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As filed with the Securities and Exchange Commission
on March 3, 2000
Securities Act File No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. /_/ Post-Effective Amendment No. /_/
AARP GROWTH TRUST
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
(Address of Principal Executive Offices) (Zip Code)
John Millette
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110-4103
(Name and Address of Agent for Service)
(617) 295-1000
(Registrant's Area Code and Telephone Number)
with copies to:
Caroline Pearson, Esq. Sheldon A. Jones, Esq.
Scudder Kemper Investments, Inc. Dechert Price & Rhoads
Two International Place Ten Post Office Square - South
Boston, MA 02110-4103 Boston, MA 02109-4603
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration
Statement is declared effective.
Title of Securities Being Registered:
Shares of Beneficial Interest ($.01 par value)
of AARP Small Company Stock Fund, a series of the Registrant
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It is proposed that this filing will become effective
on April 3, 2000 pursuant to Rule 488 under the Securities Act of 1933.
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No filing fee is required because the Registrant has previously registered an
indefinite number of its shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
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PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SCUDDER SECURITIES TRUST
SCUDDER MICRO CAP FUND
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.,
Floor 13, Two International Place, Boston, MA 02110-4103, on July 13, 2000 at
3:00 p.m., Eastern time, for the following purposes:
Proposal 1: To elect Trustees of the Trust;
Proposal 2: To approve an Agreement and Plan of Reorganization for the
Fund whereby all or substantially all of the assets and
liabilities of the Fund would be acquired by AARP Small
Company Stock Fund in exchange for shares of the Class S
shares class of shares 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.
The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on April
17, 2000 are entitled to vote at the Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
[Signature]
John Millette
Secretary
[date]
IMPORTANT -- We urge you to sign and date the enclosed proxy card(s) and return
it in the enclosed envelope which requires no postage (or to take advantage of
the electronic or telephonic voting procedures described on the proxy card(s)).
Your prompt return of the enclosed proxy card(s) (or your voting by other
available means) may save the necessity and expense of further
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solicitations. If you wish to attend the Meeting and vote your shares in person
at that time, you will still be able to do so.
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Table of Contents
Introduction....................
Proposal 1: Election of Trustees/Directors for the Acquired
Trust/Corporation........
Nominees for Election..............
Trustees/Directors Not Standing for Re-election............
Responsibilities of the Board -- Board and Committee Meetings........
Audit Committee........
Committee on Independent Trustees/Directors........
Attendance............
Honorary Trustees/Directors.........
Officers.............
Compensation of Trustees/Directors and Officers.........
Proposal 2: Approval of Agreement and Plan of Reorganization......
I. SYNOPSIS.........
Introduction.........
Background of the Reorganization...........
Reasons for the Proposed Transaction; Board Approval.......
Investment Objectives, Policies and Restrictions of the
Funds........
Portfolio Turnover..........
Performance...........
Investment Manager; Fees and Expenses......
Administrative Fee..........
Comparison of Expenses.........
Financial Highlights.........
Distribution of Shares........
Purchase, Redemption and Exchange Information.........
Dividends and other Distributions..........
Tax Consequences........
II. PRINCIPAL RISK FACTORS......
III. THE PROPOSED TRANSCTION..........
Description of the Plan........
Board Approval of the Proposed Transaction......
Description of the Securities to be Issued.....
Federal Income Tax Consequences.........
Capitalization...........
Proposal 3: Ratification or Rejection of the Selection of Independent
Accountants
Additional Information
Exhibit A
Exhibit B
Appendix 1
Appendix 2
Part B: Statement of Additional Information
Part C: Other Information
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PROXY STATEMENT/PROSPECTUS
[DATE]
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, MA 02110-4103
(800) 728-3337
by and in exchange for shares of beneficial interest of the Class S shares
class of shares of
AARP SMALL COMPANY STOCK FUND (the "Acquiring Fund"),
a separate series of
AARP GROWTH TRUST (the "Acquiring Trust")
Two International Place, Boston, MA 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"). Proposal 1
describes the election of Trustees, and Proposal 3 proposes the ratification of
the Acquired Fund's accountants.
In Proposal 2, shareholders are asked to approve a proposed reorganization
in which all or substantially all of the assets of Acquired Fund would be
acquired by the Acquiring Fund, in exchange for shares of beneficial interest of
the Class S shares class of the Acquiring Fund (known as "Class S 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 Class S 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.
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.
It is being proposed to shareholders of the Acquiring Fund that the
Acquiring Fund be reorganized as a new series of an existing Massachusetts
business trust, other than the Acquiring Trust, that is advised by Scudder
Kemper. Following this reorganization, the Acquiring Fund will be identical to
the way it is currently, except for its new investment management agreement and
its name.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean investment companies or series thereof in general, and not the
Acquired Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement as being taken by either the
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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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment 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, is incorporated herein by reference and may be obtained upon request
and without charge by calling or writing the Acquiring Fund at the telephone
number or address set forth on the preceding page. A Statement of Additional
Information, dated ___________________, containing additional information about
the Reorganization and the parties thereto has been filed with the Securities
and Exchange Commission (the "SEC" or the "Commission") and is incorporated by
reference into this Proxy Statement/Prospectus. A copy of the Statement of
Additional Information relating to 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
included herein in reliance upon, the Acquiring Fund. The Class S 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, at Floor 13, 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").
The Board of Trustees recommends that shareholders vote for the nominees
listed in Proposal 1, and for Proposals 2 and 3.
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PROPOSAL 1: ELECTION OF TRUSTEES FOR THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust, the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or AARP. The nominees listed below are
also being nominated for election as Trustees of the Acquiring Trust and as
trustees or directors of most of the other no-load funds advised by Scudder
Kemper.
Currently, five different boards of trustees or directors are responsible
for overseeing different groups of no-load funds advised by Scudder Kemper. As
part of a broader restructuring effort described below under Proposal 2, Scudder
Kemper has recommended, and the Board of Trustees has agreed, that shareholder
interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation
listed in the following paragraphs and table for more than five years, but not
necessarily in the same capacity, and (ii) the address of each nominee is c/o
Scudder Kemper Investments, Inc., Two International Place, Boston, MA
02110-4103.
Nominees for Election as Trustees:
Henry P. Becton, Jr. (56)
Henry P. Becton, Jr. graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa and was Chairman of the Yale Broadcasting Corporation.
He received his J.D. degree from Harvard Law School in 1968. He joined the staff
of WGBH Educational Foundation in 1970, was appointed General Manager in 1978,
and was elected President and General Manager in 1984. Mr. Becton is a member of
the PBS Board of Directors, a Trustee of American Public Television, the New
England Aquarium, the Boston Museum of Science, Concord Academy, and the
Massachusetts Corporation for Educational Telecommunications, an Overseer of the
Boston Museum of Fine Arts, and a member of the Board of Governors of the Banff
International Television Festival Foundation. He is also a Director of Becton
Dickinson and Company and A.H. Belo Company, a Trustee of the Committee for
Economic Development, and a member of the Board of Visitors of the Dimock
Community Health Center, the
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Dean's Council of Harvard University's Graduate School of Education, and the
Massachusetts Bar. Mr. Becton has served as a trustee of various mutual funds
advised by Scudder Kemper since 1990.
Linda C. Coughlin (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group. Ms.
Coughlin received a B.A. degree in economics (summa cum laude) from Fordham
University. Ms. Coughlin has served on the boards of various funds advised by
Scudder Kemper, including the AARP Investment Program Funds, since 1996.
Dawn-Marie Driscoll (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. She has been a director, trustee and overseer
of many civic and business institutions, including The Massachusetts Bay United
Way and Regis College. Ms. Driscoll was formerly a law partner at Palmer & Dodge
in Boston and served for over a decade as Vice President of Corporate Affairs
and General Counsel of Filene's, the Boston-based department store chain. Ms.
Driscoll received a B.A. from Regis College, a J.D. from Suffolk University Law
School, a D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary) from
Bentley College Graduate School of Business. Ms. Driscoll has served as a
trustee of various mutual funds advised by Scudder Kemper since 1987.
Edgar R. Fiedler (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996. Mr.
Fiedler's business experience includes positions at Eastman Kodak in Rochester
(1956-59), Doubleday and Company in New York City (1959-60), and Bankers Trust
Company in New York City (1960-69). He also served as Assistant Secretary of the
Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler graduated from the
University of Wisconsin in 1951. He received his M.B.A. from the University of
Michigan and his doctorate from New York University. During the 1980's, Mr.
Fiedler was an Adjunct Professor of Economics at the Columbia University
Graduate School of Business. From 1990 to 1991, he was the Stephen Edward Scarff
Distinguished Professor at Lawrence University in Wisconsin. Mr. Fiedler is a
Director of The Stanley Works, Harris Insight Funds, Brazil Fund, and PEG
Capital Management, Inc. He has served as a board member of various mutual funds
advised by Scudder Kemper, including the AARP Investment Program Funds, since
1984.
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Keith R. Fox (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976 and in 1981 received
an M.B.A. degree from the Harvard Business School. Mr. Fox is also a qualified
accountant. He is a board member and former Chairman of the National Association
of Small Business Investment Companies, and a director of Golden State Vintners,
K-Communications, Progressive Holding Corporation and Facts On File, as well as
a former director of over twenty companies. Mr. Fox has served as a trustee of
various mutual funds advised by Scudder Kemper since 1996.
Joan Edelman Spero (55)
Joan E. Spero is the president of the Doris Duke Charitable Foundation, a
position to which she was named in January 1997. From 1993 to 1997, Ms. Spero
served as Undersecretary of State for Economic, Business and Agricultural
Affairs under President Clinton. From 1981 to 1993, she was an executive at the
American Express Company, where her last position was executive vice president
for Corporate Affairs and Communications. Ms. Spero served as U.N. Ambassador to
the United Nations Economic and Social Council under President Carter from 1980
to 1981. She was an assistant professor at Columbia University from 1973 to
1979. She graduated Phi Beta Kappa from the University of Wisconsin and holds a
master's degree in international affairs and a doctorate in political science
from Columbia University. Ms. Spero is a member of the Council on Foreign
Relations and the Council of American Ambassadors. She also serves as a trustee
of the Wisconsin Alumni Research Foundation, The Brookings Institution and
Columbia University and is a Director of First Data Corporation. Ms. Spero has
served as a trustee of various mutual funds advised by Scudder Kemper since
1998.
Jean Gleason Stromberg (56)
Ms. Stromberg acts as a consultant on regulatory matters. From 1996 to 1997, Ms.
Stromberg represented the U.S. General Accounting Office before Congress and
elsewhere on issues involving banking, securities, securities markets, and
government-sponsored enterprises. Prior to that, Ms. Stromberg was a corporate
and securities law partner at the Washington, D.C. law office of Fulbright and
Jaworski, a national law firm. She served as Associate Director of the SEC's
Division of Investment Management from 1977 to 1979 and prior to that was
Special Counsel for the Division of Corporation Finance from 1972 to 1977. Ms.
Stromberg graduated Phi Beta Kappa from Wellesley College and received her law
degree from Harvard Law School. From 1988 to 1991 and 1993 to 1996, she was a
Trustee of the American Bar Retirement Association, the funding vehicle for
American Bar Association-sponsored retirement plans. Ms. Stromberg serves on the
Wellesley College Business Leadership Council and the Council for Mutual Fund
Director Education at Northwestern University Law School and was a panelist at
the SEC's Investment Company Director's Roundtable. Ms. Stromberg has served as
a board member of the AARP Investment Program Funds since 1997.
Jean C. Tempel (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in Wayne,
Pennsylvania. Ms. Tempel concentrates on investment opportunities in the Boston
area. She spent 25 years in technology/operations executive management at
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various New England banks, building custody operations and real time
financial/securities processing systems, most recently as Chief Operations
Officer at The Boston Company. From 1991 until 1993 she was president/COO of
Safeguard Scientifics, a Pennsylvania technology venture company. In that role
she was a founding investor, director and vice chairman of Cambridge Technology
Partners. She is a director of XLVision, Inc., Marathon Technologies, Inc.,
Aberdeen Group and Sonesta Hotels International, and is a Trustee of
Northeastern University, Connecticut College, and The Commonwealth Institute.
She received a B.A. from Connecticut College, an M.S. from Rensselaer
Polytechnic Institute of New York, and attended Harvard Business School's
Advanced Management Program. Ms. Tempel has served as a trustee of various
mutual funds advised by Scudder Kemper since 1994.
Steven Zaleznick (45)*
Steven Zaleznick is President and CEO of AARP Services, Inc., a wholly-owned and
independently-operated subsidiary of AARP which manages a range of products and
services offered to AARP members, provides marketing services to AARP and its
member service providers and establishes an electronic commerce presence for
AARP members. Mr. Zaleznick previously served as AARP's general counsel for nine
years. He was responsible for the legal affairs of the AARP, which included tax
and legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined the AARP as
a legislation representative responsible for issues involving taxes, pensions,
age discrimination, and other national issues affecting older Americans. Mr.
Zaleznick is President of the Board of Cradle of Hope Adoption Center in
Washington, D.C. He is a former treasurer and currently a board member of the
National Senior Citizens Law Center. Mr. Zaleznick received his B.A. in
economics from Brown University. He received his J.D. degree from Georgetown
University Law Center and is a member of the District of Columbia Bar
Association.
Trustees Not Standing for Re-election:
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Present Office with the Acquired Trust;
Principal Occupation or Employment
Name and Directorships
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Sheryle J. Bolton (53) Trustee; CEO and Director, Scientific
Learning Corporation. Ms. Bolton
serves on the Boards of an additional
5 trusts or corporations whose funds
are advised by Scudder Kemper.
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William T. Burgin (56) Trustee; General Partner, Bessemer
Venture Partners. Mr. Burgin serves
on the Boards of an additional 4
trusts or corporations whose funds are
advised by Scudder Kemper.
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William H. Luers (70) Trustee; Chairman and President,
United Nations Association of
America. Mr. Luers serves on the
Boards of an additional 6 trusts or
corporations whose funds are advised
by Scudder Kemper.
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Kathryn L. Quirk (47)* Trustee, Vice President and Assistant
Secretary; Managing Director of
Scudder Kemper Investments, Inc. Ms.
Quirk serves on the Boards of an
additional 18 trusts or corporations
whose funds are advised by Scudder
Kemper.
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* Nominee or Trustee considered by the Acquired Trust and its counsel to be
an "interested person" (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Acquired Trust, the Investment Manager
or AARP because of his or her employment by the Investment Manager or
AARP, and, in some cases, holding offices with the Acquired Trust.
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
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper and who are called
"independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the investment
performance of each fund 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 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 1999 Advisory Group Report on Best Practices
for Fund Directors (the "Advisory Group Report"). For example, the Independent
Trustees select independent legal counsel to work with them in reviewing fees,
advisory and other contracts and overseeing fund matters. The Trustees are also
assisted in this regard by the funds' independent public accountants and other
independent experts retained for this purpose. The Independent Trustees
regularly meet privately with their counsel and other advisors. In addition, the
Independent Trustees from time to time have appointed task forces and
subcommittees from their members to focus on particular matters 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.
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Audit Committee
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things, the scope
of the audit and the internal controls of each series of the Acquired Trust and
its agents, reviews and approves in advance the type of services to be rendered
by independent accountants, recommends the selection of independent accountants
for each series of the Acquired Trust to the Board, reviews the independence of
such firm and, in general, considers and reports to the Board on matters
regarding the accounting and financial reporting practices of each series of the
Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised entirely of Independent Trustees, meets privately with
the independent accountants of each series of the Acquired Trust, will receive
annual representations from the accountants as to their independence, and has a
written charter that delineates the committee's duties and powers.
Committee on Independent Trustees
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised solely of Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies, retirement policies and fund ownership policies,
reviewing Trustees' affiliations and relationships annually, and periodically
assessing and reviewing evaluations of the Board of Trustees' effectiveness. The
newly-constituted Board may determine to change its compensation structure.
Attendance
As noted above, the Trustees conducted over 20 meetings in calendar year
1999 to deal with fund matters, including various committee 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 and
each above-named committee on which he or she served as a regular member that
were held during that period.
Honorary Trustees
Paul Bancroft III, Wilson Nolen, William H. Gleysteen, Jr., Thomas J.
Devine 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 Trustees
and will continue to serve in their present capacities following the
Reorganization.
Officers
The following persons are officers of the Acquired Trust:
-14-
<PAGE>
- --------------------------------------------------------------------------------
Present Office with the
Acquired Trust; Principal Year First Became
Name (Age) Occupation or Employment(1) an Officer(2)
- ---------- --------------------------- -------------
- --------------------------------------------------------------------------------
Nicholas Bratt (51) President; Managing 1985
Director of Scudder Kemper
- --------------------------------------------------------------------------------
Kathryn L. Quirk (47) Trustee, Vice President 1984
and Assistant Secretary;
Managing Director of
Scudder Kemper
- --------------------------------------------------------------------------------
Irene T. Cheng (45) Vice President; Managing 1997
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
Joyce E. Cornell (56) Vice President; Managing 1996
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
Tien Yu Sieh (30) Vice President; Senior 1999
Vice President of Scudder
Kemper
- --------------------------------------------------------------------------------
Sheridan Reilly (48) Vice President; Senior 1997
Vice President of Scudder
Kemper
- --------------------------------------------------------------------------------
Shahram Tajbakhsh (43) Vice President; Senior 1998
Vice President of Scudder
Kemper
- --------------------------------------------------------------------------------
Edmund B. Games, Jr. (62) Vice President; Managing 1992
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
Philip Fortuna (42) Vice President; Managing 1995
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
Carol L. Franklin (47) Vice President; Managing 1996
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
Joan Gregory (54) Vice President; Vice 1999
President of Scudder
Kemper
- --------------------------------------------------------------------------------
Ann M. McCreary (43) Vice President; Managing 1998
Director of Scudder
Kemper
- --------------------------------------------------------------------------------
John Millette (38) Vice President and 1999
Secretary; Assistant Vice
President of Scudder
Kemper
- --------------------------------------------------------------------------------
John R. Hebble (41) Treasurer; Senior Vice 1998
President of Scudder
Kemper
- --------------------------------------------------------------------------------
Caroline Pearson (38) Assistant Secretary; 1997
Senior Vice President of
Scudder Kemper;
Associate, Dechert Price
& Rhoads (law firm) 1989
to 1997
- --------------------------------------------------------------------------------
- --------
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.
-15-
<PAGE>
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 for 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 other 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. It is currently anticipated that
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. The amount of such benefit
has not been finally determined, but is expected to be based on a Trustee's
years of service and remaining years to normal retirement. [Further detail to be
provided when available.] [Inasmuch as Scudder Kemper will also benefit from the
administrative efficiencies of a consolidated board, Scudder Kemper has agreed
to bear one-half of the cost of any such benefit.]
Scudder Kemper supervises the Acquired Trust's investments, pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust and receives a management fee for its services.
Several of the Acquired Trust's officers and Trustees are also officers,
directors, employees or stockholders of Scudder Kemper and participate in the
fees paid to that firm, although the Acquired Trust makes no direct payments to
them other than for reimbursement of travel expenses in connection with their
attendance at Board and committee meetings.
The following Compensation Table provides in tabular form the following
data:
Column (1) All Trustees who receive compensation from the Acquired Trust.
Column (2) Aggregate compensation received by each Trustee of the Acquired
Trust during calendar year 1999.
Column (3) Total compensation received by each Trustee from funds managed
by Scudder Kemper (collectively, the "Fund Complex") during calendar year 1999.
-16-
<PAGE>
Compensation Table
- ----------------------------------------------------------------------------
Trustees Aggregate Total Compensation
Compensation from Fund Complex
(number of funds) Paid to Trustee
- ----------------------------------------------------------------------------
Sheryle J. Bolton $52,875 (7 funds) $179,860 (25 funds)
- ----------------------------------------------------------------------------
William T. Burgin $50,600 (7 funds) $160,325 (33 funds)
- ----------------------------------------------------------------------------
Keith R. Fox $50,600 (7 funds) $160,325 (33 funds)
- ----------------------------------------------------------------------------
William H. Luers $55,150 (7 funds) $212,596 (36 funds)
- ----------------------------------------------------------------------------
Joan E. Spero $55,150 (7 funds) $175,275 (33 funds)
- ----------------------------------------------------------------------------
Paul Bancroft III,* $44,100 (7 funds) $159,991 (25 funds)
Honorary Trustee
- ----------------------------------------------------------------------------
William H. Gleysteen, Jr., $ 0 (7 funds) $ 19,933 (14 funds)
Honorary Trustee
- ----------------------------------------------------------------------------
Wilson Nolen, $ 0 (7 funds) $ 64,098 (25 funds)
Honorary Trustee
- ----------------------------------------------------------------------------
Robert G. Stone, Jr., $ 0 (7 funds) $ 9,000 (27 funds)
Honorary Trustee
- ----------------------------------------------------------------------------
Thomas J. Devine, $ 0 (7 funds) $ 0 (26 funds)
Honorary Director
- ----------------------------------------------------------------------------
* 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 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.
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 Class S
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 Class S Shares and will hold,
-17-
<PAGE>
immediately after the Reorganization, Class S Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information."
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 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-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 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 investment performance of funds and increase efficiency of operations.
The Reorganization is also expected to result in lower operating expenses for
Acquired Fund shareholders, as described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for most of the no-load funds advised by
Scudder Kemper would increase efficiency and benefit fund shareholders. (See
Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by the
Acquiring Fund of an administrative fee, Scudder Kemper would agree to provide
or pay for substantially all services that a fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. Such an administrative fee would enable
investors to determine with greater certainty the expense level that a fund will
experience, and would transfer substantially all of the risk of increased costs
to Scudder Kemper. Scudder Kemper has proposed that the Acquiring Fund implement
such an administrative fee upon the Closing, as described in "Administrative
Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in
-18-
<PAGE>
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 enhance
the interests of shareholders. See "Board Approval of the Proposed Transaction"
below.
The Trustees believe that the Reorganization may provide shareholders of
the Acquired Fund with the following benefits:
o LOWER EXPENSES. If the Reorganization is approved, Acquired Fund shareholders
may benefit from lower total Fund operating expenses. Please refer to
"Comparison of Expenses" below.
o GREATER PREDICTABILITY OF EXPENSES. On or prior to Closing, the Acquiring
Fund and Scudder Kemper will enter into an administrative services agreement
pursuant to which Scudder Kemper will provide or pay others to provide
substantially all of the administrative services required by the Acquiring
Fund, and most Fund expenses, in return for payment by the Acquiring Fund of
a single administrative fee rate. This agreement, which has an initial three
year term, will protect the Acquiring Fund's shareholders from increases in
the Acquiring Fund's expense ratio attributed to any increases in the costs
of providing these services.
o SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will continue
to seek long term growth of capital by investing in small cap domestic
equities, while seeking 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.
o TAX-FREE REORGANIZATION. Shareholders of the Acquired Fund will exchange
their shares for shares of the Acquiring Fund of equal value. It is expected
that the transaction will be tax-free for Acquired Fund shareholders.
For these reasons, as more fully described below under "The Proposed
Transaction - Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
o the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
o the interests of the existing shareholders of the Acquired Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan effecting the
Reorganization. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
-19-
<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. The Acquiring
Fund seeks to reduce downside risk by focusing on undervalued stocks and
diversifying its investments widely across individual companies (generally
investing no more than 5% of its assets in the securities of any one company).
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 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 intends 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 invest up to 5% of its assets in certain short-term
fixed income securities and up to 20% of assets in U.S. Treasury, agency and
instrumentality obligations. The Acquiring Fund may also invest up to 20% of its
assets in stock futures contracts and options, covered call options, financial
futures contracts and related options, purchase and sell options or futures on
stock indices and foreign currency exchange contracts. Other securities in which
the Acquiring Fund may invest include Standard & Poor's Depository Receipts
("SPDRs"), preferred stocks, rights, warrants, repurchase agreements, real
estate investment trusts and foreign securities
The Acquired Fund may also invest up to 20% of its assets in U.S. Treasury
and agency securities. Other securities in which the Acquired Fund may invest
include preferred stocks, convertible or non-convertible securities, rights,
warrants, and restricted and illiquid securities. The Acquired Fund may also
enter into repurchase agreements and reverse repurchase agreements. 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 may make only limited use of strategic transactions.
The Acquired Fund, while limited to 5% of assets committed to strategic
transactions entered into for non-hedging purposes, may make more use of such
transactions.
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. Upon the Closing, the Acquiring Fund
will no longer have this stated goal. In addition, following the Reorganization,
the Acquiring Fund will change its name to Scudder Small Company Stock Fund and
will be permitted to engage in reverse repurchase agreements.
-20-
<PAGE>
The Acquiring Fund's investment restrictions are identical to the Acquired
Fund's investment restrictions, as set forth in its 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 Acquiring Fund and the
Acquired Fund for a fuller description of each Fund's investment policies and
restrictions.
Portfolio Turnover
The average annual 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 Class S
Shares) was 17.4%. The average annual portfolio turnover rate for the Acquired
Fund for the fiscal year August 31, 1999 was 4.4%.
Performance
The following table compares the investment performance of each Fund, and
may provide some indication of the risks of investing in each Fund by showing
changes in each Fund's performance from year to year and how the Fund's average
annual return for the periods indicated compare with those of a broad measure of
market performance. Neither Fund's past performance is an indication of how the
Fund will perform in the future.
-21-
<PAGE>
Average Annual Total Return
For the Periods Ending December 31, 1999
- --------------------------------------------------------------------------------
Acquiring Fund+ Acquired Fund Benchmark Index***
--------------- ------------- ------------------
- --------------------------------------------------------------------------------
Past year (3.53%) 3.69% 21.26%
- --------------------------------------------------------------------------------
Since Inception* 6.74% N/A 12.71%
(Acquiring Fund)
- --------------------------------------------------------------------------------
Since Inception** N/A 9.13% 14.71%
(Acquired Fund)
- --------------------------------------------------------------------------------
+ Class S 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.
** The inception date for the Acquired Fund is August 12, 1996. The Benchmark
Index comparison for the Acquired Fund is from 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, assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
Total return for Acquiring Fund would have been lower for the period since
inception if the Investment Manager had not maintained expenses. Total Return
for Acquired Fund would have been lower for both periods if the Investment
Manager had not maintained expenses.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended September 30, 1999 prior to the creation of Class S 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
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
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<PAGE>
the fiscal year ended September 30, 1999, the Acquiring Fund paid the
Investment Manager a fee of 0.83% 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.
On or prior to the Closing of the Reorganization, the Acquiring Fund's
investment management agreement will be amended 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 pays a portion of its management fee from the
Acquiring Fund to AARP Financial Services Corporation ("AFSC") in return for
advice and other services relating to AARP Fund investment by AARP members. The
fee paid to AFSC is calculated on a daily basis as a percentage of the combined
net assets of all AARP Funds, except for the two series of AARP Managed
Investment Portfolios Trust, and decreases with the size of the AARP Investment
Program. The fee rate is 0.07% for the first $6 billion, 0.06% for the next $10
billion and 0.05% thereafter.
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
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 the proposal (including expenses that are not
covered) are set out below.
Various third-party service providers (the "Service Providers"), some of
which are affiliated with Scudder Kemper, provide certain services to the
Acquiring Fund pursuant to separate agreements with the Fund, subject to
oversight and approval by the Acquiring Trust's trustees. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for the Acquiring Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Acquiring Fund.
Scudder Trust Company, an affiliate of Scudder Kemper, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Dechert
Price & Rhoads acts as general counsel for
-23-
<PAGE>
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
Trustees (including the fees and expenses of their independent counsel). In
addition, the Acquiring Fund would continue to pay the fees required by its
investment management agreement with Scudder Kemper.
Comparison of Expenses
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the Acquiring Fund, and comparing these with the expenses of the
Acquired Fund. As indicated below, it is expected that the total expense ratio
of the Acquiring Fund following the Reorganization will be substantially lower
than the current expense ratio of the Acquired Fund. Unless otherwise noted, the
information is based on each Fund's expenses and average daily net assets during
the twelve months ended October 31, 1999 and on a pro forma basis as of that
date and for the period then ended, giving effect to the Reorganization.
Information in the tables and examples relating to the Acquiring Fund relates to
the Acquiring Fund as a whole prior to the creation of the Class S Shares. Pro
Forma information in the tables and examples relates to the Class S Shares and
the AARP Shares class of the Acquiring Fund.
Shareholder Transaction Expenses
- ------------------------------------------------------------------------------
Pro Forma
Acquiring Fund Acquired Fund (Combined)
- ------------------------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a percentage None None None
of offering price)
- ------------------------------------------------------------------------------
Maximum deferred sales
charge (load) (as a
percentage of purchase
price or redemption None None None
proceeds)
- ------------------------------------------------------------------------------
-24-
<PAGE>
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Annual Fund Operating Expenses (Unaudited)
- -------------------------------------------------------------------------------
Pro Forma*
Acquiring Fund Acquired Fund (Combined)
- -------------------------------------------------------------------------------
Management fees 0.83% 0.75% 0.75%
- -------------------------------------------------------------------------------
Distribution and/or
service None None None
(12b-1) fees
- -------------------------------------------------------------------------------
Other expenses 0.88% 0.89% 0.45%
- -------------------------------------------------------------------------------
Total annual Fund
operating expenses 1.71% 1.64% 1.20%
- -------------------------------------------------------------------------------
+ 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 Proposals, the Independent Trustees focused their
consideration on the Acquiring Fund's and the Acquired Fund's estimated expense
ratios calculated utilizing Fund net assets at December 31, 1999 (rather than
average daily net assets for a full year, as used in the table above), the
number of shareholder accounts at that date, and other relevant factors. This
calculation resulted in an estimated expense ratio of 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
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be as
follows:
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<PAGE>
- ------------------------------------------------------------------
Pro Forma
Year Acquiring Fund Acquired Fund (Combined)**
- ---- -------------- ------------- --------
- ------------------------------------------------------------------
1st $ 174 $ 167 $ 122
- ------------------------------------------------------------------
3rd $ 539 $ 517 $ 381
- ------------------------------------------------------------------
5th $ 928 $ 892 $ 660
- ------------------------------------------------------------------
10th $2,019 $1,944 $1,455
- ------------------------------------------------------------------
** 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 Class S 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 Class S
Shares.
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
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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 the each Fund
include, among others, management risk and market risk. Management risk refers
to the fact that securities selected by Scudder Kemper on behalf of each Fund
might not perform as well as the securities held by other mutual funds with
investment objectives similar to those of the Funds. Market risk refers to the
impact of the general performance of stock markets -- in this case, the small
company portion of the U.S. market -- on each Fund's performance. 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
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. Stock prices can also be hurt by poor management
or other business risks. The Acquiring Fund's attempts to manage downside risk
may reduce its performance in a strong 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 Class S 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 Class S 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 Class S 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, Class S Shares issued to the Acquired
Fund's shareholders will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption requests received by the transfer agent after the Closing
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<PAGE>
will be treated as requests received for the redemption of Class S Shares
received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of each of the Acquired Fund and
the Acquiring Fund under the Plan are subject to various conditions, as stated
therein. Among other things, the Plan requires that all filings be made with,
and all authority be received from, the SEC and state securities commissions as
may be necessary in the opinion of counsel to permit the parties to carry out
the transactions contemplated by the Plan. The Acquired Fund and the Acquiring
Fund are in the process of making the necessary filings. To provide against
unforeseen events, the Plan may be terminated or amended at any time prior to
the Closing by action of the Trustees of either Trust, notwithstanding the
approval of the Plan by the shareholders of the Acquired Fund. However, no
amendment may be made that materially adversely affects the interests of the
shareholders of the Acquired Fund without obtaining the approval of the Acquired
Fund's shareholders. The Acquired Fund and the Acquiring Fund may at any time
waive compliance with certain of the covenants and conditions contained in the
Plan. For a complete description of the terms and conditions of the
Reorganization, see the Plan at Exhibit A.
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).
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
(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
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of the independent trustees or directors of other funds affected by these
proposals. In the course of their review, the Independent Trustees requested and
received substantial additional information and suggested numerous changes to
Scudder Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees/directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. At the February 7, 2000 meeting,
the Independent Trustees also agreed to recommend that the Reorganization be
approved by the Acquired Fund's shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the
expenses of the Acquired Fund and the estimated operating expenses of the
Acquiring Fund, and between the estimated operating expenses of the Acquiring
Fund and other mutual funds with similar investment objectives; (b) the terms
and conditions of the Reorganization and whether the Reorganization would
result in the dilution of shareholder interests; (c) the compatibility of the
Acquired Fund's and the Acquiring Fund's investment objectives, policies,
restrictions and portfolios; (d) the agreement by Scudder Kemper to provide
services to the Acquiring Fund for a fixed fee rate under the Administration
Agreement with an initial three year term; (e) the service features available
to shareholders of the Acquired Fund and the Acquiring Fund; (f) the costs to
be borne by the Acquired Fund, the Acquiring Fund and Scudder Kemper as a
result of the Reorganization; (g) prospects for the Acquiring Fund to attract
additional assets; (h) the tax consequences of the Reorganization on the
Acquired Fund, the Acquiring Fund and their respective shareholders; and
(i) the investment performance of the Acquired Fund and the Acquiring Fund.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal. The Trustees concluded that these economies
were appropriately reflected in the fee and expense arrangements of the
Acquiring Fund, as proposed to be revised upon completion of the Reorganization.
In particular, the Trustees considered the benefits to shareholders resulting
from locking in the rate of the Acquiring Fund's Administrative Fee for an
initial three-year period. Because the Acquiring Fund will pay only its stated
Administrative Fee rate for such services and expenses regardless of changes in
actual costs, the Acquiring Fund's shareholders will be protected from increases
in the Acquiring Fund's expense ratio attributable to increases in such actual
costs. The Board also considered the protection this would afford shareholders
if the Acquiring Fund's net assets declined as a result of market fluctuations
or net redemptions.
The Trustees also considered the impact of the Reorganization on the total
expenses to be borne by shareholders of the Acquired Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is
substantially lower than the current expense ratio for the Acquired Fund. The
Board also considered that the Reorganization would permit the shareholders of
the Acquired Fund to pursue substantially similar investment goals in a larger
fund.
Finally, the Trustees concluded that the shareholders of the Acquired Fund
would be better served by having their interests represented by a single board
of trustees with responsibility for overseeing
-29-
<PAGE>
substantially all of the funds to be marketed as a "family of funds" through
Scudder's no-load distribution channels. Accordingly, the Trustees agreed to
recommend the election of a new consolidated board comprised of representatives
of each of the various boards currently serving as Trustees of these funds.
Based on all of the foregoing, the Board concluded that the Acquired
Fund's participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. The Board of Trustees, including the Independent Trustees,
recommends that shareholders of the Acquired Fund approve the Reorganization.
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, Class S Shares and AARP Shares.
It is anticipated that this division will occur prior to the Closing and that
shares of the Acquiring Fund existing at that time will be redesignated as AARP
Shares of the Acquiring Fund. If AARP Shares are not created prior to the
Closing, then the Reorganization will not be consummated. Although shareholders
of different classes of a series have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution.
Each share of each class of the Acquiring Fund represents an interest in
the Acquiring Fund that is equal to and proportionate with each other share of
that class of the Acquiring Fund. Acquiring Fund shareholders are entitled to
one vote per share (and a proportionate fractional vote per each fractional
share) held on matters on which they are entitled to vote. The Acquiring Trust
is not required to hold shareholder meetings annually, although shareholder
meetings may be called for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment management contract. In
the event that shareholders of the Acquiring Trust wish to communicate with
other shareholders concerning the removal of any Trustee, such shareholders
shall be assisted in communicating with other shareholders for the purpose of
obtaining signatures to request a meeting of shareholders, all in the manner
provided in Section 16(c) of the 1940 Act as if Section 16(c) were applicable.
In the areas of shareholder voting and the powers and conduct of the
Trustees, there are no material differences between the rights of shareholders
of the Acquired Fund and the rights of shareholders of the Acquiring Fund.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by the 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 Class S Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution of such shares to
the Acquired Fund's shareholders in exchange for their shares of the
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<PAGE>
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 Class S Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
or upon the distribution of the Class S Shares to the Acquired Fund shareholders
in exchange for their Class S Shares; (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 Class S 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 Class S Shares solely in exchange for
their shares of the Acquired Fund as part of the transaction; (vii) the basis of
the Class S 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 Class S 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.
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 Class S Shares), and
on a pro forma basis as of that date giving effect to the Reorganization:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
AARP
Small Company Micro Cap Pro Forma Pro Forma
Stock Fund Fund Adjustments Combined(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets
- ------------------------------------------------------------------------------------------
AARP Shares $61,451,119 (74,752)(3) $ 61,376,367
- ------------------------------------------------------------------------------------------
Class S Shares $69,646,503 (48,724)(4) $ 69,597,779
------------
- ------------------------------------------------------------------------------------------
Total Net Assets $130,974,146(2)
------------
- ------------------------------------------------------------------------------------------
Shares Outstanding
- ------------------------------------------------------------------------------------------
AARP Shares 3,565,060 3,565,060
- ------------------------------------------------------------------------------------------
Class S Shares 4,852,435 (810,752) 4,041,683
- ------------------------------------------------------------------------------------------
Net Asset Value per
Share
- ------------------------------------------------------------------------------------------
AARP Shares $ 17.24 $ 17.22
- ------------------------------------------------------------------------------------------
Class S Shares $ 14.35 $ 17.22
- ------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
(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 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.
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 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 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about each of the Funds with the
Securities and Exchange Commission. Such reports, proxy material and other
information filed by the Acquiring Trust, and those filed by the Acquired Trust,
can be inspected and copied at the Public Reference Room maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following SEC Regional Offices: Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, NY 10048; Southeast Regional Office,
1401 Brickell Avenue, Suite 200, Miami, FL 33131; Midwest Regional Office,
Citicorp Center, 500 W. Madison Street, Chicago, IL, 60661-2511; Central
Regional Office, 1801 California Street, Suite 4800,
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Denver, CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard,
11th Floor, Los Angeles, CA 90036-3648. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the Statements of
Additional Information for the Acquiring Trust and the Acquired Trust, materials
that are incorporated by reference into the prospectuses and Statements of
Additional Information, and other information about the Acquiring Trust, the
Acquired Trust and the Funds.
Interests of Certain Persons
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis - Fees and Expenses."
General
Proxy Solicitation. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about April 18, 2000
or as soon as practicable thereafter. Any Acquired Fund shareholder giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of the Acquired Fund, c/o Scudder Kemper Investments,
Inc., at the address for the Acquired Fund shown at the beginning of this Proxy
Statement/Prospectus) or in person at the Meeting, by executing a superseding
proxy or by submitting a notice of revocation to the Acquired Fund. All properly
executed proxies received in time for the Meeting will be voted as specified in
the proxy or, if no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the Acquired Trust (for a trust-wide vote)
or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has
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<PAGE>
discretionary power to vote on a particular matter. Accordingly, shareholders
are urged to forward their voting instructions promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of the Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on, Proposal 1 and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 (the "Record Date") will be entitled to one vote per
share on all business of the Meeting. As of [date], there were ____________
shares of the Acquired Fund outstanding.
As of [date], the officers and Trustees of the Acquiring Trust as a group
owned beneficially [less than 1%][___%] of the outstanding shares of the
Acquiring Fund. [Appendix 2 hereto sets forth the beneficial owners of at least
5% of each Fund's shares.] To the best of each Trust's knowledge, as of
_______________, no person owned beneficially more than 5% of either Fund's
outstanding shares[, except as stated on Appendix 2.]
Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies, at an estimated cost of $11,359. As the Meeting
date approaches, certain shareholders of the Acquired Fund may receive a
telephone call from a representative of SCC if their votes have not yet been
received. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Acquired Fund. Proxies that are obtained telephonically will be recorded in
accordance with the procedures set forth below. The Trustees believe that these
procedures are reasonably designed to ensure that both the identity of the
shareholder casting the vote and the voting instructions of the shareholder are
accurately determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card, and ask for the shareholder's instructions on
the Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the proxy
statement. SCC will record the shareholder's instructions on the card. Within 72
hours, the shareholder will be sent a letter or mailgram to confirm his or her
vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish
to give a proxy by telephone or electronically, the shareholder may still submit
the proxy card originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy cards, they may contact SCC toll-free at 1-800-603-1915. 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
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voting instruction card. After inputting this number, shareholders will be
prompted to provide their voting instructions on the Proposals. Shareholders
will have an opportunity to review their voting instructions and make any
necessary changes before submitting their voting instructions and terminating
their telephone call or Internet link. Shareholders who vote on the Internet, in
addition to confirming their voting instructions prior to submission, will also
receive an e-mail confirming their instructions.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Trust, c/o Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters requiring a vote of shareholders
arise, the proxy in the accompanying form will confer upon the person or persons
entitled to vote the shares represented by such proxy the discretionary
authority to vote the shares as to any such other matters in accordance with
their best judgment in the interest of the Trust and/or the Acquired Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
[signature]
John Millette
Secretary
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INDEX OF EXHIBITS
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION
EXHIBIT B: MANAGEMENT'S DISCUSSION OF THE ACQUIRING FUND'S PERFORMANCE FOR ITS
MOST RECENT FISCAL YEAR.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ____ day of ________, 2000, by and between 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 ($.01 par value per share) of the Class S
Shares class of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption
by the Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the manner and as of the time and date set forth in section 2.2; and
(ii) to assume all of the liabilities of the Acquired Fund. Such transactions
shall take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before
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the Closing (excluding for these purposes assets used to pay the dividends and
other distributions paid pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with section 2.3. The
Acquiring Fund will not issue certificates representing Acquiring Fund Shares in
connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and after
the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the Closing Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (such time and
date being hereinafter called the "Valuation Time") after the declaration and
payment of any dividends and/or other distributions on that date, using the
valuation procedures set forth in the Acquiring Trust's Declaration of Trust, as
amended, and then-current prospectus or statement of additional information.
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2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be 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 Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale,
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checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon shall
be restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and such registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the 1940 Act and such as may be
required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or prior
to the Closing Date, the Acquired Trust is not, and the execution, delivery and
performance of this Agreement by the Acquired Trust will not result, in
violation of Massachusetts law or of the Acquired Trust's Declaration of Trust,
as amended, or By-Laws, or of any material agreement, indenture, instrument,
contract, lease or other undertaking known to counsel to which the Acquired Fund
is a party or by which it is bound, and the execution, delivery and performance
of this Agreement by the Acquired Fund will not result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the Acquired
Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets held
by it. The Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings which would materially and adversely affect its
business and is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended
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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;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquired Fund required by law to have been filed by
such dates (including any extensions) shall have been filed and are or will be
correct in all material respects, and all federal and other taxes shown as due
or required to be shown as due on said returns and reports shall have been paid
or provision shall have been made for the payment thereof, and, to the best of
the Acquired Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance in
all material respects with applicable registration requirements of the 1933 Act
and state securities laws, (ii) are, and on the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable (recognizing that,
under Massachusetts law, Acquired Fund Shareholders, under certain
circumstances, could be held personally liable for obligations of the Acquired
Fund), and (iii) will be held at the time of the Closing by the persons and in
the amounts set forth in the records of the Transfer Agent, as provided in
section 3.4. The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquired Fund shares,
nor is there outstanding any security convertible into any of the Acquired Fund
shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquiring Fund
has received notice at or prior to the Closing, and upon delivery and payment
for such assets, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act and the 1940 Act, except those
restrictions as to which the Acquiring Fund has received notice and necessary
documentation at or prior to the Closing;
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(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Board members of the Acquired Trust, and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes a valid and binding
obligation of the Acquired Trust, on behalf of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquiring Fund for use
therein.
4.2. The Acquiring 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
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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 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
Acquired Fund). The Acquiring Fund does not have outstanding any options,
warrants
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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
Acquired Fund).
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Board members of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the NASD), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement, only
insofar as it relates to the Acquiring Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquired Fund for use
therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state securities laws as may be necessary in order to continue its
operations after the Closing Date.
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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.
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
-45-
<PAGE>
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 Acquiring
Fund shares to be transferred to Acquired Fund pursuant to this Agreement and
(ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquired Trust, with
respect to the Acquired Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund or its investment adviser(s), Board members or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing business
trust; (b) the Acquiring Trust has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquiring
Fund's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquiring 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,
-46-
<PAGE>
moratorium and laws of general applicability relating to or affecting creditors'
rights and to general equity principles; (d) the execution and delivery of the
Agreement did not, and the exchange of the Acquired Fund's assets for Acquiring
Fund Shares pursuant to the Agreement will not, violate the Acquiring Fund's
Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of such
counsel, all regulatory consents, authorizations, approvals or filings required
to be obtained or made by the Acquiring Fund under the Federal laws of the
United States or the laws of the Commonwealth of Massachusetts for the exchange
of the Acquired Fund's assets for Acquiring Fund Shares, pursuant to the
Agreement have been obtained or made; and
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5 The Acquiring Fund shall have (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, with
respect to the Acquired Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquired Fund, its adviser or any of their affiliates)
against the Acquiring Fund or its investment adviser(s), Board members or
officers arising out of this Agreement and (ii) no facts known to the Acquiring
Fund which the Acquiring Fund reasonably believes might result in such
litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Trust with respect to the Acquired Fund made in this Agreement are true and
correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Fund has the power to carry on its business as presently
conducted in accordance with the
-47-
<PAGE>
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;
and
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
7.6 The Acquiring Fund shall have (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; and
-48-
<PAGE>
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 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's shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by the shareholders of the Acquired Fund upon the
receipt of the Acquiring Fund shares solely in exchange for their shares of the
Acquired Fund as part of the transaction; (vii) the basis of the Acquiring Fund
shares received by the shareholders of the Acquired Fund will be the same as the
basis of the shares of the Acquired Fund exchanged therefor; and (viii) the
holding period of Acquiring Fund shares received by the shareholders of the
Acquired Fund will include the holding period during which the shares of the
Acquired Fund exchanged therefor were held, provided that at the time of the
exchange the shares of the Acquired Fund were held as capital assets in the
hands of the shareholders of the Acquired Fund. The delivery of such opinion is
conditioned upon receipt by Willkie Farr & Gallagher of representations it shall
request of each of the Acquiring Fund and Acquired Trust. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
-49-
<PAGE>
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. The Acquired Fund
shareholders will pay their own expenses, if any, incurred in connection with
the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before July
17, 2000, unless such date is extended by mutual agreement of the parties, or
(iii) by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
-50-
<PAGE>
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.
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 Fund of its obligations, agreements, representations and warranties as
set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Massachusetts, without regard to its
principles of conflicts of laws.
-51-
<PAGE>
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.
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:__________________________
-52-
<PAGE>
EXHIBIT B
AARP SMALL COMPANY STOCK FUND
ANNUAL REPORT
SEPTEMBER 1999
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 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 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.
<PAGE>
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 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
component of a properly diversified investment portfolio, offering attractive
return potential over the long term.
<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%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 5.70% 19.07%
Life of
Fund* 7.13% 6.98%
</TABLE>
- --------------------------------------------------------------------------------
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>
<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 shares outstanding of such fund.] [As a
group, the Trustees and officers own less than 1% of the shares of any series
of the Acquired Trust.]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SCUDDER SCUDDER
SCUDDER FINANCIAL SCUDDER SCUDDER SMALL SCUDDER SCUDDER 21ST
DEVELOPMENT SERVICES HEALTH MICRO CAP COMPANY TECHNOLOGY CENTURY
FUND FUND CARE FUND FUND VALUE FUND FUND GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry P. Becton, Jr.(1)
- -------------------------------------------------------------------------------------------------------------------------------
Sheryle J. Bolton(2)
- -------------------------------------------------------------------------------------------------------------------------------
Nicholas Bratt(3)
- -------------------------------------------------------------------------------------------------------------------------------
William T. Burgin(4)
- -------------------------------------------------------------------------------------------------------------------------------
Linda C. Coughlin(5)
- -------------------------------------------------------------------------------------------------------------------------------
Dawn-Marie Driscoll(6)
- -------------------------------------------------------------------------------------------------------------------------------
Edgar R. Fiedler(7)
- -------------------------------------------------------------------------------------------------------------------------------
Keith R. Fox(8)
- -------------------------------------------------------------------------------------------------------------------------------
William H. Luers(9)
- -------------------------------------------------------------------------------------------------------------------------------
Kathryn L. Quirk(10)
- -------------------------------------------------------------------------------------------------------------------------------
Joan Edelman Spero(11)
- -------------------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg(12)
- -------------------------------------------------------------------------------------------------------------------------------
Jean C. Tempel(13)
- -------------------------------------------------------------------------------------------------------------------------------
Steven Zaleznick(14)
- -------------------------------------------------------------------------------------------------------------------------------
[All Trustees and Officers
as a Group]
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of January 31, 2000, Mr. Becton's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(2) As of January 31, 2000, Ms. Bolton's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(3) As of January 31, 2000, Mr. Bratt's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(4) As of January 31, 2000, Mr. Burgin's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(5) As of January 31, 2000, Ms. Coughlin's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(6) As of January 31, 2000, Ms. Driscoll's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
<PAGE>
(7) As of January 31, 2000, Mr. Fiedler's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(8) As of January 31, 2000, Mr. Fox's total aggregate holdings in each series
of the Acquired Fund listed above and all other funds in the Scudder Family
of Funds and AARP Funds ranged between $___________ and $___________.
(9) As of January 31, 2000, Mr. Luers's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(10) As of January 31, 2000, Ms. Quirk's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(11) As of January 31, 2000, Ms. Spero's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(12) As of January 31, 2000, Ms. Stromberg's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(13) As of January 31, 2000, Ms. Tempel's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
(14) As of January 31, 2000, Mr. Zaleznick's total aggregate holdings in each
series of the Acquired Fund listed above and all other funds in the Scudder
Family of Funds and AARP Funds ranged between $___________ and $___________.
2
<PAGE>
APPENDIX 2
BENEFICIAL OWNERSHIP OF FUND SHARES
<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.
<PAGE>
PART B
AARP GROWTH TRUST
- --------------------------------------------------------------------------------
Statement of Additional Information
[date]
- --------------------------------------------------------------------------------
Acquisition of the Assets of Scudder By and in Exchange for Shares of
Micro Cap Fund (the "Acquired Fund"), AARP Small Company Stock Fund
a series of Scudder Securities Trust (the "Acquiring Fund"), a series
Two International Place of AARP Growth Trust (the
Boston, MA 02110-4103 "Acquiring Trust")
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.
-53-
<PAGE>
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated ____________________ relating to the Reorganization may be
obtained by writing the Acquired Fund at 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.
-54-
<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
------------------------------------------------
Water Supply 1.5%
<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>
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 Shares $ 61,376,367
Scudder Shares $ 69,597,779
SHARE OUTSTANDING
AARP Shares 3,565,060 3,565,060
Scudder Shares 4,852,435 (810,752) 4,041,683
NET ASSET VALUE PER SHARE
AARP Shares $ 17.24 $ 17.22
Scudder Shares $ 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.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
A policy of insurance covering Scudder Kemper Investments, Inc., its
subsidiaries including Scudder Investor Services, Inc., and all of
the registered investment companies advised by Scudder Kemper
Investments, Inc. insures the Registrant's trustees and officers and
others against liability arising by reason of an alleged breach of
duty caused by any negligent act, error or accidental omission in
the scope of their duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration of
Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever
to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. No Trustee, officer, employee
or agent of the Trust shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties
with respect to such Person; and all such Persons shall look solely
to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability of the Trust, he shall not, on account thereof, be held to
any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to
which such Shareholder may become subject by reason of his being or
having been a Shareholder, and shall reimburse such Shareholder for
all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only
out of the assets of the one or more Series of which the Shareholder
who is entitled to indemnification or reimbursement was a
Shareholder at the time the act or event occurred which gave rise to
the claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not impair
any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate situation
even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his own bad
faith, willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
-55-
<PAGE>
action, suit or proceeding in which he becomes involved as a party
or otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or
other body before which a proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement
or other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall insure to the benefit of the heirs,
executors, administrators and assigns of such a person.
Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described
in paragraph (a) of this Section 4.3 may be advanced by the
Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided that
either:
-56-
<PAGE>
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall
be insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act
on the matter) or an independent legal counsel in a written opinion
shall determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the
claim, action, suit or proceeding.
Item 16. Exhibits.
- -------- ---------
(1) (a)(1) Amended and Restated Declaration of Trust
dated September 13, 1996. (Incorporated by
reference to Exhibit 1(a)(4) to
Post-Effective Amendment No. 20 to AARP
Growth Trust's Registration Statement on
Form N-1A, as amended (the "Registration
Statement"))
(2) (b)(1) By-Laws of the Registrant as amended March
17, 1993. (Incorporated by reference to
Exhibit 2(a)(2) to Post-Effective Amendment
No. 14 to the Registration Statement)
(b)(2) Certificate as to Resolution of Board
Members dated June 24, 1996 amending
By-Laws of the Registrant dated March 17,
1993. (Incorporated by reference to Exhibit
2(a)(3) to Post-Effective Amendment No. 20
to the Registration Statement)
(3) Inapplicable.
(4) Agreement and Plan of Reorganization filed
as Exhibit A to Part A hereof.
(5) (c)(1) Establishment of Series dated November 27,
1984. (Incorporated by reference to Exhibit
1(b)(1) to Post-Effective Amendment No. 25
to the Registration Statement)
(c)(2) Establishment and Designation of Series of
Beneficial Interest dated September 22,
1993. (Incorporated by reference to Exhibit
1(b)(2) to Post-Effective Amendment No. 25
to the Registration Statement)
(c)(3) Establishment and Designation of Series of
Beneficial Interest dated September 22,
1993. (Incorporated by reference to Exhibit
1(b)(2) to Post-Effective Amendment No. 25
to the Registration Statement)
(c)(4) Establishment and Designation of Series of
Beneficial Interest dated November 17,
1995. (Incorporated by reference to Exhibit
1(b)(3) to
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Post-Effective Amendment No. 18 to the
Registration Statement)
(c)(5) Establishment and Designation of Series of
Beneficial Interest dated November 12,
1996. (Incorporated by reference to Exhibit
1(b)(4) to Post-Effective Amendment No. 20
to the Registration Statement)
(6) (d)(1) Investment Management Agreement with
respect to AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, AARP Global
Growth Fund, AARP Growth and Income Fund,
AARP International Growth and Income Fund,
and AARP Small Company Stock Fund between
the Registrant and Scudder, Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Exhibit
(d)(8) to Post-Effective Amendment No. 26
to the Registration Statement)
(d)(2) Investment Management Agreement with
respect to AARP U.S. Stock Index Fund
between the Registrant and Scudder, Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Exhibit
(d)(9) to Post-Effective Amendment No. 26
to the Registration Statement)
(d)(3) Subadvisory Agreement among AARP/Scudder
Financial Management Company, Scudder,
Stevens & Clark, Inc., and the Registrant
dated December 16, 1985. (Incorporated by
reference to Exhibit 5(b) to Post-Effective
Amendment No. 5 to the Registration
Statement)
(d)(4) Subadvisory Agreement between Scudder
Kemper Investments, Inc., and Bankers Trust
Company with respect to AARP U.S. Stock
Index Fund dated December 31, 1997.
(Incorporated by reference to Exhibit
(d)(12) to Post-Effective Amendment No. 26
to the Registration Statement)
(d)(5) Subadvisory Agreement between Scudder
Kemper Investments, Inc., and Bankers Trust
Company with respect to AARP U.S. Stock
Index Fund dated June 4, 1999; to be filed
by amendment.
(7) (e)(1) Underwriting Agreement between the
Registrant and Scudder Fund Distributors,
Inc. dated September 7, 1998. (Incorporated
by reference to Exhibit (e)(2) to
Post-Effective Amendment No. 26 to the
Registration Statement)
(8) Inapplicable
(9) (g)(1) Custodian Agreement between the Registrant
and State Street Bank and Trust Company
dated November 30, 1984. (Incorporated by
reference to Exhibit 8(a)(1) to
Post-Effective Amendment No. 25 to the
Registration Statement)
(g)(1)(a) Fee Schedule to the Custodian Agreement.
(Incorporated by reference to Exhibit
8(a)(2) to Post-Effective Amendment No. 25
to the
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<PAGE>
Registration Statement)
(g)(1)(b) Revised Fee Schedule to the Custodian
Agreement. (Incorporated by reference to
Exhibit 8(a)(6) to Post-Effective Amendment
No. 17 to the Registration Statement)
(g)(2) Additional Provision to the Custodian
Agreement between the Registrant and State
Street Bank and Trust Company dated
November 30, 1984. (Incorporated by
reference to Exhibit 8(a)(3) to
Post-Effective Amendment No. 25 to the
Registration Statement)
(g)(3) Amendment dated September 23, 1987 to the
Custodian Agreement between the Registrant
and State Street Bank and Trust Company
dated November 30, 1984. (Incorporated by
reference to Exhibit 8(a)(4) to
Post-Effective Amendment No. 25 to the
Registration Statement)
(g)(4) Amendment dated September 15, 1988 to the
Custodian Agreement between the Registrant
and State Street Bank and Trust Company
dated November 30, 1984. (Incorporated by
reference to Exhibit 8(a)(5) to
Post-Effective Amendment No. 25 to the
Registration Statement)
(g)(5) Amendment dated March 3, 1999 to the
Custodian Agreement between the Registrant
and State Street Bank and Trust Company
dated November 30, 1984. (Incorporated by
reference to Post-Effective Amendment No.
28 to the Registration Statement)
(g)(6) Custodian Agreement between the Registrant,
on behalf of AARP Global Growth Fund and
AARP International Growth and Income Fund,
and Brown Brothers Harriman & Co. dated
February 1, 1996. (Incorporated by
reference to Exhibit 8(a)(7) to
Post-Effective Amendment No. 19 to the
Registration Statement)
(g)(7) Fee Schedule to the Custodian Agreement
between the Registrant and Brown Brothers
Harriman & Co. dated February 1, 1996.
(Incorporated by reference to Exhibit
8(a)(8) to Post-Effective Amendment No. 19
to the Registration Statement)
(10) Inapplicable.
(11) Opinion and consent of Dechert Price &
Rhoads filed herein.
(12) Opinion and consent of Willkie Farr &
Gallagher to be filed by post-effective
amendment.
(13) (h)(1) Transfer Agency and Service Agreement
between the Registrant and Scudder Service
Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)
to Post-Effective Amendment No. 25 to the
Registration Statement)
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<PAGE>
(h)(2) Amendment dated February 1, 1999 to the
Transfer Agency and Service Agreement
between the Registrant and Scudder Service
Corporation (Incorporated by reference to
Exhibit (h)(2) to Post-Effective Amendment
No. 27 to the Registration Statement)
(h)(3) Fee schedule to the Transfer Agency between the
Registrant and Scudder Service Corporation dated
February 1, 1999 (Incorporated by reference to
Exhibit (h)(3) to Post-Effective Amendment No.
27 to the Registration Statement).
(h)(4) Member Services Agreement between AARP
Financial Services Corp. and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Exhibit
(h)(4) to Post-Effective Amendment No. 26
to the Registration Statement)
(h)(5) Service Mark License Agreement among
Scudder, Stevens & Clark, Inc., American
Association of Retired Persons, the
Registrant, AARP Cash Investment Funds,
AARP Income Trust and AARP Tax Free Income
Trust dated March 20, 1996. (Incorporated
by reference to Exhibit 9(c)(1) to
Post-Effective Amendment No. 20 to the
Registration Statement)
(h)(6) Shareholder Service Agreement between the
Registrant and Scudder Service Corporation
dated June 1, 1988. (Incorporated by
reference to Exhibit 9(d) to Post-Effective
Amendment No. 25 to the Registration
Statement)
(h)(7) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP Balanced
Stock and Bond Fund, and Scudder Fund
Accounting Corporation dated October 20,
1995. (Incorporated by reference to Exhibit
9(e) to Post-Effective Amendment No. 25 to
the Registration Statement)
(h)(8) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP Capital
Growth Fund, and Scudder Fund Accounting
Corporation dated September 5, 1995.
(Incorporated by reference to Exhibit 9(f)
to Post-Effective Amendment No. 25 to the
Registration Statement)
(h)(9) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP Growth
and Income Fund, and Scudder Fund
Accounting Corporation dated September 5,
1995. (Incorporated by reference to Exhibit
9(g) to Post-Effective Amendment No. 25 to
the Registration Statement)
(h)(10) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP Global
Growth Fund, and Scudder Fund Accounting
Corporation dated February 1, 1996.
(Incorporated by reference to Exhibit 9(h)
to Post-Effective Amendment No. 25 to the
Registration
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<PAGE>
Statement)
(h)(11) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP Small
Company Stock Fund, and Scudder Fund
Accounting Corporation dated February 1,
1997. (Incorporated by reference to Exhibit
(h)(11) to Post-Effective Amendment No. 26
to the Registration Statement)
(h)(12) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP U.S.
Stock Index Fund, and Scudder Fund
Accounting Corporation dated February 1,
1997. (Incorporated by reference to Exhibit
(h)(12) to Post-Effective Amendment No. 26
to the Registration Statement)
(h)(13) Fund Accounting Services Agreement between
the Registrant, on behalf of AARP
International Growth and Income Fund, and
Scudder Fund Accounting Corporation dated
February 1, 1997. (Incorporated by
reference to Exhibit (h)(13) to
Post-Effective Amendment No. 26 to the
Registration Statement)
(h)(14) COMPASS and TRAK 2000 Service Agreement
between Scudder Trust Company and the
Registrant dated February 1, 1997.
(Incorporated by reference to Exhibit
(h)(14) to Post-Effective Amendment No. 26
to the Registration Statement)
(h)(15) Fee Schedule for Exhibit (h)(15).
(Incorporated by reference to Exhibit
(h)(14)(a) to Post-Effective Amendment No.
26 to the Registration Statement)
(14) Consent of PricewaterhouseCoopers LLP filed
herein.
(15) Inapplicable.
(16) Powers of attorney filed herewith.
(17) Form of Proxy filed herein.
Item 17. Undertakings.
1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called for by the
applicable registration form for C-8 350 reofferings by persons who
may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
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<PAGE>
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, AARP Growth Trust has duly caused this
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 3rd day of March, 2000.
AARP GROWTH TRUST
By: /s/ Linda C. Coughlin
----------------------
Title: President
-------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Linda C. Coughlin President, Chairperson
- -------------------------- & Trustee
Linda C. Coughlin
/s/ Carole Lewis Anderson* Trustee March 3, 2000
- --------------------------
Carole Lewis Anderson
/s/ Adelaide Attard* Trustee March 3, 2000
- --------------------
Adelaide Attard
/s/ Robert N. Butler* Trustee March 3, 2000
- ---------------------------
Robert N. Butler
/s/ Horace B. Deets* Trustee March 3, 2000
- --------------------
Horace B. Deets
/s/ Edgar R. Fiedler* Trustee March 3, 2000
- ---------------------
Edgar R. Fiedler
/s/ Eugene P. Forrester* Trustee March 3, 2000
- --------------------------------
Eugene P. Forrester
/s/ George L. Maddox, Jr.* Trustee March 3, 2000
- --------------------------
George L. Maddox, Jr.
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<PAGE>
/s/ Robert J. Myers* Trustee March 3, 2000
- --------------------
Robert J. Myers
/s/ James H. Schulz* Trustee March 3, 2000
- --------------------
James H. Schulz
/s/ Gordon Shillinglaw* Trustee March 3, 2000
- -----------------------
Gordon Shillinglaw
/s/ Jean Gleason Stromberg* Trustee March 3, 2000
- ---------------------------
Jean Gleason Stromberg
/s/ John Hebble Treasurer (Principal March 3, 2000
- ---------------- Financial and Accounting
John Hebble Officer)
*By: /s/ Sheldon A. Jones March 3, 2000
--------------------
Sheldon A. Jones
Attorney-in-fact
*Executed pursuant to powers of attorney filed with the Registrant's
Registration Statement on Form N-14 as filed with the Commission electronically
herewith.
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<PAGE>
EXHIBIT 11
DECHERT PRICE & RHOADS LETTERHEAD
March 3, 2000
AARP Growth Trust on behalf of
AARP Small Company Stock Fund
Two International Place
Boston, Massachusetts 02110-4103
Dear Sirs:
We have acted as counsel to AARP Growth Trust, a Massachusetts business
trust (the "Trust"), and we have a general familiarity with the Trust's
business operations, practices and procedures. You have asked for our opinion
regarding the issuance of Class S shares class of shares of beneficial interest
by the Trust in connection with the acquisition by AARP Small Company Stock
Fund, a series of the Trust, of the assets of Scudder Micro Cap Fund, a series
of Scudder Securities Trust, which shares are registered on a Form N-14
Registration Statement (the "Registration Statement") filed by the Trust with
the Securities and Exchange Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various trust records of
the Trust and such other instruments, documents and records as we have deemed
necessary in order to render this opinion. We have assumed the genuineness of
all signatures, the authenticity of all documents examined by us and the
correctness of all statements of fact contained in those documents.
On the basis of the foregoing, we are of the opinion that the Class S
shares class of shares of beneficial interest of the Trust being registered
under the Securities Act of 1933 in the Registration Statement, subject to the
creation of the Class S shares class of shares in accordance with the laws of
the Commonwealth of Massachusetts, will be legally and validly issued, fully
paid and non-assessable by the Trust, upon transfer of the assets of Scudder
Micro Cap Fund pursuant to the terms of the Agreement and Plan of
Reorganization included in the Registration Statement.
We hereby consent to the filing of this opinion with and as part of the
Registration Statement.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
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<PAGE>
EXHIBIT 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus and Statement of Additional Information constituting
parts of this Registration Statement on Form N-14 (the "Registration
Statement") of our report dated November 8, 1999, relating to the financial
statements and financial highlights appearing in the September 30, 1999
Annual Report to Shareholders of AARP Small Company Stock Fund which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Administrative Fee" in the Proxy
Statement/Prospectus and under the headings "Financial Highlights" in the
Prospectus and "Experts" in the Statement of Additional Information dated
February 1, 2000.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 1, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus and Statement of Additional Information constituting
parts of this Registration Statement on Form N-14 (the "Registration
Statement") of our report dated October 15, 1999, relating to the financial
statements and financial highlights appearing in the August 31, 1999
Annual Report to Shareholders of Scudder Micro Cap Fund which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Administrative Fee" in the Proxy
Statement/Prospectus and under the headings "Financial Highlights" in the
Prospectus and "Experts" in the Statement of Additional Information dated
January 1, 2000.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 1, 2000
<PAGE>
EXHIBIT 16
AARP GROWTH TRUST
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his capacity as
trustee or officer, or both, as the case may be, of the Registrant, does hereby
appoint Sheldon A. Jones, Allison R. Beakley, Caroline Pearson and John Millette
and each of them, severally, his/her true and lawful attorney and agent to
execute in his name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and the purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Linda C. Coughlin Chairperson & Trustee February 7, 2000
- --------------------------
Linda C. Coughlin
/s/ Carole Lewis Anderson Trustee February 7, 2000
- --------------------------
Carole Lewis Anderson
/s/ Adelaide Attard Trustee February 7, 2000
- --------------------
Adelaide Attard
/s/ Robert N. Butler Trustee February 7, 2000
- ---------------------------
Robert N. Butler
/s/ Horace B. Deets Trustee February 7, 2000
- --------------------
Horace B. Deets
/s/ Edgar R. Fiedler Trustee February 7, 2000
- ---------------------
Edgar R. Fiedler
/s/ Eugene P. Forrester Trustee February 7, 2000
- --------------------------------
Eugene P. Forrester
/s/ George L. Maddox, Jr. Trustee February 7, 2000
- --------------------------
George L. Maddox, Jr.
/s/ Robert J. Myers Trustee February 7, 2000
- --------------------
Robert J. Myers
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<PAGE>
/s/ James H. Schulz Trustee February 7, 2000
- --------------------
James H. Schulz
/s/ Gordon Shillinglaw Trustee February 7, 2000
- -----------------------
Gordon Shillinglaw
/s/ Jean Gleason Stromberg Trustee February 7, 2000
- ---------------------------
Jean Gleason Stromberg
Treasurer (Principal February 7, 2000
- ---------------- Financial and Accounting
John Hebble Officer)
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<PAGE>
EXHIBIT 17
FORM OF PROXY
[LOGO] YOUR VOTE IS IMPORTANT!
[ADDRESS]
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL FREE 1-XXX-XXX-XXXX OR
LOG ON TO WWW.PROXYWEB.COM/XXXXX
*** CONTROL NUMBER: XXX XXX XXX XXX XX ***
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
[ACQUIRED FUND]
[ACQUIRED TRUST/CORPORATION]
[address]
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
[time], on [date]
The undersigned hereby appoints __________, ____________ and ____________,
and each of them, the proxies of the undersigned, with the power of substitution
to each of them, to vote all shares of the [Acquired Fund] (the "Fund") which
the undersigned is entitled to vote at the Special Meeting of Shareholders of
the Fund to be held at the offices of Scudder Kemper Investments, Inc.,
[address], on [date] at [time], Eastern time, and at any adjournments thereof.
PLEASE SIGN AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
Dated ____________________,2000
PLEASE SIGN EXACTLY AS YOUR
NAME OR NAMES APPEAR. WHEN
SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE
GIVE YOUR FULL TITLE AS SUCH.
-------------------------------
[NAME]
[ADDRESS] -------------------------------
SIGNATURE(S) OF SHAREHOLDER(S)
<PAGE>
[LOGO] YOUR VOTE IS IMPORTANT!
[ADDRESS]
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL FREE 1-XXX-XXX-XXXX OR
LOG ON TO WWW.PROXYWEB.COM/XXXXX
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS
ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE PROXY WILL BE VOTED FOR APPROVAL
OF THE PROPOSALS.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF [TRUSTEES/DIRECTORS] OF THE
[ACQUIRED FUND]. THE BOARD OF [TRUSTEES/DIRECTORS] RECOMMENDS A VOTE FOR THE
PROPOSALS.
PLEASE VOTE BY FILLING IN THE BOXES BELOW.
FOR AGAINST ABSTAIN
PROPOSAL 1
To elect Trustees to the Board of Trustees
of the Portfolio to hold office until their
respective successors have been duly elected / / / / / /
and qualified or until their earlier
resignation or removal.
NOMINEES:
(01) __________, (02) ____________, (03) _________, (04) ______________, (05)
______________, (06) __________, (07) ______________, (08)_______________, (09)
____________.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE, WRITE THE
NAME(S) ON THE LINE IMMEDIATELY BELOW.
- ----------------------------------------------------
PROPOSAL 2
To approve an Agreement and Plan of
Reorganization for the Fund whereby all or
substantially all of the assets an / / / / / /
liabilities of the Fund would be acquired by
[Acquiring Fund] in exchange for shares of
the [class] of the [Acquiring Fund].
PROPOSAL 3
To ratify the selection of
PricewaterhouseCoopers LLP as the Fund's / / / / / /
independent accountants for the current
fiscal year.
<PAGE>
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS
WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
PLEASE SIGN ON REVERSE SIDE
