The prospectus and SAI filed on January 4, 2000 are incorporated by reference in
their entirety to Scudder Pathway Series and will be distributed with these
supplements. Additionally, the prospectus supplements dated June 12, 2000 and
June 29, 2000 are incorporated by reference in their entirety to Scudder Pathway
Series and will be distributed with these supplements.
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
Scudder Pathway Series
Conservative Portfolio
Balanced Portfolio
Growth Portfolio
Supplement to Prospectus Dated January 1, 2000
On or about September 25, 2000 for Conservative Portfolio and Growth Portfolio
and on or about October 2, 2000 for Balanced Portfolio, each portfolio will
offer two classes of shares to provide investors with different purchase
options. The two classes are Class S and Class AARP. Each class has its own
important features and policies. In addition, as of the dates noted above, all
existing shares of each portfolio will be redesignated as Class S shares of each
portfolio. Shares of Class AARP will be especially designed for members of AARP.
For your convenience, this supplement has been divided into two parts. Part I
provides information relating to important changes to each portfolio generally.
Part II provides information relating specifically to Class AARP. As always, you
should refer to the prospectus for general information about each portfolio,
including its investment approaches, risks, and portfolio managers, and for
additional information relating to Class S, such as its historical performance
and its purchase, redemption and exchange procedures.
PART I -- General Information about the Portfolios
On July 13, 2000, shareholders of each portfolio elected the following people
to each portfolio's Board: Henry P. Becton, Jr., Linda C. Coughlin, Dawn-Marie
Driscoll, Edgar R. Fiedler, Keith R. Fox, Joan E. Spero, Jean G. Stromberg,
Jean C. Tempel and Steven Zaleznick.
<PAGE>
The Portfolios' Track Records
The bar charts show how returns of the portfolios' Class S shares have varied
from year to year, which may give some idea of risk. The tables show average
annual total returns of each portfolio's Class S shares and three broad-based
market indexes (which, unlike a portfolio, do not have any fees or expenses).
All figures on this page assume reinvestment of distributions and dividends.
Conservative Portfolio
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
'97 14.36
'98 5.63
'99 2.84
2000 Total Return as of June 30: -0.09%
Best Quarter: 7.47%, Q2 1997 Worst Quarter: -4.93%, Q3 1998
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year Since Inception
--------------------------------------------------------------------------------
Portfolio -- Class S*** 2.84 7.61*
--------------------------------------------------------------------------------
Index 1 -0.82 5.25**
--------------------------------------------------------------------------------
Index 2 4.91 5.88**
--------------------------------------------------------------------------------
Index 3 21.04 25.90**
--------------------------------------------------------------------------------
Index 1: Lehman Brothers Aggregate Bond Index, an unmanaged, market
value-weighted measure of U.S. Treasury and agency securities, corporate bond
issues and mortgage-backed securities.
Index 2: Treasury Bill 1-year.
Index 3: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
* Fund inception: 11/15/96
** Index comparisons begin 11/30/96
*** Performance for Class AARP is not provided because this class does not have
a full calendar year of performance.
2
<PAGE>
Balanced Portfolio
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
'97 13.33
'98 7.64
'99 16.66
2000 Total Return as of June 30: -0.15%
Best Quarter: 12.53%, Q4 1999 Worst Quarter: -10.26%, Q3 1998
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year Since Inception
--------------------------------------------------------------------------------
Portfolio -- Class S*** 16.66 12.40*
--------------------------------------------------------------------------------
Index 1 21.04 25.90**
--------------------------------------------------------------------------------
Index 2 27.30 15.12**
--------------------------------------------------------------------------------
Index 3 -0.82 5.25**
--------------------------------------------------------------------------------
Index 1: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: MSCI EAFE, an unmanaged capitalization-weighted measure of
international stock markets.
Index 3: Lehman Brothers Aggregate Bond Index, an unmanaged market
value-weighted measure of U.S. Treasury and agency securities, corporate bond
issues and mortgage-backed securities.
* Fund inception: 11/15/96
** Index comparisons begin 11/30/96
*** Performance for Class AARP is not provided because this class does not have
a full calendar year of performance.
3
<PAGE>
Growth Portfolio
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
'97 14.93
'98 9.60
'99 35.24
2000 Total Return as of June 30: -0.40%
Best Quarter: 21.81%, Q4 1999 Worst Quarter: -15.06%, Q3 1998
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year Since Inception
--------------------------------------------------------------------------------
Portfolio -- Class S*** 35.24 19.24*
--------------------------------------------------------------------------------
Index 1 33.16 32.17**
--------------------------------------------------------------------------------
Index 2 27.30 15.12**
--------------------------------------------------------------------------------
Index 3 21.26 13.65**
--------------------------------------------------------------------------------
Index 1: Russell 1000 Growth Index, an unmanaged measure of 1000 companies with
higher price-to-book and higher forecasted growth values.
Index 2: MSCI EAFE, an unmanaged capitalization-weighted measure of
international stock markets.
Index 3: Russell 2000 Index, an unmanaged measure of the 2000 companies that
typically have a market capitalization less than $2 billion.
* Fund inception: 11/15/96
** Index comparisons begin 11/30/96
*** Performance for Class AARP is not provided because this class does not have
a full calendar year of performance.
4
<PAGE>
How Much Investors Pay
Each portfolio has no sales charge or other shareholder fees. Each portfolio
expects to operate at a zero expense level. However, shareholders of either
Class AARP or Class S for each portfolio will indirectly bear that portfolio's
pro rata share of fees and expenses incurred by the underlying Scudder funds in
which a portfolio is invested.
--------------------------------------------------------------------------------
Fee Table (%)
--------------------------------------------------------------------------------
Range of Average Weighted Expense Ratio
--------------------------------------------------------------------------------
Conservative Portfolio 0.78% to 1.81%
--------------------------------------------------------------------------------
Balanced Portfolio 0.79% to 2.01%
--------------------------------------------------------------------------------
Growth Portfolio 0.78% to 2.10%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
The example below shows an approximate estimate of the expenses that might apply
to your investment of $10,000 in a portfolio over 1, 3, 5 and 10 years. Your
actual costs could be higher or lower than this example.
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Conservative Portfolio $132 $411 $710 $1,562
--------------------------------------------------------------------------------
Balanced Portfolio $143 $443 $766 $1,680
--------------------------------------------------------------------------------
Growth Portfolio $147 $456 $787 $1,724
--------------------------------------------------------------------------------
The example assumes 5% annual returns, expenses calculated at the midpoint of
the current expense range and reinvestment of all dividends and distributions
and that you sold your shares at the end of each period.
5
<PAGE>
Financial Highlights
Conservative Portfolio -- Class S
--------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
--------------------------------------------------------------------------------
Net asset value, beginning of period $12.45 $12.28 $13.27 $12.00
-------------------------------------
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .30(a) .57(a) .51(a) .39
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.19) .36 (.63) 1.36
-------------------------------------
--------------------------------------------------------------------------------
Total from investment operations .11 .93 (.12) 1.75
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.39) (.55) (.57) (.33)
--------------------------------------------------------------------------------
Net realized gains on investment
transactions (.21) (.21) (.30) (.15)
-------------------------------------
--------------------------------------------------------------------------------
Total distributions (.60) (.76) (.87) (.48)
--------------------------------------------------------------------------------
Net asset value, end of period $11.96 $12.45 $12.28 $13.27
-------------------------------------
--------------------------------------------------------------------------------
Total Return (%) (e) .83** 7.62 (1.10)** 14.99**
--------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 28 29 17
--------------------------------------------------------------------------------
Ratio of expenses (%) (f) -- -- -- --
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.91* 4.45 4.21* 3.67*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 21* 28 32* 42*
--------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 12, 1998 the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative, and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
6
<PAGE>
Balanced Portfolio -- Class S
--------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
--------------------------------------------------------------------------------
Net asset value, beginning of period $13.42 $12.06 $13.56 $12.00
-------------------------------------
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .21(a) .38(a) .39(a) .37
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 1.29 1.79 (1.26) 1.59
-------------------------------------
--------------------------------------------------------------------------------
Total from investment operations 1.50 2.17 (.87) 1.96
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.30) (.38) (.42) (.33)
--------------------------------------------------------------------------------
Net realized and gains on investment
transactions (.69) (.43) (.21) (.07)
-------------------------------------
--------------------------------------------------------------------------------
Total distributions (.99) (.81) (.63) (.40)
--------------------------------------------------------------------------------
Net asset value, end of period $13.93 $13.42 $12.06 $13.56
-------------------------------------
--------------------------------------------------------------------------------
Total Return (%) (e) 11.23** 18.27 (6.78)** 16.67**
--------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period ($ millions) 280 247 222 192
--------------------------------------------------------------------------------
Ratio of expenses (%) (f) -- -- -- --
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.08* 2.88 3.15* 2.96*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 22* 24 28* 24*
--------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 31, 1998 the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative, and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
7
<PAGE>
Growth Portfolio -- Class S
--------------------------------------------------------------------------------
Years Ended August 31, 2000(b) 1999 1998(c) 1997(d)
--------------------------------------------------------------------------------
Net asset value, beginning of period $15.33 $12.17 $14.15 $12.00
-------------------------------------
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .21(a) .18(a) .23(a) .29
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 3.23 3.61 (1.74) 2.15
-------------------------------------
--------------------------------------------------------------------------------
Total from investment operations 3.44 3.79 (1.51) 2.44
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.20) (.21) (.16)
--------------------------------------------------------------------------------
From net realized gains on investment
transactions (.89) (.43) (.26) (.13)
-------------------------------------
--------------------------------------------------------------------------------
Total distributions (1.18) (.63) (.47) (.29)
--------------------------------------------------------------------------------
Net asset value, end of period $17.59 $15.33 $12.17 $14.15
-------------------------------------
--------------------------------------------------------------------------------
Total Return (%) (e) 22.43** 31.69 (10.94)** 20.79**
--------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period ($ millions) 122 94 64 50
--------------------------------------------------------------------------------
Ratio of expenses (%) (f) -- -- -- --
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.56* 1.26 1.78* 2.09*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 28* 28 24* 15*
--------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the eleven months ended August 31, 1998. On August 12, 1998, the
Trustees of the Portfolio changed the fiscal year end from September 30 to
August 31.
(d) For the period November 15, 1996 (commencement of operations) to September
30, 1997.
(e) Total return would have been lower if the Adviser had not maintained some
Underlying Funds' expenses.
(f) This Portfolio invests in other Scudder Funds, and although the Portfolio
did not incur any direct expenses for the period, the Portfolio did bear
its share of the operating, administrative, and advisory expenses of the
Underlying Scudder Funds.
* Annualized
** Not annualized
8
<PAGE>
How the Portfolios Calculate Share Price
For each share class of each portfolio, the share price is the net asset value
per share, or NAV. To calculate NAV, each share class uses the following
equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
Other Rights We Reserve
You should be aware that we may, for Class AARP and Class S shareholders, close
your account and send you the proceeds if your balance falls below $1,000; for
Class S shareholders, charge you $10 a year if your account balance falls below
$2,500; in either case, we will give you 60 days' notice so you can either
increase your balance or close your account (these policies don't apply to
retirement accounts, to investors with $100,000 or more in Scudder fund shares
or in any case where a fall in share price created the low balance).
PART II -- Specific Information about Class AARP
The remainder of this supplement provides specific information regarding the
important features and policies of Class AARP of each portfolio. Please remember
to review each portfolio's prospectus for additional information about the
portfolio.
Class AARP
Class AARP will be offered beginning on or about September 25, 2000 for
Conservative Portfolio and Growth Portfolio and will be offered beginning on or
about October 2, 2000 for Balanced Portfolio. In addition, Class AARP of each
other fund in the Scudder Family of Funds is expected to be available no later
than October 2, 2000.
Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in return
for advice and other services relating to investments by AARP members in AARP
Class shares of each portfolio. This fee is calculated on a daily basis as a
percentage of the combined net assets of the AARP Classes of all funds managed
by Scudder Kemper. The fee rates, which decrease as the aggregate net assets of
the AARP Classes become larger, are as follows: 0.07% for the first $6 billion
in net assets, 0.06% for the next $10 billion and 0.05% thereafter.
Past Performance
As Class AARP does not have a full calendar year of performance, no past
performance information is provided. However, the bar chart and table in the
portfolios' prospectus show how the total returns for the portfolios' Class S
have varied from year to year, and over time. Shares of the portfolios' Class S
would have substantially similar returns to Class AARP because the shares
represent an interest in the same portfolio of securities and the annual returns
would differ only to the extent that the classes have different expenses.
9
<PAGE>
How to Buy, Sell, or Exchange Class AARP Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."
--------------------------------------------------------------------------------
Class AARP First investment Additional investments
--------------------------------------------------------------------------------
$1,000 or more for regular $50 or more if you use an
accounts Automatic Investment Plan
$500 or more for IRAs
--------------------------------------------------------------------------------
By mail o For enrollment forms, call Send a personalized
1-800-253-2277 investment slip or short
o Fill out and sign an note that includes:
enrollment form o fund name
o Send it to us at the o account number
appropriate address, along o check payable to "The AARP
with an investment check Investment Program"
--------------------------------------------------------------------------------
By wire o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
--------------------------------------------------------------------------------
By phone -- o Call 1-800-253-2277 for
instructions
--------------------------------------------------------------------------------
With an automatic o Fill in the information o To set up regular
investment plan required on your enrollment investments from a bank
form and include a voided checking account, call
check 1-800-253-2277
--------------------------------------------------------------------------------
Payroll o Select either of these o Once you specify a dollar
Deduction options on your enrollment amount (minimum $50),
or Direct form and submit it. You will investments are automatic.
Deposit receive further instructions
by mail.
--------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-253-2277
--------------------------------------------------------------------------------
On the Internet o Go to "Services and Forms - o Call 1-800-253-2277 to
How to Open an Account" at ensure you have electronic
aarp.scudder.com services
o Print out a prospectus and o Register at
an enrollment form aarp.scudder.com
o Complete and return the o Follow the instructions
enrollment form with your for buying shares with
check money from your bank
account
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[ICON] Regular mail:
The AARP Investment Program, PO Box 2540, Boston, MA
02208-2540
Express, registered or certified mail:
The AARP Investment Program, 66 Brooks Drive, Braintree, MA
02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
10
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
--------------------------------------------------------------------------------
Class AARP Exchanging into another fund Selling shares
--------------------------------------------------------------------------------
$1,000 or more to open a new Some transactions, including
account ($500 for IRAs) most for over $100,000, can
only be ordered in writing;
if you're in doubt, see page
25 of the prospectus
--------------------------------------------------------------------------------
By phone o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
--------------------------------------------------------------------------------
Using Easy-Access o Call 1-800- 631-4636 and o Call 1-800-631-4636 and
Line follow the instructions follow the instructions
--------------------------------------------------------------------------------
By mail or fax Your instructions should Your instructions should
(see previous include: include:
page) o your account number o your account number
o names of the funds, class o name of the fund, class
and number of shares or and number of shares or
dollar amount you want to dollar amount you want to
exchange redeem
--------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from an account,
call 1-800-253-2277
--------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-253-2277
--------------------------------------------------------------------------------
On the Internet o Register at aarp.scudder.com --
o Follow the instructions for
making on-line exchanges
--------------------------------------------------------------------------------
Services For AARP Class Investors
--------------------------------------------------------------------------------
To reach us: o Web site aarp.scudder.com
o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8
p.m. EST
o Confidential fax line 1-800-821-6234, always open
o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST
Services for o AARP Lump Sum Service For planning and setting up a lump
participants: sum distribution.
o AARP Legacy Service For organizing financial documents and
planning the orderly transfer of assets to heirs.
o AARP Goal Setting and Asset Allocation Service For
allocating assets and measuring investment progress.
o For more information, please call 1-800-253-2277.
--------------------------------------------------------------------------------
11
<PAGE>
July 14, 2000
<PAGE>
SCUDDER PATHWAY SERIES
SUPPLEMENT TO THE STATEMENT OF
ADDITIONAL INFORMATION DATED JANUARY 1, 2000
--------------------------
On or about September 25, 2000 for Conservative Portfolio and Growth
Portfolio and on or about October 2, 2000 for Balanced Portfolio, this Statement
of Additional Information will offer two classes of shares to provide investors
with different purchase options. The two classes are Class S and Class AARP.
Each class has its own important features and policies. In addition, as of the
respective dates noted above for each portfolio, all existing shares of Balanced
Portfolio, Conservative Portfolio and Growth Portfolio will be redesignated
Class S shares of their respective portfolios. Shares of Class AARP will be
especially designed for members of AARP.
The following information supplements the cover page:
The unaudited Semiannual Report to Shareholders of Scudder Pathway Series dated
February 29, 2000 is incorporated by reference and hereby deemed to be part of
this Statement of Additional Information.
The following information supplements the disclosure regarding "The Underlying
Scudder Funds" on page 2:
Each of the following Underlying Scudder Funds is scheduled to be reorganized
into another Scudder fund on or about the date listed below:
Scudder Corporate Bond Fund July 31, 2000
Scudder GNMA Fund July 17, 2000
Scudder International Bond Fund September 25, 2000
Scudder International Growth and Income Fund August 28, 2000
Scudder Micro Cap Fund July 17, 2000
On or about July 17, 2000, Scudder Capital Growth Fund, Scudder Small Company
Stock Fund and Scudder GNMA Fund will become Underlying Scudder Funds.
The following disclosure supplements the section "The Underlying Scudder Funds"
on page 2.
Scudder Capital Growth Fund. The Fund is designed to provide long-term capital
growth while actively seeking to reduce downside risk compared with other growth
mutual funds. The Fund pursues this investment objective by investing at least
65% of total assets in equities, mainly common stocks of established medium- and
large-sized companies. Through a broadly diversified portfolio consisting
primarily of the securities of high quality, medium- to large-sized companies
with strong competitive positions in their industries and reasonable stock
market valuation the Fund seeks to offer less share price volatility than many
growth funds. Unlike many other diversified growth funds that typically may
invest up to 5% in any one company, the fund adheres to a more restrictive
policy that limits the amount it invests in any one company to no more than 3.5%
of its total assets. It may also invest in rights to purchase common stocks, the
growth prospects of which are greater than most stocks but which may also have
above-average market risk. The Fund may also invest in preferred stocks
consistent with the Fund's objective. While most of the fund's investments are
common stocks, some may be other types of equities, such as convertible
securities and preferred stocks. The fund does not invest in securities issued
by tobacco-producing companies.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly-traded equity securities.
Thus, the search for equity investments for the Fund may encompass any
<PAGE>
sector of the market and companies of all sizes. In addition, since 1945, the
overall performance of common stocks has exceeded the rate of inflation. It is a
fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares (see "Investment Restrictions",
herein, for majority voting requirements), that the Fund will not concentrate
its investments in any particular industry.
The Fund may invest up to 100% of its assets in high-quality money
market instruments (including U.S. Treasury bills, commercial paper,
certificates of deposit, and bankers' acceptances), repurchase agreements and
other debt securities for temporary defensive purposes when the Fund Manager
deems such a position advisable in light of economic or market conditions.
The Fund may also invest in real estate investment trusts, futures
contracts, covered call options, options on stock indices, foreign securities,
and foreign currency exchange contracts.
Scudder Small Company Stock Fund. The Fund is designed to provide long-term
capital growth while actively seeking to reduce downside risk compared with
other small company stock funds. The Fund pursues this investment objective by
investing at least 65% of total assets in common stocks of small U.S. companies
with above-average long-term capital growth. The fund does not invest in
securities issued by tobacco-producing companies.
Under normal circumstances, the Fund may invest up to 5% of its assets
in certain short-term fixed income securities including high-quality money
market securities such as U.S. Treasury bills, repurchase agreements, commercial
paper, certificates of deposit issued by domestic and foreign branches of U.S.
banks and bankers' acceptances, although cash or cash equivalents are normally
expected to represent less than 1% of the Fund's assets. The Fund may invest up
to 20% of its assets in stock futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet shareholder
redemptions, or to minimize trading costs.
The Fund may also invest in Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs typically trade like a share of common stock and provide
investment results that generally correspond to the price and yield performance
of the component common stocks of the S&P 500 Composite Stock Index ("S&P 500
Index"). There can be no assurance that this can be accomplished as it may not
be possible for the trust to replicate and maintain exactly the composition and
relative weightings of the component securities of the S&P 500 Index. SPDRs are
subject to the risks of an investment in a broadly based portfolio of common
stocks, including the risk that the general level of stock prices may decline,
thereby adversely affecting the value of such investment. SPDRs are also subject
to risks other than those associated with an investment in a broadly based
portfolio of common stocks in that the selection of the stocks included in the
trust may affect trading in SPDRs, as compared with trading in a broadly based
portfolio of common stocks.
The Fund is neither sponsored by nor affiliated with Standard & Poor's.
In pursuing its objective of long-term capital growth, the Fund
normally remains substantially invested in the common stocks of small U.S.
companies. Using a quantitative investment approach developed by the Fund
Manager, the Fund focuses on equity securities of companies with market
capitalization below $2 billion and that the Fund Manager believes are
undervalued relative to the stocks in Russell 2000 Index(R). The Russell 2000
Index(R) is a widely used measure of small stock performance. The Fund will sell
securities of companies that have grown in market capitalization above this
level as necessary to keep the Fund focused on small companies.
The Fund takes a diversified approach to investing. It generally
invests no more than 2% of its assets in the securities of any one company and
typically invests in over 150 securities, representing a variety of U.S.
industries.
2
<PAGE>
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either convertible
or non-convertible), 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. Treasury, agency and instrumentality obligations, may enter into
repurchase agreements and may make use of financial futures contracts and
related options. The Fund may purchase and sell options or futures on stock
indices for hedging purposes as a temporary investment to accommodate cash
flows. The Fund may also invest in real estate investment trusts, covered call
options, foreign securities, and foreign currency exchange contracts.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as U.S. government obligations and corporate debt instruments when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
The following information replaces the disclosure "Scudder GNMA Fund" on page 6.
Scudder GNMA Fund. The Fund is designed to produce a high level of
current income but with less risk of loss to the Fund's portfolio than other
GNMA mutual funds, measured by the frequency and amount by which total return
fluctuates downward. The Fund is designed for investors who are seeking high
current income from high quality securities and who wish to receive a degree of
protection from bond market price risk. The Fund's investment objective is to
produce a high level of current income while actively seeking to reduce downside
risk compared with other GNMA mutual funds. It does this by investing at least
65% of net assets in "Ginnie Maes": mortgage-backed securities that are issued
or guaranteed by the Government National Mortgage Association (GNMA). The Fund
also invests in U.S. Treasury securities. With both types of securities, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. government. In addition, the Fund does not invest in
securities issued by tobacco-producing companies. The Fund has been designed
with the conservative, safety-conscious investor in mind. Although past
performance is no guarantee of future performance, historically, this Fund
offers higher yields than such short-term investments as insured savings
accounts, insured six month certificates of deposit, and fixed-price money
market funds.
The Fund invests in U.S. Treasury bills, notes and bonds; other
securities issued or backed by the full faith and credit of the U.S. Government
as to principal and interest, including, but not limited to, Government National
Mortgage Association ("GNMA") mortgage-backed securities, Merchant Marine Bonds
guaranteed by the Maritime Administration and obligations of the Export-Import
Bank; financial futures contracts with respect to such securities; options on
either such securities or such financial futures contracts; and bank repurchase
agreements. At least 65% of the Fund's net assets will be directly invested in
GNMAs. The Fund may also utilize hedging techniques involving limited use of
financial futures contracts and the purchase and writing (selling) of put and
call options on such contracts. Under certain market conditions, these
strategies may reduce current income. At any time, the Fund may have a
substantial portion of its assets in securities of a particular type or
maturity. The Fund may also write covered call options on portfolio securities
and purchase "when-issued" securities.
GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans,
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool" or group of
such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, a Government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government. This is not, however, a guarantee
related to the Fund's yield or the value of your investment principal.
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As mortgage-backed securities, GNMAs differ from bonds in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. GNMAs are called "pass-through" securities
because both interest and principal payments including prepayments are passed
through to the holder of the security (in this case, the Fund).
Mortgage-backed securities are interests in pools of mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations as further described below.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and may expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. Mortgage-backed securities are subject to the risk or prepayment and
the risk that the underlying loans will not be repaid. Because principal may be
prepaid at any time, mortgage-backed securities may involve significantly
greater price and yield volatility than traditional debt securities.
When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of a mortgage-related security and increasing the
price volatility of that security, affecting the price volatility of the Fund's
shares.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Because principal may be prepaid at any
time, mortgage-backed securities may involve significantly greater price and
yield volatility than traditional debt securities. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association ("GNMA") are described as "modified pass-through." These securities
entitle the holder to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, at the scheduled payment dates regardless of
whether or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the GNMA. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees,
however, do not apply to the market value or yield of mortgage-backed securities
or to the value of Fund shares. Also, GNMA securities often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Fannie Mae is a government-sponsored corporation
owned entirely by private stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. Fannie Mae purchases
conventional (i.e., not insured or guaranteed by any governmental agency)
mortgages from a list of approved seller/servicers which include state and
federally-chartered savings and loan associations, mutual savings banks,
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commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by Fannie Mae are guaranteed as to timely payment of principal and
interest by Fannie Mae but are not backed by the full faith and credit of the
U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Adviser determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
interest. The Adviser, in determining the attractiveness of GNMAs relative to
alternative fixed-income securities, and in choosing specific GNMA issues, will
have made assumptions as to the likely speed of prepayment. Actual experience
may vary from this assumption resulting in a higher or lower investment return
than anticipated. When interest rates rise, mortgage prepayment rates tend to
decline, thus lengthening the life of a mortgage-related security and increasing
the price volatility of that security, affecting the price volatility of the
Fund's shares.
Some investors may view the Fund as an alternative to a bank
certificate of deposit. While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the Fund
-- unlike a certificate of deposit -- is not locked away for any period, may be
redeemed at any time without incurring early withdrawal penalties, and may
provide a higher yield.
The Fund may also invest in dollar roll transactions, mortgage-backed
and mortgage pass-though securities, securities purchased on a "forward
delivery" or "when-issued" basis, and covered call options.
For temporary defensive purposes, the fund may temporarily invest up to
100% of assets in cash or cash equivalents.
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The following disclosure replaces the disclosure regarding "Additional
Information About Opening an Account" on page 19:
Additional Information About Opening an Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and members of their immediate
families, members of the National Association of Securities Dealers, Inc.
("NASD") and banks may, if they prefer, subscribe initially for at least $2,500
for Class S and $1,000 for Class AARP through Scudder Investor Services, Inc. by
letter, fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. Investors interested in investing in
Class S must call 1-800-225-5163 to get an account number. During the call the
investor will be asked to indicate the Portfolio name, class name, amount to be
wired ($2,500 minimum for Class S and $1,000 for Class AARP), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification number or Social Security number, address
and telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02101, ABA Number 011000028, DDA
Account 9903-5552. The investor must give the Scudder fund name, class name,
account name and the new account number. Finally, the investor must send a
completed and signed application to the Portfolio promptly. Investors interested
in investing in Class AARP should call 1-800-253-2277 for further instructions.
The minimum initial purchase amount is less than $2,500 for Class S
under certain plan accounts and is $1,000 for Class AARP.
The following disclosure replaces the disclosure regarding "Minimum balances" on
page 19:
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 for
Class S and $1,000 for Class AARP. For fiduciary accounts such as IRAs, and
custodial accounts such as Uniform Gift to Minor Act and Uniform Trust to Minor
Act accounts, the minimum balance is $1000 for Class S and $500 for Class AARP.
These amounts may be changed by the Portfolio's Board of Trustees. A shareholder
may open an account with at least $1,000 ($500 for fiduciary/custodial
accounts), if an automatic investment plan (AIP) of $100/month ($50/month for
Class AARP and fiduciary/custodial accounts) is established. Scudder group
retirement plans and certain other accounts have similar or lower minimum share
balance requirements.
The Portfolio reserves the right, following 60 days' written notice to
applicable shareholders, to:
o For Class S, assess an annual $10 per Fund charge (with the
Fee to be paid to the Portfolio) for any
non-fiduciary/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than
$2,500; and
o redeem all shares in Portfolio accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. 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. Shareholders with a combined household
account balance in any of the Scudder Funds of
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<PAGE>
$100,000 or more, as well as group retirement and certain other accounts will
not be subject to a fee or automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
The following disclosure replaces the disclosure regarding "Additional
Information About Making Subsequent Investments by QuickBuy" on page 20:
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program may purchase shares of the Portfolio by telephone.
Through this service shareholders may purchase up to $250,000. To purchase
shares by QuickBuy, shareholders should call before the close of regular trading
on the New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account 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.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
The Portfolio employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that the Portfolio does not follow such procedures, they 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.
Investors interested in making subsequent investments in Class AARP of
the Portfolio should call 1-800-253-2277 for further instruction.
The following information replaces the disclosure on page 21 of the SAI relating
to "Share Price," "Share Certificates" and "Other Information":
Share Price
Purchases will be filled without sales charge at the net asset value
per share next computed after receipt of the application in good order. Net
asset value normally will be computed for each class as of the close of regular
trading on each day during which the Exchange is open for trading. Orders
received after
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<PAGE>
the close of regular trading on the Exchange will be executed at the next
business day's net asset value. If the order has been placed by a member of the
NASD, other than the Distributor, it is the responsibility of that member
broker, rather than the Portfolio, to forward the purchase order to Scudder
Service Corporation (the "Transfer Agent") in Boston by the close of regular
trading on the Exchange.
There is no sales charge in connection with the purchase of shares of
any class of the Portfolio.
Share Certificates
Due to the desire of the Portfolio's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the
Portfolio. Share certificates now in a shareholder's possession may be sent to
the Portfolio's Transfer Agent for cancellation and credit to such shareholder's
account. Shareholders who prefer may hold the certificates in their possession
until they wish to exchange or redeem such shares.
All issued and outstanding shares of what were formerly AARP Funds that
were subsequently reorganized into existing Scudder Funds were simultaneously
cancelled on the books of the AARP Funds. Share certificates representing
interests in shares of the relevant AARP Fund will represent a number of shares
of Class AARP of the relevant Scudder Fund into which the AARP Fund was
reorganized. Class AARP shares of each portfolio will not issue certificates
representing shares in connection with the reorganization.
Other Information
The Portfolio has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for its shares. Those
brokers may also designate other parties to accept purchase and redemption
orders on the Portfolio's behalf. Orders for purchase or redemption will be
deemed to have been received by the Portfolio when such brokers or their
authorized designees accept the orders. Subject to the terms of the contract
between the Portfolio and the broker, ordinarily orders will be priced at a
class's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of the Portfolio's
shares are arranged and settlement is made at an investor's election through any
other authorized NASD member, that member may, at its discretion, charge a fee
for that service. The Board of Trustees and the Distributor each has the right
to limit the amount of purchases by, and to refuse to sell to, any person. The
Board of Trustees and the Distributor may suspend or terminate the offering of
shares of the Portfolio at any time for any reason.
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), will be
returned to the investor. The Portfolio 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.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
The following disclosure replaces the disclosure regarding "Exchanges" on page
22:
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Exchanges
Exchanges are comprised of a redemption from one Scudder Fund and a
purchase into another Scudder Fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other Fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new Fund account must be for a minimum of $2,500 for Class S and
$1,000 for Class AARP. When an exchange represents an additional investment into
an existing account, the account receiving the exchange proceeds must have
identical registration, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more for Class S.
If the account receiving the exchange proceeds is to be different in any
respect, the exchange request must be in writing and must contain an original
signature guarantee.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at respective net asset
values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
Scudder's Systematic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Systematic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder Fund is a redemption of shares and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Portfolio employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the 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. The Portfolio and the Transfer Agent each reserves the right to suspend
or terminate the privilege of exchanging by telephone or fax at any time.
The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder Fund into which the exchange is being contemplated. The exchange
privilege may not be available for certain Scudder Funds or classes of Scudder
Funds. For more information, please call 1-800-225-5163 (Class S) or
1-800-253-2277 (Class AARP).
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
The following disclosure replaces the disclosure regarding "Redemptions" on page
22:
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Redemption By Telephone
Shareholders currently receive the right automatically, without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may also request by telephone to have
the proceeds mailed or wired to their predesignated bank account. In order to
request wire redemptions by telephone, shareholders must have completed and
returned to the Transfer Agent the application, including the designation of a
bank account to which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish the telephone redemption
privilege must complete the appropriate section on the
application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder pension and profit-sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request), or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for a redemption to a shareholder's bank account is made
by telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Portfolio employs procedure, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the 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.
Redemption requests by telephone (technically a repurchase agreement
between the Portfolio and the shareholder) of shares purchased by check will not
be accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program may sell shares of the Portfolio by telephone. 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, normally 4 p.m. eastern time,
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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 the following
business day. QuickSell transactions are not available for IRA accounts and most
other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account. New investors wishing to establish QuickSell may
so indicate on the application. Existing shareholders who wish to add QuickSell
to their account may do so by completing a QuickSell Enrollment Form. After
sending in an enrollment form, shareholders should allow for 15 days for this
service to be available.
The Portfolio employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the 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.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven (7) days of payment for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
The following disclosure replaces the disclosure regarding "Internet access" on
page 25 and applies to each class of the Portfolio except as noted:
Internet access
World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The address for Class AARP shares is aarp.scudder.com. These sites offer
guidance on global investing and developing strategies to help meet financial
goals and provides access to the Scudder investor relations department via
e-mail. The sites also enable users to access or view Fund prospectuses and
profiles with links between summary information in Fund Summaries and details in
the Prospectus. Users can fill out new account forms on-line, order free
software, and request literature on Funds.
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Account Access -- The Adviser is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
The Adviser's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web sites. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
The following information replaces the disclosure on page 26 regarding
"Dividends and Capital Gains Distribution Options":
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Portfolio. A change of instructions for the
method of payment may be given to the Transfer Agent in writing at least five
days prior to a dividend record date. Shareholders may change their dividend
option by calling 1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP
or by sending written instructions to the Transfer Agent. Please include your
account number with your written request.
Reinvestment is usually made at the closing net asset value of the
class determined on the business day following the record date. Investors may
leave standing instructions with the Transfer Agent designating their option for
either reinvestment or cash distribution of any income dividends or capital
gains distributions. If no election is made, dividends and distributions will be
invested in additional class shares of the Portfolio.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's Direct
Distributions Program. Shareholders who elect to participate in the Direct
Distributions Program, and whose predesignated checking account of record is
with a member bank of Automated Clearing House Network (ACH) can have income and
capital gain distributions automatically deposited to their personal bank
account usually within three business days after the Portfolio pays its
distribution. A Direct Distributions request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP. Confirmation
Statements will be mailed to shareholders as notification that distributions
have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
The following information replaces the information regarding "Automatic
Withdrawal Plan" on page 31:
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains
12
<PAGE>
distributions, if any, to be reinvested in additional Shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s). Any such requests must be received by the
Portfolio's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all Shares of the Portfolio under the Plan have been liquidated or upon
receipt by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.
The following information replaces the information regarding "Automatic
Investment Plan" on page 31:
Shareholders may arrange to make periodic investments in Class S shares
through automatic deductions from checking accounts by completing the
appropriate form and providing the necessary documentation to establish this
service. The minimum investment is $50 for Class S shares.
Shareholders may arrange to make periodic investments in Class AARP of
the Portfolio through automatic deductions from checking accounts. The minimum
pre-authorized investment amount is $50. New shareholders who open a Gift to
Minors Account pursuant to the Uniform Gift to Minors Act (UGMA) and the Uniform
Transfer to Minors Act (UTMA) and who sign up for the Automatic Investment Plan
will be able to open the Portfolio account for less than $500 if they agree to
increase their investment to $500 within a 10 month period. Investors may also
invest in any Class AARP for $500 if they establish a plan with a minimum
automatic investment of at least $100 per month. This feature is only available
to Gifts to Minors Account investors. The Automatic Investment Plan may be
discontinued at any time without prior notice to a shareholder if any debit from
their bank is not paid, or by written notice to the shareholder at least thirty
days prior to the next scheduled payment to the Automatic Investment Plan.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
The following information supplements the first paragraph of "Trust
Organization" on page 31:
Each Portfolio is further divided into two classes of shares, Class
AARP and Class S shares.
The following information replaces the information under "Performance
Information" on page 32:
Average Annual Total Return for the periods ended February 29, 2000
One Year Life of Portfolio^(1)
-------- -----------------
Conservative Portfolio 2.67% 6.60%
Balanced Portfolio 16.91% 11.50%
Growth Portfolio 35.42% 18.22%
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<PAGE>
^(1) For the period November 15, 1996 (commencement of operations) to August 31,
1999.
Cumulative Total Return for the periods ended February 29. 2000
One Year Life of Portfolio^(1)
-------- -----------------
Conservative Portfolio 2.67% 23.41%
Balanced Portfolio 16.91% 43.07%
Growth Portfolio 35.42% 73.44%
^(1) For the period November 15, 1996 (commencement of operations) to August 31,
1999. The following information supplements the information regarding "Special
Servicing Agreement" on page 36.
The Special Servicing Agreement will terminate upon the implementation of an
Administrative Services Agreement by each Portfolio and each applicable
Underlying Scudder Fund.
The following information replaces the information regarding "Personal
Investments by Employees of the Adviser" on page 37:
Code of Ethics
The Portfolios, the Adviser and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Portfolios and employees of the Adviser and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Portfolios, subject to
requirements and restrictions set forth in the applicable Code of Ethics. The
Adviser's Code of Ethics contains provisions and requirements designed to
identify and address certain conflicts of interest between personal investment
activities and the interests of the Portfolios. Among other things, the
Adviser's Code of Ethics prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions may not be
made in certain securities, and requires the submission of duplicate broker
confirmations and quarterly reporting of securities transactions. Additional
restrictions apply to portfolio managers, traders, research analysts and others
involved in the investment advisory process. Exceptions to these and other
provisions of the Adviser's Code of Ethics may be granted in particular
circumstances after review by appropriate personnel.
The following information replaces the information regarding "Trustees and
Officers" on page 40:
TRUSTEES AND OFFICERS OF INVESTMENT TRUST
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Trustee President and General Manager, WGBH --
WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
Linda C. Coughlin (48)+* Trustee Managing Director of Scudder Kemper Senior Vice President
Investments, Inc.
14
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Dawn-Marie Driscoll (53) Trustee Executive Fellow, Center for Business --
4909 SW 9th Place Ethics, Bentley College; President,
Cape Coral, FL 33914 Driscoll Associates (consulting firm)
Edgar R. Fiedler (70) Trustee Senior Fellow and Economic --
50023 Brogden Counsellor, The Conference Board, Inc.
Chapel Hill, NC
Keith R. Fox (45) Trustee Private Equity Investor, President, --
10 East 53rd Street Exeter Capital Management Corporation
New York, NY 10022
Joan E. Spero (55) Trustee President, Doris Duke Charitable --
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
Jean Gleason Stromberg (56) Trustee Consultant; Director, Financial --
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski Law
Firm (1978-1996)
Jean C. Tempel (56) Trustee Managing Director, First Light Capital --
One Boston Place
23rd Floor
Boston, MA 02108
Steven Zaleznick (45)* Trustee President and CEO, AARP Services, Inc. --
(address)
Ann M. McCreary (43) # Vice President Managing Director of Scudder Kemper --
Investments, Inc.
John R. Hebble (42)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
John Millette (37)+ Vice President and Vice President of Scudder Kemper --
Secretary Investments, Inc.
</TABLE>
15
<PAGE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Fund and its
counsel to be "interested persons" of the Adviser or of the Trust as
defined in the 1940 Act.
** Unless otherwise stated, all officers and directors have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder Funds. The newly-constituted Board may determine
to change its compensation structure.
As of June 15, 2000, all Trustees and Officers of Scudder Pathway
Series; Balanced Portfolio, Scudder Pathway Series; Growth Portfolio and Scudder
Pathway Series; Conservative Portfolio, as a group, owned beneficially (as that
term is defined in Section 13 (d) of The Securities and Exchange Act of 1934)
less than 1% of the outstanding shares.
As of June 15, 2000, 14,611,635 shares in the aggregate, or 80.9% of
the outstanding shares of Scudder Pathway Series; Balanced Portfolio were held
in the name of Scudder Kemper Investments Defined Contribution Plan, 345 Park
Avenue, New York, NY 10154, who may be deemed to be beneficial owner of such
shares.
As of June 15, 2000, 432,309 shares in the aggregate, or 18.89% of the
outstanding shares of Scudder Pathway Series; Conservative Portfolio were held
for Trustees of the ACR Defined Contribution Retirement Plan, 747 Locust Street,
Pasadena, CA 91101 who may be deemed to be beneficial owner of such shares.
To the knowledge of the Funds, as of June 15, 2000, no person owned
beneficially more than 5% of the outstanding shares of any fund, except as
stated above.
The following information regarding "Other Information" is added on page 45:
The CUSIP number of Scudder Balanced Portfolio Class AARP is 811189-703.
The CUSIP number of Scudder Growth Portfolio Class AARP is 811189-802
The CUSIP number of Scudder Conservative Portfolio Class AARP is 811189-885.
Administrative Services Agreement
Scudder Pathway Series has entered into an administrative services
agreement with Scudder Kemper (the "Administration Agreement"), pursuant to
which Scudder Kemper will provide or pay others to provide substantially all of
the administrative services required by each Portfolio (other than those
provided by Scudder Kemper under its investment management agreement with each
Portfolio, as described above). There is no fee currently payable by a Portfolio
under the Administration Agreement. The Administration Agreement will become
effective on or about September 25, 2000 for Conservative Portfolio and Growth
Portfolio and October 2, 2000 for Balanced Portfolio.
Various third-party service providers (the "Service Providers"), some
of which are affiliated with Scudder Kemper, provide certain services to each
Portfolio pursuant to separate agreements with each Portfolio. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for each Portfolio and maintains their accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of each Portfolio. Scudder
Trust Company, an affiliate of Scudder Kemper, provides subaccounting and
recordkeeping services for shareholders in certain retirement and employee
benefit plans. As
16
<PAGE>
custodian, State Street Bank and Trust Company holds the portfolio securities of
each Portfolio, pursuant to a custodian agreement. PricewaterhouseCoopers LLP
audits the financial statements of each Portfolio and provides other audit, tax,
and related services. Dechert Price & Rhoads acts as general counsel for each
Portfolio
Scudder Kemper will pay the Service Providers for the provision of their
services to each Portfolio and will pay other Portfolio expenses, including
insurance, registration, printing and postage fees. The Administration Agreement
has an initial term of three years, subject to earlier termination by each
Portfolio's Board.
Certain expenses of each Portfolio will not be borne by Scudder Kemper
under the Administration Agreements, such as taxes, brokerage, interest and
extraordinary expenses; and the fees and expenses of the Independent Trustees
(including the fees and expenses of their independent counsel). In addition,
each Portfolio will continue to pay any fees required by its investment
management agreement with Scudder Kemper.
July 14, 2000
17
