital appreciation from investment in debt
securities equals or exceeds that available from investment in equity
securities.
The Fund may also invest up to 30% of its net assets in equity securities of
Japanese companies which are traded in an over-the-counter market. These are
generally securities of relatively small or little-known companies that the
Adviser believes have above-average earnings growth potential. The Fund may
invest up to 20% of its assets in cash or short-term government or other
short-term prime obligations in order to have funds readily available for
general corporate purposes, including the payment of operating expenses,
dividends and redemptions, or the investment in securities through exercise of
rights or otherwise, or in repurchase agreements. Where the Adviser determines
that market or economic conditions so warrant, the Fund may, for temporary
defensive purposes, invest more than 20% of its assets in cash or such
securities.
Information about policies, investments and risks
In pursuing their investment objectives, each of the Underlying Scudder Funds is
permitted to engage in a wide range of investment policies. The Underlying
Scudder Funds' risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. Certain of these policies
are described below. Further information about the Underlying Scudder Funds is
contained in the Appendix to this prospectus, and in the Statement of Additional
Information. Also, detailed information is presented in the prospectuses of such
funds.
Foreign securities. Each Underlying Scudder Fund (except Scudder Cash Investment
Trust and Scudder GNMA Fund) may invest in foreign securities. Investments in
foreign securities involve special considerations due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the income from
securities. They may also entail certain other risks, such as the possibility of
one or more of the following: imposition of dividend or interest withholding or
confiscatory taxes; currency blockages or transfer restrictions; expropriation,
nationalization or other adverse political or economic developments; less
government supervision and regulation of securities exchanges, brokers and
listed companies; and the difficulty of enforcing obligations in other
countries. Purchases of foreign securities are usually made in foreign
currencies and, as a result, an Underlying Scudder Fund may incur currency
conversion costs and may be affected favorably or unfavorably by changes in the
value of foreign currencies against the U.S. dollar. Further, it may be more
difficult for an Underlying Scudder Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
An Underlying Scudder Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. These risks are greater
in emerging markets.
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Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for longer
term debt securities.
The debt securities in which certain of the Underlying Scudder Funds may invest
are rated, or determined by the Adviser to be the equivalent of those rated, by
two nationally recognized rating organizations, Moody's and S&P. High quality
securities are those rated in the two highest categories by Moody's (Aaa or Aa)
or S&P (AAA or AA). High-grade securities are those rated in the three highest
categories by Moody's (Aaa, Aa, or A) or by S&P (AAA, AA, or A).
Investment-grade securities are those rated in the four highest categories by
Moody's (Aaa, Aa, A, or Baa) or by S&P (AAA, AA, A or BBB).
Certain Underlying Scudder Funds may invest in debt securities which are rated
below investment-grade; that is, rated below Baa by Moody's or BBB by S&P
(commonly referred to as "junk bonds"). The lower the ratings of such debt
securities, the greater their risks render them like equity securities. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. Certain Underlying Scudder Funds may also make
a portion of their below investment-grade investments in securities which are
rated D by S&P or, if unrated, are of equivalent quality. Securities rated D may
be in default with respect to payment of principal or interest. Additional
information regarding the ratings of debt securities and the identity of those
Underlying Scudder Funds that can invest in investment-grade or below
investment-grade debt securities may be found in the section entitled
"Description of the Underlying Scudder Funds" and in the Appendix to this
prospectus.
To the extent an Underlying Scudder Fund invests in high-grade securities, it
will be unable to avail itself of opportunities for higher income which may be
available with lower grade investments. Conversely, although some lower-grade
securities have produced higher yields in the past than the investment-grade
securities, lower-grade securities are considered to be predominantly
speculative and, therefore, carry greater risk. Please refer to the attached
Appendix for further information.
Strategic Transactions and derivatives. Each Underlying Scudder Fund (except for
Scudder Cash Investment Trust) may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates, currency exchange rates, and broad or specific equity
or fixed-income market movements), to manage the effective maturity or duration
of fixed-income securities in each Underlying Scudder Fund's portfolio or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, each Underlying Scudder
Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of an Underlying Scudder Fund's assets
will be committed to Strategic Transactions entered into for non-hedging
purposes.
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Information about policies, investments and risks (cont'd)
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to an
Underlying Scudder Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation an Underlying Scudder Fund can realize on its investments or
cause an Underlying Scudder Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Underlying Scudder Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of an Underlying Scudder Fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of an Underlying
Scudder Fund's position. In addition, futures and options markets may not be
liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, an Underlying Scudder Fund might not
be able to close out a transaction without incurring substantial losses, if at
all. Although the use of futures contracts and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain which
might result from an increase in value of such position. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that an Underlying Scudder Fund
may use and some of their risks are described more fully in Pathway Series'
Statement of Additional Information and the Statement of Additional Information
of certain Underlying Scudder Funds.
Investment restrictions of the Portfolios
The Portfolios have adopted certain fundamental policies which may not be
changed without a vote of shareholders and which are designed to reduce the
Portfolios' investment risk. Each Portfolio may not borrow money except as a
temporary measure for extraordinary or emergency purposes, or through reverse
repurchase agreements and may not make loans except through the purchase of
portfolio securities or through repurchase agreements. A complete description of
these and other policies and restrictions is contained under "Investment
Restrictions" in the Portfolios' Statement of Additional Information.
Risks of investing in the Portfolios
The Portfolios' risks are determined by the nature of the securities held by the
Underlying Scudder Funds as well as the proportion of investment in each
Underlying Scudder Fund pursuant to the portfolio management strategies used by
the Adviser. The following are descriptions of certain risks related to
investments in the Portfolios.
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o As the investments in each Portfolio are concentrated within a group of
Underlying Scudder Funds, the performance of that Portfolio is directly
related to the investment performance of those Underlying Scudder Funds. The
ability of a Portfolio to meet its investment objective is directly related
to the ability of the Underlying Scudder Funds to meet their objectives as
well as the allocation among those Underlying Scudder Funds by the
Portfolios' portfolio management team.
o Each Portfolio's share price and yield will fluctuate in response to various
market and economic factors related to both the stock and bond markets. Some
of the Underlying Scudder Funds invest in debt securities making them subject
to credit risk, interest rate risk and pre-payment risk. Also, each Portfolio
invests in Underlying Scudder Funds that are in turn invested in
international securities and thus are subject to additional risks of these
investments including changes in foreign currency exchange rates and
political risk.
For information about the investment techniques and the risks involved in the
Underlying Scudder Funds, please refer to "Additional Information about
policies, investments and risks" and the Appendix to this prospectus.
Distribution and performance information
Dividends and capital gains distributions
The Conservative Portfolio and Balanced Portfolio each intend to distribute
dividends from net investment income quarterly in April, July, October and
December. The Growth Portfolio intends to distribute net investment income in
November or December. Each Portfolio intends to distribute net realized capital
gains, if any, in November or December to prevent application of federal excise
tax, although an additional distribution may be made within three months of a
Portfolio's fiscal year end, if necessary. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared.
According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of a Portfolio. If an investment in a
Portfolio is in the form of a retirement plan, then all distributions will
automatically be reinvested in additional shares of that Portfolio.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains for federal income tax purposes, regardless of the
length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. Distributions received by a Portfolio from an Underlying
Scudder Fund generally will be ordinary income dividends, includible in that
Portfolio's net investment income, if paid from the Underlying Scudder Fund's
net investment income, short-term capital gains or other taxable income.
Distributions paid from an Underlying Scudder Fund's long-term capital gains,
however, generally will be treated by a Portfolio as long-term capital gains for
federal income tax purposes, regardless of how long that Portfolio held the
Underlying Scudder Fund's shares.
Each Portfolio sends detailed tax information to shareholders about the amount
and type of its distributions by January 31 of the following year. It is
anticipated that each Portfolio's turnover rate will not exceed 50% for the
initial fiscal year.
Performance information
From time to time, quotations of a Portfolio's performance may be included in
advertisements, sales literature, or shareholder reports.
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Distribution and performance information (cont'd)
All performance figures are historical, show the performance of a hypothetical
investment and are not intended to indicate future performance.
For the Conservative Portfolio and Balanced Portfolio, the "SEC yield" is an
annualized expression of the net income generated by a Portfolio over a
specified 30-day (one month) period, as a percentage of a Portfolio's share
price on the last day of that period. This yield is calculated according to
methods required by the Securities and Exchange Commission (the "SEC"), and
therefore may not equate to the level of income paid to shareholders. Yield is
expressed as an annualized percentage. For all Portfolios, "total return" is the
change in value of an investment in a Portfolio for a specified period. The
"average annual total return" of a Portfolio is the average annual compound rate
of return of an investment in a Portfolio assuming the investment has been held
for one year, and the life of a Portfolio as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in a Portfolio for various periods. Total return calculations assume
that all dividends and capital gains distributions during the period were
reinvested in shares of a Portfolio. "Capital change" measures return from
capital, including reinvestment of any capital gains distributions but does not
include the reinvestment of dividends.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Underlying Scudder Funds' expenses.
Provided below are performance figures for the Scudder Managed Retirement
Trust-Income (the "MRT/Income"), the Scudder Managed Retirement Trust-Balanced,
(the "MRT/Balanced") and the Scudder Managed Retirement Trust-Growth (the
"MRT/Growth") (collectively, the "MRTs"), each a collective investment trust for
defined contribution plans offered by the Adviser. The MRTs invest their assets
within the Scudder Family of Funds and have the same investment adviser and same
lead portfolio manager as the Portfolios. MRT/Income, MRT/Balanced and
MRT/Growth have substantially similar investment objectives, policies and
strategies as Conservative Portfolio, Balanced Portfolio and Growth Portfolio,
respectively.
Unlike the Portfolios, however, the MRTs impose a trustee fee and an audit fee
at the trust level. Of course, the following performance figures are not
necessarily indicative of the future performance of a Portfolio.
Average Annual Total Returns for periods
ended October 31, 1996
1 Year 3 Years Life of Fund
MRT/Income 10.62% 7.37% 7.43%*
MRT/Balanced 13.89% 9.51% 10.89%@
MRT/Growth 15.92% 11.03% 11.51%*
*For the period beginning August 23, 1993.
@ For the period beginning August 31, 1991.
Portfolio organization
Scudder Pathway Series (the "Trust") is a diversified, open-end management
investment company, commonly referred to as a "mutual fund," registered under
the Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as
a Massachusetts business trust on July 1, 1994.
The Trust offers four portfolios: Conservative Portfolio, Balanced Portfolio,
Growth Portfolio and International Portfolio. The Declaration of Trust provides
that each Portfolio can offer additional classes of shares and the Board of
Trustees has the ability to offer additional portfolios. Each Portfolio
represents a separate series of shares and has different objectives and
investment policies. Each Portfolio intends to qualify separately as a regulated
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investment company for the purposes of Subchapter M of the Internal Revenue
Code.
The Portfolios' activities are supervised by its Board of Trustees. Shareholders
have one vote for each share held on matters on which they are entitled to vote.
The Portfolios are not required to hold, and have no current intention of
holding, annual shareholder meetings, although special meetings may be called
for purposes such as electing or removing Trustees, changing fundamental
investment policies or approving an investment management contract.
Special Servicing Agreement
All the expenses of the Portfolios will be paid for in accordance with a Special
Servicing Agreement (the "Agreement") entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolios. Under the Agreement, the Adviser will arrange for all services
pertaining to the operation of the Portfolios including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolios. If
the officers of an Underlying Scudder Fund determine that the aggregate expenses
of a Portfolio are less than the estimated savings to the Underlying Scudder
Fund from the operation of that Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
the Portfolio. Consequently, no Underlying Scudder Fund will be expected to
carry expenses that are in excess of the estimated savings to it. The estimated
savings are expected to result from the reduction of shareholder servicing costs
due to the elimination of separate shareholder accounts which either currently
are or have potential to be invested in the Underlying Scudder Funds. The
estimated savings produced by the operation of a Portfolio will most likely
suffice to offset most, if not all, the expenses incurred by that Portfolio.
In the event that the aggregate financial benefits to the Underlying Scudder
Funds do not exceed the costs of a Portfolio, the Adviser will pay, on behalf of
that Portfolio, that portion of costs determined to be greater than the
benefits.
All expenses of the Portfolios, excluding certain non-recurring and
extraordinary expenses, will be paid for in accordance with the Agreement,
including fees and expenses incurred in connection with membership in investment
company organizations; fees and expenses of the Portfolios' accounting agent;
brokers' commissions; legal, auditing and accounting expenses; taxes and
governmental fees; the fees and expenses of the transfer agent; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Portfolios who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees and disbursements of custodians.
Certain Underlying Scudder Funds impose a fee upon the redemption or exchange of
shares held less than one year. The fees, which range between 1% and 2% of the
net asset value of the shares being redeemed or exchanged, are assessed and
retained by the Underlying Scudder Funds for the benefit of the remaining
shareholders. The fee is intended to encourage long-term investment in the Fund.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
of its subsidiary and does not benefit the Adviser in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time. As a
shareholder of such Underlying Scudder Funds, the Portfolios will be subject to
such fees. Under normal market conditions, each Portfolio will seek to avoid
taking action that would result in the imposition of such a fee. However, in the
event that a fee is incurred, the net assets of a Portfolio would be reduced by
27
<PAGE>
Portfolio organization (cont'd)
the amount of such fees that are assessed and retained by the Underlying Scudder
Funds for the benefit of their shareholders.
Investment adviser
The Portfolios retain the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage the Portfolios' daily investment
and business affairs subject to the policies established by the Board of
Trustees. The Trustees have overall responsibility for the management of the
Trust under Massachusetts law.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Portfolios.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Portfolios'
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Portfolios. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Portfolio accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Portfolios.
Custodian
State Street Bank and Trust Company is the custodian for the Portfolios.
Transaction information
For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 38 and 39.
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Portfolios' transfer agent receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
a Portfolio may hold redemption proceeds until the purchase check has cleared.
If you purchase shares by federal funds wire, you may avoid this delay.
Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and the Portfolio account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, and
- -- the name(s) of the account holder(s).
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<PAGE>
The account will be established once the application and money order are
received in good order.You may also make additional investments of $100 or more
to your existing account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to a Portfolio resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and
most other Scudder retirement plan accounts.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "AutoBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, a Portfolio may hold the redemption proceeds for a period of up to
seven business days. If you purchase shares and there are insufficient funds in
your bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges on SAIL, the Scudder Automated Information Line, by
calling 1-800-343-2890.
Redeeming shares
The Portfolios allow you to redeem shares (i.e., sell them back to a Portfolio)
without redemption fees.
By telephone. This is the quickest and easiest way to sell Portfolio shares. If
you elected telephone redemption to your bank on your application, you can call
to request that federal funds be sent to your authorized bank account. If you
did not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
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<PAGE>
Transaction information (cont'd)
You can also make redemptions on SAIL by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Portfolio's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach a Portfolio by telephone, you should
write to that Portfolio; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Portfolios reserve the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be wired
to a predesignated bank account. The Portfolio uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Portfolio does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Portfolios will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine.
Share price
Purchases and redemptions, including exchanges, are made at each Portfolio's net
asset value. Scudder Fund Accounting Corporation determines net asset value per
share as of the close of regular trading on the Exchange, normally 4 p.m.
eastern time, on each day the Exchange is open for trading. Net asset value per
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<PAGE>
share is calculated by dividing the value of total assets of a Portfolio, less
its liabilities, by the total number of shares of that Portfolio outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Portfolios' transfer agent. Those requests received by the close of regular
trading on the Exchange are executed at the net asset value per share calculated
at the close of trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
Each Portfolio will normally send your redemption proceeds within one business
day following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Trust and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Portfolio shares (including exchanges) for any reason including
when a pattern of frequent purchases and sales made in response to short-term
fluctuations in a Portfolio's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Portfolio or Scudder
fund, is a sale of shares and may result in a gain or loss for income tax
purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Portfolios'
application when you open an account. Federal tax law requires each Portfolio to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. Each Portfolio reserves the right to reject new account
applications without a certified Social Security or tax identification number.
Each Portfolio also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing a Portfolio
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. The initial
investment and minimum account balance for fiduciary accounts such as IRAs is
$1,000 per fund account, and the subsequent minimum investment is $50. A
shareholder may open a regular account with a minimum of $1,000, if an
investment program of at least $100 per month is established.
Shareholders with non-fiduciary accounts who maintain an account balance of less
than $2,500 in a Portfolio without establishing a regular investment program may
be assessed an annual $10.00 per fund charge with the fee to be paid to that
Portfolio. The $10.00 charge will not apply to shareholders with a combined
household account balance (same surname, same address) in any of the Scudder
Funds of $25,000 or more. Each Portfolio reserves the right, following 60 days'
written notice to shareholders, to redeem all shares in accounts below $250,
where a reduction in value has occurred due to a redemption or exchange out of
the account. The shareholder may restore the share balance to $250 or more
during the 60-day notice period and must maintain it at no lower than that
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Transaction information (cont'd)
minimum to avoid an involuntary redemption. Each Portfolio will mail the
proceeds of the redeemed account to the shareholder. Reductions in value that
result solely from market activity will not trigger an involuntary redemption.
Retirement accounts and certain other accounts will not be assessed the $10.00
charge or be subject to automatic liquidation. Please refer to "Exchanges and
Redemptions -- Other information" in the Portfolio's Statement of Additional
Information.
Third party transactions
If purchases and redemptions of Portfolio shares are arranged and settlement is
made at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
The Portfolios are managed by a team of Scudder investment professionals who
each play an important role in the Portfolios' management process. Team members
work together to develop investment strategies and select Underlying Funds for
each Portfolio. They are supported by Scudder's large staff of portfolio
managers, economists, research analysts, traders and other investment
specialists. Scudder believes its team approach benefits the Portfolios'
investors by bringing together many disciplines and leveraging Scudder's
extensive resources. All members of the Pathway investment team are members of
Scudder's Global Asset Allocation Committee. This group is responsible for
analyzing the global economy and capital markets, integrating information from
the firm's equity and fixed income specialists, and developing the outlook for
the investment characteristics of the major markets in which a Portfolio
invests.
Lead Portfolio Manager Benjamin W. Thorndike, who has 17 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has
served as a portfolio manager for Scudder Growth and Income Fund. Mr. Thorndike
will develop portfolio strategy utilizing the research, analysis and guidance
provided by other members of the investment team. Cornelia Small, Portfolio
Manager, is Director of Global Equity Investments and Chairman of the Capital
Markets Group, and has also served as Director of Global Equity Research.
Margaret (Peg) Hadzima, Portfolio Manager, is Director of Scudder's
Institutional Group, which includes a focus on asset allocation strategy. Ms.
Hadzima has 23 years of experience in fixed-income investing during which she
has served as Director of Global Bond Research and Chairman of Global Bond
Strategy. Philip Fortuna, Portfolio Manager, joined Scudder in 1986 as manager
of institutional equity accounts. He has served as Director of Quantitative
Research and Director of Investment Operations. Mr. Fortuna is Lead Portfolio
Manager for Scudder Small Company Value Fund, as well as a portfolio manager for
Scudder Micro Cap Fund. Maureen Allyn, Portfolio Manager, is Scudder's Chief
Economist, a position she has held since 1989, and is responsible for analyzing
both the world and U.S. economies.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
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obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
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Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income (up to
$2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax deferred
basis. The Scudder No-Fee IRA charges no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.
o SIMPLE IRAs. A flexible, easily administered retirement plan for small
businesses which can be funded by contributions from employees and
matching contributions from employers.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
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<PAGE>
Trustees and Officers
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.
Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
*Scudder, Stevens & Clark, Inc.
35
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited
Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *Not available in all
states. +++ +++A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on various stock exchanges.
36
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Funds Centers. Check for a Funds Center near you--they can be found in the
following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061--
Member NASD/SIPC.
37
<PAGE>
<TABLE>
<CAPTION>
Purchases
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional shares Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a
payable to letter of instruction including your account number and the
"The Scudder complete Portfolio name, to the appropriate address listed
Funds." above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional
investment in your Scudder fund account. Funds Center locations are
listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis through
Investment automatic deductions from your bank checking account.
Plan Please call for more information and an enrollment form.
($50 minimum) 1-800-225-5163
-----------------------------------------------------------------------------------------------------------------------
38
<PAGE>
Exchanges and redemptions
-----------------------------------------------------------------------------------------------------------------------
Exchanging shares Minimum investments: $2,500 to establish a new account;
$100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Portfolio and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Portfolio or Scudder fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(TM), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day). You may have redemption proceeds
sent to your predesignated bank account, or redemption proceeds of up to
$100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax
or Fax number above and include:
- the name of the Portfolio and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Plan Call 1-800-225-5163 for more information and an enrollment form.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Appendix
Descriptions Of Certain Risks Related To Various Securities Invested In,
And Investment Techniques Employed By, The Underlying Scudder Funds
In Which The Portfolios May Invest
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, an Underlying Scudder Fund's right to dispose of the securities may
be restricted. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before repurchase of
the securities under a repurchase agreement, an Underlying Scudder Fund may
encounter delay and incur costs before being able to sell the securities. Also,
if a seller defaults, the value of such securities may decline before an
Underlying Scudder Fund is able to dispose of them.
Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.
Non-diversified investment company. Certain Underlying Scudder Funds are
classified as non-diversified investment companies under the Investment Company
Act of 1940 (the "1940 Act"), which means that an Underlying Scudder Fund is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The investment of a large percentage of an
Underlying Scudder Fund's assets in the securities of a small number of issuers
may cause an Underlying Scudder Fund's share price to fluctuate more than that
of a diversified investment company.
Dollar roll transactions. If the broker/dealer to whom an Underlying Scudder
Fund sells the securities underlying a dollar roll transaction becomes
insolvent, an Underlying Scudder Fund's right to purchase or repurchase the
securities may be restricted; the value of the securities may change adversely
over the term of the dollar roll; the securities that an Underlying Scudder Fund
is required to repurchase may be worth less than securities that an Underlying
Scudder Fund originally held, and the return earned by an Underlying Scudder
Fund with the proceeds of a dollar roll may not exceed transaction costs.
Zero coupon securities. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current cash distributions of interest.
Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for an
Underlying Scudder Fund to sell them promptly at an acceptable price.
Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, an Underlying Scudder Fund
will bear the market risk of the reference instrument.
Mortgage and other asset-backed securities. Unscheduled or early payments on the
A-1
<PAGE>
underlying mortgages may shorten the securities' effective maturities and lessen
their growth potential. An Underlying Scudder Fund may agree to purchase or sell
these securities with payment and delivery taking place at a future date. A
decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose an Underlying Scudder Fund to a lower rate of
return upon reinvestment. To the extent that such mortgage-backed securities are
held by an Underlying Scudder Fund, the prepayment right of mortgagors may limit
the increase in net asset value of an Underlying Scudder Fund because the value
of the mortgage-backed securities held by an Underlying Scudder Fund may not
appreciate as rapidly as the price of non-callable debt securities. Asset-backed
securities are subject to the risk of prepayment and the risk that the
underlying loans will not be repaid.
Investing in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of an Underlying Scudder Fund is
uninvested and no return is earned thereon. The inability of an Underlying
Scudder Fund to make intended security purchases due to settlement problems
could cause an Underlying Scudder Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to an Underlying Scudder Fund due to
subsequent declines in value of the portfolio security or, if an Underlying
Scudder Fund has entered into a contract to sell the security, in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging market debt obligations and
increase the costs and expenses of an Underlying Scudder Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
and/or impose additional taxes on foreign investors. These markets may also
restrict investment opportunities in issuers in industries deemed important to
national interests.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. An Underlying Scudder Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to an Underlying Scudder Fund of any restrictions on investments.
Throughout the last decade many emerging markets have experienced and continue
to experience high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an adverse effect
on an Underlying Scudder Fund's non-dollar denominated securities and on the
issuers of debt obligations generally. Individual foreign economies may differ
A-2
<PAGE>
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. The securities markets,
values of securities, yields and risks associated with securities markets in
different countries may change independently of each other.
Investment in sovereign debt can involve a high degree of risk. Holders of
sovereign debt (including an Underlying Scudder Fund) may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part. Securities traded in certain emerging European securities markets may be
subject to risks due to the inexperience of financial intermediaries, the lack
of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims on which have not been entirely settled. There can be no assurance that
an Underlying Scudder Fund's investments in Eastern Europe would not also be
expropriated, nationalized or otherwise confiscated. Finally, any change in the
leadership or policies of Eastern European countries, or the countries that
exercise a significant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
High yield/high risk securities. Certain Underlying Scudder Funds may invest in
debt securities which are rated below investment-grade (hereinafter referred to
as "lower rated securities") or which are unrated, but equivalent to those rated
below investment- grade. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. These debt instruments
generally offer a higher current yield than that available from higher grade
issues, but typically involve greater risk and lesser liquidity.
The lack of a liquid secondary market for certain securities may also make it
more difficult for an Underlying Scudder Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers, and to price fluctuation in response to changes in interest
rates. During periods of economic downturn or rising interest rates, issuers of
these instruments may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may also decrease the values and liquidity of
these securities especially in a market characterized by only a small amount of
trading. Perceived credit quality in this market can change suddenly and
unexpectedly, and may not fully reflect the actual risk posed by a particular
lower rated or unrated security.
Securities lending. From time to time certain Underlying Scudder Funds may lend
their portfolio securities to registered broker/dealers as described above. The
risks of lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to registered broker/dealers
deemed by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.
Investing in emerging growth companies. The investment risk associated with
A-3
<PAGE>
emerging growth companies is higher than that normally associated with larger,
older companies due to the greater business risks of small size, the relative
age of the company, limited product lines, distribution channels and financial
and managerial resources. Further, there is typically less publicly available
information concerning smaller companies than for larger, more established ones.
The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, an Underlying Scudder Fund
may need to discount the securities from recent prices or dispose of the
securities over a long period of time. The prices of this type of security may
be more volatile than those of larger companies which are often traded on a
national securities exchange.
Precious metals. Investments in precious metals and in precious metals-related
securities and companies involve a relatively high degree of risk. Prices of
gold and other precious metals can be influenced by a variety of global
economic, financial and political factors and may fluctuate markedly over short
periods of time. Among other things, precious metals values can be affected by
changes in inflation, investment speculation, metal sales by governments or
central banks, changes in industrial and commercial demand, and any governmental
restrictions on private ownership of gold or other precious metals.
Correlation of gold and gold securities. The Adviser believes that the value of
the securities of firms that deal in gold will correspond generally, over time,
with the prices of the underlying metal. At any given time, however, changes in
the price of gold may not strongly correlate with changes in the value of
securities related to gold, which are expected to constitute part of certain
Underlying Scudder Funds' assets. In fact, there may be periods in which the
price of gold stocks and gold will move in different directions. The reason for
this potential disparity is that political and economic factors, including
behavior of the stock market, may have differing impacts on gold versus gold
stocks.
Investing in Latin America. The Adviser believes that investment opportunities
may result from recent trends in Latin America encouraging greater market
orientation and less governmental intervention in economic affairs. Investors,
however, should be aware that the Latin American economies have experienced
considerable difficulties in the past decade. Although there have been
significant improvements in recent years, the Latin American economies continue
to experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by world
prices for oil and other commodities. There is no assurance that recent economic
initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
A-4
<PAGE>
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and an
Underlying Scudder Fund, as well as the value of securities in an Underlying
Scudder Fund's portfolio.
Most Latin American countries have experienced substantial, and in some periods,
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including an
Underlying Scudder Fund) may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.
The portion of an Underlying Scudder Fund's assets invested directly in Chile
may be less than the portions invested in other countries in Latin America
because, at present, capital invested in Chile normally cannot be repatriated
for as long as five years.
Borrowing. Although the principal of an Underlying Scudder Fund's borrowing will
be fixed, an Underlying Scudder Fund's assets may change in value during the
time a borrowing is outstanding, increasing exposure to capital risk.
Investing in the Pacific Basin. Certain Underlying Scudder Funds are susceptible
to political and economic factors affecting issuers in Pacific Basin countries.
Many of the countries of the Pacific Basin are developing both economically and
politically. Pacific Basin countries may have relatively unstable governments,
economies based on only a few commodities or industries, and securities markets
trading infrequently or in low volumes. Some Pacific Basin countries restrict
the extent to which foreigners may invest in their securities markets.
Securities of issuers located in some Pacific Basin countries tend to have
volatile prices and may offer significant potential for loss as well as gain.
Further, certain companies in the Pacific Basin may not have firmly established
product markets, may lack depth of management, or may be more vulnerable to
political or economic developments such as nationalization of their own
industries.
Corporate and Municipal Bond Ratings. The following is a description of the
ratings given by S&P and Moody's to corporate and municipal bonds. Should the
rating of a portfolio security held by an Underlying Scudder Fund be downgraded,
the Adviser will determine whether it is in the best interest of the Underlying
Scudder Fund to retain or dispose of such security.
S&P:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong. Debt rated AA has a very strong
capacity to pay interest and repay principal and differs from the highest rated
issues only in small degree. Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
A-5
<PAGE>
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighted by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
A-6
<PAGE>
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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<PAGE>
This prospectus sets forth concisely the information about Scudder Pathway
Series: International Portfolio (the "Portfolio"), a diversified open-end
management investment company, that a prospective investor should know before
investing. Scudder Pathway Series is composed of four separate Portfolios with
distinctly different investment objectives. Each Portfolio, one of which is
offered herein, seeks to accomplish its objective by investing in a number of
other Scudder funds (the "Underlying Scudder Funds"). Please retain this
prospectus for future reference.
If you require more detailed information, a Statement of Additional Information
dated November 15, 1996, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 5.
Scudder Pathway Series:
International Portfolio
Prospectus
November 15, 1996
As Revised
May 14, 1997
A pure no-load(TM) (no sales charges) mutual fund which seeks maximum total
return by investing in a select mix of international and global Scudder Funds.
<PAGE>
Expense information
This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: International Portfolio
will bear directly or indirectly. With Scudder's pure no-load(TM) portfolios and
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one portfolio or fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Portfolio for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Portfolio operating expenses: Estimated expenses paid by the
Portfolio before it distributes its net investment income, expressed as a
percentage of the Portfolio's average daily net assets for the initial
fiscal period.
Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
----
Total Portfolio operating expenses** NONE
The Portfolio is expected to operate at a zero expense level. However, the
Portfolio's shareholders will indirectly bear the Portfolio's pro rata share of
fees and expenses incurred by the Underlying Scudder Funds in which the
Portfolio is invested. The investment returns of the Portfolio, therefore, will
be net of the Portfolio's share of the expenses of the Underlying Scudder Funds
in which the Portfolio is invested. The chart on page 3 shows the expense ratios
of each Underlying Scudder Fund after fee waiver or reimbursement where
applicable, as of its most recent fiscal year end.
- ----------------
* You may redeem by writing or calling the Portfolio. If you wish to receive
your redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
** The payment of the Portfolio's pro rata share of expenses is subject to the
Special Servicing Agreement. Please refer to "Portfolio
organization--Special Servicing Agreement."
2
<PAGE>
Expense Ratios of the Underlying Scudder Funds
Underlying Scudder Funds Expense Ratio
------------------------ -------------
Money Market Fund
Scudder Cash Investment Trust 0.83%
Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.44%
Scudder Global Bond Fund+ 1.00%
Scudder International Bond Fund 1.26%
Scudder Short Term Bond Fund 0.80%
Equity Mutual Funds
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.60%
Scudder Global Fund 1.34%
Scudder Gold Fund 1.50%
Scudder Greater Europe Growth Fund+ 1.97%
Scudder International Fund 1.15%
Scudder Latin America Fund 1.96%
Scudder Pacific Opportunities Fund 1.75%
The Japan Fund 1.16%
Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 1.01% to 2.00%. A range is provided since the
average assets of the Portfolio invested in each of the Underlying Scudder Funds
will fluctuate.
Example
Using the midpoint of the ratios set forth above, the total pro rata expenses
relating to a $1,000 investment, assuming a 5% annual return and redemption at
the end of each period, are listed below. Investors do not pay these expenses
directly; they are paid by each Underlying Scudder Fund before it distributes
its net investment income to the Portfolio. (As noted above, the Portfolio has
no redemption fees of any kind.)
1 Year 3 Years
$15 $48
See "Portfolio organization--Special Servicing Agreement" for an explanation of
the Special Servicing Agreement. This example assumes that the Portfolio
reinvests all dividends and distributions paid by the Underlying Scudder Funds.
This example should not be considered a representation of past or future
expenses or returns. Actual expenses and returns of each Underlying Scudder Fund
vary from year to year and may be higher or lower than those shown.
+The following funds maintained their expenses at the following rates for their
respective fiscal periods: Scudder Emerging Markets Growth Fund: 2.00%, Scudder
Global Bond Fund: 1.00% and Scudder Greater Europe Growth Fund: 1.50%. If the
Adviser had not maintained the Funds' expenses, the total return for the period
would have been lower. Please see the appropriate Underlying Scudder Fund
prospectus for details.
3
<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.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Semiannual Report dated March 31, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
For the Period
Nov. 15, 1996
(commencement
of operations)
to March 31,
1997
(Unaudited)
- ---------------------------------------------------------------------
Net asset value, beginning of period .............. $ 12.00
----------------
Income from investment operations:
Net investment income ............................. .28
Net realized and unrealized gain on investment
transactions .................................... .26(a)
----------------
Total from investment operations .................. .54
----------------
Less distributions:
From net investment income ........................ (.25)
From net realized gain on investments ............. (.10)
----------------
Total distributions ............................... (.35)
----------------
----------------
Net asset value, end of period .................... $ 12.19
- ---------------------------------------------------------------------
Total Return (%) .................................. 4.57**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............ 4.6
Ratio of operating expenses to average daily net
assets (%)(b) ................................... --
Ratio of net investment income to average daily net
assets (%) ...................................... 2.8*
Portfolio turnover rate (%) ....................... 0.9*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
4
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $115 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds and offers IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Pathway Series:
International Portfolio
Investment Objective
o maximum total return
Investment Characteristics
o a professionally managed portfolio which allocates its investments among
select international and global Scudder Funds
o provides exposure to a wide range of asset classes, securities and markets
around the globe
o no added fees or expenses associated with the operation of Scudder Pathway
Series: International Portfolio
o appropriate for IRA, 401(k) and other retirement plans
Contents
Investment objective and policies 6
Why invest in the Portfolio? 7
Description of the Underlying
Scudder Funds 8
Information about policies,
investments and risks 15
Investment restrictions of the Portfolio 17
Risks of investing in the Portfolio 17
Distribution and performance information 18
Portfolio organization 18
Transaction information 20
Shareholder benefits 24
Trustees and Officers 27
Investment products and services 28
How to contact Scudder 29
Purchases 30
Exchanges and redemptions 31
Appendix
5
<PAGE>
Investment objective and policies
Scudder Pathway Series: International Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio's investment objective is to maximize total return for
investors. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests in a
select mix of established international and global Scudder Funds.
The Scudder Funds in which the Portfolio may invest are referred to as the
"Underlying Scudder Funds," (see below). Some of these Underlying Scudder Funds
are equity mutual funds which invest largely in stocks to achieve growth. Other
Underlying Scudder Funds held by the Portfolio are bond mutual funds which focus
on primarily seeking total return. Moreover, the Underlying Scudder Funds
represent both multiple and single regions of the world as well as established
versus emerging markets and economies.
The portfolio management team for the Portfolio allocates investments based on
the outlook of the Fund's investment adviser, Scudder, Stevens & Clark, Inc.
(the "Adviser"), for the financial markets, world economies and the relative
performance potential of the Underlying Scudder Funds.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in Underlying Scudder Funds investing primarily in non-domestic
securities. The Portfolio defines "non-domestic" securities as securities of
companies neither domiciled in the U.S. nor organized under the laws of the U.S.
and for which the U.S. trading market is not a primary market. Under normal
market conditions, the International Portfolio will invest at least 60% of total
assets in equity mutual funds. The balance of the Portfolio's total assets will
be invested in bond mutual funds or held in a money market fund, cash or cash
equivalents. If, as a result of appreciation or depreciation, the percentage of
the Portfolio's assets invested in the above categories exceeds or is less than
the applicable range, the Adviser will consider, in its discretion, whether to
reallocate the assets of the Portfolio to comply with the stated ranges.
The Portfolio will purchase or sell shares of Underlying Scudder Funds to: (a)
accommodate purchases and sales of the Portfolio's shares, (b) change the
percentages of the Portfolio's assets invested in each of the Underlying Scudder
Funds in response to changing market conditions, and (c) maintain or modify the
allocation of the Portfolio's assets in accordance with the investment mix
described above. To provide for redemptions or for temporary defensive purposes,
the Portfolio may invest without limit in cash or cash equivalents, including
repurchase agreements, commercial paper and other types of money market
instruments.
Except as otherwise indicated, the Portfolio's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
-----------------------------------------------------
Underlying Scudder Funds in which the Pathway
International Portfolio may invest
- -----------------------------------------------------
Equity Mutual Funds
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
The Japan Fund
Bond Mutual Funds
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Money Market Fund
Scudder Cash Investment Trust
- -----------------------------------------------------
6
<PAGE>
is a change in investment objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then current
financial position and needs. There can be no assurance that the Portfolio's
objective will be met.
For information about the investment objectives of each of the Underlying
Scudder Funds, please refer to "Description of the Underlying Funds." For
information about purchasing, exchanging or redeeming shares, refer to
"Transaction information," "Purchases" and "Exchanges and redemptions."
Why invest in the Portfolio?
The Pathway Series Portfolios are designed for individuals and institutions who
prefer to have their asset allocation decisions made by professional money
managers, are looking for core investments for their investment portfolio and
appreciate the advantages of broad diversification. Scudder Pathway Series:
International Portfolio seeks maximum total return (i.e., any capital
appreciation plus dividend income and interest). Investing to achieve this goal,
the International Portfolio's assets are carefully allocated among a wide
selection of international and global mutual funds offered by the Scudder Family
of Funds.
Pathway International Portfolio is designed to meet the needs of investors
seeking to add--through a single pure no-load(TM) investment--diversified
international exposure to their investment portfolio. The Portfolio may be most
appropriate for long-term investors, including those planning for retirement
using tax-advantaged retirement accounts including IRAs, 401(k) corporate
employee savings plans and 403(b) non-profit organization savings plans.
The proliferation of mutual funds over the last several years and the increased
responsibilities shouldered by employees for managing their retirement plan
assets have left many investors in search of a simple means to manage their
long-term investments. With new investment categories emerging each year and
with each mutual fund reacting differently to political, economic and business
events, many investors are forced to make complex investment decisions with
limited experience, time and personal resources.
The Portfolio should appeal to those investors interested in an actively
managed, broad approach to international investing. The allocation of assets
within the Portfolio is determined by the Adviser according to fundamental and
quantitative analysis. Shifts will be made among Underlying Scudder Funds and
asset classes based on the Adviser's then current outlook for the financial
markets and the world's economies. Because the Portfolio's assets will be
adjusted only periodically and within the investment ranges described above,
there should not be any sudden large-scale changes in the Portfolio's asset
allocation. The Portfolio is not designed as a market timing vehicle, but rather
as a cost-effective, simple approach to helping investors participate in a range
of international opportunities with a goal of maximum total return.
International investing offers the investor the dual benefits of enhanced return
potential and greater overall portfolio diversification. Today, markets outside
the U.S. represent well over half the world's public companies and equity
values, and the economies of many foreign countries are growing faster than the
U.S. economy. Further, foreign markets don't always move in step with each other
and the U.S., so adding international exposure, such as through Pathway
International Portfolio, can reduce overall portfolio volatility over time.
In addition, the Portfolio offers all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(TM) funds and provides a wide range of services to help investors meet
7
<PAGE>
Why invest in the portfolio? (cont'd)
their investment needs. Please refer to "Investment products and services" for
additional information.
Description of the Underlying Scudder Funds
The following is a concise description of the investment objectives and
practices for each of the Underlying Scudder Funds. There can be no assurance
that the Underlying Scudder Funds' objectives will be met. Additional
information regarding the investment practices of the Underlying Scudder Funds
is located in the section entitled "Additional information about policies and
investments," in the Appendix to this prospectus, in the sections entitled "The
Fund's Investment Objectives and Policies" and "Glossary" in the Statement of
Additional Information and in the prospectuses of each of the Underlying Scudder
Funds. Prospectuses for the Underlying Scudder Funds may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or by calling 1-800-225-2470. No offer is made in this
prospectus of shares of any of the Underlying Scudder Funds.
The following Underlying Scudder Fund is the money market fund in which the
Portfolio may invest and will likely serve as the primary cash reserve portion
of the Portfolio.
Scudder Cash Investment Trust is a diversified investment company which seeks to
maintain stability of capital and, consistent therewith, to maintain liquidity
of capital and to provide current income. The Fund seeks to maintain a constant
net asset value of $1.00 per share. Shares of the Fund are not insured or
guaranteed by the U.S. Government and there can be no assurance that a stable
net asset value will be maintained.
The Fund purchases U.S. dollar-denominated money market securities. All of the
Fund's portfolio securities must meet certain quality criteria at the time of
purchase. Generally, the Fund may purchase only securities which are rated, or
issued by a company with comparable securities rated, within the two highest
quality rating categories of one or more of the following rating agencies:
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") and Fitch
Investors Service, Inc. ("Fitch") or, if unrated, the credit quality of the
security is deemed equivalent, in the opinion of the Adviser, to the rated
securities mentioned above. Amendments have been proposed to the federal rules
regulating quality, maturity and diversification requirements of money market
funds, like the Fund. If the amendments are adopted, the Fund intends to comply
with such new requirements.
The maturity of each investment in the Fund's portfolio is 397 calendar days or
less, except in the case of U.S. Government securities which may have maturities
of up to 762 calendar days. The dollar-weighted average maturity of the Fund's
portfolio varies with money market conditions, but is always 90 days or less. As
a money market fund with a short-term maturity, the Fund's income fluctuates
with changes in interest rates but its price is expected to remain fixed at
$1.00 per share.
The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.
Scudder Emerging Markets Income Fund is a non-diversified investment company
which seeks to provide high current income. As a secondary objective, the Fund
seeks long-term capital appreciation. In pursuing these goals, the Fund invests
primarily in high-yielding, high-risk debt securities issued by governments and
corporations in emerging markets.
The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any one of the following: International
8
<PAGE>
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
To reduce currency risk, the Fund invests at least 65% of its assets in U.S.
dollar-denominated debt securities. Therefore, no more than 35% of the Fund's
assets may be invested in debt securities denominated in foreign currencies. By
focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade.
The Fund may invest up to 5% of its net assets in non-performing securities
whose quality is comparable to securities rated as low as D by S&P or C by
Moody's. Please refer to the attached Appendix for further information.
The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. Investments in emerging markets can be volatile. The
Fund's share price and yield can fluctuate daily in response to political
events, changes in the perceived creditworthiness of emerging nations,
fluctuations in interest rates and, to a certain extent, movements in foreign
currencies.
Scudder Global Bond Fund is a non-diversified investment company which seeks to
provide total return with an emphasis on current income by investing primarily
in high-grade bonds denominated in foreign currencies and the U.S. dollar.
As a secondary objective, the Fund seeks capital appreciation.
The Fund will invest principally in a managed portfolio of high-grade
intermediate- and long-term bonds denominated in the U.S. dollar and foreign
currencies, including bonds denominated in the European Currency Unit (ECU).
(Intermediate-term bonds generally have maturities between three and eight
years, and long-term bonds generally have maturities of greater than eight
years.) Portfolio investments will be selected on the basis of, among other
things, yields, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the globe, taking into account the
ability to hedge a degree of currency or local bond price risk. At least 65% of
the Fund's investments will consist of high-grade debt securities, which are
those rated in one of the three highest rating categories of one of the major
U.S. rating services or, if unrated, considered to be of equivalent quality in
local currency terms as determined by the Adviser. The Fund may also invest up
to 15% of its net assets in debt securities rated BBB by S&P or Baa by Moody's
and lower, or unrated securities considered to be of equivalent quality by the
Adviser. Securities rated below Baa by Moody's or BBB by S&P are commonly
referred to as "junk bonds." The Fund will not invest in any securities rated B
or lower.
The Fund may invest in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities; obligations issued or guaranteed
by foreign national governments, their agencies, instrumentalities or political
subdivisions; and debt securities issued or guaranteed by supranational
organizations such as the European Investment Bank, Inter-American Development
Bank and The World Bank. The Fund may also invest in non-government securities
including corporate debt securities, bank or bank holding company obligations
(e.g., certificates of deposit and bankers acceptances), and mortgage and other
asset-backed issues.
Scudder International Bond Fund is a non-diversified investment company which
seeks to provide income primarily by investing in a managed portfolio of
high-grade debt securities denominated in foreign currencies. As a secondary
objective, the Fund seeks protection and possible enhancement of principal value
by actively managing currency, bond market and maturity exposure and by security
selection.
To achieve its objectives, the Fund primarily invests in a managed portfolio of
high-grade debt securities denominated in foreign currencies, including bonds
9
<PAGE>
Description of the Underlying Scudder Funds (cont'd)
denominated in the European Currency Unit (ECU). Portfolio investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund will normally invest at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund will invest no more
than 35% of the value of its total assets in U.S. debt securities. The Fund will
invest no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.
Scudder Short Term Bond Fund is a diversified investment company which seeks to
provide a high level of income consistent with a high degree of principal
stability by investing primarily in high quality, short-term bonds. The
dollar-weighted average effective maturity of the Fund's portfolio may not
exceed three years. The net asset value of the Fund is expected to fluctuate
with changes in interest rates and bond market conditions, although this
fluctuation should be more moderate than that of a fund with a longer average
maturity. The Adviser, however, will attempt to minimize principal fluctuation
through, among other things, diversification, credit analysis and security
selection, and adjustment of the Fund's average portfolio maturity.
The Fund emphasizes high quality investments. Under normal market conditions, at
least 65% of the Fund's net assets will be invested in (1) obligations of the
U.S. Government, its agencies or instrumentalities, and (2) debt securities
rated, at the time of purchase, in one of the two highest categories of S&P or
Moody's.
In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.
The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.
Scudder Emerging Markets Growth Fund is a non-diversified investment company
which seeks long-term growth of capital primarily through equity investment in
emerging markets around the globe. The Fund will invest in the Asia-Pacific
region, Latin America, less developed nations in Europe, the Middle East and
Africa, focusing investments in countries and regions where there appear to be
the best value and appreciation potential, subject to considerations of
portfolio diversification and liquidity. At least 65% of the Fund's total assets
will be invested in the equity securities of emerging market issuers. The Fund
considers "emerging markets" to include any country that is defined as an
emerging or developing economy by any one of the International Bank for
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. The Fund intends to
allocate its investments among at least three countries at all times, and does
not expect to concentrate in any particular industry. The Fund deems an issuer
to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market;
or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
10
<PAGE>
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Under normal market conditions, the Fund may invest up to 35%
of its assets in equity securities of issuers in the U.S. and other developed
markets.
Scudder Global Discovery Fund is a diversified investment company which seeks
above-average capital appreciation over the long term by investing primarily in
the equity securities of small companies located throughout the world.
In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies which offer the potential for above-average returns relative
to larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically the Far East, Latin
America and lesser developed countries in Europe, as well as in firms operating
in developed economies, such as those of the United States, Japan and Western
Europe.
Under normal circumstances, the Fund invests at least 65% of its total assets in
the equity securities of small companies. While the Adviser believes that
smaller, lesser-known companies can offer greater growth potential than larger,
more established firms, the former also involve greater risk and price
volatility. To help reduce risk, the Fund expects, under normal market
conditions, to diversify its portfolio widely by company, industry and country.
The Fund intends to allocate investments among at least three countries at all
times, one of which may be the U.S. The Fund invests primarily in companies
whose individual equity market capitalization would place them in the same size
range as companies in approximately the lowest 20% of world market
capitalization as represented by the Salomon Brothers Broad Market Index, an
index comprised of equity securities of more than 6,500 small-, medium- and
large-sized companies based in 22 markets around the globe. Based on this
policy, the companies held by the Fund typically will have individual equity
market capitalizations of between approximately $50 million and $2 billion
(although the Fund will be free to invest in smaller capitalization issues that
satisfy the Fund's size standard). Furthermore, the median market capitalization
of the companies in which the Fund invests will not exceed $750 million.
The Fund may invest up to 35% of its total assets in equity securities of larger
companies located throughout the world and in investment-grade debt securities
if the Adviser determines that the capital appreciation of debt securities is
likely to exceed the capital appreciation of equity securities. The Fund may
invest up to 5% of its net assets in debt securities rated below
investment-grade.
Scudder Global Fund is a diversified investment company which seeks long-term
growth of capital through a diversified portfolio of marketable securities,
primarily equity securities, including common stocks, preferred stocks and debt
securities convertible into common stocks. The Fund invests on a worldwide basis
in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It also may invest in the debt securities of U.S. and foreign
issuers.
The Fund will be invested usually in securities of issuers located in at least
three countries, one of which may be the U.S. It is expected that investments
will include companies of varying size as measured by assets, sales or
capitalization. The Fund generally invests in equity securities of established
companies listed on U.S. or foreign securities exchanges, but also may invest in
11
<PAGE>
Description of the Underlying Scudder Funds (cont'd)
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, convertible and non-convertible preferred stock,
and fixed-income securities of governments, government agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be investment-grade, except that the Fund
may invest up to 5% of its total assets in debt securities rated below
investment-grade.
Scudder Gold Fund is a non-diversified investment company which seeks maximum
return (principal change and income) consistent with investing in a portfolio of
gold-related equity securities and gold.
The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in (1) equity securities (defined as common stock,
investment-grade preferred stock and debt securities that are convertible into
or exchangeable for common stock) of U.S. and foreign companies primarily
engaged in the exploration, mining, fabrication, processing or distribution of
gold, (2) gold bullion, and (3) gold coins. A company will be considered
"primarily engaged" in a business or an activity if it devotes or derives at
least 50% of its assets, revenues and/or operating earnings from that business
or activity. The remaining 35% of the Fund's assets may be invested in any
precious metals other than gold; in equity securities of companies engaged in
activities primarily relating to precious metals and minerals other than gold;
in investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals;
warrants; and in certain debt securities, a portion of the return on which is
indexed to the price of precious metals. In addition, the Fund may engage in
Strategic Transactions and, to a limited extent, may invest in illiquid and
restricted securities.
Consistent with applicable state securities laws, up to 10% of the Fund's total
assets may be invested directly in gold, silver, platinum and palladium bullion
and in gold and silver coins. In addition, the Fund's assets may be invested in
wholly owned subsidiaries of the Scudder Mutual Funds, Inc., of which the Fund
is a series, that invest in gold, silver, platinum and palladium bullion and in
gold and silver coins.
Scudder Greater Europe Growth Fund is a non-diversified investment company which
seeks long-term growth of capital through investments primarily in the equity
securities of European companies. Although its focus is on long-term growth, the
Fund may provide current income principally through holdings in dividend-paying
securities.
The Fund will invest, under normal market conditions, at least 80% of its total
assets in the equity securities of European companies. The Fund defines a
European company as follows:
o A company organized under the laws of a European country or for which the
principal securities trading market is in Europe; or
o A company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in its most
recent fiscal year represents (directly or indirectly through subsidiaries)
assets or activities located in Europe.
The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Within this 20% limit, the Fund may invest
in debt securities which are unrated, rated, or the equivalent of those rated
below investment-grade.
When, in the opinion of the Adviser, market conditions warrant, the Fund may
hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
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and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity.
Scudder International Fund is a diversified investment company which seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities. The Fund invests in companies, wherever
organized, which do business primarily outside the United States. The Fund
intends to diversify investments among several countries and to have represented
in the portfolio, in substantial proportions, business activities in not less
than three different countries. The Fund does not intend to concentrate
investments in any particular industry.
The Fund's investments are generally denominated in foreign currencies. The
strength or weakness of the U.S. dollar against these currencies is responsible
for part of the Fund's investment performance.
The Fund may invest up to 20% of its total assets in investment-grade debt
securities except that the Fund may not invest more than 5% of its total assets
in debt securities which are rated below investment-grade.
Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.
The Fund involves above-average investment risk. The Fund seeks to benefit from
economic and political trends emerging throughout Latin America. These trends
are supported by governmental initiatives designed to promote freer trade and
market-oriented economies. The Adviser believes that efforts by Latin American
countries to, among other things, reduce government spending and deficits,
control inflation, lower trade barriers, stabilize currency exchange rates,
increase foreign and domestic investment and privatize state-owned companies,
will set the stage for attractive investment returns over time.
At least 65% of the Fund's total assets will be invested in the securities of
Latin American issuers, and 50% of the Fund's total assets will be invested in
Latin American equity securities. To meet its objective to provide long-term
capital appreciation, the Fund normally invests at least 65% of its total assets
in equity securities. The Fund considers Latin American countries to include
Mexico, Central America, South America and the Spanish-speaking islands of the
Caribbean. The Fund defines securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;
o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in any
one of the two most recent fiscal years represents (directly or indirectly
through subsidiaries) assets or activities located in Latin America; or
o Securities of Latin American issuers, as defined above, in the form of
depositary shares.
The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities, and which are unrated, rated or the equivalent of those rated below
investment-grade although the Fund will not invest more than 10% of its net
assets in securities rated B or lower by Moody's and S&P and may invest in
securities rated C by Moody's or D by S&P. Please refer to the attached
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Description of the Underlying Scudder Funds (cont'd)
Appendix for further information.
Scudder Pacific Opportunities Fund is a non-diversified investment company which
seeks long-term growth of capital through investment primarily in the equity
securities of Pacific Basin companies, excluding Japan.
The Fund invests, under normal market conditions, at least 65% of its assets in
the equity securities of Pacific Basin companies. Pacific Basin countries
include Australia, the Peoples Republic of China, India, Indonesia, Malaysia,
New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as well as Hong
Kong, Singapore, South Korea and Taiwan--the so-called "four tigers." The Fund
may invest in other countries in the Pacific Basin when their markets become
sufficiently developed. The Fund will not, however, invest in Japanese
securities. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry. The Fund defines securities of Pacific Basin companies as
follows:
o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or
o Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Pacific Basin.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of U.S. and other non-Pacific Basin issuers (excluding Japan).
The Fund may invest up to 35% of its total assets in foreign and domestic
high-grade debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.
The Japan Fund is a diversified mutual fund which seeks to achieve long-term
capital appreciation by investing primarily in equity securities (including
American Depositary Receipts) of Japanese companies. Equity securities are
defined as common and preferred stock, debt securities convertible into common
stock (sometimes referred to as "convertible debentures") and common stock
purchase warrants.
Under normal conditions, the Fund will invest at least 80% of its assets in
Japanese securities, that is, securities issued by entities that are organized
under the laws of Japan ("Japanese companies"), securities of affiliates of
Japanese companies, wherever organized or traded, and securities of issuers not
organized under the laws of Japan but deriving 50% or more of their revenues
from Japan. These securities may include debt securities (Japanese government
debt securities and debt securities of Japanese companies) when the Adviser
believes that the potential for capital appreciation from investment in debt
securities equals or exceeds that available from investment in equity
securities.
The Fund may also invest up to 30% of its net assets in equity securities of
Japanese companies which are traded in an over-the-counter market. These are
generally securities of relatively small or little-known companies that the
Adviser believes have above-average earnings growth potential. The Fund may
invest up to 20% of its assets in cash or short-term government or other
short-term prime obligations in order to have funds readily available for
general corporate purposes, including the payment of operating expenses,
dividends and redemptions, or the investment in securities through exercise of
rights or otherwise, or in repurchase agreements. Where the Adviser determines
that market or economic conditions so warrant, the Fund may, for temporary
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<PAGE>
defensive purposes, invest more than 20% of its assets in cash or such
securities.
Information about policies, investments and risks
In pursuing their investment objectives, each of the Underlying Scudder Funds is
permitted to engage in a wide range of investment policies. The Underlying
Scudder Funds' risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. Certain of these policies
are described below. Further information about the Underlying Scudder Funds is
contained in the Appendix to this prospectus, and in the Statement of Additional
Information. Also, detailed information is presented in the prospectuses of such
funds.
Foreign securities. Each Underlying Scudder Fund (except Scudder Cash Investment
Trust) may invest in foreign securities. Investments in foreign securities
involve special considerations due to more limited information, higher brokerage
costs, different accounting standards, thinner trading markets and the likely
impact of foreign taxes on the income from securities. They may also entail
certain other risks, such as the possibility of one or more of the following:
imposition of dividend or interest withholding or confiscatory taxes; currency
blockages or transfer restrictions; expropriation, nationalization or other
adverse political or economic developments; less government supervision and
regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, an
Underlying Scudder Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. Further, it may be more difficult for an Underlying Scudder
Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Certain markets may require
payment for securities before delivery. An Underlying Scudder Fund's ability and
decisions to purchase and sell portfolio securities may be affected by laws or
regulations relating to the convertibility of currencies and repatriation of
assets. These risks are greater in emerging markets.
Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for longer
term securities. The debt securities in which certain of the Underlying Scudder
Funds may invest are rated, or determined by the Adviser to be the equivalent of
those rated, by two nationally recognized rating organizations, Moody's and S&P.
High quality securities are those rated in the two highest categories by Moody's
(Aaa or Aa) or S&P (AAA or AA). High-grade securities are those rated in the
three highest categories by Moody's (Aaa, Aa, or A) or by S&P (AAA, AA, or A).
Investment-grade securities are those rated in the four highest categories by
Moody's (Aaa, Aa, A, or Baa) or by S&P (AAA, AA, A or BBB).
Certain Underlying Scudder Funds may invest in debt securities which are rated
below investment-grade; that is, rated below Baa by Moody's or BBB by S&P
(commonly referred to as "junk bonds"). The lower the ratings of such debt
securities, the greater their risks render them like equity securities. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. Certain Underlying Scudder Funds may also make
a portion of their below investment-grade investments in securities which are
rated D by S&P or, if unrated, are of equivalent quality.
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<PAGE>
Information about policies, investments and risks (cont'd)
Securities rated D may be in default with respect to payment of principal or
interest. Additional information regarding the ratings of debt securities and
the identity of those Underlying Scudder Funds that can invest in
investment-grade or below investment-grade debt securities may be found in the
section entitled "Description of the Underlying Scudder Funds" and in the
Appendix to this prospectus.
To the extent an Underlying Scudder Fund invests in high-grade securities, it
will be unable to avail itself of opportunities for higher income which may be
available with lower grade investments. Conversely, although some lower-grade
securities have produced higher yields in the past than the investment-grade
securities, lower-grade securities are considered to be predominantly
speculative and, therefore, carry greater risk. Please refer to the attached
Appendix for further information.
Strategic Transactions and derivatives. Each Underlying Scudder Fund (except for
Scudder Cash Investment Trust) may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates, currency exchange rates, and broad or specific equity
or fixed-income market movements), to manage the effective maturity or duration
of fixed-income securities in each Underlying Scudder Fund's portfolio or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, each Underlying Scudder
Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of an Underlying Scudder Fund's assets
will be committed to Strategic Transactions entered into for non-hedging
purposes.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to an
Underlying Scudder Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation an Underlying Scudder Fund can realize on its investments or
cause an Underlying Scudder Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Underlying Scudder Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of an Underlying Scudder Fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of an Underlying
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<PAGE>
Scudder Fund's position.
In addition, futures and options markets may not be liquid in all circumstances
and certain over-the-counter options may have no markets.
As a result, in certain markets, an Underlying Scudder Fund might not be able to
close out a transaction without incurring substantial losses, if at all.
Although the use of futures contracts and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain which
might result from an increase in value of such position. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that an Underlying Scudder Fund
may use and some of their risks are described more fully in Pathway Series'
Statement of Additional Information and the Statement of Additional Information
of certain Underlying Scudder Funds.
Investment restrictions of the Portfolio
The Portfolio has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Portfolio's
investment risk. The Portfolio may not borrow money except as a temporary
measure for extraordinary or emergency purposes, or through reverse repurchase
agreements and may not make loans except through the purchase of portfolio
securities or through repurchase agreements. A complete description of these and
other policies and restrictions is contained under "Investment Restrictions" in
the Portfolio's Statement of Additional Information.
Risks of investing in the Portfolio
The Portfolio's risks are determined by the nature of the securities held by the
Underlying Scudder Funds as well as the proportion of investment in each
Underlying Scudder Fund pursuant to the portfolio management strategies used by
the Adviser. The following are descriptions of certain risks related to
investments in the Portfolio.
o As the investments in the Portfolio are concentrated within a group of
Underlying Scudder Funds, the performance of the Portfolio is directly
related to the investment performance of those Underlying Scudder Funds.
The ability of the Portfolio to meet its investment objective is directly
related to the ability of the Underlying Scudder Funds to meet their
objectives as well as the allocation among those Underlying Scudder Funds
by the Portfolio's portfolio management team.
o The Portfolio's share price will fluctuate in response to various market
and economic factors related to both the stock and bond markets. Certain of
the Underlying Scudder Funds invest in debt securities making them subject
to credit risk, interest rate risk and pre-payment risk. Also, the
Portfolio invests in Underlying Scudder Funds that are in turn invested in
international securities and thus are subject to additional risks of these
investments including changes in foreign currency exchange rates and
political risk.
For information about the investment techniques and the risks involved in the
Underlying Scudder Funds, please refer to "Information about policies,
investments and risks" and the Appendix to this prospectus.
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<PAGE>
Distribution and performance information
The Portfolio intends to distribute net investment income and net realized
capital gains in November or December to prevent application of federal excise
tax, although an additional distribution may be made within three months of the
Portfolio's fiscal year end, if necessary. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared.
According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of the Portfolio. If an investment in the
Portfolio is in the form of a retirement plan, then all distributions will
automatically be reinvested in additional shares of the Portfolio.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains for federal income tax purposes, regardless of the
length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. Distributions received by the Portfolio from an Underlying
Scudder Fund generally will be ordinary income dividends, includible in the
Portfolio's net investment income, if paid from the Underlying Scudder Fund's
net investment income, short-term capital gains or other taxable income.
Distributions paid from an Underlying Scudder Fund's long-term capital gains,
however, generally will be treated by the Portfolio as long-term capital gains
for federal income tax purposes, regardless of how long the Portfolio held the
Underlying Scudder Fund's shares.
The Portfolio sends detailed tax information to shareholders about the amount
and type of its distributions by January 31 of the following year. It is
anticipated that the Portfolio's turnover rate will not exceed 50% for the
initial fiscal year.
Performance information
From time to time, quotations of the Portfolio's performance may be included in
advertisements, sales literature, or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. "Total return" is the change in
value of an investment in the Portfolio for a specified period. The "average
annual total return" of the Portfolio is the average annual compound rate of
return of an investment in the Portfolio assuming the investment has been held
for one year, and the life of the Portfolio as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in the Portfolio for various periods. Total return calculations
assume that all dividends and capital gains distributions during the period were
reinvested in shares of the Portfolio. "Capital change" measures return from
capital, including reinvestment of any capital gains distributions but does not
include the reinvestment of dividends.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Underlying Scudder Funds' expenses.
Portfolio organization
Scudder Pathway Series (the "Trust") is a diversified, open-end management
investment company, commonly referred to as a "mutual fund," registered under
the Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as
a Massachusetts business trust on July 1, 1994.
The Trust offers four portfolios: Conservative Portfolio, Balanced Portfolio,
Growth Portfolio and International Portfolio. The Declaration of Trust provides
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<PAGE>
that each Portfolio can offer additional classes of shares and the Board of
Trustees has the ability to offer additional portfolios. Each Portfolio
represents a separate series of shares and has different objectives and
investment policies. Each Portfolio intends to qualify separately as a regulated
investment company for the purposes of Subchapter M of the Internal Revenue
Code.
The Portfolio's activities are supervised by its Board of Trustees. Shareholders
have one vote for each share held on matters on which they are entitled to vote.
The Portfolio is not required to hold, and has no current intention of holding,
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental investment
policies or approving an investment management contract.
Special Servicing Agreement
All the expenses of the Portfolio will be paid for in accordance with a Special
Servicing Agreement (the "Agreement") entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolio. Under the Agreement, the Adviser will arrange for all services
pertaining to the operation of the Portfolio including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolio. If
the officers of an Underlying Scudder Fund determine that the aggregate expenses
of the Portfolio are less than the estimated savings to the Underlying Scudder
Fund from the operation of the Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
the Portfolio. Consequently, no Underlying Scudder Fund will be expected to
carry expenses that are in excess of the estimated savings to it. The estimated
savings are expected to result from the reduction of shareholder servicing costs
due to the elimination of separate shareholder accounts which either currently
are or have potential to be invested in the Underlying Scudder Funds. The
estimated savings produced by the operation of the Portfolio will most likely
suffice to offset most, if not all, the expenses incurred by the Portfolio.
In the event that the aggregate financial benefits to the Underlying Scudder
Funds do not exceed the costs of the Portfolio, the Adviser will pay, on behalf
of the Portfolio, that portion of costs determined to be greater than the
benefits.
All expenses of the Portfolio, excluding certain non-recurring and extraordinary
expenses, will be paid for in accordance with the Agreement, including fees and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Portfolio's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Portfolio who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.
Certain Underlying Scudder Funds impose a fee upon the redemption or exchange of
shares held less than one year. The fees, which range between 1% and 2% of the
net asset value of the shares being redeemed or exchanged, are assessed and
retained by the Underlying Scudder Funds for the benefit of the remaining
shareholders. The fee is intended to encourage long-term investment in the Fund.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
of its subsidiary and does not benefit the Adviser in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time. As a
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Portfolio organization (cont'd)
shareholder of such Underlying Scudder Funds, the Portfolio will be subject to
such fees. Under normal market conditions, the Portfolio will seek to avoid
taking action that would result in the imposition of such a fee. However, in the
event that a fee is incurred, the net assets of the Portfolio would be reduced
by the amount of such fees that are assessed and retained by the Underlying
Scudder Funds for the benefit of their shareholders.
Investment adviser
The Portfolio retains the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage the Portfolio's daily investment
and business affairs subject to the policies established by the Board of
Trustees. The Trustees have overall responsibility for the management of the
Trust under Massachusetts law.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Portfolio.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Portfolio's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Portfolio. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Portfolio.
Custodian
State Street Bank and Trust Company is the custodian for the Portfolio.
Transaction information
For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 29 and 30.
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Portfolio's transfer agent receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Portfolio may hold redemption proceeds until the purchase check has cleared.
If you purchase shares by federal funds wire, you may avoid this delay.
Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and the Portfolio account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
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Your wire instructions must also include:
- -- the name of the Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.You may also make additional investments of $100 or more
to your existing account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and
most other Scudder retirement plan accounts.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "AutoBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Portfolio may hold the redemption proceeds for a period of up to
seven business days. If you purchase shares and there are insufficient funds in
your bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges on SAIL, the Scudder Automated Information Line, by
calling 1-800-343-2890.
Redeeming shares
The Portfolio allows you to redeem shares (i.e., sell them back to the
Portfolio) without redemption fees.
By telephone. This is the quickest and easiest way to sell Portfolio shares. If
you elected telephone redemption to your bank on your application, you can call
to request that federal funds be sent to your authorized bank account. If you
did not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
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<PAGE>
Transaction information (cont'd)
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions on SAIL by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Portfolio's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Portfolio by telephone, you should
write to the Portfolio; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Portfolio reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be wired
to a predesignated bank account. The Portfolio uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Portfolio does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Portfolio will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Share price
Purchases and redemptions, including exchanges, are made at the Portfolio's net
asset value. Scudder Fund Accounting Corporation determines net asset value per
22
<PAGE>
share as of the close of regular trading on the Exchange, normally 4 p.m.
eastern time, on each day the Exchange is open for trading. Net asset value per
share is calculated by dividing the value of total assets of the Portfolio, less
its liabilities, by the total number of shares of the Portfolio outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Portfolio's transfer agent. Those requests received by the close of regular
trading on the Exchange are executed at the net asset value per share calculated
at the close of trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Portfolio will normally send your redemption proceeds within one business
day following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Trust and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Portfolio shares (including exchanges) for any reason including
when a pattern of frequent purchases and sales made in response to short-term
fluctuations in the Portfolio's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Portfolio or Scudder
fund, is a sale of shares and may result in a gain or loss for income tax
purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Portfolio's
application when you open an account. Federal tax law requires the Portfolio to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Portfolio reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Portfolio also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the
Portfolio with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. The initial
investment and minimum account balance for fiduciary accounts such as IRAs will
increase from $500 to $1,000 per fund account, while the subsequent minimum
investment will remain at $50. A shareholder may open a regular account with a
minimum of $1,000, if an investment program of at least $100 per month is
established.
Shareholders with non-fiduciary accounts who maintain an account balance of less
than $2,500 in the Portfolio without establishing a regular investment program
may be assessed an annual $10.00 per fund charge with the fee to be paid to the
Portfolio. The $10.00 charge will not apply to shareholders with a combined
household account balance (same surname, same address) in any of the Scudder
Funds of $25,000 or more. The Portfolio reserves the right, following 60 days'
written notice to shareholders, to redeem all shares in accounts below $250,
where a reduction in value has occurred due to a redemption or exchange out of
23
<PAGE>
Transaction information (cont'd)
the account. The shareholder may restore the share balance to $250 or more
during the 60-day notice period and must maintain it at no lower than that
minimum to avoid an involuntary redemption. The Portfolio will mail the proceeds
of the redeemed account to the shareholder. Reductions in value that result
solely from market activity will not trigger an involuntary redemption.
Retirement accounts and certain other accounts will not be assessed the $10.00
charge or be subject to automatic liquidation. Please refer to "Exchanges and
Redemptions -- Other information" in the Portfolio's Statement of Additional
Information.
Third party transactions
If purchases and redemptions of Portfolio shares are arranged and settlement is
made at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Pathway Series: International Portfolio is managed by a team of Scudder
investment professionals who each play an important role in the Portfolio's
management process. Team members work together to develop investment strategies
and select Underlying Funds for the Portfolio. They are supported by Scudder's
large staff of portfolio managers, economists, research analysts, traders and
other investment specialists. Scudder believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging
Scudder's extensive resources. All members of the Pathway investment team are
members of Scudder's Global Asset Allocation Committee. This group is
responsible for analyzing the global economy and capital markets, integrating
information from the firm's equity and fixed income specialists, and developing
the outlook for the investment characteristics of the major markets in which the
Portfolio invests.
Lead Portfolio Manager Benjamin W. Thorndike, who has 17 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has
served as a portfolio manager for Scudder Growth and Income Fund. Mr. Thorndike
will develop portfolio strategy utilizing the research, analysis and guidance
provided by other members of the investment team. Cornelia Small, Portfolio
Manager, is Director of Global Equity Investments and Chairman of the Capital
Markets Group, and has also served as Director of Global Equity Research.
Margaret (Peg) Hadzima, Portfolio Manager, is Director of Scudder's
Institutional Group, which includes a focus on asset allocation strategy. Ms.
Hadzima has 23 years of experience in fixed-income investing during which she
has served as Director of Global Bond Research and Chairman of Global Bond
Strategy. Philip Fortuna, Portfolio Manager, joined Scudder in 1986 as manager
of institutional equity accounts. He has served as Director of Quantitative
Research and Director of Investment Operations. Mr. Fortuna is Lead Portfolio
Manager for Scudder Small Company Value Fund, as well as a portfolio manager for
Scudder Micro Cap Fund. Maureen Allyn, Portfolio Manager, is Scudder's Chief
Economist, a position she has held since 1989, and is responsible for analyzing
both the world and U.S. economies.
24
<PAGE>
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
25
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income (up to
$2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax deferred
basis. The Scudder No-Fee IRA charges no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
26
<PAGE>
Trustees and Officers
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.
Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
*Scudder, Stevens & Clark, Inc.
27
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited
Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *Not available in all
states. +++ +++A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on various stock exchanges.
28
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges
and redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal CounselSM -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Funds Centers. Check for a Funds Center near you--they can be found in
the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
29
<PAGE>
<TABLE>
<CAPTION>
Purchases
<S> <C> <C> <C>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete your application
with the help of a Scudder representative. Funds Center
locations are listed under Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional shares Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a
payable to "The letter of instruction including your account number and the
Scudder Funds." complete Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional
investment in your Scudder fund account. Funds Center locations are
listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a
Investment Plan regular basis through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exchanges and redemptions
<S> <C> <C> <C> <C>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call 1-800-225-5163 from
shares 8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
</TABLE>
31
<PAGE>
Appendix
Descriptions Of Certain Risks Related To Various Securities Invested In,
And Investment Techniques Employed By, The Underlying Scudder Funds
In Which Scudder Pathway Series: International Portfolio May Invest
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, an Underlying Scudder Fund's right to dispose of the securities may
be restricted. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before repurchase of
the securities under a repurchase agreement, an Underlying Scudder Fund may
encounter delay and incur costs before being able to sell the securities. Also,
if a seller defaults, the value of such securities may decline before an
Underlying Scudder Fund is able to dispose of them.
Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.
Non-diversified investment company. Certain Underlying Scudder Funds are
classified as non-diversified investment companies under the Investment Company
Act of 1940 (the "1940 Act"), which means that an Underlying Scudder Fund is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The investment of a large percentage of an
Underlying Scudder Fund's assets in the securities of a small number of issuers
may cause an Underlying Scudder Fund's share price to fluctuate more than that
of a diversified investment company.
Dollar roll transactions. If the broker/dealer to whom an Underlying Scudder
Fund sells the securities underlying a dollar roll transaction becomes
insolvent, an Underlying Scudder Fund's right to purchase or repurchase the
securities may be restricted; the value of the securities may change adversely
over the term of the dollar roll; the securities that an Underlying Scudder Fund
is required to repurchase may be worth less than securities that an Underlying
Scudder Fund originally held, and the return earned by an Underlying Scudder
Fund with the proceeds of a dollar roll may not exceed transaction costs.
Zero coupon securities. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current cash distributions of interest.
Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for an
Underlying Scudder Fund to sell them promptly at an acceptable price.
Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, an Underlying Scudder Fund
will bear the market risk of the reference instrument.
Mortgage and other asset-backed securities. Unscheduled or early payments on the
A-1
<PAGE>
underlying mortgages may shorten the securities' effective maturities and lessen
their growth potential. An Underlying Scudder Fund may agree to purchase or sell
these securities with payment and delivery taking place at a future date. A
decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose an Underlying Scudder Fund to a lower rate of
return upon reinvestment. To the extent that such mortgage-backed securities are
held by an Underlying Scudder Fund, the prepayment right of mortgagors may limit
the increase in net asset value of an Underlying Scudder Fund because the value
of the mortgage-backed securities held by an Underlying Scudder Fund may not
appreciate as rapidly as the price of non-callable debt securities. Asset-backed
securities are subject to the risk of prepayment and the risk that the
underlying loans will not be repaid.
Investing in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of an Underlying Scudder Fund is
uninvested and no return is earned thereon. The inability of an Underlying
Scudder Fund to make intended security purchases due to settlement problems
could cause an Underlying Scudder Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to an Underlying Scudder Fund due to
subsequent declines in value of the portfolio security or, if an Underlying
Scudder Fund has entered into a contract to sell the security, in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging market debt obligations and
increase the costs and expenses of an Underlying Scudder Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
and/or impose additional taxes on foreign investors. These markets may also
restrict investment opportunities in issuers in industries deemed important to
national interests.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. An Underlying Scudder Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to an Underlying Scudder Fund of any restrictions on investments.
Throughout the last decade many emerging markets have experienced and continue
to experience high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an adverse effect
on an Underlying Scudder Fund's non-dollar denominated securities and on the
issuers of debt obligations generally.
A-2
<PAGE>
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. The securities markets, values of securities, yields and risks
associated with securities markets in different countries may change
independently of each other.
Investment in sovereign debt can involve a high degree of risk. Holders of
sovereign debt (including an Underlying Scudder Fund) may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part. Securities traded in certain emerging European securities markets may be
subject to risks due to the inexperience of financial intermediaries, the lack
of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims on which have not been entirely settled. There can be no assurance that
an Underlying Scudder Fund's investments in Eastern Europe would not also be
expropriated, nationalized or otherwise confiscated. Finally, any change in the
leadership or policies of Eastern European countries, or the countries that
exercise a significant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
High yield/high risk securities. Certain Underlying Scudder Funds may invest in
debt securities which are rated below investment-grade (hereinafter referred to
as "lower rated securities") or which are unrated, but equivalent to those rated
below investment- grade. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. These debt instruments
generally offer a higher current yield than that available from higher grade
issues, but typically involve greater risk and lesser liquidity.
The lack of a liquid secondary market for certain securities may also make it
more difficult for an Underlying Scudder Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers, and to price fluctuation in response to changes in interest
rates. During periods of economic downturn or rising interest rates, issuers of
these instruments may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may also decrease the values and liquidity of
these securities especially in a market characterized by only a small amount of
trading. Perceived credit quality in this market can change suddenly and
unexpectedly, and may not fully reflect the actual risk posed by a particular
lower rated or unrated security.
A-3
<PAGE>
Securities lending. From time to time certain Underlying Scudder Funds may lend
their portfolio securities to registered broker/dealers as described above. The
risks of lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to registered broker/dealers
deemed by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.
Investing in emerging growth companies. The investment risk associated with
emerging growth companies is higher than that normally associated with larger,
older companies due to the greater business risks of small size, the relative
age of the company, limited product lines, distribution channels and financial
and managerial resources. Further, there is typically less publicly available
information concerning smaller companies than for larger, more established ones.
The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, an Underlying Scudder Fund
may need to discount the securities from recent prices or dispose of the
securities over a long period of time. The prices of this type of security may
be more volatile than those of larger companies which are often traded on a
national securities exchange.
Precious metals. Investments in precious metals and in precious metals-related
securities and companies involve a relatively high degree of risk. Prices of
gold and other precious metals can be influenced by a variety of global
economic, financial and political factors and may fluctuate markedly over short
periods of time. Among other things, precious metals values can be affected by
changes in inflation, investment speculation, metal sales by governments or
central banks, changes in industrial and commercial demand, and any governmental
restrictions on private ownership of gold or other precious metals.
Correlation of gold and gold securities. The Adviser believes that the value of
the securities of firms that deal in gold will correspond generally, over time,
with the prices of the underlying metal. At any given time, however, changes in
the price of gold may not strongly correlate with changes in the value of
securities related to gold, which are expected to constitute part of certain
Underlying Scudder Funds' assets. In fact, there may be periods in which the
price of gold stocks and gold will move in different directions. The reason for
this potential disparity is that political and economic factors, including
behavior of the stock market, may have differing impacts on gold versus gold
stocks.
Investing in Latin America. The Adviser believes that investment opportunities
may result from recent trends in Latin America encouraging greater market
orientation and less governmental intervention in economic affairs. Investors,
however, should be aware that the Latin American economies have experienced
considerable difficulties in the past decade. Although there have been
significant improvements in recent years, the Latin American economies continue
to experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by world
prices for oil and other commodities. There is no assurance that recent economic
initiatives will be successful.
A-4
<PAGE>
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and an
Underlying Scudder Fund, as well as the value of securities in an Underlying
Scudder Fund's portfolio.
Most Latin American countries have experienced substantial, and in some periods,
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including an
Underlying Scudder Fund) may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.
The portion of an Underlying Scudder Fund's assets invested directly in Chile
may be less than the portions invested in other countries in Latin America
because, at present, capital invested in Chile normally cannot be repatriated
for as long as five years.
Borrowing. Although the principal of an Underlying Scudder Fund's borrowing will
be fixed, an Underlying Scudder Fund's assets may change in value during the
time a borrowing is outstanding, increasing exposure to capital risk.
Investing in the Pacific Basin. Certain Underlying Scudder Funds are susceptible
to political and economic factors affecting issuers in Pacific Basin countries.
Many of the countries of the Pacific Basin are developing both economically and
politically. Pacific Basin countries may have relatively unstable governments,
economies based on only a few commodities or industries, and securities markets
trading infrequently or in low volumes. Some Pacific Basin countries restrict
the extent to which foreigners may invest in their securities markets.
Securities of issuers located in some Pacific Basin countries tend to have
volatile prices and may offer significant potential for loss as well as gain.
Further, certain companies in the Pacific Basin may not have firmly established
product markets, may lack depth of management, or may be more vulnerable to
political or economic developments such as nationalization of their own
industries.
A-5
<PAGE>
Corporate and Municipal Bond Ratings. The following is a description of the
ratings given by S&P and Moody's to corporate and municipal bonds. Should the
rating of a portfolio security held by an Underlying Scudder Fund be downgraded,
the Adviser will determine whether it is in the best interest of the Underlying
Scudder Fund to retain or dispose of such security.
S&P:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong. Debt rated AA has a very strong
capacity to pay interest and repay principal and differs from the highest rated
issues only in small degree. Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighted by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
A-6
<PAGE>
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
A-7
<PAGE>
SCUDDER PATHWAY SERIES
Two International Place
Boston, Massachusetts 02110
Scudder Pathway Series is a professionally managed, open-end
investment company which offers four investment portfolios.
CONSERVATIVE PORTFOLIO
BALANCED PORTFOLIO
GROWTH PORTFOLIO
INTERNATIONAL PORTFOLIO
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 15, 1996
As Revised May 14, 1997
- -------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectuses of Scudder Pathway
Series Portfolios dated November 15, 1996, as amended from time to time, a copy
of which may be obtained without charge by writing to Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES....................................................................1
General Investment Objectives and Policies...................................................................1
The Underlying Scudder Funds.................................................................................1
Risk Factors of Underlying Scudder Funds....................................................................11
Investment Restrictions of the Portfolios...................................................................11
PURCHASES............................................................................................................12
Additional Information About Opening An Account.............................................................12
Additional Information About Making Subsequent Investments..................................................12
Additional Information About Making Subsequent Investments by AutoBuy.......................................13
Checks......................................................................................................13
Wire Transfer of Federal Funds..............................................................................13
Share Price.................................................................................................14
Share Certificates..........................................................................................14
Other Information...........................................................................................14
EXCHANGES AND REDEMPTIONS............................................................................................14
Exchanges...................................................................................................14
Redemption By Telephone.....................................................................................15
Redemption by AutoSell......................................................................................16
Redemption by Mail or Fax...................................................................................16
Redemption-in-Kind..........................................................................................16
Other Information...........................................................................................17
FEATURES AND SERVICES OFFERED BY THE TRUST...........................................................................18
The Pure No-Load(TM) Concept...............................................................................18
Dividend and Capital Gain Distribution Options..............................................................19
Scudder Funds Centers.......................................................................................19
Reports to Shareholders.....................................................................................20
Transaction Summaries.......................................................................................20
THE SCUDDER FAMILY OF FUNDS..........................................................................................20
SPECIAL PLAN ACCOUNTS................................................................................................24
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals.............................................................24
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................24
Scudder IRA: Individual Retirement Account.................................................................24
Scudder 403(b) Plan.........................................................................................25
Automatic Withdrawal Plan...................................................................................25
Group or Salary Deduction Plan..............................................................................26
Automatic Investment Plan...................................................................................26
Uniform Transfers/Gifts to Minors Act.......................................................................26
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................27
PERFORMANCE INFORMATION..............................................................................................27
Average Annual Total Return.................................................................................27
Cumulative Total Return.....................................................................................28
SEC Yields of Conservative Portfolio and Balanced Portfolio.................................................28
Total Return................................................................................................29
Capital Change..............................................................................................29
TRUST ORGANIZATION...................................................................................................33
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
INVESTMENT ADVISER...................................................................................................34
Personal Investments by Employees of the Adviser............................................................36
Management Fees of Underlying Scudder Funds.................................................................36
SPECIAL SERVICING AGREEMENT..........................................................................................37
TRUSTEES AND OFFICERS................................................................................................38
REMUNERATION.........................................................................................................39
DISTRIBUTOR..........................................................................................................39
TAXES................................................................................................................40
Taxation of the Portfolios and Their Shareholders...........................................................40
Taxation of the Underlying Scudder Funds....................................................................42
PORTFOLIO TRANSACTIONS...............................................................................................43
Portfolio Turnover..........................................................................................43
NET ASSET VALUE......................................................................................................44
ADDITIONAL INFORMATION...............................................................................................44
Other Information...........................................................................................44
FINANCIAL STATEMENTS.................................................................................................45
GLOSSARY
</TABLE>
ii
<PAGE>
PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objectives and policies" and "Additional
information about policies and investments" in the Portfolios'
prospectuses.)
General Investment Objectives and Policies
The Series is composed of six separate diversified portfolios (the
"Portfolios"), four of which are currently offered, which invest primarily in
existing, pure no-load(TM) Scudder Funds (the "Underlying Scudder Funds"),
according to well-defined investment objectives. The Portfolios may also invest
in money market instruments to provide for redemptions for temporary or
defensive purposes. Each Portfolio offers a professionally managed, long-term
investment program that can, with the exception of the "International
Portfolio," serve as a complete investment program or as a core part of a larger
portfolio. Achievement of each Portfolio's objective cannot be assured.
The Portfolios are professionally managed portfolios which allocate
their investments among select funds in the Scudder Family of Funds. Each
Portfolio is designed for investors seeking a distinct investment style: a
conservative investment approach ("Pathway Series: Conservative Portfolio"), a
balance of growth and income ("Pathway Series: Balanced Portfolio"), growth of
capital ("Pathway Series: Growth Portfolio"), or international exposure
("Pathway Series: International Portfolio"). The Portfolios have been created in
response to increasing demand by mutual fund investors for a simple and
effective means of structuring a diversified mutual fund investment program
suited to their general needs. As has been well documented in the financial
press, the proliferation of mutual funds over the last several years has left
many investors confused and in search of a simpler means to manage their
investments. Many mutual fund investors realize the value of diversifying their
investments in a number of mutual funds (e.g., a money market fund for liquidity
and price stability, a growth fund for long-term appreciation, an income fund
for current income and relative safety of principal, an international fund for
greater diversification), but need professional management to decide such
questions as which mutual funds to select, how much of their assets to commit to
each fund and when to allocate their selections. The Portfolios will allow
investors to rely on Scudder, Stevens & Clark, Inc. (the "Adviser") to determine
(within clearly explained parameters) the amount to invest in each of several
Underlying Scudder Funds and the timing of such investments.
The investment objectives of the four Portfolios are as follows:
Conservative Portfolio
The Conservative Portfolio seeks primarily current income and
secondarily long-term growth of capital primarily through investment in a
diversified mix of Underlying Scudder Funds.
Balanced Portfolio
The Balanced Portfolio seeks a balance of growth and income primarily
through investment in a diversified mix of Underlying Scudder Funds.
Growth Portfolio
The Growth Portfolio seeks long-term growth of capital primarily
through investment in a diversified mix of Underlying Scudder Funds.
International Portfolio
The International Portfolio seeks long-term growth of capital primarily
through investment in a diversified mix of global and international Underlying
Scudder Funds.
The Underlying Scudder Funds
Each Portfolio will purchase or sell securities to: (a) accommodate
purchases and sales of each Portfolio's shares, (b) change the percentages of
each Portfolio's assets invested in each of the Underlying Scudder Funds in
<PAGE>
response to changing market conditions, and (c) maintain or modify the
allocation of each Portfolio's assets in accordance with the investment mixes
described below.
Portfolio managers will allocate Portfolio assets among the Underlying
Scudder Funds in accordance with predetermined percentage ranges, based on the
Adviser's outlook for the financial markets, the world's economies and the
relative performance potential of the Underlying Scudder Funds. The Underlying
Scudder Funds have been selected to represent a broad spectrum of investment
options for the Portfolios, subject to the following investment ranges:
(Conservative) 40-80% bond mutual funds, 20-50% equity mutual funds, 0-15% money
market funds; (Balanced) 40-70% equity mutual funds, 25-60% bond mutual funds,
0-10% money market funds; (Growth) 60-90% equity mutual funds, 10-40% bond
mutual funds, 0-5% money market funds; (International) 60-100% equity mutual
funds, 0-40% bond mutual funds, 0-20% money market funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Conservative Portfolio Balanced Portfolio Growth Portfolio International Portfolio
Underlying Scudder Funds Underlying Scudder Funds Underlying Scudder Funds Underlying Scudder Funds
------------------------------------------------------------------------------------------------------------------------
Bond Mutual Funds Equity Mutual Funds Equity Mutual Funds Equity Mutual Funds
Scudder Emerging Markets Scudder Classic Growth Fund Scudder Classic Growth Fund Scudder Emerging Markets
Income Fund Scudder Development Fund Scudder Development Fund Growth Fund
Scudder Global Bond Fund Scudder Emerging Markets Scudder Emerging Markets Scudder Global Discovery Fund
Scudder GNMA Fund Growth Fund Growth Fund Scudder Global Fund
Scudder High Yield Bond Fund Scudder Global Discovery Fund Scudder Global Discovery Scudder Gold Fund
Scudder Income Fund Scudder Global Fund Fund Scudder Greater Europe Growth
Scudder International Bond Scudder Gold Fund Scudder Global Fund Fund
Fund Scudder Greater Europe Scudder Gold Fund Scudder International Fund
Scudder Short Term Bond Growth Fund Scudder Greater Europe Scudder Latin America Fund
Fund Scudder Growth and Income Growth Fund Scudder Pacific Opportunities
Equity Mutual Funds Fund Scudder Growth and Income Fund
Scudder Classic Growth Fund Scudder International Fund Fund The Japan Fund
Scudder Development Fund Scudder Large Company Growth Scudder International Fund Bond Mutual Funds
Scudder Emerging Markets Fund Scudder Large Company Scudder Emerging Markets
Growth Fund Scudder Large Company Value Growth Fund Income Fund
Scudder Global Discovery Fund Scudder Large Company Value Scudder Global Bond Fund
Fund Scudder Latin America Fund Fund Scudder International Bond
Scudder Global Fund Scudder Micro Cap Fund Scudder Latin America Fund Fund
Scudder Gold Fund Scudder Pacific Scudder Micro Cap Fund Scudder Short Term Bond Fund
Scudder Greater Europe Opportunities Fund Scudder Pacific Money Market Fund
Growth Fund Scudder Small Company Value Opportunities Fund Scudder Cash Investment Trust
Scudder Growth and Income Fund Scudder Small Company Value
Fund Scudder 21st Century Growth Fund
Scudder International Fund Fund Scudder 21st Century Growth
Scudder Large Company Growth Scudder Value Fund Fund
Fund The Japan Fund Scudder Value Fund
Scudder Large Company Value Bond Mutual Funds The Japan Fund
Fund Scudder Emerging Markets Bond Mutual Funds
Scudder Latin America Fund Income Fund Scudder Emerging Markets
Scudder Micro Cap Fund Scudder Global Bond Fund Income Fund
Scudder Pacific Scudder GNMA Fund Scudder Global Bond Fund
Opportunities Fund Scudder High Yield Bond Fund Scudder GNMA Fund
Scudder Small Company Value Scudder Income Fund Scudder High Yield Bond Fund
Fund Scudder International Bond Scudder Income Fund
Scudder 21st Century Growth Fund Scudder International Bond
Fund Scudder Short Term Bond Fund Fund
Scudder Value Fund Money Market Fund Scudder Short Term Bond
The Japan Fund Scudder Cash Investment Trust Fund
Money Market Fund Money Market Fund
Scudder Cash Investment Trust Scudder Cash Investment
Trust
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following Underlying Scudder Fund is the money market fund in which
the Portfolios may invest and will likely serve as the primary cash reserve
portion of the Portfolios.
2
<PAGE>
Scudder Cash Investment Trust seeks to maintain stability of capital
and, consistent therewith, to maintain liquidity of capital and to provide
current income. The Fund seeks to maintain a constant net asset value of $1.00
per share. There can be no assurance that the stable net asset value will be
maintained and shares of the Fund are not insured or guaranteed by the U.S.
Government. The Fund purchases domestic and foreign U.S. dollar-denominated
money market securities. All of the Fund's portfolio securities must meet
certain quality criteria at the time of purchase. Generally, the Fund may
purchase only securities which are rated, or issued by a company with comparable
securities rated, within the two highest quality rating categories of one or
more of the following rating agencies: Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's ("S&P") and Fitch Investors Service, Inc.
("Fitch"). The maturity of each investment in the Fund's portfolio is 397
calendar days or less, except in the case of U.S. Government securities which
may have maturities of up to 762 calendar days. The dollar-weighted average
maturity of the Fund's portfolio investments varies with money market
conditions, but is always 90 days or less. As a money market fund with a
short-term maturity, the Fund's income fluctuates with changes in interest rates
but its price is expected to remain fixed at $1.00 per share.
The following Underlying Scudder Funds are bond mutual funds which seek
to provide current income.
Scudder Emerging Markets Income Fund is a non-diversified investment
company which seeks to provide high current income. As a secondary objective,
the Fund seeks long-term capital appreciation. In pursuing these goals, the Fund
invests primarily in high-yielding, high-risk debt securities issued by
governments and corporations in emerging markets. The Fund considers "emerging
markets" to include any country that is defined as an emerging or developing
economy by any one of the following: International Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United Nations or its authorities. To reduce currency risk, the Fund will invest
at least 65% of its assets in U.S. dollar-denominated debt securities.
Therefore, no more than 35% of the Fund's assets may be invested in debt
securities denominated in foreign currencies. By focusing on fixed-income
instruments issued in emerging markets, the Fund invests predominantly in debt
securities that are rated below investment-grade. The Fund may invest up to 5%
of its net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. The Fund involves
above-average bond fund risk and can invest entirely in high yield/high risk
bonds. Investments in emerging markets can be volatile. The Fund's share price
and yield can fluctuate daily in response to political events, changes in the
perceived creditworthiness of emerging nations, fluctuations in interest rates
and, to a certain extent, movements in foreign currencies.
Scudder GNMA Fund seeks to provide high current income and safety of
principal from a portfolio of high quality, U.S. Government guaranteed
mortgage-backed securities and U.S. Treasury securities. Under normal
conditions, the Fund invests at least 65% of its total assets in mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
("GNMA" or "Ginnie Mae"). Such guarantees are supported by the full faith and
credit of the U.S. Government. These guarantees apply only to the timely payment
of both principal and interest of the GNMA securities held in the Fund's
portfolio. Up to 35% of the Fund's total assets may be held in cash, cash
equivalents or invested in securities issued or directly guaranteed by the U.S.
Government, including U.S. Treasury bills, notes and bonds. The market values of
the Fund's investments and correspondingly the Fund's share price will vary
inversely with changes in prevailing interest rates and in response to other
bond market factors, such as changes in the supply and demand for
mortgage-backed securities.
Scudder Global Bond Fund is a non-diversified investment company which
seeks to provide total return with an emphasis on current income by investing
primarily in high-grade bonds denominated in foreign currencies and the U.S.
dollar. As a secondary objective, the Fund seeks capital appreciation. The Fund
invests principally in a managed portfolio of high-grade intermediate- and
long-term bonds denominated in the U.S. dollar and foreign currencies, including
bonds denominated in the European Currency Unit (ECU). (Intermediate-term bonds
generally have maturities between three and eight years, and long-term bonds
generally have maturities of greater than eight years.) Portfolio investments
are selected on the basis of, among other things, yields, credit quality, and
the fundamental outlooks for currency and interest rate trends in different
parts of the globe, taking into account the ability to hedge a degree of
currency or local bond price risk. At least 65% of the Fund's investments will
consist of high-grade debt securities, which are those rated in one of the three
highest rating categories of one of the major U.S. rating services or, if
unrated, considered to be of equivalent quality in local currency terms as
determined by the Adviser. The Fund may also invest up to 15% of its net assets
in debt securities rated BBB or BB by S&P or Baa or Ba by Moody's, or unrated
securities considered to be of equivalent quality by the Adviser. The Fund does
not invest in any securities rated B or lower. Under normal market conditions,
the Fund will invest at least 15% of its total assets in U.S. dollar-denominated
3
<PAGE>
securities, issued domestically or abroad. The Fund may invest in debt
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; obligations issued or guaranteed by foreign national
governments, their agencies, instrumentalities or political subdivisions; and
debt securities issued or guaranteed by supranational organizations such as the
European Investment Bank, Inter-American Development Bank and The World Bank.
The Fund may also invest in non-government securities including corporate debt
securities, bank or bank holding company obligations (e.g., certificates of
deposit and bankers acceptances), and mortgage and other asset-backed issues.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program emphasizing
high-grade bonds. The Fund invests primarily in a broad range of high-grade,
income-producing securities such as corporate bonds and government securities.
Under normal market conditions, the Fund will invest at least 65% of its assets
in securities rated within the three highest quality rating categories of
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa and A) or Standard & Poor's
("S&P") (AAA, AA and A), or if unrated, in bonds judged by the Fund's investment
adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), to be of comparable
quality at the time of purchase. The Fund may invest up to 20% of its assets in
debt securities rated lower than Baa or BBB or, if unrated, of equivalent
quality as determined by the Adviser, but will not purchase bonds rated below B
by Moody's or S&P or their equivalent.
Scudder International Bond Fund is a non-diversified investment company
which seeks to provide income primarily by investing in a managed portfolio of
high-grade debt securities denominated in foreign currencies. As a secondary
objective, the Fund seeks protection and possible enhancement of principal value
by actively managing currency, bond market and maturity exposure and by security
selection. To achieve its objectives, the Fund primarily invests in a managed
portfolio of debt securities denominated in foreign currencies, including bonds
denominated in the European Currency Unit (ECU). Portfolio investments are
selected on the basis of, among other things, yields, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund normally invests at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund invests no more than
35% of the value of its total assets in U.S. debt securities. The Fund invests
no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities. In pursuit of its investment
objectives, the Fund, under normal market conditions, invests at least 65% of
its total assets in high yield, below investment-grade domestic debt securities.
The Fund defines "domestic debt securities" as securities of companies domiciled
in the U.S. or organized under the laws of the U.S. or for which the U.S.
trading market is a primary market. The Fund may invest in a variety of other
securities including convertible and preferred securities, U.S. Treasury and
Agency bonds, Brady bonds, mortgage-backed and asset-backed securities, common
stocks and warrants, securities issued by real estate investment trusts, bank
loans, loan participations, dollar rolls, indexed securities and restricted
securities, such as those acquired through private placements. The Fund may
invest up to 25% of its total assets in foreign securities. The Fund considers
"emerging markets" to include any country that is defined as an emerging or
developing economy by any one of the International Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United Nations or its authorities.
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing primarily in
high quality, short-term bonds. The dollar-weighted average effective maturity
of the Fund's portfolio may not exceed three years. The net asset value of the
Fund is expected to fluctuate with changes in interest rates and bond market
conditions, although this fluctuation should be more moderate than that of a
fund with a longer average maturity. The Adviser, however, will attempt to
minimize principal fluctuation through, among other things, diversification,
credit analysis and security selection, and adjustment of the Fund's average
portfolio maturity. When, in the opinion of the Adviser, economic or other
conditions warrant, for temporary defensive purposes the Fund may invest more
than 35% of its assets in money market instruments. The Fund emphasizes high
quality investments. At least 65% of the Fund's net assets will be invested in
(1) obligations of the U.S. Government, its agencies or instrumentalities, and
(2) debt securities rated, at the time of purchase, in one of the two highest
categories of S&P or Moody's. In addition, the Fund will not invest in any debt
security rated at the time of purchase below investment-grade.
4
<PAGE>
The following Underlying Scudder Fund is an equity mutual fund which
seeks a combination of income and growth.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income and growth of income. The Fund attempts to achieve its investment
objective by investing primarily in dividend-paying common stocks, preferred
stocks and securities convertible into common stocks of companies with
long-standing records of earnings growth. The Fund may also purchase securities
which do not pay current dividends but which offer prospects for growth of
capital and future income. Convertible securities (which may be current coupon
or zero coupon securities) are bonds, notes, debentures, preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. The Fund may also invest
in nonconvertible preferred stocks consistent with its objective.
The following Underlying Scudder Funds are equity mutual funds which
seek long-term growth or capital appreciation.
Scudder Classic Growth Fund seeks to provide long-term growth of
capital and to keep the value of its shares more stable than other capital
growth mutual funds. Under normal market conditions, the Fund invests primarily
in a diversified portfolio of common stocks which the Adviser believes offers
above-average appreciation potential yet, as a portfolio, offers the potential
for less share price volatility than other growth mutual funds. In seeking such
investments, the Adviser focuses its investment in high quality, medium-to-large
sized U. S. companies with leading competitive positions. The Fund allocates its
investments widely among different industries and companies, and adjusts its
portfolio securities based on long-term investment considerations as opposed to
short-term trading. While the Fund emphasizes U.S. investments, it can commit a
portion of assets to the equity securities of foreign growth companies that meet
the criteria applicable to domestic investments. The Fund can purchase other
types of equity securities including securities convertible into common stocks,
preferred stocks, rights and warrants. The Fund may invest up to 20% of its net
assets in debt securities when the Adviser anticipates that the capital
appreciation on debt securities is likely to equal or exceed the capital
appreciation on common stocks over a selected time, such as during periods of
unusually high interest rates.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of emerging growth companies. The Fund generally invests
in equity securities, including common stocks and convertible securities, of
relatively small or little-known companies, commonly referred to as emerging
growth companies, that the Adviser believes have above-average earnings growth
potential and/or may receive greater market recognition. To help reduce risk,
the Fund allocates its investments among many companies and different
industries. In selecting industries and companies for investment, the Adviser
will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of governmental
regulation or deregulation, management and other factors. While the Fund
generally emphasizes investments in companies domiciled in the U.S., it may
invest in listed and unlisted foreign securities that meet the same criteria as
the Fund's domestic holdings when the anticipated performance of foreign
securities is believed by the Adviser to offer more potential than domestic
alternatives in keeping with the investment objective of the Fund. However, the
Fund has no current intention of investing more than 20% of its net assets in
foreign securities.
Scudder Emerging Markets Growth Fund is a non-diversified investment
company which seeks long-term growth of capital primarily through equity
investment in emerging markets around the globe. The Fund will invest in the
Asia-Pacific region, Latin America, less developed nations in Europe, the Middle
East and Africa, focusing investments in countries and regions where there
appear to be the best value and appreciation potential, subject to
considerations of portfolio diversification and liquidity. At least 65% of the
Fund's total assets will be invested in the equity securities of emerging market
issuers. The Fund considers "emerging markets" to include any country that is
defined as an emerging or developing economy by any one of the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities. The
Fund intends to allocate its investments among at least three countries at all
times, and does not expect to concentrate in any particular industry. The Fund
deems an issuer to be located in an emerging market if:
- - the issuer is organized under the laws of an emerging market country;
5
<PAGE>
- - the issuer's principal securities trading market is in an emerging market;
or
- - at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.
The Fund may invest up to 35% of its total assets in emerging market
and domestic debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities. Under normal market conditions, the Fund may
invest up to 35% of its assets in equity securities of issuers in the U.S. and
other developed markets.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world. In pursuit of its objective, the Fund
generally invests in small, rapidly growing companies which offer the potential
for above-average returns relative to larger companies, yet are frequently
overlooked and thus undervalued by the market. The Fund has the flexibility to
invest in any region of the world. Under normal circumstances, the Fund invests
at least 65% of its total assets in the equity securities of small companies.
While the Adviser believes that smaller, lesser-known companies can offer
greater growth potential than larger, more established firms, the former also
involve greater risk and price volatility. To help reduce risk, the Fund
expects, under normal market conditions, to diversify its portfolio widely by
company, industry and country. The Fund intends to allocate investments among at
least three countries at all times, one of which may be the United States. The
Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies held by the Fund typically
will have individual equity market capitalizations of between approximately $50
million and $2 billion (although the Fund will be free to invest in smaller
capitalization issues that satisfy the Fund's size standard). Furthermore, the
median market capitalization of the companies in which the Fund invests will not
exceed $750 million. The Fund may invest up to 35% of its total assets in equity
securities of larger companies located throughout the world and in
investment-grade debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to exceed the capital appreciation of
equity securities. The Fund may invest up to 5% of its net assets in debt
securities rated below investment-grade.
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity securities,
including common stocks, preferred stocks and debt securities convertible into
common stocks. The Fund invests on a worldwide basis in equity securities of
companies which are incorporated in the U.S. or in foreign countries. It also
may invest in the debt securities of U.S. and foreign issuers. The Fund will be
invested usually in securities of issuers located in at least three countries,
one of which may be the U.S. It is expected that investments will include
companies of varying size as measured by assets, sales or capitalization. The
Fund generally invests in equity securities of established companies listed on
U.S. or foreign securities exchanges, but also may invest in securities traded
over-the-counter. It also may invest in debt securities convertible into common
stock, convertible and non-convertible preferred stock, and fixed-income
securities of governments, government agencies, supranational agencies and
companies when the Adviser believes the potential for appreciation will equal or
exceed that available from investments in equity securities. These debt and
fixed-income securities will be investment-grade, except that the Fund may
invest up to 5% of its total assets in debt securities rated below
investment-grade.
Scudder Greater Europe Growth Fund is a non-diversified investment
company which seeks long-term growth of capital through investments primarily in
the equity securities of European companies. Although its focus is on long-term
growth, the Fund may provide current income principally through holdings in
dividend-paying securities. The Fund will invest, under normal market
conditions, at least 80% of its total assets in the equity securities of
European companies.
The Fund defines a European company as follows:
- - A company organized under the laws of a European country or for which the
principal securities trading market is in Europe; or
6
<PAGE>
- - A company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in its most
recent fiscal year represents (directly or indirectly through subsidiaries)
assets or activities located in Europe.
The Fund may invest, under normal market conditions, up to 20% of its
total assets in European debt securities. Within this 20% limit, the Fund may
invest in debt securities which are unrated, rated, or the equivalent of those
rated below investment-grade. When, in the opinion of the Adviser, market
conditions warrant, the Fund may hold foreign or U.S. debt instruments as well
as cash or cash equivalents, including foreign and domestic money market
instruments, short-term government and corporate obligations, and repurchase
agreements without limit for temporary defensive purposes and up to 20% to
maintain liquidity.
Scudder Gold Fund is a non-diversified investment company which seeks
maximum return (principal change and income) consistent with investing in a
portfolio of gold-related equity securities and gold. The Fund pursues its
objective primarily through a portfolio of gold-related investments. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in (1) equity securities (defined as common stock, investment-grade
preferred stock, warrants and debt securities that are convertible into or
exchangeable for common stock) of U.S. and foreign companies primarily engaged
in the exploration, mining, fabrication, processing or distribution of gold, (2)
gold bullion, and (3) gold coins. A company will be considered "primarily
engaged" in a business or an activity if it devotes or derives at least 50% of
its assets, revenues and/or operating earnings from that business or activity.
The remaining 35% of the Fund's assets may be invested in any precious metals
other than gold; in equity securities of companies engaged in activities
primarily relating to precious metals and minerals other than gold; in
investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals; in
certain debt securities, a portion of the return on which is indexed to the
price of precious metals; and, for hedging purposes, in precious metals; and
utilize various other strategic transactions. Consistent with applicable state
securities laws, up to 10% of the Fund's total assets may be invested directly
in gold, silver, platinum and palladium bullion and in gold and silver coins. In
addition, the Fund's assets may be invested in wholly owned subsidiaries of the
Scudder Mutual Funds, Inc., of which the Fund is a series, that invest in gold,
silver, platinum and palladium bullion and in gold and silver coins.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities. The
Fund invests in companies, wherever organized, which do business primarily
outside the United States. The Fund intends to diversify investments among
several countries and to have represented in the portfolio, in substantial
proportions, business activities in not less than three different countries. The
Fund does not intend to concentrate investments in any particular industry. The
Fund's investments are generally denominated in foreign currencies. The strength
or weakness of the U.S. dollar against these currencies is responsible for part
of the Fund's investment performance. The Fund may invest up to 20% of its total
assets in investment-grade debt securities except that the Fund may invest up to
5% of its total assets in debt securities which are rated below
investment-grade.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of seasoned,
financially-strong U.S. growth companies. The Fund's equity investments consist
of common stocks, preferred stocks and securities convertible into common stocks
of companies which are of above-average financial quality and offer the prospect
for above-average growth in earnings, cash flow or assets relative to the
overall market as defined by the Standard & Poor's 500 Composite Price Index
("S&P 500"). The Fund invests at least 65% of its total assets in the equity
securities of seasoned, financially-strong U.S. growth companies which are
considered to be of above-average financial quality. The common stocks issued by
these companies qualify, at the time of purchase, for one of the three highest
equity ranking categories (A+, A or A-) of S&P or, if not ranked by S&P, are
judged to be of comparable quality by the Adviser. Rankings by S&P are not an
appraisal of a company's creditworthiness, as is true for S&P's debt security
ratings, nor are these rankings intended as a forecast of future stock market
performance. In addition to using S&P rankings of earnings and dividends of
common stocks, the Adviser conducts its own analysis of a company's history,
current financial position, and earnings prospects. The Fund allocates its
investments among different industries and companies, and adjusts its portfolio
securities based on long-term investment considerations as opposed to short-term
trading. While the Fund emphasizes U.S. investments, it can commit a portion of
assets to the equity securities of foreign growth companies which meet the
criteria applicable to domestic investments. The Fund may invest in convertible
securities which must be investment-grade.
7
<PAGE>
Scudder Large Company Value Fund seeks to maximize long-term capital
growth through a broad and flexible investment program. The Fund invests in
marketable securities, principally common stocks and, consistent with its
objective of long-term capital growth, preferred stocks. The Fund is free to
invest in a wide range of marketable securities which the Adviser believes offer
the potential for long-term, above-average growth. The Fund looks for companies
whose securities appear to present a favorable relationship between market price
and opportunity. These may include securities of companies whose fundamentals or
products may be of only average promise. The Fund may invest up to 20% of its
net assets in debt securities when management anticipates that the capital
appreciation on debt securities is likely to equal or exceed the capital
appreciation on common stocks over a selected time, such as during periods of
unusually high interest rates. Such debt securities may be rated below
investment-grade, or of equivalent quality as determined by the Adviser.
However, the Fund will invest no more than 10% of its net assets in securities
rated B or lower.
Scudder Latin America Fund is a non-diversified investment company
which seeks to provide long-term capital appreciation through investment
primarily in the securities of Latin American issuers. The Fund involves
above-average investment risk. The Fund seeks to benefit from economic and
political trends emerging throughout Latin America. These trends are supported
by governmental initiatives designed to promote freer trade and market-oriented
economies. The Adviser believes that efforts by Latin American countries to,
among other things, reduce government spending and deficits, control inflation,
lower trade barriers, stabilize currency exchange rates, increase foreign and
domestic investment and privatize state-owned companies, will set the stage for
attractive investment returns over time. At least 65% of the Fund's total assets
will be invested in the securities of Latin American issuers, and 50% of the
Fund's total assets will be invested in Latin American equity securities. To
meet its objective to provide long-term capital appreciation, the Fund normally
invests at least 65% of its total assets in equity securities. The Fund
considers Latin American countries to include Mexico, Central America, South
America and the Spanish-speaking islands of the Caribbean. The Fund defines
securities of Latin American issuers as follows:
- - Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;
- - Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
- - Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in any
one of the two most recent fiscal years represents (directly or indirectly
through subsidiaries) assets or activities located in Latin America; or
- - Securities of Latin American issuers, as defined above, in the form of
depositary shares.
The Fund may invest in debt securities which are unrated, rated or the
equivalent of those rated below investment-grade although the Fund will not
invest more than 10% of its net assets in securities rated B or lower by Moody's
and S&P and may invest in securities rated C by Moody's or D by S&P.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization ("micro-cap")
common stocks. The Fund seeks to provide long-term growth of capital by
investing, under normal market conditions, at least 80% of its assets in common
stocks issued by U.S. micro-cap companies. The Fund will typically invest in
companies that, at the time of purchase, are smaller than the smallest stocks in
the Russell 2000 Index at its annual reconstitution. The median market
capitalization (i.e., current stock price times shares outstanding) of the
portfolio is not expected to exceed $125 million. While the Fund invests
predominantly in common stocks, it can purchase other types of securities,
including preferred stocks, convertible or non-convertible securities, rights
and warrants. Securities may be listed on national exchanges or traded
over-the-counter. The Fund may invest up to 20% of its assets in U. S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.
Scudder Pacific Opportunities Fund is a non-diversified investment
company which seeks long-term growth of capital through investment primarily in
the equity securities of Pacific Basin companies, excluding Japan. The Fund
invests, under normal market conditions, at least 65% of its assets in the
equity securities of Pacific Basin companies. Pacific Basin countries include
8
<PAGE>
Australia, the Peoples Republic of China, India, Indonesia, Malaysia, New
Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as well as Hong
Kong, Singapore, South Korea and Taiwan--the so-called "four tigers." The Fund
may invest in other countries in the Pacific Basin when their markets become
sufficiently developed. The Fund will not, however, invest in Japanese
securities. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry. The Fund defines securities of Pacific Basin companies as
follows:
- - Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or
- - Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Pacific Basin.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of U.S. and other non-Pacific Basin issuers
(excluding Japan). The Fund may invest up to 35% of its total assets in foreign
and domestic high-grade debt securities if the Adviser determines that the
capital appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies. In pursuit of
long-term growth of capital, the Fund invests, under normal circumstances, at
least 80% of its assets in the common stock of small U.S. companies. The Fund
will invest in securities of companies that are similar in size to those in the
Russell 2000(R) Index of small stocks. The median market capitalization (i.e.,
current stock price times shares outstanding) of the portfolio will be below
$500 million. Companies represented in the portfolio of the Fund typically have
the following characteristics:
- - Attractive valuations relative to the Russell 2000 Index--a widely used
benchmark of small stock performance--based on measures such as price to
earnings, price to book value and price to cash flow ratios.
- - Favorable trends in earnings growth rates and stock price momentum.
The Fund may invest up to 20% of its assets in U.S. Treasury, agency
and instrumentality obligations, may enter into repurchase agreements and may
engage in strategic transactions, using such derivatives contracts as index
options and futures, to increase stock market participation, enhance liquidity
and manage transaction costs.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies poised to be
leaders in the 21st century. The Fund generally invests in equity securities,
including common stocks and convertible securities, of relatively small or
little-known companies, commonly referred to as emerging growth companies, with
market capitalizations typically below $750 million. The Adviser believes these
companies are well-positioned for above-average earnings growth and/or greater
market recognition. Such favorable prospects may be a result of new or
innovative products or services a given company is developing or provides,
products or services that have the potential to impact significantly the
industry in which the company competes or to change dramatically customer
behavior in the 21st century. To help reduce risk in its search for high
quality, emerging growth companies, the Adviser allocates the Fund's investments
among many companies and different industries in the U.S. and, where opportunity
warrants, abroad as well. Emerging growth companies are those with the ability,
in the Adviser's opinion, to expand earnings per share by at least 15% per annum
over the next three to five years at a minimum.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities. The Fund invests primarily in the equity
securities of medium- to large-sized domestic companies with annual revenues or
market capitalization of at least $600 million. The Fund invests in the
securities of companies that, in the opinion of its Adviser, are undervalued in
the marketplace in relation to current and estimated future earnings and
dividends. These companies generally sell at price-earnings ratios below the
market average, as defined by the S&P 500. The Fund invests at least 80% of its
assets in equity securities, which consist of common stocks, preferred stocks
and securities convertible into common stocks. While the Fund emphasizes U.S.
investments, it can invest its assets in securities of foreign companies which
meet the same criteria applicable to domestic investments. The Fund may invest
up to 20% of its total assets in debt obligations, including zero coupon
9
<PAGE>
securities, may enter into repurchase agreements and may also engage in
strategic transactions for hedging purposes and to seek to increase gain. The
debt securities in which the Fund may be invested may be rated below
investment-grade, although the Fund will invest no more than 10% of its net
assets in securities rated B or lower by S&P or Moody's, and may not invest more
than 5% of its net assets in securities rated C by Moody's or D by S&P.
The Japan Fund is a diversified mutual fund which seeks to achieve
long-term capital appreciation by investing primarily in equity securities
(including American Depositary Receipts) of Japanese companies. Equity
securities are defined as common and preferred stock, debt securities
convertible into common stock (sometimes referred to as "convertible
debentures") and common stock purchase warrants. Under normal conditions, the
Fund will invest at least 80% of its assets in Japanese securities, that is,
securities issued by entities that are organized under the laws of Japan
("Japanese companies"), securities of affiliates of Japanese companies, wherever
organized or traded, and securities of issuers not organized under the laws of
Japan but deriving 50% or more of their revenues from Japan. These securities
may include debt securities (Japanese government debt securities and debt
securities of Japanese companies) when the Adviser believes that the potential
for capital appreciation from investment in debt securities equals or exceeds
that available from investment in equity securities. The Fund may also invest up
to 30% of its net assets in equity securities of Japanese companies which are
traded in an over-the-counter market. These are generally securities of
relatively small or little-known companies that the Adviser believes have
above-average earnings growth potential. The Fund may invest up to 20% of its
assets in cash or short-term government or other short-term prime obligations in
order to have funds readily available for general corporate purposes, including
the payment of operating expenses, dividends and redemptions, or the investment
in securities through exercise of rights or otherwise, or in repurchase
agreements. Where the Adviser determines that market or economic conditions so
warrant, the Fund may, for temporary defensive purposes, invest more than 20% of
its assets in cash or such securities.
If you require more detailed information about an Underlying Scudder
Fund call Scudder Investor Relations at 1-800-225-2470 to obtain the complete
prospectus and statement of additional information for that fund.
The following chart shows the Average Annual Total Returns for each of
the Underlying Scudder Funds for their most recent one-, five-, ten-year and
life of fund periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assets as Average Annual Total Returns(1)
Inception of 10/31/96(in One Five Ten Life of
Date millions) Year Years Years Fund
Money Market Fund
Scudder Cash Investment Trust 7/23/76 1,417.0 4.89% 4.01% 5.61% -
Bond Mutual Funds
Scudder Emerging Markets Income Fund 12/31/93 304.6 36.96% - - 8.64%
Scudder Global Bond Fund 3/1/91 217.3 3.67 4.80% - 4.81
Scudder GNMA Fund 7/5/85 405.6 10.20 7.28 7.82% -
Scudder High Yield Bond Fund 6/28/96 33.1 - - - 2.51
Scudder Income Fund 5/10/28 588.3 18.54 9.82 9.40 -
Scudder International Bond Fund 7/1/88 414.6 2.59 8.32 - 9.46
Scudder Short Term Bond Fund 4/2/84 1,513.2 5.11 5.81 7.28 -
Equity Mutual Funds
Scudder Classic Growth Fund 9/9/96 9.0 - - - -
Scudder Development Fund 1/18/71 981.0 35.26 18.77 13.56 -
Scudder Emerging Markets Growth Fund 5/8/96 74.7 - - - -
Scudder Global Discovery Fund 9/10/91 351.2 33.71% - - 13.22%
Scudder Global Fund 7/23/86 1,350.1 16.65 13.23% - 12.49
Scudder Gold Fund 8/22/88 203.3 36.91 13.98 - 6.15
Scudder Greater Europe Growth Fund 10/10/94 120.3 25.11 - - 20.21
Scudder Growth and Income Fund 3/15/29 3,911.7 31.18 16.91 13.97% -
Scudder International Fund 6/15/54 2,515.5 19.25 9.40 11.50 -
Scudder Large Company Growth Fund 5/15/91 220.8 30.30 - - 14.01
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Assets as Average Annual Total Returns(1)
Inception of 10/31/96(in One Five Ten Life of
Date millions) Year Years Years Fund
Scudder Large Company Value Fund 6/6/56 1,689.1 33.88% 13.88% 12.68% -
Scudder Latin America Fund 12/08/92 622.8 22.60 - 17.56
Scudder Micro Cap Fund 8/12/96 26.0 - - 0.58
Scudder Pacific Opportunities Fund 12/08/92 328.6 13.11 - - 11.46
Scudder Small Company Value Fund 10/6/95 46.5 - - - 13.54
Scudder 21st Century Growth Fund 9/9/96 5.8 - - - -
Scudder Value Fund 12/31/92 92.0 17.18 - - 14.20
The Japan Fund 406.0 -10.92 -1.71 3.44 -
(1) As of each Underlying Scudder Fund's most recent fiscal reporting period.
All total return calculations assume that dividends and capital gains
distributions, if any, were reinvested. Performance figures are historical and
are not intended to indicate future investment performance.
</TABLE>
Risk Factors of Underlying Scudder Funds
In pursuing their investment objectives, each of the Underlying Scudder
Funds is permitted to engage in a wide range of investment policies. The
Underlying Scudder Funds' risks are determined by the nature of the securities
held and the portfolio management strategies used by the Adviser. Certain of
these policies are described in the "Glossary" and further information about the
Underlying Scudder Funds is contained in the statement of additional information
as well as the prospectuses of such funds. Because each Portfolio invests in
certain of the Underlying Scudder Funds, shareholders of each Portfolio will be
affected by these investment policies in direct proportion to the amount of
assets each Portfolio allocates to the Underlying Scudder Funds pursuing such
policies.
Investment Restrictions of the Portfolios
The policies set forth below are fundamental policies of each Portfolio
and may not be changed with respect to each of the Portfolios without the
approval of a majority of such Portfolios' outstanding shares. As used in this
combined Statement of Additional Information, a "majority of the outstanding
voting securities of such Portfolio" means the lesser of (1) 67% or more of the
voting securities present at such meeting, if the holders of more than 50% of
the outstanding voting securities of such Portfolio are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of such
Portfolio. Each Portfolio may not:
(1) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that a Portfolio maintains asset coverage of 300%
for all borrowings;
(2) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of a Portfolio;
(3) make loans to other persons, except to the extent that the entry into
repurchase agreements in accordance with its investment objectives and
investment policies may be deemed to be loans;
(4) purchase or sell real estate (except that an Underlying Scudder Fund
may invest in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or interests
therein, and that an Underlying Scudder Fund reserves freedom of
action to hold and to sell real estate acquired as a result of an
Underlying Scudder Fund's ownership of securities); and
(5) purchase or sell physical commodities or contracts relating to
physical commodities.
In addition, as a matter of fundamental policy, each Portfolio may:
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(1) concentrate more than 25% of their assets in mutual funds. In
accordance with the Portfolios' investment programs set forth in
the Portfolios' prospectuses, each Portfolio may invest more than
25% of its assets in certain of the Underlying Scudder Funds.
However, each Underlying Scudder Fund in which each Portfolio
will invest, with the exception of Scudder Gold Fund, will not
concentrate more than 25% of its total assets in any one
industry.
Each Portfolio may not as a matter of nonfundamental policy:
(a) invest in companies for the purpose of exercising management or
control; and
(b) borrow money in excess of 5% of total assets (taken at market
value) except for temporary or emergency purposes or borrow other
than from banks.
The Portfolios will not invest in reverse repurchase agreements (except
that an Underlying Scudder Fund may invest in reverse repurchase agreements).
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Portfolios.
PURCHASES
(See "Purchases" and "Transaction information" in the Portfolios'
prospectuses.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Portfolio
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Portfolio name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification number or social security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to State Street Bank, Attention: The Scudder Funds, State Street Bank
and Trust Company, Boston, MA 02101, ABA Number 011000028, DDA Account
9903-5552. The investor must give the Portfolio name, account name and the new
account number. Finally, the investor must send a completed and signed
application to the Portfolio promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, and Scudder 401(k) and Scudder 403(b) Plan holders),
members of the NASD, and banks. Orders placed in this manner may be directed to
any office of the Distributor listed in a Portfolio's prospectus. A confirmation
of the purchase will be mailed out promptly following receipt of a request to
buy. Federal regulations require that payment be received within three business
days. If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
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a Portfolio or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Portfolio shall have the authority, as agent of
the shareholder, to redeem shares in the account in order to reimburse the
Portfolio or the principal underwriter for the loss incurred. Net losses on such
transactions which are not recovered from the purchaser will be absorbed by the
principal underwriter. Any net profit on the liquidation of unpaid shares will
accrue to the Portfolio.
Additional Information About Making Subsequent Investments by AutoBuy
Shareholders, whose predesignated bank account of record is a Member of
the Automated Clearing House Network (ACH) and have elected to participate in
the AutoBuy program, may purchase shares of a Portfolio by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares at the net asset value per share calculated on the day of your
call by AutoBuy, shareholders should call before the close of trading on the New
York Stock Exchange (the "Exchange") (normally 4 p.m. eastern time). Proceeds in
the amount of your purchase will be transferred from your bank checking account
in two or three business days following your call. For requests received by the
close of regular trading on the Exchange, shares will be purchased at the net
asset value per share calculated at the close of trading on the day of your
call. AutoBuy requests received after the close of regular trading on the
Exchange will begin their processing the following business day and will be
purchased at the net asset value per share calculated at the close of trading on
the business day following your call. If you purchase shares by AutoBuy and
redeem them within seven days of the purchase, the Portfolio may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.
In order to request purchases by AutoBuy, shareholders must have
completed and returned to the transfer agent, Scudder Service Corporation (the
"Transfer Agent"), the application, including the designation of a bank account
from which the purchase payment will be debited. New investors wishing to
establish AutoBuy may so indicate on the application. Existing shareholders who
wish to add AutoBuy to their account may do so by completing an AutoBuy
Enrollment Form. After sending in an enrollment form shareholders should allow
for 15 days for this service to be available.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of a Portfolio are purchased by a check which proves to be
uncollectible, the Portfolio reserves the right to cancel the purchase
immediately and the purchaser will be responsible for any loss incurred by the
Portfolio or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Portfolio shall have the authority, as agent of
the shareholder, to redeem shares in the shareholder's account in order to
reimburse the Portfolio or the principal underwriter for the loss incurred.
Investors whose orders have been canceled may be prohibited or restricted from
placing future orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day for a Portfolio, your bank must
forward federal funds by wire transfer and provide the required account
information so as to be available to a Portfolio prior to the regular close of
trading on the Exchange (normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by the
custodian of "wired funds," but the right to charge investors for this service
is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays are Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the custodian is not open to receive such federal funds on
behalf of a Portfolio.
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Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
per share normally will be computed as of the close of regular trading on each
day the Exchange is open for trading. Orders received after the close of regular
trading on the Exchange will be executed at the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than a
Portfolio, to forward the purchase order to the Transfer Agent by the close of
regular trading on the Exchange.
Share Certificates
Due to the desire of the Portfolios' management to afford ease of
redemption, certificates will not be issued to indicate ownership in a
Portfolio.
Other Information
If purchases or redemptions of Portfolio shares are arranged and
settlement is made at an investor's election through a member of the NASD, other
than the Distributor, that member may, at its discretion, charge a fee for that
service.
The Board of Trustees and the Distributor each has the right to limit
the amount of purchases by, and to refuse to sell to, any person and each may
suspend or terminate the offering of shares of a Portfolio at any time.
The "Tax Identification Number" section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g. from exempt organizations, certification of exempt status) will be
returned to the investor.
The Trust may issue shares of each Portfolio at net asset value in
connection with any merger or consolidation with, or acquisition of the assets
of, any investment company (or series thereof) or personal holding company,
subject to the requirements of the Investment Company Act of 1940 (the "1940
Act").
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in the
Portfolios' prospectuses.)
Exchanges
Exchanges are comprised of a redemption from one Portfolio and a
purchase into another Portfolio or Scudder fund. The purchase side of the
exchange may be either an additional investment into an existing account or may
involve opening a new account in another Portfolio or Scudder fund. When an
exchange involves a new account, the new account will be established with the
same registration, tax identification number, address, telephone redemption
option, "Scudder Automated Information Line" (SAIL(TM)) transaction
authorization and dividend option as the existing account. Other features will
not carry over automatically to the new account. Exchanges to a new Portfolio or
fund account must be for a minimum of $2,500. When an exchange represents an
additional investment into an existing account, the account receiving the
exchange proceeds must have identical registration, tax identification number,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information--Redeeming shares--Signature guarantees" in a
Portfolio's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day will ordinarily be executed at respective net asset
values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund or
portfolio to an existing account in another Scudder fund or portfolio through
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<PAGE>
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
No commission is charged to the shareholder for any exchange described
above. An exchange into another Portfolio or Scudder fund is a redemption of
shares and therefore may result in tax consequences (gain or loss) to the
shareholder, and the proceeds of such an exchange may be subject to backup
withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Portfolios and the Transfer Agent each reserves the
right to suspend or terminate the privilege of exchanging by telephone or fax at
any time.
The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
or Portfolio into which the exchange is being contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption By Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $50,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
designated bank account must complete the appropriate section on
the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Profit-Sharing or Money Purchase Pension Plans, Scudder 401(k)
and Scudder 403(b) planholders) who wish to establish telephone
redemption to a predesignated bank account or who want to change
the bank account previously designated to receive redemption
proceeds should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the account
and specifying the exact information to be changed. The letter
must be signed exactly as the shareholder's name(s) appears on
the account. An original signature and an original signature
guarantee are required for each person in whose name the account
is registered.
Telephone redemption is not available with respect to shares held in
IRA accounts.
If a request for a redemption to a shareholder's bank account is made
by telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds
must be wired through a commercial bank which is a correspondent
of the savings bank. As this may delay receipt by the
shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and
15
<PAGE>
submit any special wire transfer information with the telephone
redemption authorization. If appropriate wire information is not
supplied, redemption proceeds will be mailed to the designated
bank.
The Trust employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Trust does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Trust will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between a Portfolio or fund and the shareholder) of shares purchased by check
will not be accepted until the purchase check has cleared.
Redemption by AutoSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoSell program, may redeem shares of a Portfolio by AutoSell. To redeem
shares by AutoSell, shareholders should call before the close of regular trading
on the Exchange. Redemptions must be for at least $250. Redemption proceeds will
be transferred to your bank checking account in two or three business days
following your call. Shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. AutoSell requests
after the close of regular trading on the Exchange will begin their processing
and be redeemed at the net asset value calculated as of the close of regular
trading on the Exchange the following business day. AutoSell transactions are
not available for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) days after receipt by the Transfer Agent of a request
for redemption that complies with the above requirements. Delays of more than
seven (7) days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Trust and valued as they are for purposes of computing the Portfolio's net
asset value (a redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting these securities into
cash. The Trust has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Trust is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the relevant Portfolio at
the beginning of the period.
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Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to a
Portfolio through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, telegram, TWX, or telephone. A
two-part confirmation will be mailed out promptly after receipt of the
repurchase request. A written request in good order and any certificates with
proper original signature guarantee, as described in each Portfolio's prospectus
under "Transaction information--Redeeming shares--Signature guarantees", should
be sent with a copy of the invoice to Scudder Funds, c/o Scudder Confirmed
Processing, Two International Place, Boston, Massachusetts 02110-4103. Failure
to deliver shares or required documents (see above) by the settlement date may
result in cancellation of the trade and the shareholder will be responsible for
any loss incurred by a Portfolio or the principal underwriter by reason of such
cancellation. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to the Portfolio. For this group, repurchases will be
carried out at the net asset value next computed after such repurchase requests
have been received. The arrangements described in this paragraph for
repurchasing shares are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Trust does not
impose a redemption or repurchase charge, although a wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including redemptions undertaken to effect an exchange for
shares of another Portfolio or Scudder fund, may result in tax consequences
(gain or loss) to the shareholder and the proceeds of such redemptions may be
subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Trustees. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Portfolio, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in a Portfolio. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. Each Portfolio reserves the
right, following 60 days' written notice to shareholders, to redeem all shares
in accounts below $250, including accounts of new investors, where a reduction
in value has occurred due to a redemption or exchange out of the account. Each
Portfolio will mail the proceeds of the redeemed account to the shareholder at
the address of record. Reductions in value that result solely from market
activity will not trigger an involuntary redemption. UGMA, UTMA, IRA and other
retirement accounts will not be assessed the $10.00 charge or be subject to
automatic liquidation.
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FEATURES AND SERVICES OFFERED BY THE TRUST
(See "Shareholder benefits" in the Portfolios' prospectuses.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
======================== ---------------------- ---------------------- ---------------------- ======================
Scudder No-Load Fund with
YEARS Pure No-Load(TM) Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1 Fee
12b-1 Fee
======================== ---------------------- ---------------------- ---------------------- ======================
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
======================== ====================== ====================== ====================== ======================
</TABLE>
18
<PAGE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Investors are encouraged to review pages 2 and 3 of each Portfolio's
prospectus and the section entitled "Management Fees of Underlying Scudder
Funds" in this combined Statement of Additional Information for more specific
information about the rates at which management fees and other expenses of the
Underlying Scudder Funds are assessed.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Portfolio. A change of instructions for the
method of payment must be received by the Transfer Agent at least five days
prior to a dividend record date. Shareholders may change their dividend option
either by calling 1-800-225-5163 or by sending written instruction to the
Transfer Agent. Please include your account number with your written request.
See "How to Contact Scudder" in the prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gain
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Portfolio.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after a Portfolio pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Funds Centers
Investors may visit any of the Funds Centers maintained by the
Distributor listed in each Portfolio's prospectus. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or find assistance with opening an account, adding monies or special
options to existing accounts, making exchanges within the Scudder Family of
Funds, redeeming shares or opening retirement plans. Checks should not be mailed
to the Centers but should be mailed to "The Scudder Funds" at the address listed
under "How to contact Scudder" in the prospectus.
19
<PAGE>
Reports to Shareholders
The Portfolios issue to their shareholders unaudited semiannual
financial statements and annual financial statements audited by independent
accountants, including a list of investments held and statements of assets and
liabilities, operations, changes in net assets and financial highlights. Each
distribution will be accompanied by a brief explanation of the source of the
distribution.
Transaction Summaries
Annual summaries of all transactions in a Portfolio account are
available to shareholders. The summaries may be obtained by calling
1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in a Portfolio's
prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $2,500 or $1,000 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder High Yield Bond Fund seeks to provide a high level of current
income and, secondarily, capital appreciation through investment
primarily in below investment grade domestic debt securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
20
<PAGE>
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in municipal
securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high grade.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
21
<PAGE>
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Classic Growth Fund seeks long-term growth of capital with
reduced share price volatility compared to other growth mutual funds.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and
foreign issuers. Income is an incidental consideration.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
22
<PAGE>
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in equity securities of large U.S.
growth companies.
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a broad and flexible investment program
emphasizing common stocks.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-cap stocks.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in securities of emerging growth companies poised
to be leaders in the 21st century.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio will, under normal market conditions, invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks a balance of growth
and income by investing in a select mix of Scudder money market, bond
and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests
in a select mix of international and global Scudder Funds.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
23
<PAGE>
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
24
<PAGE>
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<S> <C> <C> <C>
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<S> <C> <C> <C>
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
25
<PAGE>
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the [Trust, Corporation] or its agent on written
notice, and will be terminated when all shares of the Fund under the Plan have
been liquidated or upon receipt by the [Trust, Corporation] of notice of death
of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the [Trust, Corporation] and its agents reserve the right to establish
a maintenance charge in the future depending on the services required by the
investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
26
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information -- Dividends and
capital gains distributions" in the Portfolios' prospectuses.)
Each Portfolio intends to follow the practice of distributing all of
its investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. Each
Portfolio may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, a Portfolio may retain all or part of such gain for reinvestment after
paying the related federal income taxes for which the shareholders may then be
asked to claim a credit against their federal income tax liability. (See
"TAXES.")
If a Portfolio does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Portfolio may be subject to that excise tax. (See "TAXES.") In certain
circumstances, a Portfolio may determine that it is in the interest of
shareholders to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of
Portfolio shares may be utilized by the Portfolio, to the extent permissible, as
part of the Portfolio's dividends paid deduction on its federal tax return.
The Conservative Portfolio and the Balanced Portfolio each intend to
distribute investment company taxable income, exclusive of net short-term
capital gains in excess of net long-term capital losses on a quarterly basis,
and distributions of net capital gains realized during the fiscal year will be
made in November or December to avoid federal excise tax, although an additional
distribution may be made within three months of its fiscal year end, if
necessary. The Conservative, Growth and International Portfolios intend to
distribute their investment company taxable income and any net realized capital
gains in November or December to avoid federal excise tax, although an
additional distribution may be made within three months of the Portfolios'
fiscal year end, if necessary.
Both types of distributions will be made in Portfolio shares and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year each Portfolio issues to each shareholder a statement of
the federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
(See "Distribution and performance
information--Performance information"
in the Portfolios' prospectuses.)
From time to time, quotations of a Portfolio's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, ten years or for the life of the
Portfolio, all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of a Portfolio's
shares and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Portfolio shares. Average annual total
return is calculated by finding the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
27
<PAGE>
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial payment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of
the applicable period.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of a Portfolio's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Portfolio shares. Cumulative Total Return is calculated by finding
the cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P)^-1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of
$1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
SEC Yields of Conservative Portfolio and Balanced Portfolio
A Portfolio's yield is the net annualized yield based on a specified
30-day (or one month) period assuming semiannual compounding of income. Yield is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the period,
including amortization of market premium or
accretion of market discount
b = expenses accrued for the period
(net of reimbursements)
c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
Calculation of a Portfolio's SEC yield does not take into
account "Section 988 Transactions." (See "TAXES.")
Quotations of each Portfolio's performance are based on historical
earnings and are not intended to indicate future performance. An investor's
shares when redeemed may be worth more or less than their original cost.
Performance of a Fund will vary based on changes in market conditions and the
level of the Portfolio's expenses.
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Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Capital Change
Capital Change measures the return from invested capital including
reinvested capital gains distributions. Capital Change does not include the
reinvestment of income dividends.
Quotations of a Portfolio's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of a Portfolio will
vary based on changes in market conditions and the level of the Underlying
Scudder Funds' expenses.
Comparison of Portfolio Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Portfolio with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
Because some or all of an Underlying Scudder Fund's investments are
denominated in foreign currencies, the strength or weakness of the U.S. dollar
as against these currencies may account for part that Fund's investment
performance. Historical information on the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the
Underlying Scudder Funds. Such historical information is not indicative of
future fluctuations in the value of the U.S. dollar against these currencies. In
addition, marketing materials may cite country and economic statistics and
historical stock market performance for any of the countries in which the
Underlying Scudder Funds invest, including, but not limited to, the following:
population growth, gross domestic product, inflation rate, average stock market
price-earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments and
exchanges.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, the Scudder Pathway Series: Growth Portfolio will be
compared to funds in the growth fund category; the Scudder Pathway Series:
Conservative Portfolio will be compared to funds in the income fund category;
and so on. The Portfolios may also be compared to funds with similar volatility,
as measured statistically by independent organizations.
From time to time, in marketing and other Portfolio literature,
Trustees and officers of the Trust, each Portfolio's Lead Portfolio Manager, or
members of the portfolio management team may be depicted and quoted to give
prospective and current shareholders a better sense of the outlook and approach
of those who manage the Funds. In addition, the amount of assets that the
Adviser has under management in various geographical areas may be quoted in
advertising and marketing materials.
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The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
30
<PAGE>
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
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<PAGE>
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because they assume
that international or global investing is too risky. While there are risks
connected with investing overseas, it's important to remember that no investment
- -- even in blue-chip domestic securities -- is entirely risk free. Looking
outside U.S. borders, an investor today can find opportunities that mirror
domestic investments -- everything from large, stable multinational companies to
start-ups in emerging markets. To determine the level of risk with which you are
comfortable, and the potential for reward you're seeking over the long term, you
need to review the type of investment, the world markets, and your time horizon.
The U.S. is unusual in that it has a very broad economy that is well represented
in the stock market. However, many countries around the world are not only
undergoing a revolution in how their economies operate, but also in terms of the
role their stock markets play in financing activities. There is vibrant change
throughout the global economy and all of this represents potential investment
opportunity.
Investing beyond the United States can open this world of opportunity, due
partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
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getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global stock
markets do not move in lock step. When the valuations in one market rise, there
are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the investment
is not limited to a single country or economy. In fact, many experts agree that
investment strategies that include both U.S. and non-U.S. investments strike the
best balance between risk and reward.
Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
TRUST ORGANIZATION
(See "Trust organization" in the Portfolios' prospectuses.)
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated July 1, 1994. The Trust's authorized capital consists
of an unlimited number of shares of beneficial interest of $0.01 par value, all
of which are of one class and have equal rights as to voting, dividends and
liquidation. The Trust is comprised of six separate portfolios: Conservative
Portfolio, Pure Income Portfolio, Balanced Portfolio, Growth Portfolio, Pure
Growth Portfolio, and International Portfolio, all of which were organized on
July 1, 1994. The Trust offers four portfolios: Conservative Portfolio, Balanced
Portfolio, Growth Portfolio and International Portfolio. Each series consists of
an unlimited number of shares. The Trustees have the authority to issue
additional portfolios to the Trust.
The Trustees, in their discretion, may authorize the division of shares
of a Portfolio into different classes permitting shares of different classes to
be distributed by different methods. Although shareholders of different classes
of a Portfolio would have interest in the same portfolio of assets, shareholders
of different classes may bear different expenses in connection with different
methods of distribution. The Trustees have no present intention of taking the
action necessary to effect the division of shares into separate classes (which
under present regulations would require the Trust first to obtain an exemptive
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order of the SEC), nor changing the method of distribution of shares. The Trust
will vote its shares in each Underlying Scudder Fund in proportion to the vote
of all other shareholders of each respective Underlying Scudder Fund.
The Declaration of Trust (the "Declaration") provides that obligations
of the Trust are not binding upon the Trustees individually but only upon the
property of the Trust, that the Trustees and officers will not be liable for
errors of judgment or mistakes of fact or law, and that the Trust, will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust, except if it is determined in the manner provided in the
Declaration that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration protects or indemnifies a Trustee or officer against any liability
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, of reckless disregard of duties involved in the
conduct of his or her office.
INVESTMENT ADVISER
(See "Trust organization--Investment adviser" in the Portfolios'
prospectuses.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Trust. This organization is one of the most
experienced investment management firms in the United States. It was established
as a partnership in 1919 and pioneered the practice of providing investment
counsel to individual clients on a fee basis. In 1928, it introduced the first
no-load mutual fund to the public. In 1953, the Adviser introduced the Scudder
International Fund, Inc., the first mutual fund available in the United States,
investing internationally in securities of issuers in several foreign countries.
The firm reorganized from a partnership to a corporation on June 28, 1985.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc., The
Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and The Latin America Dollar Income Fund, Inc. Some of the foregoing
companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which each Portfolio may invest, the conclusions and
investment decisions of the Adviser with respect to the Portfolios are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for the Underlying Scudder Funds
held by each Portfolio and also for other clients advised by the Adviser.
Investment decisions for the Underlying Scudder Funds and other clients are made
with a view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investments generally. Frequently, a
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particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Underlying Scudder Fund. Purchase and sale orders for the
Underlying Scudder Fund may be combined with those of other clients of the
Adviser in the interest of achieving the most favorable net results to the
Underlying Scudder Fund.
The Investment Management Agreement (the "Agreement") was approved by
the Trustees on January 10, 1995. The Agreement will continue in effect until
September 30, 1997 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Trust,
cast in person at a meeting called for the purpose of voting on such approval,
and either by a vote of the Trustees or of a majority of the outstanding voting
securities of the Trust. The Agreement may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
The Adviser regularly provides the Trust with continuing investment
management for the Portfolios consistent with the Portfolios' investment
objectives, policies and restrictions and determines what Underlying Scudder
Funds shall be purchased, held or sold and what portion of each Portfolio's
assets shall be held uninvested, subject to the Declaration of Trust, the 1940
Act, the Code, the Order and to the Portfolios' investment objectives, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees may from time to time establish.
The Adviser provides each Portfolio with discretionary investment
services. Specifically, the Adviser is responsible for supervising and directing
the investments of each Portfolio in accordance with each Portfolio's investment
objectives, program, and restrictions as provided in the prospectus and this
Statement of Additional Information. The Adviser is also responsible for
effecting all security transactions on behalf of each Portfolio, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. However, it should be understood that each Portfolio will
invest their assets almost exclusively in the shares of the Underlying Scudder
Funds and such investments will be made without the payment of any commission or
other sales charges. In addition to these services, the Adviser provides the
Trust with certain corporate administrative services, including: maintaining the
corporate existence, corporate records, and registering and qualifying Portfolio
shares under federal and state laws; monitoring the financial accounting, and
administrative functions of each Portfolio; maintaining liaison with the agents
employed by the Trust such as the custodian and transfer agent; assisting the
Trust in the coordination of such agents' activities; and permitting the
Adviser's employees to serve as officers, trustees, and committee members of the
Trust without cost to the Trust.
The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Trust's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Trust (such as the Trust's transfer agent, pricing agents, custodian, fund
accounting agent and others); preparing and making filings with the SEC and
other regulatory agencies; assisting in the preparation and filing of the
Trust's federal, state and local tax returns; preparing and filing the Trust's
federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of each Portfolio under applicable
federal and state securities laws; maintaining the Trust's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Trust; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Trust's operating budget;
processing the payment of the Trust's bills; assisting each Portfolio in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Trust in the conduct of its business, subject to the
direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Trust,
the services of such Trustees, officers and employees of the Adviser as may duly
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be elected officers of the Trust, subject to their individual consent to serve
and to any limitations imposed by law, and provides the Trust's office space and
facilities.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel.
Dechert Price & Rhoads acts as general counsel for the Trust.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Each Portfolio expects to operate at a zero expense level. Under the
Agreement with the Trust, and the Special Servicing Agreement, the Adviser has
agreed to bear any expenses of the Trust which exceed the estimated savings to
each of the Underlying Scudder Funds. Of course, shareholders of the Trust will
still indirectly bear their fair and proportionate share of the cost of
operating the Underlying Scudder Funds in which the Trust invests because, the
Trust, as a shareholder of the Underlying Scudder Funds, will bear its
proportionate share of any fees and expenses paid by the Underlying Scudder
Funds. The Trust, as a shareholder of the selected Underlying Scudder Funds,
will benefit only from cost-sharing reductions in proportion to its interest in
such Underlying Scudder Funds.
The range of the average weighted pro rata share of expenses borne by
each Portfolio is expected to be as follows: Conservative Portfolio, 0.16% to
1.79%, Balanced Portfolio, 0.31% to 1.83%, Growth Portfolio, 0.47% to 1.94% and
International Portfolio, 1.01% to 2.00%.
The Agreement also provides that the Adviser, its directors, officers,
employees, and certain other persons performing specific functions for the Trust
will only be liable to the Trust for losses resulting from willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.
The Adviser charges nonadvisory fees under the Agreement.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Portfolios. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
Management Fees of Underlying Scudder Funds
The Adviser has agreed not to be paid a management fee for performing
its services. However, the Adviser will receive management fees from managing
the Underlying Scudder Funds in which each Portfolio invests.
Each Underlying Scudder Fund pays the Adviser a management fee as
determined by the Investment Management Agreement between each Underlying
Scudder Fund and the Adviser. As manager of the assets of each Underlying
Scudder Fund, the Adviser directs the investments of an Underlying Scudder Fund
in accordance with each Underlying Scudder Fund's investment objective, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by an
Underlying Scudder Fund. If an Underlying Scudder Fund's expenses, exclusive of
taxes, interest and extraordinary expenses, exceed specified limits, such excess
up to the amount of the management fee, will be paid by the Adviser.
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The management fees of the Underlying Scudder Funds are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Management
Name of Fund End Fee (%)
Scudder Cash Investment Trust 6/30/96 0.41
Scudder Emerging Markets Income Fund 10/31/96 0.99
Scudder Global Bond Fund 10/31/96 0.47
Scudder GNMA Fund 3/31/97 0.62
Scudder High Yield Bond Fund 2/28/97 0.00
Scudder Income Fund 12/31/96 0.61
Scudder International Bond Fund 6/30/96 0.85
Scudder Short Term Bond Fund 12/31/96 0.51
Scudder Classic Growth Fund Estimate 0.00
Scudder Development Fund 6/30/96 0.98
Scudder Emerging Markets Growth Fund 10/31/96 0.00(1)
Scudder Global Fund 6/30/96 0.96
Scudder Global Discovery Fund 10/31/96 1.09
Scudder Gold Fund 6/30/96 1.00
Scudder Greater Europe Growth Fund 10/31/96 0.53(2)
Scudder Growth and Income Fund 12/31/96 0.49
Scudder International Fund 3/31/97 0.82
Scudder Large Company Growth Fund 10/31/96 0.70
Scudder Large Company Value Fund 9/30/96 0.66
Scudder Latin America Fund 10/31/96 1.25
Scudder Micro Cap Fund 8/31/96 0.00(3)
Scudder Pacific Opportunities Fund 10/31/96 1.10
Scudder Small Company Value Fund 8/31/96 0.00
Scudder 21st Century Growth Fund Estimate 0.00
Scudder Value Fund 9/30/96 0.64
The Japan Fund, Inc. 12/31/96 0.75
(1) Fees estimated for prospectus dated 3/1/97: Management fee: 0.98% and Other: 1.02%.
(2) Current management fee: 1.00%.
(3) Fees estimated for prospectus dated 2/7/97: Management fee: 0.64% and Other: 1.11%.
</TABLE>
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Portfolios' custodian bank. It is
the Adviser's opinion that the terms and conditions of those transactions which
have occurred were not influenced by existing or potential custodial or other
Trust relationships.
None of the officers or Trustees may have dealings with the Trust as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Trust.
SPECIAL SERVICING AGREEMENT
The Special Servicing Agreement (the "Service Agreement") is to be
entered into among the Adviser, the Underlying Scudder Funds, Scudder Service
Corporation, Scudder Fund Accounting Corporation, Scudder Investor Services,
Inc., Scudder Trust Company and the Trust. Under the Service Agreement, the
Adviser will arrange for all services pertaining to the operation of the Trust
including the services of Scudder Service Corporation and Scudder Fund
Accounting Corporation to act as Shareholder Servicing Agent and Fund Accounting
Agent, respectively, for each Portfolio. In addition, the Service Agreement will
provide that, if the officers of any Underlying Scudder Fund, at the direction
of the Board of Directors/Trustees, determine that the aggregate expenses of a
Portfolio are less than the estimated savings to the Underlying Scudder Fund
from the operation of that Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
that Portfolio. No Underlying Scudder Fund will bear such expenses in excess of
the estimated savings to it. Such savings are expected to result primarily from
the elimination of numerous separate shareholder accounts which are or would
have been invested directly in the Underlying Scudder Funds and the resulting
37
<PAGE>
reduction in shareholder servicing costs. In this regard, the shareholder
servicing costs to any Underlying Scudder Fund for servicing one account
registered to the Trust would be significantly less than the cost to that same
Underlying Scudder Fund of servicing the same pool of assets contributed in the
typical fashion by a large group of individual shareholders owning small
accounts in each Underlying Scudder Fund.
Based on actual expense data from the Underlying Scudder Funds and
certain very conservative assumptions with respect to the Trust, the Adviser,
the Underlying Scudder Funds, Scudder Service Corporation, Scudder Investor
Services, Inc., Scudder Fund Accounting Corporation, Scudder Trust Company and
the Series anticipate that the aggregate financial benefits to the Underlying
Scudder Funds from these arrangements will exceed the costs of operating the
Portfolios. If such turns out to be the case, there will be no charge to the
Trust for the services under the Service Agreement. Rather, in accordance with
the Service Agreement, such expenses will be passed through to the Underlying
Scudder Funds in proportion to the value of each Underlying Scudder Fund's
shares held by each Portfolio.
In the event that the aggregate financial benefits to the Underlying
Scudder Funds do not exceed the costs of a Portfolio, the Adviser will pay, on
behalf of that Portfolio, that portion of costs, as set forth herein, determined
to be greater than the benefits. The determination of whether and the extent to
which the benefits to the Underlying Scudder Funds from the organization of the
Trust will exceed the costs to such funds will be made based upon the analysis
criteria set forth in the Order. This cost-benefit analysis was initially
reviewed by the Directors/Trustees of the Underlying Scudder Funds before
participating in the Service Agreement. For future years, there will be an
annual review of the Service Agreement to determine its continued
appropriateness for each Underlying Scudder Fund.
Certain non-recurring and extraordinary expenses will not be paid in
accordance with the Service Agreement including: the fees and costs of actions,
suits or proceedings and any penalties or damages in connection therewith, to
which the Series and/or a Portfolio may incur directly, or may incur as a result
of its legal obligation to provide indemnification to its officers, director and
agents; the fees and costs of any governmental investigation and any fines or
penalties in connection therewith; and any federal, state or local tax, or
related interest penalties or additions to tax, incurred, for example, as a
result of the Series' failure to distribute all of its earnings, failure to
qualify under subchapter M of the Internal Revenue Code, or failure to timely
file any required tax returns or other filings. Under unusual circumstances, the
parties to the Service Agreement may agree to exclude certain other expenses.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
<S> <C> <C> <C>
Position with
Underwriter, Scudder
Position Investor Services,
Name, Age and Address with Trust Principal Occupation** Inc.
David S. Lee+*@ (62) President and Trustee Managing Director of Scudder, President, Assistant
Stevens & Clark, Inc. Treasurer and
Director
Edgar R. Fiedler (67) Trustee Vice President and Economic --
845 Third Avenue Counsellor, The Conference
New York, NY 10022 Board, Inc.
Dr. J. D. Hammond (62) Trustee Dean, Smeal College of Business --
801 Business Administration Building Administration, Pennsylvania
Pennsylvania State University State University
University Park, PA 16801
Richard M. Hunt (70) Trustee University Marshal and Senior --
University Marshal's Office Lecturer, Harvard University
Wadsworth House
1341 Massachusetts Avenue
Harvard University
Cambridge, MA 02138
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<PAGE>
Position with
Underwriter, Scudder
Position Investor Services,
Name, Age and Address with Trust Principal Occupation** Inc.
Daniel Pierce+*@ (62) Vice President and Chairman of the Board and Vice President,
Trustee Managing Director, Scudder, Assistant Treasurer
Stevens & Clark, Inc. and Director
Jerard K. Hartman# (63) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph+ (57) Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Treasurer, Assistant
Clerk and Director
Thomas F. McDonough+ (49) Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.
Pamela A. McGrath+ (43) Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell# (51) Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Kathryn L. Quirk# (43) Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens & Clark, Inc.
* Messrs. Lee and Pierce are considered by the Trust and its counsel to
be persons who are "interested persons" of the Adviser or of the Trust
within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all officers and Trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ Messrs. Lee and Pierce are members of the Executive Committee which may exercise
substantially all of the powers of the Board of Trustees when it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
</TABLE>
All Trustees and officers of the Trust as a group owned beneficially
(as that term is defined under Section 13(d) of the Securities Exchange Act)
less than 1% of the shares of the Trust outstanding as of commencement of
operations.
The Trustees who are "interested persons" and the officers serve in
similar capacities with other Scudder Funds.
REMUNERATION
The Trust pays no direct remuneration to any officer of the Trust.
However, several of the officers and Trustees of the Trust may be officers or
Directors of the Adviser, Scudder Service Corporation, Scudder Trust Company,
Scudder Investor Services, Inc. or of Scudder Fund Accounting Corporation and
participate in the fees paid by the Underlying Scudder Funds. Each Underlying
Scudder Fund pays their disinterested Trustees/Directors an annual
trustees'/directors' fee plus a proportionate share of travel and other expenses
incurred in attending Board meetings of the Underlying Scudder Fund on which he
or she serves.
39
<PAGE>
<PAGE>
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement will
remain in effect until September 30, 1997 and from year to year thereafter only
if its continuance is approved annually by a majority of the members of the
Board of Trustees who are not parties to such agreement or interested persons of
any such party and either by vote of a majority of the Board of Trustees or a
majority of the outstanding voting securities of the Trust. The underwriting
agreement was approved by the Trustees on January 10, 1995.
Under the underwriting agreement, the Distributor is not responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of each Portfolio;
the cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Trust and the
Distributor. Such fees will be borne by the Underlying Scudder Funds (or the
Adviser) under the Service Agreement.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of Portfolio shares
to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of Portfolio shares to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by a Portfolio, unless a Rule 12b-1 Plan is in effect
which provides that the Portfolio shall bear some or all of such expenses.
Note: Although the Portfolios do not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, a Portfolio would
also pay those fees and expenses permitted to be paid or assumed by the
Portfolio pursuant to a 12b-1 Plan, if any, were adopted by the
Portfolio, notwithstanding any other provision to the contrary in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Portfolios on
a continuous basis to investors in all states in which shares of the Portfolios
may from time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of a Portfolio.
TAXES
(See "Distribution and performance information -- Dividends and
capital gains distributions" and "Transaction information--Tax
information,
Tax identification number" in the Portfolios' prospectuses.)
Taxation of the Portfolios and Their Shareholders
Each Portfolio intends to qualify annually and elects to be treated as
a regulated investment company under Subchapter M of the Code. As a regulated
investment company, each Portfolio is required to distribute to its shareholders
at least 90 percent of its investment company taxable income (including net
short-term capital gain) and generally is not subject to federal income tax to
the extent that it distributes annually its investment company taxable income
and net realized capital gains in the manner required under the Code.
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Each Portfolio is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of each Portfolio's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Portfolio. Presently,
each Portfolio has no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Portfolio for reinvestment,
requiring federal income taxes to be paid thereon by the Portfolio, the
Portfolio intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, each shareholder will report such
capital gains as long-term capital gains, will be able to claim a proportionate
share of federal income taxes paid by the Portfolio on such gains as a credit
against the shareholder's federal income tax liability, and will be entitled to
increase the adjusted tax basis of the shareholder's Portfolio shares by the
difference between the shareholder's pro rata share of such gains and the
shareholder's tax credit. If a Portfolio makes such an election, it may not be
treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
If an Underlying Scudder Fund derives dividends from domestic
corporations, a portion of the income distributions of a Portfolio which invests
in that Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares
held by Underlying Scudder Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law and is eliminated if
either those shares or the shares of the Underlying Scudder Fund or the
Portfolio are deemed to have been held by the Underlying Scudder Fund, the
Portfolio or the shareholders, as the case may be, for less than 46 days.
Income received by an Underlying Scudder Fund from sources within a
foreign country may be subject to withholding and other taxes imposed by that
country. If more than 50% of the value of an Underlying Scudder Fund's total
assets at the close of its taxable year consists of stock or securities of
foreign corporations, the Underlying Scudder Fund will be eligible and may elect
to "pass-through" to its shareholders, including a Portfolio, the amount of
foreign income and similar taxes paid by the Underlying Scudder Fund. Pursuant
to this election, the Portfolio would be required to include in gross income (in
addition to taxable dividends actually received), its pro rata share of foreign
income and similar taxes in computing its taxable income or to use it as a
foreign tax credit against its U.S. federal income taxes, subject to
limitations. A Portfolio, would not, however, be eligible to elect to
"pass-through" to its shareholders the ability to claim a deduction or credit
with respect to foreign income and similar taxes paid by the Underlying Scudder
Fund.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Portfolio have been held by
such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
41
<PAGE>
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year only if
(i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual and for married couples if only one spouse has earned
income) for that year. There are special rules for determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general, a proportionate amount of each withdrawal will be deemed to be made
from nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Portfolio result in a reduction in the net asset
value of the Portfolio's shares. Should a distribution reduce the net asset
value below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder as ordinary income or capital gain as described
above, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.
Each Portfolio will be required to report to the Internal Revenue
Service ("IRS") all distributions of investment company taxable income and
capital gains as well as gross proceeds from the redemption or exchange of
Portfolio shares, except in the case of certain exempt shareholders. Under the
backup withholding provisions of Section 3406 of the Code, distributions of
investment company taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Portfolio is notified by the IRS or a broker that the taxpayer identification
number furnished by the shareholder is incorrect or that the shareholder has
previously failed to report interest or dividend income. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld.
Shareholders of a Portfolio may be subject to state and local taxes on
distributions received from the Portfolio and on redemptions of the Portfolio's
shares.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Portfolio, including the possibility that such a shareholder may
be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under
an applicable income tax treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from U.S.
sources under the Code.
Taxation of the Underlying Scudder Funds
Each Underlying Scudder Fund intends to qualify annually and elects to
be treated as a regulated investment company under Subchapter M of the Code. In
any year in which an Underlying Scudder Fund qualifies as a regulated investment
company and timely distributes all of its taxable income, the Fund generally
will not pay any federal income or excise tax.
42
<PAGE>
Distributions of an Underlying Scudder Fund's investment company
taxable income are taxable as ordinary income to a Portfolio which invests in
the Fund. Distributions of the excess of an Underlying Scudder Fund's net
long-term capital gain over its net short-term capital loss, which are properly
designated as "capital gain dividends," are taxable as long-term capital gain to
a Portfolio which invests in the Fund, regardless of how long the Portfolio held
the Fund's shares, and are not eligible for the corporate dividends-received
deduction. Upon the sale or other disposition by a Portfolio of shares of an
Underlying Scudder Fund, the Portfolio generally will realize a capital gain or
loss which will be long-term or short-term, generally depending upon the
Portfolio's holding period for the shares.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of addition al information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
Each Portfolio's average annual portfolio turnover rate is the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. Purchases and
sales are made for each Portfolio whenever necessary, in management's opinion,
to meet that Portfolio's objective. Each Portfolio expects to have an annual
portfolio turnover rate not exceeding 50% for its initial fiscal year.
Each Portfolio is expected to operate at a zero expense ratio. To
accomplish this, the payment of a Portfolio's expenses is subject to the Service
Agreement and certain provisions mentioned in the Agreement with the Adviser.
Underlying Scudder Fund Portfolio Turnover Rate (%)(1)
Scudder Cash Investment Trust(2) n/a
Scudder Emerging Markets Income Fund 302.2
Scudder Global Bond Fund 182.8
Scudder GNMA Fund 157.8
Scudder High Yield Bond Fund -
Scudder Income Fund 128.25
Scudder International Bond Fund 275.7
Scudder Short Term Bond Fund 101.1
Scudder Classic Growth Fund -
Scudder Development Fund 58.8
Scudder Emerging Markets Growth Fund -
Scudder Global Fund 29.1
Scudder Global Discovery Fund 43.7
Scudder Gold Fund 29.7
Scudder Greater Europe Growth Fund 39.0
Scudder Growth and Income Fund 26.9
Scudder International Fund 45.2
Scudder Large Company Growth Fund 91.6
Scudder Large Company Value Fund 153.6
Scudder Latin America Fund 39.5
Scudder Micro Cap Fund 0.00
Scudder Pacific Opportunities Fund 64.0
Scudder Small Company Value Fund 33.97
Scudder 21st Century Growth Fund -
Scudder Value Fund 98.2
The Japan Fund 72.6
- ------------------------------
(1) As of each Underlying Scudder Fund's most recent fiscal reporting period.
(2) Scudder Cash Investment Trust is a money market fund.
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<PAGE>
NET ASSET VALUE
The net asset value of Portfolio shares is computed as of the close of
regular trading on the New York Stock Exchange (the "Exchange") on each day the
Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.
The net asset value of each Underlying Scudder Fund is determined based
upon the nature of the securities as set forth in the prospectus and statement
of additional information of such Underlying Scudder Fund. Shares of each
Underlying Scudder Fund in which a Portfolio may invest are valued at the net
asset value per share of each Underlying Scudder Fund as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The net
asset value per share of the Underlying Scudder Funds will be calculated and
reported to a Portfolio by each Underlying Scudder Fund's accounting agent.
Short-term securities with a remaining maturity of sixty days or less are valued
by the amortized cost method.
If, in the opinion of a Portfolio's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Portfolio
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
ADDITIONAL INFORMATION
Other Information
Many of the investment changes in each Portfolio will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of a Portfolio. These transactions will reflect
investment decisions made by the Adviser in the light of its other portfolio
holdings and tax considerations and should not be construed as recommendations
for similar action by other investors.
The CUSIP number of the Conservative Portfolio is 811189-30-7.
The CUSIP number of the Balanced Portfolio is 811189-50-5.
The CUSIP number of the Growth Portfolio is 811189-20-8.
The CUSIP number of the International Portfolio is 811189-60-4.
Each Portfolio has a fiscal year end of September 30.
The Series employs State Street Bank and Trust Company as Custodian.
State Street Bank and Trust Company maintains shares of the Underlying Scudder
Funds in the book entry system of such funds' transfer agent, Scudder Service
Corporation.
The firm of Dechert Price & Rhoads is counsel to the Series.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for the Trust. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans.
The Portfolios' prospectuses and this combined Statement of Additional
Information omit certain information contained in the Registration Statement
which the Trust has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Portfolios and the securities offered hereby. This
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.
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FINANCIAL STATEMENTS
The financial statements, including the investment portfolios of
Scudder Pathway Series, together with the Financial Highlights and notes to
financial statements are incorporated by reference and attached hereto, in the
Semiannual Report to Shareholders of the Series dated March 31, 1997, and are
hereby deemed to be part of this Statement of Additional Information.
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GLOSSARY
Prospective investors should consider certain Underlying Scudder Funds
may engage in the following investment practices.
Strategic Transactions and Derivatives. Certain Underlying Scudder Funds may,
but are not required to, utilize various other investment strategies as
described below to hedge various market risks (such as interest rates, currency
exchange rates, and broad or specific equity or fixed-income market movements),
to manage the effective maturity or duration of fixed-income securities in an
Underlying Scudder Fund's portfolio, or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as part of modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Underlying
Scudder Fund may purchase and sell exchange-listed and over-the-counter put and
call options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures. (Collectively, all the above are called "Strategic
Transactions.") Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Underlying Scudder Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Underlying Scudder Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of fixed-income securities in the Underlying Scudder Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Some Strategic
Transactions may also be used to enhance potential gain although no more than 5%
of the Underlying Scudder Fund's assets will be committed to Strategic
Transactions entered into for non-hedging purposes. Any or all of these
investment techniques may be used at any time and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Underlying Scudder Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Underlying
Scudder Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.
Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Adviser's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater than
if they had not been used. Use of put and call options may result in losses to
the Underlying Scudder Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation the Underlying Scudder Fund can realize on its investments or
cause the Underlying Scudder Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Underlying Scudder Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Underlying Scudder Fund creates the possibility that
losses on the hedging instrument may be greater than gains in the value of the
Underlying Scudder Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Underlying Scudder Fund might
not be able to close out a transaction without incurring substantial losses, if
at all. Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time they tend to limit any potential gain which might
result from an increase in value of such position. Finally, the daily variation
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margin requirements for futures contracts would create a greater ongoing
potential financial risk than would purchases of options, where the exposure is
limited to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized.
General Characteristics of Options. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of Underlying Scudder Fund
assets in special accounts, as described below under "Use of Segregated and
Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, an Underlying Scudder Fund's purchase of a put option on a
security might be designed to protect its holdings in the underlying instrument
(or, in some cases, a similar instrument) against a substantial decline in the
market value by giving an Underlying Scudder Fund the right to sell such
instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller the
obligation to sell, the underlying instrument at the exercise price. An
Underlying Scudder Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect an
Underlying Scudder Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. An Underlying Scudder Fund is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
An Underlying Scudder Fund's ability to close out its position as a
purchaser or seller of an OCC or exchange listed put or call option is
dependent, in part, upon the liquidity of the option market. Among the possible
reasons for the absence of a liquid option market on an exchange are: (i)
insufficient trading interest in certain options; (ii) restrictions on
transactions imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities including reaching daily price limits; (iv) interruption
of the normal operations of the OCC or an exchange; (v) inadequacy of the
facilities of an exchange or OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the relevant market for
that option on that exchange would cease to exist, although outstanding options
on that exchange would generally continue to be exercisable in accordance with
their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
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generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. An
Underlying Scudder Fund will only sell OTC options (other than OTC currency
options) that are subject to a buy-back provision permitting the Underlying
Scudder Fund to require the Counterparty to sell the option back to the
Underlying Scudder Fund at a formula price within seven days. An Underlying
Scudder Fund expects generally to enter into OTC options that have cash
settlement provisions, although not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with an Underlying Scudder Fund or fails to
make a cash settlement payment due in accordance with the terms of that option,
an Underlying Scudder Fund will lose any premium it paid for the option as well
as any anticipated benefit of the transaction. Accordingly, the Adviser must
assess the creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. An Underlying Scudder Fund will
engage in OTC option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers" or
broker/dealers, domestic or foreign banks or other financial institutions which
have received (or the guarantors of the obligation of which have received) a
short-term credit rating of A-1 from S&P or P-1 from Moody's or an equivalent
rating from any nationally recognized statistical rating organization ("NRSRO")
or, in the case of OTC currency transactions, are determined to be of equivalent
credit quality by the Adviser. The staff of the SEC currently takes the position
that OTC options purchased by an Underlying Scudder Fund, and portfolio
securities "covering" the amount of an Underlying Scudder Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to an Underlying
Scudder Fund's limitation on investing no more than 10% of its assets in
illiquid securities.
If an Underlying Scudder Fund sells a call option, the premium that it
receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in
its portfolio or will increase an Underlying Scudder Fund's income. The sale of
put options can also provide income.
An Underlying Scudder Fund may purchase and sell call options on
securities including U.S. Treasury and agency securities, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by an Underlying
Scudder Fund must be "covered" (i.e., an Underlying Scudder Fund must own the
securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though an Underlying Scudder Fund will receive the option premium to help
protect it against loss, a call sold by an Underlying Scudder Fund exposes an
Underlying Scudder Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require an Underlying Scudder Fund to hold a
security or instrument which it might otherwise have sold.
An Underlying Scudder Fund may purchase and sell put options on
securities including U.S. Treasury and agency securities, mortgage-backed
securities, foreign sovereign debt, corporate debt securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts other than futures on individual corporate debt
and individual equity securities. An Underlying Scudder Fund will not sell put
options if, as a result, more than 50% of an Underlying Scudder Fund's assets
would be required to be segregated to cover its potential obligations under such
put options other than those with respect to futures and options thereon. In
selling put options, there is a risk that an Underlying Scudder Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. Certain Underlying Scudder Funds
may enter into financial futures contracts or purchase or sell put and call
options on such futures as a hedge against anticipated interest rate, currency
or equity market changes, for duration management and for risk management
purposes. Futures are generally bought and sold on the commodities exchanges
where they are listed with payment of initial and variation margin as described
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below. The sale of a futures contract creates a firm obligation by an Underlying
Scudder Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures contract and
obligates the seller to deliver such position.
An Underlying Scudder Fund's use of financial futures and options
thereon will in all cases be consistent with applicable regulatory requirements
and in particular the rules and regulations of the Commodity Futures Trading
Commission and will be entered into only for bona fide hedging, risk management
(including duration management) or other portfolio management purposes.
Typically, maintaining a futures contract or selling an option thereon requires
an Underlying Scudder Fund to deposit with a financial intermediary as security
for its obligations an amount of cash or other specified assets (initial margin)
which initially is typically 1% to 10% of the face amount of the contract (but
may be higher in some circumstances). Additional cash or assets (variation
margin) may be required to be deposited thereafter on a daily basis as the mark
to market value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of an Underlying Scudder Fund. If an Underlying
Scudder Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
An Underlying Scudder Fund will not enter into a futures contract or
related option (except for closing transactions) if, immediately thereafter, the
sum of the amount of its initial margin and premiums on open futures contracts
and options thereon would exceed 5% of an Underlying Scudder Fund's total assets
(taken at current value); however, in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. The segregation requirements with respect to
futures contracts and options thereon are described below.
Options on Securities Indices and Other Financial Indices. Certain
Underlying Scudder Funds also may purchase and sell call and put options on
securities indices and other financial indices and in so doing can achieve many
of the same objectives it would achieve through the sale or purchase of options
on individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
Currency Transactions. Certain Underlying Scudder Funds may engage in currency
transactions with Counterparties in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. An Underlying Scudder Fund may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations of which have received) a credit rating of A-1 or P-1 by S&P
or Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
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An Underlying Scudder Fund's dealings in forward currency contracts and
other currency transactions such as futures, options, options on futures and
swaps will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is entering into a currency transaction
with respect to specific assets or liabilities of an Underlying Scudder Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
An Underlying Scudder Fund will not enter into a transaction to hedge
currency exposure to an extent greater, after netting all transactions intended
wholly or partially to offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held in
its portfolio that are denominated or generally quoted in or currently
convertible into such currency, other than with respect to proxy hedging or
cross hedging as described below.
An Underlying Scudder Fund may also cross-hedge currencies by entering
into transactions to purchase or sell one or more currencies that are expected
to decline in value relative to other currencies to which an Underlying Scudder
Fund has or in which an Underlying Scudder Fund expects to have portfolio
exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, an Underlying Scudder Fund may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which an Underlying Scudder Fund's portfolio is exposed is difficult to hedge or
to hedge against the dollar. Proxy hedging entails entering into a forward
contract to sell a currency whose changes in value are generally considered to
be linked to a currency or currencies in which some or all of an Underlying
Scudder Fund's portfolio securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of an
Underlying Scudder Fund's securities denominated in linked currencies. For
example, if the Adviser considers that the Austrian schilling is linked to the
German deutschemark (the "D-mark"), an Underlying Scudder Fund holds securities
denominated in schillings and the Adviser believes that the value of schillings
will decline against the U.S. dollar, the Adviser may enter into a contract to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to an Underlying Scudder Fund if the currency
being hedged fluctuates in value to a degree or in a direction that is not
anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that an Underlying Scudder Fund is engaging in proxy hedging. If
an Underlying Scudder Fund enters into a currency hedging transaction, an
Underlying Scudder Fund will comply with the asset segregation requirements
described below.
Risks of Currency Transactions. Currency transactions are subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments.
These can result in losses to an Underlying Scudder Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
Combined Transactions. Certain Underlying Scudder Funds may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions ("component"
transactions), instead of a single Strategic Transaction, as part of a single or
combined strategy when, in the opinion of the Adviser, it is in the best
interests of an Underlying Scudder Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
<PAGE>
the Adviser's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which certain Underlying Scudder Funds may enter are interest rate, currency and
index swaps and the purchase or sale of related caps, floors and collars. An
Underlying Scudder Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities an
Underlying Scudder Fund anticipates purchasing at a later date. An Underlying
Scudder Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream an Underlying
Scudder Fund may be obligated to pay. Interest rate swaps involve the exchange
by an Underlying Scudder Fund with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index swap
is an agreement to swap cash flows on a notional amount based on changes in the
values of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
An Underlying Scudder Fund will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with an Underlying Scudder
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered into for
good faith hedging purposes, the Adviser and an Underlying Scudder Fund believe
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to its borrowing restrictions.
An Underlying Scudder Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the Counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from a NRSRO or
is determined to be of equivalent credit quality by the Adviser. If there is a
default by the Counterparty, an Underlying Scudder Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. Certain Underlying Scudder Funds may make
investments in Eurodollar instruments. Eurodollar instruments are U.S.
dollar-denominated futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"), although foreign currency-denominated
instruments are available from time to time. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. An Underlying Scudder Fund might use Eurodollar
futures contracts and options thereon to hedge against changes in LIBOR, to
which many interest rate swaps and fixed income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in the
U.S., may not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities, currencies and other instruments. The value of such
positions also could be adversely affected by: (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in an Underlying
Scudder Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the U.S., (iv) the imposition of different exercise
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and settlement terms and procedures and margin requirements than in the U.S.,
and (v) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic
Transactions, in addition to other requirements, require that an Underlying
Scudder Fund segregate liquid assets with its custodian to the extent an
Underlying Scudder Fund's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency. In
general, either the full amount of any obligation by an Underlying Scudder Fund
to pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by an Underlying Scudder Fund will require an
Underlying Scudder Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid securities sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by an
Underlying Scudder Fund on an index will require an Underlying Scudder Fund to
own portfolio securities which correlate with the index or to segregate liquid
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by an Underlying Scudder Fund requires an
Underlying Scudder Fund to segregate liquid assets equal to the exercise price.
Except when an Underlying Scudder Fund enters into a forward contract
for the purchase or sale of a security denominated in a particular currency,
which requires no segregation, a currency contract which obligates an Underlying
Scudder Fund to buy or sell currency will generally require an Underlying
Scudder Fund to hold an amount of that currency or liquid securities denominated
in that currency equal to an Underlying Scudder Fund's obligations or to
segregate liquid assets equal to the amount of an Underlying Scudder Fund's
obligation.
OTC options entered into by an Underlying Scudder Fund, including those
on securities, currency, financial instruments or indices and OCC issued and
exchange listed index options, will generally provide for cash settlement. As a
result, when an Underlying Scudder Fund sells these instruments it will only
segregate an amount of assets equal to its accrued net obligations, as there is
no requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by an
Underlying Scudder Fund, or the in-the-money amount plus any sell-back formula
amount in the case of a cash-settled put or call. In addition, when an
Underlying Scudder Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, an Underlying Scudder Fund will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess. OCC issued and exchange listed options sold by an
Underlying Scudder Fund other than those above generally settle with physical
delivery, or with an election of either physical delivery or cash settlement and
an Underlying Scudder Fund will segregate an amount of assets equal to the full
value of the option. OTC options settling with physical delivery, or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.
In the case of a futures contract or an option thereon, an Underlying
Scudder Fund must deposit initial margin and possible daily variation margin in
addition to segregating assets sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, an Underlying Scudder Fund will accrue the net
amount of the excess, if any, of its obligations over its entitlements with
respect to each swap on a daily basis and will segregate an amount of cash or
liquid securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to an Underlying
Scudder Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. An Underlying Scudder Fund may also enter
into offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, an Underlying Scudder Fund could purchase a
<PAGE>
put option if the strike price of that option is the same or higher than the
strike price of a put option sold by an Underlying Scudder Fund. Moreover,
instead of segregating assets if an Underlying Scudder Fund held a futures or
forward contract, it could purchase a put option on the same futures or forward
contract with a strike price as high or higher than the price of the contract
held. Other Strategic Transactions may also be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
An Underlying Scudder Fund's activities involving Strategic
Transactions may be limited by the requirements of Subchapter M of the Internal
Revenue Code for qualification as a regulated investment company. (See "TAXES.")
Foreign Securities. Certain Underlying Scudder Funds may invest in foreign
securities. The Adviser believes that diversification of assets on an
international basis decreases the degree to which events in any one country,
including the U.S., will affect an investor's entire investment holdings. In
certain periods since World War II, many leading foreign economies and foreign
stock market indices have grown more rapidly than the U.S. economy and leading
U.S. stock market indices, although there can be no assurance that this will be
true in the future. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect an Underlying Scudder Fund's
performance. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may be
less publicly available information about a foreign company than about a
domestic company. Many foreign securities markets, while growing in volume of
trading activity, have substantially less volume than the U.S. market, and
securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Fixed commissions on some foreign securities exchanges
and bid to asked spreads in foreign bond markets are generally higher than
commissions or bid to asked spreads on U.S. markets, although an Underlying
Scudder Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for an Underlying Scudder Fund's agents to keep
currently informed about corporate actions which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Payment for securities without delivery may be required in certain
foreign markets. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of an
Underlying Scudder Fund seeks to mitigate the risks associated with the
foregoing considerations through continuous professional management.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because certain Underlying Scudder
Funds may hold foreign currencies and forward contracts, futures contracts and
options on foreign currencies and foreign currency futures contracts, the value
of the assets of such Underlying Scudder Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Underlying Scudder Fund may incur
costs in connection with conversions between various currencies. Although an
Underlying Scudder Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to an Underlying
Scudder Fund at one rate, while offering a lesser rate of exchange should the
Underlying Scudder Fund desire to resell that currency to the dealer. An
Underlying Scudder Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into options or forward or futures
contracts to purchase or sell foreign currencies.
<PAGE>
Repurchase Agreements. Certain Underlying Scudder Funds may enter into
repurchase agreements with member banks of the Federal Reserve System, any
foreign bank, if the repurchase agreement is fully secured by government
securities of the particular foreign jurisdiction, or with any domestic or
foreign broker/dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker/dealer has been determined
by the Adviser to be at least as high as that of other obligations the relevant
Underlying Scudder Fund may purchase, or to be at least equal to that of issuers
of commercial paper rated within the two highest grades assigned by Moody's or
S&P.
A repurchase agreement provides a means for an Underlying Scudder Fund
to earn income on assets for periods as short as overnight. It is an arrangement
under which the purchaser (i.e., the Underlying Scudder Fund) acquires a
security ("Obligation") and the seller agrees, at the time of sale, to
repurchase the Obligation at a specified time and price. Securities subject to a
repurchase agreement are held in a segregated account and the value of such
securities kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to the Underlying Scudder Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Underlying Scudder Fund
together with the repurchase price upon repurchase. In either case, the income
to the Underlying Scudder Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be held by the Custodian or in the Federal
Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from an Underlying Scudder Fund to the seller of the Obligation subject to
the repurchase agreement and is therefore subject to that Underlying Scudder
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the Obligation purchased by an Underlying Scudder Fund
subject to a repurchase agreement as being owned by the Underlying Scudder Fund
or as being collateral for a loan by the Underlying Scudder Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, an Underlying Scudder Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. If the court characterizes the
transaction as a loan and the Underlying Scudder Fund has not perfected a
security interest in the Obligation, the Underlying Scudder Fund may be required
to return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, the Underlying Scudder Fund
would be at risk of losing some or all of the principal and income involved in
the transaction. As with any unsecured debt instrument purchased for the
Underlying Scudder Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the Obligation. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the Obligation, in which case an Underlying Scudder Fund may incur a
loss if the proceeds to the Underlying Scudder Fund of the sale to a third party
are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Underlying Scudder Fund will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that an Underlying Scudder Fund will be
unsuccessful in seeking to impose on the seller a contractual obligation to
deliver additional securities.
Convertible Securities. Certain Underlying Scudder Funds may invest in
convertible securities, that is, bonds, notes, debentures, preferred stocks and
other securities which are convertible into common stock. Investments in
convertible securities can provide an opportunity for capital appreciation
and/or income through interest and dividend payments by virtue of their
conversion or exchange features.
The convertible securities in which an Underlying Scudder Fund may
invest are either fixed income or zero coupon debt securities which may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
<PAGE>
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
High Yield, High Risk Securities. Below investment grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities of
equivalent quality, in which certain Underlying Scudder Funds may invest, carry
a high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. See the Appendix to this combined Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
Economic downturns have in the past, and could in the future, disrupted
the high yield market and impaired the ability of issuers to repay principal and
interest. Also, an increase in interest rates would likely have a greater
adverse impact on the value of such obligations than on comparable higher
quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issues may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect an Underlying Scudder Fund's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of an
Underlying Scudder Fund to accurately value high yield securities in the
Underlying Scudder Fund's portfolio and to dispose of those securities. Adverse
publicity and investor perceptions may decrease the values and liquidity of high
yield securities. These securities may also involve special registration
responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of an
Underlying Scudder Fund's investment objective by investment in such securities
may be more dependent on the Adviser's credit analysis than is the case for
higher quality bonds. Should the rating of a portfolio security be downgraded,
the Adviser will determine whether it is in the best interest of the Underlying
Scudder Fund to retain or dispose of such security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
<PAGE>
Dollar Roll Transactions. Certain Underlying Scudder Funds may enter into
"dollar roll" transactions, which consist of the sale by an Underlying Scudder
Fund to a bank or broker/dealers (the "counterparty") of GNMA certificates or
other mortgage-backed securities together with a commitment to purchase from the
counterparty similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. The
Underlying Scudder Fund receives a fee from the counterparty as consideration
for entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different purchase and repurchase price fixed
and a cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm commitment
agreement pursuant to which the Underlying Scudder Fund agrees to buy a security
on a future date.
An Underlying Scudder Fund will not use such transactions for
leveraging purposes and, accordingly, will segregate cash, U.S. Government
securities or other high grade debt obligations in an amount sufficient to meet
its purchase obligations under the transactions. An Underlying Scudder Fund will
also maintain asset coverage of at least 300% for all outstanding firm
commitments, dollar rolls and other borrowings.
Dollar rolls are treated for purposes of the 1940 Act as borrowings of
an Underlying Scudder Fund because they involve the sale of a security coupled
with an agreement to repurchase. Like all borrowings, a dollar roll involves
costs to the Underlying Scudder Fund. For example, while the Underlying Scudder
Fund receives a fee as consideration for agreeing to repurchase the security,
the Underlying Scudder Fund forgoes the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Underlying Scudder Fund,
thereby effectively charging the Underlying Scudder Fund interest on its
borrowing. Further, although the Underlying Scudder Fund can estimate the amount
of expected principal prepayment over the term of the dollar roll, a variation
in the actual amount of prepayment could increase or decrease the cost of the
Underlying Scudder Fund's borrowing.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, an Underlying Scudder Fund's
right to purchase from the counterparty might be restricted. Additionally, the
value of such securities may change adversely before the Underlying Scudder Fund
is able to purchase them. Similarly, the Underlying Scudder Fund may be required
to purchase securities in connection with a dollar roll at a higher price than
may otherwise be available on the open market. Since, as noted above, the
counterparty is required to deliver a similar, but not identical security to the
Underlying Scudder Fund, the security that the Underlying Scudder Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that an Underlying Scudder Fund's
use of the cash that it receives from a dollar roll will provide a return that
exceeds borrowing costs.
The Directors/Trustees of the Underlying Scudder Funds have adopted
guidelines to ensure that those securities received are substantially identical
to those sold. To reduce the risk of default, an Underlying Scudder Fund will
engage in such transactions only with counterparties selected pursuant to such
guidelines.
Lending of Portfolio Securities. Certain Underlying Scudder Funds may seek to
increase their income by lending portfolio securities. Such loans may be made to
registered broker/dealers, and are required to be secured continuously by
collateral in cash, U.S. Government securities and high grade debt obligations,
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. An Underlying Scudder Fund has
the right to call a loan and obtain the securities loaned on no more than five
days' notice. During the existence of a loan, the Underlying Scudder Fund
continues to receive the equivalent of any distributions paid by the issuer on
the securities loaned and also receives compensation based on investment of the
collateral. As with other extensions of credit there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans may be made only to firms deemed
by the Adviser to be of good standing.
Indexed Securities. Certain Underlying Scudder Funds may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.
<PAGE>
Indexed securities differ from other types of debt securities in which
an Underlying Scudder Fund may invest in several respects. First, the interest
rate or, unlike other debt securities, the principal amount payable at maturity
of an indexed security may vary based on changes in one or more specified
reference instruments, such as an interest rate compared with a fixed interest
rate or the currency exchange rates between two currencies (neither of which
need be the currency in which the instrument is denominated). The reference
instrument need not be related to the terms of the indexed security. For
example, the principal amount of a U.S. dollar denominated indexed security may
vary based on the exchange rate of two foreign currencies. An indexed security
may be positively or negatively indexed; that is, its value may increase or
decrease if the value of the reference instrument increases. Further, the change
in the principal amount payable or the interest rate of an indexed security may
be a multiple of the percentage change (positive or negative) in the value of
the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
Trust Preferred Securities. Certain Underlying Scudder Funds invest in Trust
Preferred Securities, which are hybrid instruments issued by a special purpose
trust (the "Special Trust"), the entire equity interest of which is owned by a
single issuer. The proceeds of the issuance to the Underlying Scudder Funds of
Trust Preferred Securities are typically used to purchase a junior subordinated
debenture, and distributions from the Special Trust are funded by the payments
of principal and interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Underlying Scudder Funds, would be required to accrue daily for Federal income
tax purposes, their share of the stated interest and the de minimis OID on the
debentures (regardless of whether an Underlying Scudder Fund receives any cash
distributions from the Special Trust), and the value of Trust Preferred
Securities would likely be negatively affected. Interest payments on the
underlying junior subordinated debentures typically may only be deferred if
dividends are suspended on both common and preferred stock of the issuer. The
underlying junior subordinated debentures generally rank slightly higher in
terms of payment priority than both common and preferred securities of the
issuer, but rank below other subordinated debentures and debt securities. Trust
Preferred Securities may be subject to mandatory prepayment under certain
circumstances. The market values of Trust Preferred Securities may be more
volatile than those of conventional debt securities. Trust Preferred Securities
may be issued in reliance on Rule 144A under the Securities Act of 1933, as
amended, and, unless and until registered, are restricted securities; there can
be no assurance as to the liquidity of Trust Preferred Securities and the
ability of holders of Trust Preferred Securities, such as the Underlying Scudder
Funds, to sell their holdings.
Zero Coupon Securities. Certain Underlying Scudder Funds may invest in zero
coupon securities which pay no cash income and are sold at substantial discounts
from their value at maturity. When held to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation (or
depreciation) as increases (or decreases) in market value of such securities
closely follow the movements in the market value of the underlying common stock.
Zero coupon convertible securities generally are expected to be less volatile
than the underlying common stocks because zero coupon convertible securities are
usually issued with shorter maturities (15 years or less) and with options
and/or redemption features exercisable by the holder of the obligation entitling
the holder to redeem the obligation and receive a defined cash payment.
<PAGE>
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as an Underlying Scudder
Fund, most likely will be deemed the beneficial holder of the underlying U.S.
government securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself. (See "TAXES.")
When-Issued Securities. Certain Underlying Scudder Funds may purchase securities
on a "when-issued" or "forward delivery" basis for payment and delivery at a
later date. The price of such securities, which is generally expressed in yield
terms, is generally fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities takes
place at a later date. During the period between purchase and settlement, no
payment is made by an Underlying Scudder Fund to the issuer and no interest on
the when-issued or forward delivery securities accrues to the Underlying Scudder
Fund. To the extent that assets of the Underlying Scudder Fund are held in cash
pending the settlement of a purchase of securities, the Underlying Scudder Fund
will earn no income; however, it is the Underlying Scudder Fund's intention to
be fully invested to the extent practicable and subject to the policies stated
above. While when-issued or forward delivery securities may be sold prior to the
settlement date, the Underlying Scudder Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Underlying Scudder Fund makes the commitment
to purchase a security on a when-issued or forward delivery basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. At the time of settlement, the market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Underlying Scudder Fund does not believe that its net asset value or income will
be adversely affected by its purchase of securities on a when-issued or forward
delivery basis.
Real Estate Investment Trusts. Certain Underlying Scudder Funds invest in REITs.
REITs are sometimes informally characterized as equity REITs, mortgage REITs and
hybrid REITs. Investment in REITs may subject an Underlying Scudder Fund to
risks associated with the direct ownership of real estate, such as decreases in
real estate values, overbuilding, increased competition and other risks related
to local or general economic conditions, increases in operating costs and
property taxes, changes in zoning laws, casualty or condemnation losses,
possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
<PAGE>
rates may also affect the value of an Underlying Scudder Fund's investment in
REITs. For instance, during periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, which
prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended and to maintain exemption from the registration requirements
of the 1940 Act. By investing in REITs indirectly through an Underlying Scudder
Fund, a shareholder will bear not only his or her proportionate share of the
expenses of an Underlying Scudder Fund's, but also, indirectly, similar expenses
of the REITs. In addition, REITs depend generally on their ability to generate
cash flow to make distributions to shareholders.
Mortgage-Backed Securities and Mortgage Pass-Through Securities. Certain
Underlying Scudder Funds may also invest in mortgage-backed securities, which
are interests in pools of mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks, and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related, and private organizations as further
described below. An Underlying Scudder Fund may also invest in debt securities
which are secured with collateral consisting of mortgage-backed securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose an Underlying Scudder Fund to a lower rate
of return upon reinvestment. To the extent that such mortgage-backed securities
are held by the Underlying Scudder Fund, the prepayment right will tend to limit
to some degree the increase in net asset value of the Underlying Scudder Fund
because the value of the mortgage-backed securities held by the Underlying
Scudder Fund may not appreciate as rapidly as the price of non-callable debt
securities.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing, or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities such as
securities issued by the Government National Mortgage Association ("GNMA") are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage-backed securities or to the
value of Underlying Scudder Fund shares. Also, GNMA securities often are
purchased at a premium over the maturity value of the underlying mortgages. This
premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
<PAGE>
commercial banks, credit unions, and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers, and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets an Underlying Scudder
Fund's investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Underlying Scudder Fund may buy mortgage-related
securities without insurance or guarantees, if through an examination of the
loan experience and practices of the originators/servicers and poolers, the
Adviser determines that the securities meet the Underlying Scudder Fund's
quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.
Collateralized Mortgage Obligations ("CMO"s). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal are paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
<PAGE>
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Backed Securities. The Adviser expects that
governmental, government-related, or private entities may create mortgage loan
pools and other mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. An Underlying Scudder Fund will not purchase mortgage-backed
securities or any other assets which, in the opinion of the Adviser, are
illiquid if, as a result, more than 10% of the value of the Underlying Scudder
Fund's total assets will be illiquid. As new types of mortgage-related
securities are developed and offered to investors, the Adviser will, consistent
with the Underlying Scudder Fund's investment objective, policies, and quality
standards, consider making investments in such new types of mortgage-related
securities.
Other Asset-Backed Securities. The securitization techniques used to
develop mortgaged-backed securities are now being applied to a broad range of
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans, computer leases and credit card
receivables, are being securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a structure similar to
the CMO structure. Consistent with an Underlying Scudder Fund's investment
objectives and policies, the Underlying Scudder Fund may invest in these and
other types of asset-backed securities that may be developed in the future. In
general, the collateral supporting these securities is of shorter maturity than
mortgage loans and is less likely to experience substantial prepayments with
interest rate fluctuations.
Several types of asset-backed securities have already been offered to
investors, including Certificates for Automobile ReceivablesSM ("CARSSM").
CARSSM represent undivided fractional interests in a trust ("Trust") whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage to
or loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
<PAGE>
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. An Underlying Scudder Fund will not pay any additional or
separate fees for credit support. The degree of credit support provided for each
issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in excess
of that anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.
An Underlying Scudder Fund may also invest in residual interests in
asset-backed securities. In the case of asset-backed securities issued in a
pass-through structure, the cash flow generated by the underlying assets is
applied to make required payments on the securities and to pay related
administrative expenses. The residual in an asset-backed security pass-through
structure represents the interest in any excess cash flow remaining after making
the foregoing payments. The amount of residual cash flow resulting from a
particular issue of asset-backed securities will depend on, among other things,
the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses and
the actual prepayment experience on the underlying assets. Asset-backed security
residuals not registered under the Securities Act of 1933 may be subject to
certain restrictions on transferability and would be subject to the Underlying
Scudder Fund's restriction on restricted or illiquid securities. In addition,
there may be no liquid market for such securities.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require the Underlying Scudder Fund to dispose of any then existing holdings
of such securities.
Repurchase Commitments. Certain Underlying Scudder Funds may enter into
repurchase commitments with any party deemed creditworthy by the Adviser,
including foreign banks and broker/dealers, if the transaction is entered into
for investment purposes and the counterparty's creditworthiness is at least
equal to that of issuers of securities which an Underlying Scudder Fund may
purchase. Such transactions may not provide the Underlying Scudder Fund with
collateral marked-to-market during the term of the commitment.
Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, those
Underlying Scudder Funds which are permitted to invest in securities of Latin
American issuers could lose their entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
<PAGE>
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
An Underlying Scudder Fund may invest a portion of its assets in
securities denominated in currencies of Latin American countries. Accordingly,
changes in the value of these currencies against the U.S. dollar may result in
corresponding changes in the U.S. dollar value of the Underlying Scudder Fund's
assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Underlying Scudder Fund's portfolio securities are
denominated may have a detrimental impact on the Underlying Scudder Fund's net
asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to the
Underlying Scudder Fund at a higher rate than those imposed by other foreign
countries. This may reduce the Underlying Scudder Fund's investment income
available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in Gross Domestic Product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly restructured. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Underlying Scudder Fund's investments in this region.
<PAGE>
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.
Depositary Receipts. Certain Underlying Scudder Funds may invest indirectly in
securities of emerging country issuers through sponsored or unsponsored American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), International
Depositary Receipts ("IDRs") and other types of Depositary Receipts (which,
together with ADRs, GDRs and IDRs are hereinafter referred to as "Depositary
Receipts"). Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a U.S.
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. GDRs, IDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the
United States securities markets and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. For purposes
of an Underlying Scudder Fund's investment policies, the Underlying Scudder
Fund's investments in ADRs, GDRs and other types of Depositary Receipts will be
deemed to be investments in the underlying securities. Depositary Receipts other
than those denominated in U.S. dollars will be subject to foreign currency
exchange rate risk. Certain Depositary Receipts may not be listed on an exchange
and therefore may be illiquid securities.
Loan Participations and Assignments. Certain Underlying Scudder Funds may invest
in fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). An Underlying Scudder Fund's investments in Loans in
Latin America are expected in most instances to be in the form of participations
in Loans ("Participations") and assignments of portions of Loans ("Assignments")
from third parties. Participations typically will result in the Underlying
Scudder Fund having a contractual relationship only with the Lender and not with
the borrower. The Underlying Scudder Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Underlying Scudder Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Underlying Scudder Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Underlying Scudder Fund will
assume the credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Underlying Scudder Fund may be treated as a general creditor
of the Lender and may not benefit from any set-off between the Lender and the
borrower. The Underlying Scudder Fund will acquire Participations only if the
Lender interpositioned between the Underlying Scudder Fund and the borrower is
determined by the Adviser to be creditworthy.
When an Underlying Scudder Fund purchases Assignments from Lenders, the
Underlying Scudder Fund will acquire direct rights against the borrower on the
Loan. Because Assignments are arranged through private negotiations between
potential assignees and potential assignors, however, the rights and obligations
acquired by the Underlying Scudder Fund as the purchaser of an Assignment may
differ from, and may be more limited than, those held by the assigning Lender.
An Underlying Scudder Fund may have difficulty disposing of Assignments
and Participations. Because no liquid market for these obligations typically
exists, the Underlying Scudder Fund anticipates that these obligations could be
sold only to a limited number of institutional investors. The lack of a liquid
secondary market will have an adverse effect on the Underlying Scudder Fund's
<PAGE>
ability to dispose of particular Assignments or Participations when necessary to
meet the Underlying Scudder Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations may
also make it more difficult for the Underlying Scudder Fund to assign a value to
those securities for purposes of valuing the Underlying Scudder Fund's portfolio
and calculating its net asset value.
Illiquid or Restricted Securities. Certain Underlying Scudder Funds may
occasionally purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable," i.e., securities which cannot be sold
to the public without registration under the Securities Act of 1933 (the "1933
Act") or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. An Underlying Scudder Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Underlying Scudder Fund may be liable to
purchasers of such securities if the registration statement prepared by the
issuer, or the prospectus forming a part of it, is materially inaccurate or
misleading.
Some Underlying Scudder Funds will not invest more than 15% of their
net assets in securities which are not readily marketable, the disposition of
which is restricted under Federal securities laws or in repurchase agreements
not terminable within 7 days, and such Underlying Scudder Funds will not invest
more than 10% of their total assets in restricted securities. Certain Underlying
Scudder Funds will not invest more than 10% of their net assets in securities
which are not readily marketable, the disposition of which are restricted under
Federal securities laws or in repurchase agreements not terminable within seven
days, and such Underlying Scudder Funds will not invest more than 5% of their
total assets in restricted securities. Certain Underlying Scudder Funds will not
invest more than 15% of their net assets in illiquid securities.
Special Considerations Affecting the Pacific Basin. Economies of
individual Pacific Basin countries in which certain Underlying Scudder Funds may
invest, may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, interest rate levels, and balance of
payments position. Of particular importance, most of the economies in this
region of the world are heavily dependent upon exports, particularly to
developed countries, and, accordingly, have been and may continue to be
adversely affected by trade barriers, managed adjustments in relative currency
values, and other protectionist measures imposed or negotiated by the U.S. and
other countries with which they trade. These economies also have been and may
continue to be negatively impacted by economic conditions in the U.S. and other
trading partners, which can lower the demand for goods produced in the Pacific
Basin.
With respect to the Peoples Republic of China and other markets in
which an Underlying Scudder Fund may participate, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments that could
adversely impact a Pacific Basin country or the Underlying Scudder Fund's
investment in that country.
Trading volume on Pacific Basin stock exchanges outside of Japan,
although increasing, is substantially less than in the U.S. stock market.
Further, securities of some Pacific Basin companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
Pacific Basin stock exchanges are generally higher than negotiated commissions
on U.S. exchanges, although the Underlying Scudder Fund endeavors to achieve the
most favorable net results on its portfolio transactions and may be able to
purchase securities in which the Underlying Scudder Fund may invest on other
stock exchanges where commissions are negotiable.
<PAGE>
Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation of Pacific Basin stock exchanges, brokers,
and listed companies than in the U.S.
Investing in Europe. Most Eastern European nations in which certain
Underlying Scudder Funds may invest, including Hungary, Poland, Czechoslovakia,
and Romania have had centrally planned, socialist economies since shortly after
World War II. A number of their governments, including those of Hungary, the
Czech Republic, and Poland are currently implementing or considering reforms
directed at political and economic liberalization, including efforts to foster
multi-party political systems, decentralize economic planning, and move toward
free market economies. At present, no Eastern European country has a developed
stock market, but Poland, Hungary, and the Czech Republic have small securities
markets in operation. Ethnic and civil conflict currently rage through the
former Yugoslavia. The outcome is uncertain.
Both the EC and Japan, among others, have made overtures to establish
trading arrangements and assist in the economic development of the Eastern
European nations. A great deal of interest also surrounds opportunities created
by the reunification of East and West Germany. Following reunification, the
Federal Republic of Germany has remained a firm and reliable member of the EC
and numerous other international alliances and organizations. To reduce
inflation caused by the unification of East and West Germany, Germany has
adopted a tight monetary policy which has led to weakened exports and a reduced
domestic demand for goods and services. However, in the long-term, reunification
could prove to be an engine for domestic and international growth.
The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that their
goals will be achieved.
Portugal is a genuinely emerging market which has experienced rapid
growth since the mid-1980s, except for a brief period of stagnation over
1990-91. Portugal's government remains committed to privatization of the
financial system away from one dependent upon the banking system to a more
balanced structure appropriate for the requirements of a modern economy.
Inflation continues to be about three times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in
the 1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (GDP) increasing more than 6%
annually. Agriculture remains the most important economic sector, employing
approximately 55% of the labor force, and accounting for nearly 20% of GDP and
20% of exports. Inflation and interest rates remain high, and a large budget
deficit will continue to cause difficulties in Turkey's substantial
transformation to a dynamic free market economy.
Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.
Securities traded in certain emerging European securities markets may
be subject to risks due to the inexperience of financial intermediaries, the
lack of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims of which have not been entirely settled. There can be no assurance that
the Underlying Scudder Fund's investments in Eastern Europe would not also be
expropriated, nationalized or otherwise confiscated. Finally, any change in
leadership or policies of Eastern European countries, or countries that exercise
<PAGE>
a significant influence over those countries, may halt the expansion of or
reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
Investing in Africa. Many of the countries in which certain Underlying
Scudder Funds may invest are fraught with political instability. However, there
has been a trend over the past five years toward democratization. Many countries
are moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.
Africa is a continent of roughly 50 countries with a total population
of approximately 840 million people. Literacy rates (the percentage of people
who are over 15 years of age and who can read and write) are relatively low,
ranging from 20% to 60%. The primary industries include crude oil, natural gas,
manganese ore, phosphate, bauxite, copper, iron, diamond, cotton, coffee, cocoa,
timber, tobacco, sugar, tourism, and cattle.
Economically, the Northern Rim countries (including Morocco, Egypt, and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as
Burkina, Madagascar, and Malawi, that are considered to be among the poorest or
least developed in the world. These countries are generally landlocked or have
poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP.
However, general decline in oil prices has had an adverse impact on many
economies.
Brady Bonds. Certain Underlying Scudder Funds may invest in Brady Bonds, which
are securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented to date in Mexico, Uruguay,
Venezuela, Costa Rica, Argentina, Nigeria, and the Philippines.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
bonds or floating rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds, with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative. Over $82
billion in Brady Bonds have been issued by countries in Africa and Latin
America, with 90% of these Brady Bonds being denominated in U.S. dollars.
Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
<PAGE>
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
Borrowing. Certain Underlying Scudder Funds are authorized to borrow money for
purposes of liquidity and to provide for redemptions and distributions. An
Underlying Scudder Fund will borrow only when the Adviser believes that
borrowing will benefit the Underlying Scudder Fund after taking into account
considerations such as the costs of the borrowing. The Underlying Scudder Fund
does not expect to borrow for investment purposes, to increase return or
leverage the portfolio. Borrowing by the Underlying Scudder Fund will involve
special risk considerations. Although the principal of the Underlying Scudder
Fund's borrowings will be fixed, the Underlying Scudder Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk.
Municipal Obligations. Certain Underlying Scudder Funds may acquire municipal
obligations when, due to disparities in the debt securities markets, the
anticipated total return on such obligations is higher than that on taxable
obligations. The Underlying Scudder Fund has no current intention of purchasing
tax-exempt municipal obligations that would amount to greater than 5% of the
Underlying Scudder Fund's total assets.
Municipal obligations are issued by or on behalf of states,
territories, and possessions of the U.S., and their political subdivisions,
agencies, and instrumentalities, and the District of Columbia to obtain funds
for various public purposes. The interest on these obligations is generally
exempt from federal income tax in the hands of most investors. The two principal
classifications of municipal obligations are "notes" and "bonds." The return on
municipal obligations is ordinarily lower than that of taxable obligations.
Eastern Europe. Certain Underlying Scudder Funds may invest up to 5% of their
total assets in the securities of issuers domiciled in Eastern European
countries. Investments in companies domiciled in Eastern European countries may
be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Underlying
Scudder Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the countries of the former Soviet Union.
Investments in such countries involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that such expropriation will not occur in the future. In the event of such
expropriation, the Underlying Scudder Fund could lose a substantial portion of
any investments it has made in the affected countries. Further, no accounting
standards exist in East European countries. Finally, even though certain East
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the
Underlying Scudder Fund's shareholders.
<PAGE>
Small Company Risk. The Adviser believes that small companies often have sales
and earnings growth rates which exceed those of larger companies, and that such
growth rates may in turn be reflected in more rapid share price appreciation
over time. However, investing in smaller company stocks involves greater risk
than is customarily associated with investing in larger, more established
companies. For example, smaller companies can have limited product lines,
markets, or financial and managerial resources. Smaller companies may also be
dependent on one or a few key persons, and may be more susceptible to losses and
risks of bankruptcy. Also, the securities of the smaller companies in which
certain Underlying Scudder Funds may invest, may be thinly traded (and therefore
have to be sold at a discount from current market prices or sold in small lots
over an extended period of time). Transaction costs in smaller company stocks
may be higher than those of larger companies.
Asset-Indexed Securities. Certain Underlying Scudder Funds may purchase
asset-indexed securities which are debt securities usually issued by companies
in precious metals related businesses such as mining, the principal amount,
redemption terms, or interest rates of which are related to the market price of
a specified precious metal. An Underlying Scudder Fund will only enter into
transactions in publicly traded asset-indexed securities. Market prices of
asset-indexed securities will relate primarily to changes in the market prices
of the precious metals to which the securities are indexed rather than to
changes in market rates of interest. However, there may not be a perfect
correlation between the price movements of the asset-indexed securities and the
underlying precious metals. Asset-indexed securities typically bear interest or
pay dividends at below market rates (and in certain cases at nominal rates). The
Underlying Scudder Fund will purchase asset-indexed securities to the extent
permitted by law.
Short Sales Against the Box. Certain Underlying Scudder Funds may make short
sales of common stocks if, at all times when a short position is open, an
Underlying Scudder Fund owns the stock or owns preferred stocks or debt
securities convertible or exchangeable, without payment of further
consideration, into the shares of common stock sold short. Short sales of this
kind are referred to as short sales "against the box." The broker/dealer that
executes a short sale generally invests cash proceeds of the sale until they are
paid to the Underlying Scudder Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Underlying Scudder Fund will segregate
the common stock or convertible or exchangeable preferred stock or debt
securities in a special account with the Custodian. The extent to which the
Underlying Scudder Fund may make short sales of common stocks may be limited by
the requirements contained in the Internal Revenue Code of 1986, as amended (the
"Code") for qualification as a regulated investment company. (See "TAXES.")
Investing in Emerging Markets. Most emerging securities markets in which certain
Underlying Scudder Funds may invest, may have substantially less volume and are
subject to less government supervision than U.S. securities markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the United States.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions. Delays in
settlement could result in temporary periods when a portion of the assets of an
Underlying Scudder Fund is uninvested and no cash is earned thereon. The
inability of the Underlying Scudder Fund to make intended security purchases due
to settlement problems could cause the Underlying Scudder Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Underlying Scudder Fund due to subsequent declines in value of the portfolio
security or, if the Underlying Scudder Fund has entered into a contract to sell
the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities are generally higher than
costs associated with transactions in U.S. securities. Such transactions also
involve additional costs for the purchase or sale of foreign currency.
Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging markets debt
obligations and increase the costs and expenses of an Underlying Scudder Fund.
Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
<PAGE>
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging markets may also
restrict investment opportunities in issuers in industries deemed important to
national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. An Underlying
Scudder Fund could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation of capital, as well as by
the application to the Underlying Scudder Fund of any restrictions on
investments.
In the course of investment in emerging market debt obligations, an
Underlying Scudder Fund will be exposed to the direct or indirect consequences
of political, social and economic changes in one or more emerging markets.
Political changes in emerging market countries may affect the willingness of an
emerging market country governmental issuer to make or provide for timely
payments of its obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external debt and its
gross domestic product, also affects its ability to honor its obligations. While
the Underlying Scudder Fund will manage its assets in a manner that will seek to
minimize the exposure to such risks, and will further reduce risk by owning the
bonds of many issuers, there can be no assurance that adverse political, social
or economic changes will not cause the Underlying Scudder Fund to suffer a loss
of value in respect of the securities in the Underlying Scudder Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for an Underlying Scudder Fund's
securities in such markets may not be readily available. The Corporation may
suspend redemption of its shares for any period during which an emergency
exists, as determined by the Securities and Exchange Commission (the
"Commission"). Accordingly if the Underlying Scudder Fund believes that
appropriate circumstances exist, it will promptly apply to the Commission for a
determination that an emergency is present. During the period commencing from
the Underlying Scudder Fund's identification of such condition until the date of
the Commission action, the Underlying Scudder Fund's securities in the affected
markets will be valued at fair value determined in good faith by or under the
direction of the Board of Directors.
Volume and liquidity in most foreign bond markets are less than in the
United States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although an Underlying Scudder Fund endeavors to achieve the
most favorable net results on its portfolio transactions. There is generally
less government supervision and regulation of business and industry practices,
securities exchanges, brokers, dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain emerging markets,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect the Underlying
Scudder Fund's investments in those countries. Moreover, individual emerging
market economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. The
chart below sets forth the risk ratings of selected emerging market countries'
sovereign debt securities.
<PAGE>
Sovereign Risk Ratings for Selected Emerging Market Countries as of 2/23/96
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)
Country Moody's Standard & Poor's
Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Ba1 BB+
Colombia Baa3 BBB-
Venezuela Ba2 B+
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BB
Ivory Coast NR NR
An Underlying Scudder Fund may have limited legal recourse in the event
of a default with respect to certain debt obligations it holds. If the issuer of
a fixed-income security owned by the Underlying Scudder Fund defaults, the
Underlying Scudder Fund may incur additional expenses to seek recovery. Debt
obligations issued by emerging market country governments differ from debt
obligations of private entities; remedies from defaults on debt obligations
issued by emerging market governments, unlike those on private debt, must be
pursued in the courts of the defaulting party itself. The Underlying Scudder
Fund's ability to enforce its rights against private issuers may be limited. The
ability to attach assets to enforce a judgment may be limited. Legal recourse is
therefore somewhat diminished. Bankruptcy, moratorium and other similar laws
applicable to private issuers of debt obligations may be substantially different
from those of other countries. The political context, expressed as an emerging
market governmental issuer's willingness to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt may not contest
payments to the holders of debt obligations in the event of default under
commercial bank loan agreements. With four exceptions, (Panama, Cuba, Costa Rica
and Yugoslavia), no sovereign emerging markets borrower has defaulted on an
external bond issue since World War II.
Income from securities held by an Underlying Scudder Fund could be
reduced by a withholding tax on the source or other taxes imposed by the
emerging market countries in which the Underlying Scudder Fund makes its
investments. The Underlying Scudder Fund's net asset value may also be affected
by changes in the rates or methods of taxation applicable to the Underlying
Scudder Fund or to entities in which the Underlying Scudder Fund has invested.
The Adviser will consider the cost of any taxes in determining whether to
acquire any particular investments, but can provide no assurance that the taxes
will not be subject to change.
Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
<PAGE>
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Underlying Scudder Fund's portfolio. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments have occurred frequently over the history of certain emerging
markets and could adversely affect the Underlying Scudder Fund's assets should
these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
Investments Involving Above-Average Risk. Certain Underlying Scudder Funds may
purchase securities involving above-average risk. For example, an Underlying
Scudder Fund has invested from time to time in relatively new companies but is
limited by a non-fundamental policy that it may not invest more than 5% of its
total assets in companies that, with their predecessors, have been in continuous
operation for less than three years. The Underlying Scudder Fund's portfolio may
also include the securities of small or little-known companies, commonly
referred to as emerging growth companies, that the Adviser believes have
above-average earnings growth potential and/or may receive greater market
recognition. Both factors are believed to offer significant opportunity for
capital appreciation. Investment risk is higher than that normally associated
with larger, older companies due to the higher business risks associated with
small size, frequently narrow product lines and relative immaturity. To help
reduce risk, the Underlying Scudder Fund allocates its investments among many
companies and different industries.
The securities of such companies are often traded only over-the-counter
and may not be traded in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Underlying Scudder Fund of
holdings of such securities may require the Underlying Scudder Fund to offer a
discount from recent prices or to make many small sales over a lengthy period of
time. Such securities may be subject to more abrupt or erratic market movements
than those typically encountered on national securities exchanges.
<PAGE>
Scudder
Pathway Series:
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Semiannual Report
March 31, 1997
Pure No-Load(TM) Funds
For investors seeking professionally managed and diversified portfolios from
investment in a select mix of Scudder Funds.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Portfolio Management Discussion
Conservative Portfolio
6 Portfolio Highlights
7 Portfolio Summary
12 Investment Portfolio
18 Financial Highlights
Balanced Portfolio
8 Portfolio Highlights
9 Portfolio Summary
13 Investment Portfolio
19 Financial Highlights
Growth Portfolio
10 Portfolio Highlights
11 Portfolio Summary
14 Investment Portfolio
20 Financial Highlights
15 Combined Financial Statements
21 Notes to Financial Statements
24 Officers and Trustees
25 Investment Products and Services
26 Scudder Solutions
In Brief
o For the abbreviated fiscal period ended March 31, 1997, Scudder Pathway
Series Portfolios provided positive returns in an increasingly volatile
environment.
o U.S. stocks provided positive returns for the first quarter of 1997
despite a pull back late in the first quarter triggered by rising U.S. interest
rates.
o The Federal Reserve's 1/4 of 1% increase in the U.S. federal funds rate
at the end of March caused bond prices to decline.
o In the international area, the emerging market countries of eastern
Europe and Latin America provided outstanding returns, but overall market
performance was mixed.
2 - Scudder Pathway Series
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to welcome you as a new Scudder Pathway Series shareholder
and present the first semiannual report for the abbreviated fiscal period ended
March 31, 1997.
The introduction of Scudder Pathway Series Portfolios in November 1996
appears well-timed, as market volatility increased throughout the first quarter
of 1997. While many less diversified portfolios experienced price declines as
both the stock and bond markets retreated towards the close of the period, the
broad diversification provided by Scudder Pathway Series helped investors
weather this period of uncertainty. A further discussion of our management
approach begins on page 4.
We are pleased to inform you that Morningstar ranked the Scudder Family of
Funds in the top 4 among 20 leading mutual fund companies for stability in
management and conformity to investment style. According to Morningstar, these
attributes "... can be hard to come by in the fund industry. In fact, investors
can't be sure who'll sign next quarter's shareholder letter, or that this
month's large-cap growth fund will still be a large-cap growth fund next month.
But a few fund families have done a better job than most at retaining talent and
keeping their funds predictable." Morningstar's risk-adjusted ratings measure a
fund's ability to outperform in up and down markets.
We are proud of these achievements and will seek to maintain our reputation
of consistent management and strong performance.
Thank you for your investment in Scudder Pathway Series. For more
information on Scudder Fund products and services, please refer to page 25, or
call our Investor Relations representatives at 1-800-225-2470. They will be
happy to assist you. You can also obtain information by visiting our Internet
Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3 - Scudder Pathway Series
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Volatility reared its ugly head during the first quarter of 1997 as investors
experienced turbulence unlike that which many had ever witnessed. Equity prices
which had surged for much of the period reversed course in dramatic fashion at
the end of March. Scudder Pathway Series portfolios performed as designed in
this environment, as their diversified, long-term positioning helped to minimize
price swings, keeping performance in positive territory for the period. The
Portfolios' introduction in November 1996 coincided with Federal Reserve
Chairman Greenspan's observations that "irrational exuberance" had pervaded the
mindset of investors. Prices have gyrated since then and the appeal of this type
of investment vehicle has only become more compelling. In this first report to
shareholders, we describe our approach to managing the Pathway Series and
provide an overview of the markets, with highlights of each Portfolio's
activities.
The Pathway Approach
The Pathway Series is designed to provide investors with convenient, economical
options that incorporate professional management into diversified, long-term
portfolios. Each Portfolio is managed with the following investment principles
in mind:
o Diversification -- The multiple fund holdings of each Portfolio, in
combination with the diversification of the underlying funds, helps to smooth
out volatility and provide exposure to a variety of opportunities.
o Tailored Asset Allocation -- Ranges for all the major asset classes have
been established for each Portfolio. These ranges are derived from the risk
profile which is deemed appropriate for each Portfolio's objective.
o Equity Emphasis -- In each Portfolio we believe that at most times equities
will play an important role, given their long-term, favorable return
characteristics.
o Global Opportunities -- Many promising investment opportunities lie beyond
the boundaries of the United States. Therefore, a global emphasis is
imbedded in our fund selection process.
o Long-Term View -- Market timing is at best an uncertain, and at worst, a
disastrous investment strategy. Accordingly, asset class shifts within the
Portfolios are expected to be modest and infrequent.
These principles, combined with the expertise applied to the management of the
underlying fund portfolios, are designed to create a complete investment program
or serve as a core component in an investor's portfolio.
Financial Market Review
The U.S. financial markets started the new year much the way they ended 1996.
Supported by a consensus economic forecast calling for "more of the same" --
modest economic growth and low inflation -- the stock market climbed to
successive new highs in January and early February. Despite Federal Reserve
Chairman Greenspan's repeated warnings, investors plowed money into equity
mutual funds at a record pace in January, helping to push the Dow Jones
4 - Scudder Pathway Series
<PAGE>
Industrial Average over 7,000 by mid-February, a mere four months after breaking
6,000.
By March 31, the stock market had given back most of the year's gains. A rising
tide of stronger economic reports, increasingly blunt warnings from Chairman
Greenspan, and ultimately the Fed's 25 basis point (one quarter percentage
point) increase in its base lending rate succeeded in dampening investors'
enthusiasm. For the first quarter of 1997, the S&P 500 Index ended with a
respectable 2.7% total return. The bond market ended the period on a down note,
with the Lehman Aggregate Bond Index returning -0.6% for the quarter.
Overseas, market returns were mixed. European equity markets led other regions
as central banks remained accommodative and corporate restructuring began to be
reflected in bottom line earnings. Offsetting strength in Europe, Asian markets
were generally weak. Japanese stocks sold off sharply in January, as concerns
about slower economic growth, continued weakness in the banking sector, and the
introduction of new taxes led analysts to reduce 1997 earnings expectations.
Eastern European and Latin American equity markets posted strong returns for the
quarter, reflecting the positive results of many economic and fiscal reforms
that have been enacted in these regions over the last several years.
Outlook
In the coming months, we expect that uncertainty regarding the pace of economic
growth, the strength of first quarter earnings, as well as upcoming Federal
Reserve meetings will continue to buffet the market. Valuation levels by most
measures are high, leaving the U.S. stock market vulnerable to disappointments
- -- principally higher interest rates or weaker earnings growth. In this
environment, we are comfortable with the Pathway portfolios' well-diversified
strategy.
Conclusion
Recent price volatility has reinforced both the investment approach and the role
of the Pathway Series. Within what should continue to be a challenging near term
environment, the Portfolios' diversified, global investments should help to
cushion price swings as has been the case since inception. Most importantly, we
continue to believe that the long-term picture for investors remains bright.
Powerful forces including the worldwide deregulation of key industries,
technological innovation, global economic integration, and modest inflation are
setting the backdrop for financial asset prices to move higher over the next few
years. For a detailed look at your Portfolio's performance, we have included
Portfolio Highlights on each Portfolio beginning on the next page.
Sincerely,
/s/Benjamin W. Thorndike
Benjamin W. Thorndike
Lead Portfolio Manager
5 - Scudder Pathway Series
<PAGE>
Portfolio Highlights
Pathway Conservative Portfolio
Pathway Conservative Portfolio seeks current income and secondarily long-term
growth of capital by investing substantially in bond mutual funds, with some
exposure to equity mutual funds. The portfolio management team allocates
investments based on Scudder's investment outlook for the financial markets,
world economies, and relative performance potential of underlying Scudder funds.
This report covers the abbreviated fiscal period from the Portfolio's inception
on November 15, 1996 to March 31, 1997. During this period, the Portfolio
provided a total return of 2.19%, reflecting a change in the net asset value per
share from $12.00 to $11.97, income distributions of 14 cents per share, and a
capital gain distribution of 15 cents per share.
The Portfolio benefited from generally favorable investment conditions. Towards
the end of the period, market volatility increased as concerns over higher
interest rates mounted. As U.S. interest rates rose and stock and bond prices
declined, the Portfolio's broad diversification among ten Scudder funds helped
to dampen share price fluctuations. The Portfolio's allocation at the end of the
period was 15% of assets invested in the money market fund, 45% in fixed income
funds, and 40% in equity funds. The Portfolio's asset allocation remained
essentially unchanged throughout the period.
In keeping with the Portfolio's conservative approach, 15% of assets was
invested in Cash Investment Trust, a money market fund which seeks to maintain a
stable net asset value. The majority of the Portfolio's fixed income investments
were in Income Fund, a diversified, primarily investment grade bond fund, and
GNMA Fund, a fund that invests primarily in Government National Mortgage
Association securities. These two funds provided competitive returns, especially
compared to funds investing solely in long-term U.S. Treasury securities. The
Portfolio held more modest positions in Emerging Markets Income Fund and High
Yield Bond Fund, both of which benefited from increased investor interest in
these specialized areas during the period.
The generally strong performance of the U.S. stock market over most of the
period benefited the equity portion of the Portfolio. In particular, stock funds
with a "value" approach outperformed the U.S. market overall. Value funds invest
in stocks that are believed to be undervalued and tend to have better downside
protection if the market declines. At a combined 29% of assets, the Portfolio's
holdings of Growth and Income Fund, Large Company Value Fund, and Small Company
Value Fund benefited from their value orientation, providing competitive
returns. Consistent with our diversified approach, the Portfolio maintained
international equity exposure at 11% of assets. Emerging Markets Growth Fund
provided the strongest returns of any Portfolio holding, complementing the solid
returns of International Fund.
6 - Scudder Pathway Series: Conservative Portfolio
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
PATHWAY CONSERVATIVE PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Cash Equivalents 15%
Fix Income 45%
Equity 40%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were invested in funds with
exposure to money market, investment
grade, government, high yield, emerging
markets, and U.S. equity securities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
Money Market 0-15%
Fixed Income Funds 40-80%
Equity Funds 20-50%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY FUND
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 28%
- --------------------------------------------
Scudder Cash Investment Trust 15%
- --------------------------------------------
Scudder Growth and Income Fund 15%
- --------------------------------------------
Scudder GNMA Fund 11%
- --------------------------------------------
Scudder Large Company Value Fund 11%
- --------------------------------------------
Scudder International Fund 8%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 3%
- --------------------------------------------
Scudder High Yield Bond Fund 3%
- --------------------------------------------
Scudder Emerging Markets Income Fund 3%
- --------------------------------------------
Scudder Small Company Value Fund 3%
- --------------------------------------------
100%
- --------------------------------------------
The Portfolio's investments in equity
funds helped to offset declines in
funds that invest in U.S. investment
grade bonds.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 12. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
7 - Scudder Pathway Series: Conservative Portfolio
<PAGE>
Portfolio Highlights
Pathway Balanced Portfolio
Pathway Balanced Portfolio seeks a balance of growth and income by investing in
a mix of money market, bond, and equity mutual funds. The portfolio management
team allocates investments based on Scudder's investment outlook for the
financial markets, world economies, and relative performance potential of
underlying Scudder funds.
This report covers the abbreviated fiscal period from the Portfolio's inception
on November 15, 1996 to March 31, 1997. During this period, the Portfolio
provided a total return of 1.50%, reflecting a change in the net asset value per
share from $12.00 to $11.95, income distributions of 16 cents per share, and a
capital gain distribution of 7 cents per share.
The Portfolio benefited from generally favorable investment conditions. Towards
the end of the period, market volatility increased as concerns over higher
interest rates mounted. As U.S. interest rates rose and stock and bond prices
declined, the Portfolio's broad diversification among ten Scudder funds helped
to dampen price fluctuations. The Portfolio's allocation at the end of the
period was 7% of assets invested in the money market fund, 39% in fixed income
funds, and 54% in equity funds. The Portfolio's asset allocation remained
essentially unchanged throughout the period.
The equity portion of the portfolio benefited from the generally strong
performance of the U.S. stock market over most of the period. In general, U.S.
stock funds investing in large, established companies provided the best
performance. The Portfolio's holdings of Growth and Income Fund and Classic
Growth Fund were solid contributors to performance, while small company growth
stocks -- as represented by Development Fund -- underperformed the broader U.S.
market. Consistent with our diversified approach and favorable view of the
foreign markets, the Portfolio maintained a significant exposure to
international equities, at 26% of assets. International Fund, which invests in
established companies in the world's major markets, provided solid returns.
However, the strong performance of the emerging markets of eastern Europe and
Latin America helped Emerging Markets Growth Fund top the returns of any other
Portfolio holding.
The income-oriented portion of the Portfolio was also well-distributed across
several funds during the period. Our holdings of Cash Investment Trust, the
money market fund, Emerging Markets Income Fund, and High Yield Bond Fund
provided attractive returns as U.S. rates rose towards the end of the period.
The Portfolio's holdings of Emerging Markets Income Fund and High Yield Bond
Fund both benefited from increased investor interest in these specialized areas.
The majority of the Portfolio's fixed income investments were in Income Fund, a
diversified, primarily investment grade bond fund, and GNMA Fund, a fund that
invests primarily in Government National Mortgage Association securities. These
two funds provided competitive returns, especially compared to funds investing
solely in long-term U.S. Treasury securities.
8 - Scudder Pathway Series: Balanced Portfolio
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
PATHWAY BALANCED PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Cash Equivalents 7%
Fix Income 39%
Equity 54%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were invested in funds with
exposure to investment grade, government,
high yield, emerging markets, and U.S.
international equity securities.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
BALANCED PORTFOLIO
Money Market 0-10%
Fixed Income Funds 25-60%
Equity Funds 40-70%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY FUND
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder Income Fund 24%
- --------------------------------------------
Scudder International Fund 20%
- --------------------------------------------
Scudder Growth and Income Fund 15%
- --------------------------------------------
Scudder Classic Growth Fund 9%
- --------------------------------------------
Scudder Cash Investment Trust 7%
- --------------------------------------------
Scudder Development Fund 5%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 5%
- --------------------------------------------
Scudder Emerging Markets Income Fund 5%
- --------------------------------------------
Scudder GNMA Fund 5%
- --------------------------------------------
Scudder High Yield Bond Fund 5%
- --------------------------------------------
100%
- --------------------------------------------
The Portfolio's investments in Growth
and Income Fund and International Fund
were strong contributors to performance.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 13. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
9 - Scudder Pathway Series: Balanced Portfolio
<PAGE>
Portfolio Highlights
Pathway Growth Portfolio
Pathway Growth Portfolio seeks long-term growth of capital by investing
primarily in equity mutual funds designed to provide long-term growth. The
Portfolio will also invest in bond funds, which offer the potential for capital
appreciation as well as income. The portfolio management team allocates
investments based on Scudder's investment outlook for the financial markets,
world economies, and relative performance potential of underlying Scudder funds.
This report covers the abbreviated fiscal period from the Portfolio's inception
on November 15, 1996 to March 31, 1997. During this period, the Portfolio
provided a total return of 1.75%, reflecting a change in the net asset value per
share from $12.00 to $11.92, income distributions of 16 cents per share, and a
capital gain distribution of 13 cents per share.
The Portfolio benefited from generally favorable investment conditions. Towards
the end of the period, market volatility increased as concerns over higher
interest rates mounted. As U.S. interest rates rose and stock and bond prices
declined, the Portfolio's broad diversification among nine Scudder funds helped
to dampen price fluctuations. The Portfolio's allocation at the end of the
period was 2% of assets invested in the money market fund, 25% in fixed income
funds, and 73% in equity funds. The Portfolio's asset allocation remained
essentially unchanged throughout the period.
In general, U.S. stocks delivered strong returns for most of the period, but
gave back much of their gains towards the end of the period as interest rates
rose. This was reflected in the Portfolio's holdings of Large Company Growth
Fund, which invests in established growth companies such as those contained in
the Russell 1000 Index, and 21st Century Growth Fund, which invests in emerging
growth companies. Micro Cap Fund, which invests in the smallest U.S. companies,
provided attractive returns and valuable diversification in this environment,
primarily because the performance of micro cap stocks is heavily influenced by
individual company prospects.
The Portfolio's foreign equity holdings, at 36% of assets, were solid
contributors to performance during this period. The Portfolio benefited from the
positive performance of International Fund, which invests in established
companies in the world's major markets, and from the especially strong
performance of Emerging Markets Growth Fund. The emerging markets provided
outstanding returns during the period, as several eastern European countries
have been experiencing accelerating growth and Latin America has continued to
rebound.
The fixed income portion of the Portfolio was also well-diversified. As rates
rose towards the end of the period, our holdings of High Yield Bond Fund and
Emerging Markets Income Fund provided attractive returns. The Portfolio's
holdings of these funds both benefited from increased investor interest in these
specialized areas.
10 - Scudder Pathway Series: Growth Portfolio
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
PATHWAY GROWTH PORTFOLIO
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Cash Equivalents 2%
Fix Income 25%
Equity 73%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were invested in funds with
exposure to the international,
emerging market, U.S. growth stock
(including micro cap), and bond markets.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
GROWTH PORTFOLIO
Money Market 0-5%
Fixed Income Funds 10-40%
Equity Funds 60-90%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY FUND
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder International Fund 26%
- --------------------------------------------
Scudder Large Company Growth Fund 22%
- --------------------------------------------
Scudder Emerging Markets Income Fund 10%
- --------------------------------------------
Scudder High Yield Bond Fund 10%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 10%
- --------------------------------------------
Scudder 21st Century Growth Fund 8%
- --------------------------------------------
Scudder Micro Cap Fund 7%
- --------------------------------------------
Scudder Income Fund 5%
- --------------------------------------------
Scudder Cash Investment Trust 2%
- --------------------------------------------
100%
- --------------------------------------------
The Portfolio's investments in international,
emerging market, and high yield bond funds
were strong contributors to performance.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 14. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
11 - Scudder Pathway Series: Growth Portfolio
<PAGE>
Investment Portfolio as of March 31, 1997 (Unaudited)
Pathway Conservative Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------
Investments 100.0%
- --------------------------------------------------------------------------------------
<S> <C> <C>
Scudder Cash Investment Trust ............................. 1,501,524 1,501,524
Scudder Large Company Value Fund .......................... 46,976 1,065,413
Scudder Emerging Markets Growth Fund ...................... 19,402 298,410
Scudder Emerging Markets Income Fund ...................... 23,778 295,324
Scudder GNMA Fund ......................................... 76,802 1,097,506
Scudder Growth & Income Fund .............................. 61,921 1,460,090
Scudder High Yield Bond Fund .............................. 24,015 297,784
Scudder Income Fund ....................................... 213,180 2,786,260
Scudder International Fund ................................ 16,948 814,676
Scudder Small Company Value Fund .......................... 18,995 294,230
- --------------------------------------------------------------------------------------
Total Investments (Cost $10,035,848) 9,911,217
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $10,035,848) (a) 9,911,217
- --------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $10,035,848. At March 31,
1997, net unrealized depreciation for all securities based on tax cost
was $124,631. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $16,720 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $141,351.
During the period November 15, 1996 (commencement of operations) to
March 31, 1997, purchases and sales of investment securities
(excluding short-term investments) aggregated $9,142,154 and $598,000,
respectively.
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pathway Series: Conservative Portfolio
<PAGE>
Investment Portfolio as of March 31, 1997 (Unaudited)
Pathway Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------
Investments 100.0%
- --------------------------------------------------------------------------------------
<S> <C> <C>
Scudder Cash Investment Trust ............................. 8,875,603 8,875,603
Scudder Classic Growth Fund ............................... 815,007 11,165,596
Scudder Development Fund .................................. 183,250 6,159,018
Scudder Emerging Markets Growth Fund ...................... 419,942 6,458,707
Scudder Emerging Markets Income Fund ...................... 513,358 6,375,915
Scudder GNMA Fund ......................................... 452,673 6,468,692
Scudder Growth and Income Fund ............................ 805,501 18,993,723
Scudder High Yield Bond Fund .............................. 513,092 6,362,345
Scudder Income Fund ....................................... 2,350,304 30,718,474
Scudder International Fund ................................ 545,551 26,224,624
- --------------------------------------------------------------------------------------
Total Investments (Cost $129,284,748) 127,802,697
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $129,284,748) (a) 127,802,697
- --------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $129,284,748. At March
31, 1997, net unrealized depreciation for all securities based on tax
cost was $1,482,051. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $586,362 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $2,068,413.
During the period November 15, 1996 (commencement of operations) to
March 31, 1997, purchases and sales of investment securities
(excluding short-term investments) aggregated $127,748,542 and
$7,312,500, respectively.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Pathway Series: Balanced Portfolio
<PAGE>
Investment Portfolio as of March 31, 1997 (Unaudited)
Pathway Growth Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------
Investments 100.0%
- --------------------------------------------------------------------------------------
<S> <C> <C>
Scudder Cash Investment Trust ............................. 554,028 554,028
Scudder 21st Century Growth Fund .......................... 205,187 2,099,061
Scudder Emerging Markets Growth Fund ...................... 174,382 2,681,990
Scudder Emerging Markets Income Fund ...................... 217,566 2,702,172
Scudder High Yield Bond Fund .............................. 216,851 2,688,952
Scudder Income Fund ....................................... 102,912 1,345,053
Scudder International Fund ................................ 142,699 6,859,543
Scudder Micro Cap Fund .................................... 139,695 1,881,695
Scudder Large Company Growth Fund ......................... 301,126 5,980,362
- --------------------------------------------------------------------------------------
Total Investments (Cost $27,252,425) 26,792,856
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $27,252,425) (a) 26,792,856
- --------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $27,252,425. At March 31,
1997, net unrealized depreciation for all securities based on tax cost
was $459,569. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $184,559 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $644,128.
During the period November 15, 1996 (commencement of operations) to
March 31, 1997, purchases and sales of investment securities
(excluding short-term investments) aggregated $27,165,611 and
$462,000, respectively.
The accompanying notes are an integral part of the financial statements.
14 - Scudder Pathway Series: Growth Portfolio
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Assets
- --------------------------------------------------------------------------------------------
Investments, at market (for
identified cost, see accompanying
lists of investments portfolios) .. $ 9,911,217 $ 127,802,697 $ 26,792,856
Receivable for investments sold ..... -- 80,000 125,000
Receivable on Portfolio shares sold . 56,422 492,199 267,464
Income receivable ................... 8,347 55,503 16,959
----------- ------------ ------------
Total assets ........................ 9,975,986 128,430,399 27,202,279
Liabilities
- --------------------------------------------------------------------------------------------
Payable for investments purchased ... 8,364 135,555 141,802
Payable for Portfolio shares redeemed 59,216 401,871 30,362
----------- ------------ ------------
Total liabilities ................... 67,580 537,426 172,164
------------------------------------- ----------- ------------ ------------
Net assets, at market value $ 9,908,406 $ 127,892,973 $ 27,030,115
------------------------------------- ----------- ------------ ------------
Net Assets
- --------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income . 18,250 229,352 90,066
Net unrealized depreciation on
investments ....................... (124,631) (1,482,051) (459,569)
Accumulated net realized gain ....... 17,580 286,332 8,422
Paid-in capital ..................... 9,997,207 128,859,340 27,391,196
------------------------------------- ----------- ------------ ------------
Net assets, at market value $ 9,908,406 $ 127,892,973 $ 27,030,115
------------------------------------- ----------- ------------ ------------
Net Asset Value
- --------------------------------------------------------------------------------------------
Net Asset Value, offering and ----------- ------------ ------------
redemption price per share $ 11.97 $ 11.94 $ 11.92
(outstanding shares of beneficial ----------- ------------ ------------
interest, $.01 par value,
unlimited number of shares
authorized) ....................... 827,985 10,710,809 2,268,108
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Pathway Series
<PAGE>
Statement of Operations
For the period November 15, 1996 (commencement
of operations) to March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Conservative Balanced Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income
- ------------------------------------------------------------------------------------
Income:
Income distributions from Underlying
Funds ............................ $ 26,018 $ 239,099 $ 98,853
------------------------------------ --------- ----------- ---------
Net investment income 26,018 239,099 98,853
------------------------------------ --------- ----------- ---------
Realized and unrealized gain (loss) on
investments
- ------------------------------------------------------------------------------------
Net realized gain (loss):
Investments ........................ (9,829) (26,898) (5,213)
Capital gain distributions from
Underlying Funds ................. 35,732 317,494 20,846
--------- ----------- ---------
25,903 290,596 15,633
--------- ----------- ---------
Net unrealized depreciation on
investments during the period .... (124,631) (1,482,051) (459,569)
------------------------------------ --------- ----------- ---------
Net loss on investment transactions (98,728) (1,191,455) (443,936)
------------------------------------ --------- ----------- ---------
------------------------------------ --------- ----------- ---------
Net decrease in net assets resulting
from operations $ (72,710) $ (952,356) $(345,083)
------------------------------------ --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Pathway Series
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period November 15, 1996
(commencement of operations)
to March 31, 1997 (Unaudited)
Conservative Balanced Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
- --------------------------------------------------------------------------------------------
Operations:
Net investment income .............. $ 26,018 $ 239,099 $ 98,853
Net realized gains ................. 25,903 290,596 15,633
Net unrealized depreciation on
investments during
the period ....................... (124,631) (1,482,051) (459,569)
------------- -------------- -------------
Net decrease in net assets resulting
from operations .................. (72,710) (952,356) (345,083)
------------- -------------- -------------
Distributions to shareholders from:
Net investment income .............. (7,768) (9,747) (8,787)
------------- -------------- -------------
Net realized gain on investment
transactions ..................... (8,323) (4,264) (7,211)
------------- -------------- -------------
Portfolio share transactions:
Proceeds from shares sold .......... 10,134,125 129,974,010 28,299,103
Net asset value of shares issued to
shareholders in reinvestment
of distributions ................. 14,791 13,710 15,997
Cost of shares redeemed ............ (176,709) (1,153,380) (948,904)
------------- -------------- -------------
Net increase in net assets from
Portfolio share transactions ..... 9,972,207 128,834,340 27,366,196
------------- -------------- -------------
Increase in net assets ............. 9,883,406 127,867,973 27,005,115
Net assets at beginning of period .. 25,000 25,000 25,000
------------- -------------- -------------
Net assets at end of period (a) .... $ 9,908,406 $ 127,892,973 $ 27,030,115
------------- -------------- -------------
Other Information
- --------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio
shares
Shares outstanding at beginning of
period ........................... 2,083 2,083 2,083
------------- -------------- -------------
Shares sold ........................ 839,357 10,803,342 2,342,618
Shares issued to shareholders in
reinvestment of distributions .... 1,247 1,150 1,342
Shares redeemed .................... (14,702) (95,766) (77,935)
------------- -------------- -------------
Net increase in Portfolio shares ... 825,902 10,708,726 2,266,025
------------- -------------- -------------
Shares outstanding at end of period 827,985 10,710,809 2,268,108
------------- -------------- -------------
(a) Includes undistributed net
investment income of ........... $ 18,250 $ 229,352 $ 90,066
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Pathway Series
<PAGE>
Financial Highlights
Pathway Conservative Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period .................. $12.00
---------------------
Income from investment operations:
Net investment income ................................. .16
Net realized and unrealized gain on investment
transactions ........................................ .10(a)
---------------------
Total from investment operations ...................... .26
---------------------
Less distributions:
From net investment income ............................ (.14)
From net realized gain on investments ................. (.15)
---------------------
Total distributions ................................... (.29)
---------------------
---------------------
Net asset value, end of period ........................ $11.97
- --------------------------------------------------------------------------------
Total Return (%) ...................................... 2.19**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 9.9
Ratio of operating expenses to average daily net
assets (%) (b) ...................................... --
Ratio of net investment income to average daily net
assets (%) .......................................... 3.3*
Portfolio turnover rate (%) ........................... 58.2*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
18 - Scudder Pathway Series: Conservative Portfolio
<PAGE>
Financial Highlights
Pathway Balanced Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ................... $12.00
---------------------
Income from investment operations:
Net investment income .................................. .18
Net realized and unrealized gain on investment
transactions ......................................... -- (a)
---------------------
Total from investment operations ....................... .18
---------------------
Less distributions:
From net investment income ............................. (.16)
From net realized gain on investments .................. (.07)
---------------------
Total distributions .................................... (.23)
---------------------
---------------------
Net asset value, end of period ......................... $11.95
- --------------------------------------------------------------------------------
Total Return (%) ....................................... 1.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................. 127.9
Ratio of operating expenses to average daily net
assets (%) (b) ....................................... --
Ratio of net investment income to average daily net
assets (%) ........................................... 3.1*
Portfolio turnover rate (%) ............................ 58.0*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
19 - Scudder Pathway Series: Balanced Portfolio
<PAGE>
Financial Highlights
Pathway Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
November 15, 1996
(commencement
of operations) to
March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 12.00
---------------------
Income from investment operations: ...................... .20
Net investment income
Net realized and unrealized gain on investment
transactions .......................................... .01(a)
---------------------
Total from investment operations ........................ .21
---------------------
Less distributions:
From net investment income .............................. (.16)
From net realized gain on investments ................... (.13)
---------------------
Total distributions ..................................... (.29)
---------------------
---------------------
Net asset value, end of period .......................... $ 11.92
- --------------------------------------------------------------------------------
Total Return (%) ........................................ 1.75**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 27.0
Ratio of operating expenses to average daily net
assets (%) (b) ........................................ --
Ratio of net investment income to average daily net
assets (%) ............................................ 3.2*
Portfolio turnover rate (%) ............................. 12.1*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
20 - Scudder Pathway Series: Growth Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
The Conservative, Balanced, and Growth Portfolios (the "Portfolios") are each
diversified series of Scudder Pathway Series (the "Trust"). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The series is composed of six separate diversified portfolios, four of
which are currently offered. These portfolios invest primarily in existing
Scudder Funds (the "Underlying Scudder Funds").
These financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates. The
policies described below are followed by the Portfolio in the preparation of its
financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer,
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its taxable income to its shareholders. Accordingly, the Portfolios paid no
federal income taxes and no provision for federal income taxes was required.
Distribution of Income and Gains. Dividends from net investment income from the
Conservative and Balanced Portfolios are declared and paid quarterly in April,
July, October and December. During any particular year net realized gains, in
excess of available capital loss carryforwards, would be taxable to the
Portfolio if not distributed and, therefore, will be distributed to shareholders
annually. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax. Distributions of net
investment income and net realized gains from the Growth Portfolio are made
annually.
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. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, each Portfolio may periodically make reclassifications
among certain of its capital accounts without impacting the net asset value of
the Portfolio.
The Portfolios use the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of income and capital gains from the Underlying Scudder Funds are
recorded on the ex-dividend date. Income is recorded on the accrual basis.
21 - Scudder Pathway Series
<PAGE>
B. Related Parties
In accordance with the Portfolios' Investment Management Agreement (the
"Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"), the Adviser
regularly provides the Portfolios with continuing investment management
consistent with each Portfolio investment objective.
Under the Special Servicing Agreement entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolios, the Adviser arranges for all services pertaining to the operations
of the Portfolios. If the Trustees determine that the aggregate expenses of the
Portfolios are less than the estimated savings to the Underlying Scudder Funds
from the operation of each 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 Funds. These estimated savings result from the elimination of
separate shareholder accounts which either currently are or have 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. In accordance with the Special Servicing Agreement, no expenses were
charged to the Portfolios during the period. The Adviser has assumed the
organization costs of each Portfolio.
22 - Scudder Pathway Series
<PAGE>
This Page
intentionally
left blank.
23 - Scudder Pathway Series
<PAGE>
Officers and Trustees
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.
Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania
State University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
24 - Scudder Pathway Series
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. +A portion of the income from
the tax-free funds may be subject to federal, state, and local taxes. *Not
available in all states. +++ +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens &
Clark, Inc., are traded on various stock exchanges.
25 - Scudder Pathway Series
<PAGE>
<TABLE>
<CAPTION>
Scudder Solutions
Convenient ways to invest, quickly and reliably
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan AutoBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is higher and electronically debited from that account.
fewer when it's lower, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ---------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ---------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ---------------------------------------------------------------------------------------------------------------------------------
26 - Scudder Pathway Series
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ---------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies-with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal CounselSM is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Service, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ---------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Growth, Balanced, Conservative, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. Contact
Scudder Investor Services, Inc., Distributor, for a prospectus which contains more complete
information, including management fees and other expenses. Please read it carefully before you
invest or send money.
</TABLE>
27 - Scudder Pathway Series
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER (logo)
<PAGE>
Scudder
Pathway Series: International Portfolio
Semiannual Report
March 31, 1997
Pure No-Load(TM) Funds
A mutual fund which seeks maximum total return by investing in a select mix of
international and global Scudder Funds.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Portfolio Management Discussion
6 Portfolio Highlights
7 Portfolio Summary
8 Investment Portfolio
9 Financial Statements
12 Financial Highlights
13 Notes to Financial Statements
16 Officers and Trustees
17 Investment Products and Services
18 Scudder Solutions
In Brief
o For the abbreviated fiscal period ended March 31, 1997, Scudder Pathway
International Portfolio provided positive returns as price volatility increased
in the U.S. markets.
o The markets of Europe, especially eastern Europe, and Latin America provided
outstanding returns, while the Japanese market remained lackluster.
o The correction in the U.S. stock market towards the end of the period provided
further evidence of the benefits of diversifying investments internationally.
2 - Scudder Pathway Series: International Portfolio
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to welcome you as a new Scudder Pathway Series shareholder
and present the first semiannual report for the abbreviated fiscal period ended
March 31, 1997.
The introduction of Scudder Pathway Series Portfolios in November 1996
appears well timed, as market volatility increased throughout the first quarter
of 1997. While many less diversified portfolios experienced price declines as
both the U.S. stock and bond markets retreated towards the close of the period,
the broad diversification provided by Scudder Pathway International Portfolio
helped investors weather this period of uncertainty. A further discussion of our
management approach begins on page 4.
We are pleased to inform you that Morningstar ranked the Scudder Family of
Funds in the top 4 among 20 leading mutual fund companies for stability in
management and conformity to investment style. According to Morningstar, these
attributes "... can be hard to come by in the fund industry. In fact, investors
can't be sure who'll sign next quarter's shareholder letter, or that this
month's large-cap growth fund will still be a large-cap growth fund next month.
But a few fund families have done a better job than most at retaining talent and
keeping their funds predictable." Morningstar's risk-adjusted ratings measure a
fund's ability to outperform in up and down markets.
We are proud of these achievements and will seek to maintain our reputation
of consistent management and strong performance.
Thank you for your investment in Scudder Pathway Series. For more
information on Scudder Fund products and services, please refer to page 17, or
call our Investor Relations representatives at 1-800-225-2470. They will be
happy to assist you. You can also obtain information by visiting our Internet
Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pathway Series
3 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Despite increased price volatility, the international markets generally recorded
positive returns for the abbreviated semiannual period from November 15, 1996 to
March 31, 1997. Valuations remained generally compelling and several markets
reported impressive performance during this period.
Scudder Pathway International Portfolio performed well in this environment, as
its diversified, long-term positioning helped to minimize price swings. The
introduction of the Pathway Funds in November 1996 was well timed. As increased
price volatility in the U.S. markets was offset by the positive performance of
several international markets, the appeal of this type of investment vehicle has
only become more compelling.
In this first report to shareholders, we will describe our approach to managing
the Pathway Funds along with an overview of the international markets and
highlights of the activities of Pathway International Portfolio.
The Pathway Approach
The Pathway Funds are designed to provide investors with convenient, economical
options that incorporate professional management into diversified, long-term
portfolios. Each Portfolio is managed with the following investment principles
in mind:
o Diversification -- The multiple fund holdings of each Portfolio, in
combination with the diversification of the underlying funds helps to smooth out
volatility and provide exposure to a variety of opportunities.
o Tailored Asset Allocation -- Ranges for all the major asset classes have been
established for each Portfolio. These ranges are derived from the risk profile
which is deemed appropriate for each Portfolio's objective.
o Equity Emphasis -- In each Portfolio we believe that at most times equities
will play an important role, given their long-term, favorable return
characteristics.
o Global Opportunities (applies to domestic portfolios) -- Many promising
investment opportunities lie beyond the boundaries of the United States.
Therefore, a global emphasis is imbedded in our fund selection process.
o Long-Term View -- Market timing is at best an uncertain, and at worst, a
disastrous investment strategy. Accordingly, asset class shifts within the
Portfolios are expected to be modest and infrequent.
These principals, combined with the expertise applied to the management of the
underlying fund portfolios, are designed to create a complete investment program
or serve as a core component in an investor's portfolio.
Financial Market Review
For the fiscal period, the international stock markets continued many of the
same trends that characterized all of 1996. European bourses led other regions
as lower interest rates and improved productivity from corporate and
governmental restructurings began to be reflected in bottom line earnings.
Offsetting strength in Europe, Asian markets were generally weak and Japanese
stocks
4 - Scudder Pathway Series: International Portfolio
<PAGE>
sold off sharply in January. Eastern European and Latin American equity markets
posted some of the best returns, reflecting the positive results of many
economic and fiscal reforms that have been enacted in these regions over the
last several years.
The good news fueling European stock prices was both cyclical and structural.
First, Europe's economies are showing some welcome signs of life. While fiscal
policies remain tight to insure that the preconditions of Maastricht are met,
the combination of low interest rates and declining currencies is finally having
a stimulative effect. The second support for continued stock price appreciation
has been the spreading religion of "shareholder value." The restructuring theme
has now been fully embraced in many international markets.
In Japan, the economic diet of a falling currency and low interest rates
provided critical support for the economy, faced with the headwinds of a rise in
the consumption tax and continued problems in the banking system. The Japanese
authorities announced additional measures to deregulate the economy and
financial system, most notably plans to remove restrictions on foreign exchange.
Stock prices, however, declined as high valuations, heavy selling of
cross-holdings, and low levels of profitability negated the benefit of this
positive fundamental news.
Outside the industrialized world, stock markets diverged. Korea and Thailand
were particularly hard hit by problems in the banking sector. Hong Kong's
market, after excellent performance in 1996, became upset in the first quarter
of 1997 by an upward trend in U.S. interest rates, local government moves to
dampen the property market and uncertainty over the upcoming transition to
China. Brazil continued to deliver spectacular returns propelled by positive
news on deregulation and economic reform.
We continue to believe that the long-term picture for investors remains bright.
Valuations abroad are relatively attractive, especially versus the domestic
markets which have provided unusually strong performance over the last few
years. We also believe powerful forces including the worldwide deregulation of
key industries, technological innovation, global economic integration, and
modest inflation are setting a positive backdrop for financial asset prices to
move higher.
Recent U.S. price volatility has reinforced both the investment approach and the
role of the Pathway Funds in investors' portfolios. Within what should continue
to be a challenging near term environment, the Pathway Funds' diversified
investments should help to cushion price swings as has been the case since
inception. For a detailed look at your Portfolio's performance, we have included
Portfolio Highlights for the Pathway International Portfolio beginning on the
next page.
Sincerely,
Your Portfolio Management Team
/s/Benjamin Thorndike
Benjamin Thorndike
Lead Portfolio Manager
5 - Scudder Pathway Series: International Portfolio
<PAGE>
Portfolio Highlights
Pathway International Portfolio seeks to maximize total return by investing in a
select mix of established international mutual funds. The portfolio management
team allocates investments based on Scudder's investment outlook for the
financial markets, world economies, and relative performance potential of
underlying Scudder funds.
This report covers the abbreviated fiscal period from the Portfolio's inception
on November 15, 1996 to March 31, 1997. During this period, the Portfolio
provided a total return of 4.57%, reflecting an increase in the net asset value
per share from $12.00 to $12.19, income distributions of 25 cents per share, and
a capital gain distribution of 10 cents per share.
The Portfolio invested in seven funds during the period which provided broad
diversification -- a valuable component when investing abroad. We believe this
approach contributed to attractive performance over a relatively short period
since the Portfolio's inception last fall. The Portfolio's allocation at the end
of the period was 2% of assets invested in the money market fund, 15% in
international fixed income funds, and 83% in international equity funds. The
Portfolio's asset allocation remained essentially unchanged throughout the
period.
Performance was propelled by the solid returns of the Portfolio's core holding
of International Fund, which typically invests in established companies in the
major world markets. International Fund's strong performance was, in large part,
the result of an overweighting in Europe and an underweighting in Japan during
the period. Emerging Markets Growth Fund and Latin America Fund represented more
modest portfolio allocations, but were important positive contributors to
performance. The emerging markets have recently been providing outstanding
returns, as several eastern European countries have been experiencing
accelerating growth and the Latin American markets have continued to rebound. In
Asia and the Pacific Rim, our holding of Pacific Opportunities Fund provided
competitive returns, but absolute returns were only slightly positive,
reflecting mixed results across the region.
In the fixed income portion of the portfolio, the majority of our holdings were
invested in Emerging Markets Income Fund, which typically invests in high yield
securities in developing markets. This Fund has been a strong contributor to
returns, more than compensating for the weaker results of our smaller position
in International Bond Fund, which invests primarily in established world
markets.
Looking ahead, we expect the world's financial markets to continue to provide
rewards for long-term investors, especially given the attractive relative
valuations and growth opportunities of many international markets. We will
continue to manage the Portfolio with a consistent approach, for investors who
desire diversification, flexibility, and simplicity.
6 - Scudder Pathway Series: International Portfolio
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Cash Equivalents 2%
Fix Income 15%
Equity 83%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Assets were invested in funds with
exposure to the established and
emerging markets of Europe, Asia,
the Pacific Rim, and Latin America.
- --------------------------------------------------------------------------
ASSET CLASS RANGES
- --------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
Money Market 0-10%
Fixed Income Funds 15-40%
Equity Funds 60-85%
Portfolio allocations are derived from
the risk profile for the Fund, changes
are expected to be modest and infrequent.
- --------------------------------------------------------------------------
PORTFOLIO HOLDINGS BY FUND
- --------------------------------------------------------------------------
- --------------------------------------------
Scudder International Fund 63%
- --------------------------------------------
Scudder Emerging Markets Growth Fund 10%
- --------------------------------------------
Scudder Emerging Markets Income Fund 10%
- --------------------------------------------
Scudder Pacific Opportunities Fund 5%
- --------------------------------------------
Scudder Latin America Fund 5%
- --------------------------------------------
Scudder International Bond Fund 5%
- --------------------------------------------
Scudder Cash Investment Trust 2%
- --------------------------------------------
100%
- --------------------------------------------
Strong performing markets of Europe
and the emerging markets of Eastern
Europe and Latin American were
well-represented in the portfolios,
contributing to the Fund's solid returns.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 8. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
7 - Scudder Pathway Series: International Portfolio
<PAGE>
Investment Portfolio as of March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Investments 100.0%
- ---------------------------------------------------------------------------------------
Scudder Cash Investment Trust ................................ 93,870 93,870
Scudder Emerging Markets Growth Fund ......................... 29,248 449,832
Scudder Emerging Markets Income Fund ......................... 37,169 461,636
Scudder International Bond Fund .............................. 21,867 227,636
Scudder International Fund ................................... 59,424 2,856,492
Scudder Latin America Fund ................................... 9,110 221,454
Scudder Pacific Opportunities Fund ........................... 13,379 224,363
- ---------------------------------------------------------------------------------------
Total Investments (Cost $4,524,632) 4,535,283
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $4,524,632) (a) 4,535,283
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $4,524,632. At March 31,
1997, net unrealized appreciation for all securities based on tax cost
was $10,651. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over
tax cost of $43,313 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market
value of $32,662.
The accompanying notes are an integral part of the financial statements.
8 - Scudder Pathway Series: International Portfolio
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997 (Unaudited)
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost
$4,524,632) ................................ $4,535,283
Receivable for investments sold .............. 50,000
Receivable on Portfolio shares sold .......... 44,178
Income receivable ............................ 1,525
----------
Total assets ................................. 4,630,986
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ............ 51,463
Payable for Portfolio shares redeemed ........ 10,939
----------
Total liabilities ............................ 62,402
----------------------------------------------------------
Net assets, at market value $4,568,584
----------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......... 10,878
Net unrealized appreciation on investments ... 10,651
Accumulated net realized gain ................ 2,887
Paid-in capital .............................. 4,544,168
----------------------------------------------------------
Net assets, at market value $4,568,584
----------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price
per share ($4,568,584 / 374,781
outstanding shares of beneficial interest,
$.01 par value, unlimited ----------
number of shares authorized) ............... $ 12.19
----------
The accompanying notes are an integral part of the financial statements.
9 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Operations
for the period November 15, 1996 (commencement
of operations) to March 31, 1997 (Unaudited)
Investment Income
- --------------------------------------------------------------------------------
Income:
Income distributions from Underlying Funds ....... $ 19,269
--------------------------------------------------------------
Net investment income 19,269
--------------------------------------------------------------
Realized and unrealized gain (loss) on investments
- --------------------------------------------------------------------------------
Net realized gain:
Investments ...................................... 112
Capital gain distributions from Underlying Funds . 6,131
-----------
6,243
-----------
Net unrealized appreciation during the period
on investments ................................. 10,651
--------------------------------------------------------------
Net gain on investment transactions 16,894
--------------------------------------------------------------
--------------------------------------------------------------
Net increase in net assets resulting from
operations $ 36,163
--------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
10 - Scudder Pathway Series: International Portfolio
<PAGE>
Statement of Changes in Net Assets
For the Period
Nov. 15, 1996
(commencement
of operations)
to March 31,
Increase (Decrease) in Net Assets 1997
(Unaudited)
- --------------------------------------------------------------------------------
Operations:
Net investment income ......................... $ 19,269
Net realized gains ............................ 6,243
Net unrealized appreciation on investments
during the period ........................... 10,651
------------
Net increase in net assets resulting from
operations .................................. 36,163
------------
Distributions to shareholders from:
Net investment income ......................... (8,391)
------------
Net realized gains on investment transactions . (3,356)
------------
Portfolio share transactions:
Proceeds from shares sold ..................... 4,704,230
Net asset value of shares issued to
shareholders in reinvestment of distributions 10,929
Cost of shares redeemed ....................... (195,991)
------------
Net increase in net assets from Portfolio
share transactions .......................... 4,519,168
------------
Increase in net assets ........................ 4,543,584
Net assets at beginning of period ............. 25,000
------------
Net assets at end of period (including
undistributed net investment income
of $10,878) ................................. $ 4,568,584
------------
Other Information
- --------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ..... 2,083
------------
Shares sold ................................... 387,830
Shares issued to shareholders in reinvestment
of distributions ............................ 918
Shares redeemed ............................... (16,050)
------------
Net increase in Portfolio shares .............. 372,698
------------
Shares outstanding at end of period ........... 374,781
------------
The accompanying notes are an integral part of the financial statements.
11 - Scudder Pathway Series: International Portfolio
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
Nov. 15, 1996
(commencement
of operations)
to March 31,
1997
(Unaudited)
- ---------------------------------------------------------------------
Net asset value, beginning of period .............. $ 12.00
----------------
Income from investment operations:
Net investment income ............................. .28
Net realized and unrealized gain on investment
transactions .................................... .26(a)
----------------
Total from investment operations .................. .54
----------------
Less distributions:
From net investment income ........................ (.25)
From net realized gain on investments ............. (.10)
----------------
Total distributions ............................... (.35)
----------------
----------------
Net asset value, end of period .................... $ 12.19
- ---------------------------------------------------------------------
Total Return (%) .................................. 4.57**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............ 4.6
Ratio of operating expenses to average daily net
assets (%)(b) ................................... --
Ratio of net investment income to average daily net
assets (%) ...................................... 2.8*
Portfolio turnover rate (%) ....................... 0.9*
(a) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Portfolio shares in relation to fluctuating market values during the
period.
(b) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
12 - Scudder Pathway Series: International Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
The International Portfolio (the "Portfolio") is a diversified series of Scudder
Pathway Series (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The series is composed of six
separate diversified portfolios, four of which are currently offered. These
portfolios invest primarily in existing Scudder Funds (the "Underlying Scudder
Funds').
The Portfolio's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Portfolio in the preparation of
its financial statements.
Security Valuation. Investments in the Underlying Scudder Funds are valued at
the net asset value per share of each Underlying Scudder Fund as of the close of
regular trading on the New York Stock Exchange. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.
Federal Income Taxes. The Portfolio's policy is to comply with the requirements
of the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, the Portfolio paid no federal income taxes and no provision for
federal income taxes was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains, in excess of
available capital loss carryforwards, would be taxable to the Portfolio if not
distributed and, therefore, will be distributed to shareholders annually. An
additional distribution may be made to the extent necessary to avoid the payment
of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Portfolio may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Portfolio.
The Portfolio uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade
date basis. Distributions of income and capital gains from the
Underlying Scudder Funds are recorded on the ex-dividend date. Income
is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the period November 15, 1996 (commencement of operations) to March 31,
1997, purchases and sales of investment securities (excluding short-term
investments) aggregated $4,437,849 and $7,200, respectively.
13 - Scudder Pathway Series: International Portfolio
<PAGE>
C. Related Parties
In accordance with the Portfolio's Investment Management Agreement (the
"Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"), the Adviser
regularly provides the Portfolio with continuing investment management
consistent with the Portfolio's investment objective.
Under the Special Servicing Agreement entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolio, the Adviser arranges for all services pertaining to the operations of
the Portfolio. If the Trustees determine that the aggregate expenses of the
Portfolio are less than the estimated savings to the Underlying Scudder Funds
from the operation of the Portfolio, each of the Underlying Scudder Funds will
bear those expenses in proportion to the average daily value of its shares owned
by the Portfolio. Consequently, no underlying Scudder Funds will be expected to
carry expenses that are in excess of the estimate of savings to the respective
Funds. These estimated savings result from the elimination of separate
shareholder accounts which either currently are or have potential to be invested
in the Underlying Scudder Funds. In the event that the financial benefits to the
Underlying Scudder Funds do not exceed aggregate expenses of the Portfolio, the
Adviser will pay certain costs, on behalf of the Portfolio. In accordance with
the Special Servicing Agreement, no expenses were charged to the Portfolio
during the period. The Adviser has assumed the Portfolio's organizational costs.
14 - Scudder Pathway Series: International Portfolio
<PAGE>
This Page
intentionally
left blank.
15 - Scudder Pathway Series: International Portfolio
<PAGE>
Officers and Trustees
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Edgar R. Fiedler
Trustee; Vice President and
Economic Counsellor, The
Conference Board, Inc.
Dr. J. D. Hammond
Trustee; Dean, Smeal College of
Business Administration,
Pennsylvania State University
Richard M. Hunt
Trustee; University Marshal and
Senior Lecturer, Harvard
University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant
Treasurer
Kathryn L. Quirk*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
16 - Scudder Pathway Series: International Portfolio
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *Not available in all
states. +++ +++A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on various stock exchanges.
17 - Scudder Pathway Series: International Portfolio
<PAGE>
Scudder Solutions
<TABLE>
<S> <C> <C>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plan AutoBuy
A convenient investment program in which you designate the Lets you purchase Scudder fund shares electronically,
purchase details and the bank account, and money is avoiding potential mailing delays; designate a bank account
electronically debited from that account monthly to regularly and the transaction details, and money for each of your
purchase fund shares and "dollar cost average" -- buy more shares transactions is electronically debited from that account.
when the fund's price is higher and fewer when it's lower, which
can reduce your average purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to purchase shares Have all or part of your paycheck -- even government
-- use distributions from one Scudder fund to purchase shares in checks -- invested in up to four Scudder funds at one time.
another, automatically (accounts with identical registrations or
the same social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price fluctuations and does not assure a profit
or protect against loss in declining markets. Investors should consider their ability to continue such a plan through periods of
low price levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering account
Personalized account information, the ability to exchange or information and transactions, interactive worksheets,
redeem shares, and information on other Scudder funds and prospectuses and applications for all Scudder funds, plus
services via touchtone telephone. your current asset allocation, whenever you need them.
Scudder's Site also provides news about Scudder funds,
retirement planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient, timely, and reliable automated
withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule (as Provides speedy access to your money by electronically
frequently as once a month) and amount of the redemptions, and crediting your redemption proceeds to the bank account
Scudder does the rest. you designate.
DistributionsDirect
Automatically deposits your fund distributions into the bank
account you designate within three business days after each
distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------------
18 - Scudder Pathway Series: International Portfolio
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, including A free service designed to help suggest ways investors like
stocks, corporate bonds, Treasuries, plus over 6,000 mutual you can diversify your portfolio among domestic and global, as
funds from at least 150 mutual fund companies. And well as equity, fixed-income, and money market funds, using
Scudder Fund Folio(SM) provides investors with access to Scudder funds.
a marketplace of more than 500 no-load funds from
well-known companies--with no transaction fees or Personal Counsel from Scudder(SM)
commissions. Scudder shareholders can take advantage of a
ScudderBrokerage account already reserved for them, with Developed for investors who prefer the benefits of no-load
no minimum investment. For information about Scudder Scudder funds but want ongoing professional assistance in
Brokerage Services, call 1-800-700-0820. managing a portfolio. Personal Counsel(SM) is a highly
customized, fee-based asset management service for individuals
investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy shares directly from the fund
itself or its principal underwriter or distributor without paying this fee. Scudder Brokerage Services, Inc., 42 Longwater
Drive, Norwell, MA 02061. Member SIPC. Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and
represent a program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one investment, Pathway gives you
instant access to broad diversification in U.S. markets and across the globe. Select from four Portfolios -- Growth, Balanced,
Conservative, or International -- each with a distinct investment objective that can match your goals. Each Portfolio, rather
than investing in individual securities, invests in carefully selected Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with each portfolio is determined by the
securities held in each underlying Scudder fund. Contact Scudder Investor Services, Inc., Distributor, for a prospectus which
contains more complete information, including management fees and other expenses. Please read it carefully before you invest or
send money.
</TABLE>
19 - Scudder Pathway Series: International Portfolio
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
For Scudder Pathway Series: Conservative Portfolio:
Financial highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
For Scudder Pathway Series: Balanced Portfolio:
Financial highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
For Scudder Pathway Series: Growth Portfolio:
Financial highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
For Scudder Pathway Series: International Portfolio:
Financial highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
Included in Part B of this Registration Statement:
For Scudder Pathway Series: Conservative Portfolio:
Investment Portfolio as of March 31, 1997
Statement of Assets and Liabilities as of March 31, 1997
Statement of Operations for the period November 15, 1996
(commencement of operations) to March 31, 1997
Statement of Changes in Net Assets for the period November 15,
1996
(commencement of operations) to March 31, 1997
Financial Highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
Notes to Financial Statements
For Scudder Pathway Series: Balanced Portfolio:
Investment Portfolio as of March 31, 1997
Statement of Assets and Liabilities as of March 31, 1997
Statement of Operations for the period November 15, 1996
(commencement of operations) to March 31, 1997
Statement of Changes in Net Assets for the period November 15,
1996
(commencement of operations) to March 31, 1997
Financial Highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
Notes to Financial Statements
Part C - Page 1
<PAGE>
For Scudder Pathway Series: Growth Portfolio:
Investment Portfolio as of March 31, 1997
Statement of Assets and Liabilities as of March 31, 1997
Statement of Operations for the period November 15, 1996
(commencement of operations) to March 31, 1997
Statement of Changes in Net Assets for the period November 15,
1996
(commencement of operations) to March 31, 1997
Financial Highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
Notes to Financial Statements
For Scudder Pathway Series: International Portfolio:
Investment Portfolio as of March 31, 1997
Statement of Assets and Liabilities as of March 31, 1997
Statement of Operations for the period November 15, 1996
(commencement of operations) to March 31, 1997
Statement of Changes in Net Assets for the period November 15,
1996
(commencement of operations) to March 31, 1997
Financial Highlights for the period November 15, 1996
(commencement of operations) to March 31, 1997
Notes to Financial Statements
Statements, schedules and historical information other than those listed above have
been omitted since they are either not applicable or are not required.
b. Exhibits:
1. (a) Declaration of Trust dated July 1, 1994.
(Incorporated by reference to Exhibit 1 to the Registration
Statement filed on November 7, 1994.)
(b) Certificate of Amendment to Declaration of Trust dated January 10,
1995.
(Incorporated by reference to Exhibit 1(b) to Pre-Effective
Amendment No. 1 to the Registration Statement filed November 13,
1996.)
(b)(1) Certificate of Amendment to Declaration of Trust dated September 16,
1996.
(Incorporated by reference to Exhibit 1(b)(1) to Pre-Effective
Amendment No. 1 to the Registration Statement filed November 13,
1996.)
2. By-Laws dated July 1, 1994.
(Incorporated by reference to Exhibit 2 to the Registration Statement filed
on November 7, 1994.)
3. Inapplicable.
4. Inapplicable.
5. Investment Management Agreement between the Registrant and Scudder, Stevens
& Clark, Inc. dated November 15, 1996 is filed herein.
Part C - Page 2
<PAGE>
6. Underwriting Agreement between the Registrant and Scudder Investor Services,
Inc. dated November 15, 1996 is filed herein.
7. Inapplicable.
8. (a) Custodian Contract between the Registrant and ____________ dated
_____________. (to be filed by amendment.)
(b) Fee schedule for Exhibit 8(a). (to be filed by amendment.)
9. (a) Special Servicing Agreement between the Registrant, the Underlying
Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Trust Company and Scudder, Stevens & Clark,
Inc. dated November 15, 1996 is filed herein.
(b) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated November 15, 1996 is filed herein.
(b)(1) Form of a COMPASS Service Agreement with Scudder Trust Company.
(Incorporated by reference to Exhibit 9(b)(1) to Pre-Effective
Amendment No. 1 to the Registration Statement filed November 13,
1996.)
(c)(1) Fund Accounting Services Agreement between Scudder Pathway Series:
Conservative Portfolio and Scudder Fund Accounting Corporation dated
November 15, 1996 is filed herein.
(c)(2) Fund Accounting Services Agreement between Scudder Pathway Series:
Balanced Portfolio and Scudder Fund Accounting Corporation dated
November 14, 1996 is filed herein.
(c)(3) Fund Accounting Services Agreement between Scudder Pathway Series:
Growth Portfolio and Scudder Fund Accounting Corporation dated
November 14, 1996 is filed herein.
(c)(4) Fund Accounting Services Agreement between Scudder Pathway Series:
International Portfolio and Scudder Fund Accounting Corporation
dated November 14, 1996 is filed herein.
10. Inapplicable.
11. Inapplicable.
12. Inapplicable.
13. Letter of agreement between the Registrant and the Purchaser of the Initial
Shares. (to be filed by amendment.)
14. (a) Scudder Flexi-Plan for Corporations and Self-Employed Individuals.
Part C - Page 3
<PAGE>
(Incorporated by reference to Exhibit 14(a) to Scudder Income Fund
Post-Effective Amendment No. 46 to its Registration Statement on
Form N-1A (File Nos. 2-13627 and 811-42).)
(b) Scudder Individual Retirement Plan.
(Incorporated by reference to Exhibit 14(b) to Scudder Income Fund
Post-Effective Amendment No. 46 to its Registration Statement on
Form N-1A (File Nos. 2-13627 and 811-42).)
(c) Scudder Funds 403(b) Plan.
(Incorporated by reference to Exhibit 14(c) to Scudder Income Fund
Post-Effective Amendment No. 46 to its Registration Statement on
Form N-1A (File Nos. 2-13627 and 811-42).)
(d) Scudder Employer - Select 403(b) Plan.
(Incorporated by reference to Exhibit 14(e)(2) to Scudder Income
Fund, Inc. Post-Effective Amendment No. 43 to its Registration
Statement on Form N-1A (File Nos. 2-13627 and 811-42).)
(e) Scudder Cash or Deferred Profit Sharing Plan under Section 401(k).
(Incorporated by reference to Exhibit 14(f) to Scudder Income Fund,
Inc. Post-Effective Amendment No. 43 to its Registration Statement
on Form N-1A (File Nos. 2-13627 and 811-42).)
15. Inapplicable.
16. Inapplicable.
17. Article 6 Financial Data Schedules are filed herein.
18. Inapplicable.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
All of the outstanding shares of the Registrant, representing
all of the interests in the Scudder Pathway Series, on the
date Registrant's Registration Statement becomes effective
will be owned by Scudder Investor Services, Inc. ("The
Distributor").
Item 26. Number of Holders of Securities (as of April 30, 1997).
- -------- -------------------------------------------------------
<TABLE>
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
<S> <C>
Shares of beneficial interest
($.01 par value)
Scudder Pathway Series: Conservative Portfolio 546
Scudder Pathway Series: Balanced Portfolio 1,120
Scudder Pathway Series: Growth Portfolio 1,865
Scudder Pathway Series: International Portfolio 954
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its affiliates including Scudder Investor Services, Inc., and
all of the registered investment companies advised by Scudder,
Stevens & Clark, Inc. insures the Registrant's Trustees and
officers and others
Part C - Page 4
<PAGE>
against liability arising by reason of an alleged breach of
duty caused by any negligent act, error or accidental omission
in the scope of their duties.
Article IV of Registrant's Declaration of Trust state as
follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
part to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason for his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every person who is, or has been, a
Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest
extent permitted by law against all
liability and against all expenses
reasonably incurred or paid by him in
connection with any claim, action, suit or
proceeding in which he becomes involved as a
party or otherwise by virtue of his being or
having been a Trustee or officer and against
amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative or other, including
appeals), actual or threatened; and the
words "liability" and "expenses" shall
include, without limitation, attorneys'
fees, costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder
to a Trustee or officer:
(i) against any liability to the Trust, a
Series thereof, or the Shareholders by
reason of a final adjudication by a court or
other body
Part C - Page 5
<PAGE>
before which a proceeding was brought that
he engaged in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which
he shall have been finally adjudicated not
to have acted in good faith in the
reasonable belief that his action was in the
best interest of the Trust:
(iii) in the event of a settlement or other
disposition not involving a final
adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a
determination that such Trustee or officer
did not engage in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office:
(A) by the court or other body
approving the settlement or other
disposition; or
(B) based upon a review of readily
available facts (as opposed to a
full trial-type inquiry) by (x) vote
of a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in
office act on the matter) or (y)
written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may
be insured against by policies maintained by the
Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a
defense to any claim, action, suit or proceeding of
the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to
final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is
not entitled to indemnification under this Section
4.3, provided that either:
(i) such undertaking is secured by a surety
bond or some other appropriate security
provided by the recipient, or the Trust
shall be insured against losses arising out
of any such advances; or
(ii) a majority of the Disinterested
Trustees acting on the matter (provided that
a majority of the Disinterested Trustees act
on the matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of readily
available facts (as opposed to a full
trial-type inquiry), that there is reason to
believe that the recipient ultimately will
be found entitled to indemnification.
As used in this Section 4.3, a
"Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who
has been exempted from being an Interested Person by
any rule, regulation or order of the Commission), or
(ii) involved in the claim, action, suit or
proceeding.
Part C - Page 6
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated officers but do not as such
have corporation-wide responsibilities. Such persons are not considered officers for the
purpose of this Item 28.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Part C - Page 7
<PAGE>
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Part C - Page 8
<PAGE>
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
Director, Scudder Mutual Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Trustee, Scudder Funds Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
President & Director, SFA, Inc. (advertising agency)*
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Vice President & Director, Scudder Precious Metals, Inc. xxx
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Part C - Page 9
<PAGE>
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
(investment company)**
Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust (investment company)*
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Part C - Page 10
<PAGE>
Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)**
President, AARP Income Trust (investment company)**
President, AARP Tax Free Income Trust (investment company)**
President, AARP Managed Investment Portfolio Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao,
Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter,
Devon, U.K.
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Part C - Page 11
<PAGE>
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
<TABLE>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Part C - Page 12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant President and Trustee
Two International Place Treasurer
Boston, MA 02110
Thomas F. McDonough Assistant Clerk Vice President and
Two International Place Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President Vice President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President and Vice President and
345 Park Avenue Clerk Assistant Secretary
New York, NY 10154
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
The Underwriter has employees who are denominated officers of an operational area. Such persons do
not have corporation-wide responsibilities and are not considered officers for the purpose of this
Item 29.
</TABLE>
Part C - Page 13
<PAGE>
<TABLE>
(c)
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110-4103.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank & Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Records relating
to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts 02110-4103. Records relating to
the duties of the Registrant's pricing agent are maintained by
Scudder Fund Accounting Corporation, Two International Place,
Boston, Massachusetts 02110-4103. Records relating to the
duties of the Registrant's underwriter are maintained by
Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings
- -------- ------------
Inapplicable.
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
Trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submits to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Part C - Page 14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 14th day of May, 1997.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/David S. Lee
- --------------------------------------
David S. Lee* President (Principal Executive May 14, 1997
Officer) and Trustee
/s/Edgar R. Fiedler
- --------------------------------------
Edgar R. Fiedler* Trustee May 14, 1997
/s/Dr. J.D. Hammond
- --------------------------------------
Dr. J.D. Hammond* Trustee May 14, 1997
/s/Richard M. Hunt
- --------------------------------------
Richard M. Hunt* Trustee May 14, 1997
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* Vice President and Trustee May 14, 1997
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Vice President and Treasurer May 14, 1997
(Principal Financial and Accounting
Officer)
</TABLE>
*By:/s/Thomas F. McDonough
-----------------------------
Thomas F. McDonough
Attorney-in-fact pursuant to a power of
attorney contained in the signature page
filed herein.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 13th day of November, 1996.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/David S. Lee
- --------------------------------------
David S. Lee Trustee November 13, 1996
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 13th day of November, 1996.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Edgar R. Fiedler
- --------------------------------------
Edgar R. Fiedler Trustee November 13, 1996
3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 13th day of November, 1996.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Dr. J. D. Hammond
- --------------------------------------
Dr. J. D. Hammond Trustee November 13, 1996
4
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 13th day of November, 1996.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Richard M. Hunt
- --------------------------------------
Richard M. Hunt Trustee November 13, 1996
5
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 13th day of November, 1996.
SCUDDER PATHWAY SERIES
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce Vice President November 13, 1996
and Trustee
6
<PAGE>
File No. 33-86070
File No. 811-8606
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 3
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER PATHWAY SERIES
<PAGE>
SCUDDER PATHWAY SERIES
EXHIBIT INDEX
Exhibit 5
Exhibit 6
Exhibit 9(a)
Exhibit 9(b)
Exhibit 9(c)(1)
Exhibit 9(c)(2)
Exhibit 9(c)(3)
Exhibit 9(c)(4)
Exhibit 17
Exhibit 5
Scudder Pathway Series
Two International Place
Boston, Massachusetts 02110
November 15, 1996
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Investment Management Agreement
Scudder Pathway Series
Ladies and Gentlemen:
Scudder Pathway Series (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, the Board of Trustees has divided
the Trust's shares of beneficial interest, par value $.01 per share, (the
"Shares") into separate series (the "Portfolios"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Trustees.
The Trust, on behalf of the Portfolios, has selected you to act as the sole
investment manager of the Portfolios and to provide certain other services, as
more fully set forth below, and you have indicated that you are willing to act
as such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the
Portfolios agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Portfolios in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Portfolios included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Portfolios:
(a) Declaration of Trust of the Trust dated July 1, 1994, as amended to
date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the initial shareholder
of the Portfolios selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest relating to the Portfolios.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder" and "Scudder, Stevens &
Clark," trademarks (together, the "Scudder Marks"), you hereby grant the Trust
and Portfolios a nonexclusive right and sublicense to use (1) the "Scudder" name
and mark as part of their names (the "Trust Names"), and (2) the Scudder Marks
in connection with their investment products and services, in each case only for
so long as this Agreement, any other investment management agreement between you
and the Trust, or any extension, renewal or amendment hereof or thereof remains
in effect, and only for so long as you are a licensee of the Scudder Marks,
provided, however, that you agree to use your best efforts to maintain your
license to use and sublicense the Scudder Marks. The Trust and Portfolios agree
that they shall have no right to subscribe or assign rights to use the Scudder
Marks, shall acquire no interest in the Scudder Marks other than the rights
granted herein, that all of their uses of the Scudder Marks shall inure to the
benefit of Scudder Trust Company as owner and licensor of the Scudder Marks (the
"Trademark Owner"), and that the Trust and Portfolios shall not challenge the
validity of the Scudder Marks or the Trademark Owner's ownership thereof. The
Trust and Portfolios further agree that all services and products they offer in
connection with the Scudder Marks shall meet commercially reasonable standards
of quality, as may be determined by you or the Trademark Owner from time to
1
<PAGE>
time, provided that you acknowledge that the services and products the Trust and
Portfolios rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Trust and Portfolios
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust and Portfolios as registered users thereof. At such
time as this Agreement or any other investment management agreement shall no
longer be in effect between you (or your successor) and the Trust and
Portfolios, or you no longer are a licensee of the Scudder Marks, the Trust and
Portfolios shall (to the extent that, and as soon as, it lawfully can) cease to
use the Trust Name or any other name indicating that it is advised by, managed
by or otherwise connected with you (or any organization which shall have
succeeded to your business as investment manager) or the Trademark Owner. In no
event shall the Trust and Portfolios use the Scudder Marks or any other name or
mark confusingly similar thereto (including, but not limited to, any name or
mark that includes the name "Scudder") if this Agreement or any other investment
advisory agreement between you (or your successor) and the Trust is terminated.
3. Portfolio Management Services. As manager of the assets of the
Portfolios, you shall provide continuing investment management of the assets of
the Portfolios in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable provisions of
the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code")
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Portfolios so that they will each qualify as a regulated
investment company under Subchapter M of the Code and regulations issued
thereunder. The Portfolios shall have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Portfolios in accordance with the
requirements set forth in this section 3, you shall be entitled to receive and
act upon advice of counsel to the Trust or counsel to you. You shall also make
available to the Trust promptly upon request all of the Portfolios' investment
records and ledgers as are necessary to assist the Trust to comply with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Portfolios and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
the Portfolios' policies as expressed in the Registration Statement. You shall
determine what portion of the Portfolios' investment portfolio shall be invested
in securities and other assets and what portion, if any, should be held
uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Portfolios and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Portfolios such office space and facilities in the United States as
the Portfolios may require for their reasonable needs, and you (or one or more
of your affiliates designated by you) shall render to the Trust administrative
services on behalf of the Portfolios necessary for operating as an open-end
investment company and not provided by persons not parties to this Agreement
including, but not limited to, preparing reports to and meeting materials for
the Trust's Board of Trustees and reports and notices to Portfolio shareholders;
supervising, negotiating contractual arrangements with, to the extent
appropriate, and monitoring the performance of, custodians, depositories,
transfer and pricing agents, accountants, attorneys, printers, underwriters,
brokers and dealers, insurers and other persons in any capacity deemed to be
necessary or desirable to Portfolio operations; preparing and making filings
with the Securities and Exchange Commission (the "SEC") and other regulatory and
self-regulatory organizations, including, but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the Registration
Statement, semi-annual reports on Form N-SAR and notices pursuant to Rule 24f-2
under the 1940 Act; overseeing the tabulation of proxies by the Portfolios'
transfer agent; assisting in the preparation and filing of the Portfolios'
federal, state and local tax returns; preparing and filing the Portfolios'
federal excise tax return pursuant to Section 4982 of the Code; providing
assistance with investor and public relations matters; monitoring the valuation
of portfolio securities, the calculation of net asset value and the calculation
2
<PAGE>
and payment of distributions to Portfolio shareholders; monitoring the
registration of Shares of the Portfolios under applicable federal and state
securities laws; maintaining or causing to be maintained for the Portfolios all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by the Portfolios' custodian or other agents of the
Portfolios; assisting in establishing the accounting policies of the Portfolios;
assisting in the resolution of accounting issues that may arise with respect to
the Portfolios' operations and consulting with the Portfolios' independent
accountants, legal counsel and the Portfolios' other agents as necessary in
connection therewith; establishing and monitoring the Portfolios' operating
expense budgets; reviewing the Portfolios' bills; processing the payment of
bills that have been approved by an authorized person; assisting the Portfolios
in determining the amount of dividends and distributions available to be paid by
the Portfolios to their shareholders, preparing and arranging for the printing
of dividend notices to shareholders, and providing the transfer and dividend
paying agent and the custodian with such information as is required for such
parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the
Portfolios' business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Portfolios or any other person not
a party to this Agreement which is obligated to provide services to the
Portfolios.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the
Portfolios' share of payroll taxes) who are affiliated persons of you, and you
shall make available, without expense to the Portfolios, the services of such of
your directors, officers and employees as may duly be elected officers of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 3 hereof and the administrative services described
in section 4 hereof.
You shall not be required to pay any expenses of the Portfolios other than
those specifically allocated to you in this section 5 and under the terms of the
Special Servicing Agreement dated November 15, 1996 ("Special Servicing
Agreement") among you, the Trust, Scudder Fund Accounting Corporation, Scudder
Service Corporation, Scudder Trust Company, Scudder Investor Services, Inc. and
the various funds in which the Portfolios may invest (the "Underlying Funds").
In particular, but without limiting the generality of the foregoing, such
expenses include the following: organization expenses of the Portfolios
(including out-of-pocket expenses, but not including your overhead or employee
costs); fees payable to you and to any other Portfolio advisors or consultants;
legal expenses; auditing and accounting expenses; maintenance of books and
records which are required to be maintained by the Portfolios' custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Portfolios in connection with membership in investment company
trade organizations; fees and expenses of the Portfolios' custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Portfolios; expenses relating to investor
and public relations; expenses and fees of registering or qualifying Shares of
the Portfolios for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Portfolios' portfolio securities; the compensation and all expenses
(specifically including travel expenses relating to Trust business) of Trustees,
officers and employees of the Trust who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Portfolios; expenses of printing and distributing reports,
notices and dividends to shareholders; expenses of printing and mailing
Prospectuses and SAIs of the Portfolios and supplements thereto; costs of
stationery; any litigation expenses or other extraordinary expenses; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
Except as provided in the Special Servicing Agreement, you shall not be
required to pay expenses of any activity which is primarily intended to result
in sales of Shares of the Portfolios if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Portfolios' Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such expenses,
or (ii) the Trust on behalf of the Portfolios shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Portfolios (or
some other party) shall assume some or all of such expenses. You shall be
required in any event to pay such of the foregoing sales expenses as are not
required to be paid by the principal underwriter pursuant to the underwriting
3
<PAGE>
agreement or are not permitted to be paid by the Portfolios (or some other
party) pursuant to such a plan.
6. Management Fee and Payment of Certain Expenses. As you expect to receive
additional compensation under investment management agreements currently in
effect between you and the Underlying Funds due to growth in the assets of the
Underlying Funds resulting from investments in the Underlying Funds by the
Portfolios, you will not be paid a fee for the services described in sections 3
and 4 hereof.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Portfolios, neither you nor any of your directors,
officers or employees shall act as a principal or agent or receive any
commission. You or your agent shall arrange for the placing of all orders for
the purchase and sale of portfolio securities and other investments for the
Portfolios' account with brokers or dealers selected by you in accordance with
Portfolio policies as expressed in the Registration Statement. If any occasion
should arise in which you give any advice to clients of yours concerning the
Shares of the Portfolios, you shall act solely as investment counsel for such
clients and not in any way on behalf of the Portfolios.
Your services to the Portfolios pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust.
8. Limitation of Liability of Manager. As an inducement to your undertaking
to render services pursuant to this Agreement, the Trust agrees that you shall
not be liable under this Agreement for any error of judgment or mistake of law
or for any loss suffered by the Portfolios in connection with the matters to
which this Agreement relates, provided that nothing in this Agreement shall be
deemed to protect or purport to protect you against any liability to the Trust,
the Portfolios or its shareholders to which you would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of your duties, or by reason of your reckless disregard of your obligations and
duties hereunder. Any person, even though also employed by you, who may be or
become an employee of and paid by the Portfolios shall be deemed, when acting
within the scope of his or her employment by the Portfolios, to be acting in
such employment solely for the Portfolios and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall remain
in force until September 30, 1998, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Portfolios. The aforesaid requirement that continuance
of this Agreement be "specifically approved at least annually" shall be
construed in a manner consistent with the 1940 Act and the rules and regulations
thereunder.
This Agreement may be terminated with respect to the Portfolios at any
time, without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of the Portfolios or by the Trust's Board of
Trustees on 60 days' written notice to you, or by you on 60 days' written notice
to the Trust. This Agreement shall terminate automatically in the event of its
assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to a Portfolio until approved by the vote of a majority
of the outstanding voting securities of that Portfolio and by the Trust's Board
of Trustees, including a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval.
11. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Scudder Pathway
Series" refers to the Trustees under the Declaration collectively as trustees
and not as individuals or personally, and that no shareholder of the Portfolios,
or Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Portfolios to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Portfolios pursuant to this Agreement shall be limited in
4
<PAGE>
all cases to the Portfolios and its assets, and you shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolios or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights and obligations
of each Portfolio, or series, under the Declaration are separate and distinct
from those of any and all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Portfolios to fail to comply with the requirements of Subchapter M of the Code.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
SCUDDER PATHWAY SERIES
By /s/Daniel Pierce
-----------------
Vice President
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER, STEVENS & CLARK, INC.
By /s/David S. Lee
----------------
Managing Director
5
Exhibit 6
SCUDDER PATHWAY SERIES
Two International Place
Boston, MA 02110
Date: November 15, 1996
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Underwriting Agreement
Dear Ladies and Gentlemen:
Scudder Pathway Series (hereinafter called the "Trust") is a business
trust organized under the laws of Massachusetts and is engaged in the business
of an investment company. The authorized capital of the Trust consists of shares
of beneficial interest, with par value of $0.01 per share ("Shares"), currently
divided into four portfolios ("Portfolio"); however, shares may be divided into
additional Portfolios of the Trust and the Portfolios may be terminated from
time to time. The Trust has selected you to act as principal underwriter (as
such term is defined in Section 2(a)(29) of the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Shares and you are willing to act as such
principal underwriter and to perform the duties and functions of underwriter in
the manner and on the terms and conditions hereinafter set forth. Accordingly,
the Trust hereby agrees with you as follows:
1. Delivery of Documents. The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, dated July 1, 1994, as
amended to date.
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Board of Trustees of the Trust selecting
you as principal underwriter and approving this form of
Agreement.
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(d) The Establishment and Designation of Series of Beneficial
Interest, $.01 Par Value.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
The Trust will furnish you promptly with properly certified or
authenticated copies of any registration statement filed by it with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
(the "1933 Act") or the 1940 Act, together with any financial statements and
exhibits included therein, and all amendments or supplements thereto hereafter
filed.
2. Registration and Sale of Additional Shares. The Trust will from time
to time use its best efforts to register under the 1933 Act such number of
Shares not already so registered as you may reasonably be expected to sell on
behalf of the Trust. You and the Trust will cooperate in taking such action as
may be necessary from time to time to qualify Shares so registered for sale by
you or the Trust in any states mutually agreeable to you and the Trust, and to
maintain such qualification. This Agreement relates to the issue and sale of
Shares that are duly authorized and registered and available for sale by the
Trust, including redeemed or repurchased Shares if and to the extent that they
may be legally sold and if, but only if, the Trust sees fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7
hereof and to such minimum purchase requirements as may from time to time be
currently indicated in the Trust's prospectus or statement of additional
information, you are authorized to sell as agent on behalf of the Trust Shares
authorized for issue and registered under the 1933 Act. You may also purchase as
principal Shares for resale to the public. Such sales will be made by you on
behalf of the Trust by accepting unconditional orders to purchase Shares placed
with you by investors and such purchases will be made by you only after
acceptance by you of such orders. The sales price to the public of Shares shall
be the public offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by the Trust and registered under the
1933 Act, provided that you may in your discretion refuse to accept orders for
Shares from any particular applicant.
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5. Sale of Shares by the Trust. Unless you are otherwise notified by
the Trust, any right granted to you to accept orders for Shares or to make sales
on behalf of the Trust or to purchase Shares for resale will not apply to (i)
Shares issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or otherwise,
of all or substantially all of the assets of any investment company or
substantially all the outstanding shares of any such company, and (ii) to Shares
that may be offered by the Trust to shareholders of the Trust by virtue of their
being such shareholders.
6. Public Offering Price. All Shares sold to investors by you will be
sold at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined, in the manner
provided in the Trust's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Trust reserves the
right to suspend sales and your authority to accept orders for Shares on behalf
of the Trust if, in the judgment of a majority of the Board of Trustees or a
majority of the Executive Committee of such Board, if such body exists, it is in
the best interests of the Trust to do so, such suspension to continue for such
period as may be determined by such majority; and in that event, no Shares will
be sold by you on behalf of the Trust while such suspension remains in effect
except for Shares necessary to cover unconditional orders accepted by you before
you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the
Trust may be bought or sold by or through you and you may participate directly
or indirectly in brokerage commissions or "spread" in respect to transactions in
portfolio securities of any Portfolio of the Trust; provided, however, that all
sums of money received by you as a result of such purchases and sales or as a
result of such participation must, after reimbursement of your actual expenses
in connection with such activity, be paid over by you to or for the benefit of
the Trust.
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9. Expenses. (a) The Trust will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing
of any registration statement (including a prospectus and
statement of additional information) under the 1933 Act or the
1940 Act, or both, and any amendments or supplements thereto
that may be made from time to time;
(2) in connection with the registration and qualification of
Shares for sale in the various jurisdictions in which the
Trust shall determine it advisable to qualify such Shares for
sale (including registering the Trust as a broker or dealer or
any officer of the Trust or other person as agent or salesman
of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any
notice, proxy statement, report, prospectus or other
communication to shareholders of the Trust in their capacity
as such;
(4) of preparing, setting in type, printing and mailing
prospectuses annually, and any supplements thereto, to
existing shareholders;
(5) in connection with the issue and transfer of Shares resulting
from the acceptance by you of orders to purchase Shares placed
with you by investors, including the expenses of printing and
mailing confirmations of such purchase orders and the expenses
of printing and mailing a prospectus included with the
confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in
satisfaction of redemption or repurchase requests, unless such
expenses are paid for by the investor or shareholder who
initiates the transaction;
(9) of the cost of printing and postage of business reply
envelopes sent to Trust shareholders;
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(10) of one or more CRT terminals connected with the computer
facilities of the transfer agent other than the portion
allocated to you in this paragraph 9;
(11) permitted to be paid or assumed by the Trust pursuant to a
plan ("12b-1 Plan"), if any, adopted by the Trust in
conformity with the requirements of Rule 12b-1 under the 1940
Act ("Rule 12b-1") or any successor rule, notwithstanding any
other provision to the contrary herein;
(12) of the expense of setting in type, printing and postage of the
periodic newsletter to shareholders other than the portion
allocated to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you as
shareholder representatives other than the portion allocated
to you in this paragraph 9.
b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports
prepared for your use in connection with the offering of
Shares to the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of
Shares to the public;
(3) of advertising in connection with the offering of Shares to
the public;
(4) incurred in connection with your registration as a broker or
dealer or the registration or qualification of your officers,
trustees, agents or representatives under Federal and state
laws;
(5) of that portion of WATS (or equivalent) telephone lines,
allocated to you on the basis of use by investors (but not
shareholders) who request information or prospectuses;
(6) of that portion of the expenses of setting in type, printing
and postage of the periodic newsletter to shareholders
attributable to promotional material included in such
newsletter at your request concerning investment companies
other than the Trust or concerning the Trust to the extent you
are required to assume the expense thereof pursuant to
paragraph 9(b)(8), except such material which is limited to
information, such as listings of other investment companies
and their investment objectives, given in connection with the
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exchange privilege as from time to time described in the
Trust's prospectus;
(7) of that portion of the salaries and overhead of persons
employed by you as shareholder representatives attributable to
the time spent by such persons in responding to requests from
prospective investors and shareholders for information about
the Trust;
(8) of any activity which is primarily intended to result in the
sale of Shares, unless a 12b-1 Plan shall be in effect which
provides that the Trust shall bear some or all of such
expenses, in which case the Trust shall bear such expenses in
accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with
the computer facilities of the transfer agent attributable to
your use of such terminal(s) to gain access to such of the
transfer agent's records as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Trust in the performance of your duties hereunder. You shall be responsible
for your own conduct and the employment, control and conduct of your agents and
employees and for injury to such agents or employees or to others through your
agents or employees. You assume full responsibility for your agents and
employees under applicable statutes and agree to pay all employee taxes
thereunder.
12. Indemnification. You agree to indemnify and hold harmless the Trust
and each of its trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against any and all
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losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which the Trust or such trustees, officers, or controlling person
may become subject under such Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by you or any of your employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement
(including a prospectus or statement of additional information) covering Shares
or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such statement or
omission was made in reliance upon information furnished to the Trust by you, or
(iii) may be incurred or arise by reason of your acting as the Trust's agent
instead of purchasing and reselling Shares as principal in distributing the
Shares to the public, provided, however, that in no case (i) is your indemnity
in favor of a trustee or officer or any other person deemed to protect such
trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) are
you to be liable under your indemnity agreement contained in this paragraph with
respect to any claim made against the Trust or any person indemnified unless the
Trust or such person, as the case may be, shall have notified you in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Trust or
upon such person (or after the Trust or such person shall have received notice
of such service on any designated agent), but failure to notify you of any such
claim shall not relieve you from any liability which you may have to the Trust
or any person against whom such action is brought otherwise than on account of
your indemnity agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so elect, to assume
the defense of any suit brought to enforce any such liability, but if you elect
to assume the defense, such defense shall be conducted by counsel chosen by you
and satisfactory to the Trust, to its officers and trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the event
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that you elect to assume the defense of any such suit and retain such counsel,
the Trust, such officers and trustees or controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but, in case you do not elect to assume the
defense of any such suit, you will reimburse the Trust, such officers and
trustees or controlling person or persons, defendant or defendants in such suit
for the reasonable fees and expenses of any counsel retained by them. You agree
promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
The Trust agrees to indemnify and hold harmless you and each of your
trustees and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such trustees, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Trust or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement (including a prospectus or statement
of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to you by the Trust; provided, however, that in no case
(i) is the Trust's indemnity in favor of a trustee or officer or any other
person deemed to protect such trustee or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claims made against you or any
such trustee, officer or controlling person unless you or such trustee, officer
or controlling person, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
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giving information of the nature of the claim shall have been served upon you or
upon such trustee, officer or controlling person (or after you or such trustee,
officer or controlling person shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Trust will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if the Trust elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to you,
your trustees, officers, or controlling person or persons, defendant or
defendants in the suit. In the event that the Trust elects to assume the defense
of any such suit and retain such counsel, you, your trustees, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, it will
reimburse you or such trustees, officers or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Trust agrees promptly to notify you of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any Shares.
13. Authorized Representations. The Trust is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained in a registration statement (including
a prospectus or statement of additional information) covering Shares, as such
registration statement and prospectus may be amended or supplemented from time
to time.
You are not authorized to give any information or to make any
representations on behalf of the Trust or in connection with the sale of Shares
other than the information and representations contained in a registration
statement (including a prospectus or statement of additional information)
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
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underwriter (as such term is defined in the 1940 Act) for the Trust.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon the date first written above and will remain in effect
until September 30, 1997 and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually by the vote of a
majority of the trustees who are not interested persons of you or of the Trust,
cast in person at a meeting called for the purpose of voting on such approval,
and by vote of the Board of Trustees or of a majority of the outstanding voting
securities of the Trust. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty, by the Board of
Trustees of the Trust, by a vote of a majority of the outstanding voting
securities of the Trust, or by you. This Agreement will automatically terminate
in the event of its assignment. In interpreting the provisions of this paragraph
14, the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person", "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Trust should at any time deem it
necessary or advisable in the best interests of the Trust that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Trust may terminate this
Agreement forthwith. If you should at any time request that a change be made in
the Trust's Declaration of Trust or By-laws or in its methods of doing business,
in order to comply with any requirements of federal law or regulations of the
Securities and Exchange Commission or of a national securities association of
which you are or may be a member relating to the sale of shares of the Trust,
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and the Trust should not make such necessary change within a reasonable time,
you may terminate this Agreement forthwith.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Very truly yours,
SCUDDER PATHWAY SERIES
By: _____________________________
David S. Lee, President
The foregoing agreement is hereby accepted as of the foregoing date thereof.
SCUDDER INVESTOR SERVICES, INC.
By:________________________________
Daniel Pierce, Vice President
11
Exhibit 9(a)
SPECIAL SERVICING AGREEMENT
THIS SPECIAL SERVICING AGREEMENT ("Agreement"), made as of this 15th
day of November, 1996, by and among Scudder Pathway Series ("Pathway Series"),
each fund which is listed on Appendix A (as such Appendix may be amended from
time to time) and which evidences its agreement to be bound hereby by executing
a copy of this Agreement (such funds hereinafter called the "Underlying Funds"),
Scudder, Stevens & Clark, Inc. ("SSC"), Scudder Service Corporation ("Scudder
Service"), Scudder Fund Accounting Corporation ("SFAC"), Scudder Trust Company
("STC") and Scudder Investor Services, Inc. ("SIS").
W I T N E S S E T H:
WHEREAS, Pathway Series and each of the Underlying Funds are registered
as open-end, diversified or non-diversified management investment companies
under the Investment Company Act of 1940, as amended.
WHEREAS, Pathway Series and the Underlying Funds have each entered into
agreements with Scudder Service ("Service Agreements") under which Scudder
Service provides Pathway Series and the Underlying Funds transfer agent services
and various participant account, participant employer record keeping and
<PAGE>
shareholder services in return for such compensation as is set forth therein;
WHEREAS, Pathway Series has entered into an agreement with SFAC, and
each of the Underlying Funds has either entered into an agreement, or intends to
enter into an agreement, with SFAC ("Sub-Accounting Agreements") for the
provision of sub-accounting and other services in return for such compensation
as is set forth therein;
WHEREAS, Pathway Series has entered into an agreement with STC,
("Record-Keeping Agreements") for the provision of record-keeping and other
services in connection with certain retirement and employee benefit plans in
return for such compensation as is set forth therein;
WHEREAS, Pathway Series has entered into an underwriting agreement with
SIS ("Underwriting Agreements") for the provision of distribution services in
connection with Pathway Series' shares;
WHEREAS, Pathway Series has entered into an Investment Management
Agreement with SSC ("IMA") dated November 15, 1996 for the provision of
investment management services. Under the IMA, SSC will be responsible for the
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payment of various Pathway Series expenses, pursuant to this Agreement;
WHEREAS, Pathway Series has entered into an agreement with State Street
Bank and Trust Company ("State Street"), and each of the Underlying Funds has
entered into an agreement with either State Street or Brown Brothers Harriman &
Co. (together referred to as "Custodian Agreements") under which the Custodian
is to furnish Pathway Series and the Underlying Funds various custodial services
in return for such compensation as is set forth in the Custodian Agreements;
WHEREAS, Pathway Series is expected to provide a means by which the
Underlying Funds can eliminate shareholder accounts which are or would be
invested directly in the Underlying Funds;
WHEREAS, such shareholder account reduction can reduce the fees of the
Underlying Funds due Scudder Service under the Service Agreements and various
other fees and expenses that would otherwise be incurred by the Underlying Funds
(such expenses are further defined below as Variable Expenses, and such
reduction in Variable Expenses is hereinafter referred to as "Savings");
WHEREAS, Pathway Series will invest its assets exclusively in the
Underlying Funds, except for temporary defensive purposes and cash or cash items
necessary to meet current expenses and redemptions; and
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WHEREAS, the Board of Directors/Trustees of each Underlying Fund has
determined that it is reasonable to expect the aggregate expenses as described
below of Pathway Series to be less than the estimated Savings to each of the
Underlying Funds from the operation of Pathway Series; and such determination by
the Board of Directors/Trustees is based on some or all of the following
factors, among others as they apply to each Underlying Fund:
a. The amount of Pathway Series expenses to be absorbed by each
Underlying Fund.
b. The amount of assets invested in each Underlying Fund by Pathway
Series;
c. The average and median account sizes for the Underlying Funds and
Pathway Series;
d. The rate at which Variable Expenses (i.e., expenses for
shareholder servicing, marketing to increase or maintain account
size, account management, transfer and dividend disbursing agency
services, and prospectuses, shareholder reports, proxies and
similar communications) and Fixed Expenses (i.e., expenses for
accounting, custodial, auditing and legal services, state
registration, filing, and directors fees and organization and
various miscellaneous expenses) are incurred by Pathway Series
and the Underlying Funds; and
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e. The relationship between Variable and Fixed Expenses in the
Underlying Funds and Pathway Series.
NOW, THEREFORE, in consideration of the promises and mutual covenants
made herein, it is agreed between and among the parties hereto as follows:
1. PATHWAY SERIES EXPENSES
SFAC will calculate the separate amounts of fees and expenses
allocable to Pathway Series due under the Custodian, Service,
Sub-Accounting, Record-Keeping and Underwriting Agreements
referred to above and agreements or arrangements with
third-parties for record-keeping and other administrative
services, as well as any other amounts due persons as a result
of Pathway Series operations under any other agreement or
otherwise ("Expenses"), excluding non-recurring and
extraordinary expenses. Such non-recurring and extraordinary
expenses include: the fees and costs of actions, suits or
proceedings, and any penalties, damages or payments in
settlement in connection therewith, for which the Pathway
Series and/or a portfolio or series thereof ("Pathway
Portfolio") may be liable directly, or which it may incur as a
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result of its legal obligation to provide indemnification to
its officers, directors and agents; the fees and costs of any
governmental investigation and any fines or penalties in
connection therewith; and any federal, state or local tax, or
related interest, penalties or additions to tax for which
Pathway Series or any Pathway Portfolio may be liable. Under
unusual circumstances, the parties may agree to exclude
certain other amounts from Expenses. In addition, SFAC will
calculate the estimated Savings to each Underlying Fund.
2. UNDERLYING FUNDS' PAYMENT OF EXPENSES
Subject to Paragraph 3, each of the Underlying Funds agrees to
pay its pro rata share of the Expenses based on the proportion
which the average daily value of its shares owned by all
Pathway Portfolios in the aggregate bears to the average daily
value of all shares of Underlying Funds owned by all Pathway
Portfolios in the aggregate, provided that no Underlying Fund
will pay such Expenses in excess of the estimated Savings to
it ("Excess Expense"). The Underlying Funds shall pay such
expenses in accordance with instructions from SFAC.
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3. PAYMENT BY SSC
SSC agrees that, at all times, it will bear any Excess Expense
described in Paragraph 2 and shall pay such Excess Expenses in
accordance with instructions from SFAC.
4. USE OF SCUDDER NAME
Pathway Series may utilize the "Scudder" name so long as (i)
this Agreement and the IMA remain in effect, (ii) the assets
of Pathway Series are invested solely in shares of the
Underlying Funds (except for such cash or cash items as may be
maintained from time to time to meet current expenses and
redemptions), and (iii) SSC, as Pathway Series' investment
adviser, utilizes the assets deposited with the Custodian,
from the sale of Pathway Series' shares, to promptly purchase
shares of an Underlying Fund and to effect redemption or
exchange of such shares in the manner provided by the
objectives and policies of each Pathway Portfolio.
5. OPINION OF COUNSEL
At any time any of the parties hereto may consult legal
counsel in respect of any matter arising in connection with
this Agreement, and no such party shall be liable for any
action taken or omitted by it in good faith in accordance with
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such instructions or with the advice or opinion of such legal
counsel.
6. LIABILITIES
No party hereto shall be liable to any other party hereto for
any action taken or thing done by it or its agents or
contractors in carrying out the terms and provisions of this
Agreement provided such party has acted in good faith and
without negligence or willful misconduct and selected its
agents and contractors with reasonable care.
7. TERM OF AGREEMENT: AMENDMENT; RENEWAL
The term of this Agreement shall begin on November 15, 1996,
and unless sooner terminated as herein provided, the Agreement
shall remain in effect through September 30, 1997. Thereafter,
this Agreement shall continue from year to year if such
continuation is specifically approved at least annually by the
Board of Directors/Trustees of each Underlying Fund and
Pathway Series, including a majority of the independent
Directors/Trustees of each such Fund. In determining whether
to renew this Agreement, the Directors/Trustees of the
Underlying Funds may request, and SSC will furnish, such
information relevant to determining the past and expected
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future relationship between the Savings and Expenses. The
Agreement may be modified or amended from time to time by
mutual written agreement between the parties hereto. Upon
termination hereof, outstanding obligations hereunder shall
survive. This Agreement may be amended in the future to
include as additional parties to the Agreement other
investment companies for which SSC serves as investment
adviser.
8. ASSIGNMENT
This Agreement shall not be assigned or transferred, either
voluntarily or involuntarily, by operation of law or
otherwise, without the prior written consent of SSC, the
Underlying Funds and Pathway Series. The Agreement shall
automatically and immediately terminate in the event of its
assignment without the prior written consent of such Funds.
9. NOTICE
Any notice under this Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the other party at such address as such other
party may designate for the receipt of such notices. Until
further notice to the other parties, it is agreed that for
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this purpose the address of all parties to this Agreement is
Two International Place, Boston, MA 02109, Attention: Thomas
F. McDonough.
10. INTERPRETIVE PROVISIONS
In connection with the operation of this Agreement, the
parties may agree from time to time on such provisions
interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the
general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by all parties and
annexed hereto, but no such provisions shall contravene any
applicable Federal or State Law or regulation. Also, no
existing provision of this Agreement, or interpretive or
additional provision described above, shall be effective if,
as a result, any Pathway Portfolio or any Underlying Fund
would lose its status as a regulated investment company under
Subchapter M of the Internal Revenue Code.
11. STATE LAW
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the Commonwealth of
Massachusetts.
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12. CAPTIONS
The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
With respect to a party which is organized as a Massachusetts business
trust, references in this Agreement to the party mean and refer to the Trustees
from time to time serving under its Declaration of Trust on file with the
Secretary of the Commonwealth of Massachusetts, as the same may be amended from
time to time, pursuant to which the party conducts its business. The obligations
of the party hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the party personally,
but bind only the trust property of the party, as provided in said Declaration
of Trust.
With respect to a party which is organized as either a Massachusetts
business trust or a Maryland corporation, if the party has more than one series,
no series of the party other than the series on whose behalf an obligation shall
have been undertaken shall be responsible for the obligations of the series, and
third parties shall look only to the assets of that series to satisfy those
obligations.
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed as of the day and year first above written.
Scudder Global Fund, Inc.,
on behalf of
Scudder Emerging Markets Income Fund,
Scudder Global Fund,
Scudder Global Discovery Fund,
Scudder International Bond Fund, and
Scudder Global Bond Fund
Scudder International Fund, Inc.,
on behalf of
Scudder International Fund,
Scudder Pacific Opportunities Fund,
Scudder Emerging Markets Growth Fund,
Scudder Latin America Fund, and
Scudder Mutual Funds, Inc.,
on behalf of
Scudder Gold Fund
Scudder Portfolio Trust,
on behalf of
Scudder Income Fund, and
Scudder High Yield Bond Fund
12
<PAGE>
Scudder Equity Trust,
on behalf of
Scudder Capital Growth Fund, and
Scudder Value Fund
Scudder Investment Trust,
on behalf of
Scudder Growth and Income Fund,
Scudder Quality Growth Fund, and
Scudder Classic Growth Fund
Scudder Funds Trust,
on behalf of
Scudder Short Term Bond Fund
Scudder Securities Trust,
on behalf of
Scudder Development Fund,
Scudder Small Company Value Fund,
Scudder 21st Century Growth Fund, and
Scudder Micro-Cap Fund
13
<PAGE>
Scudder GNMA Fund
By:__________________________________________
David S. Lee, Vice President
Scudder Cash Investment Trust
Scudder Pathway Series
By:__________________________________________
David S. Lee, President
Scudder, Stevens & Clark, Inc.
By:__________________________________________
David S. Lee, Managing Director
Scudder Service Corporation
By:__________________________________________
David S. Lee, Vice President
Scudder Investor Services, Inc.
By:__________________________________________
David S. Lee, President
14
<PAGE>
Scudder Trust Company
By:__________________________________________
David S. Lee, President
Scudder Fund Accounting Corporation
By:__________________________________________
David S. Lee, President
Dated: November 15, 1996
* This Agreement has been signed by each party which is a Massachusetts
business trust by its President or Vice President in that capacity and
not individually.
15
<PAGE>
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by such Agreement by executing the
Agreement on the dates indicated thereon:
Scudder Global Fund, Inc.,
on behalf of
Scudder Emerging Markets Income Fund,
Scudder Global Fund,
Scudder Global Discovery Fund,
Scudder International Bond Fund, and
Scudder Global Bond Fund
Scudder International Fund, Inc.,
on behalf of
Scudder International Fund,
Scudder Pacific Opportunities Fund,
Scudder Emerging Markets Growth Fund, and
Scudder Latin America Fund
Scudder Mutual Funds, Inc.,
on behalf of
Scudder Gold Fund
Scudder Portfolio Trust,
on behalf of
Scudder Income Fund, and
Scudder High Yield Bond Fund
16
<PAGE>
Scudder Equity Trust
on behalf of,
Scudder Capital Growth Fund, and
Scudder Value Fund
Scudder Investment Trust,
on behalf of
Scudder Growth and Income Fund,
Scudder Quality Growth Fund, and
Scudder Classic Growth Fund
Scudder Funds Trust,
on behalf of
Scudder Short Term Bond Fund
Scudder Securities Trust,
on behalf of
Scudder Development Fund,
Scudder Small Company Value Fund,
Scudder 21st Century Growth Fund, and
Scudder Micro-Cap Fund
Scudder GNMA Fund
Scudder Cash Investment Trust
Scudder Pathway Series
17
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SCUDDER PATHWAY SERIES
and
SCUDDER SERVICE CORPORATION
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of November 15, 1996, by and between SCUDDER
PATHWAY SERIES, a Massachusetts business trust, having its principal office and
place of business at Two International Place, Boston, Massachusetts 02110 (the
"Company") and SCUDDER SERVICE CORPORATION, a Massachusetts corporation, having
its principal office and place of business at Two International Place, Boston,
Massachusetts 02110 (the "Agent").
WHEREAS, the Company desires to appoint the Agent as a transfer
agent, dividend disbursing agent and agent in connection with certain other
activities and the Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1. Terms of Appointment: Duties of the Agent.
------------------------------------------
1.01. Subject to the terms and conditions set forth in this Agreement,
the Company hereby employs and appoints the Agent to act as, and the Agent
agrees to act as, transfer agent for the Company's authorized and issued shares
of beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Company ("Shareholders") and set out in a currently
effective prospectus ("Prospectus") or currently effective statement of
additional information ("Statement of Additional Information") of the Company,
including without limitation any periodic investment plan or periodic withdrawal
program. The term "Company" shall be deemed to apply to each series of Shares,
unless the context otherwise requires.
1.02. The Agent agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Company and the Agent, the Agent shall:
(i) Receive for acceptance orders for the purchase of Shares
and promptly deliver payment and appropriate
documentation thereof to the duly authorized custodian
of the Company (the "Custodian").
(ii) Pursuant to orders for the purchase of Shares, record
the purchase of the appropriate number of Shares in the
Shareholder's account and, if requested by the
Shareholder, and if the Trustees of the Company have
authorized the issuance of stock certificates, issue a
certificate for the appropriate number of Shares;
(iii) Pursuant to instructions provided by Shareholders,
reinvest income dividends and capital gain
distributions;
(iv) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(v) Provide an appropriate response to Shareholders with
respect to all correspondence and rejected trades;
(vi) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(vii) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
2
<PAGE>
(viii) Prepare and transmit payments for dividends and
distributions declared by the Company;
(ix) Report abandoned property to the various states as
authorized by the Company in accordance with policies
and principles agreed upon by the Company and Agent;
(x) Maintain records of account for and advise the Company
and its Shareholders as to the foregoing;
(xi) Record the issuance of Shares of the Company and
maintain an accurate control book with respect to Shares
pursuant to SEC Rule 17Ad-10(e) under the Securities
Exchange Act of 1934. The Agent shall also provide the
Company on a regular basis with the total number of
Shares which are issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole
responsibility of the Company;
(xii) Respond to all telephone inquiries from Shareholders or
their authorized representatives regarding the status of
Shareholder accounts;
(xiii) Respond to correspondence from Shareholders or their
authorized representatives regarding the status of
Shareholder accounts or information related to
Shareholder accounts; and
(xiv) Perform all Shareholder account maintenance updates.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Agent shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program). The detailed definition, frequency, limitations and
associated costs (if any) set out in the attached fee schedule, include but are
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxy statements and proxies, receiving and tabulating
proxies, mailing shareholder reports and prospectuses to current Shareholders,
and withholding all applicable taxes (including but limited to all withholding
taxes imposed under the U.S. Internal Revenue Code and Treasury regulations
promulgated thereunder, and applicable state and local laws to the extent
consistent with good industry practice), preparing and filing U.S. Treasury
Department Forms 1099, Form 941 when applicable and other appropriate forms
required with respect to dividends, distributions and taxes withheld on
Shareholder accounts by federal authorities for all registered Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information, (ii) provide
daily and monthly a written report and access to information which will enable
the Company to monitor the total number of Shares sold and the aggregate public
offering price thereof in each State by the Company, added by sales in each
State of the registered Shareholder or dealer branch office, as defined by the
Company, and (iii) if directed by the Company, (A) each confirmation of the
purchase which establishes a new account will be accompanied by a Prospectus and
any amendment or supplement thereto, and (B) a Prospectus, and any amendment or
supplement thereto, will be mailed to each Shareholder at the time a
confirmation of the first purchase by such Shareholder, subsequent to the
effective date of a Prospectus or any amendment or supplement thereto, is mailed
to such Shareholders.
3
<PAGE>
(c) In addition, the Company shall (i) identify to the Agent in writing
those transactions and assets to be treated as exempt from blue sky reporting to
the Company for each state and (ii) approve those transactions to be included
for each state on the blue sky program prior to activation and thereafter
monitor the daily activity for each state. The responsibility of the Agent for
the Company's blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky compliance by the
Company and the reporting of such transactions as provided above.
(d) The Agent shall utilize a system to identify all share transactions
which involve purchase and redemption orders that are processed at a time other
than the time of the computation of net asset value per share next computed
after receipt of such orders, and shall compute the net effect upon the company
of such transactions so identified on a daily and cumulative basis.
(e) The Agent shall supply to the Company from time to time, as
mutually agreed upon, reports summarizing the transactions identified pursuant
to paragraph (d) above, and the daily and cumulative net effects of such
transactions, and shall advise the Company at the end of each month of the net
cumulative effect at such time. The Agent shall promptly advise the Company if
at any time the cumulative net effect exceeds a dollar amount equivalent to 1/2
of 1 cent per outstanding Share.
(f) The Agent shall make appropriate arrangements with banking
institutions in connection with effecting timely redemptions of shares by the
Write-a-Check redemption feature described in the Company's Prospectus and
Statement of Additional Information, if applicable.
1.03. The Agent's offices, personnel and computer and other equipment
shall be adequate to perform the services contemplated by this Agreement for the
Company and for other investment companies advised by Scudder, Stevens & Clark,
Inc. and its affiliates. The Agent shall notify the Company in the event that it
proposes to provide such services for any investment companies or other entities
other than those managed by Scudder, Stevens & Clark, Inc. and its affiliates.
Article 2. Fees and Expenses
-----------------
2.01. For the performance by the Agent pursuant to this Agreement,
the Agent shall be paid an annual maintenance fee for each Shareholder account
as set out in a fee schedule agreed to by both parties in writing. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the
Company and the Agent, as approved by a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Company.
2.02. In addition to the fee paid under Section 2.01 above, the Agent
shall be reimbursed for out-of-pocket expenses or advances incurred by the Agent
for the items set out in the fee schedule agreed to by both parties in writing.
In addition, any other expenses incurred by the Agent at the request or with the
consent of the Company will be reimbursed.
2.03. All reimbursable expenses shall be paid promptly, the terms,
method and procedures for which are detailed on the fee schedule agreed to by
both parties in writing. Postage for mailing of dividends, proxy statements,
Company reports and other mailings to all Shareholder accounts shall be advanced
to the Agent at least two (2) days prior to the mailing date of such materials.
2.04. The Company may engage accounting firms or other consultants to
evaluate the fees paid to, and quality of services rendered by, the Agent
hereunder, and such firms or other consultants shall be provided access by the
Agent to such information as may be reasonably required in connection with such
engagement. The Agent will give due consideration and regard to the
recommendations to the Company in connection with such engagement, but shall not
be bound thereby.
4
<PAGE>
2.05 The payment of amounts due and payable hereunder shall be
subject to the terms of the Special Servicing Agreement dated November 15, 1996,
among the Company, the Agent, Scudder, Stevens & Clark, Inc., Scudder Fund
Accounting Corporation, Scudder Investor Services, Inc., Scudder Trust Company
and the various funds in which the Portfolios of the Company may invest (the
"Special Servicing Agreement").
3. Representations and Warranties of the Agent.
--------------------------------------------
The Agent represents and warrants to the Company that:
3.01. It is a corporation duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
3.02. It has the legal power and authority to carry on its business
in The Commonwealth of Massachusetts.
3.03. It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05. It is duly registered as a transfer agent under Section 17A of
the Securities Exchange Act of 1934, as amended.
3.06. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4. Representations and Warranties of the Company.
----------------------------------------------
The Company represents and warrants to the Agent that:
4.01. It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02. It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03. All proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04. It is an investment company registered under the Investment
Company Act of 1940, as amended.
4.05. A registration statement under the Securities Act of 1933 is
currently effective (or will be effective prior to commencement by the Agent of
performance of services hereunder) and will remain effective, and appropriate
state securities law filings have been made and/or will continue to be made,
with respect to all Shares of the Company being offered for sale.
Article 5. Indemnification
---------------
5.01. To the extent that the Agent acts in good faith and without
negligence or willful misconduct, the Agent shall not be responsible for, and
the Company shall indemnify and hold the Agent harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of the Agent or its agents or subcontractors
required to be taken and correctly executed pursuant to
this Agreement.
5
<PAGE>
(b) The Company's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any
representation or warranty of the Company hereunder.
(c) The reasonable reliance on or use by the Agent or its
agents or subcontractors of information, records and
documents or services which are received or relied upon by
the Agent or its agents or subcontractors and furnished to
it or performed by or on behalf of the Company.
(d) The reasonable reliance on, or the carrying out by the
Agent or its agents or subcontractors of, any written
instructions or requests of the Company.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations, or the securities laws or regulations of any
state that such Shares be registered in such state, or in
violation of any stop order or other determination or
ruling by any federal agency or any state with respect to
the offer or sale of such Shares in such state, unless
such violation is the result of the Agent's negligent or
willful failure to comply with the provisions of Section
1.02(b) of this Agreement.
5.02. The Agent shall indemnify and hold the Company harmless from
and against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to the Agent's refusal
or failure to comply with the terms of this Agreement (whether as a result of
the acts or omissions of the Agent or of its agents or subcontractors) or
arising out of the lack of good faith, negligence or willful misconduct of the
Agent, or its agents or subcontractors, or arising out of the breach of any
representation or warranty of the Agent hereunder.
5.03. At any time the Agent may apply to any officer of the Company
for instructions, and may consult with outside legal counsel with respect to any
matter arising in connection with the services to be performed by the Agent
under this Agreement, and the Agent and its agents or subcontractors shall not
be liable and shall be indemnified by the Company for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Agent, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Company, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to the Agent or its agents or subcontractors by
machine-readable input, telex, CRT data entry or other similar means authorized
by the Company, and shall not be held to have notice of any change of authority
of any person, until receipt by the Agent of written notice thereof from the
Company. The Agent, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Company,
and the proper countersignature of any former transfer agent or registrar, or of
a co-transfer agent or co-registrar.
5.04. In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable to the other for
any damages resulting from such failure to perform or otherwise from such
causes.
5.05. Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement, but each
shall be liable for general damages resulting from breach of this Agreement. For
the purposes of this Agreement, the term "general damages" shall include but
shall not be limited to:
(a) All costs of correcting errors made by the Agent or its
agents or subcontractors in Company shareholder accounts,
including the expense of computer time, computer
programming and personnel;
6
<PAGE>
(b) Amounts which the Company is liable to pay to a person (or
his representative) who has purchased or redeemed, or
caused to be repurchased, Shares at a price which is
higher, in the case of a purchase, or lower, in the case
of a redemption or repurchase, than correct net asset
value per Share, but only to the extent that the price at
which such Shares were purchased, redeemed or repurchased
was incorrect as a result of either (i) one or more errors
caused by the Agent or its agents or subcontractors in
processing shareholder accounts of the Company or (ii) the
posting by the Agent of the purchase, redemption or
repurchase of Shares subsequent to the time such purchase,
redemption or repurchase should have been posted pursuant
to laws and regulations applicable to open-end investment
companies, if the delay is caused by the Agent, its agents
or subcontractors;
(c) The value of dividends and distributions which were not
credited on Shares because of the failure of the Agent or
its agents or subcontractors to timely post the purchase
of such Shares;
(d) The value of dividends and distributions which were
incorrectly credited on Shares because of the failure of
the Agent or its agents or subcontractors to timely post
the redemption or repurchase of such Shares;
(e) The value of dividends and distributions, some portion of
which was incorrectly credited, or was not credited, on
Shares because of the application by the Agent or its
agents or subcontractor of an incorrect dividend or
distribution factor or otherwise;
(f) Penalties and interest which the Company is required to
pay because of the failure of the Agent or its agents or
subcontractors to comply with the information reporting
and withholding (including backup withholding)
requirements of the Internal Revenue Code of 1986, as
amended, and applicable Treasury regulations thereunder,
applicable to Company Shareholder accounts: and
(g) Interest in accordance with the laws of The Commonwealth
of Massachusetts on any damages from the date of the
breach of this Agreement.
5.06. In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim or loss for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion or loss, and shall keep
the other party advised with respect to all developments concerning such claim.
The party who may be required to indemnify shall have the option to participate
at its expense with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
5.07. Losses incurred by the Company arising from the Agent effecting
a share transaction at a trade (pricing) date prior to the processing date shall
be governed by a separate agreement between the Agent and the Company.
The obligations of the parties hereto under this Article 5 shall
survive the termination of this Agreement.
Article 6. Covenants of the Company and the Agent.
6.01. The Company shall promptly furnish to the Agent the
following:
(a) A certified copy of the resolution of the Board of
Trustees of the Company authorizing the appointment of the
Agent and the execution and delivery of this Agreement.
7
<PAGE>
(b) A copy of the Declaration of Trust and By-Laws of the
Company and all amendments thereto.
6.02. The Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account, of such certificates,
form and devices.
6.03. The Agent shall at all times maintain insurance coverage which
is reasonable and customary in light of its duties hereunder and its other
obligations and activities.
6.04. The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
(the "Act") and the Rules thereunder, the Agent agrees that all such records
prepared or maintained by the Agent relating to the services to be performed by
the Agent hereunder and those records that the Company and the Agent agree from
time to time to be the records of the Company are the property of the Company
and will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Company on and in
accordance with its request. Records surrendered hereunder shall be in machine
readable form, except to the extent that the Agent has maintained such a record
only in paper form.
6.05. The Agent and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.06. In case of any requests or demands for the inspection of the
Shareholders records of the Company, the Agent will endeavor to notify the
Company and to secure instructions from an authorized officer of the Company as
to such inspection. The Agent reserves the right, however, to exhibit the
Shareholders records to any person whenever it is reasonably advised by its
counsel that it may be held liable for the failure to exhibit the Shareholders
records to such person.
6.07. The Agent agrees to maintain or provide for redundant
facilities or a compatible configuration and to maintain or provide for backup
of the Company's master and input files and to store such files in a sense
off-premises location so that in the event of a power failure or other
interruption of whatever cause at the location of such files the Company's
records are maintained intact and transactions can be processed at another
location.
6.08. The Agent acknowledges that the Company, as a registered
investment company under the Act, is subject to the provisions of the Act and
the rules and regulations thereunder, and that the offer and sale of the
Company's Shares are subject to the provisions of federal and state laws and
regulations applicable to the offer and sale of securities. The Company
acknowledges that the Agent is not responsible for the Company's compliance with
such laws and regulations. If the Company advises the Agent that a procedure of
the Agent related to the discharge of its obligations hereunder has or may have
the effect of causing the Company to violate any of such laws or regulations,
the Agent shall use its best efforts to develop a mutually agreeable alternative
procedure which does not have such effect.
Article 7. Termination of Agreement.
-------------------------
7.01. This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
7.02. Should the Company exercise its right to terminate, all
reasonable out-of-pocket expenses of the Agent associated with the movement of
records and materials required by this Agreement
8
<PAGE>
will be borne by the Company. Additionally, the Agent reserves the right to
charge for any other reasonable expenses associated with such termination.
Article 8. Additional Series.
------------------
8.01. In the event that the Company establishes one or more series of
Shares with respect to which it desires to have the Agent render services as
transfer agent under the terms hereof, it shall so notify the Agent in writing,
and unless the Agent objects in writing to providing such services, the term
"Company" hereunder, unless the context otherwise requires, shall be deemed to
include each such series of Shares. All recordkeeping and reporting shall be
done separately for each series. Unless the Company and the Agent agree to an
amended fee schedule, the fee schedule attached hereto shall apply to each
series separately.
Article 9. Assignment.
-----------
9.01. Except as provided in Section 9.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party. The parties agree that the
Special Servicing Agreement does not constitute an assignment for purposes of
this Section.
9.02. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
9.03. The Agent may, with notice to and consent on the part of the
Company, which consent shall not be unreasonably withheld, subcontract for the
performance of certain services under this Agreement to qualified service
providers, which shall be registered as transfer agents under Section 17A of the
Securities Exchange Act of 1934 if such registration is required; provided,
however, that the Agent shall be as fully responsible to the Company for the
acts and omissions of any subcontractor as it is for its own acts and omissions.
Article 10. Amendment.
----------
10.01. This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or Trustees of each party.
Article 11. Massachusetts Law to Apply.
---------------------------
11.01. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 12. Form N-SAR.
-----------
12.01. The Agent shall maintain such records as shall enable the
Company to fulfill the requirements of Form N-SAR or any successor report which
must be filed with the Securities and Exchange Commission.
Article 13. Merger of Agreement.
--------------------
13.01. This Agreement and the Special Servicing Agreement constitute
the entire agreement between the parties hereto and supersede any prior
agreement with respect to the subject hereof or thereof whether oral or written.
Article 14. Counterparts.
-------------
14.01. This Agreement may be executed by the parties hereto in any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
9
<PAGE>
Article 15. Limitation of Liability of the Trustees and the Shareholders.
It is understood and expressly stipulated that none of the Trustees, officers,
agents, or shareholders of the Company shall be personally liable hereunder. The
name of the Company is the designation of the Trustees for the time being under
the Company's Declaration of Trust, as the same is now stated or may hereafter
be amended, and all persons dealing with the trust must look solely to the
property of the trust for the enforcement of any claims against the trust as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the trust. No series of the
Company, if any, shall be liable for the obligations of any other series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
[SEAL] SCUDDER PATHWAY SERIES
By:
------------------------
President
[SEAL] SCUDDER SERVICE CORPORATION
By:
------------------------
President
10
<PAGE>
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
Scudder Pathway Series
Annual maintenance fee for each account $0.00
- ---------------------------------------
Other fees $0.00
- ----------
Out of pocket expenses shall be reimbursed by the Fund to Scudder Service
Corporation or paid directly by the Fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits Lease and maintenance of S.A.I.L. and Easy Access
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the Fund
Payment
- -------
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
Scudder Pathway Series: Scudder Service Corporation:
By By
----------------------- ----------------------------
Date November 15, 1996 Date November 15, 1996
11
Exhibit 9(c)(1)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 15th day of November, 1996 between Scudder Pathway
Series (the "Fund"), on behalf of Conservative Portfolio (hereinafter called the
"Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE>
Section 2. Calculation of Fees for Other Service Providers
Pursuant to the Special Servicing Agreement dated November 15, 1996,
among the Portfolio, Scudder Service Corporation, Scudder, Stevens &
Clark, Inc., FUND ACCOUNTING, Scudder Trust Company, Scudder Investor
Services, Inc. and the various funds in which the Portfolio may invest
(the "Underlying Funds") (the "Special Servicing Agreement"), FUND
ACCOUNTING shall calculate the amount of the Portfolio's fees and
expenses due to the Fund's custodian, underwriter, accounting agent,
transfer and dividend disbursing agent pursuant to agreements in place
between the Fund and each respective service provider, as well as any
other amounts due persons as a result of the Fund's operations under
any other agreement or otherwise ("Expenses"), excluding, however,
non-recurring and extraordinary expenses (such non-recurring and
extraordinary expenses include: the fees and costs of actions, suits or
proceedings and any penalties or damages in connection therewith, to
which the Fund and/or Portfolio may incur directly, or may incur as a
result of its legal obligation to provide indemnification to its
officers, directors and agents; the fees and costs of any governmental
investigation and any fines or penalties in connection therewith; and
any federal, state or local tax, or related interest penalties or
additions to tax, incurred, for example, as a result of the Fund's
failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file
any required tax returns or other filings). FUND ACCOUNTING shall also
calculate the estimated savings to the Underlying Funds as a result of
the Fund's operation ("Savings") and determine the level of excess
savings with respect to each Underlying Fund ("Savings less Expenses").
FUND ACCOUNTING shall then deliver proper instructions to each of the
Underlying Funds and/or Scudder, Stevens & Clark, Inc. as to the amount
of payments to be made to the Fund's service providers or other persons
pursuant to the Special Servicing Agreement.
Section 3. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 4. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
2
<PAGE>
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 5. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 6. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
3
<PAGE>
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 7. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 8. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement.
Section 9. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
4
<PAGE>
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 10. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 11. Limitation of Liability for Claims
The Fund's Declaration of Trust, dated July 1, 1994, as amended to date
(the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Scudder Pathway
Series" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder
of the Fund or the Portfolio, or Trustee, officer, employee or agent of
the Fund shall be subject to claims against or obligations of the Fund
or of the Portfolio to any extent whatsoever, but that the Fund estate
only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 12. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
5
<PAGE>
Attn: Vice President
If to the Fund - Portfolio: Scudder Pathway Series
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 13. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees. The parties agree that the Special Servicing
Agreement does not constitute an assignment for purposes of this
Section.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement and the Special Servicing Agreement constitute the
entire agreement between the parties concerning the subject matter
hereof, and supersede any and all prior understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] SCUDDER PATHWAY SERIES,
on behalf of Conservative Portfolio
By:_________________________________
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
6
<PAGE>
By:_____________________________
Vice President
7
Exhibit 9(c)(2)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 15th day of November, 1996 between Scudder Pathway
Series (the "Fund"), on behalf of Balanced Portfolio (hereinafter called the
"Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's
net asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily dividend
rates and money market yields, in accordance with Section 3 of
the Agreement and notify the Fund and such other persons as the
Fund may reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and money
market yields.
<PAGE>
Section 2. Calculation of Fees for Other Service Providers
Pursuant to the Special Servicing Agreement dated November 15, 1996,
among the Portfolio, Scudder Service Corporation, Scudder, Stevens &
Clark, Inc., FUND ACCOUNTING, Scudder Trust Company, Scudder Investor
Services, Inc. and the various funds in which the Portfolio may invest
(the "Underlying Funds") (the "Special Servicing Agreement"), FUND
ACCOUNTING shall calculate the amount of the Portfolio's fees and
expenses due to the Fund's custodian, underwriter, accounting agent,
transfer and dividend disbursing agent pursuant to agreements in place
between the Fund and each respective service provider, as well as any
other amounts due persons as a result of the Fund's operations under
any other agreement or otherwise ("Expenses"), excluding, however,
non-recurring and extraordinary expenses (such non-recurring and
extraordinary expenses include: the fees and costs of actions, suits or
proceedings and any penalties or damages in connection therewith, to
which the Fund and/or Portfolio may incur directly, or may incur as a
result of its legal obligation to provide indemnification to its
officers, directors and agents; the fees and costs of any governmental
investigation and any fines or penalties in connection therewith; and
any federal, state or local tax, or related interest penalties or
additions to tax, incurred, for example, as a result of the Fund's
failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file
any required tax returns or other filings). FUND ACCOUNTING shall also
calculate the estimated savings to the Underlying Funds as a result of
the Fund's operation ("Savings") and determine the level of excess
savings with respect to each Underlying Fund ("Savings less Expenses").
FUND ACCOUNTING shall then deliver proper instructions to each of the
Underlying Funds and/or Scudder, Stevens & Clark, Inc. as to the amount
of payments to be made to the Fund's service providers or other persons
pursuant to the Special Servicing Agreement.
Section 3. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 4. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
2
<PAGE>
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 5. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 6. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
3
<PAGE>
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 7. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 8. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement.
Section 9. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
4
<PAGE>
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 10. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 11. Limitation of Liability for Claims
The Fund's Declaration of Trust, dated July 1, 1994, as amended to date
(the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Scudder Pathway
Series" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder
of the Fund or the Portfolio, or Trustee, officer, employee or agent of
the Fund shall be subject to claims against or obligations of the Fund
or of the Portfolio to any extent whatsoever, but that the Fund estate
only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 12. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
5
<PAGE>
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Scudder Pathway Series
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 13. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees. The parties agree that the Special Servicing
Agreement does not constitute an assignment for purposes of this
Section.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement and the Special Servicing Agreement constitute the
entire agreement between the parties concerning the subject matter
hereof, and supersede any and all prior understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] SCUDDER PATHWAY SERIES,
on behalf of Balanced Portfolio
By:
--------------------------------
President
6
<PAGE>
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By:
--------------------------------
Vice President
7
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 15th day of November, 1996 between Scudder Pathway
Series (the "Fund"), on behalf of Growth Portfolio (hereinafter called the
"Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's
net asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily dividend
rates and money market yields, in accordance with Section 3 of
the Agreement and notify the Fund and such other persons as the
Fund may reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and money
market yields.
<PAGE>
Section 2. Calculation of Fees for Other Service Providers
Pursuant to the Special Servicing Agreement dated November 15, 1996,
among the Portfolio, Scudder Service Corporation, Scudder, Stevens &
Clark, Inc., FUND ACCOUNTING, Scudder Trust Company, Scudder Investor
Services, Inc. and the various funds in which the Portfolio may invest
(the "Underlying Funds") (the "Special Servicing Agreement"), FUND
ACCOUNTING shall calculate the amount of the Portfolio's fees and
expenses due to the Fund's custodian, underwriter, accounting agent,
transfer and dividend disbursing agent pursuant to agreements in place
between the Fund and each respective service provider, as well as any
other amounts due persons as a result of the Fund's operations under
any other agreement or otherwise ("Expenses"), excluding, however,
non-recurring and extraordinary expenses (such non-recurring and
extraordinary expenses include: the fees and costs of actions, suits
or proceedings and any penalties or damages in connection therewith,
to which the Fund and/or Portfolio may incur directly, or may incur as
a result of its legal obligation to provide indemnification to its
officers, directors and agents; the fees and costs of any governmental
investigation and any fines or penalties in connection therewith; and
any federal, state or local tax, or related interest penalties or
additions to tax, incurred, for example, as a result of the Fund's
failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file
any required tax returns or other filings). FUND ACCOUNTING shall also
calculate the estimated savings to the Underlying Funds as a result of
the Fund's operation ("Savings") and determine the level of excess
savings with respect to each Underlying Fund ("Savings less
Expenses"). FUND ACCOUNTING shall then deliver proper instructions to
each of the Underlying Funds and/or Scudder, Stevens & Clark, Inc. as
to the amount of payments to be made to the Fund's service providers
or other persons pursuant to the Special Servicing Agreement.
Section 3. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use
in advance.
Section 4. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
2
<PAGE>
FUND ACCOUNTING shall compute the daily dividend rates and money
market yields, if applicable, in accordance with the methodology set
forth in the Registration Statement.
Section 5. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken
or thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 6. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the
Registration Statement as in effect from time to time. FUND ACCOUNTING
may conclusively rely on the Fund's most recently delivered
3
<PAGE>
Registration Statement for all purposes under this Agreement and shall
not be liable to the Portfolio or the Fund in acting in reliance
thereon.
Section 7. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders
to which FUND ACCOUNTING would otherwise be subject by reason of
willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to
the Portfolio's records arising from fire, flood, Acts of God,
military power, war, insurrection or nuclear fission, fusion or
radioactivity shall be limited to the use of FUND ACCOUNTING's best
efforts to recover the Portfolio's records determined to be lost,
missing or destroyed.
Section 8. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to time
be agreed upon in writing by the two parties. FUND ACCOUNTING shall be
entitled to recover its reasonable telephone, courier or delivery
service, and all other reasonable out-of-pocket, expenses as incurred,
including, without limitation, reasonable attorneys' fees and
reasonable fees for pricing services.
The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement.
Section 9. Amendment and Termination
This Agreement shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by
mutual agreement of the parties hereto and may
4
<PAGE>
be terminated by an instrument in writing delivered or mailed to the
other party. Such termination shall take effect not sooner than ninety
(90) days after the date of delivery or mailing of such notice of
termination. Any termination date is to be no earlier than four months
from the effective date hereof. Upon termination, FUND ACCOUNTING will
turn over to the Fund or its designee and cease to retain in FUND
ACCOUNTING files, records of the calculations of net asset value and
all other records pertaining to its services hereunder; provided,
however, FUND ACCOUNTING in its discretion may make and retain copies
of any and all such records and documents which it determines
appropriate or for its protection.
Section 10. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 11. Limitation of Liability for Claims
The Fund's Declaration of Trust, dated July 1, 1994, as amended to
date (the "Declaration"), a copy of which, together with all
amendments thereto, is on file in the Office of the Secretary of State
of the Commonwealth of Massachusetts, provides that the name "Scudder
Pathway Series" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and
that no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Fund or of the Portfolio to any extent whatsoever,
but that the Fund estate only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of
the Fund.
Section 12. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
5
<PAGE>
If to the Fund - Portfolio: Scudder Pathway Series
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 13. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees. The parties agree that the Special Servicing
Agreement does not constitute an assignment for purposes of this
Section.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their
joint opinions may be consistent with this Agreement. Any such
interpretive or additional provisions shall be in writing, signed by
both parties and annexed hereto, but no such provisions shall be
deemed to be an amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement and the Special Servicing Agreement constitute the
entire agreement between the parties concerning the subject matter
hereof, and supersede any and all prior understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] SCUDDER PATHWAY SERIES,
on behalf of Growth Portfolio
By:
--------------------------------
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
6
<PAGE>
By:
--------------------------------
Vice President
7
Exhibit 9(c)(4)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 15th day of November, 1996 between Scudder Pathway
Series (the "Fund"), on behalf of International Portfolio (hereinafter called
the "Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE>
Section 2. Calculation of Fees for Other Service Providers
Pursuant to the Special Servicing Agreement dated November 15, 1996,
among the Portfolio, Scudder Service Corporation, Scudder, Stevens &
Clark, Inc., FUND ACCOUNTING, Scudder Trust Company, Scudder Investor
Services, Inc. and the various funds in which the Portfolio may invest
(the "Underlying Funds") (the "Special Servicing Agreement"), FUND
ACCOUNTING shall calculate the amount of the Portfolio's fees and
expenses due to the Fund's custodian, underwriter, accounting agent,
transfer and dividend disbursing agent pursuant to agreements in place
between the Fund and each respective service provider, as well as any
other amounts due persons as a result of the Fund's operations under
any other agreement or otherwise ("Expenses"), excluding, however,
non-recurring and extraordinary expenses (such non-recurring and
extraordinary expenses include: the fees and costs of actions, suits or
proceedings and any penalties or damages in connection therewith, to
which the Fund and/or Portfolio may incur directly, or may incur as a
result of its legal obligation to provide indemnification to its
officers, directors and agents; the fees and costs of any governmental
investigation and any fines or penalties in connection therewith; and
any federal, state or local tax, or related interest penalties or
additions to tax, incurred, for example, as a result of the Fund's
failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file
any required tax returns or other filings). FUND ACCOUNTING shall also
calculate the estimated savings to the Underlying Funds as a result of
the Fund's operation ("Savings") and determine the level of excess
savings with respect to each Underlying Fund ("Savings less Expenses").
FUND ACCOUNTING shall then deliver proper instructions to each of the
Underlying Funds and/or Scudder, Stevens & Clark, Inc. as to the amount
of payments to be made to the Fund's service providers or other persons
pursuant to the Special Servicing Agreement.
Section 3. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 4. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
2
<PAGE>
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 5. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 6. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
3
<PAGE>
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 7. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 8. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement.
Section 9. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
4
<PAGE>
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 10. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 11. Limitation of Liability for Claims
The Fund's Declaration of Trust, dated July 1, 1994, as amended to date
(the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Scudder Pathway
Series" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder
of the Fund or the Portfolio, or Trustee, officer, employee or agent of
the Fund shall be subject to claims against or obligations of the Fund
or of the Portfolio to any extent whatsoever, but that the Fund estate
only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 12. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
5
<PAGE>
Attn: Vice President
If to the Fund - Portfolio: Scudder Pathway Series
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 13. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees. The parties agree that the Special Servicing
Agreement does not constitute an assignment for purposes of this
Section.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement and the Special Servicing Agreement constitute the
entire agreement between the parties concerning the subject matter
hereof, and supersede any and all prior understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] SCUDDER PATHWAY SERIES,
on behalf of International Portfolio
By:__________________________________
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
6
<PAGE>
By:_____________________________
Vice President
7
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Pathway Series: Conservative
Portfolio Semiannual Report for the period ended March
31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> NOV-15-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 10,035,848
<INVESTMENTS-AT-VALUE> 9,911,217
<RECEIVABLES> 64,769
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,975,986
<PAYABLE-FOR-SECURITIES> 8,364
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,216
<TOTAL-LIABILITIES> 67,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,997,207
<SHARES-COMMON-STOCK> 827,985
<SHARES-COMMON-PRIOR> 2,083
<ACCUMULATED-NII-CURRENT> 18,250
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,580
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (124,631)
<NET-ASSETS> 9,908,406
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 26,018
<REALIZED-GAINS-CURRENT> 25,903
<APPREC-INCREASE-CURRENT> (124,631)
<NET-CHANGE-FROM-OPS> (72,710)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,768)
<DISTRIBUTIONS-OF-GAINS> (8,323)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 839,357
<NUMBER-OF-SHARES-REDEEMED> (14,702)
<SHARES-REINVESTED> 1,247
<NET-CHANGE-IN-ASSETS> 9,883,406
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,149,266
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Pathway Series: Balanced
Portfolio Semiannual Report for the period ended March
31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> NOV-15-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 129,284,748
<INVESTMENTS-AT-VALUE> 127,802,697
<RECEIVABLES> 627,702
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,430,399
<PAYABLE-FOR-SECURITIES> 135,555
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 401,871
<TOTAL-LIABILITIES> 537,426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 128,859,340
<SHARES-COMMON-STOCK> 10,710,809
<SHARES-COMMON-PRIOR> 2,083
<ACCUMULATED-NII-CURRENT> 229,352
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 286,332
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,482,051)
<NET-ASSETS> 127,892,973
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 239,099
<REALIZED-GAINS-CURRENT> 290,596
<APPREC-INCREASE-CURRENT> (1,482,051)
<NET-CHANGE-FROM-OPS> (952,356)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,747)
<DISTRIBUTIONS-OF-GAINS> (4,264)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,803,342
<NUMBER-OF-SHARES-REDEEMED> (95,766)
<SHARES-REINVESTED> 1,150
<NET-CHANGE-IN-ASSETS> 127,867,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 21,206,265
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 1.07
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 11.94
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Pathway Series: Growth
Portfolio Semiannual Report for the period ended March
31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> NOV-15-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 27,252,425
<INVESTMENTS-AT-VALUE> 26,792,856
<RECEIVABLES> 409,423
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,202,279
<PAYABLE-FOR-SECURITIES> 141,802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,362
<TOTAL-LIABILITIES> 172,164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,391,196
<SHARES-COMMON-STOCK> 2,268,108
<SHARES-COMMON-PRIOR> 2,083
<ACCUMULATED-NII-CURRENT> 90,066
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (459,569)
<NET-ASSETS> 27,030,115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 98,853
<REALIZED-GAINS-CURRENT> 15,633
<APPREC-INCREASE-CURRENT> (459,569)
<NET-CHANGE-FROM-OPS> (345,083)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,787)
<DISTRIBUTIONS-OF-GAINS> (7,211)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,342,618
<NUMBER-OF-SHARES-REDEEMED> (77,935)
<SHARES-REINVESTED> 1,342
<NET-CHANGE-IN-ASSETS> 27,005,115
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 8,543,211
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.92
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Pathway Series:
International Portfolio Semiannual Report for the
period ended March 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> NOV-15-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 4,524,632
<INVESTMENTS-AT-VALUE> 4,535,283
<RECEIVABLES> 95,703
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,630,986
<PAYABLE-FOR-SECURITIES> 51,463
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,939
<TOTAL-LIABILITIES> 62,402
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,544,168
<SHARES-COMMON-STOCK> 374,781
<SHARES-COMMON-PRIOR> 2,083
<ACCUMULATED-NII-CURRENT> 10,878
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,887
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,651
<NET-ASSETS> 4,568,584
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 19,269
<REALIZED-GAINS-CURRENT> 6,243
<APPREC-INCREASE-CURRENT> 10,651
<NET-CHANGE-FROM-OPS> 36,163
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,391)
<DISTRIBUTIONS-OF-GAINS> (3,356)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 387,829
<NUMBER-OF-SHARES-REDEEMED> (16,050)
<SHARES-REINVESTED> 918
<NET-CHANGE-IN-ASSETS> 4,543,584
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,823,777
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> (0.26)
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0.10
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.19
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
