<PAGE> 1
LOGO
SCUDDER INSTITUTIONAL FUND, INC.
IMPORTANT NEWS
FOR INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO STOCKHOLDERS
October 1997
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund which require a stockholder vote.
Q & A: QUESTIONS AND ANSWERS
Q. WHAT IS HAPPENING?
A. You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of your Fund would be
transferred in a tax-free reorganization to Scudder International Fund,
a series of Scudder International Fund, Inc., in exchange for shares of
common stock of the Barrett International Shares class of Scudder
International Fund. If the Agreement and Plan of Reorganization is
approved and consummated, you would no longer be a stockholder of the
Institutional International Equity Portfolio, but would become a
stockholder of the Barrett International Shares class of Scudder
International Fund, which has substantially similar investment
objectives and policies to your Fund. The following pages give you
additional information on the proposed reorganization and several other
matters you are being asked to vote on. THE BOARD MEMBERS OF YOUR FUND,
INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE FUND OR SCUDDER,
RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION.
Q. WHAT ELSE AM I BEING ASKED TO VOTE ON?
A. Scudder, Stevens & Clark, Inc. ("Scudder"), your Fund's investment
manager, has agreed to form an alliance with Zurich Insurance Company
("Zurich"). Zurich is a leading international insurance and financial
services organization. As a result of the proposed alliance, there will
be a change in ownership of Scudder. In order for Scudder to continue
to serve as investment manager of your Fund, it is necessary for the
Fund's stockholders to approve a new investment management agreement. A
vote is also being sought for the election of Directors to serve on the
Board of Directors of the Corporation and for the ratification of the
selection of your Fund's accountants. With the exception of the
ratification of the selection of your Fund's accountants, you are being
asked to vote on these additional matters in case the proposed
reorganization is not approved. THE BOARD MEMBERS OF YOUR FUND,
INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE FUND OR SCUDDER,
RECOMMEND THAT YOU VOTE FOR THESE PROPOSALS.
Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW INVESTMENT MANAGEMENT
AGREEMENT?
A. The Investment Company Act of 1940, which regulates investment
companies such as your Fund, requires a vote whenever there is a change
in control of a fund's investment manager. Zurich's alliance with
Scudder will result in such a change of control and requires
stockholder approval of a new investment management agreement with your
Fund.
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Q. HOW WILL THE SCUDDER-ZURICH ALLIANCE AFFECT ME AS A FUND STOCKHOLDER?
A. Your Fund and your Fund's investments will not change as a result of
the Scudder-Zurich alliance (except to the extent the proposed
reorganization noted above is approved). The terms of the new
investment management agreement are the same in all material respects
as the current investment management agreement. Similarly, the other
service arrangements between your Fund and Scudder will not be
affected. You should continue to receive the same level of services
that you have come to expect from Scudder over the years. If
stockholders do not approve the new investment management agreement,
the current investment management agreement will terminate upon the
closing of the Scudder-Zurich transaction and the Board of Directors
will take such action as it deems to be in the best interests of your
Fund and its stockholders.
Q. WHY HAS SCUDDER DECIDED TO ENTER INTO THIS ALLIANCE?
A. Scudder believes that the Scudder-Zurich alliance will enable Scudder
to enhance its capabilities as a global asset manager. Scudder further
believes that the alliance will enable it to enhance its ability to
deliver the level of services currently provided to you and your Fund
and to fulfill its obligations under the new investment management
agreement consistent with current practices.
Q. WILL THE INVESTMENT MANAGEMENT FEES BE THE SAME?
A. The investment management fees will not change as a result of the
Scudder-Zurich transaction. If the proposed reorganization is approved,
the investment management fees will change as described more fully in
this Proxy Statement/Prospectus.
Q. WILL I CONTINUE TO BE ABLE TO PURCHASE SHARES WITHOUT ANY SALES LOAD?
A. Yes, you will be able to continue to purchase shares of your Fund
without any sales load. If the proposed reorganization is consummated,
however, you will become a stockholder of Scudder International Fund
and will be able to purchase shares of that Fund without any sales
load.
Q. HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?
A. After careful consideration, the Board members of your Fund, including
those who are not affiliated with the Fund or Scudder, recommend that
you vote in favor of all of the proposals on the enclosed proxy card.
Q. WHOM DO I CALL FOR MORE INFORMATION?
A. Please call Shareholder Communications Corporation, your Fund's
information agent, at 1-800-733-8481, ext. 488.
Q. WILL THE FUND PAY FOR THE PROXY SOLICITATION AND LEGAL COSTS ASSOCIATED
WITH THESE TRANSACTIONS?
A. No, Scudder will bear these costs.
ABOUT THE PROXY CARD
If you have more than one account in the Fund in your name at the same
address, you will receive separate proxy cards for each account but only one
proxy statement for the Fund. Please vote all issues on each proxy card that you
receive.
THANK YOU FOR MAILING YOUR PROXY CARD(S) PROMPTLY.
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SCUDDER INSTITUTIONAL FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
October 6, 1997
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of Institutional
International Equity Portfolio ("International Equity Portfolio"), the sole
active series of Scudder Institutional Fund, Inc. ("Institutional Fund Inc."),
will be held at 8:30 a.m., Eastern time, on Thursday, October 23, 1997, at the
offices of Scudder, Stevens & Clark, Inc. ("Scudder"), 25th Floor, 345 Park
Avenue (at 51(st) Street), New York, New York 10154. Stockholders who are unable
to attend this meeting are strongly encouraged to vote by proxy, which is
customary in corporate meetings of this kind. A Proxy Statement/Prospectus
regarding the Special Meeting, a proxy card(s) for your vote at the meeting and
an envelope -- postage prepaid -- in which to return your proxy card(s) are
enclosed.
As you read in the Questions and Answers (Q&A) on the outside cover, you
are being asked to vote on an Agreement and Plan of Reorganization whereby all
or substantially all of the assets of the International Equity Portfolio would
be transferred in a tax-free reorganization to Scudder International Fund, a
series of Scudder International Fund, Inc., in exchange for shares of stock of
the Barrett International Shares class of Scudder International Fund. If the
Agreement and Plan of Reorganization is approved and consummated, you would no
longer be a stockholder of the International Equity Portfolio, but would become
a stockholder of the Barrett International Shares class of Scudder International
Fund, which has substantially similar investment objectives and policies to the
International Equity Portfolio.
In addition, Scudder has agreed to form an alliance with Zurich Insurance
Company ("Zurich"). Zurich is a leading international insurance and financial
services organization. (More information about Zurich can be found inside the
Proxy Statement/Prospectus.) Because of the Scudder-Zurich alliance, it is
necessary for the International Equity Portfolio's stockholders to approve a new
investment management agreement. You are being asked to approve the new
investment management agreement in case the proposed reorganization is not
approved.
You are also being asked to vote for the election of Directors to serve on
the Board of Directors of Institutional Fund Inc. and for the ratification of
the selection of the International Equity Portfolio's accountants. You are being
asked to vote for the election of Directors in case the proposed reorganization
is not approved.
THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT EACH OF THE PROPOSALS SET FORTH
IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND RECOMMEND THAT YOU READ
THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR ALL PROPOSALS.
Since all of the funds for which Scudder acts as investment manager are
required to conduct shareholder meetings, if you own shares of more than one
fund, you will receive more than one proxy card. Please sign and return each
proxy card you receive.
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Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If we do not receive
your executed proxy card(s) after a reasonable amount of time you may receive a
telephone call from our proxy solicitor, Shareholder Communications Corporation,
reminding you to vote your shares.
Respectfully,
[PIERCE SIGNATURE]
Daniel Pierce
President, Scudder Institutional Fund, Inc.
STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN IT IN THE
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE SIZE OF YOUR STOCKHOLDINGS.
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SCUDDER INSTITUTIONAL FUND, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
Please take notice that a Special Meeting of Stockholders (the "Special
Meeting") of Institutional
International Equity Portfolio ("International Equity Portfolio"), the sole
active series of Scudder Institutional Fund, Inc. ("Institutional Fund Inc."),
will be held at the offices of Scudder, Stevens & Clark, Inc., 25(th) Floor, 345
Park Avenue (at 51(st) Street), New York, New York 10154, on Thursday, October
23, 1997, at 8:30 a.m., Eastern time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization;
(2) To approve or disapprove a new investment management agreement
between International Equity Portfolio and Scudder Kemper
Investments, Inc.;
(3) To elect Directors of Institutional Fund Inc.; and
(4) To ratify or reject the selection of Price Waterhouse LLP as the
independent accountants for the International Equity Portfolio's
current fiscal year.
The appointed proxies will vote on any other business as may properly come
before the Special Meeting or any adjournments thereof.
Holders of record of shares of common stock of the International Equity
Portfolio at the close of business on August 15, 1997 are entitled to vote at
the Special Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the Special
Meeting, the persons named as proxies may propose one or more adjournments of
the Special Meeting in accordance with applicable law to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the International Equity Portfolio's shares
present in person or by proxy at the Special Meeting. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor and will vote against any such adjournment those
proxies to be voted against that proposal.
By Order of the Board of Directors,
/s/ Thomas F. McDonough
Thomas F. McDonough
Secretary
October 6, 1997
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS INTENDED
FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) MAY SAVE
THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM AT THE
SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND WISH TO VOTE YOUR
SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PROPOSAL 1: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION........................ 3
SYNOPSIS................................................................ 3
SPECIAL CONSIDERATIONS AND RISK FACTORS................................. 8
ADDITIONAL INFORMATION.................................................. 17
PROPOSAL 2: APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT......................... 18
PROPOSAL 3: ELECTION OF DIRECTORS FOR THE CORPORATION............................... 25
PROPOSAL 4: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS... 29
ADDITIONAL INFORMATION................................................................. 29
</TABLE>
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PROXY STATEMENT/PROSPECTUS
OCTOBER 6, 1997
RELATING TO THE ACQUISITION BY
SCUDDER INTERNATIONAL FUND ("INTERNATIONAL FUND"),
A SERIES OF SCUDDER INTERNATIONAL FUND, INC. ("INTERNATIONAL FUND INC.")
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(800) 225-2470
OF THE ASSETS OF
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO ("INTERNATIONAL EQUITY PORTFOLIO"),
A SERIES OF SCUDDER INSTITUTIONAL FUND, INC. ("INSTITUTIONAL FUND INC.")
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of the
International Equity Portfolio in connection with a proposed reorganization in
which all or substantially all of the assets of the International Equity
Portfolio would be acquired by the International Fund, in exchange solely for
voting shares of common stock of the Barrett International Shares class of the
International Fund (known as the "Barrett Shares") and the assumption by the
International Fund of all of the identified and stated liabilities of the
International Equity Portfolio (the "Reorganization"). Barrett Shares of the
International Fund thereby received would then be distributed to the
stockholders of the International Equity Portfolio in liquidation of the
International Equity Portfolio, and Institutional Fund Inc. would then be
deregistered as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"), and terminated under applicable state law. As a
result of the Reorganization, each stockholder of the International Equity
Portfolio would receive that number of full and fractional Barrett Shares of the
International Fund having an aggregate net asset value equal to the aggregate
net asset value of such stockholder's stock of the International Equity
Portfolio held as of the close of business on the business day preceding the
closing of the Reorganization. Stockholders of the International Equity
Portfolio are being asked to vote on an Agreement and Plan of Reorganization
pursuant to which such transactions, as described more fully below, would be
consummated. (In the descriptions of the various proposals below, the word
"fund" is sometimes used to mean investment companies or series thereof in
general, and not the Fund whose Proxy Statement/Prospectus this is.)
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the International Fund
that a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of the
International Fund, see the prospectus for the International Fund dated August
1, 1997, which is included herewith and incorporated herein by reference. This
Proxy Statement/Prospectus is accompanied by the International Fund's annual
report to stockholders for the fiscal year ended March 31, 1997. For a more
detailed discussion of the investment objectives, policies, restrictions and
risks of the International Equity Portfolio, see the prospectus for the
International Equity Portfolio dated May 1, 1997, which is incorporated herein
by reference and a copy of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103
or by calling toll-free (800) 225-2470. A Statement of Additional Information
dated September 30, 1997 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 is available upon request and without charge by writing
to Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103, or by calling (800) 225-2470. Stockholder inquiries regarding the
International Equity Portfolio or regarding the International Fund may be made
by calling (800) 225-2470. The information contained herein concerning the
International Equity Portfolio has been provided by, and is included herein in
reliance upon, the International Equity Portfolio. The information contained
herein concerning the International Fund has been provided by, and is included
herein in reliance upon, the International Fund. The Barrett Shares will be a
newly established class of shares of the International Fund and will be
identical in all material respects to the International Fund shares currently
offered and sold, as described in the Prospectus and Statement of Additional
Information for the International Fund dated August 1, 1997, except as otherwise
described herein.
The International Fund is a series of shares of common stock of
International Fund Inc., an open-end management investment company organized as
a Maryland corporation. The International Equity Portfolio is a series of shares
of common stock of Institutional Fund Inc., an open-end management investment
company organized as a Maryland corporation. The principal investment objective
of each of the International Fund and the International Equity Portfolio is to
seek long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
This Proxy Statement/Prospectus is also being furnished to stockholders of
the International Equity Portfolio in connection with a transaction in which
Scudder, Stevens & Clark, Inc. ("Scudder" or the "Investment Manager") has
agreed to form an alliance with Zurich Insurance Company ("Zurich"). Zurich is a
leading international insurance and financial services organization. As a result
of the proposed alliance, there will be a change in ownership in the
International Equity Portfolio's investment manager, Scudder. In order for
Scudder to continue to serve as investment manager of the International Equity
Portfolio, it is necessary for the International Equity Portfolio's stockholders
to approve a new investment management agreement. A vote is also being sought
for the election of Directors to serve on the Board of Directors of
Institutional Fund Inc. and for the ratification of the selection of the
International Equity Portfolio's accountants. With the exception of the
ratification of the selection of the International Equity Portfolio's
accountants, stockholders are being asked to vote on these additional matters in
case the Reorganization is not approved.
This Proxy Statement/Prospectus, the Notice of Special Meeting to
Stockholders and the proxy card(s) are first being mailed to stockholders on or
about October 6, 1997 or as soon as practicable thereafter. Any stockholder
giving a proxy has the power to revoke it by mail (addressed to the Secretary at
the principal executive office of the International Equity Portfolio, c/o
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York 10154), or
in person at the Special Meeting, by executing a superseding proxy or by
submitting a notice of revocation to the International Equity Portfolio. All
properly executed proxies received in time for the Special Meeting will be voted
as specified in the proxy or, if no specification is made, in favor of each
proposal referred to in the Proxy Statement.
The presence at any stockholders' meeting, in person or by proxy, of the
holders of one-third of the shares entitled to be cast of the International
Equity Portfolio 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 or reject any proposal is not obtained
at the Special Meeting, the persons named as proxies may propose one or more
adjournments of the Special Meeting in accordance with applicable law to permit
further solicitation of proxies with respect to any proposal which did not
receive the vote necessary for its passage or to obtain a quorum. With respect
to those proposals for which there is represented a sufficient number of votes
in favor, actions taken at the Special Meeting will be effective irrespective of
any adjournments with respect to any other proposals. Any such adjournment will
require the affirmative vote of the holders of a majority of the International
Equity Portfolio's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies which they are entitled to vote in favor 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 Special
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 International Equity Portfolio from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, stockholders are urged to forward their voting instructions
promptly.
Abstentions will have the effect of a "no" vote for all Proposals. Broker
non-votes will have the effect of a "no" vote for Proposals 1 and 2, which
require the approval of a specified percentage of the outstanding shares of the
International Equity Portfolio, if such vote is determined on the basis of
obtaining the affirmative vote of more than 50% of the outstanding shares of the
International Equity Portfolio. Abstentions and Broker non-votes will not
constitute "yes" or "no" votes for Proposal 2 and will be disregarded in
determining the voting securities "present" if such vote is determined on the
basis of the affirmative vote of 67% of the voting securities of the
International Equity Portfolio voting at the Special Meeting. Broker non-votes
will not be counted in favor of, but will have no other effect on the vote for
Proposals 3 and 4, which require the approval of a plurality and a majority,
respectively, of shares of the International Equity Portfolio voting at the
Special Meeting.
Proposal 1 requires the affirmative vote of the holders of a majority of
the International Equity Portfolio's shares outstanding and entitled to vote
thereon. Proposal 2 requires the affirmative vote of a "majority of the
outstanding voting securities" of the International Equity Portfolio. The term
"majority of the outstanding
2
<PAGE> 9
voting securities" as defined in the 1940 Act and as used in this Proxy
Statement/Prospectus means: the affirmative vote of the lesser of (1) 67% of the
voting securities of the International Equity Portfolio present at the meeting
if more than 50% of the outstanding shares of the International Equity Portfolio
are present in person or by proxy or (2) more than 50% of the outstanding shares
of the International Equity Portfolio, Proposal 3 requires the affirmative vote
of a plurality of the International Equity Portfolio shares voting at the
Special Meeting. Proposal 4 requires the affirmative vote of a majority of the
International Equity Portfolio shares voting at the Special Meeting.
Holders of record of the shares of common stock of the International Equity
Portfolio at the close of business on August 15, 1997 (the "Record Date"), as to
any matter on which they are entitled to vote, will be entitled to one vote per
share on all business of the Special Meeting. There were 1,453,101 shares of the
International Equity Portfolio outstanding as of August 15, 1997.
The International Equity Portfolio provides periodic reports to all of its
stockholders which highlight relevant information including investment results
and a review of portfolio changes. You may receive a copy of the most recent
annual report for the International Equity Portfolio and a copy of any more
recent semi-annual report, without charge, by calling 800-854-8525 or writing
the International Equity Portfolio, c/o Scudder, Stevens & Clark, Inc., 345 Park
Avenue, New York, New York 10154.
PROPOSAL 1:
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors of Institutional Fund Inc., including all of the
Directors who are not "interested persons" of Institutional Fund Inc. (as
defined in the 1940 Act) (the "Non-interested Directors"), approved on August 6,
1997 an Agreement and Plan of Reorganization dated as of September 18, 1997 (the
"Reorganization Agreement"). Subject to its approval by the stockholders of the
International Equity Portfolio, the Reorganization Agreement provides for (a)
the transfer of all or substantially all of the assets and all of the identified
and stated liabilities of the International Equity Portfolio to International
Fund, a series of shares of common stock of International Fund Inc., in exchange
solely for Barrett Shares of the International Fund; (b) the distribution of
such Barrett Shares to the stockholders of the International Equity Portfolio in
complete liquidation of the International Equity Portfolio; and (c) the
deregistration of Institutional Fund Inc. as an investment company under the
1940 Act and its termination under state law (the "Reorganization").
As a result of the Reorganization, each stockholder of the International
Equity Portfolio will become a stockholder of the International Fund and will
hold, immediately after the closing of the Reorganization (the "Closing"), that
number of full and fractional Barrett Shares of the International Fund having an
aggregate net asset value equal to the aggregate net asset value of such
stockholder's shares held in the International Equity Portfolio as of the close
of business on the business day preceding the Closing. The investment objective,
policies and restrictions of the Barrett Shares class of International Fund will
be substantially similar to those of the International Equity Portfolio at the
time of the Closing.
A copy of the Reorganization Agreement is attached to this Proxy
Statement/Prospectus as Exhibit C, and the description of the Reorganization
Agreement which follows is qualified in its entirety by reference to Exhibit C.
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus, the
Prospectus of the International Fund, the Prospectus of the International Equity
Portfolio and the Reorganization Agreement, which is attached to this Proxy
Statement/Prospectus as Exhibit C. Stockholders should read this entire Proxy
Statement/Prospectus carefully.
3
<PAGE> 10
The Proposed Reorganization. The Board of Directors of Institutional Fund
Inc., including a majority of the Non-interested Directors, has approved the
Reorganization Agreement pursuant to which all or substantially all of the
assets of the International Equity Portfolio would be acquired by the
International Fund, in exchange solely for Barrett Shares of the International
Fund and the assumption by the International Fund of all of the identified and
stated liabilities of the International Equity Portfolio. Barrett Shares of the
International Fund thereby received would then be distributed to the
stockholders of the International Equity Portfolio in liquidation of the
International Equity Portfolio, and Institutional Fund Inc. would then be
deregistered as an investment company under the 1940 Act and terminated under
applicable state law. As a result of the Reorganization, each stockholder of the
International Equity Portfolio would become a stockholder of the International
Fund and would hold, immediately after the Closing, that number of full and
fractional Barrett Shares of the International Fund having an aggregate net
asset value equal to the aggregate net asset value of such stockholder's shares
held in the International Equity Portfolio as of the close of business on the
business day preceding the Closing.
The exchange of all or substantially all of the International Equity
Portfolio's assets for Barrett Shares of International Fund and the assumption
of all of the identified and stated liabilities of the International Equity
Portfolio by the International Fund are expected to occur on December 15, 1997,
or on such later date as the parties may agree in writing (the "Closing Date").
For the reasons set forth below under "The Proposed Transaction -- Reasons
for the Proposed Transaction," the Board of Directors of Institutional Fund
Inc., including the Non-interested Directors, has concluded that the
Reorganization is in the best interests of the International Equity Portfolio
and its stockholders and that the interests of stockholders of the International
Equity Portfolio will not be diluted as a result of the transactions
contemplated by the Reorganization Agreement. Accordingly, the Board of
Directors recommends approval of the Reorganization Agreement. If the
Reorganization Agreement is not approved, the International Equity Portfolio
will continue in existence, unless the Board of Directors advocates other
action, which may include the termination and liquidation of the International
Equity Portfolio.
Approval of the Reorganization Agreement with respect to the International
Equity Portfolio requires the affirmative vote of the holders of a majority of
the shares of stock of the International Equity Portfolio outstanding and
entitled to vote thereon.
Form of Organization. The International Fund is a diversified series of
International Fund Inc., an open-end management investment company registered
under the 1940 Act. International Fund Inc. is a Maryland corporation whose
predecessor was organized in 1953. International Fund Inc. offers five (5) other
existing portfolios, none of which is involved in the Reorganization: Scudder
Emerging Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Growth and Income Fund, Scudder Latin America Fund and Scudder
Pacific Opportunities Fund. The International Equity Portfolio is a diversified
series of Institutional Fund Inc., an open-end management investment company
registered under the 1940 Act. Institutional Fund Inc. was formed as a
corporation on January 2, 1986 under the laws of the State of Maryland.
Investment Objectives and Policies. Each of the International Fund and the
International Equity Portfolio (each also referred to in Proposal 1 as a "Fund"
and collectively the "Funds") seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities. These
securities are selected primarily to permit each Fund to participate in
non-United States companies and economies with prospects for growth. Each Fund
invests in companies, wherever organized, which do business primarily outside
the United States. Each Fund intends to diversify investments among several
countries and to have represented in the portfolio, in substantial proportions,
business activities in not less than five different countries in the case of the
International Equity Portfolio, and not less than three different countries in
the case of the International Fund.
The International Fund generally invests in equity securities of
established companies, listed on foreign exchanges, which the Investment Manager
believes have favorable characteristics. When the Investment Manager believes
that it is appropriate to do so in order to achieve the International Fund's
investment objective of long-term capital growth, the International Fund may
invest up to 20% of its total assets in debt
4
<PAGE> 11
securities. The International Fund may purchase "investment-grade" bonds, which
are those rated Aaa, Aa, A or Baa by Moody's Investor Services, Inc. ("Moody's")
or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P") or, if unrated,
judged by the Investment Manager to be of equivalent quality. The International
Fund may also invest up to 5% of its total assets in debt securities which are
rated below investment grade.
The International Equity Portfolio generally invests at least 90% of its
total assets in equity securities of established companies, listed on foreign
exchanges, which the Investment Manager believes have favorable characteristics.
When the Investment Manager believes that it is appropriate to do so in order to
achieve the International Equity Portfolio's investment objective of long-term
capital growth, the International Equity Portfolio may invest up to 10% of its
total assets in debt securities. The International Equity Portfolio may purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's or
AAA, AA, A or BBB by S&P or, if unrated, judged by the Investment Manager to be
of equivalent quality. The International Equity Portfolio may also invest up to
5% of its total assets in debt securities which are rated below investment
grade.
When the Investment Manager determines that exceptional conditions exist
abroad, each Fund may, for temporary defensive purposes, invest all or a portion
of its assets in Canadian or U.S. Government obligations or currencies, or
securities of companies incorporated in and having their principal activities in
Canada or the U.S. See "Special Considerations and Risk Factors" and "Comparison
of Policies and Restrictions" below.
Fees and Expenses. The International Fund retains as its investment
manager the investment management firm of Scudder, Stevens & Clark, Inc., a
Delaware corporation located at 345 Park Avenue, New York, New York 10154, to
manage its daily investment and business affairs subject to the policies
established by the Directors of International Fund Inc. The management fee
payable under the current Investment Management Agreement for International Fund
is equal to an annual rate of 0.90% on the first $500 million of average daily
net assets, 0.85% of such assets in excess of $500 million, 0.80% of such assets
in excess of $1 billion, 0.75% of such assets in excess of $2 billion and 0.70%
of such assets in excess of $3 billion. The International Fund's fee is
graduated so that increases in the Fund's net assets may result in a lower fee
rate and decreases in the Fund's net assets may result in a higher fee rate. The
fee is payable monthly, provided the Fund will make such interim payments as may
be requested by the Investment Manager not to exceed 75% of the amount of the
fee then accrued on the books of the Fund and unpaid. The fee is higher than
that charged to many funds which invest primarily in U.S. securities, but not
necessarily higher than the fees charged to funds with investment objectives
similar to that of the International Fund. As of March 31, 1997, the
International Fund had total net assets of $2,583,030,686. The total investment
management fees incurred by the International Fund for the fiscal year ended
March 31, 1997 were $20,989,160. The total investment management fees paid by
the International Fund to the Investment Manager for the fiscal year ended March
31, 1997 were $20,924,845, which includes fees paid under the International
Fund's investment management agreement which was in effect prior to September 5,
1996.
For the fiscal year ended March 31, 1997, the International Fund's total
expense ratio (total annual operating expenses as a percentage of average net
assets) was 1.15%. The Investment Manager projects that after the proposed
Reorganization is effected, the expense ratio of the Barrett Shares class of the
International Fund will be approximately 1.10%. The actual expense ratio for the
Barrett Shares class of International Fund for the fiscal years ending March 31,
1998 and March 31, 1999 may be higher or lower than 1.10% depending upon the
International Fund's performance, general stock market and economic conditions,
sales and redemptions of International Fund shares (including redemptions by
former International Equity Portfolio stockholders), and other factors.
The International Equity Portfolio also retains the Investment Manager to
manage its daily investment and business affairs subject to the policies
established by the Directors of Institutional Fund Inc. The management fee
payable under the current Investment Management Agreement for International
Equity Portfolio is equal to an annual rate of .90% of the Fund's average daily
net assets. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by the Investment Manager not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than
5
<PAGE> 12
that charged to many funds which invest primarily in U.S. securities, but not
necessarily higher than the fees charged to funds with investment objectives
similar to that of the International Equity Portfolio. As of March 31, 1997, the
International Equity Portfolio had total net assets of $18,323,531. For the
period April 3, 1996 (commencement of operations) to December 31, 1996, the
Investment Manager did not impose any of its fee amounting to $104,861.
For the fiscal year ended December 31, 1996, the International Equity
Portfolio's total expense ratio (total annual operating expenses as a percentage
of average net assets) was 0.95%, including waivers and reimbursements. The
International Equity Portfolio's estimated total expense ratio for the fiscal
year ended December 31, 1997 includes an investment management fee of 0.00%,
Rule 12b-1 fees of 0.00% and other expenses of 1.04%, including waivers and
reimbursements.
Until July 31, 1997, the Investment Manager had agreed to waive its
investment management fee and reimburse other expenses to the extent necessary
so that the total annualized expenses of the International Equity Portfolio did
not exceed 0.95% of average daily net assets. Effective August 1, 1997 through
December 31, 1997, the Investment Manager has agreed to waive its management fee
and reimburse other expenses to the extent necessary so that the total
annualized expenses of the International Equity Portfolio do not exceed 1.15% of
average daily net assets. If the Investment Manager had not agreed to waive its
fee and reimburse other expenses, it is estimated that the annualized expenses
of the International Equity Portfolio would be: investment management fee 0.90%,
other expenses 1.36% and total operating expenses 2.26% for the fiscal year
ended December 31, 1997. Estimated expenses for the fiscal year ended December
31, 1997 include the effect of a new transfer agency fee which took effect July
1, 1997. The Investment Manager is not obligated to continue its fee waivers and
expense reimbursements after December 31, 1997. Therefore, as demonstrated by
the table below, stockholders of the International Equity Portfolio may
experience an increase in expenses with respect to the Barrett Class of shares
of International Fund received pursuant to the Reorganization.
The current expenses of each Fund and pro forma expenses following the
proposed restructuring are outlined below:
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(1)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PRO FORMA
PORTFOLIO INTERNATIONAL FUND (BARRETT SHARES)
-------------------- ------------------ ----------------
<S> <C> <C> <C>
Investment Management Fee.................. 0.00%(2) 0.82% 0.82%
12b-1 Fees................................. NONE NONE NONE
Other Expenses............................. 0.95%(2) 0.33% 0.28%
----- ----- -----
Total Fund Operating Expenses.............. 0.95%(2) 1.15% 1.10%
===== ===== =====
</TABLE>
- ---------------
(1) The percentages in the above table expressing annual fund operating expenses
for the International Equity Portfolio and the International Fund are based
on amounts incurred during the year ended March 31, 1997, International
Fund's most recent fiscal year end.
(2) Until July 31, 1997, the Investment Manager had agreed to waive its
investment management fee and reimburse other expenses to the extent
necessary so that the total annualized expenses of the International Equity
Portfolio did not exceed 0.95% of average daily net assets. If the
Investment Manager had not agreed to waive its fee and reimburse other
expenses for the period ended March 31, 1997, annualized expenses of the
International Equity Portfolio would be: investment management fee 0.90%,
other expenses 1.54% and total operating expenses 2.44%.
Example. Based on the level of total operating expenses for each of the
Funds listed in the table above for the year ended March 31, 1997, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to stockholders. Actual expenses may
6
<PAGE> 13
be greater or less than those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual return will vary.
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
EQUITY PORTFOLIO FUND PRO FORMA
---------------- ------------- ---------
<S> <C> <C> <C>
1 Year................................ $ 10 $ 12 $ 11
3 Years............................... $ 30 $ 37 $ 35
5 Years............................... $ 53 $ 63 $ 61
10 Years.............................. $117 $ 140 $ 134
</TABLE>
Purchase, Redemption, and Exchange Information. The purchase, redemption
and exchange procedures and privileges for the International Equity Portfolio
and the Barrett Shares class of the International Fund are substantially
similar, except as discussed below. For example:
There is a $1,000 minimum initial investment requirement in the
International Equity Portfolio and a minimum account size requirement of $1,000.
The minimum investment requirement may be waived or lowered. The minimum
subsequent investment required for the International Equity Portfolio is $1,000.
The Barrett Shares class of the International Fund will have a $25,000
minimum initial investment requirement and a $1,000 minimum subsequent
investment requirement, which may be changed by the Board of Directors.
Stockholders of the International Equity Portfolio receiving shares of stock of
the Barrett Shares class of the International Fund in connection with the
proposed Reorganization will not be subject to the $25,000 minimum initial
investment requirement.
The Barrett Shares of the International Fund will not be exchangeable with
other funds within the Scudder Family of Funds. Shares of the International
Equity Portfolio currently are not exchangeable with other funds within the
Scudder Family of Funds.
Dividends and Other Distributions. Each of the Funds intends to distribute
dividends from its net investment income and any net realized capital gains
after utilization of capital loss carryforwards, if any, in December to prevent
application of a federal excise tax. An additional distribution may be made if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be treated by stockholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be invested in
additional shares of the Fund at net asset value and credited to the
stockholder's account on the payment date or, at the stockholder's election,
paid in cash.
If the Reorganization Agreement is approved by the International Equity
Portfolio's stockholders, then as soon as practicable before the Closing Date,
the International Equity Portfolio will pay its stockholders a cash distribution
of all undistributed 1997 net investment income and undistributed realized net
capital gains.
Federal Income Tax Consequences of the Reorganization. The International
Fund and the International Equity Portfolio will have received an opinion of
Dechert Price & Rhoads, counsel to the International Equity Portfolio, to the
effect that the Reorganization will constitute a tax-free reorganization within
the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Reorganization constitutes a tax-free
reorganization, no gain or loss will be recognized by the International Equity
Portfolio or its stockholders as a result of the Reorganization. See "The
Proposed Transaction -- Tax Considerations."
7
<PAGE> 14
SPECIAL CONSIDERATIONS AND RISK FACTORS
The principal investment risk of an investment in either the International
Equity Portfolio or the International Fund is fluctuations in the net asset
value of the Fund's shares. Portfolio management, market conditions, use of
investment policies, and other factors affect such fluctuations. Although the
investment objectives, policies and restrictions of the International Equity
Portfolio and the International Fund are substantially similar, there are
differences between them, which differences are outlined below. There can be no
assurance that either Fund will achieve its stated objective.
Comparison of Objectives. The principal investment objective of each of
the International Fund and the International Equity Portfolio is long-term
growth of capital primarily through a diversified portfolio of marketable
foreign equity securities.
Comparison of Policies and Restrictions. The securities in which the Funds
invest are selected primarily to permit each Fund to participate in non-United
States companies and economies with prospects for growth. Each Fund invests in
companies, wherever organized, which do business primarily outside the United
States. Each Fund intends to diversify investments among several countries and
to have represented in the portfolio, in substantial proportions, business
activities in not less than five different countries in the case of the
International Equity Portfolio, and not less than three different countries in
the case of the International Fund.
The International Fund generally invests in equity securities of
established companies, listed on foreign exchanges, which the Investment Manager
believes have favorable characteristics. When the Investment Manager believes
that it is appropriate to do so in order to achieve the International Fund's
investment objective of long-term capital growth, the International Fund may
invest up to 20% of its total assets in debt securities. The International Fund
may purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or Baa
by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged by the Investment
Manager to be of equivalent quality. The International Fund may also invest up
to 5% of its total assets in debt securities which are rated below investment
grade.
The International Equity Portfolio generally invests at least 90% of its
total assets in equity securities of established companies, listed on foreign
exchanges, which the Investment Manager believes have favorable characteristics.
When the Investment Manager believes that it is appropriate to do so in order to
achieve the International Equity Portfolio's investment objective of long-term
capital growth, the International Equity Portfolio may invest up to 10% of its
total assets in debt securities. The International Equity Portfolio may purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's or
AAA, AA, A or BBB by S&P or, if unrated, judged by the Investment Manager to be
of equivalent quality. The International Equity Portfolio may also invest up to
5% of its total assets in debt securities which are rated below investment
grade.
When the Investment Manager determines that exceptional conditions exist
abroad, each of the International Fund and the International Equity Portfolio
may, for temporary defensive purposes, invest all or a portion of its assets in
Canadian or U.S. Government obligations or currencies, or securities of
companies incorporated in and having their principal activities in Canada or the
U.S.
Primary Investments:
Foreign Securities. Each of the Funds invests primarily in foreign
securities. Investments in foreign securities involve special considerations due
to limited information, higher brokerage costs, different accounting standards,
thinner trading markets as compared to domestic markets and the likely impact of
foreign taxes on the income from securities. Such investments may also entail
other risks, such as the possibility of one or more of the following; imposition
of dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization or other adverse political
or economic developments; less governmental supervision and regulation of
securities exchanges, brokers and listed companies; and the difficulty of
enforcing obligations in other countries. Purchases of foreign securities are
usually made in foreign currencies and, as a result, the Fund may incur currency
conversion costs and may be affected favorably or unfavorably by changes in the
value of foreign currencies against the U.S. dollar. Further, it may be more
8
<PAGE> 15
difficult for a Fund's agents to keep currently informed about corporate actions
which may affect the prices of portfolio securities. Communications between the
U.S. and foreign countries may be less reliable than within the U.S., increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. A Fund's ability and decisions to
purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility and repatriation of assets.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements. If the seller under a repurchase agreement becomes insolvent, a
Fund's right to dispose of the securities may be restricted, or the value of the
securities may decline before the Fund is able to dispose of them. In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before repurchase of the securities under a repurchase
agreement, a Fund may encounter delay and incur costs, including a decline in
the value of the securities, before being able to sell the securities.
Securities Lending. From time to time, International Fund may lend its
portfolio securities to registered broker/dealers as described above. The risks
of lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to registered broker/dealers
deemed by the Investment Manager to be in good standing and will not be made
unless, in the judgment of the Investment Manager, the consideration to be
received in exchange for such loans would justify the risk.
Debt Securities. Each of the Funds may, as described above, invest to a
limited extent in debt securities rated below investment grade, i.e. below Baa
by Moody's and below BBB by S&P (commonly referred to as "junk bonds"). The
lower the ratings of such debt securities, the greater their risks render them
like equity securities. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics. Each of the Funds may
invest in securities which are rated D by S&P or, if unrated, are of equivalent
quality. Securities rated D may be in default with respect to payment of
principal or interest. The International Fund may invest up to 20% of its total
assets in debt securities. The International Equity Portfolio may invest up to
10% of its total assets in debt securities. Each Fund may invest up to 5% of its
total assets in debt securities which are rated below investment grade (junk
bonds).
Illiquid and Restricted Securities. Each of the Funds may invest in
illiquid and restricted securities. The absence of a trading market can make it
difficult to ascertain a market value for illiquid and restricted securities.
Disposing of illiquid and restricted securities may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a Fund
to sell them promptly at an acceptable price. The risk factors involved in the
use of illiquid and restricted securities are substantially the same for each of
the Funds.
Strategic Transactions and Derivatives. From time to time, each of the
Funds may engage in strategic transactions and derivatives. Strategic
Transactions, including derivative contracts, have risks associated with them,
including possible default by the other party to the transaction, illiquidity
and, to the extent the Investment Manager's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund's incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of settlements
or the inability to deliver or receive a specified currency. The use of options
and futures transaction entails certain other risks. In particular, the variable
degree of correlation between price movements in the related portfolio position
of a Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the
9
<PAGE> 16
hedged position, at the same time they tend to limit any potential gain which
might result from an increase in the value of such position. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The risk factors involved in the use of strategic
transactions and derivatives are substantially the same for each of the Funds.
Fundamental Policies. Each Fund has "fundamental" investment policies
which may be changed only with stockholder approval and "nonfundamental"
investment policies which may be changed only with the approval of a Fund's
Board of Directors. Following is a description of certain of the Funds' current
fundamental investment policies which are substantially similar:
Neither Fund may, with respect to 75% of its total assets taken at market
value, purchase more than 10% of the voting securities of any one issuer or
invest more than 5% of the value of its total assets in the securities of any
one issuer, except obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other investment
companies.
Neither Fund may borrow money except as a temporary measure for
extraordinary or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset coverage of 300%
for all borrowings.
Neither Fund may act as an underwriter of securities issued by others,
except to the extent that the Fund may be deemed an underwriter in connection
with the disposition of its portfolio securities.
Neither Fund may make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent that the entry into repurchase agreements and
the purchase of debt securities in accordance with the Fund's investment
objectives and investment policies may be deemed to be loans.
Neither Fund may purchase or sell real estate (except that each Fund may
invest in (i) securities of companies which deal in real estate or mortgages,
and (ii) securities secured by real estate or interests therein, and reserves
freedom of action to hold and to sell real estate acquired as a result of the
Fund's ownership of securities).
Neither Fund may purchase or sell physical commodities or contracts
relating to physical commodities.
Stockholders of the International Fund are being asked at a Special Meeting
of Stockholders on October 27, 1997 to approve certain changes to the
International Fund's fundamental investment restrictions. If approved,
International Fund's foregoing policies would be revised as follows.
International Fund will not:
(a) concentrate its investments in a particular industry, as that term
is used in the Investment Company Act of 1940, as amended and interpreted
by regulatory authority having jurisdiction from time to time;
(b) borrow money, except as permitted under the Investment Company Act
of 1940, as amended and interpreted by regulatory authority having
jurisdiction from time to time;
(c) issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended and interpreted by regulatory authority
having jurisdiction from time to time;
(d) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio securities;
(e) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or
investments secured by real estate or interests therein, except that the
Fund reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
10
<PAGE> 17
(f) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase agreements
and the purchase of debt instruments or interests in indebtedness in
accordance with the Fund's investment objective and policies may be deemed
to be loans; or
(g) purchase physical commodities or contracts relating to physical
commodities.
In addition, International Fund will continue to be classified as a
diversified series of an open-end management investment company.
Except for the policy on borrowing, none of the proposed policies differs
from the International Fund's current comparable policy in a material way. The
current policy of International Fund prohibits borrowing money, except as a
temporary measure for extraordinary or emergency purposes and except in
connection with reverse repurchase agreements; provided that the Fund maintains
asset coverage of 300% for all borrowings. Under its proposed borrowing policy,
International Fund would not be limited to borrowing for temporary or emergency
purposes; however, if the International Fund Inc. Directors determine with
respect to International Fund to permit borrowing for other purposes, which they
currently do not intend to do, the Fund's disclosure documents would be amended
to disclose that fact. Although the International Fund Inc. Directors do not
currently intend to permit International Fund to borrow for investment leverage
purposes, such borrowings would increase the Fund's volatility and the risk of
loss in a declining market. Borrowings under reverse repurchase agreements are
now permitted, and would be permitted under the proposed policy. The 1940 Act
requires borrowings to have 300% asset coverage, which requirement would,
therefore, remain unchanged under the proposed policy, except to the extent that
reverse repurchase agreements would not be subject, under the proposed policy,
to the 300% asset coverage requirement. Consequently, the proposed policy would
permit International Fund to engage in reverse repurchase agreements to a
greater extent than under the current policy.
The nonfundamental investment restrictions of the International Equity
Portfolio and the International Fund are substantially similar, except as
described herein.
Description of the Reorganization Agreement. As stated above, the
Reorganization Agreement provides for the transfer of all or substantially all
of the assets of the International Equity Portfolio to the International Fund in
exchange for that number of full and fractional Barrett Shares in the
International Fund having an aggregate net asset value equal to the aggregate
net asset value of each International Equity Portfolio stockholder's stock held
in the International Equity Portfolio as of the close of business on the
business day preceding the Closing. International Fund will assume all of the
identified and stated liabilities of the International Equity Portfolio. In
connection with the Closing, Institutional Fund Inc., on behalf of the
International Equity Portfolio, will distribute the shares of common stock of
the International Fund received in the exchange to the stockholders of the
International Equity Portfolio in complete liquidation of the International
Equity Portfolio. Institutional Fund Inc. will subsequently be deregistered as
an investment company under the 1940 Act and terminated under Maryland law.
Upon completion of the Reorganization, each stockholder of the
International Equity Portfolio will own that number of full and fractional
Barrett Shares in the International Fund having an aggregate net asset value
equal to the aggregate net asset value of such stockholder's stock held in the
International Equity Portfolio immediately as of the close of business on the
business day preceding the Closing. Each stockholder's account with
International Fund Inc. will be identical in all material respects to the
accounts currently maintained by Institutional Fund Inc. for each stockholder.
In the interest of economy and convenience, shares of the International Equity
Portfolio generally are not represented by physical certificates, and shares of
the International Fund similarly generally will be in uncertificated form.
Until the Closing, stockholders of the International Equity Portfolio will,
of course, continue to be able to redeem their shares at the net asset value
next determined after receipt by the International Equity Portfolio's Transfer
Agent of a redemption request in proper form. Redemption requests received by
Institutional Fund Inc. thereafter will be treated as requests received by
International Fund Inc. for the redemption of shares of the International Fund
received by the stockholder in the Reorganization.
11
<PAGE> 18
The obligations of Institutional Fund Inc. and International Fund Inc.
under the Reorganization Agreement are subject to various conditions, as stated
therein. Among other things, the Reorganization 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 Reorganization Agreement.
Institutional Fund Inc. and International Fund Inc. are in the process of making
the necessary filings. To provide against unforeseen events, the Reorganization
Agreement may be terminated or amended at any time prior to the Closing by
action of the Directors of Institutional Fund Inc. and the Directors of
International Fund Inc., notwithstanding the approval of the Reorganization
Agreement by the stockholders of the International Equity Portfolio. However, no
amendment may be made that materially adversely affects the interests of the
stockholders of the International Equity Portfolio. Institutional Fund Inc. and
International Fund Inc. may at any time waive compliance with any of the
covenants and conditions contained in the Reorganization Agreement. For a
complete description of the terms and conditions of the Reorganization, see the
Reorganization Agreement at Exhibit C.
Reasons for the Reorganization. The proposed Reorganization was presented
to the Board of Directors of Institutional Fund Inc. for consideration and
approval at a special meeting on August 6, 1997. All of the Directors were
present at the meeting. For the reasons discussed below, the Board of Directors
of Institutional Fund Inc., including all of the Non-interested Directors, has
determined that the interests of the stockholders of the International Equity
Portfolio will not be diluted as a result of the proposed Reorganization, and
that the proposed Reorganization is in the best interests of the International
Equity Portfolio and its stockholders.
The proposed combination of the International Equity Portfolio and the
International Fund will allow the International Equity Portfolio's stockholders
to continue to participate in a professionally-managed portfolio consisting
primarily of foreign equity investments. The Directors of Institutional Fund
Inc. believe that International Equity Portfolio stockholders will benefit from
the proposed Reorganization because the International Fund, while guided by
substantially similar investment objectives and policies, offers the following
benefits:
Increased Investment Opportunities. The International Fund is currently
approximately more than 100 times larger than the International Equity
Portfolio. Because of its much larger asset base, the International Fund may be
able to acquire and dispose of securities on more favorable terms than the
International Equity Portfolio. Also, because of its larger size, the
International Fund can obtain a wider variety of investments. Moreover, it is
anticipated that combining the International Equity Portfolio and the
International Fund will further enhance trading efficiency and investment
flexibility.
Lower Fund Expenses Over Time. While total fund expenses of the
International Fund will be higher than those currently paid by stockholders of
the International Equity Portfolio on account of expense limitations currently
in place, if the proposed transaction is approved, such stockholders may benefit
from lower total fund expenses over the long-term. There can be no assurance
that the Investment Manager will continue its expense limitation arrangement
currently in effect for the International Equity Portfolio once such expense
limitation expires after December 31, 1997.
Due to the small size of the International Equity Portfolio, the Directors
and management of such Fund believe that the Fund cannot grow to a sufficient
size through the sale of additional stock to provide investors with significant
economies of scale. Accordingly, the Directors of Institutional Fund Inc.
recommend that the International Equity Portfolio's stockholders approve the
Reorganization with the International Fund.
The Board of Directors of the International Equity Portfolio, in
recommending the proposed transaction, considered a number of factors, including
the following:
(1) the capabilities and resources of the Investment Manager and its
affiliates in the areas of investment management and stockholder servicing;
(2) expense ratios and information regarding fees and expenses of the
International Equity Portfolio and the International Fund;
12
<PAGE> 19
(3) the terms and conditions of the Reorganization and whether it
would result in dilution of the interests of the International Equity
Portfolio's stockholders;
(4) the compatibility of the International Fund, its investment
objectives, policies and restrictions with those of the International
Equity Portfolio;
(5) the growth opportunities afforded by the proposed consolidation
with the International Fund; and
(6) the tax consequences to the International Equity Portfolio and its
stockholders.
Description of Securities To Be Issued. The authorized capital stock of
International Fund Inc. consists of 700,000,000 shares, $0.01 par value per
share. The Directors of International Fund Inc. are authorized to divide the
shares into separate series, of which the International Fund is one. Shares of
International Fund Inc. entitle their holders to one vote per share; however,
separate votes will be taken by each series on matters affecting an individual
series. Shares have noncumulative voting rights and no preemptive or
subscription rights. International Fund Inc. is not required to hold stockholder
meetings annually, although stockholder meetings may be called for purposes such
as electing or removing Directors, changing fundamental policies or approving an
investment management agreement.
The Directors of International Fund Inc., in their discretion, may
authorize the division of shares of International Fund Inc. (or shares of a
series) into different classes permitting shares of different classes to be
distributed by different methods. Although stockholders of different classes of
a series would have an interest in the same portfolio of assets, stockholders of
different classes may bear different expenses in connection with different
methods of distribution, which may affect performance. Consistent with the
Directors' authority, the Directors of International Fund Inc. have authorized
the creation of the Barrett Shares class of the International Fund. It is
anticipated that the Barrett Shares class of the International Fund will be
created prior to the Closing Date. If the Barrett Shares class of the
International Fund is not so created, the Reorganization will not be
consummated.
International Fund Inc.'s By-Laws provide that meetings of stockholders may
be called at any time by the President, and shall be called by the President or
Secretary at the request, in writing or by resolution, of a majority of
Directors, or at the written request of the holder or holders of twenty-five
percent (25%) or more of the total number of shares of International Fund Inc.
then issued and outstanding and entitled to vote at such meeting. Any such
request shall state the purpose of the proposed meeting. In the event that
stockholders of International Fund Inc. wish to communicate with other
stockholders concerning the removal of any Director of International Fund Inc.,
such stockholders shall be assisted in communicating with other stockholders for
the purpose of obtaining signatures to request a meeting of stockholders, all in
the manner provided in Section 16(c) of the 1940 Act as if that section were
applicable.
Tax Considerations. The Reorganization is conditioned upon the receipt by
Institutional Fund Inc. and International Fund Inc. of an opinion from Dechert
Price & Rhoads, substantially to the effect that, based upon the facts,
assumptions and representations of the parties, for federal income tax purposes:
(i) the transfer to International Fund of all of the assets of the International
Equity Portfolio in exchange solely for International Fund Barrett Shares and
the assumption by the International Fund of all of the identified and stated
liabilities of the International Equity Portfolio, followed by the distribution
of such Barrett Shares to the International Equity Portfolio stockholders in
exchange for their shares of the International Equity Portfolio in complete
liquidation of the International Equity Portfolio, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
International Fund and the International Equity Portfolio 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 International Equity Portfolio upon the
transfer of all of its assets to the International Fund in exchange solely for
International Fund Barrett Shares and the assumption by the International Fund
of the identified and stated liabilities of the International Equity Portfolio;
(iii) the basis of the assets of the International Equity Portfolio in the hands
of the International Fund will be the same as the basis of such assets of the
International Equity Portfolio immediately prior to the transfer; (iv) the
holding period of the assets of the International Equity Portfolio in the hands
of the International Fund will include the
13
<PAGE> 20
period during which such assets were held by the International Equity Portfolio;
(v) no gain or loss will be recognized by the International Fund upon the
receipt of the assets of the International Equity Portfolio in exchange for
International Fund Barrett Shares and the assumption by the International Fund
of the identified and stated liabilities of the International Equity Portfolio;
(vi) no gain or loss will be recognized by the stockholders of the International
Equity Portfolio upon the receipt of International Fund Barrett Shares solely in
exchange for their shares of the International Equity Portfolio as part of the
transaction; (vii) the basis of the International Fund Barrett Shares received
by the stockholders of the International Equity Portfolio will be the same as
the basis of the shares of the International Equity Portfolio exchanged
therefor; and (viii) the holding period of the International Fund Barrett Shares
received by the stockholders of the International Equity Portfolio will include
the holding period during which the shares of the International Equity Portfolio
exchanged therefor were held, provided that at the time of the exchange, the
shares of the International Equity Portfolio were held as capital assets in the
hands of the stockholders of the International Equity Portfolio.
While Institutional Fund Inc. 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 stockholders may wish to
consult their own tax advisers with respect to such matters.
Comparative Information on Stockholder Rights. Each of International Fund
Inc. and Institutional Fund Inc. is a Maryland corporation governed by its
Articles of Incorporation dated June 23, 1975 and January 2, 1986, respectively,
each as amended and restated, its By-Laws and applicable Maryland law. The
business and affairs of each of the Funds are managed under the direction of a
Board of Directors.
The number of shares of common stock of each of International Fund Inc. and
Institutional Fund Inc. authorized is 700,000,000 and 25,000,000,000,
respectively. Under the Articles of Incorporation of each of Institutional Fund
Inc. and International Fund Inc., the Board of Directors is authorized to create
new classes or series of shares without a vote of stockholders.
Interests in the International Fund and the International Equity Portfolio
are represented by transferable shares of common stock having $0.01 par value
and $0.001 par value, respectively. The Directors of each of International Fund
Inc. and Institutional Fund Inc. may from time to time divide or combine the
shares into a greater or lesser number without thereby changing the
proportionate shares in that portfolio. The Directors of International Fund Inc.
and Institutional Fund Inc. each have the power to create separate classes of
shares for each portfolio and to create additional classes in the future without
a vote of stockholders.
Liquidation Expenses of The Fund. If the Reorganization is effected, the
International Equity Portfolio will liquidate, cease to operate as a business,
and dissolve its corporate existence. In this connection, the International
Equity Portfolio will incur certain expenditures, obligations, and liabilities
to be paid or discharged on and after the Closing Date, for which it will retain
a portion of its cash and cash equivalents as the "Expense Reserve."
Interest of Certain Persons. The Investment Manager has a financial
interest in the Reorganization, arising from the fact that its management fee
under its Investment Management Agreement with the International Fund will
increase as the amount of the International Fund's assets increases: the amount
of those assets will increase by virtue of the Reorganization. See
"Synopsis -- Fees and Expenses." Similarly, Scudder Service Corporation, a
subsidiary of the Investment Manager, is the transfer, stockholder servicing and
dividend-paying agent for the International Fund, and its fees from the
International Fund will increase from the addition to the International Fund of
new accounts.
Portfolio Turnover. The average annual portfolio turnover rate for the
International 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 years ended March 31, 1996 and March 31, 1997, was
45.2% and 35.8%, respectively. The average annual portfolio turnover rate for
the International Equity Portfolio for the period April 3, 1996 (commencement of
operations) to December 31, 1996 was 10.1% (annualized).
14
<PAGE> 21
Capitalization and Performance. The following table shows on an unaudited
basis the capitalization of the International Equity Portfolio and the Barrett
Shares class of the International Fund as of March 31, 1997 and on a pro forma
basis as of March 31, 1997 giving effect to the Reorganization:
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUITY PRO FORMA PRO FORMA FOR
FUND PORTFOLIO ADJUSTMENTS* REORGANIZATION*
------------- ------------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE VALUES)
<S> <C> <C> <C> <C>
Net Assets........................... $ 2,583,031 $18,324 0 $ 2,601,355
Net Asset Value per share............ $ 48.07 $ 12.68 0 $ 48.07
Shares outstanding................... 53,734 1,446 (1,064) 54,116
</TABLE>
- ---------------
* The pro forma relates to the International Fund as a whole; the pro forma for
the Barrett Shares class of the International Fund (in thousands, except per
share value) is as follows: net assets of $18,324, net asset value per share
of $48.07 and shares outstanding of 382.
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the same class of that
fund rather than paid to the investor in cash. The formula for total return used
by a fund is prescribed by the SEC and includes three steps: (1) adding to the
total number of shares of the particular class that would be purchased by a
hypothetical $1,000 investment in the fund all additional shares that would have
been purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested; (2) calculating the redeemable value
of the hypothetical initial investment as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share of the relevant class on the last trading day of the
period; and (3) dividing this account value for the hypothetical investor by the
amount of the initial investment, and annualizing the result for periods of less
than one year. Total return may be stated with or without giving effect to any
expense limitations in effect for a fund.
Average Annual Total Return. The following table reflects average annual
total returns for the one, five and ten year periods ending July 31, 1997 for
shares of the International Equity Portfolio and the International Fund:
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUITY
PERIOD FUND* PORTFOLIO
---------------------------------------------------- ------------- -------------
<S> <C> <C>
One Year............................................ 29.21% 26.93%
Five Years.......................................... 14.84% n/a
Ten Years........................................... 9.30% n/a
Since Inception..................................... n/a 17.66%
</TABLE>
- ---------------
* Barrett Shares of International Fund were not offered during the periods
covered. Performance shown is for shares of the International Fund in
existence during the periods covered.
Investment Manager. Scudder, Stevens & Clark, Inc., 345 Park Avenue, New
York, New York 10154, is the investment manager to the International Fund
pursuant to an Investment Management Agreement with International Fund Inc., on
behalf of the International Fund, substantially similar in all material respects
to that currently in place for the International Equity Portfolio.
Stockholders of the International Fund are being asked to approve a new
investment management agreement with Scudder Kemper in connection with the
transactions pursuant to the Scudder-Zurich alliance described more fully in
Proposal 2 below. If approved, the new investment management agreement between
the International Fund and Scudder Kemper is not expected to have a material
effect on the operations of the International Fund or on its stockholders. No
material change in the International Fund's investment philosophy, objectives or
strategies is currently envisioned.
15
<PAGE> 22
The Directors and Executive Officers of International Fund Inc., their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH INTERNATIONAL FUND, INC.
(DATE BECAME DIRECTOR),
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
- --------------------------------- ----------------------------------------------------------
<S> <C>
Paul Bancroft III (67)........... Director, Scudder International Fund, Inc. (1982). Venture
Capitalist and Consultant (1988 to present); Retired
President, Chief Executive Officer and Director, Bessemer
Securities Corp. (private investment company); Director,
Western Atlas, Inc. (diversified oil services and
industrial automation company). Former Director: Albany
International, Inc. (paper machine belt manufacturer); and
Measurex Corp. (process control systems company). Mr.
Bancroft serves on the Boards of an additional 5 Trusts or
Corporations whose Funds are advised by Scudder.
Nicholas Bratt* (49)............. President and Director, Scudder International Fund, Inc.
(1982). Managing Director of Scudder, Stevens & Clark,
Inc. Mr. Bratt serves on the Boards of an additional 14
Trusts or Corporations whose Funds are advised by Scudder.
Thomas J. Devine (70)............ Director, Scudder International Fund, Inc. (1978).
Consultant. Mr. Devine serves on the Boards of an
additional 6 Trusts or Corporations whose Funds are
advised by Scudder.
Keith R. Fox (43)................ Director, Scudder International Fund, Inc. (1996).
President, Exeter Capital Management Corporation (private
equity investment firm). Mr. Fox serves on the Boards of
an additional 3 Trusts or Corporations whose Funds are
advised by Scudder.
William H. Gleysteen, Jr. (71)... Director, Scudder International Fund, Inc. (1990).
Consultant; Guest Scholar, Brookings Institute; Former
President, The Japan Society, Inc. (until 1996). Mr.
Gleysteen serves on the Boards of an additional 4 Trusts
or Corporations whose Funds are advised by Scudder.
David S. Lee* (63)............... Vice President, Assistant Treasurer and Director, Scudder
International Fund, Inc. (1997). Managing Director,
Scudder, Stevens & Clark, Inc.; Trustee Emeritus, New
England Medical Center. Mr. Lee serves on the Boards of an
additional 38 Trusts or Corporations whose Funds are
advised by Scudder.
William H. Luers (68)............ Director, Scudder International Fund, Inc. (1990).
President, The Metropolitan Museum of Art; Director: IDEX
Corporation (liquid handling equipment manufacturer) and
Wickes Lumber Company (building materials for
contractors); Former Director: Transco Energy Company
(natural gas transmission company) (until 1995) and The
Discount Corporation of New York (bond trading) (until
1993). Mr. Luers serves on the Boards of an additional 3
Trusts or Corporations whose Funds are advised by Scudder.
Wilson Nolen (70)................ Director, Scudder International Fund, Inc. (1975).
Consultant; Trustee: Cultural Institutions Retirement
Fund, Inc., New York Botanical Garden, Skowhegan School of
Painting and Sculpture; and Former Director, Ecohealth,
Inc. (biotechnology company) (until 1996). Mr. Nolen
serves on the Boards of an additional 9 Trusts or
Corporations whose Funds are advised by Scudder.
</TABLE>
16
<PAGE> 23
<TABLE>
<CAPTION>
PRESENT OFFICE WITH INTERNATIONAL FUND, INC.
(DATE BECAME DIRECTOR),
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
- --------------------------------- ----------------------------------------------------------
<S> <C>
Daniel Pierce* (63).............. Chairman of the Board and Director, Scudder International
Fund, Inc. (1986). Chairman of the Board and Managing
Director of Scudder, Stevens & Clark, Inc. Director,
Fiduciary Trust Company (bank and trust company) and
Fiduciary Company Incorporated (bank and trust company).
Mr. Pierce serves on the Boards of an additional 25 Trusts
or Corporations whose Funds are advised by Scudder.
Kathryn L. Quirk* (44)........... Vice President, Assistant Secretary and Director, Scudder
International Fund, Inc. (1996). Managing Director of
Scudder, Stevens & Clark, Inc. Ms. Quirk serves on the
Boards of an additional 34 Trusts or Corporations whose
Funds are advised by Scudder.
Dr. Gordon Shillinglaw (72)...... Director, Scudder International Fund, Inc. (1982).
Professor Emeritus of Accounting, Columbia University
Graduate School of Business. Dr. Shillinglaw serves on the
Boards of an additional 8 Trusts or Corporations whose
Funds are advised by Scudder.
</TABLE>
- ---------------
* Directors considered by International Fund Inc. and its counsel to be
"interested persons" (as defined in the 1940 Act) of International Fund Inc.
or of its investment manager because of their employment by the Investment
Manager and, in some cases, holding offices with International Fund Inc.
Stockholders of the International Fund are being asked to elect a new slate
of Directors in connection with the Scudder-Zurich alliance for reasons
substantially similar to those set forth in Proposal 3 below.
Expenses of the Reorganization. The expenses relating to the proposed
Reorganization will be borne by Scudder.
ADDITIONAL INFORMATION
As of June 30, 1997, 3,476,331 shares in the aggregate, 6.48% of the
outstanding shares of International Fund, were held in the name of Charles
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein. As of June 30, 1997 the Directors and Officers of
International Fund Inc. as a group owned beneficially less than 1% of each class
of shares of the International Fund outstanding. As of June 30, 1997, the
Directors and Officers of Institutional Fund Inc. as a group beneficially owned
less than 1% of the outstanding shares of the International Equity Portfolio. As
of October 3, 1997, Barrett Associates, Inc., a New York corporation located at
521 Fifth Avenue, New York, New York 10175, owned beneficially, as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
82.11% of the outstanding shares of International Equity Portfolio, but
disclaims any beneficial ownership therein. As a result of such ownership,
Barrett Associates, Inc. may be deemed to be a control person and an affiliate
of International Equity Portfolio and may have the ability to determine the vote
on the stockholder proposals described in this Proxy Statement/Prospectus.
REQUIRED VOTE
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of International Equity Portfolio's shares outstanding and entitled to
vote thereon. Subject to such approval, the reorganization is currently
scheduled to become effective as of the close of business on December 15, 1997,
but may be postponed by mutual agreement of Institutional Fund Inc. and
International Fund Inc. The Directors unanimously recommend that the
stockholders of the International Equity Portfolio vote in favor of this
Proposal 1.
17
<PAGE> 24
PROPOSAL 2:
APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT
Introduction. Scudder acts as the investment manager to the International
Equity Portfolio (also referred to in Proposals 2, 3 and 4 as the "Fund")
pursuant to an investment management agreement entered into by the Fund and
Scudder (the "Current Investment Management Agreement"). On June 26, 1997,
Scudder entered into a Transaction Agreement (the "Transaction Agreement") with
Zurich Insurance Company ("Zurich") pursuant to which Scudder and Zurich have
agreed to form an alliance. Under the terms of the Transaction Agreement, Zurich
will acquire a majority interest in Scudder, and Zurich Kemper Investments, Inc.
("ZKI"), a Zurich subsidiary, will become part of Scudder. Scudder's name will
be changed to Scudder Kemper Investments, Inc. ("Scudder Kemper"). The foregoing
are referred to as the "Transactions." ZKI, a Chicago-based investment adviser
and the adviser to the Kemper funds, has approximately $80 billion under
management. The headquarters of Scudder Kemper will be in New York. Edmond D.
Villani, Scudder's Chief Executive Officer, will continue as Chief Executive
Officer of Scudder Kemper and will become a member of Zurich's Corporate
Executive Board.
Consummation of the Transactions would constitute an "assignment," as that
term is defined in the 1940 Act, of the Fund's Current Investment Management
Agreement with Scudder. As required by the 1940 Act, the Current Investment
Management Agreement provides for its automatic termination in the event of its
assignment. In anticipation of the Transactions, a new investment management
agreement (the "New Investment Management Agreement," together with the Current
Investment Management Agreement, the "Investment Management Agreements") between
the Fund and Scudder Kemper is being proposed for approval by stockholders of
the Fund. A copy of the form of the New Investment Management Agreement is
attached hereto as Exhibit A. THE NEW INVESTMENT MANAGEMENT AGREEMENT IS IN ALL
MATERIAL RESPECTS ON THE SAME TERMS AS THE CURRENT INVESTMENT MANAGEMENT
AGREEMENT. Conforming changes are being recommended to the New Investment
Management Agreement in order to promote consistency among all of the funds
currently advised by Scudder and to permit ease of administration. The material
terms of the Current Investment Management Agreement are described under
"Description of the Current Investment Management Agreement" below.
Stockholders are being asked to approve this Proposal 2 in the event that
the Reorganization, as described in Proposal 1 above, is not consummated.
Board of Directors' Recommendation. On August 6, 1997, the Board of
Institutional Fund Inc. (also referred to in Proposals 2, 3 and 4 as the
"Corporation"), including Non-interested Directors, voted to approve the New
Investment Management Agreement and to recommend its approval to stockholders.
For information about the Board's deliberations and the reasons for its
recommendation, please see "Board of Directors' Evaluation" below.
The Board of the Corporation recommends that its stockholders vote in favor
of the approval of the New Investment Management Agreement for the Fund.
Board of Directors' Evaluation. On June 26, 1997, representatives of
Scudder advised the Non-interested Directors of the Corporation by means of a
telephone conference call that Scudder had entered into the Transaction
Agreement. At that time, Scudder representatives described the general terms of
the proposed Transactions and the perceived benefits for the Scudder
organization and for its investment advisory clients.
Scudder subsequently furnished the Non-interested Directors with additional
information regarding the proposed Transactions, including information regarding
the terms of the proposed Transactions, and information regarding the Zurich and
ZKI organizations. In a series of subsequent telephone conference calls and in-
person meetings, the Non-interested Directors discussed this information among
themselves and with representatives of Scudder and Zurich. They were assisted in
their review of this information by their independent legal counsel and also
consulted with a representative of the Fund's independent auditors and with an
independent consultant knowledgeable in mutual fund industry matters.
18
<PAGE> 25
In the course of these discussions, Scudder advised the Non-interested
Directors that it did not expect that the proposed Transactions would have a
material effect on the operations of the Fund or its stockholders. Scudder has
advised the Non-interested Directors that the Transaction Agreement, by its
terms, does not contemplate any changes in the structure or operations of the
Fund. Scudder representatives have informed the Directors that Scudder currently
intends to maintain the separate existence of the funds that Scudder and ZKI
manage in their respective distribution channels. Scudder has also advised the
Non-interested Directors that although it currently expects that various
portions of the ZKI organization would be combined with Scudder's operations,
the senior executives of Scudder overseeing those operations will remain largely
unchanged. It is possible, however, that changes in certain personnel currently
involved in providing services to the Fund may result from future efforts to
combine the strengths and efficiencies of both firms. In their discussions with
the Directors, Scudder representatives also emphasized the strengths of the
Zurich organization and its commitment to provide the new Scudder Kemper
organization with the resources necessary to continue to provide high quality
services to the Fund and the other investment advisory clients of the new
Scudder Kemper organization.
The Board of the Corporation was advised that Scudder intends to rely on
Section 15(f) of the 1940 Act, which provides a non-exclusive safe harbor for an
investment adviser to an investment company or any of the investment adviser's
affiliated persons (as defined under the 1940 Act) to receive any amount or
benefit in connection with a change in control of the investment adviser so long
as two conditions are met. First, for a period of three years after the
transaction, at least 75% of the board members of the investment company must
not be "interested persons" of the investment company's investment adviser or
its predecessor adviser. On or prior to the consummation of the Transactions,
the Board, assuming the election of the nominees that you are being asked to
elect in "Proposal 3: Election of Directors," would be in compliance with this
provision of Section 15(f). (See "Proposal 3: Election of Directors"). Second,
an "unfair burden" must not be imposed upon the investment company as a result
of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
transaction whereby the investment adviser, or any interested person of any such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than bona fide ordinary compensation
as principal underwriter for such investment company). No such compensation
agreements are contemplated in connection with the Transactions. Scudder has
undertaken to pay the costs of preparing and distributing proxy materials to,
and of holding the meeting of, the Fund's stockholders as well as other fees and
expenses in connection with the Transactions, including the fees and expenses of
legal counsel and consultants to the Fund and the Non-interested Directors.
During the course of their deliberations, the Non-interested Directors
considered a variety of factors, including the nature, quality and extent of the
services furnished by Scudder to the Fund; the necessity of Scudder's
maintaining and enhancing its ability to retain and attract capable personnel to
serve the Fund; the investment record of Scudder in managing the Fund; the
increased complexity of the domestic and international securities markets;
Scudder's profitability from advising the Fund; possible economies of scale;
comparative data as to investment performance, advisory fees and other fees,
including administrative fees, and expense ratios; the risks assumed by Scudder;
the advantages and possible disadvantages to the Fund of having an adviser of
the Fund which also serves other investment companies as well as other accounts;
possible benefits to Scudder from serving as manager to the Fund and from
affiliates of Scudder serving the Fund in various other capacities; current and
developing conditions in the financial services industry, including the entry
into the industry of large and well capitalized companies which are spending and
appear to be prepared to continue to spend substantial sums to engage personnel
and to provide services to competing investment companies; and the financial
resources of Scudder and the continuance of appropriate incentives to assure
that Scudder will continue to furnish high quality services to the Fund.
In addition to the foregoing factors, the Non-interested Directors gave
careful consideration to the likely impact of the Transactions on the Scudder
organization. In this regard, the Non-interested Directors considered, among
other things, the structure of the Transactions which affords Scudder executives
substantial
19
<PAGE> 26
autonomy over Scudder's operations and provides substantial equity participation
and incentives for many Scudder employees; Scudder's and Zurich's commitment to
Scudder's paying compensation adequate to attract and retain top quality
personnel; Zurich's strategy for the development of its asset management
business through Scudder; information regarding the financial resources and
business reputation of Zurich; and the complementary nature of various aspects
of the business of Scudder and the Zurich Kemper organization and the intention
to maintain separate Scudder and Kemper brands in the mutual fund business.
Based on the foregoing, the Non-interested Directors concluded that the
Transactions should cause no reduction in the quality of services provided to
the Fund and believe that the Transactions should enhance Scudder's ability to
provide such services.
On August 6, 1997, the Directors of the Corporation, including the
Non-interested Directors of the Corporation, approved the New Investment
Management Agreement.
Information Concerning the Transactions and Zurich. Under the Transaction
Agreement, Zurich will pay $866.7 million in cash to acquire two-thirds of
Scudder's outstanding shares and will contribute ZKI to Scudder for additional
shares, following which Zurich will have a 79.1% fully diluted equity interest
in the combined business. Zurich will then transfer a 9.6% fully diluted equity
interest in Scudder Kemper to a defined contribution plan for the benefit of
Scudder and ZKI employees, as well as cash and warrants on Zurich shares for
award to Scudder employees, in each case subject to five-year vesting schedules.
After giving effect to the Transactions, current Scudder stockholders will have
a 29.6% fully diluted equity interest in Scudder Kemper and Zurich will have a
69.5% fully diluted interest in Scudder Kemper. Scudder's name will be changed
to Scudder Kemper Investments, Inc.
The purchase price for Scudder or for ZKI in the Transactions is subject to
adjustment based on the impact to revenues of non-consenting clients, and will
be reduced if the annualized investment management fee revenues (excluding the
effect of market changes, but taking into account new assets under management)
from clients at the time of closing, as a percentage of such revenues as of June
30, 1997 (the "Revenue Run Rate Percentage"), is less than 90%.
At the closing, Zurich and the other stockholders of Scudder Kemper will
enter into a Second Amended and Restated Security Holders Agreement (the "New
SHA"). Under the New SHA, Scudder stockholders will be entitled to designate
three of the seven members of the Scudder Kemper board of directors and two of
the four members of an Executive Committee, which will be the primary
management-level committee of Scudder Kemper. Zurich will be entitled to
designate the other four members of the Scudder Kemper board and the other two
members of the Executive Committee.
The names, addresses and principal occupations of the initial
Scudder-designated directors of Scudder Kemper are as follows: Lynn S. Birdsong,
345 Park Avenue, New York, New York, Managing Director of Scudder; Cornelia M.
Small, 345 Park Avenue, New York, New York, Managing Director of Scudder; and
Edmond D. Villani, 345 Park Avenue, New York, New York, President, Chief
Executive Officer and Managing Director of Scudder.
The names, addresses and principal occupations of the initial
Zurich-designated directors of Scudder Kemper are as follows: Lawrence W. Cheng,
Mythenquai 2, Zurich, Switzerland, Chief Investment Officer for Investments and
Institutional Asset Management and the corporate functions of Securities and
Real Estate for Zurich; Steven M. Gluckstern, Mythenquai 2, Zurich, Switzerland,
responsible for Reinsurance, Structured Finance, Capital Market Products and
Strategic Investments, and a member of the Corporate Executive Board of Zurich;
Rolf Hueppi, Mythenquai 2, Zurich, Switzerland, Chairman of the Board and Chief
Executive Officer of Zurich; and Markus Rohrbasser, Mythenquai 2, Zurich,
Switzerland, Chief Financial Officer and member of the Corporate Executive Board
of Zurich.
The initial Scudder-designated Executive Committee members will be Messrs.
Birdsong and Villani (Chairman). The initial Zurich-designated Executive
Committee members will be Messrs. Cheng and Rohrbasser.
The New SHA requires the approval of a majority of the Scudder-designated
directors for certain decisions, including changing the name of Scudder Kemper,
effecting an initial public offering before April 15,
20
<PAGE> 27
2005, causing Scudder Kemper to engage substantially in non-investment
management and related business, making material acquisitions or divestitures,
making material changes in Scudder Kemper's capital structure, dissolving or
liquidating Scudder Kemper, or entering into certain affiliated transactions
with Zurich. The New SHA also provides for various put and call rights with
respect to Scudder Kemper stock held by current Scudder employees, limitations
on Zurich's ability to purchase other asset management companies outside of
Scudder Kemper, rights of Zurich to repurchase Scudder Kemper stock upon
termination of employment of Scudder Kemper personnel, and registration rights
for stock held by continuing Scudder stockholders.
The Transactions are subject to a number of conditions, including approval
by Scudder stockholders; the Revenue Run Rate Percentages of Scudder and ZKI
being at least 75%; Scudder and ZKI having obtained director and stockholder
approvals from U.S.-registered funds representing 90% of assets of such funds
under management as of June 30, 1997; the absence of any restraining order or
injunction preventing the Transactions, or any litigation challenging the
Transactions that is reasonably likely to result in an injunction or
invalidation of the Transactions, and the continued accuracy of the
representations and warranties contained in the Transaction Agreement. The
Transactions are expected to close during the fourth quarter of 1997.
The information set forth above concerning the Transactions has been
provided to the Corporation by Scudder, and the information set forth below
concerning Zurich has been provided to the Corporation by Zurich.
Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services,
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich Insurance Group is particularly strong in the insurance of
international companies and organizations. Over the past few years, Zurich's
global presence, particularly in the United States, has been strengthened by
means of selective acquisitions.
Description of the Current Investment Management Agreement. Under the
Current Investment Management Agreement, Scudder provides the Fund with
continuing investment management services. The Investment Manager also
determines which securities shall be purchased, held, or sold, and what portion
of the Fund's assets shall be held uninvested, subject to the Corporation's
Articles of Incorporation, By-Laws, investment policies and restrictions, the
provisions of the 1940 Act, and such policies and instructions as the Directors
may determine.
The Current Investment Management Agreement provides that the Investment
Manager will provide portfolio management services and that the Investment
Manager will place portfolio transactions in accordance with policies expressed
in the Fund's registration statement, pay the Fund's office rent, render
significant administrative services on behalf of the Fund (not otherwise
provided by third parties) necessary for the Fund's operating as an open-end
investment company including, but not limited to, preparing reports to and
meeting materials for the Corporation's Board of Directors and reports and
notices to Fund stockholders; supervising, negotiating contractual arrangements
with, to the extent appropriate, and monitoring the performance of various
third-party service providers to the Fund (such as the Fund's transfer and
pricing agents, fund accounting agent, custodian, accountants and others) and
other persons in any capacity deemed necessary or desirable to Fund operations;
preparing and making filings with the Commission and other regulatory and
self-regulatory organizations, including but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the Registration
Statement, semi-annual reports on Form N-SAR and notices pursuant to Rule 24f-2
under the 1940 Act; overseeing the tabulation of proxies by the Fund's transfer
agent; assisting in the preparation and filing of the Fund's federal, state and
local tax returns; preparing and filing the Fund's federal excise tax returns
pursuant to Section 4982 of the Code; providing assistance with investor and
public relations matters; monitoring the valuation of portfolio securities and
the calculation of net asset value; monitoring the registration of shares of the
Fund under applicable federal and state securities laws; maintaining or causing
to be maintained for the Fund all books, records and reports and
21
<PAGE> 28
any other information required under the 1940 Act, to the extent such books,
records and reports and other information are not maintained by the Fund's
custodian or other agents of the Fund; assisting in establishing accounting
policies of the Fund; assisting in the resolution of accounting issues that may
arise with respect to the Fund's operations and consulting with the Fund's
independent accountants, legal counsel and the Fund's other agents as necessary
in connection therewith; establishing and monitoring the Fund's operating
expense budgets; reviewing the Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its stockholders, preparing and arranging for the printing of
dividend notices to stockholders, and providing the transfer and dividend paying
agent and the custodian with such information as is required for such parties to
effect the payment of dividends and distributions; and otherwise assisting the
Fund in the conduct of its business, subject to the direction and control of the
Corporation's Board of Directors.
Under the Current Investment Management Agreement, the Fund is responsible
for other expenses, including organizational expenses (including out-of-pocket
expenses, but not including the Investment Manager's overhead or employee
costs); brokers' commissions or other costs of acquiring or disposing of any
portfolio securities of the Fund; legal, auditing and accounting expenses;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; taxes and governmental fees;
the fees and expenses of the Fund's transfer agent; expenses of preparing share
certificates and any other expenses, including clerical expenses, of issuance,
offering, distribution, sale, redemption or repurchase of shares; the expenses
of and fees for registering or qualifying securities for sale; the fees and
expenses of Non-interested Directors; the cost of printing and distributing
reports, notices and dividends to current stockholders; and the fees and
expenses of the Fund's custodians, subcustodians, accounting agent, dividend
disbursing agents and registrars. The Fund may arrange to have third parties
assume all or part of the expenses of the sale, underwriting and distribution of
shares of the Fund. The Fund is also responsible for expenses of stockholders'
and other meetings, the cost of responding to stockholders' inquiries, and its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify officers and Directors of the
Corporation with respect thereto. The Fund is also responsible for the
maintenance of books and records which are required to be maintained by the
Fund's custodian or other agents of the Corporation; telephone, telex,
facsimile, postage and other communications expenses; any fees, dues and
expenses incurred by the Fund in connection with membership in investment
company trade organizations; expenses of printing and mailing prospectuses and
statements of additional information of the Fund and supplements thereto to
current stockholders; costs of stationery; fees payable to the Investment
Manager and to any other Fund advisors or consultants; expenses relating to
investor and public relations; interest charges, bond premiums and other
insurance expense; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; and other expenses.
The Investment Manager is responsible for the payment of the compensation
and expenses of all Directors, officers and executive employees of the Fund
(including the Fund's share of payroll taxes) affiliated with the Investment
Manager and making available, without expense to the Fund, the services of such
Directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. The Fund is responsible for the fees and expenses (specifically
including travel expenses relating to Fund business) of Directors not affiliated
with the Investment Manager. Under the Current Investment Management Agreement,
the Investment Manager also pays the Fund's share of payroll taxes, as well as
expenses, such as travel expenses (or an appropriate portion thereof), of
Directors and officers of the Corporation who are Directors, officers or
employees of the Investment Manager, to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Corporation, or any
committees thereof or advisers thereto, held outside Boston, Massachusetts or
New York, New York. During the Fund's most recent fiscal year, no compensation,
direct or otherwise (other than through fees paid to the Investment Manager),
was paid or became payable by the Corporation to any of its officers or
Directors who were affiliated with the Investment Manager.
In return for the services provided by the Investment Manager as investment
manager, and the expenses it assumes under the Current Investment Management
Agreement, the Fund pays the Investment Manager a management fee at a rate of
0.90% of average daily net assets which is accrued daily and payable monthly. As
22
<PAGE> 29
of December 31, 1996, the end of the Fund's last fiscal year, the Fund had net
assets of $17,897,508 and paid an aggregate management fee to the Investment
Manager of $0 during such period.
The Current Investment Management Agreement further provides that the
Investment Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with matters to which
such agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its duties or from reckless disregard by the Investment Manager
of its obligations and duties under such agreement.
The Current Investment Management Agreement may be terminated without
penalty upon sixty (60) days' written notice by either party. The Fund may agree
to terminate its Current Investment Management Agreement either by the vote of a
majority of the outstanding voting securities of the Fund, or by the Board of
Directors. As stated above, the Current Investment Management Agreement
automatically terminates in the event of its assignment.
Scudder has acted as the Investment Manager for the Fund since the Fund
commenced operations on April 3, 1996. The Current Investment Management
Agreement is dated April 3, 1996, and was last approved by the Directors on July
27, 1997 and by the stockholders of the Fund on April 2, 1996 and continues in
effect until July 31, 1998. The Current Investment Management Agreement was last
submitted to stockholders prior to its becoming effective, as required by the
1940 Act.
The New Investment Management Agreement. The New Investment Management
Agreement for the Fund will be dated as of the date of the consummation of the
Transactions, which is expected to occur in the fourth quarter of 1997, but in
no event later than February 28, 1998. The New Investment Management Agreement
will be in effect for an initial term ending on the same date as would the
Current Investment Management Agreement but for the Transactions, and may
continue thereafter from year to year only if specifically approved at least
annually by the vote of "a majority of the outstanding voting securities" of the
Fund, or by the Board and, in either event, the vote of a majority of the
Non-interested Directors, cast in person at a meeting called for such purpose.
In the event that stockholders of the Fund do not approve the New Investment
Management Agreement, the Current Investment Management Agreement will remain in
effect until the closing of the Transactions at which time it would terminate.
In such event, the Board of the Corporation will take such action as it deems to
be in the best interests of the Fund and its stockholders. In the event the
Transactions are not consummated, Scudder will continue to provide services to
the Fund in accordance with the terms of the Current Investment Management
Agreement for such periods as may be approved at least annually by the Board,
including a majority of the Non-interested Directors.
Differences Between the Current and New Investment Management
Agreements. The New Investment Management Agreement is substantially the same
as the Current Investment Management Agreement in all material respects. The
principal changes that have been made are summarized below. The New Investment
Management Agreement reflects conforming changes that have been made in order to
promote consistency among all funds currently advised by Scudder and to permit
ease of administration. For example, in the New Investment Management Agreement,
the term "accounting agents" would be added to the list of service providers to
which the Investment Manager must provide information in connection with the
payment of dividends and distributions.
The New Investment Management Agreement would also clarify that purchase
and sale opportunities which are suitable for more than one client of the
Investment Manager will be allocated by the Investment Manager in an equitable
manner.
In addition, the New Investment Management Agreement proposes to clarify
the scope of the licensing provisions governing the use of the Scudder name.
Specifically, the New Investment Management Agreement identifies Scudder Kemper
as the exclusive licensee of the rights to use and sublicense the names
"Scudder," "Scudder Kemper Investments, Inc.," and "Scudder, Stevens & Clark,
Inc." (together the "Scudder Marks"). Under this license, the Corporation, with
respect to the Fund, has the nonexclusive right to use and sublicense the
Scudder name and marks as part of its name, and to use the Scudder Marks in the
Corporation's investment products and services. This license continues only as
long as the New Investment Management Agreement is in place, and only as long as
Scudder Kemper continues to be a licensee of the
23
<PAGE> 30
Scudder Marks from Scudder Trust Company, which is the owner and licensor of the
Scudder Marks. As a condition of the license, the Corporation, on behalf of the
Fund, undertakes certain responsibilities and agrees to certain restrictions,
such as agreeing not to challenge the validity of the Scudder Marks or ownership
by Scudder Trust Company and the obligation to use the name within commercially
reasonable standards of quality. In the event the agreement is terminated, the
Corporation, on behalf of the Fund, must not use a name likely to be confused
with those associated with the Scudder Marks.
Other conforming changes include: deletion of the Investment Manager's
potential responsibility for monitoring the calculation and payment of
distributions to stockholders and addition of a provision clarifying that the
New Investment Management Agreement supersedes all prior agreements.
Investment Manager. Scudder is one of the most experienced investment
counsel firms in the United States. It was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
Scudder's income is professional fees received from providing continuing
investment advice. Scudder provides investment counsel for many individuals and
institutions, including insurance companies, endowments, industrial corporations
and financial and banking organizations.
As stated above, Scudder is a Delaware corporation. Daniel Pierce* is the
Chairman of the Board of Scudder, Edmond D. Villani# is President and Chief
Executive Officer of Scudder, Stephen R. Beckwith#, Lynn S. Birdsong#, Nicholas
Bratt#, E. Michael Brown*, Mark S. Casady*, Linda C. Coughlin*, Margaret D.
Hadzima*, Jerard K. Hartman#, Richard A. Holt@, John T. Packard+, Kathryn L.
Quirk#, Cornelia M. Small# and Stephen A. Wohler* are the other members of the
Board of Directors of Scudder (see footnote for symbol key). The principal
occupation of each of the above-named individuals is serving as a Managing
Director of Scudder.
All of the outstanding voting and nonvoting securities of Scudder are held
of record by Stephen R. Beckwith, Juris Padegs#, Daniel Pierce and Edmond D.
Villani in their capacity as the representatives of the beneficial owners of
such securities (the "Representatives"), pursuant to a Security Holders'
Agreement among Scudder, the beneficial owners of securities of Scudder and such
Representatives. Pursuant to the Security Holders' Agreement, the
Representatives have the right to reallocate shares among the beneficial owners
from time to time. Such reallocations will be at net book value in cash
transactions. All Managing Directors of Scudder own voting and nonvoting stock
and all Principals of Scudder own nonvoting stock.
- ---------------
* Two International Place, Boston, Massachusetts
# 345 Park Avenue, New York, New York
+ 101 California Street, San Francisco, California
@ Two Prudential Plaza, 180 North Stetson, Suite 5400, Chicago, Illinois
Directors, officers and employees of Scudder from time to time may enter
into transactions with various banks, including the Fund's custodian bank. It is
Scudder's opinion that the terms and conditions of those transactions will not
be influenced by existing or potential custodial or other Fund relationships.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder,
computes net asset value and provides fund accounting services for the Fund.
Scudder Service Corporation ("SSC"), also a subsidiary of Scudder, is the
transfer, shareholder servicing and dividend-paying agent for the Fund. Scudder
Trust Company ("STC"), an affiliate of Scudder, provides subaccounting and
recordkeeping services for stockholder accounts in certain retirement and
employee benefit plans. For the fiscal year ended December 31, 1997, the fees
paid to SFAC, SSC and STC by the Fund were $0, $15,431 and $0, respectively.
SFAC, SSC and STC will continue to provide fund accounting, transfer
agency, subaccounting and recordkeeping services to the Fund under the current
arrangements if the New Investment Management Agreement is approved, unless the
proposed reorganization is approved.
Exhibit B sets forth the fees and other information regarding other
investment companies advised by Scudder.
Brokerage Commissions on Portfolio Transactions. To the maximum extent
feasible, Scudder places orders for portfolio transactions through Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts 02110
(the "Distributor") (a corporation registered as a broker/dealer and a
subsidiary of
24
<PAGE> 31
Scudder), which in turn places orders on behalf of the Fund with issuers,
underwriters or other brokers and dealers. In selecting brokers and dealers with
which to place portfolio transactions for the Fund, Scudder will not consider
sales of shares of funds currently advised by ZKI, although it may place such
transactions with brokers and dealers that sell shares of funds currently
advised by ZKI. The Distributor receives no commissions, fees or other
remuneration from the Fund for this service. Allocation of portfolio
transactions is supervised by Scudder.
Required Vote. Approval of this Proposal by the Fund requires the
affirmative vote of a "majority of the outstanding voting securities," as
defined above, of the Fund. The Directors of the Corporation recommend that the
stockholders of the Fund vote in favor of this Proposal 2.
PROPOSAL 3:
ELECTION OF DIRECTORS FOR THE CORPORATION
At the Special Meeting, five Directors are to be elected to constitute the
Board of the Corporation. For election of Directors at the Special Meeting, the
Board of Directors has approved the nomination of the following individuals: Dr.
Rosita P. Chang, Edgar R. Fiedler, Peter B. Freeman, Dr. J. D. Hammond and
Richard M. Hunt.
The persons named as proxies on the enclosed proxy card will vote for the
election of the nominees named above unless authority to vote for any or all of
the nominees is withheld in the proxy. Each Director so elected will serve as a
Director of the Corporation until the next meeting of stockholders, if any,
called for the purpose of electing Directors and until the election and
qualification of a successor or until such Director sooner dies, resigns or is
removed as provided in the Articles of Incorporation of the Corporation. Since
the Corporation does not hold annual meetings, Directors will hold office for an
indeterminate period.
Each of the nominees has indicated that he or she is willing to serve as a
Director. 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 Directors may recommend. The
following table sets forth certain information concerning the current Directors
and the nominees. Unless otherwise noted, each of the Directors and nominees has
engaged in the principal occupation listed in the following table for more than
five years, but not necessarily in the same capacity.
25
<PAGE> 32
NOMINEES:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE CORPORATION (DATE NOMINEE
BECAME DIRECTOR), PRINCIPAL OCCUPATION
NAME (AGE) OR EMPLOYMENT AND DIRECTORSHIPS
- --------------------------------- ------------------------------------------------------------
<S> <C>
Dr. Rosita P. Chang (42)......... Professor of Finance, University of Rhode Island. Dr. Chang
serves on the Board of 1 Trust whose Funds are advised by
Scudder.
Edgar R. Fiedler* (68)........... Director (1987). Senior Fellow and Economic Counsellor, The
Conference Board, Inc.; Formerly Assistant Secretary of the
Treasury for Economic Policy. Director: The Stanley Works;
Zurich-American Insurance Company; Harris Insight Funds; and
Emerging Mexico Fund. Mr. Fiedler serves on the Boards of an
additional 8 Trusts or Corporations whose Funds are advised
by Scudder.
Peter B. Freeman (65)............ Director (1991). Trustee, Eastern Utilities Associates
(electric utility holding company); Director, AMICA Life
Insurance Co.; Director, AMICA Insurance Co. Formerly:
President, Fields Point Management Co. and Goelet Estate Co.
(private investment management companies); Former Director,
The Providence Journal Company (multi-media company). Mr.
Freeman serves on the Boards of an additional 9 Trusts or
Corporations whose Funds are advised by Scudder.
Dr. J.D. Hammond (63)............ Dean, Smeal College of Business Administration, Pennsylvania
State University; Member of the Board, The Atlantic Mutual
Insurance Co. Former Trustee, Provident Mutual Life
Insurance Company. Dr. Hammond serves on the Boards of an
additional 2 Trusts or Corporations whose Funds are advised
by Scudder.
Richard M. Hunt (70)............. University Marshall and Senior Lecturer, Harvard University;
Vice Chairman, American Council on Germany; Director,
Council on the United States and Italy; Life Trustee,
American Field Service; and Partner, Elmhurst Investment
Trust (family investment firm). Mr. Hunt serves on the
Boards of an additional 2 Trusts or Corporations whose Funds
are advised by Scudder.
</TABLE>
- ---------------
* Director considered by the Corporation and its counsel to be an "interested
person" (as defined in the 1940 Act) of the Corporation or of its investment
manager because of his employment by the Investment Manager. Although Mr.
Fiedler is currently not an "interested person" he may be deemed to be so in
the future by the Commission because of his prior service as a director of
Zurich American Insurance Company, a subsidiary of Zurich. Mr. Fiedler
resigned from that position in July 1997 and has had no further affiliation
with Zurich or any of its affiliates since that date.
26
<PAGE> 33
CURRENT DIRECTORS NOT STANDING FOR RE-ELECTION:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE CORPORATION (DATE BECAME
DIRECTOR), PRINCIPAL OCCUPATION
NAME (AGE) OR EMPLOYMENT AND DIRECTORSHIPS
- --------------------------------- ------------------------------------------------------------
<S> <C>
Robert W. Lear (80).............. Director (1989). Executive-in-Residence, Visiting Professor,
Columbia University Graduate School of Business; Director,
Equitable Capital Partners Enhancement Yield Funds. Former
Director, Cambrex Corp.
David S. Lee* (63)............... Chairman of the Board and Director (1994). Managing
Director, Scudder, Stevens & Clark, Inc.; Trustee Emeritus,
New England Medical Center. Mr. Lee serves on the Boards of
an additional 16 Trusts or Corporations whose Funds are
advised by Scudder.
Daniel Pierce* (63).............. President and Director (1990). Chairman of the Board and
Managing Director of Scudder, Stevens & Clark, Inc.
Director, Fiduciary Trust Company (bank and trust company)
and Fiduciary Company Incorporated (bank and trust company).
Mr. Pierce serves on the Boards of an additional 18 Trusts
or Corporations whose Funds are advised by Scudder.
</TABLE>
- ---------------
* Directors considered by the Corporation and its counsel to be "interested
persons" (as defined in the 1940 Act) of the Corporation or of its investment
manager because of their employment by the Investment Manager and, in some
cases, holding offices with the Corporation.
As of June 30, 1997, no nominees to or Directors of the Corporation owned
directly or beneficially any shares of the Fund.
To the best of the Corporation's knowledge, as of June 30, 1997, no person
owned beneficially more than 5% of the Fund's outstanding shares.
Responsibilities of the Board -- Board and Committee Meetings. The Board
of Directors of the Corporation is responsible for the general oversight of Fund
business. A majority of the Board's members are not affiliated with Scudder.
These Non-interested Directors have primary responsibility for assuring that the
Fund is managed in a manner consistent with the best interests of its
stockholders. The Board met four times in 1996.
The Board of Directors meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to assure compliance with various regulatory requirements.
At least annually, the Non-interested Directors review the fees paid to the
Investment Manager and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, the Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Investment Manager
and its affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by the Fund's independent
public accountants and by independent legal counsel selected by the
Non-interested Directors. In addition, the Non-interested Directors from time to
time have established and served on task forces and subcommittees focusing on
particular matters such as investment, accounting and shareholder service
issues.
The Board of the Corporation has both an Audit Committee and a Committee on
Independent Directors, the responsibilities of which are described below.
Audit Committee. The Board of the Corporation has an Audit Committee
consisting of the Non-interested Directors. The Audit Committee reviews with
management and the independent accountants for the Fund, among other things, the
scope of the audit and the controls of the Fund and its agents, reviews and
approves in advance the types of services to be rendered by independent
accountants, recommends the selection of independent accountants for the Fund to
the Board and, in general, considers and reports to the
27
<PAGE> 34
Board on matters regarding the Fund's accounting and bookkeeping practices. The
Audit Committee met once in 1996.
Committee on Independent Directors. The Board of the Corporation has a
Committee on Independent Directors consisting of all of the Non-interested
Directors. The Committee is charged with the duty of making all nominations for
Non-interested Directors and consideration of other related matters.
Stockholders' recommendations as to nominees received by management are referred
to the Committee for its consideration and action. The Committee on Independent
Directors met once in 1996.
In addition to the Board and committee meetings listed above, the Directors
of the Corporation attended various other meetings on behalf of the Corporation
during the year, including meetings with their independent legal counsel and
informational meetings.
Executive Officers. In addition to Mr. Pierce, a Director who is also an
officer of the Corporation, the following persons are Executive Officers of the
Corporation:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE CORPORATION; YEAR FIRST BECAME
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- --------------------------- ------------------------------------------------ -----------------
<S> <C> <C>
K. Susan Cote (35)......... Vice President; Principal of Scudder, Stevens & 1996
Clark, Inc.
Carol L. Franklin (44)..... Vice President; Managing Director of Scudder, 1996
Stevens & Clark, Inc.
Jerard K. Hartman (64)..... Vice President; Managing Director of Scudder, 1996
Stevens & Clark, Inc.
Thomas W. Joseph (58)...... Vice President and Assistant Secretary; 1989
Principal of Scudder, Stevens & Clark, Inc.
Thomas F. McDonough (50)... Vice President and Secretary; Principal of 1989
Scudder, Stevens & Clark, Inc.
Pamela A. McGrath (43)..... Vice President and Treasurer; Managing Director 1991
of Scudder, Stevens & Clark, Inc.
Kathryn L. Quirk (44)...... Vice President; Managing Director of Scudder, 1996
Stevens & Clark, Inc.
</TABLE>
- ---------------
(1) Unless otherwise stated, all of the Executive Officers have been associated
with the Corporation 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 Corporation.
Compensation of Directors and Officers. The Corporation pays each
Non-interested Director an annual Director's fee plus specified amounts for
Board and committee meetings attended and compensates him or her for expenses
related to Corporation business.
Scudder supervises the Fund's investments, pays the compensation and
certain expenses of its personnel who serve as Directors and officers of the
Corporation and receives a management fee for its services. Several of the
Corporation's officers and Directors are also officers, Directors, employees or
stockholders of Scudder and participate in the fees paid to that firm, although
the Corporation makes no direct payments to them other than for reimbursement of
travel expenses in connection with their attendance at Directors' and committee
meetings.
The following Compensation Table provides in tabular form the following
data:
Column (1) All Directors who receive compensation from the Corporation.
Column (2) Aggregate compensation received by each Director of the
Corporation during the calendar year 1996.
Column (3) Total compensation received by each Director from funds managed
by Scudder (collectively, the "Fund Complex") during the calendar year 1996.
28
<PAGE> 35
The Directors do not receive any pension or retirement benefits from the
Corporation.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(3)
TOTAL COMPENSATION FROM
THE CORPORATION AND
(2) FUND
(1) AGGREGATE COMPENSATION COMPLEX PAID TO
NAME OF DIRECTOR SCUDDER INSTITUTIONAL FUND, INC. DIRECTOR
- --------------------------------------------- -------------------------------- -----------------------
<S> <C> <C>
Edgar R. Fiedler*............................ $ 17,907 $108,083 (20 Funds)
Peter B. Freeman............................. $ 9,076 $131,734 (33 Funds)
Robert W. Lear............................... $ 9,076 $33,049 (11 Funds)
</TABLE>
- ---------------
* Mr. Fiedler received $17,907 through a deferred compensation program. As of
December 31, 1996, Mr. Fiedler had a total of $420,490 accrued over a number
of years in a deferred compensation program for serving on the Boards of
Directors of Scudder Institutional Fund, Inc. and Scudder Fund, Inc.
Required Vote. Election of each of the listed nominees for Director
requires the affirmative vote of a plurality of the votes of the Corporation
cast at the Special Meeting in person or by proxy. The Directors of the
Corporation recommend that the stockholders of the Fund vote in favor of each of
the nominees listed in this Proposal 3.
PROPOSAL 4:
RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Corporation, including a majority of the
Non-interested Directors, has selected Price Waterhouse LLP to act as
independent accountants of the Fund for the Fund's current fiscal year. Price
Waterhouse LLP are independent accountants and have advised the Fund that they
have no direct financial interest or material indirect financial interest in the
Fund. One or more representatives of Price Waterhouse LLP are expected to be
present at the Special 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 stockholders or management.
Required Vote. Ratification of the selection of independent accountants
requires the affirmative vote of a majority of the votes cast at the Special
Meeting in person or by proxy. The Directors recommend that the stockholders of
the Fund vote in favor of this Proposal 4.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card(s), accompanying notice and Proxy Statement/Prospectus and all other costs
incurred in connection with the solicitation of proxies, including any
additional solicitation made by letter, telephone or telegraph, will be paid by
Scudder. In addition to solicitation by mail, certain officers and
representatives of the Corporation, officers and employees of Scudder 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.
Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies. As the Special Meeting date approaches, certain
stockholders of the Fund may receive a telephone call from a representative of
SCC if their vote has not yet been received. Authorization to permit SCC to
execute proxies may be obtained by telephonic or electronically transmitted
instructions from stockholders of the Fund. Proxies that are obtained
telephonically will be recorded in accordance with the procedures set forth
below. The Directors believe that these procedures are reasonably designed to
ensure that the identity of the stockholder casting the vote is accurately
determined and that the voting instructions of the stockholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each stockholder's full name, address, social security or
employer identification number, title (if the stockholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned
and to
29
<PAGE> 36
confirm that the stockholder has received the Proxy Statement/Prospectus and
card(s) 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 listed on the proxy card(s), and ask for the
stockholder's instructions on each proposal. The SCC representative, although he
or she is permitted to answer questions about the process, is not permitted to
recommend to the stockholder how to vote, other than to read any recommendation
set forth in the Proxy Statement/Prospectus. SCC will record the stockholder's
instructions on the card(s). Within 72 hours, the stockholder will be sent a
letter or mailgram to confirm his or her vote and asking the stockholder to call
SCC immediately if his or her instructions are not correctly reflected in the
confirmation.
If the stockholder wishes to participate in the Special Meeting, but does
not wish to give his or her proxy by telephone, the stockholder may still submit
the proxy card(s) originally sent with the Proxy Statement/Prospectus or attend
in person. Should stockholders require additional information regarding the
proxy or replacement proxy cards, they may contact SCC toll-free at
1-800-733-8481, ext. 488. Any proxy given by a stockholder, whether in writing
or by telephone, is revocable.
Proposals of Stockholders. Stockholders wishing to submit proposals for
inclusion in a proxy statement for a stockholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary of
the Corporation, c/o Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York,
NY 10154, 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 Special Meeting. The Board of Directors
is not aware of any matters that will be presented for action at the Special
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of stockholders 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
Corporation and/or Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/ Thomas F. McDonough
Thomas F. McDonough
Secretary
30
<PAGE> 37
EXHIBIT A
NAME OF FUND
345 PARK AVENUE
NEW YORK, NEW YORK 10154
, 199
SCUDDER KEMPER INVESTMENTS, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
Investment Management Agreement
[Name of Series]
Ladies and Gentlemen:
[Name of Corporation] (the "Corporation") has been established as a
Maryland corporation to engage in the business of an investment company.
Pursuant to the Corporation's Articles of Incorporation, as amended from
time-to-time (the "Articles"), the Board of Directors has divided the
Corporation's shares of capital stock, par value $ per share, (the
"Shares") into separate series, or funds, including [name of series] (the
"Fund"). Series may be abolished and dissolved, and additional series
established, from time to time by action of the Directors.
The Corporation, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Corporation on behalf of the
Fund agrees with you as follows:
1. Delivery of Documents. The Corporation engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Corporation's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Corporation under the Investment Company
Act of 1940, as amended, (the "1940 Act") and the Securities Act of 1933, as
amended. Copies of the documents referred to in the preceding sentence have been
furnished to you by the Corporation. The Corporation has also furnished you with
copies properly certified or authenticated of each of the following additional
documents related to the Corporation and the Fund:
(a) The Articles dated , 19 , as amended to date.
(b) By-Laws of the Corporation as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Directors of the Corporation and the
shareholders of the Fund selecting you as investment manager and approving
the form of this Agreement.
The Corporation will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder" and ["Scudder Kemper
Investments, Inc."/"Scudder, Stevens & Clark, Inc."] trademarks (together, the
"Scudder Marks"), you hereby grant the Corporation a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Corporation's
name (the "Fund Name"), and (ii) the Scudder Marks in connection with the
Corporation's investment products and services, in each case only for so long as
this Agreement, any other investment management agreement between you (or any
organization which shall have succeeded to your business as investment manager
("your Successor")) and the Corporation, or any extension, renewal or amendment
hereof or thereof remains in effect, and only for so long as you are a licensee
of the Scudder Marks, provided however, that you agree to use your best efforts
to maintain your license to use and sublicense the Scudder Marks. The
Corporation agrees that it shall have no right to sublicense or assign rights to
use the Scudder Marks, shall acquire no interest in the Scudder Marks
A-1
<PAGE> 38
other than the rights granted herein, that all of the Corporation's uses of the
Scudder Marks shall inure to the benefit of Scudder Trust Company as owner and
licensor of the Scudder Marks (the "Trademark Owner"), and that the Corporation
shall not challenge the validity of the Scudder Marks or the Trademark Owner's
ownership thereof. The Corporation further agrees that all services and products
it offers in connection with the Scudder Marks shall meet commercially
reasonable standards of quality, as may be determined by you or the Trademark
Owner from time to time, provided that you acknowledge that the services and
products the Corporation rendered during the one-year period preceding the date
of this Agreement are acceptable. At your reasonable request, the Corporation
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Corporation as a registered user thereof. At such time as
this Agreement or any other investment management agreement shall no longer be
in effect between you (or your Successor) and the Corporation, or you no longer
are a licensee of the Scudder Marks, the Corporation shall (to the extent that,
and as soon as, it lawfully can) cease to use the Fund Name or any other name
indicating that it is advised by, managed by or otherwise connected with you (or
your Successor) or the Trademark Owner. In no event shall the Corporation use
the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement between
you (or your Successor) and the Fund is terminated.
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Corporation's Board
of Directors. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Corporation or
counsel to you. You shall also make available to the Corporation promptly upon
request all of the Fund's investment records and ledgers as are necessary to
assist the Corporation in complying with the requirements of the 1940 Act and
other applicable laws. To the extent required by law, you shall furnish to
regulatory authorities having the requisite authority any information or reports
in connection with the services provided pursuant to this Agreement which may be
requested in order to ascertain whether the operations of the Corporation are
being conducted in a manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Corporation's Board of Directors periodic reports
on the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Corporation's officers or Board of Directors
shall reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Corporation administrative
services on behalf of the Fund necessary for operating as an open-end investment
company and not provided by persons not parties to this Agreement including, but
not limited to, preparing reports to and meeting materials for the Corporation's
Board of
A-2
<PAGE> 39
Directors and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the
Corporation as it may reasonably request in the conduct of the Fund's business,
subject to the direction and control of the Corporation's Board of Directors.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Directors, officers and executive employees of the Corporation (including the
Fund's share of payroll taxes) who are affiliated persons of you, and you shall
make available, without expense to the Fund, the services of such of your
directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 3 hereof and the administrative services described
in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Directors and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Corporation; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Corporation business) of Directors,
officers and
A-3
<PAGE> 40
employees of the Corporation who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Directors and officers of the Corporation; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Directors and officers of the Corporation who are directors,
officers or employees of you to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Corporation or any
committees thereof or advisors thereto held outside of Boston, Massachusetts or
New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Corporation on behalf of the Fund shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act providing that the Fund
(or some other party) shall assume some or all of such expenses. You shall be
required to pay such of the foregoing sales expenses as are not required to be
paid by the principal underwriter pursuant to the underwriting agreement or are
not permitted to be paid by the Fund (or some other party) pursuant to such a
plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Corporation on behalf of the Fund shall pay you in United States Dollars on the
last day of each month the unpaid balance of a fee equal to the excess of (a)
1/12 of of 1 percent of the average daily net assets as defined below of
the Fund for such month; [provided that, for any calendar month during which the
average of such values exceeds $ , the fee payable for that month based
on the portion of the average of such values in excess of $ shall be
1/12 of of 1 percent of such portion;] [and provided that, for any calendar
month during which the average of such values exceeds $ , the fee
payable for that month based on the portion of the average of such values in
excess of $ shall be 1/12 of of 1 percent of such portion;] over
any compensation waived by you from time to time (as more fully described
below). You shall be entitled to receive during any month such interim payments
of your fee hereunder as you shall request, provided that no such payment shall
exceed 75 percent of the amount of your fee then accrued on the books of the
Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Articles and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 6.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours
A-4
<PAGE> 41
concerning the Shares of the Fund, you shall act solely as investment counsel
for such clients and not in any way on behalf of the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Corporation.
Whenever the Fund and one or more other accounts or investment companies
advised by the Manager have available funds for investment, investments suitable
and appropriate for each shall be allocated in accordance with procedures
believed by the Manager to be equitable to each entity. Similarly, opportunities
to sell securities shall be allocated in a manner believed by the Manager to be
equitable. The Fund recognizes that in some cases this procedure may adversely
affect the size of the position that may be acquired or disposed of for the
Fund.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Corporation
agrees that you shall not be liable under this Agreement for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect you against any
liability to the Corporation, the Fund or its shareholders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your reckless
disregard of your obligations and duties hereunder. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his or her employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee or
agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 19 , and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Directors of the Corporation, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Corporation's Board of Directors on 60
days' written notice to you, or by you on 60 days' written notice to the
Corporation. This Agreement shall terminate automatically in the event of its
assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
A-5
<PAGE> 42
This Agreement shall be construed in accordance with the laws of the State
of Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Corporation, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
[NAME OF CORPORATION], on behalf of
Scudder Fund
By:
--------------------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By:
--------------------------------------------------
Managing Director
A-6
<PAGE> 43
EXHIBIT B
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC.
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
MONEY MARKET
Scudder U.S. Treasury
Money Fund........... Safety, liquidity, and 0.500% of net assets+ $ 398,597,054
stability of capital and,
consistent therewith,
current income.
Scudder Cash Investment
Trust................ Stability of capital while 0.500% to $250 million $1,430,623,516
maintaining liquidity of 0.450% next $250 million
capital and providing 0.400% next $500 million
current income from money 0.350% thereafter+
market securities.
Scudder Money Market
Series............... High level of current 0.250% of net assets $ 384,509,425**
income consistent with
preservation of capital
and liquidity by investing
in a broad range of
short-term money market
instruments.
Scudder Government Money
Market Series........ High level of current 0.250% of net assets $ 36,794,563**
income consistent with
preservation of capital
and liquidity by investing
exclusively in obligations
issued or guaranteed by
the U.S. Government or its
agencies or
instrumentalities and in
certain repurchase
agreements.
TAX FREE MONEY MARKET
Scudder Tax Free Money
Fund................. Income exempt from regular 0.500% to $500 million $ 220,245,241
federal income taxes and 0.480% thereafter*
stability of principal
through investments in
municipal securities.
Scudder Tax Free Money
Market Series........ High level of current 0.250% of net assets $ 79,695,218**
income consistent with
preservation of capital
and liquidity, exempt from
federal income tax by
investing primarily in
high quality municipal
obligations.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
** Assets as of 7/31/91.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-1
<PAGE> 44
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Scudder California Tax
Free Money Fund...... Stability of capital and 0.500% of net assets+ $ 68,695,680
the maintenance of a
constant net asset value
of $1.00 per share while
providing California tax
payers income exempt from
both California state
personal and regular
federal income tax through
investment in high
quality, short-term
tax-exempt California
municipal securities.
Scudder New York Tax
Free Money Fund...... Stability of capital and 0.500% of net assets+ $ 59,538,652
income exempt from New
York state and New York
City personal income taxes
and regular federal income
tax through investment in
high quality, short-term
municipal securities in
New York.
TAX FREE
Scudder Limited Term Tax
Free Fund............ High level of income 0.600% of net assets+ $ 123,660,431
exempt from regular
federal income tax
consistent with a high
degree of principal
stability.
Scudder Medium Term Tax
Free Fund............ High level of income 0.600% to $500 million $ 650,504,081
exempt from regular 0.500% thereafter
federal income tax and
limited principal
fluctuation through
investment primarily in
high grade intermediate
term municipal securities.
Scudder Managed
Municipal Bonds...... Income exempt from regular 0.550% to $200 million $ 737,422,861
federal income tax 0.500% next $500 million
primarily through 0.475% thereafter
investments in high-grade
long-term municipal
securities.
Scudder High Yield Tax
Free Fund............ High level of income, 0.650% to $300 million $ 293,101,021
exempt from regular 0.600% thereafter
federal income tax, from
an actively managed
portfolio consisting
primarily of investment
grade municipal
securities.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-2
<PAGE> 45
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Scudder California Tax
Free Fund............ Income exempt from both 0.625% to $200 million $ 288,576,041
California state personal 0.600% thereafter
income tax and regular
federal income tax
primarily through
investment grade municipal
securities.
Scudder Massachusetts
Limited Term Tax Free
Fund................. A high level of income 0.600% of net assets+ $ 65,505,088
exempt from both
Massachusetts personal
income tax and regular
federal income tax as is
consistent with a high
degree of price stability.
Scudder Massachusetts
Tax Free Fund........ A high level of income 0.600% of net assets $ 329,842,169
exempt from both
Massachusetts personal
income tax and regular
federal income tax through
investment primarily in
long-term investment-grade
municipal securities in
Massachusetts.
Scudder New York Tax
Free Fund............ Income exempt from New 0.625% to $200 million $ 180,647,157
York state and New York 0.600% thereafter
City personal income taxes
and regular federal income
tax through investment
primarily in long-term
investment-grade municipal
securities in New York.
Scudder Ohio Tax Free
Fund................. Income exempt from Ohio 0.600% of net assets+ $ 84,109,009
personal income tax and
regular federal income tax
through investment
primarily in
investment-grade municipal
securities in Ohio.
Scudder Pennsylvania Tax
Free Fund............ Income exempt from 0.600% of net assets+ $ 74,177,997
Pennsylvania personal
income tax and regular
federal income tax through
investment primarily in
investment-grade municipal
securities in
Pennsylvania.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-3
<PAGE> 46
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
U.S. INCOME
Scudder Short Term Bond
Fund................. High level of income 0.600% to $500 million $1,468,170,885
consistent with a high 0.500% next $500 million
degree of principal 0.450% next $500 million
stability through 0.400% next $500 million
investments primarily in 0.375% next $1 billion
high quality short-term 0.350% thereafter
bonds.
Scudder Zero Coupon 2000
Fund................. High investment returns 0.600% of net assets+ $ 25,440,414
over a selected period as
is consistent with
investment in U.S.
Government securities and
the minimization of
reinvestment risk.
Scudder GNMA Fund....... High current income and 0.650% to $200 million $ 383,008,164
safety of principal 0.600% next $300 million
primarily from investment 0.550% thereafter
in U.S. Government
guaranteed mortgage-backed
GNMA securities.
Scudder Income Fund..... A high level of income, 0.650% to $200 million $ 378,519,502
consistent with the 0.600% next $300 million
prudent investment of 0.550% thereafter
capital, through a
flexible investment
program emphasizing high-
grade bonds.
Scudder High Yield Bond
Fund................. A high level of current 0.700% of net assets $ 73,523,094
income and capital
appreciation through
investment primarily in
below investment-grade
domestic debt securities.
GLOBAL INCOME
Scudder Global Bond
Fund................. Total return with an 0.750% to $1 billion $ 217,403,907
emphasis on current income 0.700% thereafter+
by investing primarily in
high-grade bonds
denominated in foreign
currencies and the U.S.
dollar.
Scudder International
Bond Fund............ Income primarily by 0.850% to $1 billion $ 235,993,183
investing in high-grade 0.800% thereafter
international bonds and
protection and possible
enhancement of principal
value by actively managing
currency, bond market and
maturity exposure and by
security selection.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-4
<PAGE> 47
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Scudder Emerging Markets
Income Fund.......... High current income and, 1.000% of net assets $ 304,607,984
secondarily, long-term
capital appreciation by
investing primarily in
high-yielding debt
securities issued in
emerging markets.
ASSET ALLOCATION
Scudder Pathway
Conservative
Portfolio............ Current income and, There will be no fee as $ 13,928,759***
secondarily, long-term the Manager will receive a
growth of capital by fee from the underlying
investing substantially in funds.
Scudder bond mutual funds,
but will have some
exposure to Scudder equity
mutual funds.
Scudder Pathway Balanced
Portfolio............ Balance of growth and There will be no fee as $ 167,721,722***
income by investing in a the Manager will receive a
mix of Scudder money fee from the underlying
market, bond and equity funds.
mutual funds.
Scudder Pathway Growth
Portfolio............ Long-term growth of There will be no fee as $ 42,234,535***
capital by investing the Manager will receive a
predominantly in Scudder fee from the underlying
equity mutual funds funds.
designed to provide long-
term growth.
Scudder Pathway
International
Portfolio............ Maximize total return by There will be no fee as $ 8,983,598***
inverting in a select mix the Manager will receive a
of established fee from the underlying
international and global funds.
Scudder Funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund... A balance of growth and 0.700% of net assets* $ 109,541,542
income from a diversified
portfolio of equity and
fixed income securities
and long-term preservation
of capital through a
quality oriented
investment approach
designed to reduce risk.
Scudder Growth and
Income Fund.......... Long-term growth of 0.600% to $500 million $4,186,481,205
capital, current income 0.550% next $500 million
and growth of income 0.500% next $500 million
primarily from common 0.475% next $500 million
stocks, preferred stocks 0.450% next $1 billion
and securities convertible 0.425% next $1.5 billion
into common stocks. 0.405% thereafter
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
*** Assets as of 6/30/97.
</TABLE>
B-5
<PAGE> 48
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
U.S. GROWTH
Scudder Large Company
Value Fund (formerly
Scudder Capital
Growth Fund)......... Maximize long-term capital 0.750% to $500 million $1,651,459,797
appreciation through a 0.650% next $500 million
value driven investment 0.600% next $500 million
program emphasizing common 0.550% thereafter
stocks and preferred
stocks.
Scudder Value Fund...... Long-term growth of 0.700% of net assets $ 88,874,292
capital through investment
in undervalued equity
securities.
Scudder Small Company
Value Fund........... Long-term growth of 0.750% of net assets* $ 41,187,186
capital by investing
primarily in undervalued
equity securities of small
U.S. companies.
Scudder Micro Cap Fund.. Long-term growth of 0.750% of net assets* $ 72,048,339***
capital by investing
primarily in a diversified
portfolio of U.S.
micro-cap common stocks.
Scudder Classic Growth
Fund................. Long-term growth of 0.700% of net assets* $ 33,867,066
capital while keeping the
value of its shares more
stable than other growth
mutual funds.
Scudder Large Company
Growth Fund (formerly
Scudder Quality
Growth Fund)......... Long-term growth of 0.700% of net assets $ 221,253,633
capital through investment
primarily in the equity
securities of seasoned,
financially strong U.S.
growth companies.
Scudder Development
Fund................. Long-term growth of 1.000% to $500 million $ 861,564,138
capital by investing 0.950% next $500 million
primarily in equity 0.900% thereafter
securities of emerging
growth companies.
Scudder 21st Century
Growth Fund.......... Long-term growth of 1.000% of net assets+ $ 20,942,531***
capital by investing
primarily in the
securities of emerging
growth companies poised to
be leaders in the 21st
century.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
*** Assets as of 6/30/97.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-6
<PAGE> 49
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
GLOBAL GROWTH
Scudder Global Fund..... Long-term growth of 1.000% to $5000 million $1,604,465,769
capital through investment 0.950% next $500 million
in a diversified portfolio 0.900% thereafter
of marketable foreign and
domestic securities,
primarily equity
securities.
Institutional
International Equity
Portfolio............ Long-term growth of 0.900% of net assets+ $ 17,897,508
capital primarily through
a diversified portfolio of
marketable foreign equity
securities.
Scudder International
Growth and Income
Fund................. Long-term growth of 1.000% of net assets+ $ 25,611,898***
capital and current income
primarily from foreign
equity securities.
Scudder International
Fund................. Long-term growth of 0.900% to $500 million $2,583,030,686
capital primarily through 0.850% next $500 million
a diversified portfolio of 0.800% next $1 billion
marketable foreign equity 0.750% next $1 billion
securities. 0.700% thereafter
Scudder Global Discovery
Fund................. Above-average capital 1.100% of net assets $ 350,829,980
appreciation over the
long-term by investing
primarily in the equity
securities of small
companies located
throughout the world.
Scudder Emerging Markets
Growth Fund.......... Long-term growth of 1.25% of net assets* $ 75,793,693
capital primarily through
equity investments in
emerging markets around
the globe.
Scudder Gold Fund....... Maximum return consistent 1.000% of net assets $ 163,932,814
with investing in a
portfolio of gold-related
equity securities and
gold.
Scudder Greater Europe
Growth Fund.......... Long-term growth of 1.000% of net assets $ 120,300,058
capital through investment
primarily in the equity
securities of European
companies.
Scudder Pacific
Opportunities Fund... Long-term growth of 1.100% of net assets $ 329,391,540
capital primarily through
investment in the equity
securities of Pacific
Basin companies, excluding
Japan.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
*** Assets as of 6/30/97.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-7
<PAGE> 50
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Scudder Latin America
Fund................. Long-term capital 1.250% to $1 billion $ 621,914,690
appreciation through 1.150% thereafter
investment primarily in
the securities of Latin
American issuers.
The Japan Fund, Inc..... Long-term capital 0.850% to $100 million $ 385,963,962
appreciation through 0.750% next $200 million
investment primarily in 0.700% next $300 million
equity securities of 0.650% thereafter
Japanese companies.
CLOSED-END FUNDS
The Argentina Fund,
Inc. ................ Long-term capital Adviser: $ 117,596,046
appreciation through Effective 11/1/97:
investment primarily in 1.100% of net assets
equity securities of Sub-Adviser:
Argentine issuers. Paid by Adviser.
0.160% of net assets
The Brazil Fund, Inc.... Long-term capital 1.200% to $150 million $ 417,981,869
appreciation through 1.050% next $150 million
investment primarily in 1.000% thereafter
equity securities of
Brazilian issuers. Effective 10/29/97:
1.200% to $150 million
1.050% next $150 million
1.000% next $200 million
0.900% thereafter
Administrator:
Receives an annual fee of
$50,000
The Korea Fund, Inc. ... Long-term capital Adviser: $ 661,690,073
appreciation through 1.150% to $50 million
investment primarily in 1.100% next $50 million
equity securities of 1.000% next $250 million
Korean companies. 0.950% next $400 million
0.900% thereafter
Sub-Adviser -- Daewoo:
Paid by Adviser.
0.2875% to $50 million
0.275% next $50 million
0.250% next $250 million
0.2375% next $400 million
0.225% thereafter
The Latin America Dollar
Income Fund, Inc. ... High level of current 1.200% of net assets $ 94,748,606
income and, secondarily,
capital appreciation
through investment
principally in
dollar-denominated Latin
American debt instruments.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
</TABLE>
B-8
<PAGE> 51
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Montgomery Street Income
Securities, Inc. .... High level of current 0.500% to $150 million $ 198,465,822
income consistent with 0.450% next $50 million
prudent investment risks 0.400% thereafter
through a diversified
portfolio primarily of
debt securities.
Scudder New Asia Fund,
Inc. ................ Long-term capital 1.250% to $75 million $ 133,363,686
appreciation through 1.150% next $125 million
investment primarily in 1.100% thereafter
equity securities of Asian
companies.
Scudder New Europe Fund,
Inc. ................ Long-term capital 1.250% to $75 million $ 266,418,730
appreciation through 1.150% next $125 million
investment primarily in 1.100% thereafter
equity securities of
companies traded on
smaller or emerging
European markets and
companies that are viewed
as likely to benefit from
changes and developments
throughout Europe.
Scudder Spain and
Portugal Fund,
Inc. ................ Long-term capital Adviser: $ 75,127,194
appreciation through 1.000% of net assets
investment primarily in Administrator:
equity securities of 0.200% of net assets
Spanish & Portuguese
issuers.
Scudder World Income
Opportunities Fund,
Inc. ................ High income and, 1.200% of net assets $ 54,488,637
consistent therewith,
capital appreciation.
INSURANCE PRODUCTS
Balanced Portfolio...... Balance of growth and 0.475% of net assets $ 88,342,837
income consistent with
long-term preservation of
capital through a
diversified portfolio of
equity and fixed income
securities.
Bond Portfolio.......... High level of income 0.475% of net assets $ 65,769,421
consistent with a high
quality portfolio of debt
securities.
Capital Growth
Portfolio............ Long-term capital growth 0.475% to $500 million $ 440,481,308
from a portfolio 0.450% thereafter
consisting primarily of
equity securities.
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
</TABLE>
B-9
<PAGE> 52
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
Global Discovery
Portfolio............ Above-average capital 0.975% of net assets+ $ 16,757,264
appreciation over the
long- term by investing
primarily in the equity
securities of small
companies located
throughout the world.
Growth and Income
Portfolio............ Long-term growth of 0.475% of net assets $ 91,691,547
capital, current income
and growth of income.
International
Portfolio............ Long-term growth of 0.875% to $500 million $ 726,038,527
capital primarily through 0.775% thereafter
diversified holdings of
marketable foreign equity
investments.
Money Market
Portfolio............ Stability of capital and 0.370% of net assets $ 97,785,626
current income from a
portfolio of money market
instruments.
AARP FUNDS
AARP High Quality Money
Fund................. Current income and 0.350% to $2 billion $ 412,126,193
liquidity, consistent with 0.330% next $2 billion
maintaining stability and 0.300% next $2 billion
safety of principal, 0.280% next $2 billion
through investment in high 0.260% next $3 billion
quality securities. 0.250% next $3 billion
0.240% thereafter
Individual Fund Fee
0.100% of net assets
AARP Balanced Stock and
Bond Fund............ Long-term growth of 0.350% to $2 billion $ 403,179,939
capital and income, 0.330% next $2 billion
consistent with a stable 0.300% next $2 billion
share price, through 0.280% next $2 billion
investment in a 0.260% next $3 billion
combination of stocks, 0.250% next $3 billion
bonds and cash reserves. 0.240% thereafter
Individual Fund Fee
0.190% of net assets
AARP Capital Growth
Fund................. Long-term capital growth, 0.350% to $2 billion $ 826,136,713
consistent with a share 0.330% next $2 billion
price more stable than 0.300% next $2 billion
other capital growth 0.280% next $2 billion
funds, through investment 0.260% next $3 billion
primarily in common stocks 0.250% next $3 billion
and securities convertible 0.240% thereafter
into common stocks. Individual Fund Fee
0.320% of net assets
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-10
<PAGE> 53
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
AARP Global Growth
Fund................. Long-term growth of 0.350% to $2 billion $ 77,651,978
capital, consistent with a 0.330% next $2 billion
share price more stable 0.300% next $2 billion
than other global equity 0.280% next $2 billion
funds, through investment 0.260% next $3 billion
primarily in a diversified 0.250% next $3 billion
portfolio of equity 0.240% thereafter*
securities of corporations Individual Fund Fee
worldwide. 0.550% of net assets
AARP Growth and Income
Fund................. Long-term growth of 0.350% to $2 billion $4,218,983,398
capital and income, 0.330% next $2 billion
consistent with a stable 0.300% next $2 billion
share price, through 0.280% next $2 billion
investment primarily in 0.260% next $3 billion
common stocks and 0.250% next $3 billion
securities convertible 0.240% thereafter
into common stocks. Individual Fund Fee
0.190% of net assets
AARP International Stock
Fund................. Long-term growth of 0.350% to $2 billion $ 12,699,109***
capital, consistent with a 0.330% next $2 billion
share price more stable 0.300% next $2 billion
than other international 0.280% next $2 billion
equity funds, through 0.260% next $3 billion
investment primarily in a 0.250% next $3 billion
diversified portfolio of 0.240% thereafter*
foreign equity securities. Individual Fund Fee
0.600% of net assets
AARP Small Company Stock
Fund................. Long-term growth of 0.350% to $2 billion $ 25,425,137***
capital, consistent with a 0.330% next $2 billion
share price more stable 0.300% next $2 billion
than other small company 0.280% next $2 billion
stock funds, through 0.260% next $3 billion
investment primarily in 0.250% next $3 billion
stocks of small U.S. 0.240% thereafter*
companies. Individual Fund Fee
0.550% of net assets
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
*** Assets as of 6/30/97.
AARP U.S. Stock Index
Fund................. Long-term capital growth 0.350% to $2 billion $ 23,917,674***
and income, consistent 0.330% next $2 billion
with greater share price 0.300% next $2 billion
stability than a S&P 500 0.280% next $2 billion
index fund, by taking an 0.260% next $3 billion
indexing approach to 0.250% next $3 billion
investing in common 0.240% thereafter+
stocks, emphasizing higher Individual Fund Fee
dividend stocks while 0.000% of net assets
maintaining investment
characteristics otherwise
similar to the S&P 500
index.
</TABLE>
B-11
<PAGE> 54
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
AARP Bond Fund for
Income............... High level of current 0.350% to $2 billion $ 34,951,973***
income, consistent with 0.330% next $2 billion
greater share price 0.300% next $2 billion
stability than a long term 0.280% next $2 billion
bond, through investment 0.260% next $3 billion
primarily in 0.250% next $3 billion
investment-grade debt 0.240% thereafter+
securities. Individual Fund Fee
0.280% of net assets
AARP GNMA and U.S.
Treasury Fund........ High level of current 0.350% to $2 billion $4,904,439,844
income, consistent with 0.330% next $2 billion
greater share price 0.300% next $2 billion
stability than a long-term 0.280% next $2 billion
bond, through investment 0.260% next $3 billion
principally in U.S. 0.250% next $3 billion
Government-guaranteed GNMA 0.240% thereafter
securities and U.S. Individual Fund Fee
Treasury obligations. 0.120% of net assets
AARP High Quality Bond
Fund................. High level of income, 0.350% to $2 billion $ 511,905,166
consistent with greater 0.330% next $2 billion
share price stability than 0.300% next $2 billion
a long-term bond, through 0.280% next $2 billion
investment primarily in a 0.260% next $3 billion
portfolio of high quality 0.250% next $3 billion
securities. 0.240% thereafter
Individual Fund Fee 0.190%
of net assets
AARP Diversified Growth
Portfolio............ Long-term growth of There will be no fee as $ 36,411,938***
capital through investment the manager will receive a
primarily on AARP stock fee from the underlying
mutual funds. funds.
AARP Diversified Income
Portfolio............ Current income with modest There will be no fee as $ 34,230,023***
long-term appreciation the manager will receive a
through investment fee from the underlying
primarily in AARP bond funds.
mutual funds.
AARP High Quality Tax
Free Money Fund...... Current income exempt from 0.350% to $2 billion $ 111,264,728
federal income taxes and 0.330% next $2 billion
liquidity, consistent with 0.300% next $2 billion
maintaining stability and 0.280% next $2 billion
safety of principal, 0.260% next $3 billion
through investment in 0.250% next $3 billion
high-quality municipal 0.240% thereafter
securities. Individual Fund Fee 0.100%
of net assets
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
*** Assets as of 6/30/97.
+ Subject to waivers and/or expense limitations.
</TABLE>
B-12
<PAGE> 55
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC. -- (CONTINUED)
FUND OBJECTIVE FEE RATE ASSETS*
- -------------------------- -------------------------- -------------------------- --------------
<S> <C> <C> <C>
AARP Insured Tax Free
General Bond Fund.... High level of income free 0.350% to $2 billion $1,755,412,222
from federal income taxes, 0.330% next $2 billion
consistent with greater 0.300% next $2 billion
share price stability than 0.280% next $2 billion
a long- term municipal 0.260% next $3 billion
bond, through investment 0.250% next $3 billion
primarily in municipal 0.240% thereafter
securities covered by Individual Fund Fee 0.190%
insurance. of net assets
- ---------------
* Assets are shown as of a Fund's most recent fiscal year end unless other indicated.
</TABLE>
B-13
<PAGE> 56
EXHIBIT C
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 18th day of September, 1997, by and between Scudder International Fund,
Inc. (the "Acquiring Company"), a Maryland Corporation with its principal place
of business at 345 Park Avenue, New York, New York 10154, on behalf of Scudder
International Fund (the "Acquiring Fund"), a separate series of the Acquiring
Company, and Scudder Institutional Fund, Inc. (the "Acquired Company"), on
behalf of Institutional International Equity Portfolio (the "Acquired Fund"), a
separate series of the Acquired Company.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)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 the Barrett
International Shares class (the "Barrett Shares class") of voting shares of
common stock ($0.01 par value per share) of the Acquiring Fund (the "Acquiring
Fund Shares"), the assumption by the Acquiring Fund of all of the identified and
stated 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.
WHEREAS, the purpose of the Reorganization is to combine the assets of the
Acquiring Fund with those of the Acquired Fund in an attempt to achieve greater
operating economies and increased portfolio diversification;
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 THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL OF THE IDENTIFIED AND
STATED 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 Barrett Shares class of 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 of the then issued and outstanding class of the Acquiring
Fund, computed in the manner and as of the time and date set forth in section
2.1; and (ii) to assume all of the identified and stated liabilities of the
Acquired Fund, as set forth in section 1.3. 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
(collectively "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 (the "Effective Time Statement"), prepared 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 the Closing (including, for these purposes,
amounts, if any, used by the Acquired Fund to pay its reorganization expenses,
if any, retained by the Acquired Fund to pay its liabilities, and all
redemptions and distributions (except for redemptions and distributions
occurring in the ordinary course of the Acquired
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Fund's business as a series of an open-end investment company, as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the "1940
Act"), and not in connection with the Reorganization) made by the Acquiring Fund
immediately prior to the Reorganization).
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.
The Acquiring Fund shall assume all of the identified and stated liabilities,
expenses, costs, charges and reserves (including,without limitation, expenses
incurred in the ordinary course of business of the Acquired Fund's operations,
such as accounts payable relating to custodian and transfer agency fees,
investment management and administrative fees, legal and audit fees, and
expenses of state securities registration of the Acquired Fund's shares
reflected in the Effective Time Statement).
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 all of its investment company taxable income (computed without
regard to any deduction for dividends paid) and realized net capital gain, if
any, that has accrued through the Closing Date.
1.5 Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), the Acquired Fund will distribute to the Acquired
Fund's shareholders of record, determined as of the Valuation Time (the
"Acquired Fund Shareholders"), on a pro rata basis, the Barrett Shares class of
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 Barrett Shares class of Acquiring
Fund Shares to be so credited to Barrett Shares class 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 Barrett Shares class of Acquiring
Fund Shares after the Closing Date as determined in accordance with section 2.2.
The Acquiring Fund will not issue certificates representing Barrett Shares class
of 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.
As soon as is reasonably practicable after the Liquidation Time, but not
until the earlier of (i) payment by Acquiring Fund of all assumed liabilities or
(ii) 90 days after the Closing Date, Acquired Fund shall be dissolved under
Maryland law and deregistered under the 1940 Act. The Acquired Fund shall not
conduct any business on and after the Closing Date except in connection with its
liquidation, dissolution and deregistration.
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 on or prior to
liquidation of Acquired Fund/ as soon as practicable following the Closing Date.
All such books and records shall be available to Acquired Fund thereafter until
Acquired Fund is dissolved and deregistered.
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 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
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and/or other distributions on that date, using the valuation procedures set
forth in the Acquiring Fund's Charter, as amended, and then-current prospectus
or statement of additional information.
2.2 The number of shares of the Barrett Shares class of the Acquiring Fund
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 one Acquiring Fund Share of the then issued and outstanding class
of the Acquiring Fund a determined in accordance with section 2.1.
2.3 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.
3. CLOSING AND CLOSING DATE
3.1 The Closing of the transactions contemplated by this Agreement shall
be December 15, 1997, 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 4:00 P.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, Boston, MA 02109 or
at such other place and time as the parties may agree.
3.2 The Acquired Fund shall deliver to the Acquiring Fund on the Closing
Date a schedule of assets.
3.3 Brown Brothers Harriman & Co., as custodian for the Acquired Fund,
shall (a) deliver at the Closing a certificate of an authorized officer stating
that the Assets shall have been delivered in proper form to Brown Brothers
Harriman & Co., 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. Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by Custodian for Acquired Fund to Custodian for 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. 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 Custodian for 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 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 of outstanding 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, 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 New
York Stock Exchange 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 of Directors of the Acquiring Company and Board of Directors of the
Acquired Company, accurate appraisal of the value of the net assets with respect
to the Barrett Shares class or any other class of shares of the Acquiring Fund
or the Acquired Fund 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.
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4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Company, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland with
power under the Company's charter to own all of its properties and assets
and to carry on its business as it is now being conducted;
(b) The Acquired Company 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 Company is not, and the
execution, delivery and performance of this Agreement by the Company will
not result, in violation of Maryland law or of the Company's charter, 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 December 31, 1996, have
been audited by Price Waterhouse L.L.P., independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have 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 December 31, 1996, 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
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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 or
qualification 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, 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 3.3. 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, except those restrictions as to which the Acquiring Fund has received
notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Directors of the Acquired Company, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Company, 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.), 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; and
(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
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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 Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland with
power under the Company's charter, to own all of its properties and assets
and to carry on its business as it is now being conducted;
(b) The Acquiring Company 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 Company is not, and the execution, delivery and
performance of this Agreement by the Company will not result, in violation
of Maryland law or of the Company's charter, or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking
known to counsel to which the Acquiring Fund is a party or by which it is
bound, and the execution, delivery and performance of this Agreement by the
Acquiring Fund will not result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of
the Acquiring Fund at and for the fiscal year ended March 31, 1997 have
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have 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 March 31, 1997, 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
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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 or
qualification 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. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Barrett Shares class of 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;
(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 Directors of the Acquiring Company and this Agreement
will constitute a valid and binding obligation of the Company, on behalf of
the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), 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, (ii)
such changes as are contemplated by the Funds' normal operations, and (iii) in
the case of the Acquired Fund, preparing for its liquidation, dissolution and
deregistration 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 November 15, 1997.
5.4 The Acquired Fund covenants that shares of the Barrett Shares class of
Acquiring Fund 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 the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8 The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9 The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10 The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund shares to be transferred to Acquired Fund pursuant to this Agreement and
(ii) assume the assumed liabilities from the Acquired Fund.
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5.11 As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Barrett Shares class of Acquiring Fund Shares received at the Closing.
5.12 The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Acquiring Company, with
respect to the Acquiring Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, directors,
trustees 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 Company with respect to 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 Company has been duly formed and is an existing
corporation in good standing; (b) the Acquiring Fund has the power to carry
on its business as presently conducted in accordance with the description
thereof in the Trust's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Company,
on behalf of the Acquiring Fund, and constitutes a valid and legally
binding obligation of the Company, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; (d) the execution and delivery of the Agreement
did not, and the exchange of the Acquired Fund's assets for Barrett Shares
class shares of the Acquiring Fund pursuant to the Agreement will not,
violate the Company's charter, 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 State of Maryland for the
exchange of the Acquired Fund's assets for Barrett Shares class shares of
the Acquiring Fund, 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 Board of Directors of Acquiring Fund shall have approved the
establishment of a new class of shares of Acquiring Fund to be known as "Barrett
International Shares" or "Barrett Shares" and such class of shares shall be duly
organized and validly existing under the laws of the State of Maryland on or
before the Closing Date.
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6.6 The Registration Statement on Form N-1A covering such Barrett Shares
class of Acquiring Fund 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 Acquiring Fund, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
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 Company, 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, the Acquired Fund or their advisers, directors,
trustees 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 Acquired Company 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 Company has been duly formed and is an existing
corporation in good standing; (b) the Acquired Fund has the corporate power
to carry on its business as presently conducted in accordance with the
description thereof in the Company's registration statement under the 1940
Act; (c) the Agreement has been duly authorized, executed and delivered by
the Company, on behalf of the Acquired Fund, and constitutes a valid and
legally binding obligation of the Company, 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 Barrett Shares
class shares of the Acquiring Fund pursuant to the Agreement will not,
violate the Company's charter 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 State of Maryland for the exchange
of the Acquired Fund's assets for Barrett Shares class shares of the
Acquiring Fund, 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.
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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 Company's
charter, and By-Laws, applicable Maryland law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this
section 8.1;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5 The parties shall have received an opinion of Dechert Price & Rhoads
addressed to each Company substantially to the effect that, based upon certain
facts, assumptions and representations, the transaction contemplated by this
Agreement constitutes a tax-free reorganization for Federal income tax purposes.
The delivery of such opinion is conditioned upon receipt by Dechert Price &
Rhoads of representations it shall request of each Company. 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 directors 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
directors 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 directors 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
directors 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.
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10. FEES AND EXPENSES
10.1 The Acquiring Company, on behalf of the Acquiring Fund, and the
Acquired Company, 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 Expenses relating to the transactions provided for herein shall be
borne by Scudder, Stevens and Clark, Inc., investment adviser to each of the
Acquired Fund and the Acquiring Fund. Any such expenses borne by Scudder,
Stevens & Clark, Inc. will be solely and directly related to the reorganization
contemplated by this Agreement, within the meaning of Revenue Ruling 73-54,
1973-1 C.B. 187.
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
Acquired Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
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 December 15,
1997, 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 directors/trustees 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 the authorized officers of the
Acquired Fund and 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 shares of the Barrett
Shares class of Acquiring Fund to be issued to the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, 345 Park Avenue, New York, New York 10154 with a copy to Dechert
Price & Rhoads, Ten Post Office Square, Boston, MA 02109, Attention: Sheldon A.
Jones, Esq., or to the Acquiring Fund, 345 Park Avenue, New York, New York
10154, with a copy to Dechert Price & Rhoads, Ten Post Office Square, Boston, MA
02109, 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.
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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 No series of the Corporation other than the Acquiring Fund and the
Acquired Fund shall be responsible for the obligations of the Corporation
hereunder, and all persons shall look only to the respective assets of each of
the Acquiring Fund and the Acquired Fund to satisfy the obligations of the
Corporation hereunder.
15.5 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
<TABLE>
<S> <C>
Attest: Scudder International Fund, Inc.
---------------------------- on behalf of Scudder International
Fund
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Attest: Scudder Institutional Fund, Inc.
---------------------------- on behalf of Institutional
International
Equity Portfolio
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
</TABLE>
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