<PAGE>
As filed with the Securities and Exchange Commission
on March 6, 2000.
Securities Act File No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_| Post-Effective Amendment No. |_|
SCUDDER TAX FREE MONEY FUND
(Exact Name of Registrant as Specified in Charter)
Two International Place
Boston, Massachusetts 02110-4103
(Address of Principal Executive Offices) (Zip Code)
John Millette
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110-4103
(Name and Address of Agent for Service)
(617) 295-1000
(Registrant's Area Code and Telephone Number)
with copies to:
Caroline Pearson, Esq. Sheldon A. Jones, Esq.
Scudder Kemper Investments, Inc. Dechert Price & Rhoads
Two International Place Ten Post Office Square - South
Boston, MA 02110-4103 Boston, MA 02109-4603
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement is declared effective.
Title of Securities Being Registered:
Shares of Beneficial Interest ($.01 par value)
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It is proposed that this filing will become effective on April 5, 2000
pursuant to Rule 488 under the Securities Act of 1933.
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No filing fee is required because the Registrant has previously registered an
indefinite number of its shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
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PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
AARP TAX FREE INCOME TRUST
AARP HIGH QUALITY TAX FREE MONEY FUND
Please take notice that a Special Meeting of Shareholders (the
"Meeting") of AARP High Quality Tax Free Money Fund (the "Fund"), a series of
AARP Tax Free Income Trust (the "Trust"), will be held at the offices of Scudder
Kemper Investments, Inc., Floor 13, Two International Place, Boston, MA
02110-4103, on July 11, 2000, at 2:00 p.m., Eastern time, for the following
purposes:
Proposal 1: To elect Trustees of the Trust;
Proposal 2: To approve an Agreement and Plan of Reorganization
for the Fund whereby all or substantially all of the
assets and liabilities of the Fund would be acquired
by Scudder Tax Free Money Fund in exchange for shares
of the AARP Shares class of Scudder Tax Free Money
Fund; and
Proposal 3: To ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants for the Fund for
the Fund's current fiscal year.
The appointed proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on
April 17, 2000 are entitled to vote at the Meeting and at any adjournments
thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
[Signature]
Kathryn L. Quirk,
Secretary
[date]
IMPORTANT -- We urge you to sign and date the enclosed proxy card(s) and return
it in the enclosed envelope which requires no postage (or to take advantage of
the electronic or telephonic voting procedures described on the proxy card(s)).
Your prompt return of the enclosed proxy card(s) (or your voting by other
available means) may save the necessity and expense of further solicitations. If
you wish to attend the Meeting and vote your shares in person at that time, you
will still be able to do so.
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Table of Contents
Introduction....................
Proposal 1: Election of Trustees/Directors for the Acquired
Trust/Corporation........
Nominees for Election..............
Trustees/Directors Not Standing for Re-election............
Responsibilities of the Board -- Board and Committee Meetings........
Audit Committee........
Committee on Independent Trustees/Directors........
Attendance............
Honorary Trustees/Directors.........
Officers.............
Compensation of Trustees/Directors and Officers.........
Proposal 2: Approval of Agreement and Plan of Reorganization......
I. SYNOPSIS.........
Introduction.........
Background of the Reorganization...........
Reasons for the Proposed Transaction; Board Approval.......
Investment Objectives, Policies and Restrictions of the
Funds........
Portfolio Turnover..........
Performance...........
Investment Manager; Fees and Expenses......
Administrative Fee..........
Comparison of Expenses.........
Financial Highlights.........
Distribution of Shares........
Purchase, Redemption and Exchange Information.........
Dividends and other Distributions..........
Tax Consequences........
II. PRINCIPAL RISK FACTORS......
III. THE PROPOSED TRANSCTION..........
Description of the Plan........
Board Approval of the Proposed Transaction......
Description of the Securities to be Issued.....
Federal Income Tax Consequences.........
Capitalization...........
Proposal 3: Ratification or Rejection of the Selection of Independent
Accountants
Additional Information
Exhibit A
Exhibit B
Appendix 1
Appendix 2
Part B: Statement of Additional Information
Part C: Other Information
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<PAGE>
PROXY STATEMENT/PROSPECTUS
[DATE]
Relating to the acquisition of the assets of
AARP HIGH QUALITY TAX FREE MONEY FUND (the "Acquired Fund"),
a separate series of
AARP TAX FREE INCOME TRUST (the "Acquired Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) 253-2277
by and in exchange for shares of beneficial interest
of the AARP Shares class of SCUDDER TAX FREE MONEY
FUND (the "Acquiring Trust" and also referred to herein
as the "Acquiring Fund"),
Two International Place
Boston, Massachusetts 02110-4103
(800) 728-3337
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
the Acquired Fund in connection with three proposals (each a "Proposal").
Proposal 1 describes the election of Trustees, and Proposal 3 proposes the
ratification of the Acquired Fund's accountants.
In Proposal 2, shareholders are asked to approve a proposed
reorganization in which all or substantially all of the assets of the Acquired
Fund would be acquired by the Acquiring Fund, in exchange for shares of
beneficial interest of the AARP Shares class of the Acquiring Fund (known as
"AARP Shares") and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, as described more fully below (the
"Reorganization"). Shares of the Acquiring Fund thereby received would then be
distributed to the shareholders of the Acquired Fund in complete liquidation of
the Acquired Fund. As a result of the Reorganization, each shareholder of the
Acquired Fund would receive that number of AARP Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
of the Acquired Fund held as of the close of business on the business day
preceding the closing of the Reorganization (the "Valuation Date"). Shareholders
of the Acquired Fund will vote on an Agreement and Plan of Reorganization (the
"Plan") pursuant to which the Reorganization would be consummated. A copy of the
Plan is attached hereto as Exhibit A. The closing of the Reorganization (the
"Closing") is contingent upon shareholder approval of the Plan. The
Reorganization is expected to occur on or about September 11, 2000.
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager") and
described in more detail below.
In the descriptions of the Proposals below, the word "fund" is
sometimes used to mean investment companies or series thereof in general, and
not the Acquired Fund whose proxy statement this is. In addition, for
simplicity, actions are described in this Proxy Statement as being taken by
either the Acquired Fund or the Acquiring Fund (each a "Fund" and collectively
the "Funds"), although all actions are actually taken either by the Acquiring
Fund, on behalf of itself, or by the Acquired Trust, on behalf of the Acquired
Fund. (The Acquired Trust and the Acquiring Trust are referred to herein as the
"Trusts".)
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus sets forth concisely the information
about the Acquiring Fund that a prospective investor should know before
investing and should be retained for future reference. For a more detailed
discussion of the investment objective, policies, restrictions and risks of the
Acquiring Fund, see the Acquiring Fund's prospectus, dated October 1, 1999, as
supplemented from time to time, which is included herewith and incorporated
herein by reference. For a more detailed discussion of the investment objective,
policies, restrictions and risks of the Acquired Fund, see the Acquired Fund's
prospectus, dated February 1, 2000, as supplemented from time to time, which is
incorporated herein by reference and a copy of which may be obtained upon
request and without charge by calling or writing the Acquired Fund at the
telephone number or address set forth on the preceding page.
The Acquiring Fund's Statement of Additional Information, dated October
1, 1999, is incorporated herein by reference and may be obtained upon request
and without charge by calling or writing the Acquiring Fund at the telephone
number or address set forth on the preceding page. A Statement of Additional
Information dated ___________________, containing additional information about
the Reorganization and the parties thereto has been filed with the Securities
and Exchange Commission (the "SEC" or the "Commission") and is incorporated by
reference into this Proxy Statement/Prospectus. A copy of the Statement of
Additional Information relating to the Reorganization is available upon request
and without charge by calling or writing the Acquiring Fund at the telephone
number or address set forth on the preceding page. Shareholder inquiries
regarding the Acquired Fund may be made by calling (800) 253-2277. Shareholder
inquiries regarding the Acquiring Fund may be made by calling (800) 728-3337.
The information contained herein concerning the Acquired Fund has been provided
by, and is included herein in reliance upon, the Acquired Fund. The information
contained herein concerning the Acquiring Fund has been provided by, and is
included herein in reliance upon, the Acquiring Fund. The AARP Shares will be a
newly-established class of shares of the Acquiring Fund and will be identical in
all material respects to the Acquiring Fund shares currently offered and sold,
as described in the prospectus and statement of additional information for the
Acquiring Fund, dated October 1, 1999, except as otherwise described herein.
The Acquired Fund is a diversified series of shares of beneficial
interest of the Acquired Trust. The Acquiring Trust is a diversified open-end
management investment company organized as a Massachusetts business trust. The
Acquired Trust is also an open-end management investment company organized as a
Massachusetts business trust.
The Board of Trustees (except as otherwise noted, "Trustees" refers to
the Trustees of the Trust and "Board" refers to the Board of Trustees of the
Acquired Trust) is soliciting proxies from shareholders of the Acquired Fund, on
behalf of the Acquired Fund, for the Special Meeting of Shareholders to be held
on July 11, 2000, at Scudder Kemper's offices, at Floor 13, Two International
Place, Boston, MA 02110-4103 at 2:00 p.m. (Eastern time), or at such later time
made necessary by adjournment (the "Meeting").
The Board of Trustees recommends that shareholders vote for the
nominees listed in Proposal 1, and for Proposals 2 and 3.
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PROPOSAL 1: ELECTION OF TRUSTEES FOR THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust, the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or AARP. The nominees listed below are
also being nominated for election as Trustees of the Acquiring Trust and as
trustees or directors of most of the other no-load funds advised by Scudder
Kemper.
Currently five different boards of trustees or directors are
responsible for overseeing different groups of no-load funds advised by Scudder
Kemper. As part of a broader restructuring effort described below under Proposal
2, Scudder Kemper has recommended, and the Board of Trustees has agreed, that
shareholder interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation
listed in the following paragraphs and table for more than five years, but not
necessarily in the same capacity, and (ii) the address of each nominee is c/o
Scudder Kemper Investments, Inc., Two International Place, Boston, MA
02110-4103.
Nominees for Election as Trustees:
Henry P. Becton, Jr. (56)
Henry P. Becton, Jr. graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa and was Chairman of the Yale Broadcasting Corporation.
He received his J.D. degree from Harvard Law School in 1968. He joined the staff
of WGBH Educational Foundation in 1970, was appointed General Manager in 1978,
and was elected President and General Manager in 1984. Mr. Becton is a member of
the PBS Board of Directors, a Trustee of American Public Television, the New
England Aquarium, the Boston Museum of Science, Concord Academy, and the
Massachusetts Corporation for Educational Telecommunications, an Overseer of the
Boston Museum of Fine Arts, and a member of the Board of Governors of the Banff
International Television Festival Foundation. He is also a Director of Becton
Dickinson and Company and A.H. Belo Company, a Trustee of the Committee for
Economic Development, and a member of the Board of Visitors of the Dimock
Community Health Center, the
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<PAGE>
Dean's Council of Harvard University's Graduate School of Education, and the
Massachusetts Bar. Mr. Becton has served as a trustee of various mutual funds
advised by Scudder Kemper since 1990.
Linda C. Coughlin (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group. Ms.
Coughlin received a B.A. degree in economics (summa cum laude) from Fordham
University. Ms. Coughlin has served on the boards of various funds advised by
Scudder Kemper, including the AARP Investment Program Funds, since 1996.
Dawn-Marie Driscoll (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. She has been a director, trustee and overseer
of many civic and business institutions, including The Massachusetts Bay United
Way and Regis College. Ms. Driscoll was formerly a law partner at Palmer & Dodge
in Boston and served for over a decade as Vice President of Corporate Affairs
and General Counsel of Filene's, the Boston-based department store chain. Ms.
Driscoll received a B.A. from Regis College, a J.D. from Suffolk University Law
School, a D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary) from
Bentley College Graduate School of Business. Ms. Driscoll has served as a
trustee of various mutual funds advised by Scudder Kemper since 1987.
Edgar R. Fiedler (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996. Mr.
Fiedler's business experience includes positions at Eastman Kodak in Rochester
(1956-59), Doubleday and Company in New York City (1959-60), and Bankers Trust
Company in New York City (1960-69). He also served as Assistant Secretary of the
Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler graduated from the
University of Wisconsin in 1951. He received his M.B.A. from the University of
Michigan and his doctorate from New York University. During the 1980's, Mr.
Fiedler was an Adjunct Professor of Economics at the Columbia University
Graduate School of Business. From 1990 to 1991, he was the Stephen Edward Scarff
Distinguished Professor at Lawrence University in Wisconsin. Mr. Fiedler is a
Director of The Stanley Works, Harris Insight Funds, Brazil Fund, and PEG
Capital Management, Inc. He has served as a board member of various mutual funds
advised by Scudder Kemper, including the AARP Investment Program Funds, since
1984.
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<PAGE>
Keith R. Fox (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976 and in 1981 received
an M.B.A. degree from the Harvard Business School. Mr. Fox is also a qualified
accountant. He is a board member and former Chairman of the National Association
of Small Business Investment Companies, and a director of Golden State Vintners,
K-Communications, Progressive Holding Corporation and Facts On File, as well as
a former director of over twenty companies. Mr. Fox has served as a trustee of
various mutual funds advised by Scudder Kemper since 1996.
Joan Edelman Spero (55)
Joan E. Spero is the president of the Doris Duke Charitable Foundation, a
position to which she was named in January 1997. From 1993 to 1997, Ms. Spero
served as Undersecretary of State for Economic, Business and Agricultural
Affairs under President Clinton. From 1981 to 1993, she was an executive at the
American Express Company, where her last position was executive vice president
for Corporate Affairs and Communications. Ms. Spero served as U.N. Ambassador to
the United Nations Economic and Social Council under President Carter from 1980
to 1981. She was an assistant professor at Columbia University from 1973 to
1979. She graduated Phi Beta Kappa from the University of Wisconsin and holds a
master's degree in international affairs and a doctorate in political science
from Columbia University. Ms. Spero is a member of the Council on Foreign
Relations and the Council of American Ambassadors. She also serves as a trustee
of the Wisconsin Alumni Research Foundation, The Brookings Institution and
Columbia University and is a Director of First Data Corporation. Ms. Spero has
served as a trustee of various mutual funds advised by Scudder Kemper since
1998.
Jean Gleason Stromberg (56)
Ms. Stromberg acts as a consultant on regulatory matters. From 1996 to 1997, Ms.
Stromberg represented the U.S. General Accounting Office before Congress and
elsewhere on issues involving banking, securities, securities markets, and
government-sponsored enterprises. Prior to that, Ms. Stromberg was a corporate
and securities law partner at the Washington, D.C. law office of Fulbright and
Jaworski, a national law firm. She served as Associate Director of the SEC's
Division of Investment Management from 1977 to 1979 and prior to that was
Special Counsel for the Division of Corporation Finance from 1972 to 1977. Ms.
Stromberg graduated Phi Beta Kappa from Wellesley College and received her law
degree from Harvard Law School. From 1988 to 1991 and 1993 to 1996, she was a
Trustee of the American Bar Retirement Association, the funding vehicle for
American Bar Association-sponsored retirement plans. Ms. Stromberg serves on the
Wellesley College Business Leadership Council and the Council for Mutual Fund
Director Education at Northwestern University Law School and was a panelist at
the SEC's Investment Company Director's Roundtable. Ms. Stromberg has served as
a board member of the AARP Investment Program Funds since 1997.
Jean C. Tempel (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in Wayne,
Pennsylvania. Ms. Tempel concentrates on investment opportunities in the Boston
area. She spent 25 years in technology/operations executive management at
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various New England banks, building custody operations and real time
financial/securities processing systems, most recently as Chief Operations
Officer at The Boston Company. From 1991 until 1993 she was president/COO of
Safeguard Scientifics, a Pennsylvania technology venture company. In that role
she was a founding investor, director and vice chairman of Cambridge Technology
Partners. She is a director of XLVision, Inc., Marathon Technologies, Inc.,
Aberdeen Group and Sonesta Hotels International, and is a Trustee of
Northeastern University, Connecticut College, and The Commonwealth Institute.
She received a B.A. from Connecticut College, an M.S. from Rensselaer
Polytechnic Institute of New York, and attended Harvard Business School's
Advanced Management Program. Ms. Tempel has served as a trustee of various
mutual funds advised by Scudder Kemper since 1994.
Steven Zaleznick (45)*
Steven Zaleznick is President and CEO of AARP Services, Inc., a wholly-owned and
independently-operated subsidiary of AARP which manages a range of products and
services offered to AARP members, provides marketing services to AARP and its
member service providers and establishes an electronic commerce presence for
AARP members. Mr. Zaleznick previously served as AARP's general counsel for nine
years. He was responsible for the legal affairs of the AARP, which included tax
and legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined the AARP as
a legislation representative responsible for issues involving taxes, pensions,
age discrimination, and other national issues affecting older Americans. Mr.
Zaleznick is President of the Board of Cradle of Hope Adoption Center in
Washington, D.C. He is a former treasurer and currently a board member of the
National Senior Citizens Law Center. Mr. Zaleznick received his B.A. in
economics from Brown University. He received his J.D. degree from Georgetown
University Law Center and is a member of the District of Columbia Bar
Association.
Trustees Not Standing for Re-election:
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Present Office with the Acquired Trust;
Principal Occupation or Employment
Name and Directorships
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Horace B. Deets (61)* Vice Chairperson and Trustee; Executive
Director, AARP (1989 - Present). Mr. Deets
serves on the Boards of an additional 4
trusts whose funds are advised by Scudder
Kemper.
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Carole Lewis Anderson (55) Trustee; Principal, Suburban Capital
Markets, Inc. (1995 - Present). Ms.
Anderson serves on the Boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
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Adelaide Attard (69) Trustee; Member, NYC Department of Aging
Advisory Council (1995 - Present);
Consultant, Gerontology Commissioner,
County of Nassau, New York, Department of
Senior Citizen Affairs (1971-1991). Ms.
Attard serves on the Boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
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Robert N. Butler, M.D. (73) Trustee; Director, International Longevity
Center and Professor of Geriatrics and
Adult Development; Chairman, Henry L.
Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical
Center (1982 - present). Dr. Butler serves
on the Boards of an additional 4 trusts
whose funds are advised by Scudder Kemper.
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Lt. Gen. Eugene P. Forrester (73) Trustee; Lt. General (Retired), U.S. Army;
International Trade Counselor (1983 -
present); Consultant. Lt. Gen. Forrester
serves on the Boards of an additional 4
trusts whose funds are advised by Scudder
Kemper.
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George L. Maddox, Jr. (74) Trustee; Professor Emeritus and Director,
Long Term Care Resources Program, Duke
University Medical Center; Professor
Emeritus of Sociology, Departments of
Sociology and Psychiatry, Duke University.
Mr. Maddox serves on the Boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
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Robert J. Myers (87) Trustee; Actuarial Consultant (1983 -
present). Mr. Myers serves on the Boards
of an additional 4 trusts whose funds are
advised by Scudder Kemper.
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James H. Schulz (63) Trustee; Professor of Economics and
Kirstein Professor of Aging Policy, Policy
Center on Aging, Florence Heller School,
Brandeis University. Mr. Schulz serves on
the Boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
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Gordon Shillinglaw (74) Trustee; Professor Emeritus of Accounting,
Columbia University Graduate School of
Business. Dr. Shillinglaw serves on the
Boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
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* Nominee or Trustee considered by the Acquired Trust and its counsel to
be an "interested person" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Acquired Trust, the
Investment Manager or AARP because of his or her employment by the
Investment Manager or AARP, and, in some cases, holding offices with
the Acquired Trust.
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<PAGE>
Appendix 1 hereto sets forth the number of shares of each series of the
Acquired Trust owned directly or beneficially by the Trustees of the Acquired
Trust and by the nominees for election.
Responsibilities of the Board -- Board and Committee Meetings
A fund's board is responsible for the general oversight of fund
business. The board that is proposed for shareholder voting at this Meeting is
comprised of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper and who are called
"independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the
investment performance of each fund of the Acquired Trust and other operational
matters, including policies and procedures designed to assure compliance with
regulatory and other requirements. Furthermore, the Independent Trustees review
the fees paid to the Investment Manager and its affiliates for investment
advisory services and other administrative and shareholder services. The
Trustees have adopted several policies and practices which help ensure their
effectiveness and independence in reviewing fees and representing shareholders.
Many of these are similar to those suggested in the 1999 Advisory Group Report
on Best Practices for Fund Directors (the "Advisory Group Report"). For example,
the Independent Trustees select independent legal counsel to work with them in
reviewing fees, advisory and other contracts and overseeing fund matters. The
Trustees are also assisted in this regard by the funds' independent public
accountants and other independent experts retained for this purpose. The
Independent Trustees regularly meet privately with their counsel and other
advisors. In addition, the Independent Trustees from time to time have appointed
task forces and subcommittees from their members to focus on particular matters.
The Board of the Acquired Trust has an Audit Committee and a Committee
on Independent Trustees, the responsibilities of which are described below. In
addition, the Acquired Trust has an Executive Committee, a Shareholder Service
Committee and a Valuation Committee.
Audit Committee
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things, the scope
of the audit and the internal controls of each series of the Acquired Trust and
its agents, reviews and approves in advance the type of services to be rendered
by independent accountants, recommends the selection of independent accountants
for each series of the Acquired Trust to the Board, reviews the independence of
such firm and, in general, considers and reports to the Board on matters
regarding the accounting and financial reporting practices of each series of the
Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised entirely of Independent Trustees, meets privately with
the independent accountants of each series of the Acquired Trust, will receive
annual representations from the accountants as to their independence, and has a
written charter that delineates the committee's duties and powers.
-13-
<PAGE>
Committee on Independent Trustees
The Board of Trustees of the Acquired Trust has a Committee on
Independent Trustees, comprised solely of Independent Trustees, charged with the
duty of making all nominations of Independent Trustees, establishing Trustees'
compensation policies and reviewing matters relating to the Independent
Trustees.
Attendance
The full Board of Trustees of the Acquired Trust met five times, the
Audit Committee met two times and the Committee on Independent Trustees met two
times during calendar year 1999. Each then current Trustee attended 100% of the
total meetings of the Board and each committee on which he or she served as a
regular member that were held during that period, except Horace B. Deets, Robert
J. Myers and James H. Schulz, who attended 90%, 94% and 92%, respectively, of
those meetings. In addition to these Board and committee meetings, the Trustees
of the Acquired Trust attended various other meetings on behalf of the Acquired
Trust during the year, including meetings with their independent legal counsel
and informational meetings.
Officers
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Present Office with the Acquired
Trust; Principal Occupation or
Name (Age) Employment(1) Year First Became an Officer(2)
- ---------- ---------- ----------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Linda C. Coughlin (48) Trustee and President; Managing 2000
Director of Scudder Kemper
- ----------------------------------------------------------------------------------------------------------------------
William Glavin (41) Vice President; 1997
Senior Vice President of Scudder
Kemper.
- ----------------------------------------------------------------------------------------------------------------------
Ann M. McCreary (43) Vice President; Managing Director of 1998
Scudder Kemper.
- ----------------------------------------------------------------------------------------------------------------------
James Masur (39) Vice President; Senior Vice President 1999
of Scudder Kemper.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in the
same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Acquired Trust.
-14-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Present Office with the Acquired
Trust; Principal Occupation or
Name (Age) Employment(1) Year First Became an Officer(2)
- ---------- ---------- ----------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John Millette (37) Vice President and Assistant 1999
Secretary; Assistant Vice President
of Scudder Kemper.
- ----------------------------------------------------------------------------------------------------------------------
James W. Pasman (47) Vice President; Senior Vice President 1996
of Scudder Kemper.
- ----------------------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (47) Vice President and Secretary; 1997
Managing Director of Scudder.
- ----------------------------------------------------------------------------------------------------------------------
John Hebble (41) Treasurer; Senior Vice President, 1997
Scudder Kemper.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation of Trustees and Officers
The Acquired Trust pays each Independent Trustee an annual Trustee's
fee for each series of the Acquired Trust plus specified amounts for Board and
committee meetings attended and reimburses expenses related to the business of
any series of the Acquired Trust. As of April 1, 1999, each Independent Trustee
receives an annual Trustee's fee of $12,000. (Prior to April 1, 1999, the annual
Trustee's fee was $10,000.) Each Independent Trustee also receives fees of $175
per fund for attending each meeting of the Board and between $80 and $150 per
fund (depending on meeting type) for attending each committee meeting, or
meeting held for the purpose of considering arrangements between the Acquired
Trust and Scudder Kemper, or any of its other affiliates. The newly-constituted
Board may determine to change its compensation structure.
The Independent Trustees of the Acquired Trust are not entitled to
benefits under any pension or retirement plan. A one-time benefit, however,
will be provided to those Independent Trustees who are not standing for
re-election in an amount equal to twice a Trustee's calendar year 1999
compensation from the Acquired Trust. Inasmuch as Scudder Kemper will also
benefit from the administrative efficiencies of a consolidated board, Scudder
Kemper has agreed to bear one-half of the cost of any such benefit.
Scudder Kemper supervises the Acquired Trust's investments, pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust and receives a management fee for its services.
Several of the Acquired Trust's officers and Trustees are also officers,
directors, employees or stockholders of Scudder Kemper and participate in the
fees paid to that firm, although the Acquired Trust makes no direct payments to
them other than for reimbursement of travel expenses in connection with their
attendance at Board and committee meetings.
The following Compensation Table provides in tabular form the following
data:
Column (1) All Trustees who receive compensation from the Acquired
Trust.
Column (2) Aggregate compensation received by each Trustee of the
Acquired Trust during calendar year 1999.
Column (3) Total compensation received by each Trustee from funds
managed by Scudder Kemper (collectively, the "Fund Complex") during calendar
year 1999.
-15-
<PAGE>
Compensation Table
- --------------------------------------------------------------------------------
Trustees Aggregate Total Compensation from
Compensation Fund Complex*
(number of funds) Paid to Trustee
- --------------------------------------------------------------------------------
Carole Lewis Anderson $5,078 (2 funds) $40,935 (16 funds)
- --------------------------------------------------------------------------------
Adelaide Attard $4,758 (2 funds) $38,375 (16 funds)
- --------------------------------------------------------------------------------
Robert N. Butler $4,318 (2 funds) $34,855 (16 funds)
- --------------------------------------------------------------------------------
Edgar R. Fiedler $2,198 (2 funds) $54,495 (17 funds)
- --------------------------------------------------------------------------------
Eugene P. Forrester $5,078 (2 funds) $40,935 (16 funds)
- --------------------------------------------------------------------------------
George L. Maddox, Jr. $5,078 (2 funds) $40,935 (16 funds)
- --------------------------------------------------------------------------------
Robert J. Myers $4,758 (2 funds) $38,200 (16 funds)
- --------------------------------------------------------------------------------
James H. Schulz $4,598 (2 funds) $37,095 (16 funds)
- --------------------------------------------------------------------------------
Gordon Shillinglaw $5,043 (2 funds) $44,280 (16 funds)
- --------------------------------------------------------------------------------
Jean Gleason Stromberg $5,078 (2 funds) $40,935 (16 funds)
- --------------------------------------------------------------------------------
* The Fund Complex includes two funds for which the Trustees serve without
compensation.
The Board of Trustees of AARP Tax Free Income Trust recommends that the
shareholders of the AARP High Quality Tax Free Money Fund
vote for each nominee.
PROPOSAL 2: APPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION
I. SYNOPSIS
The following is a summary of certain information contained in this
Proxy Statement/Prospectus relating to the Reorganization. This summary is
qualified by reference to the more complete information contained elsewhere in
this Proxy Statement/Prospectus, the Prospectuses and Statements of Additional
Information of the Funds, and the Plan. Shareholders should read this entire
Proxy Statement/Prospectus carefully.
Introduction
The Board of the Acquired Trust, including all of the Independent
Trustees, approved the Plan at a meeting held on February 7, 2000. Subject to
its approval by the shareholders of the Acquired Fund, the Plan provides for (a)
the transfer of all or substantially all of the assets and all of the
liabilities of the Acquired Fund to the Acquired Fund in exchange for AARP
Shares; (b) the distribution of such shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund; and (c) the abolition of the
Acquired Fund as a series of the Acquired Trust. As a result of the
Reorganization, each shareholder of the Acquired Fund will become a shareholder
of the AARP Shares and will hold, immediately after the Reorganization, AARP
Shares having an aggregate net asset value equal to the aggregate net asset
value of such shareholder's shares of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information.
-16-
<PAGE>
Background of the Reorganization
The Reorganization is part of a broader restructuring program proposed
by Scudder Kemper to respond to changing industry conditions and investor needs.
Scudder Kemper seeks to offer the full lineup of the Scudder Family of no-load
funds to members of the AARP Investment Program. The expanded offering should
position the AARP Investment Program to meet the increasingly diverse needs of
current and prospective AARP members.
Scudder Kemper and AARP have advised the Board that they believe that
the proposed changes in the AARP Investment Program from Scudder are in the
interests of shareholders of the funds offered through the AARP Investment
Program (the "AARP Funds") and AARP members: the Program would consist of
forty-three no-load funds compared with the current sixteen and would retain its
separate identity with separate statements [and lower minimum investments] for
participating shareholders; six core funds would continue to have a risk managed
strategy; education will remain a focus of Scudder Kemper; and AARP will
continue to be involved with the Program and is proposed to have board
representation.
As part of this initiative, Scudder Kemper has sought ways to
restructure and streamline the management and operations of the funds it
advises. Scudder Kemper believes, and has advised the boards, that the
consolidation of certain funds advised by it would benefit fund shareholders.
Scudder Kemper has, therefore, proposed the consolidation of a number of no-load
funds advised by it that Scudder Kemper believes have similar or compatible
investment objectives and policies. In many cases, the proposed consolidations
are designed to eliminate the substantial overlap in current offerings by the
Scudder Funds and the AARP Funds, all of which are advised by Scudder Kemper.
Consolidation plans are proposed for other funds that have not gathered enough
assets to operate efficiently and, in turn, have relatively high expense ratios.
Scudder Kemper believes that these consolidations may help to enhance investment
performance of funds and increase efficiency of operations. The Reorganization
is also expected to result in lower operating expenses for Acquired Fund
shareholders, as described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised
by Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for most of the no-load funds advised by
Scudder Kemper would increase efficiency and benefit fund shareholders. (See
Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed
the adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by the
Acquiring Fund of an administrative fee, Scudder Kemper would agree to provide
or pay for substantially all services that a fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. Such an administrative fee would enable
investors to determine with greater certainty the expense level that a fund will
experience, and would transfer substantially all of the risk of increased costs
to Scudder Kemper. Scudder Kemper has proposed that the Acquiring Fund implement
such an administrative fee upon the Closing, as described in "Administrative
Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single Board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in reduced costs (and the
potential for increased profitability) for Scudder Kemper in advising or
servicing funds.
-17-
<PAGE>
Reasons for the Proposed Reorganization; Board Approval
Since receiving Scudder Kemper's proposals on September 22, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "Board Approval of the Proposed Transaction"
below.
The Trustees believe that the Reorganization may provide shareholders
of the Acquired Fund with the following benefits:
o LOWER EXPENSES. If the Reorganization is approved, Acquired Fund
shareholders may benefit from lower total Fund operating expenses. Please
refer to "Comparison of Expenses" below.
o GREATER PREDICTABILITY OF EXPENSES. On or prior to Closing, the Acquiring
Fund and Scudder Kemper will enter into an administrative services
agreement pursuant to which Scudder Kemper will provide or pay others to
provide substantially all of the administrative services required by the
Acquiring Fund, and most Fund expenses, in return for payment by the
Acquiring Fund of a single administrative fee rate. This agreement, which
has an initial three year term, will protect the Acquiring Fund's
shareholders from increases in the Acquiring Fund's expense ratio
attributed to any increases in the costs of providing these services.
o OPPORTUNITY FOR HIGHER NET INCOME AND RETURN. The Acquiring Fund may
provide an opportunity for a higher level of net income and/or return than
the Acquired Fund, although there can be no assurances in this regard. As
of December 31, 1999, the Acquiring Fund had a 30-day net annualized yield
of 3.29% compared to 3.04% for the Acquired Fund. The Acquiring Fund has
outperformed the Acquired Fund over the past one, three, and five and ten
year periods.
o SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will
continue to seek current tax-free income and stability of principal. The
Funds are currently managed by the same portfolio management teams and
have nearly identical investments.
o INVESTMENT IN A LARGER FUND. Scudder Kemper has advised the Trustees that
the Acquired Fund's shareholders will benefit from an investment in a
larger fund which will likely have the ability to effect portfolio
transactions on more favorable terms and provide Scudder Kemper with
greater investment flexibility and the ability to select a larger number
of portfolio securities for the combined fund, with the attendant ability
to spread investment risks among a larger number of portfolio securities.
o TAX-FREE REORGANIZATION. Shareholders of the Acquired Fund will exchange
their shares for shares of the Acquiring Fund of equal value. It is
expected that the transaction will be tax-free for Acquired Fund
shareholders.
For these reasons, as more fully described below under "The Proposed
Transaction - Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
o the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
-18-
<PAGE>
o the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan effecting the
Reorganization. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
The investment objectives, policies and restrictions of the Acquired
Fund and the Acquiring Fund (and, consequently, the risks of investing in either
Fund) are very similar. Some differences do exist. The investment objective of
the Acquiring Fund is to provide income exempt from regular federal income tax
and stability of principal through investments in municipal securities. The
investment objective of the Acquired Fund is to provide liquidity and current
income that is free from federal income tax, consistent with stability and
safety of principal, while maintaining a constant share price of $1. There can
be no assurance that either Fund will achieve its investment objective. Both
Funds have the same portfolio managers and are managed in a substantially
similar manner.
The Acquiring Fund normally invests at least 80% of its net assets in
short-term municipal securities. In addition, the Acquiring Fund may invest in
illiquid or restricted securities, municipal notes, municipal bonds, industrial
development and pollution control bonds and variable rate demand instruments.
The Acquiring Fund may also invest 20% or less of its net assets in securities
whose investment income is subject to the alternative minimum tax. For temporary
defensive purposes the Acquiring Fund may invest more than 20% in such
investments or may otherwise vary from its investment policies during periods
when the Investment Manager determines that it is advisable to do so because of
conditions in the securities markets or other economic or political conditions.
The Acquiring Fund currently intends not to invest in municipal securities whose
investment income is taxable or AMT bonds.
The Acquired Fund principally invests in municipal securities which are
rated at the time of purchase within the two highest quality ratings. At least
80% of the net assets of the Acquired Fund will be invested in securities exempt
from federal income tax. In addition, the Acquired Fund may hold cash or invest
temporarily in taxable investments due, for example, to market conditions or
pending investment of proceeds of subscriptions for shares of the Acquired Fund
or proceeds from the sale of portfolio securities or in anticipation of
redemptions. The Acquired Fund may also invest in tax-exempt custodial receipts
and engage in third party puts. The Acquired Fund will not invest in instruments
issued by banks or savings and loan associations unless at the time of
investment such issuers have total assets in excess of $1 billion. Lastly, from
time to time on a temporary basis or for defensive purposes, the Acquired Fund
may, subject to its investment restrictions, hold cash and invest in taxable
investments consisting of: (i) other obligations issued by or on behalf of
municipal or corporate issuers; (ii) U.S. Treasury notes, bills and bonds; (iii)
obligations of agencies and instrumentalities of the U.S. Government; (iv) money
market instruments, such as domestic bank certificates of deposit, finance
company and corporate commercial paper, and banker's acceptances; and (v)
repurchase agreements with respect to any of the obligations that the Acquired
Fund is permitted to purchase.
Each Fund, as a money market fund, is subject to strict federal rules
regarding the type and quality of investments which the Fund may make. In
addition, the Acquired Fund does not invest in securities issued by
tobacco-producing companies and has a stated goal of educating shareholders on
investment topics affecting their lives.
-19-
<PAGE>
The Acquiring Fund's investment restrictions, as set forth in its
Statement of Additional Information, are identical to the Acquired Fund's
investment restrictions. Investment restrictions of each Fund that are
fundamental policies may not be changed without the approval of Fund
shareholders. Investors should refer to the respective Statements of Additional
Information of each Fund for a fuller description of each Fund's investment
policies and restrictions.
Performance
The following table compares the investment performance of each Fund,
and may provide some indication of the risks of investing in each Fund by
showing changes in each Fund's performance from year to year. Neither Fund's
past performance is an indication of how the Fund will perform in the future.
Average Annual Total Return
For the Periods Ending December 31, 1999
---------------------------------------------------------------
Acquiring Fund+ Acquired Fund
---------------------------------------------------------------
Past year 2.71% 2.48%
---------------------------------------------------------------
Past 5 years 2.98% 2.77%
---------------------------------------------------------------
Past 10 years 3.12% 3.04%
---------------------------------------------------------------
+ AARP Shares were not offered during the periods covered. Performance
shown is for shares of the Acquiring Fund existing during the periods covered.
Total return for the Acquiring Fund would have been lower during all
periods if the Investment Manager had not maintained expenses. Total return for
the Acquired Fund would have been lower during the past 10 year period if the
Investment Manager had not maintained expenses.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended May 31, 1999 (prior to the creation of the AARP Shares), see
Exhibit B attached hereto.
Investment Manager; Fees and Expenses
Each Fund retains the investment management firm of Scudder Kemper,
pursuant to separate contracts, to manage its daily investment and business
affairs, subject to the policies established by the Fund's Trustees.
Shareholders pay no direct charges or fees for investment management or other
services. Scudder Kemper is a Delaware corporation located at Two International
Place, Boston, Massachusetts 02110-4103.
The Investment Manager receives a fee for its services pursuant to its
investment management agreement with the Acquiring Fund. For these services, the
Acquiring Fund pays the Investment Manager a fee at an annual rate of at an
annual rate of 0.50% of the first $500 million of average daily net assets and
0.48% of such net assets over $500 million. The fee is graduated so that
increases in the Acquiring Fund's net assets may result in a lower annual fee
rate and decreases in its net assets may result in a higher annual fee rate. As
of May 31, 1999, the Acquiring Fund had total net assets of $257,383,158. For
the fiscal year ended December 31, 1998 and the five months ended May 31, 1999,
the Acquiring
-20-
<PAGE>
Fund paid the Investment Manager a fee of 0.43% and 0.40% (annualized),
respectively, of average daily net assets. By contract, total annual Fund
operating expenses of the Acquiring Fund are maintained at not more than 0.65%
of average daily net assets until September 30, 2000.
The Investment Manager receives a fee pursuant to the investment
management agreement as compensation for its services on behalf of the Acquired
Fund. Pursuant to the Acquired Fund's investment management agreement, the fee
payable to Scudder Kemper is calculated using a formula based in part on the
combined net assets of all AARP Funds, except for the two series of AARP Managed
Investment Portfolios Trust. The Acquired Fund currently pays the Investment
Manager a fee at an annual rate of 0.38% of average daily net assets. The fee
for the Acquiring Fund is calculated in a different manner than is currently
used for the Acquired Fund. Unlike the fee for the Acquired Fund, the Acquiring
Fund's fee will not go up or down based on the net assets of other funds managed
by the Investment Manager, but it will go up or down based on the net assets of
the Acquiring Fund. As of September 30, 1999, the Acquired Fund had total net
assets of $87,320,262. For the fiscal year ended September 30, 1999, the
Acquired Fund paid the Investment Manager a fee of 0.38% of average daily net
assets. The Investment Manager pays a portion of its management fee from the
Acquired Fund to AARP Financial Services Corporation ("AFSC") in return for
advice and other services relating to AARP Fund investment by AARP members. The
fee paid to AFSC is calculated on a daily basis as a percentage of the combined
net assets of all AARP Funds, except for the two series of AARP Managed
Investment Portfolios Trust, and decreases with the size of the AARP Investment
Program. The fee rate is 0.07% for the first $6 billion, 0.06% for the next $10
billion and 0.05% thereafter.
Administrative Fee
On or prior to the Closing, the Acquiring Fund will have 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 the
Acquiring Fund (other than those provided by Scudder Kemper under its investment
management agreement with the Fund, as described above) in exchange for the
payment by the Acquiring Fund of an administrative services fee (the
"Administrative Fee") of 0.15% of average daily net assets. One effect of this
arrangement is to make the Acquiring Fund's future expense ratio more
predictable. The details of the proposal (including expenses that are not
covered) are set out below.
Various third-party service providers (the "Service Providers"), some
of which are affiliated with Scudder Kemper, provide certain services to the
Acquiring Fund pursuant to separate agreements with the Fund, subject to
oversight and approval by the Acquiring Trust's trustees. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for the Acquiring Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Acquiring Fund.
Scudder Trust Company, an affiliate of Scudder Kemper, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Willkie Farr
& Gallagher as general counsel for the Acquiring Fund. In addition to the fees
it pays under its current investment management agreement with Scudder Kemper,
the Acquiring Fund pays the fees and expenses associated with these service
arrangements, as well as the Acquiring Fund's insurance, registration, printing,
postage and other costs.
Once the Administration Agreement becomes effective, each Service
Provider will continue to provide the services that it currently provides to the
Acquiring Fund, as described above, under the
-21-
<PAGE>
current arrangements, except that Scudder Kemper will pay these entities for the
provision of their services to the Acquiring Fund and will pay most other Fund
expenses, including insurance, registration, printing and postage fees. In
return, the Acquiring Fund will pay Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will have an initial term of
three years, subject to earlier termination by the Acquiring Trust's trustees.
The fee payable by the Acquiring Fund to Scudder Kemper pursuant to the
Administration Agreement would be reduced by the amount of any credit received
from the Acquiring Fund's custodian for cash balances.
Certain expenses of the Acquiring Fund would not be borne by Scudder
Kemper under the Administration Agreement, 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, the Acquiring Fund would continue to pay the fees required by its
investment management agreement with Scudder Kemper.
Comparison of Expenses
The tables and examples below are designed to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly as an investor in the Acquiring Fund and comparing these with the
expenses of the Acquired Fund. As indicated below, it is expected that the total
expense ratio of the Acquiring Fund following the Reorganization will be
substantially lower than the current expense ratio of the Acquired Fund. Unless
otherwise noted, the information is based on each Fund's expenses and average
daily net assets during the twelve months ended October 31, 1999 and on a pro
forma basis as of that date and for the period then ended, giving effect to the
Reorganization. Information in the tables and examples relating to the Acquiring
Fund relates to the Acquiring Fund as a whole prior to the creation of the AARP
Shares. Pro Forma information in the tables and examples relates to the AARP
Shares and the Class S shares class of the Acquiring Fund.
-22-
<PAGE>
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Pro Forma
Acquiring Fund Acquired Fund (Combined)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) None None None
- ------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of purchase price or
redemption proceeds) None None None
- ------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
imposed on reinvested dividends None None None
- ------------------------------------------------------------------------------------------------------------------
Redemption fee (as a percentage of
amount redeemed, if applicable)+ None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Pro Forma**
Acquiring Fund Acquired Fund (Combined)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.50% 0.38% 0.50%
- ------------------------------------------------------------------------------------------------------------------
Distribution and/or service
(12b-1) fees None None None
- ------------------------------------------------------------------------------------------------------------------
Other expenses 0.24% 0.47% 0.15%
- ------------------------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 0.74% 0.85% 0.65%
- ------------------------------------------------------------------------------------------------------------------
Expense reimbursements 0.09% N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Net annual Fund operating Expenses 0.65%* N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
+ There is a $5 wire service fee for receiving redemption proceeds via wire.
-23-
<PAGE>
*By contract, the total annual Fund operating expenses of the Acquiring Fund
are maintained at not more than 0.65% of average daily net assets until
September 30, 2000. There is no guarantee that this expense waiver will continue
beyond September 30, 2000.
** Pro Forma expenses reflect the implementation of the Administrative Fee for
the Acquiring Fund to be effective upon the Reorganization.
In evaluating the Proposals, the Independent Trustees focused their
consideration on the Acquiring Fund's and the Acquired Fund's estimated
expense ratios calculated utilizing Fund net assets at December 31, 1999
(rather than average daily net assets for a full year, as used in the table
above), the number of shareholder accounts at that date, and other relevant
factors. This calculation resulted in an estimated expense ratio of 0.69%
(without reflecting any expense reimbursements) for the Acquiring Fund and
0.84% for the Acquired Fund.
Examples (Unaudited)
Based on the costs above (including one year of capped expenses in each
period included in the Acquiring Fund column), the following examples are
intended to help you compare the cost of investing in the Funds with the cost of
investing in other mutual funds. The examples assume that you invest $10,000 in
each Fund for the time periods indicated and then redeem all of your shares at
the end of those periods. The examples also assume that your investment has a 5%
return each year and that each Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be as follows:
- --------------------------------------------------------------------------------
Pro Forma
(Combined)
Year Acquiring Fund Acquired Fund Unaudited*
- ---- -------------- ------------- ---------
- --------------------------------------------------------------------------------
1st $ 66 $ 87 $ 66
- --------------------------------------------------------------------------------
3rd $228 $ 271 $208
- --------------------------------------------------------------------------------
5th $403 $ 471 $362
- --------------------------------------------------------------------------------
10th $910 $1,049 $810
- --------------------------------------------------------------------------------
* Pro Forma expenses reflect the implementation of the Administrative Fee for
the Acquiring Fund to be effective upon the Reorganization.
Financial Highlights
The financial highlights table for the Acquiring Fund, which is
intended to help you understand the Acquiring Fund's financial performance for
the past five years, is included in the Acquiring Fund's prospectus dated
October 1, 1999, which is included herewith and incorporated herein by
reference.
Distribution of Shares
Scudder Investor Services, Inc. ("SIS"), Two International Place,
Boston, Massachusetts 02110, a subsidiary of the Investment Manager, is the
principal underwriter of each Fund. SIS charges no direct fees in connection
with the distribution of shares of the Funds. Following the Reorganization,
Acquiring
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Fund shareholders will continue to be able to purchase shares of the funds in
the Scudder Family of Funds on a no-load basis.
Purchase, Redemption and Exchange Information
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those that will be in place for the AARP Shares,
except that Acquired Fund shareholders may exchange Acquired Fund shares only
into AARP Funds, while AARP Shares shareholders will be able to exchange AARP
Shares into AARP Shares of any fund within the Scudder Family of Funds on a
no-load basis.
The minimum balance for non-retirement accounts investing in the AARP
Shares will be $1,000, which is lower than the minimum balance for
non-retirement accounts investing in the Acquired Fund. The minimum balance for
Individual Retirement Accounts ("IRAs") investing in AARP Shares will be $500,
as compared to $250 for the Acquired Fund. However, Acquired Fund IRA
shareholders receiving AARP Shares as a result of the Reorganization will only
be required to meet the Acquired Fund's $250 minimum balance requirement for
IRAs. AARP Share shareholders will not currently be charged an annual fee for
accounts that fall below the $1,000 minimum balance nor will such sub-minimum
accounts currently be subject to involuntary redemption by the Acquiring Fund.
Dividends and other Distributions
Each Fund declares income dividends daily and pays them monthly.
Distributions of undistributed realized capital gains, if any, are paid by the
Acquiring Fund and the Acquired Fund in November or December of each year.
Additional distributions may be made if necessary Dividends and distributions of
each Fund will be invested in additional shares of the Fund at net asset value
and credited to the shareholder's account on the payment date or, at the
shareholder's election, paid in cash.
If the Plan is approved by the Acquired Fund's shareholders, the
Acquired Fund will pay its shareholders a distribution of all undistributed net
investment income and undistributed realized net capital gains immediately prior
to the Closing.
Tax Consequences
As a condition to the Reorganization, the Acquiring Fund and the
Acquired Fund will have received an opinion of Willkie Farr & Gallagher in
connection with the Reorganization, to the effect that, based upon certain
facts, assumptions and representations, the Reorganization will constitute a
tax-free reorganization within the meaning of section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"). If the Reorganization constitutes
a tax-free reorganization, no gain or loss will be recognized by the Acquired
Fund or its shareholders as a direct result of the Reorganization. See "The
Proposed Transaction - Federal Income Tax Consequences."
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and
strategies, the principal risks presented by the Acquiring Fund are similar to
those presented by the Acquired Fund. The main risks applicable to each Fund
include, among others, management risk, risk associated with interest rates, and
risk associated with credit quality. Management risk refers to the fact that
securities selected by Scudder Kemper on behalf of a Fund might not perform as
well as the securities held by other mutual funds, the investment objectives of
which are similar to those of the Fund. Risk associated with interest rates
refers
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to the link between interest rates and money market fund yield. Each
Fund's yield tends to reflect current interest rates, which means that when
these rates fall, the Fund's yield generally falls as well. Risk associated with
credit quality refers to the fact that, if a portfolio security declines in
credit quality or goes into default, it could hurt a Fund's performance.
For a further discussion of the investment techniques and risk factors
applicable to the Acquired Fund and the Acquiring Fund, see "Investment
Objectives, Policies and Restrictions of the Funds" herein, and the Prospectuses
and Statements of Additional Information for the Funds, which are incorporated
by reference herein.
III. THE PROPOSED TRANSACTION
Description of the Plan
As stated above, the Plan provides for the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange for that number of full and fractional AARP Shares having an aggregate
net asset value equal to the aggregate net asset value of the Acquired Fund as
of the close of business on the Valuation Date. The Acquiring Fund will assume
all of the liabilities of the Acquired Fund. The Acquired Fund will distribute
the AARP Shares received in the exchange to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund. The Acquired Fund will be
abolished as a series of the Acquired Trust.
Upon completion of the Reorganization, each shareholder of the Acquired
Fund will own that number of full and fractional AARP Shares having an aggregate
net asset value equal to the aggregate net asset value of such shareholder's
shares held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Acquiring Trust
identical in all material respects to the account currently maintained by the
Acquired Trust for such shareholder, except as noted above. In the interest of
economy and convenience, AARP Shares issued to the Acquired Fund's shareholders
will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to
be able to redeem their shares at the net asset value next determined after
receipt by the Acquired Fund's transfer agent of a redemption request in proper
form. Redemption requests (including by check) received by the transfer agent
after the Closing will be treated as requests received for the redemption of
AARP Shares received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of each of the Acquired Fund
and the Acquiring Fund under the Plan are subject to various conditions, as
stated therein. Among other things, the Plan requires that all filings be made
with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Trust,
notwithstanding the approval of the Plan by the shareholders of the Acquired
Fund. However, no amendment may be made that materially adversely affects the
interests of the shareholders of the Acquired Fund without obtaining the
approval of the Acquired Fund's shareholders. The Acquired Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan. For a complete description of the terms
and conditions of the Reorganization, see the Plan at Exhibit A.
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Scudder Kemper will pay the Acquired Fund's allocable share of expenses
associated with the Reorganization. The Acquiring Fund will pay its own
allocable share of expenses associated with the Reorganization, except that
Scudder Kemper will bear any such expenses in excess of $870 for the Acquiring
Fund.
Board Approval of the Proposed Transaction
Scudder Kemper first proposed the Reorganization to the Independent
Trustees of the Acquired Fund at a meeting held on September 22, 1999. The
Reorganization was presented to the Trustees and considered by them as part of a
broader initiative by Scudder Kemper to restructure many of the mutual funds
advised by it that are currently offered to retail investors (see "Synopsis -
Background of the Reorganization"). This initiative includes four major
components:
(i) The combination of funds with similar investment objectives
and policies, including in particular the combination of the
AARP Funds with similar Scudder Funds currently offered to the
general public;
(ii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient
operating size;
(iii) The implementation of an administration agreement for each
fund, covering, for a single fee rate, substantially all
services required for the operation of the fund (other than
those provided under the fund's investment management
agreement) and most expenses; and
(iv) The consolidation of the separate boards currently responsible
for overseeing several groups of no-load funds managed by
Scudder Kemper into a single board.
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the September 22 meeting, the Independent Trustees met in person or by telephone
on a number of occasions (including committee meetings) to review and discuss
these proposals, both among themselves and with representatives of Scudder
Kemper. On a number of occasions, these meetings included representatives of the
independent trustees or directors of other funds affected by these proposals. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of
the Acquired Fund, the independent trustees/directors of other funds involved
and Scudder Kemper reached general agreement on the elements of a restructuring
plan as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. At the February 7, 2000 meeting,
the Independent Trustees also agreed to recommend that the Reorganization be
approved by the Acquired Fund's shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds,
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including comparisons between the expenses of the Acquired Fund and the
estimated operating expenses of the Acquiring Fund, and between the estimated
operating expenses of the Acquiring Fund and other mutual funds with similar
investment objectives; (b) the terms and conditions of the Reorganization and
whether the Reorganization would result in the dilution of shareholder
interests; (c) the compatibility of the Acquired Fund's and the Acquiring
Fund's investment objectives, policies, restrictions and portfolios; (d) the
agreement by Scudder Kemper to provide services to the Acquiring Fund for a
fixed fee rate under the Administration Agreement with an initial three year
term; (e) the service features available to shareholders of the Acquired Fund
and the Acquiring Fund; (f) the costs to be borne by the Acquired Fund, the
Acquiring Fund and Scudder Kemper as a result of the Reorganization; (g)
prospects for the Acquiring Fund to attract additional assets; (h) the tax
consequences of the Reorganization on the Acquired Fund, the Acquiring Fund
and their respective shareholders; and (i) the investment performance of the
Acquired Fund and the Acquiring Fund.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal. The Trustees concluded that these economies
were appropriately reflected in the fee and expense arrangements of the
Acquiring Fund, as proposed to be revised upon completion of the Reorganization.
In particular, the Trustees considered the benefits to shareholders resulting
from locking in the rate of the Acquiring Fund's Administrative Fee for an
initial three-year period. Because the Acquiring Fund will pay only its stated
Administrative Fee rate for such services and expenses regardless of changes in
actual costs, the Acquiring Fund's shareholders will be protected from increases
in the Acquiring Fund's expense ratio attributable to increases in such actual
costs. The Board also considered the protection this would afford shareholders
if the Acquiring Fund's net assets declined as a result of market fluctuations
or net redemptions.
The Trustees also considered the impact of the Reorganization on the
total expenses to be borne by shareholders of the Acquired Fund. As noted above
under "Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is
substantially lower than the current expense ratio for the Acquired Fund. The
Board also considered that the Reorganization would permit the shareholders of
the Acquired Fund to pursue substantially similar investment goals in a larger
fund. In this regard, Scudder Kemper advised the Trustees of the Acquired Fund
that the Acquired Fund's shareholders will benefit from being in a larger fund
which will likely have the ability to effect portfolio transactions on more
favorable terms and provide Scudder Kemper with greater investment flexibility
and the ability to select a larger number of portfolio securities for the
combined Fund, with the ability to spread investment risks among a larger number
of portfolio securities.
Finally, the Trustees concluded that the shareholders of the Acquired
Fund would be better served by having their interests represented by a single
board of trustees with responsibility for overseeing substantially all of the
funds to be marketed as a "family of funds" through Scudder's no-load
distribution channels. Accordingly, the Trustees agreed to recommend the
election of a new consolidated board comprised of representatives of each of the
various boards currently serving as Trustees of these funds.
Based on all of the foregoing, the Board concluded that the Acquired
Fund's participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. The Board of Trustees, including the Independent Trustees,
recommends that shareholders of the Acquired Fund approve the Reorganization.
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Description of the Securities to be Issued
The Acquiring Trust is a Massachusetts business trust established under
a Declaration of Trust dated October 5, 1979, as amended. The Acquiring Trust's
authorized capital consists of an unlimited number of shares of beneficial
interest, par value $0.01 per share. The Trustees of the Acquiring Trust are
authorized to divide the Acquiring Trust's shares into separate series.
Shareholders of the Acquiring Fund are being asked to amend the Acquiring
Trust's Declaration of Trust to provide the Trustees of the Acquiring Trust with
the ability to further divide the shares of the series of the Acquiring Trust
into classes. Contingent upon shareholder approval of this amendment to the
Declaration of Trust, the Trustees of the Acquiring Trust have authorized the
division of the Acquiring Fund into two classes, Class S shares and AARP Shares.
It is anticipated that this division will occur prior to the Closing and that
shares of the Acquiring Fund existing at that time will be redesignated as Class
S shares of the Acquiring Fund. If AARP Shares are not created prior to the
Closing, then the Reorganization will not be consummated. Although shareholders
of different classes of a series have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution.
Each share of each class of the Acquiring Fund represents an interest
in the Acquiring Fund that is equal to and proportionate with each other share
of that class the Acquiring Fund. Acquiring Fund shareholders are entitled to
one vote per share (and a proportionate fractional vote per each fractional
share) held on matters on which they are entitled to vote. The Acquiring Trust
is not required to hold shareholder meetings annually, although shareholder
meetings may be called for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment management contract. In
the event that shareholders of the Acquiring Trust wish to communicate with
other shareholders concerning the removal of any Trustees, such shareholders
shall be assisted in communicating with other shareholders for the purpose of
obtaining signatures to request a meeting of shareholders, all in the manner
provided in Section 16(c) of the 1940 Act as if Section 16(c) were applicable.
In the areas of shareholder voting and the powers and conduct of the
Trustees, there are no material differences between the rights of shareholders
of the Acquired Fund and the rights of shareholders of the Acquiring Fund.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by the Acquiring
Trust and the Acquired Trust, on behalf of the Acquired Fund, of an opinion from
Willkie Farr & Gallagher, substantially to the effect that, based upon certain
facts, assumptions and representations of the parties, for federal income tax
purposes: (i) the transfer to the Acquiring Fund of all or substantially all of
the assets of the Acquired Fund in exchange solely for AARP Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund,
followed by the distribution of such shares to the Acquired Fund's shareholders
in exchange for their shares of the Acquired Fund in complete liquidation of the
Acquired Fund, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Acquiring Fund and the Acquired Fund will each be
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Acquired Fund upon the transfer
of all or substantially all of its assets to the Acquiring Fund in exchange
solely for AARP Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund or upon the distribution of the AARP Shares to
the Acquired Fund shareholders in exchange for their shares of the Acquired
Fund; (iii) the basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Acquired Fund
immediately prior to the transfer; (iv) the holding period of
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the assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which such assets were held by the Acquired Fund; (v) no gain
or loss will be recognized by the Acquiring Fund upon the receipt of the assets
of the Acquired Fund in exchange for AARP Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain or
loss will be recognized by the shareholders of the Acquired Fund upon the
receipt of the AARP Shares solely in exchange for their shares of the Acquired
Fund as part of the transaction; (vii) the basis of the AARP Shares received by
the shareholders of the Acquired Fund will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
AARP Shares received by the shareholders of the Acquired Fund will include the
holding period during which the shares of the Acquired Fund exchanged therefor
were held, provided that at the time of the exchange the shares of the Acquired
Fund were held as capital assets in the hands of the shareholders of the
Acquired Fund.
While the Acquired Trust is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders may wish to consult
their own tax adviser with respect to such matters.
Capitalization
The following table shows on an unaudited basis the capitalization of
each Fund as of October 31, 1999 (i.e., prior to the creation of AARP Shares)
and, on a pro forma basis, as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
Acquiring Fund Acquired Fund Adjustments Combined(1)
-------------- ------------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Class S Shares $211,210,162 ($870)(3) $211,209,292
- -------------------------------------------------------------------------------------------------------------------------------
AARP Shares $87,063,963 $ 87,063,963
- -------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $298,273,255(2)
- -------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding
- -------------------------------------------------------------------------------------------------------------------------------
Class S Shares 211,041,655 211,041,655
- -------------------------------------------------------------------------------------------------------------------------------
AARP Shares 87,069,671 87,069,671
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value per Share
- -------------------------------------------------------------------------------------------------------------------------------
Class S Shares $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
AARP Shares $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes the Reorganization had been consummated on October 31, 1999, and is
for information purposes only. No assurance can be given as to how many shares
of the Acquiring Fund will be received by the shareholders of the Acquired Fund
on the date the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of the Acquiring Fund that actually
will be received on or after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of the Administrative Fee for the Acquiring Fund.
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(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquiring Fund.
The Board of Trustees of AARP Tax Free Income Trust recommends that the
shareholders of the AARP High Quality Tax Free Money Fund vote in favor of this
Proposal 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Acquired Trust, including a majority of the
Independent Trustees, has selected PricewaterhouseCoopers LLP to act as
independent accountants of the Acquired Fund for the Acquired Fund's current
fiscal year. One or more representatives of PricewaterhouseCoopers LLP are
expected to be present at the Meeting and will have an opportunity to make a
statement if they so desire. Such representatives are expected to be available
to respond to appropriate questions posed by shareholders or management.
The Board of Trustees of the AARP Tax Free Income Trust recommends that the
shareholders of the AARP High Quality Tax Free Money Fund vote in favor of this
Proposal 3.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Trusts, the Funds and the
Reorganization has been filed with the SEC and may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103, or by calling 1-800-225-2470.
The Trusts are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the Securities and Exchange Commission. Such reports, proxy material and other
information filed by the Acquiring Trust, and those filed by the Acquired Trust,
can be inspected and copied at the Public Reference Room maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following SEC Regional Offices: Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, NY 10048; Southeast Regional Office,
1401 Brickell Avenue, Suite 200, Miami, FL 33131; Midwest Regional Office,
Citicorp Center, 500 W. Madison Street, Chicago, IL, 60661-2511; Central
Regional Office, 1801 California Street, Suite 4800, Denver, CO 80202-2648; and
Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA
90036-3648. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC maintains an Internet World Wide Web site (at
http://www.sec.gov) which contains the Statements of Additional Information for
the Acquiring Trust and the Acquired Trust, materials that are incorporated by
reference into the prospectuses and Statements of Additional Information, and
other information about the Acquiring Trust, the Acquired Trust and the Funds.
Interests of Certain Persons
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount
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of the Acquiring Fund's assets increases. The amount of those assets will
increase by virtue of the Reorganization. See "Synopsis - Fees and Expenses."
General
Proxy Solicitation. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial
services firms and their representatives, who will receive no extra
compensation for their services, may solicit proxies by telephone, telegram
or personally.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about April 18, 2000
or as soon as practicable thereafter. Any Acquired Fund shareholder giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of the Acquired Fund, c/o Scudder Kemper Investments,
Inc., at the address for the Acquired Fund shown at the beginning of this Proxy
Statement/Prospectus) or in person at the Meeting, by executing a superseding
proxy or by submitting a notice of revocation to the Acquired Fund. All properly
executed proxies received in time for the Meeting will be voted as specified in
the proxy or, if no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of
the holders of one-third of the shares of the Acquired Trust (for a trust-wide
vote) or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of
the shares of the Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on, Proposal 1 and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 (the "Record Date") will be entitled to one vote per
share on all business of the Meeting. As of [date], there were ____________
shares of the Acquired Fund outstanding.
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As of [date], the officers and Trustees of the Acquiring Trust as a
group owned beneficially [less than 1%][__%] of the outstanding shares of the
Acquiring Fund. [Appendix 2 hereto sets forth the beneficial owners of at least
5% of each Fund's shares.] To the best of each Trust's knowledge, as of
_______________, no person owned beneficially more than 5% of either Fund's
outstanding shares[, except as stated on Appendix 2.]
Shareholder Communications Corporation ("SCC") has been engaged to
assist in the solicitation of proxies, at an estimated cost of $6,464. As the
Meeting date approaches, certain shareholders of the Acquired Fund may receive a
telephone call from a representative of SCC if their votes have not yet been
received. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Acquired Fund. Proxies that are obtained telephonically will be recorded in
accordance with the procedures set forth below. The Trustees believe that these
procedures are reasonably designed to ensure that both the identity of the
shareholder casting the vote and the voting instructions of the shareholder are
accurately determined.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each shareholder's full name, address,
social security or employer identification number, title (if the shareholder is
authorized to act on behalf of an entity, such as a corporation), and the number
of shares owned, and to confirm that the shareholder has received the proxy
materials in the mail. If the information solicited agrees with the information
provided to SCC, then the SCC representative has the responsibility to explain
the process, read the Proposals on the proxy card, and ask for the shareholder's
instructions on the Proposals. Although the SCC representative is permitted to
answer questions about the process, he or she is not permitted to recommend to
the shareholder how to vote, other than to read any recommendation set forth in
the proxy statement. SCC will record the shareholder's instructions on the card.
Within 72 hours, the shareholder will be sent a letter or mailgram to confirm
his or her vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not
wish to give a proxy by telephone or electronically, the shareholder may still
submit the proxy card originally sent with the proxy statement or attend in
person. Should shareholders require additional information regarding the proxy
or replacement proxy cards, they may contact SCC toll-free at 1-800-605-1203.
Any proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through
telephone touch-tone voting or Internet voting. These options require
shareholders to input a control number which is located on each voting
instruction card. After inputting this number, shareholders will be prompted to
provide their voting instructions on the Proposals. Shareholders will have an
opportunity to review their voting instructions and make any necessary changes
before submitting their voting instructions and terminating their telephone call
or Internet link. Shareholders who vote on the Internet, in addition to
confirming their voting instructions prior to submission, will also receive an
e-mail confirming their instructions.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Trust, c/o Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters
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requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in accordance with their best judgment in the interest of the Trust
and/or the Acquired Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
[signature]
Kathryn L. Quirk
Secretary
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INDEX OF EXHIBITS
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION
EXHIBIT B: MANAGEMENT'S DISCUSSION OF THE ACQUIRING FUND'S PERFORMANCE
FOR ITS MOST RECENT FISCAL YEAR.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ________ day of __________________, 2000, by and between Scudder Tax
Free Money Fund (the "Acquiring Fund"), a Massachusetts business trust, and AARP
Tax Free Income Trust (the "Acquired Trust" and, together with the Acquiring
Fund, each a "Trust" and collectively the "Trusts"), a Massachusetts business
trust, on behalf of AARP High Quality Tax Free Money Fund (the "Acquired Fund"
and, together with the Acquiring Fund, each a "Fund" and collectively the
"Funds"), a separate series of the Acquired Trust. The principal place of
business of each Trust is Two International Place, Boston, Massachusetts
02110-4103.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for
voting shares of beneficial interest of the AARP Shares class of shares ($.01
par value per share) of the Acquiring Fund (the "Acquiring Fund Shares"), the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
and the distribution of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in complete liquidation of the Acquired Fund as provided herein,
all upon the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN
EXCHANGE FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Acquired Fund
agrees to transfer to the Acquiring Fund all or substantially all of the
Acquired Fund's assets as set forth in section 1.2, and the Acquiring Fund
agrees in exchange therefor (i) to deliver to the Acquired Fund that number of
full and fractional Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's net assets, computed in the manner and as of the time and
date set forth in section 2.1, by the net asset value of one Acquiring Fund
Share, computed in the manner and as of the time and date set forth in section
2.2; and (ii) to assume all of the liabilities of the Acquired Fund. Such
transactions shall take place at the closing provided for in section 3.1 (the
"Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring
Fund (the "Assets") shall consist of all assets, including, without limitation,
all cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before
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the Closing (excluding for these purposes assets used to pay the dividends and
other distributions paid pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined
in section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record (the "Acquired Fund Shareholders"), determined as of the Valuation Time
(as defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares
received by the Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
the Acquired Fund shares owned by such shareholders as of the Valuation Time.
All issued and outstanding shares of the Acquired Fund will simultaneously be
cancelled on the books of the Acquired Fund, although share certificates
representing interests in shares of the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including,
without limitation, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and after
the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the Closing Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of
regular trading on The New York Stock Exchange, Inc. (the "NYSE") on the
business day immediately preceding the Closing Date, as defined in Section 3.1
(such time and date being hereinafter called the "Valuation Time") after the
declaration and payment of any dividends and/or other distributions on that
date, using the valuation procedures set forth in the Acquiring Fund's
Declaration of Trust, as amended, and then-current prospectus or statement of
additional information.
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2.2. The net asset value of an Acquiring Fund share shall be the net
asset value per share computed as of the Valuation Time using the valuation
procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement
shall be September 11, 2000, or such later date as the parties may agree in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously as of 9:00 a.m.., Eastern time, on the
Closing Date, unless otherwise agreed to by the parties. The Closing shall be
held at the offices of Dechert Price & Rhoads, Ten Post Office Square - South,
Boston, MA 02109, or at such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing
Date a schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian
for the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets shall have been delivered in
proper form to State Street, custodian for the Acquiring Fund, prior to or on
the Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made. The Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by the custodian for the Acquired Fund to the custodian for
the Acquiring Fund for examination no later than five business days preceding
the Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Scudder Service Corp. (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership (to three decimal
places) of outstanding Acquired Fund Shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Acquired Fund or provide evidence satisfactory to the Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale,
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checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon shall
be restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund Shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and such registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the 1940 Act and such as may be
required by state securities laws;
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not
result, in violation of Massachusetts law or of the Acquired Trust's Declaration
of Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which the
Acquired Fund is a party or by which it is bound, and the execution, delivery
and performance of this Agreement by the Acquired Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to which
the Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquired Fund or any properties or
assets held by it. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended
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September 30, 1999, have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are in accordance with GAAP consistently applied, and such
statements (a copy of each of which has been furnished to the Acquiring Fund)
present fairly, in all material respects, the financial position of the Acquired
Fund as of such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred except as otherwise disclosed to and
accepted in writing by the Acquiring Fund. For purposes of this subsection (g),
a decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund shares by Acquired
Fund Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquired Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws, (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable (recognizing
that, under Massachusetts law, Acquired Fund Shareholders, under certain
circumstances, could be held personally liable for obligations of the Acquired
Fund), and (iii) will be held at the time of the Closing by the persons and in
the amounts set forth in the records of the Transfer Agent, as provided in
section 3.4. The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquired Fund shares,
nor is there outstanding any security convertible into any of the Acquired Fund
shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act and the 1940 Act,
except those restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
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(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Board members of the Acquired Trust, and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes a valid and binding
obligation of the Acquired Trust, on behalf of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquiring Fund for use
therein.
4.2. The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Acquiring Fund's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted;
(b) The Acquiring Fund is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is in
full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the Acquiring Fund will not result, in
violation of Massachusetts law or of the Acquiring Fund's Declaration of Trust,
as amended, or By-Laws, or of any material agreement, indenture, instrument,
contract, lease or other undertaking known to counsel to which the Acquiring
Fund is a party or by which it is bound, and the execution, delivery and
performance of this Agreement by the Acquiring
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Fund will not result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring Fund or any properties or
assets held by it. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended May 31, 1999, have been audited
by PricewaterhouseCoopers LLP, independent accountants, and are in accordance
with GAAP consistently applied, and such statements (a copy of each of which has
been furnished to the Acquired Fund) present fairly, in all material respects,
the financial position of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquiring Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since May 31, 1999, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed to
and accepted in writing by the Acquired Fund. For purposes of this subsection
(g), a decline in net asset value per share of the Acquiring Fund due to
declines in market values of securities in the Acquiring Fund's portfolio, the
discharge of Acquiring Fund liabilities, or the redemption of Acquiring Fund
shares by Acquiring Fund shareholders shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquiring Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible to
and has computed its federal income tax under Section 852 of the Code, and will
do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws and (ii) are, and on the Closing Date will be,
duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquired Fund). The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring Fund
shares, nor is there outstanding any security convertible into any of the
Acquiring Fund shares;
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(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquired Fund).
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Board members of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the NASD), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquired Fund for use
therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state securities laws as may be necessary in order to continue its
operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate
its business in the ordinary course between the date hereof and the Closing
Date, it being understood that (a) such ordinary course of business will include
(i) the declaration and payment of customary dividends and other
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distributions and (ii) such changes as are contemplated by the Funds' normal
operations; and (b) each Fund shall retain exclusive control of the composition
of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents
shall have reasonable access to the Acquired Fund's books and records necessary
to maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 11, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Acquired Fund Shares and will provide
the Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all actions, and do
or cause to be done, all things reasonably necessary, proper, and/or advisable
to consummate and make effective the transactions contemplated by this
Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act,
the 1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as
and when reasonably requested by the Acquiring Fund, execute and deliver or
cause to be executed and delivered all such assignments and other instruments,
and will take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act and 1940 Act,
and such of the state securities laws as it deems appropriate in order to
continue its operations after the Closing Date and to consummate the
transactions contemplated herein; provided, however, that the Acquiring Fund may
take such actions it reasonably deems advisable after the Closing Date as
circumstances change.
5.10. The Acquiring Fund covenants that it will, from time to time, as
and when reasonably requested by the Acquired Fund, execute and deliver or cause
to be executed and delivered all such
-44-
<PAGE>
assignments, assumption agreements, releases, and other instruments, and will
take or cause to be taken such further action, as the Acquired Fund may
reasonably deem necessary or desirable in order to (i) vest and confirm to the
Acquired Fund title to and possession of all Acquiring Fund shares to be
transferred to Acquired Fund pursuant to this Agreement and (ii) assume the
liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquired Trust, with
respect to the Acquired Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than the Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund or its investment adviser(s), Board members or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on
the Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an
opinion of Dechert Price & Rhoads, in a form reasonably satisfactory to the
Acquired Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Fund has been duly formed and is an existing business
trust; (b) the Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquiring
Fund's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquiring Fund and constitutes a
valid and legally binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and laws of general applicability relating
to or affecting creditors' rights and to general equity principles; (d) the
execution and delivery of the Agreement did not, and the exchange of the
Acquired Fund's assets for Acquiring Fund Shares pursuant to the Agreement will
not, violate the Acquiring Fund's Declaration of Trust, as amended, or By-laws;
and (e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States
-45-
<PAGE>
or the laws of the Commonwealth of Massachusetts for the exchange of the
Acquired Fund's assets for Acquiring Fund Shares, pursuant to the Agreement have
been obtained or made; and
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5 The Acquiring Fund shall have entered into an administrative
services agreement with Scudder Kemper Investments, Inc. ("Scudder Kemper") in a
form reasonably satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, with
respect to the Acquired Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquired Fund, its adviser or any of their affiliates)
against the Acquiring Fund or its investment adviser(s), Board members or
officers arising out of this Agreement and (ii) no facts known to the Acquiring
Fund which the Acquiring Fund reasonably believes might result in such
litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on
the Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Trust with respect to the Acquired Fund made in this Agreement are true and
correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an
opinion of Dechert Price & Rhoads, in a form reasonably satisfactory to the
Acquiring Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Trust has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquired
Trust's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquired Trust, on behalf of the
Acquired Fund, and constitutes a valid and legally binding obligation of the
Acquired Trust, on behalf of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of
-46-
<PAGE>
the Acquired Fund's assets for Acquiring Fund Shares pursuant to the Agreement
will not, violate the Acquired Trust's Declaration of Trust, as amended, or
By-laws; and (e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares, pursuant to the Agreement have been obtained or made; and
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
7.6 The Acquiring Fund shall have entered into an administrative
services agreement with Scudder Kemper.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr &
Gallagher addressed to each of the Acquiring Fund and the Acquired Trust, in a
form reasonably satisfactory to each such party to this Agreement, substantially
to the effect that, based upon certain facts, assumptions and representations of
the parties, for federal income tax purposes: (i) the transfer to the Acquiring
Fund of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund shares and the assumption
-47-
<PAGE>
by the Acquiring Fund of all of the liabilities of the Acquired Fund, followed
by the distribution of such shares to the Acquired Fund's shareholders in
exchange for their shares of the Acquired Fund in complete liquidation of the
Acquired Fund, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Acquiring Fund and the Acquired Fund will each be
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Acquired Fund upon the transfer
of all or substantially all of its assets to the Acquiring Fund in exchange
solely for Acquiring Fund shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund; (iii) the basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund will be the same as the basis
of such assets of the Acquired Fund immediately prior to the transfer; (iv) the
holding period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which such assets were held by the Acquired
Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for Acquiring Fund shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (vi) no gain or loss will be recognized by the shareholders of
the Acquired Fund upon the receipt of the Acquiring Fund shares solely in
exchange for their shares of the Acquired Fund as part of the transaction; (vii)
the basis of the Acquiring Fund shares received by the shareholders of the
Acquired Fund will be the same as the basis of the shares of the Acquired Fund
exchanged therefor; and (viii) the holding period of Acquiring Fund shares
received by the shareholders of the Acquired Fund will include the holding
period during which the shares of the Acquired Fund exchanged therefor were
held, provided that at the time of the exchange the shares of the Acquired Fund
were held as capital assets in the hands of the shareholders of the Acquired
Fund. The delivery of such opinion is conditioned upon receipt by Willkie Farr &
Gallagher of representations it shall request of each of the Acquiring Fund and
Acquired Trust. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the
Acquired Fund and each of the Acquired Fund's Board members and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquired
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the
Acquiring Fund and each of the Acquiring Fund's Board members and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquiring
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquired Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund and the Acquired Trust, on behalf of
the Acquired Fund, represents and warrants to the other that it has no
obligations to pay any brokers or finders fees in connection with the
transactions provided for herein.
-48-
<PAGE>
10.2. Scudder Kemper will pay the Acquired Fund's allocable share of
expenses associated with the Reorganization. The Acquiring Fund will pay its own
allocable share of expenses associated with the Reorganization, except that
Scudder Kemper will bear any such expenses in excess of $870 for the Acquiring
Fund. Any such expenses which are so borne by Scudder Kemper will be solely and
directly related to the Reorganization within the meaning of Revenue Ruling
73-54, 1973-1 C.B. 187. The Acquired Fund shareholders will pay their own
expenses, if any, incurred in connection with the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this
section 11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of each of
the Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned by either party by (i) mutual agreement of
the parties, or (ii) by either party if the Closing shall not have occurred on
or before September 11, 2000, unless such date is extended by mutual agreement
of the parties, or (iii) by either party if the other party shall have
materially breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event of
any such termination, this Agreement shall become void and there shall be no
liability hereunder on the part of any party or their respective Board members
or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by any authorized officer of the
Acquired Fund and any authorized officer of the Acquiring Fund; provided,
however, that following the meeting of the Acquired Fund Shareholders called by
the Acquired Fund pursuant to section 5.2 of this Agreement, no such amendment
may have the effect of changing the provisions for determining the number of the
Acquiring Fund Shares to be issued to the Acquired Fund shareholders under this
Agreement to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
-49-
<PAGE>
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, Ten Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to each Trust mean and refer to the
Board members of the Trust from time to time serving under its Declaration of
Trust on file with the Secretary of State of the Commonwealth of Massachusetts,
as the same may be amended from time to time, pursuant to which the Trust
conducts its business. It is expressly agreed that the obligations of the Trusts
hereunder shall not be binding upon any of the Board members, shareholders,
nominees, officers, agents, or employees of the Trusts or the Funds personally,
but bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of the Acquired Trust other than the
Acquired Fund shall be responsible for the obligations of the Acquired Trust
hereunder, and all persons shall look only to the assets of the Acquired Fund to
satisfy the obligations of the Acquired Trust hereunder. The execution and the
delivery of this Agreement have been authorized by each Trust's Board members,
on behalf of the applicable Fund, and this Agreement has been signed by
authorized officers of each Fund acting as such, and neither such authorization
by such Board members, nor such execution and delivery by such officers, shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the property of the
Acquiring Fund or the Acquired Fund, as the case may be, as provided in the
applicable Trust's Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement,
the obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of either Trust or the assets of any such series be held liable
with respect to the breach or other default by the Obligated Fund of its
obligations, agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Massachusetts, without regard to
its principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by an authorized officer and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
-50-
<PAGE>
Attest: AARP TAX FREE INCOME TRUST
on behalf of AARP High Quality Tax
Free Money Fund
________________________________
Secretary
________________________________
By:_____________________________
Its:____________________________
Attest: SCUDDER TAX FREE MONEY FUND
________________________________
Secretary
________________________________
By:_____________________________
Its:____________________________
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
________________________________
By:_____________________________
Its:____________________________
-51-
<PAGE>
EXHIBIT B
Scudder Tax Free Money Fund
Annual Report
May 31, 1999
Portfolio Management Discussion
Dear Shareholders,
Through a period that included a massive "flight to quality," shifting
interest rate stances by the Federal Reserve, a rising but volatile U.S.
stock market, and a robust U.S. economy, Scudder Tax Free Money Fund provided
shareholders with a stable $1.00 share price and a competitive tax-free
yield. As of May 31, 1999, the Fund's 30-day net annualized yield was 2.81%.
To match the Fund's 2.81% 30-day net annualized yield as of May 31, investors
in the 36% and 39.6% tax brackets would have had to earn 4.39% and 4.65%,
respectively, from a comparable taxable investment. Over its abbreviated
fiscal year that began January 1, 1999, and ended May 31, 1999, the Fund
provided a total return of 1.03%. The Fund's 12-month total return of 2.71%
is roughly equivalent to the 2.72% average return of similar money market
funds during the same period as tracked by Lipper Analytical Services, Inc.(1)
The Markets Settle Down
Market turmoil hit a peak in the wake of the Russian currency devaluation
late last summer, followed by the near collapse of the Long Term Capital
Management hedge fund. Volatility in the U.S. stock market increased greatly
while a massive reallocation to U.S. Treasury bonds and money market
instruments led to significantly lower bond and money market yields. The
Federal Reserve's three interest rate cuts during the third and fourth
quarters of 1998 helped to gradually restore market stability.
During this period, the U.S. economy continued to grow beyond all
expectations, with a dramatic 6% annualized increase in GDP for the fourth
quarter of 1998 and a strong start in 1999 that seemed to assure at least 4%
GDP growth this year. Reflecting a healthy economy and investor expectations
for continued growth, the Dow Jones average reached 10,560 by the close of
the Fund's fiscal year. At the same time, the Federal Reserve was preparing
to nudge interest rates higher (after the bond market had already done so) in
an effort to head off inflationary pressures. The credit concerns that drove
so much investor activity in late 1998 had gradually subsided.
Shorter Maturity in Light of Tight Supply
As reported last December, a vigorous U.S. economy has given many
municipalities and state agencies (typical issuers of tax-free money market
securities) the incentive and the ability -- with their healthier balance
sheets -- to borrow longer-term at attractive rates rather than through the
money markets. This was the primary reason for a significant shortage of
supply of tax-exempt money market securities during the period. As a result
(with the exception of a moderate extension during tax season, when rates are
more attractive) we kept the Fund's average maturity shorter than usual
during the period because we felt that money market yields at the longer end
of our acceptable maturity range did
- ----------
(1) Lipper Analytical Services, Inc, is an independent analyst of investment
performance. Performance includes reinvestment of dividends and capital
gains. Past performance is no guarantee of future results.
<PAGE>
not offer attractive value. The Fund's average maturity was 29 days on May
31, 1999, compared with 26 days on December 31, 1998.
Portfolio Allocation
Scudder Tax Free Money Fund's portfolio consists of a diversified mix of
short-term tax-exempt securities, including tax-exempt commercial paper and
variable-rate demand notes. Variable-rate demand notes are securities with
floating rates that are adjusted weekly or daily to capture current yields
and preserve liquidity. Because of their attractive characteristics, they
continue to comprise a significant portion (56%) of the portfolio. Tax-exempt
commercial paper, the Fund's second largest holding at 41%, boosts stability
by allowing the Fund to lock in relatively attractive rates over a period of
one to three months.
Outlook
In light of recent increases in short-term interest rates -- including an
increase in the Federal Funds target rate following the close of the period
- -- a long-predicted slowdown in U.S. economic activity seems more likely to
occur in 1999. At the same time, we expect that inflation will remain
restrained, which should place an upper limit on short-term rate increases.
Though we plan to extend the Fund's average maturity when the market offers
sufficient value, we will maintain a cautious approach during the coming
months. We will also monitor the level of worldwide economic activity closely
over the remainder of the year: The United States has been the only
significant engine of economic growth for some time. If the incipient
economic recovery in Asia and other parts of the
<PAGE>
world gathers steam, we will watch for additional upward pressure on
inflation and short-term interest rates and adjust our strategy accordingly.
The Fund's management team will continue to collect and analyze economic data
and carefully monitor the investment climate as we position the Fund for high
current income free from federal taxes plus price stability and liquidity. We
believe that a prudently managed money market fund such as Scudder Tax Free
Money Fund can be a valuable part of a balanced investment portfolio.
Sincerely,
Your Portfolio Management Team
/s/Frank J. Rachwalski, Jr. /s/Jerri I. Cohen
Frank J. Rachwalski, Jr. Jerri I. Cohen
<PAGE>
APPENDIX 1
FUND SHARES OWNED BY NOMINEES AND TRUSTEES
Many of the Nominees and Trustees own shares of the series of the
Acquired Trust and of other funds in the Scudder Family of Funds and AARP
Funds, allocating their investments among such funds based on their
individual investment needs. The following table sets forth, for each Nominee
and Trustee, the number of shares owned in each series of the Acquired Trust
as of January 31, 2000. The information as to beneficial ownership is based
on statements furnished to the Acquired Trust by each Nominee and Trustee.
Unless otherwise noted, beneficial ownership is based on sole voting and
investment power. [Each Nominee's and Trustee's individual shareholdings of any
series of the Acquired Trust constitute less than 1% of the shares outstanding
of such fund.] [As a group, the Trustees and officers own less than 1% of the
shares of any series of the Acquired Trust.]
<TABLE>
<CAPTION>
- ----------------------------- ---------------- -----------------
AARP HIGH AARP INSURED
QUALITY TAX FREE TAX FREE GENERAL
MONEY FUND BOND FUND
- ----------------------------- ---------------- -----------------
<S> <C> <C>
Carole Lewis Anderson(1)
- ----------------------------- ---------------- -----------------
Adelaide Attard(2)
- ----------------------------- ---------------- -----------------
Henry P. Becton, Jr.(3)
- ----------------------------- ---------------- -----------------
Robert N. Butler, M.D.(4)
- ----------------------------- ---------------- -----------------
Linda C. Coughlin(5)
- ----------------------------- ---------------- -----------------
Horace B. Deets(6)
- ----------------------------- ---------------- -----------------
Dawn-Marie Driscoll(7)
- ----------------------------- ---------------- -----------------
Edgar R. Fiedler(8)
- ----------------------------- ---------------- -----------------
Lt. Gen. Eugene P.
Forrester(9)
- ----------------------------- ---------------- -----------------
Keith R. Fox(10)
- ----------------------------- ---------------- -----------------
George L. Maddox, Jr.(11)
- ----------------------------- ---------------- -----------------
Robert J. Myers(12)
- ----------------------------- ---------------- -----------------
James H. Schulz(13)
- ----------------------------- ---------------- -----------------
Gordon Shillinglaw(14)
- ----------------------------- ---------------- -----------------
Joan Edelman Spero(15)
- ----------------------------- ---------------- -----------------
Jean Gleason Stromberg(16)
- ----------------------------- ---------------- -----------------
Jean C. Tempel(17)
- ----------------------------- ---------------- -----------------
Steven Zaleznick(18)
- ----------------------------- ---------------- -----------------
[All Trustees and Officers
as a Group]
- ----------------------------- ---------------- -----------------
</TABLE>
(1) As of January 31, 2000, Ms. Anderson's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(2) As of January 31, 2000, Ms. Attard's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(3) As of January 31, 2000, Mr. Becton's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(4) As of January 31, 2000, Dr. Butler's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(5) As of January 31, 2000, Ms. Coughlin's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
<PAGE>
(6) As of January 31, 2000, Mr. Deets's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(7) As of January 31, 2000, Ms. Driscoll's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(8) As of January 31, 2000, Mr. Fiedler's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(9) As of January 31, 2000, Lt. Gen. Forrester's total aggregate holdings in
each series of the Acquired Trust listed above and all other funds in the
Scudder Family of Funds and AARP Funds ranged between $___________ and
$___________.
(10) As of January 31, 2000, Mr. Fox's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(11) As of January 31, 2000, Mr. Maddox's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(12) As of January 31, 2000, Mr. Myers's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(13) As of January 31, 2000, Mr. Schulz's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(14) As of January 31, 2000, Dr. Shillinglaw's total aggregate holdings in
each series of the Acquired Trust listed above and all other funds in the
Scudder Family of Funds and AARP Funds ranged between $___________ and
$___________.
(15) As of January 31, 2000, Ms. Spero's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(16) As of January 31, 2000, Ms. Stromberg's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(17) As of January 31, 2000, Ms. Tempel's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(18) As of January 31, 2000, Mr. Zaleznick's total aggregate holdings in each
series of the Acquired Trust listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
-2-
<PAGE>
APPENDIX 2
Beneficial Ownership of Shares
-53-
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated October 1, 1999, which was previously filed with the
Commission via EDGAR on September 30, 1999 (File No. 2-65669) and is
incorporated by reference herein.
<PAGE>
PART B
SCUDDER TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
[date]
- --------------------------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
AARP High Quality Tax Free Money Scudder Tax Free Money Fund
Fund (the "Acquired Fund"), a (the "Acquiring Fund")
series of AARP Tax Free Income Trust Two International Place
Two International Place Boston, MA 02110-4103
Boston, MA 02110-4103
This Statement of Additional Information is available to the shareholders of the
Acquired Fund in connection with a proposed transaction whereby the Acquiring
Fund will acquire all or substantially all of the assets and all of the
liabilities of the Acquired Fund in exchange for shares of the Acquiring Fund
(the "Reorganization").
This Statement of Additional Information of the Acquiring Fund contains material
which may be of interest to investors but which is not included in the
Prospectus/Proxy Statement of the Acquiring Fund relating to the Reorganization.
This Statement of Additional Information consists of this cover page and the
following documents:
1. The Acquiring Fund's statement of additional information dated October 1,
1999, which was previously filed with the Securities and Exchange Commission
(the "Commission") via EDGAR on September 30, 1999 (File No. 2-65669) and is
incorporated by reference herein.
2. The Acquiring Fund's annual report to shareholders for the fiscal year ended
May 31, 1999, which was previously filed with the Commission via EDGAR on July
27, 1999 (File No. 811-02959) and is incorporated by reference herein.
3. The Acquired Fund's prospectus dated February 1, 2000, which was previously
filed with the Commission via EDGAR on January 31, 2000 (File No. 2-91579) and
is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated February 1,
2000, which was previously filed with the Commission via EDGAR on January 31,
2000 (File No. 2-91579) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year ended
September 30, 1999, which was previously filed with the Commission via EDGAR on
December 3, 1999 (File No. 811-04050) and is incorporated by reference herein.
6. The financial statements and schedules of the Acquiring Fund and the Acquired
Fund required by Regulation S-X for the periods specified in Article 3 thereof,
which are filed herein.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated ____________________ relating to the Reorganization may be
obtained by writing the Acquired Fund at
-54-
<PAGE>
Two International Place, Boston, MA 02110-4103 or by calling Scudder Investor
Services, Inc. at 1-800-225-2470. This Statement of Additional Information
should be read in conjunction with the Prospectus/Proxy Statement.
-55-
<PAGE>
Pro Forma
Portfolio of Investments
as of October 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Scudder Scudder
Tax Free AARP High Pro Forma Tax Free Money AARP High Pro Forma
Money Fund Quality Tax Free Combined Fund Market Quality Tax Combined Market
Principal Money Principal Principal Value ($) Free Money Value($))
Amount ($) Amount ($) Amount ($) Market Value ($)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Municipal Investments -100%
- --------------------------------
- --------------------------------
ALABAMA
Bringham, AL, 3.800%, 02/16/2000 1,000,000 1,000,000 2,000,000 1,000,000 1,000,000 2,000,000
Mobile, AL, 3.800%, 01/26/2000 2,000,000 2,000,000 2,000,000 2,000,000
ARIZONA
Apache County Industrial Development 2,500,000 2,500,000 2,500,000 2,500,000
Revenue, Tuscan Electric Co.,
Springerville Project, Series 1983 B,
Weekly Demand Note, 3.950%, 12/15/2018
Apache County, AZ, Industrial 1,500,000 1,500,000 1,500,000 1,500,000
Development Revenue, Tuscan Electric
Co., Springerville Project, Series
1985 A, Weekly Demand Note, 4.000%,
12/1/2020
Pima County, AZ, Industrial 3,900,000 3,900,000 3,900,000 3,900,000
Development Authority, Tucson Electric
Power Co., Series 1982, Weekly Demand
Note, 4.150%, 10/01/2022
Pinal County, AZ, Pollution Control 1,900,000 1,900,000 1,900,000 1,900,000
Revenue, Magma Copper, Weekly Demand
Note, 4.150%, 12/01/2011
CALIFORNIA
Orange County, CA, Municipal Water 4,200,000 4,200,000 4,200,000 4,200,000
District, Certificate of
Participation, Daily Demand Bond,
3.750%, 08/15/2015
COLORADO
Colorado Health Facilities Authority 2,980,000 990,000 3,970,000 2,980,000 990,000 3,970,000
Frasier Meadows Manor Project, 3.920%,
6/1/2021
Colorado Student Loan Revenue 2,700,000 2,700,000 2,700,000 2,700,000
Authority, Series 1990, Weekly Demand
Note, AMT, 3.900%, 09/01/2024
Platte River, CO, Platte River Power 3,100,000 3,100,000 3,100,000 3,100,000
Authority, Tax Exempt Commercial
Paper, 3.800%, 02/17/2000
Smith Creek, CO, Water Utility Revenue 1,500,000 1,500,000 1,500,000 1,500,000
Bond, Variable Rate, 3.900%,
10/1/2035
DISTRICT OF COLUMBIA
District of Columbia, General 2,600,000 2,600,000 2,600,000 2,600,000
Obligation, General Fund Recovery,
Series 1991 B, Daily Demand Note,
3.750%, 06/01/2003
FLORIDA
Florida, 3.800%, 03/10/2000 3,000,000 3,000,000 3,000,000 3,000,000
<PAGE>
Hillsborough, FL, 3.700%, 12/13/1999 2,400,000 2,400,000 2,400,000 2,400,000
Jacksonville, FL, Electric System, 1,500,000 1,500,000 1,500,000 1,500,000
Series C-1, 3.500%, 11/10/1999
Orange County, FL, Health Facilities 2,800,000 900,000 3,700,000 2,800,000 900,000 3,700,000
Authority Revenue, Presbyterian
Retirement, Weekly Demand Note,
3.950%, 11/01/2028
Orange County, FL, Health Facilities 3,200,000 2,000,000 5,200,000 3,200,000 2,000,000 5,200,000
Authority, 3.650%, 02/10/2000
Orlando, FL, Capital Improvements 1,300,000 1,300,000 1,300,000 1,300,000
Project, Series 1994-A, 3.500%,
11/12/1999
Putnam County, FL, Pollution Control 2,390,000 2,390,000 2,390,000 2,390,000
Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-2, Weekly
Demand Note, 3.900%, 03/15/2014
Putnam County, FL, Pollution Control 3,950,000 3,950,000 3,950,000 3,950,000
Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-1,
Variable Rate, 4.100%, 03/15/2014
Sunshine State Government Financing 2,000,000 2,000,000 2,000,000 2,000,000
Commission, FL, Tax Exempt Commercial
Paper, 3.750%, 01/13/2000
GEORGIA
Dekalb County, GA, Development 1,500,000 1,500,000 1,500,000 1,500,000
Authority, Atlanta Jewish Community
Center, 3.900%, 09/01/2024
Fayette County, GA, Educational 2,000,000 2,000,000 2,000,000 2,000,000
Facilities Revenue, Catholic School
Propertys Inc. Project, 3.900%,
4/1/2024
Gainsville, GA, Educational Facilities 1,000,000 1,000,000 1,000,000 1,000,000
Revenue, Riverside Military Project,
3.900%, 07/01/2024
Georgia, MEAG, 3.700%, 01/12/2000 1,000,000 1,000,000 2,000,000 1,000,000 1,000,000 2,000,000
Monroe, GA, Power Authority, 3.700%, 4,000,000 4,000,000 4,000,000 4,000,000
2/18/2000
Municipal Electric Authority of 1,000,000 1,000,000 1,000,000 1,000,000
Georgia, Series 85-A, 3.600%,
11/10/1999
Municipal Electric Authority of 3,500,000 3,500,000 3,500,000 3,500,000
Georgia, Series 85-B, Tax Exempt
Commercial Paper, 3.450%, 11/12/1999
ILLINOIS
IL, Education Facility Authority, 4,125,000 4,125,000 4,125,000 4,125,000
3.750%, 02/15/2000
Illinois Educational Facilities 1,000,000 1,000,000 1,000,000 1,000,000
Authority, Tax Exempt Commercial
Paper, 3.700%, 02/09/2000
Illinois Development Finance 1,700,000 1,700,000 1,700,000 1,700,000
Authority, Pollution Control Revenue,
Weekly Demand Note, AMT, Series 1997B,
4.000%, 04/01/2032
Illinois Development Finance 1,500,000 1,500,000 1,500,000 1,500,000
Authority, Pollution Control Revenue,
Illinois Power Co. Project Series A,
Weekly Demand Note, 3.800%, 11/01/2028
Illinois Educational Facilities 2,000,000 2,000,000 2,000,000 2,000,000
Authority, 3.450%, 11/08/1999
<PAGE>
Illinois Health Facilities Authority, 2,000,000 2,000,000 2,000,000 2,000,000
Series 97B, 3.700%, 12/06/1999
INDIANA
Indiana, Health Facility, 3.800%, 5,000,000 2,000,000 7,000,000 5,000,000 2,000,000 7,000,000
2/9/2000
Indiana Health Facilities Financing 3,785,000 3,785,000 3,785,000 3,785,000
Authority, Community Mental Health
Facility, Weekly Demand Note, 3.450%,
11/1/2020
Jasper County, IN, Pollution Control 2,500,000 2,500,000 2,500,000 2,500,000
Revenue, Northern Indiana Public
Service Co., Tax Exempt Commercial
Paper, 3.700%, 11/10/1999
Jasper County, IN, Pollution Control 4,500,000 4,500,000 4,500,000 4,500,000
Revenue, Northern Indiana Public
Service Co.,Tax Exempt Commercial
Paper, 3.700%, 11/12/1999
IOWA
West Des Moines, IA, Commercial 3,400,000 3,400,000 3,400,000 3,400,000
Development Revenue, Greyhound Lines,
Weekly Demand Note, 4.050%, 12/01/2014
KENTUCKY
Danville, KY, Multi Lease, 3.550%, 1,000,000 1,000,000 1,000,000 1,000,000
11/5/1999
Kentucky Economic Development Finance 2,000,000 2,000,000 2,000,000 2,000,000
Authority Hospital Facilities Revenue
Health Alliance, Series C, Variable
Rate, 3.700%, 01/01/2022
Lexington, KY, Industrial Developmen 2,000,000 2,000,000 2,000,000 2,000,000
Authority, YMCA of Central Kentucky,
4.000%, 07/01/2019
Mason County, KY, East Kentucky Powe 2,900,000 2,900,000 2,900,000 2,900,000
Cooperative, Pollution Control
Revenue, Weekly Demand Note, 3.900%,
10/15/2014
Mayfield, KY, Multi-City Lease 1,650,000 755,000 2,405,000 1,650,000 755,000 2,405,000
Revenue, Kentucky League of Cities
Funding Trust, Weekly Demand Note,
Series 1996, 3.950%, 07/01/2026
Pendeleton County, KY, County Lease 1,000,000 1,000,000 1,000,000 1,000,000
Revenue, 3.500%, 11/09/1999
Pendelton County, KY, Tax Exempt 3,000,000 2,000,000 5,000,000 3,000,000 2,000,000 5,000,000
Commercial Paper, 3.650%, 02/11/2000
Pendelton County, KY, County Lease 3,500,000 3,500,000 3,500,000 3,500,000
Revenue, Tax Exempt Commercial Paper,
3.454%, 11/08/1999
LOUISIANA
Louisiana Public Finance Authority, 1,535,000 1,535,000 1,535,000 1,535,000
Tax Exempt Commercial Paper, 3.750%,
02/28/2000
Louisiana, Baton Rouge, 3.750%, 1,950,000 1,950,000 1,950,000 1,950,000
2/10/00
MAINE
Maine Educational Loan Marketing 2,000,000 2,000,000 2,000,000 2,000,000
Corporation, Student Loan Revenue,
AMT, Series 1997 A1, Weekly Demand
Note, 3.750%, 05/01/2032
MARYLAND
Anne Arundel County, MD, Baltimore Gas 1,000,000 1,000,000 1,000,000 1,000,000
and Electric, 3.700%, 01/12/2000
Baltimore County, MD, Oak Crest 1,500,000 1,500,000 1,500,000 1,500,000
Village Inc. Project, Series A,
<PAGE>
3.900%, 01/01/2029
MICHIGAN
Michigan State Housing Development 1,000,000 1,000,000 1,000,000 1,000,000
Authority, Laurel Valley Apartments,
3.800%, 12/01/2007
Michigan State Strategic Fund, Hope 4,185,000 4,185,000 4,185,000 4,185,000
Network Project, Series A, Weekly
Demand Note, 3.950%, 09/01/2023
Wayne Charter County, MI, Airport 2,815,000 2,815,000 2,815,000 2,815,000
Revenue, Detroit Metropolitan County,
Series 1996 B, Weekly Demand Note,
3.850%, 12/01/2016
MINNESOTA
Cottage Grove, MN, Environmental 1,100,000 300,000 1,400,000 1,100,000 300,000 1,400,000
Control Revenue, Minnesota Mining and
Manufacturing, Series 1982, Weekly
Demand Note, 4.071%, 08/01/2012
Minnesota Hospital Facilities Revenue, 1,000,000 1,000,000 1,000,000 1,000,000
New Ulm Hospital Center, Demand Note,
3.050%, 08/01/2014
MISSOURI
St. Louis, MO, Airport Revenue 3,000,000 3,000,000 3,000,000 3,000,000
Municipal Securities Trust Receipts,
AMT, Series SGA 71, 4.030%, 07/01/2022
NEVADA
Las Vegas, NV, Valley Water Authority, 1,000,000 1,000,000 1,000,000 1,000,000
3.650%, 11/05/1999
Las Vegas, NV, Valley Water Authority, 4,000,000 2,000,000 6,000,000 4,000,000 2,000,000 6,000,000
3.750%, 01/24/2000
NEW HAMPSHIRE
New Hampshire Bussiness Finance 3,000,000 1,000,000 4,000,000 3,000,000 1,000,000 4,000,000
Authority, Pollution Control Revenue,
3.600%, 02/16/2000
NEW JERSEY
Salem County, NJ, Industrial Pollution 9,400,000 9,400,000 9,400,000 9,400,000
Control Financing Authority, E.I. du
Pont de Nemours and Co., Floating Rate
Demand Note, 3.800%, 03/01/2012
NEW MEXICO
Farmington, NM, Pollution Control 1,800,000 1,800,000 1,800,000 1,800,000
Revenue, Arizona Public Service Co.,
Series 1994 B, Daily Demand Note,
3.600%, 09/01/2024
NEW YORK
Long Island Powe Authority, Series 4, 6,000,000 6,000,000 6,000,000 6,000,000
Tax Exempt Commercial Paper, 3.450%,
11/12/1999
Nassau County, NY, Tax Anticipation 1,300,000 400,000 1,700,000 1,300,531 400,073 1,700,604
Note, Series C, 3.500%, 12/22/1999
New York City, General Obligation, 700,000 700,000 700,000 700,000
Daily Demand Note, FGIC Insured,
4.650%, 10/01/2022
New York, NY, General Obligation, 800,000 800,000 800,000 800,000
Daily Demand Note, 4.250%, 08/15/2020
New York State Energy Research and 2,000,000 2,000,000 2,000,000 2,000,000
<PAGE>
Development Authority, PCR, Niagara
Mohawk Power Co., Daily Demand Note,
2.000%, 07/01/2027
NORTH DAKOTA
Mercer County, ND, Pollution Control 2,900,000 2,900,000 2,900,000 2,900,000
Revenue, Cooperative Finance Corp.,
United Power, Weekly Demand Note,
3.900%, 08/15/2014
OKLAHOMA
Oklahoma Development Revenue Bonds, 3,200,000 3,200,000 3,200,000 3,200,000
LGX Project 1998, AMT, Weekly Demand
Note, 4.100%, 06/01/2018
OREGON
Clackamas County, OR, Hospital 4,000,000 4,000,000 4,000,000 4,000,000
facilities, Senior Living Facilities,
Marys Woods, 4.000%, 05/15/2029
PENNSYLVANIA
Allegheny County, PA, HCD, Series 1,000,000 1,000,000 1,000,000 1,000,000
85-B, 3.600%, 11/09/1999
Bucks County, PAOxford Falls Plaza 9,100,000 9,100,000 9,100,000 9,100,000
Project, Weekly Demand Note, 4.070%,
10/1/2014
Deleware County, Pennsylvania, 1,000,000 1,000,000 1,000,000 1,000,000
Petroleum and Energy Company, 3.450%,
11/9/1999
Pennsylvania Higher Education 2,000,000 2,000,000 2,000,000 2,000,000
Assistance Agency, Student Loan
Revenue, Series 1997 A, Weekly Demand
Note, 4.000%, 03/01/2027
Philadelphia, PA, Tax and Revenue 1,900,000 700,000 2,600,000 1,909,196 703,388 2,612,584
Anticipation Notes, Series A, 4.250%,
6/30/2000
Schuylkill County, PA, Industrial 2,500,000 2,500,000 2,500,000 2,500,000
Development Authority, Gilberton Power
Project, Variable Weekly, 3.500%,
12/1/2002
TENNESSEE
Clarksville, TN, Public Building 1,900,000 1,900,000 1,900,000 1,900,000
Authority, Pooled Financings, Series
1994, Weekly Demand Note, 3.900%,
6/1/2024
Maury County, Tennessee, Industrial 2,880,000 2,880,000 2,880,000 2,880,000
Development Board of Water Facility,
Revenue, 4.050%, 06/01/2027
TEXAS
Austin Texas, Utility System Revenue 2,800,000 2,800,000 2,800,000 2,800,000
Tax Exempt Commercial Paper, 3.450%,
11/12/1999
Austin, TX, Utility System Revenue, 6,777,000 6,777,000 6,777,000 6,777,000
Tax Exempt Commercial Paper, 3.450%,
11/9/1999
Brazos River Authority, Texas 500,000 500,000 500,000 500,000
Pollution Control, Revenue, Daily
Demand Note, 3.900%, 06/01/2030
Camp County, TX, Industrial 2,500,000 2,500,000 2,500,000 2,500,000
Developement Pollution Control Revenue
Bonds, Texas Oil & Gas Corp., Floating
Rate Demand Bond, 3.950%, 12/01/2013
North Central, TX, Health Facilities 2,500,000 2,500,000 2,500,000 2,500,000
<PAGE>
Development Corp., Presbyterian
Medical Center, Daily Demand Note,
Series C, 3.700%, 12/01/2015
Panhandle-Plains, TXHigher Education 1,900,000 1,900,000 1,900,000 1,900,000
Authority, Student Loan Revenue,
Series 1997 Y, Weekly Demand Note,
3.850%, 06/01/2025
Panhandle Plains, TX, Higher Education 2,500,000 2,500,000 2,500,000 2,500,000
Authority, Student Loan Revenue, AMT,
Series 1997 Y, Weekly Demand Note,
3.850%, 10/01/2002
San Antonio, TX, Electric and Gas, SG 2,000,000 2,000,000 2,000,000 2,000,000
#79, Series 1996, Weekly Demand Note,
3.980%, 02/01/2018
San Antonio Texas Electric and Gas, 5,000,000 3,100,000 8,100,000 5,000,000 3,100,000 8,100,000
3.750%, 01/24/2000
San Antonio, TX, Industrial 3,100,000 3,100,000 3,100,000 3,100,000
Developement River Center Associates
Project, Weekly Demand Note, 4.000%,
12/1/2012
San Antonio, TX, Electric & Gas Public 2,000,000 2,000,000 2,000,000 2,000,000
Services, 4.000%, 02/01/2020
State of Texas, Tax and Revenue 7,300,000 2,800,000 10,100,000 7,346,186 2,817,781 10,163,967
Anticipation Notes, 4.500%, 08/31/2000
Texas Municipal Power Agency, 3.450% 4,500,000 2,100,000 6,600,000 4,500,000 2,100,000 6,600,000
11/10/1999
Texas Water and Sewer, 3.750%, 3,100,000 1,450,000 4,550,000 3,100,000 1,450,000 4,550,000
2/24/2000
Texas Small Business Industrial 1,400,000 1,400,000 1,400,000 1,400,000
Development Corp., Industrial
Development Revenue, 3.900%,
7/1/2026
UTAH
Intermountain Power Agency, UT, Power 1,000,000 1,000,000 1,000,000 1,000,000
Supply Revenue, 3.500%, 11/10/1999
Utah Board of Regents, Student Loan 2,500,000 2,500,000 2,500,000 2,500,000
Revenue, Series 1988, Weekly Demand
Note, 3.950%, 11/01/2013
VERMONT
Vermont Educational & Health Buildings 1,886,000 1,886,000 1,886,000 1,886,000
Financing Agency Revenue Capital Asset
Financing, Series 2005-A, Weekly
Demand Note, 4.100%, 08/01/2005
VIRGINIA
Chesterfield, VA, Eletric Power Co., 2,400,000 2,400,000 2,400,000 2,400,000
Tax Exempt Commercial Paper, 3.500%,
11/10/1999
Louisa County, VA, Industrial 2,000,000 2,000,000 2,000,000 2,000,000
Development Authority, Virginia Energy
and Petroleum Company, 3.750%,
12/17/1999
Louisa, VA, Virginia Energy and Power 1,600,000 1,600,000 1,600,000 1,600,000
Company, 3.600%, 11/10/1999
Virginia, Peninsula Port 87A, 3.800% 4,000,000 4,000,000 4,000,000 4,000,000
1/27/2000
Virginia Port Authority Facility, 2,605,000 2,605,000 2,605,000 2,605,000
Municipal Trust Receipts, SG 111,
Series 1997, Weekly Demand Note,
4.030%, 07/01/2024
WASHINGTON
Seattle, WA, Municipal Light & Power, 1,800,000 1,800,000 1,800,000 1,800,000
<PAGE>
Series 1993, Weekly Demand Note,
4.000%, 11/01/2018
WEST VIRGINIA
Randolf County, West Virginia, 2,920,000 2,920,000 2,920,000 2,920,000
Industrial Development Revenue,
12/1/2007
WISCONSIN
EAU Claire Wisconsin Solid Waste, 2,400,000 2,400,000 2,400,000 2,400,000
Revenue, 4.100%, 11/01/2014
Wausau, WI, Pollution Control Revenue 2,300,000 2,300,000 2,300,000 2,300,000
Minnesota Mining and Manufacturing,
Series 1982, Floating Rate Demand
Note, 4.080%, 08/01/2017
Wausau, WI, Pollution Control Revenue 900,000 900,000 900,000 900,000
Minnesota Mining and Manufacturing,
Series 1983, Floating Rate Demand
Note, 4.080%, 12/01/2001
Whitewater, WIIndustrial Developement 1,000,000 1,000,000 1,000,000 1,000,000
MacLean Fogg Project, Weekly Demand
Note, 4.050%, 12/01/2009
Wisconsin State Health Care Facilities 1,000,000 1,000,000 1,000,000 1,000,000
Authority, Francisan Memorial
Hospital, Series-1 VRDN, 2.900%,
1/1/2016
WYOMING
Converse County, WY, General 1,400,000 1,400,000 1,400,000 1,400,000
Obligation, 3.450%, 11/08/1999
Converse County, WY, General 1,150,000 1,150,000 1,150,000 1,150,000
Obligation, 3.500%, 11/08/1999
---------------------------------------------
---------------------------------------------
INVESTMENT PORTFOLIO -100% 214,417,913 89,337,242 303,755,155
INVESTMENT PORTFOLIO (TOTAL COST OF $214,417,913 $89,337,242 and $303,755,155 ---------------------------------------------
RESPECTIVELY) ---------------------------------------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER AARP HIGH
TAX FREE QUALITY TAX FREE PRO FORMA PRO FORMA
MONEY FUND MONEY ADJUSTMENTS COMBINED
---------------------- -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Investments, at value $ 214,417,913 $ 89,337,242 $ 303,755,155
Cash 841,375 99,641 941,016
Other assets less liabilities (4,049,126) (2,372,920) $ (870) (2)
(6,422,916)
---------------------- -------------------- ------------------ -------------------
Net assets $ 211,210,162 $ 87,063,963 $ (870) $ 298,273,255
---------------------- -------------------- ------------------ -------------------
---------------------- -------------------- ------------------ -------------------
NET ASSETS
Scudder Shares $ 211,209,292
AARP Shares $ 87,063,963
SHARES OUTSTANDING
Scudder Shares 211,041,655 211,041,655
AARP Shares 87,069,671 87,069,671
NET ASSET VALUE PER SHARE
Scudder Shares $ 1.00 $ 1.00
AARP Shares $ 1.00 $ 1.00
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER AARP HIGH
TAX FREE QUALITY TAX FREE PRO FORMA PRO FORMA
MONEY FUND MONEY ADJUSTMENTS COMBINED
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 8,036,705 3,007,798 $ -- $ 11,044,503
----------------------------------------------------------------------------------
Total Investment Income 8,036,705 3,007,798 11,044,503
Expenses
Management fees 1,204,220 357,263 112,317 (3) 1,673,800
Trustee fees (28,890) (4)
37,974 28,890 37,974
All other expenses 409,380 (450,718) (5) 502,140
543,478
------------------------------------------------------------ ------------------
Total expenses before reductions 1,785,672 795,533 (367,291) 2,213,914
Expense reductions (169,378) - 169,378 (6) -
----------------------------------------------------------------------------------
Expenses, net 1,616,294 795,533 (197,913) 2,213,914
----------------------------------------------------------------------------------
Net investment income (loss) 6,420,411 2,212,265 197,913 8,830,589
----------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
--
Net realized gain (loss) from investments [cad 228] [cad 228]
--
Net unrealized appreciation (depreciation)
of investments - -
----------------------------------------------------------------------------------
Net increase in net assets from operations $ 6,420,411 $ 2,212,265 $ 197,913 $ 8,830,589
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1999
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of October 31, 1999, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended October 31, 1999 for Scudder Tax Free Money Fund and AARP High
Quality Tax Free Money Fund as adjusted giving effect to the Reorganization
as if it had occurred as of the beginning of the period. These statements
have been derived from the books and records utilized in calculating daily
net asset value for each fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $870 to be borne by the Acquiring Fund.
3. Represents reduction in management fees resulting from a new management
agreement.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
6. Represents the elimination of expense reimbursements.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or
-56-
<PAGE>
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or other
body before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
-57-
<PAGE>
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Item 16. Exhibits.
(1) (a) (1) Amended and Restated Declaration of Trust dated
December 9, 1987.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registrant's Registration
Statement on Form N-1A, as amended (the
"Registration Statement").)
(2) Amendment to the Amended and Restated Declaration
of Trust dated December 11, 1990.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.)
(2) (b) (1) By-Laws dated October 5, 1979 as amended through
December 19, 1979.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.)
(2) Amendment to the By-Laws dated August 13, 1991.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.)
(3) Amendment to the By-Laws dated December 10, 1991.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.)
(3) Inapplicable.
(4) Agreement and Plan of Reorganization filed as
Exhibit A to Part A hereof.
(5) Inapplicable.
-58-
<PAGE>
(6) Investment Management Agreement between the
Registrant and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)
(7) Underwriting Agreement between the Registrant and
Scudder Investor Services, Inc. dated September 7,
1998.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)
(8) Inapplicable.
(9) (g) (1) Custodian Contract with State Street Bank and
Trust Company dated December 31, 1979.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(2) Amendment to the Custodian Contract with State
Street Bank and Trust Company dated December 11,
1990.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(3) Fee schedule for Exhibit (9)(g)(1).
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)
(4) Subcustodian Agreement between State Street Bank
and Morgan Guaranty Trust Company of New York
dated November 25, 1985.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(5) Subcustodian Agreement between State Street Bank
and Irving Trust Company dated November 30, 1987.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(6) Subcustodian Agreement between State Street Bank
and Chemical Bank dated May 31, 1988.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(7) Subcustodian Agreement between State Street Bank
and Security Pacific National Trust Company (New
York) dated February 18, 1988.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
-59-
<PAGE>
(8) Subcustodian Agreement between State Street Bank
and Bankers Trust Company dated August 15, 1989.
(Incorporated by reference to Post-Effective
amendment No. 23 to the Registration Statement.)
(10) Inapplicable.
(11) Opinion and Consent of Dechert Price & Rhoads
filed herein.
(12) Opinion and Consent of Willkie Farr & Gallagher to
be filed by post-effective amendment.
(13) (h) (1) Transfer Agency and Service Agreement with Scudder
Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.)
(2) Fee schedule for Exhibit (13)(h)(1).
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement.)
(3) Fund Accounting Services Agreement between the
Registrant and Scudder Fund Accounting Corporation
dated September 27, 1994.
(Incorporated by reference to Post-Effective
Amendment No. 18 to the Registration Statement.)
(14) Consent of PricewaterhouseCoopers LLP filed
herein.
(15) Inapplicable.
(16) Powers of Attorney filed herein.
(17) Form of Proxy filed herein.
Item 17. Undertakings.
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of
a prospectus which is a part of this registration statement
by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17
CFR 230.145c], the reoffering prospectus will contain the
information called for by the applicable registration form
for C-8 350 reofferings by persons who may be deemed
underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a
part of an amendment to the registration statement and will
not be used until the amendment is effective, and that, in
determining any liability under the 1933
-60-
<PAGE>
Act, each post-effective amendment shall be deemed to be
a new registration statement for the securities offered
therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of
them.
-61-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Scudder Tax Free Money Fund has duly caused this
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 3rd day of March, 2000.
SCUDDER TAX FREE MONEY FUND
By: /s/ Linda C. Coughlin
------------------------------
Title: President
---------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Linda C. Coughlin President & Trustee March 3, 2000
- ----------------------
Linda C. Coughlin
/s/ Henry P. Becton, Jr.* Trustee March 3, 2000
- -------------------------
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll* Trustee March 3, 2000
- ------------------------
Dawn-Marie Driscoll
/s/ Peter B. Freeman* Trustee March 3, 2000
- ---------------------
Peter B. Freeman
/s/ George M. Lovejoy, Jr.* Trustee March 3, 2000
- ---------------------------
George M. Lovejoy, Jr.
/s/ Welsey W. Marple, Jr.* Trustee March 3, 2000
- --------------------------
Welsey W. Marple, Jr.
/s/ Kathryn L. Quirk* Trustee, Vice President & March 3, 2000
- --------------------- Assistant Secretary
Kathryn L. Quirk
/s/ Jean C. Tempel* Trustee March 3, 2000
- -------------------
Jean C. Tempel
/s/ John R. Hebble Treasurer (Principal
- ------------------- Financial and Accounting Officer) March 3, 2000
John R. Hebble
-62-
<PAGE>
*By: /s/ Sheldon A. Jones March 3, 2000
--------------------
Sheldon A. Jones
Attorney-in-fact
*Executed pursuant to powers of attorney filed with the Registrant's
Registration Statement on Form N-14 as filed with the Commission electronically
herewith.
-63-
<PAGE>
EXHIBIT 11
DECHERT PRICE & RHOADS LETTERHEAD
March 3, 2000
Scudder Tax Free Money Fund
Two International Place
Boston, Massachusetts 02110-4103
Dear Sirs:
We have acted as counsel to Scudder Tax Free Money Fund, a
Massachusetts business trust (the "Trust"), and we have a general familiarity
with the Trust's business operations, practices and procedures. You have
asked for our opinion regarding the issuance of AARP Shares class of shares
of beneficial interest by the Trust in connection with the acquisition by the
Trust of the assets of AARP High Quality Tax Free Money Fund, a series of
AARP Tax Free Income Trust, which shares are registered on a Form N-14
Registration Statement (the "Registration Statement") filed by the Trust with
the Securities and Exchange Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various trust records of
the Trust and such other instruments, documents and records as we have deemed
necessary in order to render this opinion. We have assumed the genuineness of
all signatures, the authenticity of all documents examined by us and the
correctness of all statements of fact contained in those documents.
On the basis of the foregoing, we are of the opinion that the AARP
Shares class of shares of beneficial interest of the Trust being registered
under the Securities Act of 1933 in the Registration Statement, subject to
the creation of the AARP Shares class of shares in accordance with the laws
of the Commonwealth of Massachusetts, will be legally and validly issued,
fully paid and non-assessable by the Trust, upon transfer of the assets of
AARP High Quality Tax Free Money Fund pursuant to the terms of the Agreement
and Plan of Reorganization included in the Registration Statement.
We hereby consent to the filing of this opinion with and as part of the
Registration Statement.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
-64-
<PAGE>
EXHIBIT 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus and Statement of Additional Information constituting parts
of this Registration Statement on Form N-14 (the "Registration Statement") of
our report dated July 22, 1999, relating to the financial statements and
financial highlights appearing in the May 31, 1999 Annual Report to Shareholders
of Scudder Tax Free Money Fund which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Administrative Fee" in the Proxy Statement/Prospectus and under the
headings "Financial Highlights" in the Prospectus and "Experts" in the Statement
of Additional Information dated October 1, 1999.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 1, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus and Statement of Additional Information constituting parts
of this Registration Statement on Form N-14 (the "Registration Statement") of
our report dated November 8, 1999, relating to the financial statements and
financial highlights appearing in the September 30, 1999 Annual Report to
Shareholders of AARP High Quality Tax Free Money Fund which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Administrative Fee" in the Proxy
Statement/Prospectus and under the headings "Financial Highlights" in the
Prospectus and "Experts" in the Statement of Additional Information dated
February 1, 2000.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 1, 2000
<PAGE>
EXHIBIT 16
SCUDDER TAX FREE MONEY FUND
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated. By so signing, the undersigned in his capacity as
trustee or officer, or both, as the case may be, of the Registrant, does
hereby appoint Sheldon A. Jones, Allison R. Beakley, Caroline Pearson and
John Millette and each of them, severally, his/her true and lawful attorney
and agent to execute in his/her name, place and stead (in such capacity) any
and all amendments to the Registration Statement and any post-effective
amendments thereto and all instruments necessary or desirable in connection
therewith, to attest the seal of the Registrant thereon and to file the same
with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power
and authority to do and perform in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever necessary or advisable to be
done in the premises as fully and to all intents and the purposes as the
undersigned might or could do in person, hereby ratifying and approving the
act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Linda C. Coughlin President & Trustee February 8, 2000
- ----------------------
Linda C. Coughlin
/s/ Henry P. Becton, Jr. Trustee February 8, 2000
- -------------------------
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll Trustee February 8, 2000
- ------------------------
Dawn-Marie Driscoll
/s/ Peter B. Freeman Trustee February 8, 2000
- ---------------------
Peter B. Freeman
/s/ George M. Lovejoy, Jr. Trustee February 8, 2000
- ---------------------------
George M. Lovejoy, Jr.
/s/ Welsey W. Marple, Jr. Trustee February 8, 2000
- --------------------------
Welsey W. Marple, Jr.
/s/ Kathryn L. Quirk Trustee, Vice President & February 8, 2000
- --------------------- Assistant Secretary
Kathryn L. Quirk
/s/ Jean C. Tempel Trustee February 8, 2000
- -------------------
Jean C. Tempel
Treasurer (Principal Financial February 8, 2000
- ------------------- and Accounting Officer)
John R. Hebble
-65-
<PAGE>
EXHIBIT 17
FORM OF PROXY
[LOGO] YOUR VOTE IS IMPORTANT!
[ADDRESS]
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL FREE 1-XXX-XXX-XXXX OR
LOG ON TO WWW.PROXYWEB.COM/XXXXX
*** CONTROL NUMBER: XXX XXX XXX XXX XX ***
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
[ACQUIRED FUND]
[ACQUIRED TRUST/CORPORATION]
[address]
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
[time], on [date]
The undersigned hereby appoints __________, ____________ and ____________,
and each of them, the proxies of the undersigned, with the power of substitution
to each of them, to vote all shares of the [Acquired Fund] (the "Fund") which
the undersigned is entitled to vote at the Special Meeting of Shareholders of
the Fund to be held at the offices of Scudder Kemper Investments, Inc.,
[address], on [date] at [time], Eastern time, and at any adjournments thereof.
PLEASE SIGN AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
Dated ____________________,2000
PLEASE SIGN EXACTLY AS YOUR
NAME OR NAMES APPEAR. WHEN
SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE
GIVE YOUR FULL TITLE AS SUCH.
-------------------------------
[NAME]
[ADDRESS] -------------------------------
SIGNATURE(S) OF SHAREHOLDER(S)
<PAGE>
[LOGO] YOUR VOTE IS IMPORTANT!
[ADDRESS]
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL FREE 1-XXX-XXX-XXXX OR
LOG ON TO WWW.PROXYWEB.COM/XXXXX
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS
ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE PROXY WILL BE VOTED FOR APPROVAL
OF THE PROPOSALS.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF [TRUSTEES/DIRECTORS] OF THE
[ACQUIRED FUND]. THE BOARD OF [TRUSTEES/DIRECTORS] RECOMMENDS A VOTE FOR THE
PROPOSALS.
PLEASE VOTE BY FILLING IN THE BOXES BELOW.
FOR AGAINST ABSTAIN
PROPOSAL 1
To elect Trustees to the Board of Trustees
of the Portfolio to hold office until their
respective successors have been duly elected / / / / / /
and qualified or until their earlier
resignation or removal.
NOMINEES:
(01) __________, (02) ____________, (03) _________, (04) ______________, (05)
______________, (06) __________, (07) ______________, (08)_______________, (09)
____________.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE, WRITE THE
NAME(S) ON THE LINE IMMEDIATELY BELOW.
- ----------------------------------------------------
PROPOSAL 2
To approve an Agreement and Plan of
Reorganization for the Fund whereby all or
substantially all of the assets an / / / / / /
liabilities of the Fund would be acquired by
[Acquiring Fund] in exchange for shares of
the [class] of the [Acquiring Fund].
PROPOSAL 3
To ratify the selection of
PricewaterhouseCoopers LLP as the Fund's / / / / / /
independent accountants for the current
fiscal year.
<PAGE>
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS
WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
PLEASE SIGN ON REVERSE SIDE
