SCUDDER PATHWAY SERIES
SUPPLEMENT TO THE STATEMENT OF
ADDITIONAL INFORMATION DATED JANUARY 1, 2000
The following information supplements the disclosure regarding "The Underlying
Scudder Funds" on page 2:
Scudder Balanced Fund, Scudder Dividend & Growth Fund, Scudder Health Care Fund,
Scudder Select 500 Fund, Scudder Select 1000 Growth Fund, Scudder S&P 500 Index
Fund and Scudder Technology Fund are Underlying Scudder Funds.
The following disclosure supplements the section "The Underlying Scudder Funds"
on page 2.
Scudder Balanced Fund seeks a balance of growth and income from a diversified
portfolio of equity and fixed-income securities.
The Fund is intended to provide -- through a single investment -- access to a
wide variety of seasoned stock and investment-grade bond investments. Common
stocks and other equity investments provide long-term growth potential to help
offset the effects of inflation on an investor's purchasing power. Bonds and
other fixed-income investments provide current income and may, over time, help
reduce fluctuations in the Fund's share price.
In seeking its objectives of a balance of growth and income as well as long-term
preservation of capital, the Fund invests in a diversified portfolio of equity
and fixed-income securities. The Fund invests, under normal circumstances, 50%
to 75% of its net assets in common stocks and other equity investments. The
Fund's remaining assets are allocated to investment-grade bonds and other
fixed-income securities, including cash reserves. For liquidity and temporary
defensive purposes, the Fund may invest without limit in cash and in other money
market and short-term instruments. It is impossible to predict for how long such
alternate strategies may be utilized. The Fund will, on occasion, adjust its mix
of investments among equity securities, bonds, and cash reserves.
While the Fund emphasizes U.S. equity and debt securities, it may invest a
portion of its assets in foreign securities, including depositary receipts. The
Fund's foreign holdings will meet the criteria applicable to its domestic
investments. The international component of the Fund's investment program is
intended to increase diversification, thus reducing risk, while providing the
opportunity for higher returns. In addition, the Fund may invest in securities
on a when-issued or forward delivery basis and may utilize various other
strategic transactions.
Scudder Dividend & Growth Fund seeks high current income and long-term growth of
capital through investment in income paying equity securities. The Fund's
Adviser expects that the average gross income yield of the Fund will be higher
than the yield of the Standard & Poor's Composite Stock Price Index (the "S&P
500 Index"), a commonly accepted benchmark for U.S. stock market performance.
The Fund invests primarily in dividend paying common stocks, preferred stocks,
securities convertible into common stock, and real estate investment trusts
("REITs").
Under normal market conditions, the Fund will invest at least 80% of net assets
in income-paying equity securities, which the Adviser believes offer a high
level of current income and potential for long-term capital appreciation. The
Adviser believes that an actively managed portfolio of dividend paying stocks,
convertible securities, and REITs offers the potential for a higher level of
income and lower average share price volatility than the S&P 500 Index. Under
normal circumstances, the Fund will invest between 40% and 80% of its net assets
in dividend paying common stocks. The Fund may also purchase such securities
which do not pay current dividends but which offer prospects for growth of
capital and future income.
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Under normal circumstances, the Fund will invest between 40% and 80% of its net
assets in dividend paying common stocks. The Adviser applies a disciplined
investment approach to selecting these stocks of primarily medium-to-large sized
U.S. companies. The Fund's portfolio may include stocks which are out of favor
in the market, but which, in the opinion of the Adviser, offer compelling
valuations and potential for long-term appreciation in price and dividends. In
investing the Fund's portfolio among different industry sectors, the Adviser
evaluates how each sector reacts to economic factors such as interest rates,
inflation, Gross Domestic Product, and consumer spending. The Fund's portfolio
is constructed by attaining a proper balance of stocks in these sectors based on
the Adviser's economic forecasts. In summary, the Adviser applies disciplined
buy and sell criteria, fundamental company and industry analysis, and economic
forecasts in managing the Fund to pursue long-term price appreciation and income
with lower overall volatility than the market.
Scudder S&P 500 Index Fund seeks to match as closely as possible (before the
deduction of expenses) the total return of the S&P 500 Index, which emphasizes
the stocks of large U.S. companies. The Fund seeks to achieve its investment
objective by investing substantially all of its investable assets in an open-end
management investment company having the same investment objective as the Fund.
The investment company in which the Fund invests is the Equity 500 Index
Portfolio (the "Portfolio"), advised by Bankers Trust Company ("Bankers Trust").
The Portfolio may invest in equity securities listed on any domestic or foreign
securities exchange or traded in the over-the-counter market as well as certain
restricted or unlisted securities. "Equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
ADRs, EDRs, GDRs, and convertible securities, consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. They may or may not pay dividends
or carry voting rights. Common stock occupies the most junior position in a
company's capital structure. Although equity securities have a history of
long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
When the Portfolio experiences large cash inflows through the sale of securities
and desirable equity securities, that are consistent with the Portfolio's
investment objective, which are unavailable in sufficient quantities or at
attractive prices, the Portfolio may hold short-term investments (or shares of
money market mutual funds) for a limited time pending availability of such
equity securities. Short-term instruments consist of foreign and domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's Ratings Corporation
("S&P") or Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, of comparable quality in the opinion of Bankers Trust; (iii) commercial
paper; (iv) bank obligations, including negotiable certificates of deposit, time
deposits and banker's acceptances; and (v) repurchase agreements. At the time
the Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the instrument must be of comparable quality in the
opinion of Bankers Trust.
Scudder Select 500 Fund is a diversified fund which seeks long-term growth and
income through investment in selected stocks of companies in the S&P 500(R)
Index, a commonly recognized unmanaged measure of 500 widely held U.S. common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
the Nasdaq National Market System. The Fund pursues its objective by investing
at least 80% of its total assets in the stocks of companies in the index. Under
normal circumstances, the Fund invests primarily in common stocks.
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The Fund's portfolio management team will apply a multi-step investment process
to select certain of the composite stocks in the Fund's benchmark index for its
portfolio. This process includes the following steps:
o Ranking - using a proprietary computer model, the stocks of
companies in the particular benchmark index are evaluated and
ranked based on their growth prospects, relative valuation,
and history of rising prices.
o Selection - the 20% lowest ranking stocks in the index are
generally excluded from the portfolio.
o Portfolio Construction - From the remaining 80% of stocks, a
subset is selected and weighted to ensure portfolio
diversification and attempts to create a portfolio that is
similar to the benchmark index. Factors to be considered in
the allocation of the remaining stocks include level of
exposure to specific industries, company specific financial
data, price volatility, and market capitalization.
o Ongoing Active Management - the fund's portfolio is rebalanced
on an ongoing basis as the rankings of the stocks in the
benchmark indices change over time.
The Fund may, but is not required to, invest up to 20% of its total assets in
investment grade debt securities. The Fund can purchase other types of equity
securities including preferred stocks (convertible securities), rights,
warrants, and illiquid securities. Securities may be listed on national
exchanges or traded over-the-counter. The Fund may, but is not required to,
utilize other investments and investment techniques that may impact fund
performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities or that are based on indices).
The Fund manages risk by diversifying widely among industries and companies, and
using disciplined security selection. The Fund may, but is not required to, use
derivatives in an attempt to manage risk. The use of derivatives could magnify
losses. For temporary defensive purposes, the Fund may invest, without limit, in
cash and cash equivalents, U.S. government securities, money market instruments
and high quality debt securities without equity features.
Scudder Health Care Fund is a non-diversified fund which seeks long-term growth
of capital primarily through investment in common stocks of companies that are
engaged primarily in the development, production or distribution of products or
services related to the treatment or prevention of diseases and other medical
problems. These include companies that operate hospitals and other health care
facilities; companies that design, manufacture or sell medical supplies,
equipment and support services; and pharmaceutical firms. The Fund may also
invest in companies engaged in medical, diagnostic, biochemical and
biotechnological research and development. The Fund "concentrates," for purposes
of the Investment Company Act of 1940, its assets in securities related to a
particular industry, which means that at least 25% of its net assets will be
invested in these assets at all times. As a result, the Fund may be subject to
greater market fluctuation than a fund which has securities representing a
broader range of investment alternatives.
The Fund invests in the equity securities of health care companies located
throughout the world. In the opinion of the Adviser, investments in the health
care industry offer potential for significant growth due to favorable
demographic trends, technological advances in the industry, and innovations by
companies in the diagnosis and treatment of illnesses.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in common stocks of companies in a group of related industries as
described below. The Fund will invest in securities of U.S. companies, but may
invest in foreign companies as well. A security will be considered appropriate
for the Fund if at least 50% of its total assets, revenues, or net income is
related to or derived from the industry or industries designated for the Fund.
The industries in the health care sector are pharmaceuticals, biotechnology,
medical products and supplies, and health care services. Common stock is issued
by
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companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, the Fund participates 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 stock also offers greater potential for long-term gain on investment,
compared to other classes of financial assets such as bonds or cash equivalents.
While the Fund invests predominantly in common stocks, the Fund may purchase
convertible securities, rights, warrants and illiquid securities. The Fund may
enter into repurchase agreements and reverse 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. Securities may be listed on national exchanges or
traded over-the-counter. The Fund may invest up to 20% of its total assets in
U.S. Treasury securities, and agency and instrumentality obligations. For
temporary defensive purposes, the Fund may invest without limit in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternative strategies may be utilized.
Scudder Select 1000 Growth Fund is a non-diversified fund which seeks long-term
growth of capital through investment in selected stocks of companies in the
Russell 1000(R) Growth Index, an unmanaged index of growth-oriented mid-sized
and large company stocks. The Fund pursues its objective by investing at least
80% of its total assets in the stocks of companies in the index. Under normal
circumstances, the Fund invests primarily in common stocks.
The Fund's portfolio management team will apply a multi-step investment process
to select certain of the composite stocks in the Fund's benchmark index for its
portfolio. This process includes the following steps:
o Ranking - using a proprietary computer model, the stocks of
companies in the particular benchmark index are evaluated and
ranked based on their growth prospects, relative valuation,
and history of rising prices.
o Selection - the 20% lowest ranking stocks in the index are
generally excluded from the portfolio.
o Portfolio Construction - From the remaining 80% of stocks, a
subset is selected and weighted to ensure portfolio
diversification and attempts to create a portfolio that is
similar to the benchmark index. Factors to be considered in
the allocation of the remaining stocks include: level of
exposure to specific industries, company specific financial
data, price volatility, and market capitalization.
o Ongoing Active Management - the fund's portfolio is rebalanced
on an ongoing basis as the rankings of the stocks in the
benchmark indices change over time.
The Fund may, but is not required to, invest up to 20% of its total assets in
investment grade debt securities. The Fund can purchase other types of equity
securities including preferred stocks (convertible securities), rights,
warrants, and illiquid securities. Securities may be listed on national
exchanges or traded over-the-counter. The Fund may, but is not required to,
utilize other investments and investment techniques that may impact fund
performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities or that are based on indices).
The Fund manages risk by diversifying widely among industries and companies, and
using disciplined security selection. The Fund may, but is not required to, use
derivatives in an attempt to manage risk. The use of derivatives could magnify
losses. For temporary defensive purposes, the Fund may invest, without
<PAGE>
limit, in cash and cash equivalents, U.S. government securities, money market
instruments and high quality debt securities without equity features.
Scudder Technology Fund is a non-diversified fund, which seeks long-term growth
of capital primarily through investment in common stocks of companies engaged in
the development, production or distribution of technology-related products or
services. These types of products and services currently include computer
hardware and software, semi-conductors, office equipment and automation, and
Internet-related products and services. The Fund "concentrates," for purposes of
the Investment Company Act of 1940, its assets in securities related to a
particular industry, which means that at least 25% of its net assets will be
invested in these assets at all times. As a result, each Fund may be subject to
greater market fluctuation than a fund which has securities representing a
broader range of investment alternatives.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in common stocks of companies in a group of related industries as
described below. The Fund will invest in securities of U.S. companies, but may
invest in foreign companies as well. A security will be considered appropriate
for the Fund if at least 50% of its total assets, revenues, or net income is
related to or derived from the industry or industries designated for the Fund.
The industries in the technology sector are computers (including software,
hardware and internet-related businesses), computer services, telecommunications
and semi-conductors. Common stock is issued by companies to raise cash for
business purposes and represents a proportionate interest in the issuing
companies. Therefore, a Fund participates 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 stock also
offers greater potential for long-term gain on investment, compared to other
classes of financial assets such as bonds or cash equivalents.
While the Fund invests predominantly in common stocks, the Fund may purchase
convertible securities, rights, warrants and illiquid securities. The Fund may
enter into repurchase agreements and reverse 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. Securities may be listed on national exchanges or
traded over-the-counter. The Fund may invest up to 20% of its total assets in
U.S. Treasury securities, and agency and instrumentality obligations. For
temporary defensive purposes, the Fund may invest without limit in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternative strategies may be utilized.
Securities issued through an initial public offering (IPO) can experience an
immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. The Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
October 25, 2000
