<PAGE>
SCUDDER INVESTMENT LOGO
IMPORTANT NEWS FOR
SCUDDER MICRO CAP SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into AARP
Small Company Stock Fund. This proposal is part of a larger effort to
restructure the Scudder Family of Funds. THE BOARD OF YOUR FUND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- LOWER EXPENSES. The combination of the two funds would result in REDUCED
expenses for shareholders of your Fund.
- GREATER PREDICTABILITY OF EXPENSES. As part of the proposal to combine
funds, a new fixed administrative fee rate arrangement would be
implemented. The arrangement protects shareholders from most
administrative expense increases for a minimum of three years.
- TAX-FREE REORGANIZATION. It is a condition of the proposed combination
that your Fund receive an opinion of tax counsel that the transaction
would be a TAX-FREE transaction.
<PAGE>
Q: WHAT ARE THE DIFFERENCES BETWEEN MY FUND AND AARP SMALL COMPANY STOCK FUND?
A: Although the investment objectives, policies and restrictions of your Fund
and AARP Small Company Stock Fund are similar, there are some differences
between the Funds. Both Funds have the same portfolio managers and are
managed in a substantially similar manner, but your Fund invests exclusively
in micro-cap stocks, while AARP Small Company Stock Fund invests in a
portfolio of stocks with relatively larger capitalizations (but which are
still considered small capitalization stocks). In addition, AARP Small
Company Stock Fund seeks to reduce downside risk and does not invest in
securities of tobacco-producing companies. The combined fund will be called
Scudder Small Company Stock Fund.
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single board of
trustees/directors responsible for most Scudder Funds. It is the Board's
belief that this has the potential for increasing efficiency and benefiting
fund shareholders. The Board also believes that a single board, responsible
for overseeing most of the no-load funds advised by Scudder Kemper, can more
effectively represent shareholder interests. THE BOARD OF YOUR FUND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NOMINEE.
You are also being asked to ratify the selection of PricewaterhouseCoopers LLP
as the independent accountants of your Fund for the current fiscal year. THE
BOARD OF YOUR FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS
PROPOSAL.
Q: WHEN WILL THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes will take effect during the third
calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-603-1915.
<PAGE>
April 18, 2000
Dear Shareholder,
To continue to provide you with the highest level of investment management
and service, we're making some important changes to the Scudder Funds. Scudder
Kemper Investments, with the strong support of your Fund's Board, is proposing a
series of measures to streamline the Scudder Family of Funds. The goals are to
reduce costs and make Scudder's lineup of fund offerings easier for investors to
utilize and understand. We believe these proposals will benefit Scudder Fund
shareholders over time. We need your participation in order to make the
necessary changes.
Along with this letter, you'll find a packet of materials that we ask you to
read and, where applicable, fill out and return to us. The Q&A that begins on
the front cover of the proxy statement explains the proposals we're making, why
we're making them, and how they apply to your Scudder Fund. The packet also
contains a proxy card and a prospectus for the fund that we are proposing to
merge your Fund into.
After careful review, the members of your Fund's Board have unanimously
approved each of the proposals explained in the Q&A and described in the proxy
statement. THE BOARD RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY
AND THEN VOTE FOR ALL THE PROPOSALS. (Because many of the funds for which
Scudder Kemper acts as investment manager are holding shareholder meetings, you
may receive more than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope; or help us save time
and postage cost by voting on the Internet or by telephone -- the enclosed flyer
describes how. If we do not hear from you by May 17, our proxy solicitor may
contact you.
Thank you for your response and for your continued investment in the Scudder
Funds.
Respectfully,
<TABLE>
<S> <C>
/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chief Executive Officer President
Scudder Kemper Investments, Inc. Scudder Securities Trust
</TABLE>
<PAGE>
SCUDDER MICRO CAP FUND
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SCUDDER SECURITIES TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
Scudder Micro Cap Fund (the "Fund"), a series of Scudder Securities Trust (the
"Trust"), will be held at the offices of Scudder Kemper Investments, Inc., 13th
Floor, Two International Place, Boston, MA 02110-4103, on July 13, 2000, at
3:00 p.m., Eastern time, for the following purposes:
<TABLE>
<S> <C>
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 AARP
Small Company Stock Fund in exchange for shares of the
S Class of AARP Small Company Stock 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.
</TABLE>
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,
/s/ John Millette
John Millette
Secretary
April 18, 2000
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST...... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION.................................. 15
SYNOPSIS....................................... 15
PRINCIPAL RISK FACTORS......................... 27
THE PROPOSED TRANSACTION....................... 28
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS......................... 34
ADDITIONAL INFORMATION...................................... 35
</TABLE>
i
<PAGE>
PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF SCUDDER MICRO CAP FUND (THE
"ACQUIRED FUND"), A SEPARATE SERIES OF SCUDDER SECURITIES TRUST (THE "ACQUIRED
TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
BY AND IN EXCHANGE FOR THE S CLASS OF SHARES OF BENEFICIAL INTEREST OF AARP
SMALL COMPANY STOCK FUND (THE "ACQUIRING FUND"), A SEPARATE SERIES OF AARP
GROWTH TRUST (THE "ACQUIRING TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 253-2277
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of the
Acquired Fund in connection with three proposals (each a "Proposal,"
collectively, the "Proposals"). Proposal 1 describes the election of Trustees,
and Proposal 3 proposes the ratification of the selection 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 S Class of the Acquiring Fund ("S Class 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 S Class
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"). It is anticipated that, effective upon the closing of the
Reorganization (the "Closing"), the name of the Acquiring Fund will be changed
to Scudder Small Company Stock Fund. 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 is contingent upon shareholder approval of the Plan. The
Reorganization is expected to occur on or about July 17, 2000.
--------------------------
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.
<PAGE>
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 an investment company 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/Prospectus 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 Acquired
Trust or the Acquiring Trust (together with the Acquired Trust, the "Trusts"),
on behalf of the applicable Fund.
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 objectives, policies, restrictions and risks of the Acquiring Fund,
see the Acquiring Fund's prospectus, dated February 1, 2000, as supplemented
from time to time, which is included herewith and incorporated herein by
reference. For a more detailed discussion of the investment objectives,
policies, restrictions and risks of the Acquired Fund, see the Acquired Fund's
prospectus, dated January 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 February 1,
2000, as supplemented from time to time, 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 April 18, 2000, 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) 728-3337. Shareholder inquiries regarding the Acquiring Fund may
be made by calling (800) 253-2277. 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
2
<PAGE>
included herein in reliance upon, the Acquiring Fund. The S Class 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 February 1, 2000, except as otherwise described
herein.
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of, respectively, the Acquiring Trust and the Acquired
Trust. The Acquiring Trust and the Acquired Trust are open-end management
investment companies organized as Massachusetts business trusts.
The Board of Trustees (except as otherwise noted, "Trustees" refers to the
Trustees of the Acquired 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 13, 2000, at Scudder Kemper's offices, 13th Floor, Two
International Place, Boston, MA 02110-4103, at 3:00 p.m. (Eastern time), or at
such later time made necessary by adjournment (the "Meeting"). 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.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
NOMINEES LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES OF 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 or 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 the American Association of Retired
Persons ("AARP"). The nominees listed below are also being nominated for
election as Trustees of the Acquiring Trust and as trustees or directors of all
of the other AARP Funds (as defined below) and open-end, directly-distributed,
no-load Scudder Funds.
Currently, five different boards of trustees or directors are responsible
for overseeing different groups of no-load funds advised by Scudder Kemper. As
3
<PAGE>
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(s) 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 current 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(s)
noted in the following paragraphs and table for at least the most recent five
years, although 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. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from Harvard
Law School in 1968. 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
4
<PAGE>
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 Dean's Council of Harvard University's Graduate
School of Education, and the Massachusetts Bar. Mr. Becton has served as a
trustee or director 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. Ms. Driscoll was recently named 1999 "Fund
Trustee of the Year" by Fund Directions, a publication of Institutional
Investor, Inc. 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
5
<PAGE>
as a trustee or director 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.
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 is a Trustee of the Acquired
Trust and has served as a trustee or director of various mutual funds advised by
Scudder Kemper since 1996.
6
<PAGE>
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 is a
Trustee of the Acquired Trust and has served as a trustee or director 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.
7
<PAGE>
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
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 or director 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 AARP, which included tax and
legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined 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.
8
<PAGE>
TRUSTEES NOT STANDING FOR RE-ELECTION:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
Sheryle J. Bolton (53)............... Trustee; CEO and Director, Scientific
Learning Corporation. Ms. Bolton
serves on the boards of various other
trusts or corporations whose funds are
advised by Scudder Kemper.
William T. Burgin (56)............... Trustee; General Partner, Bessemer
Venture Partners. Mr. Burgin serves on
the boards of various other trusts or
corporations whose funds are advised by
Scudder Kemper.
William H. Luers (70)................ Trustee; Chairman and President, United
Nations Association of America.
Mr. Luers serves on the boards of
various other trusts or corporations
whose funds are advised by Scudder
Kemper.
Kathryn L. Quirk (47)*............... Trustee, Vice President and Assistant
Secretary; Managing Director of Scudder
Kemper. Ms. Quirk serves on the boards
of various other trusts or corporations
whose funds are advised by Scudder
Kemper.
</TABLE>
- ------------------------
* 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.
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, by the President 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
9
<PAGE>
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP 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. In 1999, the Trustees conducted over 20 meetings to deal
with fund issues (including committee and subcommittee meetings and special
meetings of the Independent Trustees). 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 Investment Company
Institute's 1999 Report of the Advisory Group 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 from time to time 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 such as
investment, accounting and shareholder servicing issues.
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 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,
10
<PAGE>
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 of only Independent Trustees (all of whom serve on the
committee), 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.
COMMITTEE ON INDEPENDENT TRUSTEES
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised of all of the Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies, retirement policies and fund ownership policies,
reviewing Trustees' affiliations and relationships annually, and periodically
assessing and reviewing evaluations of the Board of Trustees' effectiveness.
ATTENDANCE
As noted above, the Trustees conducted over 20 meetings in calendar year
1999 to deal with fund matters, including various committee and subcommittee
meetings and special meetings of the Independent Trustees. The full Board of
Trustees of the Acquired Trust met seven times, the Audit Committee met two
times and the Committee on Independent Trustees met one time during calendar
year 1999. Each then current Trustee attended 100% of the total meetings of the
full Board of Trustees held during calendar year 1999. In addition, each
Independent Trustee attended 100% of the total meetings of the Audit Committee
and the Committee on Independent Trustees held during that period.
HONORARY TRUSTEES
Paul Bancroft III, Wilson Nolen, Thomas J. Devine, Edmund R. Swanberg and
Robert G. Stone, Jr. currently serve as Honorary Trustees of the Acquired Trust.
Honorary Trustees are invited to attend all Board meetings and to participate in
Board discussions, but are not entitled to vote on any matter presented to the
Board. Honorary Trustees are appointed by the Board of
11
<PAGE>
Trustees and will continue to serve in their present capacities following the
Reorganization.
OFFICERS
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED
TRUST; PRINCIPAL YEAR FIRST BECAME
NAME (AGE) OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- -------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48).... Trustee and President; Managing
Director of Scudder Kemper 2000
Kathryn L. Quirk (47)..... Trustee, Vice President and
Assistant Secretary; Managing
Director of Scudder Kemper 1984
Peter Chin (58)........... Vice President; Managing
Director of Scudder Kemper 1995
J. Brooks Dougherty Vice President; Managing
(41)...................... Director of Scudder Kemper 1998
James M. Eysenbach (38)... Vice President; Managing
Director of Scudder Kemper 1995
James E. Fenger (41)...... Vice President; Managing
Director of Scudder Kemper 1998
Philip S. Fortuna (42).... Vice President; Managing
Director of Scudder Kemper 1995
Sewall F. Hodges (44)..... Vice President; Managing
Director of Scudder Kemper 1999
Thaddeus W. Paluszek Vice President; Vice President
(42)...................... of Scudder Kemper 1997
Ann M. McCreary (43)...... Vice President; Managing
Director of Scudder Kemper 1998
John Millette (37)........ Vice President and Secretary;
Vice President of Scudder Kemper 1999
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED
TRUST; PRINCIPAL YEAR FIRST BECAME
NAME (AGE) OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- -------------------------------- -----------------
<S> <C> <C>
John R. Hebble (41)....... Treasurer; Senior Vice President
of Scudder Kemper 1998
Caroline Pearson (38)..... Assistant Secretary; Senior Vice
President of Scudder Kemper;
Associate, Dechert Price &
Rhoads (law firm) 1989 to 1997 1997
</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.
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. Each Independent Trustee receives an annual Trustee's fee
of $3,500 per fund. Each Independent Trustee also receives fees of $325 per fund
for attending each Board meeting, Audit Committee meeting or other meeting held
for the purpose of considering arrangements between the Acquired Trust and
Scudder Kemper, or any of its affiliates. Each Independent Trustee also receives
$100 per fund for all other committee meetings attended. 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 will be provided to
those Independent Trustees who have volunteered to leave the Board prior to
their normal retirement date in order to facilitate the nomination of a
consolidated board. Inasmuch as Scudder Kemper will also benefit from the
administrative efficiencies of a consolidated board, Scudder Kemper has agreed
to pay one-half of the cost of this benefit. The remaining portion, ranging from
$8,293 to $11,749 per Trustee, will be paid by the Acquired Fund.
13
<PAGE>
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 certain 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.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX
TRUSTEES (NUMBER OF SERIES) PAID TO TRUSTEE
- -------- ------------------ --------------------
<S> <C> <C>
Sheryle J. Bolton............. $53,200 (7 series) $179,860 (26 funds)
William T. Burgin............. $50,925 (7 series) $160,325 (25 funds)
Keith R. Fox.................. $50,925 (7 series) $160,325 (25 funds)
William H. Luers.............. $55,475 (7 series) $212,596 (28 funds)
Joan E. Spero................. $55,475 (7 series) $175,275 (25 funds)
Paul Bancroft III,* .......... $44,100 (7 series) $159,991 (27 funds)
Honorary Trustee
Wilson Nolen, ................ $ 0 (7 series) $ 63,598 (6 funds)
Honorary Trustee
Robert G. Stone, Jr., ........ $ 0 (7 series) $ 9,000 (1 fund)
Honorary Trustee
Thomas J. Devine, ............ $ 0 (7 series) $ 0 (0 funds)
Honorary Trustee
Edmund R. Swanberg, .......... $ 0 (7 series) $ 0 (0 funds)
Honorary Trustee
</TABLE>
- ------------------------
* Prior to November 1, 1999, Mr. Bancroft served as a Trustee of the Acquired
Trust. As of November 1, 1999, Mr. Bancroft serves in the capacity of Honorary
Trustee. The compensation in this table reflects any fees received by
Mr. Bancroft in both capacities.
THE BOARD OF TRUSTEES OF SCUDDER SECURITIES TRUST UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF SCUDDER MICRO CAP 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.
15
<PAGE>
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 Acquiring Fund in exchange for S Class 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 S Class Shares
and will hold, immediately after the Reorganization, S Class 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 all 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" below.
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.
The mutual fund industry has grown dramatically over the last ten years. During
this period of rapid growth, investment managers have expanded the range of fund
offerings that they make available to investors in an effort to meet the growing
and changing needs and desires of an increasingly large and dynamic group of
investors. With this expansion has come increased complexity and competition
among mutual funds, as well as increased confusion among investors. The group of
no-load funds advised by Scudder Kemper has followed this pattern, increasing
from 44 no-load funds in 1990 to 77 no-load funds at present.
As a result, 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 funds
16
<PAGE>
offered through the AARP Investment Program (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 the 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 the AARP Funds and for the open-end,
directly-distributed, no-load Scudder Funds 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 a fund of
an administrative fee, Scudder Kemper would agree to provide or pay for
substantially all services that the 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, for the term of the administrative agreement, 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.
REASONS FOR THE PROPOSED REORGANIZATION; BOARD APPROVAL
Since receiving Scudder Kemper's proposals on October 5, 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
17
<PAGE>
enhance the interests of shareholders. See "The Proposed Transaction -- Board
Approval of the Proposed Transaction" below.
The Trustees believe that the Reorganization may provide shareholders of the
Acquired Fund with the following benefits:
- LOWER EXPENSES. If the Reorganization is approved, Acquired Fund
shareholders will benefit from lower total Fund operating expenses. Please
refer to "Comparison of Expenses" below.
- GREATER PREDICTABILITY OF EXPENSES. On or prior to the 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 will pay most Acquiring 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.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will
continue to seek long term capital growth by investing in small
capitalization domestic equities and to reduce downside risk. Acquired
Fund shareholders should note that while the Funds have similar investment
objectives and policies, the Acquiring Fund invests in a more diverse
blend of small capitalization securities than the Acquired Fund, which
focuses primarily on "micro cap" securities.
- TAX-FREE REORGANIZATION. It is a condition of the Reorganization that each
Fund receive an opinion of tax counsel that the transaction would be a
TAX-FREE transaction.
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:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES UNANIMOUSLY 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.
18
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS
Although the investment objectives, policies and restrictions of the
Acquired Fund and the Acquiring Fund (and, consequently, the risks of investing
in either Fund) are similar, there are differences. The investment objective of
the Acquiring Fund is to provide long-term capital growth while actively seeking
to reduce downside risk as compared with other small company stock funds. The
investment objective of the Acquired Fund is to seek long-term growth of
capital. 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, except that the Acquiring Fund invests in
relatively larger-capitalization stocks (which, however, are still considered
small capitalization stocks) and seeks to reduce downside risk by focusing on
relatively undervalued stocks and diversifying its investments widely across
individual companies. The Acquiring Fund's managers use a proprietary computer
model to identify attractively valued stocks of small companies -- those selling
at low prices relative to their earnings, assets or other measures of value. The
Acquired Fund's managers use a quantitative stock valuation model that compares
each company's stock price to company fundamentals such as earnings, book value,
sales and other measures of performance potential.
Both Funds invest primarily in stocks of small U.S. companies, but the
Acquired Fund invests in stocks of smaller companies than those in which the
Acquiring Fund typically invests. The Acquired Fund normally invests at least
80% of its total assets in stocks of companies with a market value of $200
million or less and expects to maintain the median market capitalization of its
portfolio at $125 million or less. The Acquiring Fund normally invests at least
65% of its assets in stocks of companies with potential for above-average long-
term capital growth and market capitalizations typically below $2 billion.
Neither Fund generally invests more than 5% of its assets in the securities of
any one company. The Acquiring Fund typically invests in over 150 securities
while the Acquired Fund typically invests in over 200 securities.
The Acquiring Fund may make only limited use (in terms of transaction type
and amount) of derivatives, futures and options. The Acquired Fund, while
limited to 5% of assets committed to such transactions entered into for non-
hedging purposes, may make more use (in terms of transaction type and amount) of
such transactions. Following the Reorganization, the Acquiring Fund will be able
to engage in derivatives, futures and options to the same extent (in terms of
transaction type and amount) as is currently the case for the Acquired Fund.
19
<PAGE>
The Board of the Acquired Trust currently intends to close the Acquired Fund
to new individual investors when the Acquired Fund's total assets reach
$150 million.
The Acquiring 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. Following the Reorganization, the Acquiring Fund will no
longer have the stated education goal and will change its name to Scudder Small
Company Stock Fund.
The Acquiring Fund's investment restrictions are identical to the Acquired
Fund's investment restrictions, as such restrictions are set forth under
"Investment Restrictions" in each Fund's statement of additional information,
except that the Acquired Fund may not, as a non-fundamental policy, lend
portfolio securities in an amount greater than 5% of its total assets.
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 the Funds for a fuller
description of each Fund's investment policies and restrictions.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund, i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less), for the fiscal year
ended September 30, 1999 (i.e., prior to the creation of S Class Shares) was
17.4%. The portfolio turnover rate for the Acquired Fund for the fiscal year
ended August 31, 1999 was 4.4%.
PERFORMANCE
The following table shows how each Fund's returns over different periods
average out. For context, the table also includes a broad-based market index
(which, unlike the Funds, does not have any fees or expenses). The performances
of both Funds and the index vary over time. All figures assume reinvestment of
dividends and distributions.
20
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR
THE PERIODS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUIRING FUND(+) ACQUIRED FUND BENCHMARK INDEX***
----------------- ------------- ------------------
<S> <C> <C> <C>
Past year............... (3.53%) 3.69% 21.26%
Since Inception*
(Acquiring Fund)...... 6.74% N/A 12.71%
Since Inception**
(Acquired Fund)....... N/A 9.13% 14.71%
</TABLE>
- ------------------------
(+) S Class Shares were not offered during the periods covered. Performance
shown is for shares of the Acquiring Fund existing during the periods
covered.
* The inception date for the Acquiring Fund is February 1, 1997. Index
comparisons begin on January 31, 1997.
** The inception date for the Acquired Fund is August 12, 1996. Index
comparisons begin on August 31, 1996.
*** Each Fund's benchmark index is the Russell 2000 Index, an unmanaged,
capitalization-weighted measure of approximately 2,000 small U.S. stocks.
Index returns are calculated monthly.
Total return for the Acquiring Fund would have been lower during 1997 and
1998 if the Investment Manager had not maintained expenses during those years.
Total Return for the Acquired Fund would have been lower during 1996 and 1997 if
the Investment Manager had not maintained expenses during those years.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended September 30, 1999 (prior to the creation of S Class 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 on behalf of the
Acquiring Fund pursuant to its investment management agreement with the
Acquiring Fund. The investment management agreement provides that the fee
21
<PAGE>
payable by the Acquiring Fund 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 base fee rate decreases as the net assets of
the AARP Investment Program increase. The Acquiring Fund currently pays the
Investment Manager a fee at an annual rate of 0.83% of average daily net assets.
As of September 30, 1999, the Acquiring Fund had total net assets of
$65,895,367. For the fiscal year ended September 30, 1999, the Acquiring Fund
paid the Investment Manager a fee of 0.83% of average daily net assets. By
contract, the total annual Fund operating expenses of the Acquiring Fund are
maintained at no more than 1.75% of average daily net assets until January 31,
2001. There is currently an arrangement between Scudder Kemper and AARP
Financial Services Corporation ("AFSC") pursuant to which Scudder Kemper
currently pays AFSC a monthly fee based on the net assets of AARP Funds.
On or prior to the Closing, the Acquiring Fund's investment management
agreement will be replaced by a new investment management agreement to replace
the base fee rate and individual fund fee rate calculations described above with
a graduated fee rate for the Acquiring Fund that will be equal to an annual rate
of 0.75% of the first $500 million of average daily net assets, 0.70% of the
next $500 million, and 0.65% on average daily net assets in excess of
$1 billion. All other material terms of the current investment management
agreement will remain unchanged. Each of the effectiveness of the new investment
management agreement for the Acquiring Fund and the Closing is contingent upon
the other. As stated below, it is anticipated that the total expense ratio of
the Acquiring Fund following the Reorganization will be lower than the Acquired
Fund's current total expense ratio.
The Investment Manager receives a fee for its services on behalf of the
Acquired Fund pursuant to its investment management agreement with the Acquired
Fund. For these services, the Acquired Fund pays the Investment Manager a fee at
an annual rate of 0.75% of average daily net assets. As of August 31, 1999, the
Acquired Fund had total net assets of $78,316,451. For the fiscal year ended
August 31, 1999, the Acquired Fund paid the Investment Manager a fee of 0.75% of
average daily net assets.
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
22
<PAGE>
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 0.45% 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 this arrangement (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. Dechert
Price & Rhoads acts 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 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
23
<PAGE>
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 S Class Shares, 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 S Class Shares. Pro
Forma information in the tables and examples relates to the S Class Shares and
the AARP Class of shares of the Acquiring Fund. (Please see "Description of the
Securities to be Issued" below.)
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 1.00% None
</TABLE>
24
<PAGE>
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA*
ACQUIRING FUND ACQUIRED FUND (COMBINED)
-------------- ------------- ----------
<S> <C> <C> <C>
Management fees............... 0.83% 0.75% 0.75%
Distribution and/or service
(12b-1) fees................ None None None
Other expenses................ 0.88% 0.89% 0.47%
Total annual Fund operating
expenses.................... 1.71% 1.64% 1.22%
</TABLE>
- ------------------------
(+) There is a $5 wire service fee for receiving redemption proceeds via wire.
(*) Pro Forma expenses reflect the implementation of the Administrative Fee
and of a new investment management fee for the Acquiring Fund to be
effective upon the Reorganization.
In evaluating the Reorganization, 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 total annual expense ratio of 1.70% for the
Acquiring Fund and 1.68% for the Acquired Fund.
EXAMPLES (UNAUDITED)
Based on the costs above, 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, you reinvested all dividends and distributions, and each Fund's
25
<PAGE>
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be as follows:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ACQUIRING FUND ACQUIRED FUND (COMBINED)*
- ---- -------------- ------------- -----------
<S> <C> <C> <C>
1ST.................. $ 174 $ 167 $ 124
3RD.................. $ 539 $ 517 $ 387
5TH.................. $ 928 $ 892 $ 670
10TH................. $2,019 $1,944 $1,477
</TABLE>
- ------------------------
* Pro Forma expenses reflect the implementation of the Administrative Fee and
of a new investment management fee for the Acquiring Fund to be effective
upon the Reorganization.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund prior to the creation
of the S Class Shares, which is intended to help you understand the Acquiring
Fund's financial performance since its inception on February 1, 1997, is
included in the Acquiring Fund's prospectus dated February 1, 2000, 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
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 S Class
Shares.
26
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to distribute dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryfowards,
if any, annually to prevent application of a federal excise tax. An additional
distribution 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 (i.e., securities selection by the Investment Manager)
and market risk. When small company stock prices fall, the value of an
investment in each Fund will fall as well. Small company stocks tend to be more
volatile than stocks of larger companies, partly because small companies tend to
have limited product lines and tend to be more vulnerable to competitive
challenges and bad economic news. Securities of small companies are often thinly
traded and could be harder to value or sell at a fair price. These risks
generally are greater for the Acquired Fund, which invests in stocks of smaller
companies than those in which the Acquiring Fund typically invests. Since the
Acquiring Fund invests a smaller portion of its assets in micro cap stocks than
the Acquired Fund, the Acquiring Fund will generally be less volatile than the
Acquired Fund, but will not perform as well as the Acquired Fund when micro
27
<PAGE>
cap securities outperform other asset classes. Since the Acquiring Fund attempts
to manage downside risk, its performance, as compared to the Acquired Fund, may
be reduced in a strong market. Conversely, the Acquiring Fund may perform better
than the Acquired Fund in a weak market.
For a further discussion of the investment techniques and risk factors
applicable to the Acquired Fund and the Acquiring Fund, see the "Investment
Objectives, Policies and Restrictions of the Funds" above, 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 S Class 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
S Class 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 S Class 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, S Class 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 (less any applicable
redemption fee) next determined after receipt by the Acquired Fund's transfer
agent of a redemption request in proper form. Redemption and purchase requests
received by the transfer agent after the Closing will be treated as requests
received for the redemption or purchase of S Class Shares received by the
shareholder in connection with the Reorganization.
The obligations of the Trusts on behalf of the Funds under the Plan are
subject to various conditions, as stated therein. Among other things, the Plan
28
<PAGE>
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.
Each 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 $74,752 for the Acquiring Fund and $48,724 for the Acquired Fund
(approximately $0.0228 and $0.0117 per share, respectively, based on
December 31, 1999 net assets for each Fund). As investors in a Fund, Fund
shareholders indirectly bear a portion of these expenses.
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 October 5, 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" above). 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
29
<PAGE>
(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 October 5 meeting, the Independent Trustees met in person or by telephone on
seven 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. The Independent Trustees have also
unanimously 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, 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
30
<PAGE>
result of the Reorganization; (g) the 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 similar investment goals in a larger fund.
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 or directors 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 unanimously agreed to recommend
the election of a new consolidated board comprised of representatives of each of
the various boards currently serving as trustees or directors 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,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE
REORGANIZATION.
31
<PAGE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated June 8, 1984, 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. The Acquiring Fund is one of seven series of the Acquiring
Trust that the Board has created to date. The Trustees of the Acquiring Trust
are also authorized to further divide the shares of the series of the Acquiring
Trust into classes. The Trustees of the Acquiring Trust have authorized the
division of the Acquiring Fund into two classes, S Class and AARP Class. 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 AARP
Class shares of the Acquiring Fund. If S Class 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 and certain other
matters.
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 of the Acquiring Fund. Acquiring Fund shareholders are entitled to one
vote per share held on matters on which they are entitled to vote. 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.
It is being proposed to shareholders of the Acquiring Fund that the
Acquiring Fund be reorganized into a new series of Investment Trust, a
Massachusetts business trust the series of which are advised by Scudder Kemper.
Pending shareholder approval, the Acquiring Fund will become a series of
Investment Trust on July 17, 2000.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Acquired Trust, on
behalf of the Acquired Fund, and the Acquiring Trust, on behalf of the Acquiring
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
S Class 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
32
<PAGE>
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 S Class Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
or upon the distribution of the S Class 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 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 S Class 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 S Class Shares solely in exchange for
their shares of the Acquired Fund as part of the transaction; (vii) the basis of
the S Class 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 S Class 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.
After the Closing, the Acquiring Fund may dispose of certain securities
received by it from the Acquired Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
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.
33
<PAGE>
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 S Class Shares), and
on a pro forma basis as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED(1)
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
NET ASSETS
AARP Class............ $61,451,119 ($74,752)(3) $ 61,376,367
S Class Shares........ $69,646,503 ($48,724)(4) $ 69,597,779
------------
Total Net Assets...... $130,974,146(2)
============
SHARES OUTSTANDING
AARP Class............ 3,565,060 3,565,060
S Class Shares........ 4,852,435 (810,752) 4,041,683
NET ASSET VALUE PER
SHARE
AARP Class............ $ 17.24 $ 17.22
S Class Shares........ $ 14.35 $ 17.22
</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 and of a new
investment management fee for the Acquiring Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquiring Fund.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquired Fund.
THE BOARD OF TRUSTEES OF SCUDDER SECURITIES TRUST UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF SCUDDER MICRO CAP 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.
34
<PAGE>
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 SCUDDER SECURITIES TRUST UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF SCUDDER MICRO CAP 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, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by the Trusts
can be inspected and copied at the Public Reference Room maintained by the SEC
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 Trusts, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts 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 of the Acquiring Fund's
35
<PAGE>
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- Investment Manager; Fees and Expenses" above.
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.
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
36
<PAGE>
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 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000, there were 3,723,901 shares of
the Acquired Fund outstanding.
As of January 31, 2000, 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 more than
5% of each Fund's shares, as well as the beneficial owners of more than 5% of
the shares of each other series of the Acquired Trust. To the best of the
applicable Trust's knowledge, as of January 31, 2000, no person owned
beneficially more than 5% of either Fund's outstanding shares or the shares of
any other series of the Acquired Trust, except as stated in Appendix 2.
Shareholder Communications Corporation ("SCC") has been engaged to assist in
the solicitation of proxies, at an estimated cost of $6,173. 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
37
<PAGE>
SCC representative has the responsibility to explain the process, read the
Proposals on the proxy card(s), 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(s) originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy card(s), they may contact SCC toll-free at 1-800-603-1915. 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 Acquired 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 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
38
<PAGE>
their best judgment in the interest of the Acquired 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,
/s/ John Millette
John Millette
Secretary
39
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<S> <C>
EXHIBIT A: Agreement and Plan of Reorganization
EXHIBIT B: Management's Discussion of Acquiring Fund's Performance
APPENDIX 1: Trustee and Nominee Shareholdings
APPENDIX 2: Beneficial Owners of Fund Shares
</TABLE>
<PAGE>
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 AARP Growth Trust (the "Acquiring
Trust"), a Massachusetts business trust, on behalf of AARP Small Company Stock
Fund (the "Acquiring Fund"), a separate series of the Acquiring Trust, and
Scudder Securities Trust (the "Acquired Trust" and, together with the Acquiring
Trust, each a "Trust" and collectively the "Trusts"), a Massachusetts business
trust, on behalf of Scudder Micro Cap 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 S 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
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<PAGE>
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 the Acquired Fund immediately before 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
A-2
<PAGE>
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 Investment Company Act of 1940, as
amended (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 (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 Trust's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information.
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
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<PAGE>
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
July 17, 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
A-4
<PAGE>
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, 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 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
A-5
<PAGE>
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 August 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 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 August 31, 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;
A-6
<PAGE>
(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
A-7
<PAGE>
the 1940 Act, except those restrictions as to which the Acquiring Fund has
received notice and necessary documentation at or prior to the Closing;
(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.
A-8
<PAGE>
4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquiring 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 Acquiring Trust 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 Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in
violation of Massachusetts law or of the Acquiring 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 Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring 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 September 30, 1999, have
been audited by PricewaterhouseCoopers LLP, independent
A-9
<PAGE>
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 September 30, 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 Acquiring Fund). The Acquiring
Fund does not
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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;
(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 Acquiring 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 Trust and this Agreement will
constitute a valid and binding obligation Acquiring Trust, on behalf 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;
A-11
<PAGE>
(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 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 13, 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.
A-12
<PAGE>
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 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
A-13
<PAGE>
Acquiring Fund Shares to be transferred to the 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 Acquiring Trust, on behalf of
the Acquiring 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 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.
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 Trust has been duly formed and is an existing business
trust; (b) the Acquiring Trust has the power to carry on its business
A-14
<PAGE>
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
Trust, on behalf of 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 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
Acquiring 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.
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 (i) adopted a new investment management
agreement and (ii) entered into an administrative services agreement with
Scudder Kemper Investments, Inc. ("Scudder Kemper"), each 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, on behalf of
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
A-15
<PAGE>
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired 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 Fund 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 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.
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.
A-16
<PAGE>
7.6 The Acquiring Fund shall have (i) adopted a new investment management
agreement and (ii) 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.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Trust and the Acquired Trust, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the
A-17
<PAGE>
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 by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund 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 Acquired Fund Shareholders 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 Acquired Fund Shareholders 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 Acquired Fund Shareholders 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 Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each 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
A-18
<PAGE>
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 on behalf 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.
10.2. Each 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 $74,752 for the Acquiring Fund and $48,724 for the Acquired Fund
(approximately $0.0228 and $0.0117 per share, respectively, based on
December 31, 1999 net assets for each 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.
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.
A-19
<PAGE>
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
October 31, 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 5.3 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
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.
A-20
<PAGE>
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 the 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 each Trust 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 either Trust other than the Funds
shall be responsible for the obligations of the Trust hereunder, and all persons
shall look only to the assets of the Funds to satisfy the obligations of the
Trusts 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 applicable Fund, as provided in each 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 the Acquiring Trust or the Acquired Trust or the assets of any
such series be held liable with respect to the breach or other default by the
Obligated
A-21
<PAGE>
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 Commonwealth 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.
<TABLE>
<S> <C> <C>
Attest: SCUDDER SECURITIES TRUST
on behalf of Scudder Micro Cap Fund
-------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: AARP GROWTH TRUST
on behalf of AARP Small Company
Stock Fund
-------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By: ---------------------------
Its: ---------------------------
</TABLE>
A-22
<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
AARP SMALL COMPANY STOCK FUND
FUND PERFORMANCE
Large-cap technology stocks dominated the market averages during most of
AARP Small Company Stock Fund's fiscal year. Over the 12-month period ended
September 30, 1999, the fund posted a 5.70% total return, compared with the
19.07% return of the fund's benchmark, the Russell 2000 Index. Since its
inception on February 1, 1997, the fund's average annual return was 7.13%,
compared with the 6.98% return of the Russell 2000 Index.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999
CHART DATA:
<TABLE>
<CAPTION>
AARP SMALL COMPANY RUSSELL 2000
STOCK FUND INDEX+
---------------------------------------------------------
<S> <C> <C>
2/1/97* 10000 10000
3/97 9940 9297
9/97 13353 12413
3/98 14387 13202
9/98 11362 10050
3/99 10989 11055
9/99 12009 11967
</TABLE>
- --------------------------------------------------------------------------------
+ The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Index returns are calculated monthly
and assume reinvestment of dividends. Unlike fund returns, index returns do
not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. The adviser has agreed to maintain
expenses until 1/31/00. If the adviser had not maintained expenses, total
returns would have been lower.
* The fund commenced operations on February 1, 1997.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
<PAGE>
GOAL
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other small company stock funds. The fund
pursues its goal by investing primarily in stocks of small U.S. companies with
potential for above-average long-term capital growth.
PORTFOLIO
MANAGEMENT TEAM
James M. Eysenbach
Lead Portfolio Manager
Calvin S. Young
Portfolio Manager
<TABLE>
<CAPTION>
-------------------------
TOTAL RETURN
As of September 30, 1999
CUMULATIVE
FUND INDEX+
-------------------------
<S> <C> <C>
1 yr. 5.70% 19.07%
Life of
Fund* 20.09% 19.67%
<CAPTION>
AVERAGE ANNUAL
FUND INDEX+
-------------------------
<S> <C> <C>
1 yr. 5.70% 19.07%
Life of
Fund* 7.13% 6.98%
-------------------------
</TABLE>
B-1
<PAGE>
The fund trailed the performance of its benchmark during its most recent
fiscal year for two related reasons: first, because of the fund's continued
emphasis on stocks with stronger value characteristics, e.g., lower
price/earnings (P/E) or price/book (P/B) ratios. The fund's typical holding has
a P/E of 12x compared with 21x for the Index. Though small-cap value stocks
recovered some ground during the second quarter, this sector had lower overall
returns than small-cap growth stocks in this environment. Second, technology and
communications stocks drove the performance of the Russell 2000 Index during the
period, and the fund's portfolio was underweighted in these sectors because of
our valuation discipline. Under this discipline, which we believe will lead to
strong performance over the long term, the fund is precluded from owning many
technology and communications stocks that are posting negative earnings despite
recent strong performance.
Beyond technology and communications, the fund benefitted from a
significant underweighting in the financial sector. Here our valuation analysis
correctly anticipated the weak performance of finance stocks overall. In
addition, our holdings in the energy and consumer discretionary sectors
outperformed those in the index, contributing positively to the fund's return.
Nevertheless, these positive contributions were insufficient to offset the
shortfall in technology and communications.
THE FUND'S INVESTMENT STRATEGY
The fund is managed using a set of investment disciplines designed to add
value over the long term. We recognize that this approach will at times be out
of favor with current market trends. However, we resist the temptation to react
to short-term events
B-2
<PAGE>
when we believe the trends are not supported by underlying company fundamentals.
We believe that a consistent and disciplined approach balancing valuation and
future growth prospects will result in better returns over the long term.
Furthermore, our strategy does not focus on picking a few big winners or
sectors, but on building a portfolio with attractive overall characteristics,
including diversification among more than 150 stocks.
OUTLOOK
During the first six months of the period, the fund's valuation discipline
and broad diversification detracted from short-term returns because the largest
market gains were heavily concentrated in just a few high-priced stocks. But
over the long term, as has been demonstrated in the past, we expect the fund's
diversified portfolio of attractively valued stocks to enhance performance and
reduce risk. We consider the recent outperformance of large-cap growth stocks to
be an aberration, and expect that in the future the fund will benefit from
broader market participation in the growing U.S. economy. We believe small-cap
stocks remain an important
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
- - Want long-term growth of principal
- - Are not looking for a source of regular income
- - Can invest for at least five years
- - Can handle potentially large ups and downs in investment performance
- - Are looking for a fund to invest in for the growth portion of one's portfolio
-------------------------
Asset Allocation
As of September 30, 1999
Stock Holdings 96%
Cash Equivalents 4%
----
100%
====
-------------------------
B-3
<PAGE>
component of a properly diversified investment portfolio, offering attractive
return potential over the long term.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LARGEST EQUITY HOLDINGS BY SECTOR
(EXCLUDES CASH EQUIVALENTS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Manufacturing (22%) 6. Financial (7%)
Lawson Products, Inc. Hilb, Rogal & Hamilton Co.
2. Consumer Discretionary (17%) 7. Service Industries (7%)
Industries, Inc. CPI Corp. ABM
3. Utilities (12%) 8. Technology (7%)
TNP Enterprises, Inc. Technitrol, Inc.
4. Durables (10%) 9. Consumer Staples (3%)
The Manitowoc Company, Inc. Michael Foods, Inc.
5. Construction (7%) 10. Transportation (3%)
USFreightways Corp. Granite Construction, Inc.
- --------------------------------------------------------------------------------
</TABLE>
B-4
<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 the Acquired Trust's
President and 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
its President and 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 outstanding shares 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>
SCUDDER
SCUDDER SCUDDER SMALL SCUDDER 21(ST)
SCUDDER FINANCIAL HEALTH SCUDDER COMPANY SCUDDER CENTURY
DEVELOPMENT SERVICES CARE MICRO CAP VALUE TECHNOLOGY GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- --------- -------- ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry P. Becton,
Jr.(1)............... 526(4) 0 296(6) 444(8) 773(10) 119(12) 164(14)
Sheryle J. Bolton(1)... 117 121 115 330 269 82 202
William T. Burgin(1)... 0 0 0 0 0 0 0
Linda C. Coughlin(1)... 0 0 0 0 0 0 0
Dawn-Marie
Driscoll(1).......... 23 0 62 0 301 349 472
Edgar R. Fiedler(1).... 0 0 0 0 0 0 0
Keith R. Fox(1)........ 290 780 597 1,338 1,427 239 796
William H. Luers(1).... 0 0 0 0 0 0 0
Kathryn L. Quirk(2).... 166 0 0 0 0 0 0
Joan Edelman Spero(2).. 0 0 60 0 61 24 33
Jean Gleason
Stromberg(2)......... 0 0 0 0 0 0 0
Jean C. Tempel(1)...... 0 0 0 0 0 0 0
Steven Zaleznick(3).... 0 0 0 0 0 0 0
All Trustees and
Officers as a
Group................ 5,148(5) 901 1,130(7) 6,682(9) 9,951(11) 813(13) 5,610(15)
</TABLE>
- ------------------------------
(1) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were over
$100,000.
(2) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $50,000 and $100,000.
(3) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were $0.
(4) Mr. Becton's shares in Scudder Development Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
1
<PAGE>
(5) As a group, as of January 31, 2000, the Trustees and officers of Scudder
Development Fund held 596 shares with sole voting and investment power, and
4,552 shares with sole investment but no voting power. Shares held with
sole investment but no voting power are shares held in profit sharing and
401(k) plans for which Scudder Kemper serves as trustee.
(6) Mr. Becton's shares in Scudder Health Care Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(7) As a group, as of January 31, 2000, the Trustees and officers of Scudder
Health Care Fund held 834 shares with sole voting and investment power, and
296 shares with sole investment but no voting power. Shares held with sole
investment but no voting power are shares held in profit sharing and 401(k)
plans for which Scudder Kemper serves as trustee.
(8) Mr. Becton's shares in Scudder Micro Cap Fund are held with sole investment
but no voting power. Shares held with sole investment but no voting power
are shares held in profit sharing and 401(k) plans for which Scudder Kemper
serves as trustee.
(9) As a group, as of January 31, 2000, the Trustees and officers of Scudder
Micro Cap Fund held 1,668 shares with sole voting and investment power, and
5,014 shares with sole investment but no voting power. Shares held with
sole investment but no voting power are shares held in profit sharing and
401(k) plans for which Scudder Kemper serves as trustee.
(10) Mr. Becton's shares in Scudder Small Company Value Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(11) As a group, as of January 31, 2000, the Trustees and officers of Scudder
Small Company Value Fund held 3,035 shares with sole voting and investment
power, and 6,916 shares with sole investment but no voting power. Shares
held with sole investment but no voting power are shares held in profit
sharing and 401(k) plans for which Scudder Kemper serves as trustee.
(12) Mr. Becton's shares in Scudder Technology Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(13) As a group, as of January 31, 2000, the Trustees and officers of Scudder
Technology Fund held 694 shares with sole voting and investment power, and
119 shares with sole investment but no voting power. Shares held with sole
investment but no voting power are shares held in profit sharing and
401(k) plans for which Scudder Kemper serves as trustee.
(14) Mr. Becton's shares in Scudder 21st Century Growth Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(15) As a group, as of January 31, 2000, the Trustees and officers of Scudder
21st Century Growth Fund held 1,503 shares with sole voting and investment
power, and 4,107 shares with sole investment but no voting power. Shares
held with sole investment but no voting power are shares held in profit
sharing and 401(k) plans for which Scudder Kemper serves as trustee.
2
<PAGE>
APPENDIX 2
BENEFICIAL OWNERS OF FUND SHARES
As of January 31, 2000, 359,439 shares in the aggregate, or 11.66% of the
outstanding shares, of AARP SMALL COMPANY STOCK FUND were held in the name of
State Street Bank & Trust Company, Custodian of AARP Managed Investment
Portfolio Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA
02171, who may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 127,252 shares in the aggregate, or 7.13% of the
outstanding shares, of SCUDDER FINANCIAL SERVICES FUND were held in the name of
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be
deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 307,032 shares in the aggregate, or 8.37% of the
outstanding shares, of SCUDDER HEALTH CARE FUND were held in the name of Charles
Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be deemed to be
the beneficial owner of certain of these shares.
As of January 31, 2000, 312,164 shares in the aggregate, or 7.77% of the
outstanding shares, of SCUDDER MICRO CAP FUND were held in the name of Charles
Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be deemed to be
the beneficial owner of certain of these shares.
As of January 31, 2000, 1,328,956 shares in the aggregate, or 10.72% of the
outstanding shares, of SCUDDER SMALL COMPANY VALUE FUND were held in the name of
Scudder Kemper Investments, Trustee for Farmer's Group Inc. Profit Sharing
Savings Plan, 4680 Wilshire Blvd., Los Angeles, CA 90010, who may be deemed to
be the beneficial owner of certain of these shares.
As of January 31, 2000, 1,087,899 shares in the aggregate, or 8.57% of the
outstanding shares, of SCUDDER TECHNOLOGY FUND were held in the name of Charles
Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be deemed to be
the beneficial owner of certain of these shares.
As of January 31, 2000, 738,425 shares in the aggregate, or 9.79% of the
outstanding shares, of SCUDDER 21ST CENTURY GROWTH FUND were held in the name of
Scudder Kemper Investments, Trustee for Farmer's Group Inc. Profit Sharing
Savings Plan, 4680 Wilshire Blvd., Los Angeles, CA 90010, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership in such shares.
3
<PAGE>
SCUDDER KEMPER'S OWNERSHIP OF FUND SHARES
As of January 31, 2000, 738,425 shares in the aggregate, or 9.79% of the
outstanding shares, of SCUDDER 21ST CENTURY GROWTH FUND were held in the name of
Scudder Kemper Investments, Trustee for Farmer's Group Inc. Profit Sharing
Savings Plan, 4680 Wilshire Blvd., Los Angeles, CA 90010, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership in such shares.
Certain accounts for which the Scudder Kemper acts as investment adviser
owned 1,603,028 shares in the aggregate, or 8.64% of the outstanding shares, of
SCUDDER DEVELOPMENT FUND on January 31, 2000. Scudder Kemper may be deemed to be
the beneficial owner of such shares, but disclaims any beneficial ownership in
such shares.
Certain accounts for which the Scudder Kemper acts as investment adviser
owned 515,548 shares in the aggregate, or 12.84% of the outstanding shares, of
SCUDDER MICRO CAP FUND on January 31, 2000. Scudder Kemper may be deemed to be
the beneficial owner of such shares, but disclaims any beneficial ownership in
such shares.
Certain accounts for which the Scudder Kemper acts as investment adviser
owned 2,238,313 shares in the aggregate, or 18.05% of the outstanding shares, of
SCUDDER SMALL COMPANY VALUE FUND on January 31, 2000. Scudder Kemper may be
deemed to be the beneficial owner of such shares, but disclaims any beneficial
ownership in such shares.
Certain accounts for which the Scudder Kemper acts as investment adviser
owned 480,071 shares in the aggregate, or 6.36% of the outstanding shares, of
SCUDDER 21ST CENTURY GROWTH FUND on January 31, 2000. Scudder Kemper may be
deemed to be the beneficial owner of such shares, but disclaims any beneficial
ownership in such shares.
4
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-603-1915.
SD Micro Cap
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated February 1, 2000, which was previously filed with the
Commission via EDGAR on February 1, 2000 (File No. 2-91578) and is incorporated
by reference herein.
5
<PAGE>
PART B
AARP GROWTH TRUST
- ------------------------------------------------------------------------------
Statement of Additional Information
April 18, 2000
- ------------------------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Scudder Micro Cap Fund (the AARP Small Company Stock Fund
"Acquired Fund"), a series of (the "Acquiring Fund"), a series
Scudder Securities Trust of AARP Growth Trust
Two International Place (the "Acquiring Trust")
Boston, MA 02110-4103 Two International Place
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 Trust contains
material which may be of interest to investors but which is not included in
the Prospectus/Proxy Statement of the Acquiring Trust 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 February
1, 2000, which was previously filed with the Securities and Exchange
Commission (the "Commission") via EDGAR on February 1, 2000 (File
No. 2-91578) and is incorporated by reference herein.
2. The Acquiring 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. 811-04048) and is incorporated by
reference herein.
3. The Acquired Fund's prospectus dated January 1, 2000, which was
previously filed with the Commission via EDGAR on December 23, 1999 (File
No. 2-36238) and is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated January 1,
2000, which was previously filed with the Commission via EDGAR on December
23, 1999 (File No. 2-36238) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year
ended August 31, 1999, which was previously filed with the Commission via
EDGAR on October 26, 1999 (File No. 811-02021) 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.
54
<PAGE>
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 18, 2000 relating to the
Reorganization may be obtained by writing the Acquired Fund at 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>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS 2.1%
- -------------------------------------
Repurchase Agreement with State Street 1,279,000 1,441,000 2,720,000 1,279,000 1,441,000 2,720,000
Bank and Trust Company, 5.200%,
11/1/1999
================================================
REPURCHASE AGREEMENTS TOTAL 1,279,000 1,441,000 2,720,000
================================================
REPURCHASE AGREEMENTS (COST OF
$1,279,000 $1,441,000 AND
$2,720,000 RESPECTIVELY)
CONVERTIBLE PREFERRED STOCKS 0.1%
- -------------------------------------
Service Industries
Miscellaneous Consumer Services
TEAM America Corp. 18,800 18,800 122,200 122,200
================================================
CONVERTIBLE PREFERRED STOCKS TOTAL 122,200 122,200
================================================
CONVERTIBLE PREFERRED STOCKS (COST OF $0
$90,346 AND $90,346 RESPECTIVELY)
COMMON STOCKS 97.8%
- -------------------------------------
CONSUMER DISCRETIONARY 15.1%
Apparel & Shoes 2.7%
Brown Shoe Company, Inc. 20,000 20,000 356,250 356,250
Cache, Inc. 49,300 49,300 271,150 271,150
Candie's Inc. 57,900 57,900 83,231 83,231
Genesco Inc. 70,300 70,300 931,475 931,475
G-III Apparel Group, Ltd. 76,600 76,600 232,194 232,194
Hampshire Group, Ltd. 29,900 29,900 239,200 239,200
Kellwood Company 18,300 18,300 323,681 323,681
Oxford Industries, Inc. 17,400 17,400 374,100 374,100
Premiumwear, Inc. 70,500 70,500 387,750 387,750
Steven Madden, Ltd. 10,700 10,700 131,075 131,075
Stage Stores, Inc. 12,600 12,600 60,638 60,638
The Children's Place Retail Stores, 4,000 4,000 104,250 104,250
Inc.
Timberland Co. "A" 2,000 2,000 98,750 98,750
------------------------------------------------
2,249,144 1,344,600 3,593,744
------------------------------------------------
Department & Chain Stores 1.2%
Ames Department Stores, Inc. 22,300 22,300 706,631 706,631
Drug Emporium, Inc. 113,300 113,300 524,013 524,013
Duckwall-ALCO Stores, Inc. 37,200 37,200 302,250 302,250
Goody's Family Clothing, Inc. 7,300 7,300 73,913 73,913
------------------------------------------------
780,544 826,263 1,606,807
------------------------------------------------
Home Furnishings 0.9%
Baldwin Piano & Organ Co. 17,600 17,600 145,200 145,200
Bush Industries, Inc. "A" 9,400 9,400 136,888 136,888
La-Z-Boy Inc. 35,400 35,400 646,050 646,050
Mikasa, Inc. 21,400 21,400 244,763 244,763
Pillowtex Corp. 16,800 16,800 56,700 56,700
------------------------------------------------
1,084,401 145,200 1,229,601
------------------------------------------------
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hotels & Casinos 1.9%
Buckhead America Corp. 52,100 52,100 296,319 296,319
Hollywood Park, Inc. 1,300 1,300 22,506 22,506
Humphrey Hospitality Trust, Inc. 49,270 49,270 326,414 326,414
Isle of Capri Casinos, Inc. 70,100 70,100 832,438 832,438
Jackpot Enterprises, Inc. 52,000 52,000 455,000 455,000
John Q. Hammons Hotels, Inc. 15,000 15,000 60,000 60,000
Prime Hospitality Corp. 24,700 24,700 192,969 192,969
Sonesta International 49,000 49,000 318,500 318,500
Hotels Corp. "A" ------------------------------------------------
215,475 2,288,671 2,504,146
------------------------------------------------
Recreational Products 2.7%
Allen Organ Co. "B" 4,400 4,400 169,400 169,400
American Coin Merchandising, Inc. 11,900 11,900 35,700 35,700
CPI Corp. 30,400 30,400 777,100 777,100
Coachmen Industries, Inc. 7,100 7,100 104,281 104,281
Escalade, Inc. 30,800 30,800 477,400 477,400
Holiday RV Superstores, Inc. 173,300 173,300 747,356 747,356
Rawlings Sporting Goods Co., Inc. 15,200 15,200 142,500 142,500
THQ, Inc. 10,200 10,200 419,475 419,475
Thor Industries, Inc. 29,250 29,250 738,563 738,563
------------------------------------------------
2,039,419 1,572,356 3,611,775
------------------------------------------------
Restaurants 3.2%
Applebee's International Inc. 10,500 10,500 302,531 302,531
Avado Brands, Inc. 26,200 26,200 147,375 147,375
Benihana, Inc. "A" 33,800 33,800 481,650 481,650
CEC Entertainment Inc. 17,700 17,700 567,506 567,506
Famous Dave's of America, Inc. 40,800 40,800 79,050 79,050
Garden Fresh Restaurant Corp. 58,500 58,500 851,906 851,906
IHOP Corp. 23,600 23,600 426,275 426,275
Max & Erma's Restaurants, Inc. 80,800 80,800 535,300 535,300
Rainforest Cafe Inc. 4,800 4,800 21,600 21,600
Ruby Tuesday, Inc. 42,400 42,400 808,250 808,250
------------------------------------------------
2,273,537 1,947,906 4,221,443
------------------------------------------------
Specialty Retail 2.5%
Brauns Fashions Corp 15,000 15,000 249,375 249,375
Brookstone, Inc. 33,900 33,900 529,688 529,688
Friedman's, Inc.,"A" 33,300 33,300 199,800 199,800
InterTAN, Inc. 5,600 5,600 126,000 126,000
Pier 1 Imports, Inc. 7,500 7,500 44,531 44,531
Rag Shops, Inc. 84,315 84,315 163,360 163,360
Reeds Jewelers, Inc. 20,200 20,200 68,175 68,175
S & K Famous Brands, Inc. 28,400 28,400 213,000 213,000
The Finish Line, Inc. "A" 65,100 65,100 449,597 449,597
Trans World Entertainment Corp. 10,400 10,400 107,900 107,900
United Auto Group, Inc. 4,000 4,000 46,750 46,750
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ultimate Electronics, Inc. 5,000 5,000 85,000 85,000
Wolohan Lumber Co. 27,900 27,900 345,263 345,263
Wet Seal, Inc. "A" 22,400 22,400 313,600 313,600
Zale Corp. 7,400 7,400 309,875 309,875
------------------------------------------------
1,472,053 1,779,861 3,251,914
------------------------------------------------
CONSUMER STAPLES 6.2%
Alcohol & Tobacco 0.1%
Todhunter International, Inc. 15,600 15,600 142,350 142,350
------------------------------------------------
Consumer Electronic & Photographic 1.3%
Cobra Electronics Corp. 85,800 85,800 353,925 353,925
Salton, Inc. 11,200 37,200 48,400 319,200 1,060,200 1,379,400
------------------------------------------------
319,200 1,414,125 1,733,325
------------------------------------------------
Farming 0.4%
AG Services of America, Inc. 18,700 18,700 279,331 279,331
Sylvan, Inc. 27,800 27,800 271,050 271,050
------------------------------------------------
550,381 550,381
------------------------------------------------
Food & Beverage 4.2%
Celestial Seasonings, Inc. 24,600 24,600 421,275 421,275
Foodarama Supermarkets, Inc. 14,100 14,100 403,613 403,613
J & J Snack Foods Corp. 22,300 22,300 429,275 429,275
Michael Foods, Inc. 26,000 26,000 663,000 663,000
Riviana Foods, Inc. 29,100 29,100 545,625 545,625
Ruddick Corp. 18,000 18,000 307,125 307,125
Schultz Sav-O Stores, Inc. 33,050 33,050 487,488 487,488
Seaway Food Town, Inc. 33,150 33,150 915,769 915,769
Smithfield Companies, Inc. 21,600 21,600 164,700 164,700
Suprema Specialties, Inc. 98,500 98,500 775,688 775,688
Village Super Market, Inc. "A" 28,100 28,100 400,425 400,425
------------------------------------------------
1,515,750 3,998,233 5,513,983
------------------------------------------------
Package Goods/Cosmetics 0.1%
Chattem, Inc. 9,100 9,100 160,388 160,388
------------------------------------------------
Textiles 0.1%
Dyersburg Corp. 49,100 49,100 12,275 12,275
Worldtex, Inc. 36,000 36,000 58,500 58,500
------------------------------------------------
70,775 70,775
------------------------------------------------
HEALTH 4.0%
Biotechnology 0.2%
Synbiotics Corp. 124,200 124,200 310,500 310,500
------------------------------------------------
Health Industry Services 1.4%
Air Methods Corp. 101,600 101,600 317,500 317,500
HPSC, Inc. 55,800 55,800 571,950 571,950
Healthcare Services Group, Inc. 52,050 52,050 418,027 418,027
Magellan Health Services, Inc. 19,800 19,800 120,038 120,038
Prime Medical Services, Inc. 30,200 30,200 298,225 298,225
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ProMedCo Management Co. 46,800 46,800 99,450 99,450
------------------------------------------------
418,263 1,406,927 1,825,190
------------------------------------------------
Hospital Management 0.2%
Coventry Health Care, Inc. 13,100 13,100 75,325 75,325
National Home Health Care Corp. 41,890 41,890 159,706 159,706
------------------------------------------------
75,325 159,706 235,031
------------------------------------------------
Medical Supply & Specialty 2.2%
Bindley Western Industries, Inc. 49,288 49,288 619,181 619,181
Infu-Tech, Inc. 27,300 27,300 30,713 30,713
NBTY Inc. 32,600 32,600 262,838 262,838
Polymedica Industries, Inc. 48,800 48,800 1,030,900 1,030,900
Scherer Healthcare, Inc. 31,600 31,600 102,700 102,700
Span-America Medical Systems, Inc. 58,400 58,400 193,450 193,450
Summit Technology, Inc. 6,800 6,800 105,825 105,825
Superior Uniform Group, Inc. 30,500 30,500 324,063 324,063
Twinlab Corp. 18,900 18,900 153,563 153,563
------------------------------------------------
1,141,407 1,681,826 2,823,233
------------------------------------------------
COMMUNICATIONS 1.1%
Telephone/Communications 1.1%
Applied Digital Solutions Inc. 81,600 81,600 147,900 147,900
Hector Communications Corp. 42,900 42,900 699,806 699,806
Pacific Gateway Exchange, Inc. 2,200 2,200 50,050 50,050
Xircom, Inc. 10,200 10,200 514,463 514,463
------------------------------------------------
564,513 847,706 1,412,219
------------------------------------------------
FINANCIAL 11.5%
Banks 5.9%
Alliance Bancorp of New England, Inc. 37,749 37,749 377,490 377,490
Andover Bancorp, Inc. 17,000 17,000 497,250 497,250
Columbia Banking System, Inc. 18,522 18,522 243,101 243,101
Equitable Federal Savings Bank 700 700 12,250 12,250
First Essex Bancorp 15,800 15,800 248,850 248,850
First Keystone Financial, Inc. 6,500 6,500 73,938 73,938
First Oak Brook Bancshares, Inc. "A" 29,400 29,400 543,900 543,900
Foothill Independent Bancorp 16,536 16,536 198,432 198,432
Haven Bancorp, Inc. 12,200 12,200 195,200 195,200
Hingham Institution for Savings 11,550 11,550 174,694 174,694
Jacksonville Bancorp, Inc. 3,000 3,000 43,500 43,500
Kankakee Bancorp, Inc. 4,400 4,400 102,850 102,850
Lawrence Savings Bank 45,600 45,600 359,100 359,100
MFB Corp. 2,400 2,400 48,000 48,000
Marion Capital Holdings, Inc. 7,500 7,500 138,750 138,750
Medford Bancorp Inc. 23,600 23,600 418,900 418,900
Merchants Bancorp, Inc. 17,600 17,600 580,800 580,800
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NBT Bancorp Inc. 16,611 16,611 310,418 310,418
NMBT Corp. 17,300 17,300 429,256 429,256
New Hampshire Thrift Bancshares, Inc. 3,600 3,600 48,600 48,600
Northrim Bank 42,760 42,760 448,980 448,980
Parkvale Financial Corp. 24,296 24,296 461,624 461,624
People's Bancshares, Inc. 17,600 17,600 314,600 314,600
Pinnacle Bancshares, Inc. 25,000 25,000 234,375 234,375
Progress Financial Corp. 18,174 18,174 240,811 240,811
Southwest Bancorp, Inc. 7,800 7,800 173,550 173,550
Union Bankshares Ltd. 26,000 26,000 425,750 425,750
Winton Financial Corp. 30,300 30,300 397,688 397,688
------------------------------------------------
310,418 7,432,239 7,742,657
------------------------------------------------
Insurance 4.1%
ACMAT Corp. "A" 28,200 28,200 260,850 260,850
American Annuity Group, Inc. 9,200 9,200 165,008 165,008
Atlantic American Corp. 71,600 71,600 187,950 187,950
Cotton States Life Insurance 45,525 45,525 423,952 423,952
Fidelity National Financial, Inc. 24,770 24,770 388,579 388,579
Harleysville Group, Inc. 33,800 33,800 576,713 576,713
Hilb, Rogal & Hamilton Co. 43,000 43,000 1,077,688 1,077,688
Investors Title Co. 24,100 24,100 379,575 379,575
Kansas City Life Insurance Co. 6,400 6,400 248,800 248,800
RLI Corp. 19,375 19,375 645,430 645,430
Security National Financial Corp. "A" 77,175 77,175 255,642 255,642
Selective Insurance Group, Inc. 18,800 18,800 351,325 351,325
Siebels Bruce Group, Inc. 39,300 39,300 85,969 85,969
Standard Management Corp. 66,100 66,100 396,600 396,600
------------------------------------------------
3,453,543 1,990,538 5,444,081
------------------------------------------------
Business Finance 0.2%
KBK Capital Corp. 50,200 50,200 251,000 251,000
------------------------------------------------
Other Financial Companies 1.1%
Advanta Corp. "A" 3,500 3,500 62,344 62,344
Bay View Capital Corp. 36,200 36,200 502,275 502,275
First Cash, Inc. 65,900 65,900 617,813 617,813
Resource America, Inc. "A" 28,900 28,900 209,525 209,525
------------------------------------------------
774,144 617,813 1,391,957
------------------------------------------------
Real Estate 0.2%
AMREP Corp. 65,600 65,600 311,600 311,600
------------------------------------------------
MEDIA 1.7%
Advertising 0.5%
Grey Advertising, Inc. 1,910 1,910 689,510 689,510
Broadcasting & Entertainment 0.6%
Todd-AO Corp. "A" 35,800 35,800 532,525 532,525
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unapix Entertainment, Inc. 129,600 129,600 243,000 243,000
------------------------------------------------
775,525 775,525
------------------------------------------------
Print Media 0.6%
Advanced Marketing Services, Inc. 43,450 43,450 841,844 841,844
------------------------------------------------
SERVICE INDUSTRIES 6.7%
Edp Services 0.3%
Computer Horizons Corp. 3,300 3,300 36,713 36,713
Cotelligent, Inc. 12,500 12,500 37,500 37,500
Pomeroy Computer Resources, Inc. 31,700 31,700 328,888 328,888
------------------------------------------------
403,101 403,101
------------------------------------------------
Environmental Services 0.7%
GZA GeoEnvironmental Technologies, 83,800 83,800 377,100 377,100
Inc.
Scope Industries, Inc. 8,400 8,400 493,500 493,500
Versar, Inc. 39,900 39,900 99,750 99,750
------------------------------------------------
970,350 970,350
------------------------------------------------
Investment 1.0%
Advest Group, Inc. 26,600 7,200 33,800 513,713 139,050 652,763
H.D. Vest, Inc. 32,200 32,200 165,025 165,025
Southwest Securities Group, Inc. 18,420 18,420 438,626 438,626
------------------------------------------------
952,339 304,075 1,256,414
------------------------------------------------
Miscellaneous Commercial Services 3.3%
ABM Industries, Inc. 32,200 32,200 768,775 768,775
American Physicians Service Group, 68,600 68,600 312,988 312,988
Inc.
BI, Inc. 42,200 42,200 316,500 316,500
C.H. Heist Corp. 58,900 58,900 331,313 331,313
Dycom Industries, Inc. 2,000 2,000 65,125 65,125
Exponent, Inc. 42,200 42,200 279,575 279,575
GP Strategies Corp. 51,320 51,320 603,010 603,010
Halifax Corp. 27,150 27,150 176,475 176,475
IT Group, Inc. 12,000 12,000 118,500 118,500
Joule, Inc. 52,700 52,700 85,638 85,638
Labor Ready, Inc. 21,100 21,100 214,956 214,956
Mercury Air Group, Inc. 86,600 86,600 606,200 606,200
Personnel Group of America, Inc. 21,100 21,100 141,106 141,106
RCM Technologies, Inc. 12,800 12,800 148,000 148,000
SITEL Corp. 9,100 9,100 40,950 40,950
Source Information Management Co. 100 100 1,200 1,200
Volt Information Sciences, Inc. 7,000 7,000 138,250 138,250
------------------------------------------------
1,488,862 2,859,699 4,348,561
------------------------------------------------
Miscellaneous Consumer Services 0.7%
ACE Cash Express, Inc. 33,025 33,025 474,714 474,714
Earl Scheib, Inc. 6,900 6,900 25,444 25,444
ICT Group, Inc. 64,200 64,200 433,350 433,350
National Equipment Services, Inc. 3,200 3,200 33,800 33,800
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
33,800 933,508 967,308
------------------------------------------------
Printing/Publishing 0.7%
Applied Graphics Technologies, Inc. 19,700 19,700 140,363 140,363
Merrill Corp. 40,000 40,000 825,000 825,000
------------------------------------------------
965,363 965,363
------------------------------------------------
DURABLES 6.5%
Aerospace 1.5%
AAR Corp. 11,100 11,100 185,231 185,231
Aeroflex, Inc. 20,400 20,400 113,475 113,475
Curtiss-Wright Corp. 15,400 15,400 558,250 558,250
Ducommun, Inc. 24,300 24,300 255,150 255,150
Kaman Corp. "A" 60,200 60,200 662,200 662,200
Sifco Industries, Inc. 26,600 26,600 189,525 189,525
------------------------------------------------
1,519,156 444,675 1,963,831
------------------------------------------------
Automobiles 1.7%
Borg-Warner Automotive Inc. 13,858 13,858 547,391 547,391
Collins Industries Inc. 39,100 39,100 249,263 249,263
Dura Automotive Systems, Inc. 14,588 14,588 273,525 273,525
Simpson Industries, Inc. 59,300 59,300 620,797 620,797
Wynn's International, Inc. 31,500 31,500 490,219 490,219
------------------------------------------------
1,931,932 249,263 2,181,195
------------------------------------------------
Construction/Agricultural Equipment 0.8%
Cascade Corp. 36,800 36,800 335,800 335,800
Terex Corp. 3,700 3,700 97,819 97,819
The Manitowoc Company, Inc. 22,950 22,950 685,631 685,631
------------------------------------------------
1,119,250 1,119,250
------------------------------------------------
Leasing Companies 1.6%
Aaron Rents, Inc. 42,800 42,800 676,775 676,775
Amplicon, Inc. 31,200 31,200 343,200 343,200
Capital Associates Inc. 36,500 36,500 114,063 114,063
McGrath Rentcorp 36,700 36,700 623,900 623,900
PLM International Inc. 54,300 54,300 319,013 319,013
------------------------------------------------
1,300,675 776,276 2,076,951
------------------------------------------------
Telecommunications Equipment 0.7%
Cognitronics Corp. 43,650 43,650 523,800 523,800
Comdial Corp. 44,400 44,400 330,225 330,225
VARI-L Company, Inc. 7,200 7,200 73,800 73,800
------------------------------------------------
927,825 927,825
------------------------------------------------
Miscellaneous 0.2%
Featherlite Manufacturing, Inc. 49,700 49,700 279,563 279,563
------------------------------------------------
MANUFACTURING 17.3%
Chemicals 1.1%
Aceto Corp. 44,400 44,400 496,725 496,725
JLM Industries, Inc. 10,200 10,200 40,800 40,800
Stepan Co. 35,800 35,800 856,963 856,963
------------------------------------------------
856,963 537,525 1,394,488
------------------------------------------------
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Containers & Paper 0.4%
Chesapeake Corp. 2,000 2,000 60,000 60,000
Tufco Technologies, Inc. 6,600 6,600 60,225 60,225
UFP Technologies, Inc. 86,500 86,500 270,313 270,313
Wausau-Mosinee Paper Corp. 4,970 4,970 62,746 62,746
------------------------------------------------
122,746 330,538 453,284
------------------------------------------------
Diversified Manufacturing 2.2%
Barnes Group, Inc. 37,400 37,400 759,688 759,688
Brunswick Technologies, Inc. 10,800 10,800 45,225 45,225
Cantel Industries Inc. 22,400 22,400 120,400 120,400
Clarcor, Inc. 98,600 98,600 396,703 0 396,703
JMAR Technologies, Inc. 98,600 147,900 147,900
McRae Industries, Inc. "A" 42,300 42,300 208,856 208,856
NCH Corp. 10,000 10,000 478,125 478,125
Pubco Corp. 28,100 28,100 205,481 205,481
Robbins & Myers, Inc. 11,300 11,300 182,919 182,919
Tredegar Industries, Inc. 13,200 13,200 289,575 289,575
Valmont Industries 3,500 3,500 60,813 60,813
------------------------------------------------
2,167,823 727,862 2,895,685
------------------------------------------------
Electrical Products 1.6%
ACME Electric Corp. 57,600 57,600 338,400 338,400
Axsys Technologies, Inc. 34,600 34,600 341,675 341,675
C&D Technologies, Inc. 2,500 2,500 80,313 80,313
LaBarge, Inc. 98,800 98,800 135,850 135,850
SL Industries, Inc. 51,400 51,400 655,350 655,350
The Alpine Group, Inc. 28,000 28,000 369,250 369,250
Windmere-Durable Holdings, Inc. 12,800 12,800 166,400 166,400
------------------------------------------------
615,963 1,471,275 2,087,238
------------------------------------------------
Hand Tools 0.3%
L.S. Starrett Corp. 15,500 15,500 372,000 372,000
------------------------------------------------
Industrial Specialty 5.4%
American Locker Group, Inc. 43,200 43,200 291,600 291,600
Ault, Inc. 94,800 94,800 675,450 675,450
Badger Meter, Inc. 18,000 18,000 582,750 582,750
Ceradyne, Inc. 23,800 23,800 90,738 90,738
Commercial Intertech Corp. 46,700 46,700 592,506 592,506
Dynamic Materials Corp. 71,200 89,000 89,000
Foster (LB) Co. "A" 105,500 105,500 534,094 534,094
General Cable Corp. 10,700 43,100 78,913 78,913
Graham Corp. 32,400 255,150 255,150
Insteel Industries, Inc. 76,300 76,300 567,481 567,481
Kinark Corp. 135,800 135,800 220,675 220,675
Lamson & Sessions Co. 67,700 67,700 330,038 330,038
Lawson Products, Inc. 36,700 36,700 834,925 834,925
MFRI, Inc. 58,900 58,900 231,919 231,919
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Met-Pro Corp. 13,800 13,800 152,663 152,663
Regal-Beloit Corp. 36,500 36,500 793,875 793,875
Spartech Corp. 25,300 25,300 724,213 724,213
------------------------------------------------
3,024,432 4,021,558 7,045,990
------------------------------------------------
Machinery/Components/Controls 4.0%
Amcast Industrial Corp. 22,600 22,600 306,513 306,513
Chicago Rivet & Machine Co. 18,300 18,300 423,188 423,188
Columbus McKinnon Corp. 30,800 30,800 371,525 371,525
Cybex International, Inc. 10,000 10,000 30,000 30,000
Farrel Corp. 102,300 102,300 185,419 185,419
IMPCO Technologies, Inc. 9,300 9,300 119,156 119,156
Intermet Corp. 38,800 38,800 392,850 392,850
MotivePower Industries, Inc. 18,150 18,150 216,666 216,666
Newcor, Inc. 20,000 41,250 41,250
O.I. Corp. 96,600 96,600 410,550 410,550
Oilgear Co. 19,300 19,300 148,972 148,972
On-Point Technology Systems, Inc. 76,000 76,000 147,250 147,250
Reliance Steel & Aluminum Co. 22,950 22,950 481,950 481,950
Shaw Group, Inc. 32,000 32,000 728,000 728,000
Summa Industries, Inc. 42,600 42,600 479,250 479,250
Thomas Industries, Inc. 11,500 11,500 205,563 205,563
Trans-Industries, Inc. 35,500 230,750 230,750
Woodward Governor Co. 11,100 11,100 294,150 294,150
------------------------------------------------
2,997,217 2,215,785 5,213,002
------------------------------------------------
Office Equipment/Supplies 0.5%
Dixon Ticonderoga Co. 30,100 30,100 259,613 259,613
TAB Products Co. 51,900 51,900 343,838 343,838
------------------------------------------------
603,451 603,451
------------------------------------------------
Specialty Chemicals 0.1%
Detrex Corp. 34,200 34,200 171,000 171,000
------------------------------------------------
Wholesale Distributors 1.7%
Applied Industrial Technology, Inc. 27,800 27,800 437,850 437,850
Allou Health & Beauty, Inc. "A" 71,100 71,100 408,825 408,825
Barnett, Inc. 2,600 2,600 22,425 22,425
Daisytek International Corp. 10,200 10,200 169,575 169,575
Hughes Supply, Inc. 24,750 24,750 536,766 536,766
Insight Enterprises, Inc. 17,575 17,575 656,866 656,866
------------------------------------------------
1,823,482 408,825 2,232,307
------------------------------------------------
Miscellaneous 0.0%
American Dental Technologies, Inc. 10,300 10,300 22,209 22,209
------------------------------------------------
TECHNOLOGY 9.3%
Computer Software 2.1%
Activision, Inc. 23,100 23,100 326,288 326,288
Elcom International, Inc. 82,200 82,200 346,781 346,781
Epicor Software Corp. 9,000 9,000 43,313 43,313
MTI Technology Corp. 10,000 10,000 169,375 169,375
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MTS Systems Corp. 49,000 45,708 94,708 496,125 462,794 958,919
Scan Optics, Inc. 90,100 90,100 157,675 157,675
Symix Systems, Inc. 15,000 15,000 154,688 154,688
Structural Dynamics Research Corp. 43,600 43,600 430,550 430,550
Verity, Inc. 1,900 1,900 130,863 130,863
------------------------------------------------
1,596,514 1,121,938 2,718,452
------------------------------------------------
Diversified Electronic Products 0.4%
Reliability Inc. 72,200 72,200 194,038 194,038
SBS Technologies, Inc. 10,200 10,200 285,600 285,600
------------------------------------------------
479,638 479,638
------------------------------------------------
Edp Peripherals 0.6%
NeoMagic Corp. 11,300 11,300 90,047 90,047
Printronix, Inc. 19,900 19,900 407,950 407,950
Wells-Gardner Electronics Corp. 89,355 89,355 290,404 290,404
------------------------------------------------
90,047 698,354 788,401
------------------------------------------------
Electronic Components/Distributors 4.8%
American Technical Ceramics Corp. 55,300 55,300 480,419 480,419
Anaren Microwave Inc. 20,500 20,500 702,125 702,125
Bel Fuse Inc. Class "A" 13,750 13,750 547,422 547,422
Bel Fuse Inc. Class "B" 13,750 13,750 476,094 476,094
Napco Security Systems, Inc. 48,000 48,000 141,000 141,000
Nu Horizons Electronics, Inc. 55,300 55,300 435,488 435,488
Park Electrochemical Corp. 18,200 18,200 634,725 634,725
Pioneer-Standard Electronics, Inc. 43,100 43,100 562,994 562,994
Programmer's Paradise, Inc. 77,100 452,963 452,963
Savior Technology Group, Inc. 55,600 55,600 257,150 257,150
Sigmatron International, Inc. 52,900 52,900 353,769 353,769
Technitrol, Inc. 25,500 25,500 927,563 927,563
Trans-Lux Corp. 32,300 216,006 216,006
Video Display Corp. 34,500 34,500 135,844 135,844
------------------------------------------------
2,125,282 4,198,280 6,323,562
------------------------------------------------
Office/Plant Automation 0.0%
CACI International, Inc. 1,700 1,700 36,444 36,444
------------------------------------------------
Military Electronics 0.7%
EDO Corp. 78,400 78,400 436,100 436,100
Engineered Support Systems, Inc. 35,400 35,400 415,950 415,950
------------------------------------------------
852,050 852,050
------------------------------------------------
Precision Instruments 0.1%
Barringer Technologies Inc. 35,700 35,700 196,350 196,350
------------------------------------------------
Semiconductors 0.6%
Alliance Semiconductor Corp. 20,000 20,000 232,500 232,500
Alpha Industries 7,000 7,000 386,750 386,750
Zing Technologies, Inc. 32,300 32,300 222,063 222,063
------------------------------------------------
619,250 222,063 841,313
------------------------------------------------
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ENERGY 1.6%
Engineering 0.1%
Abrams Industries, Inc. 18,780 18,780 82,163 82,163
------------------------------------------------
Oil & Gas Production 0.8%
Hallwood Energy Corp. 31,670 31,670 164,288 164,288
Marine Drilling Companies, Inc. 16,700 16,700 270,331 270,331
Petroleum Development Corp. 77,600 77,600 334,650 334,650
UTI Energy Corp. 17,600 17,600 337,700 337,700
------------------------------------------------
608,031 498,938 1,106,969
------------------------------------------------
Oil Companies 0.0%
Arabian Shield Development 58,600 58,600 45,781 45,781
------------------------------------------------
Oilfield Services/Equipment 0.4%
Veritas DGC Inc. 36,300 36,300 510,469 510,469
------------------------------------------------
Miscellaneous 0.3%
RGC Resources, Inc. 18,700 18,700 392,700 392,700
------------------------------------------------
METALS & MINERALS 1.4%
Steel & Metals 1.2%
Bayou Steel Corp. 110,900 110,900 374,288 374,288
Commercial Metals Co. 13,000 13,000 424,125 424,125
Friedman Industries, Inc. 60,003 210,011 210,011
IMCO Recycling Inc. 24,300 24,300 355,388 355,388
Webco Industries, Inc. 61,500 61,500 199,875 199,875
------------------------------------------------
779,513 784,174 1,563,687
------------------------------------------------
Miscellaneous 0.2%
United States Lime & Minerals, Inc. 37,300 37,300 289,075 289,075
------------------------------------------------
CONSTRUCTION 5.4%
Building Materials 1.7%
Ameron International Corp. 20,300 20,300 865,288 865,288
Florida Rock Industries, Inc. 26,100 26,100 880,875 880,875
Texas Industries, Inc. 11,100 11,100 397,519 397,519
Williams Industries, Inc. 15,000 15,000 64,688 64,688
------------------------------------------------
2,143,682 64,688 2,208,370
------------------------------------------------
Building Products 1.2%
Baltek Corp. 46,100 46,100 331,344 331,344
Continental Materials Corp. 35,400 35,400 805,350 805,350
Noland Co. 23,700 23,700 450,300 450,300
------------------------------------------------
1,586,994 1,586,994
------------------------------------------------
Homebuilding 1.6%
Engle Homes, Inc. 33,200 33,200 336,150 336,150
Fortress Group, Inc. 113,100 113,100 95,428 95,428
Liberty Homes, Inc. "A" 19,500 19,500 134,063 134,063
Skyline Corp. 36,600 36,600 910,425 910,425
Standard Pacific Corp. 35,500 35,500 381,625 381,625
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Washington Homes, Inc. 33,000 33,000 185,625 185,625
------------------------------------------------
1,292,050 751,266 2,043,316
------------------------------------------------
Miscellaneous 0.9%
Granite Construction, Inc. 19,000 19,000 393,063 393,063
MYR Group, Inc. 39,166 39,166 790,664 790,664
------------------------------------------------
393,063 790,664 1,183,727
------------------------------------------------
TRANSPORTATION 2.6%
Airlines 0.5%
Alaska Air Group Inc. 9,600 9,600 381,600 381,600
Frontier Airlines, Inc. 7,600 7,600 75,525 75,525
Hawaiian Airlines, Inc. 80,000 80,000 180,000 180,000
------------------------------------------------
457,125 180,000 637,125
------------------------------------------------
Marine Transportation 0.3%
International Shipholding Corp. 42,200 42,200 432,550 432,550
------------------------------------------------
Railroads 0.2%
Providence & Worcester Railroad Co. 25,000 25,000 250,000 250,000
------------------------------------------------
Trucking 1.6%
Boyd Brothers Transportation, Inc. 51,000 51,000 439,875 439,875
Consolidated Delivery & Logistics, 32,600 32,600 93,725 93,725
Inc.
Kenan Transport Co. 8,500 8,500 272,000 272,000
Roadway Express, Inc. 24,200 24,200 505,175 505,175
Simon Transportation Services, Inc. 30,000 30,000 155,625 155,625
USFreightways Corp. 13,600 13,600 616,250 616,250
------------------------------------------------
1,121,425 961,225 2,082,650
------------------------------------------------
UTILITIES 7.4%
Electric Utilities 2.9%
Black Hills Corp. 28,200 28,200 634,500 634,500
Northwestern Corp. 29,200 29,200 666,125 666,125
Public Service Co. of New Mexico* 19,700 19,700 352,138 352,138
SIGCORP, Inc. 32,600 32,600 847,600 847,600
TNP Enterprises, Inc. 27,700 27,700 1,104,538 1,104,538
Unitil Corp. 6,500 6,500 176,313 176,313
------------------------------------------------
3,604,901 176,313 3,781,214
------------------------------------------------
Natural Gas Distribution 2.9%
Chesapeake Utilities Corp. 20,200 20,200 361,075 361,075
CTG Resources Inc. 14,000 14,000 519,750 519,750
Connecticut Energy Corp. 4,400 4,400 166,100 166,100
Energen Corp. 30,800 30,800 569,800 569,800
Energy West, Inc. 25,700 25,700 223,269 223,269
Laclede Gas Co. 21,900 21,900 466,744 466,744
NUI Corp. 39,300 39,300 975,131 975,131
ONEOK, Inc. 2,400 2,400 70,050 70,050
Providence Energy Corp. 17,900 17,900 500,081 500,081
------------------------------------------------
2,767,575 1,084,425 3,852,000
------------------------------------------------
<PAGE>
<CAPTION>
AARP Small Pro Forma AARP Small Pro Forma
Company Stock Micro Cap Combined Company Micro Cap Combined
Share Share Share Stock Market Market Market
Amount($) Amount ($) Amount ($) Value ($) Value($) Value($)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Water Supply 1.5%
California Water Service Group 33,000 33,000 957,000 957,000
Connecticut Water Services 9,550 9,550 293,663 293,663
Southwest Water Co. 51,034 51,034 711,286 711,286
------------------------------------------------
957,000 1,004,949 1,961,949
------------------------------------------------
Miscellaneous 0.1%
Florida Public Utilities Co. 4,700 4,700 92,238 92,238
------------------------------------------------
------------------------------------------------
COMMON STOCKS TOTAL 60,334,509 68,200,023 128,534,532
================================================
COMMON STOCKS (COST OF $65,301,586 $66,429,323 AND $131,730,909 RESPECTIVELY)
================================================
TOTAL INVESTMENT PORTFOLIO - 100% 61,613,509 69,763,223 131,376,732
================================================
INVESTMENT PORTFOLIO (COST OF $66,580,586 $67,960,669 AND $134,541,255 RESPECTIVELY)
</TABLE>
1) Certain securities that do not conform to the investment policies
to be in effect after the Reorganization will be disposed of prior
to the Reorganization.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
AARP
SMALL COMPANY MICRO CAP PRO FORMA PRO FORMA
STOCK FUND FUND ADJUSTMENTS COMBINED
------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Investments, at value $ 61,613,509 $ 69,763,223 $ 131,376,732
Cash 753 272 1,025
Other assets less liabilities (163,143) (116,992) $ (123,476) (2) (403,611)
------------------- -------------------- ------------------- --------------------
Total Net assets $ 61,451,119 $ 69,646,503 $ (123,476) $ 130,974,146
=================== ==================== =================== ====================
NET ASSETS
AARP Class $ 61,376,367
S Class $ 69,597,779
SHARE OUTSTANDING
AARP Class 3,565,060 3,565,060
S Class 4,852,435 (810,752) 4,041,683
NET ASSET VALUE PER SHARE
AARP Class $ 17.24 $ 17.22
S Class $ 14.35 $ 17.22
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
AARP
SMALL COMPANY MICRO CAP PRO FORMA PRO FORMA
STOCK FUND FUND ADJUSTMENTS COMBINED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest and dividend income 2,153,100 $ 999,711 $ -- $ 3,152,811
-------------------------------------------------------------------------------------
Total Investment Income 2,153,100 999,711 3,152,811
Expenses
Management fees 703,270 647,669 (69,019) (3) 1,281,920
Trustees Fee 29,759 44,932 (44,932) (4) 29,759
All other expenses 715,652 724,549 (671,049) (5) 769,152
-------------------------------------------------------------------------------------
Total expenses before reductions 1,448,681 1,417,150 (785,000) 2,080,831
Expense reductions - - - -
-------------------------------------------------------------------------------------
Expenses, net 1,448,681 1,417,150 (785,000) 2,080,831
-------------------------------------------------------------------------------------
Net investment income (loss) 704,419 (417,439) 785,000 1,071,980
-------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (3,887,877) 554,775 -- (3,333,102)
Net unrealized appreciation (depreciation)
of investments 5,259,627 3,170,705 -- 8,430,332
-------------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,076,169 $ 3,308,041 $ 785,000 $ 6,169,210
=====================================================================================
</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 AARP Small Company Stock Fund and Scudder Micro Cap 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 $74,752 and $48,724 to be borne by the Acquiring Fund and
the Acquired Fund, respectively.
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.
