This prospectus sets forth concisely the information about Scudder Pathway
Series: Balanced 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 primarily in a number of other
funds in the Scudder Family of Funds (the "Underlying Scudder Funds"). Please
retain this prospectus for future reference.
If you require more detailed information, a Statement of Additional Information
dated February 1, 1998, 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 Securities and Exchange Commission'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.
- ----------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------------
[LOGO] PRINTED WITH [LOGO] Printed on recycled paper
SOYINK
SCUDDER [LOGO]
Scudder
Pathway Series:
Balanced
Portfolio
Prospectus
February 1, 1998
A pure no-load(TM) (no sales charges) mutual fund which seeks a balance of
growth and income by investing in a select mix of funds in the Scudder Family of
Funds.
<PAGE>
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Expense information
- ---------------------------------------
- --------------------------------------------------------------------------------
This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: Balanced 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: 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 most recent fiscal year.
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."
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- --
2
<PAGE>
- ---------------------------------------
Expense Ratios of the
Underlying Scudder Funds
- ---------------------------------------
- --------------------------------------------------------------------------------
Underlying Scudder Funds Expense Ratio
------------------------ -------------
Money Market Fund
Scudder Cash Investment Trust 0.86%
Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.49%
Scudder Global Bond Fund+ 1.00%
Scudder GNMA Fund 0.96%
Scudder High Yield Bond Fund+ 0.25%
Scudder Income Fund 1.18%
Scudder International Bond Fund+ 1.36%
Scudder Short Term Bond Fund 0.86%
Underlying Scudder Funds Expense Ratio
------------------------ -------------
Equity Mutual Funds
Scudder Classic Growth Fund+ 1.25%
Scudder Development Fund 1.36%
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.63%
Scudder Global Fund 1.37%
Scudder Gold Fund 1.60%
Scudder Greater Europe Growth Fund+ 1.66%
Scudder Growth and Income Fund 0.76%
Scudder International Fund 1.15%
Scudder International Growth and Income Fund+ 1.75%
Scudder Large Company Growth Fund 1.21%
Scudder Large Company Value Fund 0.93%
Scudder Latin America Fund 1.89%
Scudder Micro Cap Fund+ 1.75%
Scudder Pacific Opportunities Fund 1.94%
Scudder Small Company Value Fund+ 1.50%
Scudder 21st Century Growth Fund+ 1.75%
Scudder Value Fund+ 1.24%
The Japan Fund, Inc. 1.21%
Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 0.45% to 1.85%. 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
------ -------
$12 $37
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 during
their respective fiscal periods: Scudder Cash Investment Trust: 0.85%,
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: 0.14%, Scudder International Bond
Fund: 1.50%, Scudder International Growth and Income Fund: 1.75%, Scudder
Micro Cap Fund: 1.75%, Scudder Small Company Value Fund: 1.50%, 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 each
such fund for the period would have been lower. Please see the appropriate
Underlying Scudder Fund prospectus for details.
- --------------------------------------------------------------------------------
--
3
<PAGE>
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Financial Highlights
- ---------------------------------------
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 Annual Report dated September 30, 1997 which may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
November 15, 1996
(commencement of
operations) to
September 30, 1997
- ----------------------------------------------------------------------------------------------------------------
------------------
<S> <C>
Net asset value, beginning of period ..................................................... $12.00
------------------
Income from investment operations: ....................................................... .37
Net investment income
Net realized and unrealized gain on investment transactions .............................. 1.59
------------------
Total from investment operations ......................................................... 1.96
------------------
Less distributions:
From net investment income ............................................................... (.33)
From net realized gain on investments .................................................... (.07)
------------------
Total distributions ...................................................................... (.40)
------------------
------------------
Net asset value, end of period ........................................................... $13.56
------------------
- ----------------------------------------------------------------------------------------------------------------
Total Return (%) ......................................................................... 16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................... 192
Ratio of operating expenses to average daily net assets (%) (a) .......................... --
Ratio of net investment income to average daily net assets (%) ........................... 2.96*
Portfolio turnover rate (%) .............................................................. 24.3*
</TABLE>
(a) 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 President
- ---------------------------------------
[PHOTO]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also 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 numerous
other open and closed-end funds that invest in this country and other 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 as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to 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 Investor Centers.
The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem 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/ Edmond D. Villani
- ---------------------------------------
Scudder Pathway Series:
Balanced Portfolio
- ---------------------------------------
Investment Objective
o a balance of growth and income
Investment Characteristics
o a professionally managed portfolio which allocates its investments among
select funds in the Scudder Family of 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: Balanced Portfolio appropriate for IRA, 401(k) and other retirement
plans
- ---------------------------------------
Contents
- ---------------------------------------
Investment objective and policies .......................................... 9
Why invest in the Portfolio? ............................................... 11
Description of the Underlying Scudder Funds ................................ 13
Information about policies,
investments and risks ................................................... 25
Investment restrictions of the Portfolio ................................... 27
Risks of investing in the Portfolio ........................................ 28
Distribution and performance information ................................... 28
Portfolio organization ..................................................... 29
Transaction information .................................................... 31
Shareholder benefits ....................................................... 35
Trustees and Officers ...................................................... 40
Investment products and services
How to contact Scudder
Purchases
Exchanges and redemptions
Appendix
--
5
<PAGE>
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Investment objective and policies
- ---------------------------------------
Scudder Pathway Series: Balanced Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio invests primarily in a select mix of funds in the
Scudder Family of Funds. The Portfolio's investment objective is 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.
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
primarily seek current income or total return. The portfolio management team for
the Portfolio allocates investments based on the outlook of the Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), for the
financial markets, world economies and the relative performance potential of the
Underlying Scudder Funds. Under normal market conditions, the 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. 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 ranges, 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, reverse repurchase agreements, commercial paper and other
types of money market instruments.
- --------------------------------------------------------------------------------
Underlying Scudder Funds in which the Pathway
Balanced Portfolio may invest
- --------------------------------------------------------------------------------
Equity Mutual Funds
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder International Growth and Income 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, Inc.
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
- --------------------------------------------------------------------------------
- --
6
<PAGE>
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
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 an appropriate core investment for their retirement
portfolio and appreciate the advantages of broad diversification. Scudder
Pathway Series: Balanced Portfolio seeks a balance of growth and income by
investing in a mix of funds in the Scudder Family of Funds that pursue capital
appreciation as well as current income. The Balanced Portfolio's assets are
carefully allocated among the various mutual funds offered by the Scudder Family
of Funds.
Pathway Balanced Portfolio is designed to meet the needs of investors with a
time horizon of at least 5-10 years seeking to develop a diversified portfolio
offering both growth and income. The Portfolio 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 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 can serve as a complete investment program or as a core part of a
larger portfolio. Pathway Balanced Portfolio invests in a select group of
established pure no-load(TM) Underlying Scudder Funds. 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 only 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, conservative and simple approach to helping
investors meet retirement and other long-term goals.
The Portfolio can invest in a variety of international and global Underlying
Scudder Funds and expects to invest some portion of assets in foreign markets.
The Adviser believes this commitment to global investment management
differentiates Pathway Balanced Portfolio from traditional funds of funds and
asset allocation products. Adding an international component to a retirement
portfolio can increase diversification and lower volatility, while enhancing and
providing the most consistent returns over time.
--
7
<PAGE>
- ---------------------------------------
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.
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 Investor Services, Inc. ("Moody's"), Standard & Poor's Corporation
("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 adopted to the
federal rules regulating quality, maturity and diversification requirements of
money market funds, like the Fund. Money market funds must comply with the
revised rule by July 1, 1998. The Fund intends to be in compliance with the
amended requirements by that date.
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
- --
8
<PAGE>
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 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
--
9
<PAGE>
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
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 (Aaa, Aa and
A) or S&P (AAA, AA and A), or if unrated, in bonds judged by 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
- --
10
<PAGE>
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 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 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.
Scudder International Growth and Income Fund is a diversified investment company
which seeks long-term growth of capital and current income primarily from
foreign equity securities. The Fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends. The Fund can
also invest in other types of equity securities, including preferred stocks and
securities convertible into common stock. The Fund can invest throughout the
world, but will emphasize investments in developed economies other than the U.S.
In pursuing its dual objective, at least 80% of the Fund's net assets will be
invested in the equity securities of established non-U.S. companies. The Fund
generally invests in equity securities of established companies listed on
foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
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
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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 small- and
medium-size growth companies. The Fund generally invests in equity securities,
including common stocks and convertible securities, of small- and medium-size
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 and the Adviser will attempt to identify these
opportunities before their potential is recognized by investors in general.
Generally, small and medium-size companies are those with $50 million to $5
billion in total market capitalization.
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 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
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<PAGE>
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
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
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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
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 invest 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:
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14
<PAGE>
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.
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
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15
<PAGE>
convertible securities that 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, but may
invest in securities rated C by Moody's or D by S&P, which may be in default
with respect to payment of principal or interest.
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
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<PAGE>
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
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
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17
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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
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
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<PAGE>
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
and commercial paper and reverse repurchase agreements. In addition, the Fund
may engage in strategic transactions and invest in illiquid and restricted
securities.
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. Please
refer to the attached Appendix for further information.
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.
- ---------------------------------------
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 the
underlying Scudder 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 limited
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information, higher brokerage costs, different accounting standards and thinner
trading markets as compared to domestic 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 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.
Illiquid securities. Certain Underlying Scudder Funds may invest in securities
for which there is
- --
20
<PAGE>
not an active trading market, or which have resale restrictions. These types of
securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price.
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, including derivatives contracts, 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
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21
<PAGE>
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 certain investment restrictions which are designed to reduce
the Portfolio's investment risk. Fundamental investment restrictions may not be
changed without a vote of shareholders; non-fundamental investment restrictions
may be changed by a vote of the Trust's Board of Trustees. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Portfolio's Statement of Additional Information.
As a matter of fundamental policy, the Portfolio may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Portfolio may not borrow money in an amount greater than 5% of total assets,
except for temporary or emergency purposes, although the Portfolio may engage up
to 5% of total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Portfolio may not make loans except
through the lending of portfolio securities, the purchase of debt securities or
through repurchase agreements. The Portfolio has adopted a non-fundamental
policy restricting the lending of portfolio securities to no more than 5% of
total assets.
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 "Additional Information about
policies, investments and risks" and the Appendix to this prospectus.
- --
22
<PAGE>
- ---------------------------------------
Distribution and performance
information
- ---------------------------------------
The Portfolio intends to distribute dividends from net investment income
quarterly in April, July, October and December. The 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 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 at a
maximum 20% or 28% capital gains rate (depending on the Portfolio's holding
period for the assets giving rise to the gain), 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 at a maximum 20% or 28% capital gains
rate (depending on the Underlying Scudder Fund's holding period for the assets
giving rise to the gain), 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.
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. The "SEC yield" of the
Portfolio is an annualized expression of the net income generated by the
Portfolio over a specified 30-day (one month) period, as a percentage of the
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. "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.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Underlying Scudder Funds' expenses.
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23
<PAGE>
- ---------------------------------------
Portfolio organization
- ---------------------------------------
Scudder Pathway Series 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 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.
- --
24
<PAGE>
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 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 Kemper
Investments, Inc., a Delaware corporation formerly known as Scudder, Stevens &
Clark, Inc., to manage its daily investment and business affairs subject to the
policies established by the Board of Trustees. The Trustees have overall
responsibility for the management of each Portfolio under Massachusetts law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
Scudder Kemper Investments, 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 36 and 37.
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
25
<PAGE>
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
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 "QuickBuy." If you elected "QuickBuy" 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
"QuickBuy," 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. "QuickBuy" 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 "QuickBuy" 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. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. The Portfolio may be exchanged for shares of other funds in the
Scudder Family of
- --
26
<PAGE>
Funds unless otherwise determined by the Board of Trustees. 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 among your Scudder fund accounts 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 provided your banking information on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not include your banking information 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.
You can also make redemptions from your Scudder fund account 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 "QuickSell." If you elected "QuickSell" 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 "QuickSell,"
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. "QuickSell" 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.
"QuickSell" 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 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
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27
<PAGE>
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
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 correct 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 correct 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 correct 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.
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28
<PAGE>
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, while 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 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
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 Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your 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: Balanced Portfolio is managed by a team of 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 the Adviser's large
staff of portfolio managers, economists, research analysts, traders and other
investment specialists. The Adviser believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging its
extensive resources. All members of the Pathway investment team are members of
the Adviser'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 18 years of investment
experience, joined the Adviser 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
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29
<PAGE>
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 the Adviser's
Institutional Group, which includes a focus on asset allocation strategy. Ms.
Hadzima has 24 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 the Adviser 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 the
Adviser'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
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 Portfolio; 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. (The exchange
privilege may not be available for certain Scudder funds. For more information,
please call 1-800-225-5163.) 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 Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load funds in the Scudder Family of 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 the Adviser'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
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30
<PAGE>
information, including investment results and a review of portfolio changes.
To reduce the volume of mail you receive, only one copy of most Portfolio
reports, such as the Portfolio'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 Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor 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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31
<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 up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even 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 you no
annual custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you 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. The Scudder SEP-IRA charges
you no annual custodial fee.
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 and most 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.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
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<PAGE>
- --------------------------------------------------------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------
Daniel Pierce*
President
Dr. Rosita P. Chang
Trustee; Professor of Finance, University of Rhode Island
Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Treasurer and Secretary
Kathryn L. Quirk*
Vice President and Assistant Secretary
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
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<PAGE>
- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------
The Scudder Family of Funds++
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder 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
Scudder S&P 500 Index 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 Growth and Income 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, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++
(a variable annuity)
Education Accounts
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. ++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. +++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 Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various foreign stock exchanges.
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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.
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35
<PAGE>
- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
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.
<S> <C> <C>
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 The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
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 Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the
Scudder Funds." complete Portfolio 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 Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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36
<PAGE>
- --------------------------------------------------------------------------------
Exchanges and redemptions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C>
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 or 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 Portfolio or 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 The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- ------------------------------------------------------------------------------------------------------------------------
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 number
or Fax above and include:
the name of the Portfolio or 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 $100,000.
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>
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37
<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: Conservative 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. Some repurchase commitment
transactions may not provide the Underlying Scudder Fund with collateral
marked-to-market during the term of the commitment.
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 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.
Common stocks. Under normal circumstances, certain Underlying Scudder Funds
invest primarily in common stocks. Common stock is issued by companies to raise
cash for business purposes and represents a proportionate interest in the
issuing companies. Therefore, an Underlying Scudder Fund may participate in the
success or failure of any company in which it holds stock. The market values of
common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perception and general economic or financial
market movements. Smaller companies are especially sensitive to these factors
and may even become valueless. Despite the risk of price volatility, however,
common stocks also offer the greatest potential for gain on investment, compared
to other classes of financial assets such as bonds or cash equivalents.
Investment company securities. Securities of other investment companies may be
acquired by certain Underlying Scudder Funds to the extent permitted under the
1940 Act. Investment companies incur certain expenses such as management,
custodian, and transfer agency fees, and, therefore, any investment by an
Underlying Scudder Fund in shares of other investment companies may be subject
to such duplicate expenses.
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;
A-1
<PAGE>
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 securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
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 of the security at maturity. In addition,
the change in the interest rate or value of the security at maturity 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
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.
When-issued securities. An Underlying Scudder Fund may purchase securities on a
when-issued or forward delivery basis, for payment and delivery at a later date.
The price and yield are generally fixed on the date of commitment to purchase.
During the period between purchase and settlement, no interest accrues to the
Underlying Scudder Fund. At the time of settlement, the market value of the
security may be more or less than the purchase price.
Special situation securities. From time to time, an Underlying Scudder Fund may
invest in equity or debt securities issued by companies that are determined by
the Adviser to possess "special situation" characteristics. In general, a
special situation company is a company whose securities are expected to increase
in value solely by reason of a development particularly or uniquely applicable
to the company. Developments that may create special situations include, among
others, a liquidation, reorganization, recapitalization or merger, material
litigation, technological breakthrough and new management or management
policies. The principal risk with investments in special situation companies is
that the anticipated development thought to create the special situation may not
occur and the investments therefore may not appreciate in value or may decline
in value.
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
A-2
<PAGE>
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
Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador,
Mexico, Morocco, Nigeria, the Philippines, Poland and Uruguay.
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.
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 constituting 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.
Real estate investment trusts. Certain Underlying Scudder Funds may purchase
interests in real estate investment trusts ("REITs"), which pool investors'
funds for investment primarily in income-producing real estate or real
estate-related loans or interests. REITs can generally be classified as equity
REITs, mortgage REITs or hybrid REITs. Equity REITs, which invest the majority
of their assets directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments on real estate mortgages in which they are invested. Hybrid REITs
combine the characteristics of both equity REITs and mortgage REITs.
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
A-3
<PAGE>
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
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 deemed equivalent to
those rated below investment-grade by the Underlying Scudder Fund's adviser
(commonly referred to as "junk"). 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
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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
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 Europe. An Underlying Scudder Fund's performance may be susceptible
to political, social and economic factors affecting issuers in European
countries. Such factors may include, but are not limited to: growth of GDP or
GNP, rate of inflation, capital reinvestment,
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resource self-sufficiency and balance of payments position, as well as interest
and monetary exchange rates among European countries.
Eastern European countries and certain Southern European countries are
considered to be emerging markets. Securities traded in certain emerging
European markets may be subject to additional risks due to political and
economic reforms including efforts to decentralize the economic decision-making
process and move toward a market-oriented economy. Additionally, the
inexperience of financial intermediaries, lack of modern technology and the
possibility of permanent or temporary termination of trading of securities may
affect an Underlying Scudder Fund's performance. To the extent that an
Underlying Scudder Fund purchases equity securities of smaller companies, such
securities may experience greater volatility and have limited liquidity.
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 opportunity.
Although the governments of certain Eastern European countries currently are
implementing or considering reforms directed at political and economic
liberalization, there can be no assurance that these reforms will continue or
achieve their goals.
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
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
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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.
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.
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.
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
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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
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
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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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