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[AARP SCUDDER LOGO]
IMPORTANT NEWS FOR
AARP BALANCED STOCK AND BOND FUND SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into
Scudder Balanced Fund. This proposal is part of a larger effort to expand
the offerings in the AARP Investment Program to include the fund lineup of
the Scudder Family of Funds. The Board of your Fund recommends that you vote
in favor of this proposal.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- LOWER EXPENSES. The combination of the two Funds would result in REDUCED
expenses for shareholders of your Fund.
- GREATER PREDICTABILITY OF EXPENSES. As part of the proposal to combine
funds, a new fixed administrative fee rate arrangement would be
implemented. The arrangement protects shareholders from most ordinary
administrative expense increases for a minimum of three years.
- OPPORTUNITY FOR HIGHER RETURN. Scudder Balanced Fund may provide a higher
level of return, with greater risk, than your Fund, although there can be
no assurances in this regard. Scudder Balanced Fund has outperformed your
Fund over the past one, three and five year periods. For more information,
see the "Performance" section under "Approval of Agreement and Plan of
Reorganization."
- TAX-FREE REORGANIZATION. It is a condition of the proposed combination
that your Fund receive an opinion of tax counsel that the transaction
would be a TAX-FREE transaction.
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Q: ARE THE INVESTMENT POLICIES OF SCUDDER BALANCED FUND SIMILAR TO THOSE OF MY
FUND?
A: The two funds have similar investment objectives, policies and restrictions.
Although the combined fund will not have the your Fund's current policy of
seeking to reduce downside risk or avoiding investments in securities of
tobacco-producing companies, the combined fund will continue to seek a
balance of growth and income by investing in a mix of stocks and bonds. In
addition, the equity portion of Scudder Balanced Fund is managed with a more
growth-oriented strategy.
Q: HOW DOES THIS AFFECT THE AARP INVESTMENT PROGRAM?
A: This consolidation of similar funds will enable Scudder to offer a broader
range of investment choices through the AARP Investment Program. Except for
the changes to your Fund outlined above, there are no plans to change the
characteristics of the AARP Investment Program:
- AARP classes will be created in the Scudder Funds for investors in the
AARP Investment Program.
- Scudder Kemper will continue its strong commitment to education, both for
AARP Investment Program shareholders and for AARP members in general.
- AARP, through its for-profit subsidiary, will continue to oversee service
levels and communications to shareholders in the AARP Investment Program
and to AARP members. AARP will also continue to provide insight and
direction as to what best represents the interests and concerns of its
membership.
- Scudder Kemper will continue to develop new products and services with the
interests of AARP members in mind.
- Scudder Kemper will maintain separate records for AARP Investment Program
shareholders.
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single board of
trustees/directors responsible for most Scudder Funds. It is proposed that
this board would continue to have AARP representation. It is the Board's
belief that this has the potential for increasing efficiency and benefiting
fund shareholders. The Board also believes that a single board, responsible
for overseeing most of the no-load funds advised by Scudder Kemper, can more
effectively represent shareholder interests. The Board of your Fund
recommends that you vote in favor of each nominee.
(continued on inside back cover)
<PAGE>
April 18, 2000
Dear AARP Investment Program Shareholder,
Scudder Kemper Investments, investment manager for the AARP Investment
Program, is proposing a series of changes to offer you a wider range of fund
options to meet a broader range of investment goals. The current offering of 16
AARP mutual funds will soon expand to include 43 funds, six of which will
maintain a risk-managed focus. This will be accomplished by making the entire
lineup of funds from the Scudder Family of Funds available to AARP Investment
Program shareholders. In addition, subject to shareholder approval, most AARP
Investment Program funds will be combined with Scudder Funds that have similar
investment objectives. The funds will be called Scudder Funds, indicating
Scudder Kemper's distinct role as investment manager of the funds.
The involvement and level of participation of AARP in the AARP Investment
Program from Scudder is not changing. AARP will continue to oversee the
Investment Program's service quality and communications; and AARP will continue
to provide insight and direction as to what best represents the interests and
concerns of its membership.
PLEASE READ THE ENCLOSED MATERIALS
Enclosed with this letter is a packet of materials we ask that you read and,
where applicable, fill out and return to us. The Q&A that begins on the front
cover of the proxy statement explains the proposals we're making, why we're
making them, and how they apply to your AARP fund. The packet also contains a
proxy card and a prospectus for the fund that we are proposing to merge your
Fund into.
After careful review, the members of your Fund's Board have approved each of
the proposals explained in the Q&A and described in the proxy statement. THE
BOARD RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE
FOR ALL THE PROPOSALS. (Because many of the funds for which Scudder Kemper acts
as investment manager are holding shareholder meetings, you may receive more
than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope. If you prefer, you
can save time and postage cost by voting on the Internet or by telephone -- the
enclosed flyer describes how. If we do not hear from you by May 17, our proxy
solicitor may contact you. Thank you for your response and for your continued
investment in the AARP Investment Program.
Respectfully,
<TABLE>
<S> <C>
/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chairperson
Chief Executive Officer Board of Trustees
Scudder Kemper Investments, Inc. AARP Investment Program
</TABLE>
<PAGE>
AARP BALANCED STOCK AND BOND FUND
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
AARP GROWTH TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
AARP Balanced Stock and Bond Fund (the "Fund"), a series of AARP Growth Trust
(the "Trust"), will be held at the offices of Scudder Kemper Investments, Inc.,
13th Floor, Two International Place, Boston, MA 02110-4103, on July 11, 2000, at
2:00 p.m., Eastern time, for the following purposes:
<TABLE>
<S> <C>
PROPOSAL 1: To elect Trustees of the Trust;
PROPOSAL 2: To approve an Agreement and Plan of Reorganization for
the Fund whereby all or substantially all of the assets
and liabilities of the Fund would be acquired by Scudder
Balanced Fund in exchange for shares of the AARP
Class of Scudder Balanced Fund; and
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Fund for the Fund's
current fiscal year.
</TABLE>
The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on April
17, 2000 are entitled to vote at the Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
April 18, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE
ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE
PROXY CARD(S)). YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING
BY OTHER AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS. IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON
AT THAT TIME, YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST...... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................ 15
SYNOPSIS....................................... 15
PRINCIPAL RISK FACTORS......................... 27
THE PROPOSED TRANSACTION....................... 28
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS................................... 34
ADDITIONAL INFORMATION...................................... 35
</TABLE>
i
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PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF AARP BALANCED STOCK AND BOND FUND
(THE "ACQUIRED FUND"),
A SEPARATE SERIES OF AARP GROWTH TRUST
(THE "ACQUIRED TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 253-2277
--------------------------
BY AND IN EXCHANGE FOR THE AARP CLASS OF SHARES OF BENEFICIAL INTEREST OF
SCUDDER BALANCED FUND
(THE "ACQUIRING FUND"), A SEPARATE SERIES OF SCUDDER PORTFOLIO TRUST (THE
"ACQUIRING TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of the
Acquired Fund in connection with three proposals (each a "Proposal, "
collectively, the "Proposals"). Proposal 1 describes the election of Trustees,
and Proposal 3 proposes the ratification of the selection of the Acquired Fund's
accountants.
In Proposal 2, shareholders are asked to approve a proposed reorganization
in which all or substantially all of the assets of the Acquired Fund would be
acquired by the Acquiring Fund, in exchange for shares of beneficial interest of
the AARP Class of the Acquiring Fund ("AARP Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, as described more
fully below (the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. As a result of the Reorganization,
each shareholder of the Acquired Fund would receive that number of AARP Shares
having an aggregate net asset value equal to the aggregate net asset
--------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
value of such shareholder's shares of the Acquired Fund held as of the close of
business on the business day preceding the closing of the Reorganization (the
"Valuation Date"). Shareholders of the Acquired Fund will vote on an Agreement
and Plan of Reorganization (the "Plan") pursuant to which the Reorganization
would be consummated. A copy of the Plan is attached hereto as Exhibit A. The
closing of the Reorganization (the "Closing") is contingent upon shareholder
approval of the Plan. The Reorganization is expected to occur on or about
August 28, 2000.
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager") and
described in more detail below.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Acquired Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement/Prospectus as being taken by
either the Acquired Fund or the Acquiring Fund (each a "Fund" and collectively
the "Funds"), although all actions are actually taken either by the Acquired
Trust or the Acquiring Trust (together with the Acquired Trust, the "Trusts"),
on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment objective, policies, restrictions and risks of the Acquiring Fund,
see the Acquiring Fund's prospectus dated April 12, 2000, as supplemented from
time to time, which is included herewith and incorporated herein by reference.
For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Acquired Fund, see the Acquired Fund's prospectus,
dated February 1, 2000, as supplemented from time to time, which is incorporated
herein by reference and a copy of which may be obtained upon request and without
charge by calling or writing the Acquired Fund at the telephone number or
address set forth on the preceding page.
The Acquiring Fund's statement of additional information, dated April 12,
2000, as supplemented from time to time, is incorporated herein by reference and
may be obtained upon request and without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth on the preceding
page. A Statement of Additional Information dated April 18, 2000, containing
additional information about the Reorganization and the parties thereto has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy Statement/
Prospectus. A copy of the Statement of Additional Information relating to the
2
<PAGE>
Reorganization is available upon request and without charge by calling or
writing the Acquiring Fund at the telephone number or address set forth above.
Shareholder inquiries regarding the Acquired Fund may be made by calling (800)
253-2277. Shareholder inquiries regarding the Acquiring Fund may be made by
calling (800) 728-3337. The information contained herein concerning the Acquired
Fund has been provided by, and is included herein in reliance upon, the Acquired
Fund. The information contained herein concerning the Acquiring Fund has been
provided by, and is included herein in reliance upon, the Acquiring Fund. The
AARP Shares will be a newly-established class of shares of the Acquiring Fund
and will be identical in all material respects to the Acquiring Fund shares
currently offered and sold, as described in the prospectus and statement of
additional information for the Acquiring Fund, dated April 12, 2000, except as
otherwise described herein.
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of, respectively, the Acquiring Trust and the Acquired
Trust. The Acquiring Trust and the Acquired Trust are open-end management
investment companies organized as Massachusetts business trusts.
The Board of Trustees (except as otherwise noted, "Trustees" refers to
Trustees of the Acquired Trust and "Board" refers to the Board of Trustees of
the Acquired Trust) is soliciting proxies from shareholders of the Acquired
Fund, on behalf of the Acquired Fund, for the Special Meeting of Shareholders to
be held on July 11, 2000, at Scudder Kemper's offices, 13th Floor, Two
International Place, Boston, MA 02110-4103, at 2:00 p.m. (Eastern time), or at
such later time made necessary by adjournment (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about April 18, 2000 or as soon as
practicable thereafter.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES
LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust or the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or the American Association of
3
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Retired Persons ("AARP"). The nominees listed below are also being nominated for
election as Trustees of the Acquiring Trust and as trustees or directors of all
of the other AARP Funds (as defined below) and open-end, directly-distributed,
no-load Scudder Funds.
Currently five different boards of trustees or directors are responsible for
overseeing different groups of no-load funds advised by Scudder Kemper. As part
of a broader restructuring effort described below under Proposal 2, Scudder
Kemper has recommended, and the Board of Trustees has agreed, that shareholder
interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card(s) will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the current Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation(s)
noted in the following paragraphs and table for at least the most recent five
years, although not necessarily in the same capacity, and (ii) the address of
each nominee is c/o Scudder Kemper Investments, Inc., Two International Place,
Boston, MA 02110-4103.
NOMINEES FOR ELECTION AS TRUSTEES:
HENRY P. BECTON, JR. (56)
Henry P. Becton, Jr. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he
4
<PAGE>
was elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from
Harvard Law School in 1968. Mr. Becton is a member of the PBS Board of
Directors, a Trustee of American Public Television, the New England Aquarium,
the Boston Museum of Science, Concord Academy, and the Massachusetts Corporation
for Educational Telecommunications, an Overseer of the Boston Museum of Fine
Arts, and a member of the Board of Governors of the Banff International
Television Festival Foundation. He is also a Director of Becton Dickinson and
Company and A.H. Belo Company, a Trustee of the Committee for Economic
Development, and a member of the Board of Visitors of the Dimock Community
Health Center, the Dean's Council of Harvard University's Graduate School of
Education, and the Massachusetts Bar. Mr. Becton has served as a trustee or
director of various mutual funds advised by Scudder Kemper since 1990.
LINDA C. COUGHLIN (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group.
Ms. Coughlin received a B.A. degree in economics SUMMA CUM LAUDE from Fordham
University. Ms. Coughlin is a Trustee of the Acquired Trust and has served on
the boards of various funds advised by Scudder Kemper, including the AARP
Investment Program Funds, since 1996.
DAWN-MARIE DRISCOLL (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. Ms. Driscoll was recently named 1999 "Fund
Trustee of the Year" by Fund Directions, a publication of Institutional
Investor, Inc. She has been a director, trustee and overseer of many civic and
business institutions, including The Massachusetts Bay United Way and
5
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Regis College. Ms. Driscoll was formerly a law partner at Palmer & Dodge in
Boston and served for over a decade as Vice President of Corporate Affairs and
General Counsel of Filene's, the Boston-based department store chain.
Ms. Driscoll received a B.A. from Regis College, a J.D. from Suffolk University
Law School, a D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary)
from Bentley College Graduate School of Business. Ms. Driscoll has served as a
trustee or director of various mutual funds advised by Scudder Kemper since
1987.
EDGAR R. FIEDLER (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996.
Mr. Fiedler's business experience includes positions at Eastman Kodak in
Rochester (1956-59), Doubleday and Company in New York City (1959-60), and
Bankers Trust Company in New York City (1960-69). He also served as Assistant
Secretary of the Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler
graduated from the University of Wisconsin in 1951. He received his M.B.A. from
the University of Michigan and his doctorate from New York University. During
the 1980's, Mr. Fiedler was an Adjunct Professor of Economics at the Columbia
University Graduate School of Business. From 1990 to 1991, he was the Stephen
Edward Scarff Distinguished Professor at Lawrence University in Wisconsin.
Mr. Fiedler is a Director of The Stanley Works, Harris Insight Funds, Brazil
Fund, and PEG Capital Management, Inc. He is a Trustee of the Acquired Trust and
has served as a board member of various mutual funds advised by Scudder Kemper,
including the AARP Investment Program Funds, since 1984.
KEITH R. FOX (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976, and in 1981
received an M.B.A. degree from the Harvard Business School. Mr. Fox is also a
qualified accountant. He is a board member and former Chairman of the National
Association of Small Business Investment Companies, and a director of Golden
State Vintners, K-Communications, Progressive Holding Corporation
6
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and Facts On File, as well as a former director of over twenty companies.
Mr. Fox has served as a trustee or director of various mutual funds advised by
Scudder Kemper since 1996.
JOAN EDELMAN SPERO (55)
Joan E. Spero is the president of the Doris Duke Charitable Foundation, a
position to which she was named in January 1997. From 1993 to 1997, Ms. Spero
served as Undersecretary of State for Economic, Business and Agricultural
Affairs under President Clinton. From 1981 to 1993, she was an executive at the
American Express Company, where her last position was executive vice president
for Corporate Affairs and Communications. Ms. Spero served as U.N. Ambassador to
the United Nations Economic and Social Council under President Carter from 1980
to 1981. She was an assistant professor at Columbia University from 1973 to
1979. She graduated Phi Beta Kappa from the University of Wisconsin and holds a
master's degree in international affairs and a doctorate in political science
from Columbia University. Ms. Spero is a member of the Council on Foreign
Relations and the Council of American Ambassadors. She also serves as a trustee
of the Wisconsin Alumni Research Foundation, The Brookings Institution and
Columbia University and is a Director of First Data Corporation. Ms. Spero has
served as a trustee or director of various mutual funds advised by Scudder
Kemper since 1998.
JEAN GLEASON STROMBERG (56)
Ms. Stromberg acts as a consultant on regulatory matters. From 1996 to 1997,
Ms. Stromberg represented the U.S. General Accounting Office before Congress and
elsewhere on issues involving banking, securities, securities markets, and
government-sponsored enterprises. Prior to that, Ms. Stromberg was a corporate
and securities law partner at the Washington, D.C. law office of Fulbright and
Jaworski, a national law firm. She served as Associate Director of the SEC's
Division of Investment Management from 1977 to 1979 and prior to that was
Special Counsel for the Division of Corporation Finance from 1972 to 1977.
Ms. Stromberg graduated Phi Beta Kappa from Wellesley College and received her
law degree from Harvard Law School. From 1988 to 1991 and 1993 to 1996, she was
a Trustee of the American Bar Retirement Association, the funding vehicle for
American Bar Association-sponsored retirement plans. Ms. Stromberg serves on the
Wellesley College Business Leadership Council and the Council for Mutual Fund
Director Education at Northwestern University Law School and was a panelist at
the SEC's Investment Company Director's Roundtable. Ms. Stromberg is a Trustee
of the Acquired Trust and has served as a board member of the AARP Investment
Program Funds since 1997.
7
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JEAN C. TEMPEL (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in Wayne,
Pennsylvania. Ms. Tempel concentrates on investment opportunities in the Boston
area. She spent 25 years in technology/operations executive management at
various New England banks, building custody operations and real time
financial/securities processing systems, most recently as Chief Operations
Officer at The Boston Company. From 1991 until 1993 she was president/COO of
Safeguard Scientifics, a Pennsylvania technology venture company. In that role
she was a founding investor, director and vice chairman of Cambridge Technology
Partners. She is a director of XLVision, Inc., Marathon Technologies, Inc.,
Aberdeen Group and Sonesta Hotels International, and is a Trustee of
Northeastern University, Connecticut College, and The Commonwealth Institute.
She received a B.A. from Connecticut College, an M.S. from Rensselaer
Polytechnic Institute of New York, and attended Harvard Business School's
Advanced Management Program. Ms. Tempel has served as a trustee or director of
various mutual funds advised by Scudder Kemper since 1994.
STEVEN ZALEZNICK (45)*
Steven Zaleznick is President and CEO of AARP Services, Inc., a wholly-owned and
independently-operated subsidiary of AARP which manages a range of products and
services offered to AARP members, provides marketing services to AARP and its
member service providers and establishes an electronic commerce presence for
AARP members. Mr. Zaleznick previously served as AARP's general counsel for nine
years. He was responsible for the legal affairs of AARP, which included tax and
legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined AARP as a
legislation representative responsible for issues involving taxes, pensions, age
discrimination, and other national issues affecting older Americans.
Mr. Zaleznick is President of the Board of Cradle of Hope Adoption Center in
Washington, D.C. He is a former treasurer and currently a board member of the
National Senior Citizens Law Center. Mr. Zaleznick received his B.A. in
economics from Brown University. He received his J.D. degree from Georgetown
University Law Center and is a member of the District of Columbia Bar
Association.
8
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TRUSTEES NOT STANDING FOR RE-ELECTION:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
Horace B. Deets (61)*................ Vice Chairperson and Trustee; Executive
Director, AARP (1989 -- Present).
Mr. Deets serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Carole Lewis Anderson (55)........... Trustee; Principal, Suburban Capital
Markets, Inc. (1995 -- Present).
Ms. Anderson serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Adelaide Attard (69)................. Trustee; Member, NYC Department of
Aging Advisory Council (1995 --
Present). Ms. Attard serves on the
boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
Robert N. Butler, M.D. (73).......... Trustee; CEO and President,
International Longevity Center and
Professor of Geriatrics and Adult
Development; Chairman, Henry L.
Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical
Center (1982 - present). Dr. Butler
serves on the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Lt. Gen. Eugene P. Forrester (74).... Trustee; Lt. General (Retired), U.S.
Army; International Trade Counselor
(1983 -- Present); Consultant. Lt. Gen.
Forrester serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
George L. Maddox, Jr. (74)........... Trustee; Professor Emeritus and
Director, Long Term Care Resources
Program, Duke University Medical
Center; Professor Emeritus of
Sociology, Departments of Sociology and
Psychiatry, Duke University.
Mr. Maddox serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Robert J. Myers (87)................. Trustee; Actuarial Consultant (1983 --
Present). Mr. Myers serves on the
boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
James H. Schulz (63)................. Trustee; Professor of Economics and
Kirstein Professor of Aging Policy,
Policy Center on Aging, Florence Heller
School, Brandeis University.
Mr. Schulz serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Gordon Shillinglaw (74).............. Trustee; Professor Emeritus of
Accounting, Columbia University
Graduate School of Business.
Mr. Shillinglaw serves on the boards of
an additional 4 trusts whose funds are
advised by Scudder Kemper.
</TABLE>
- ------------------------
* Nominee or Trustee considered by the Acquired Trust and its counsel to be an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Acquired Trust, the Investment Manager or
AARP because of his or her employment by the Investment Manager or AARP, and,
in some cases, holding offices with the Acquired Trust.
Appendix 1 hereto sets forth the number of shares of each series of the
Acquired Trust owned directly or beneficially by the Trustees of the Acquired
Trust and by the nominees for election.
10
<PAGE>
RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS
A fund's board is responsible for the general oversight of fund business.
The board that is proposed for shareholder voting at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP and who are
called "independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the investment
performance of each fund of the Acquired Trust and other operational matters,
including policies and procedures designed to assure compliance with regulatory
and other requirements. Furthermore, the Independent Trustees review the fees
paid to the Investment Manager and its affiliates for investment advisory
services and other administrative and shareholder services. The Trustees have
adopted several policies and practices which help ensure their effectiveness and
independence in reviewing fees and representing shareholders. Many of these are
similar to those suggested in the Investment Company Institute's 1999 Report of
the Advisory Group on Best Practices for Fund Directors (the "Advisory Group
Report"). For example, the Independent Trustees select independent legal counsel
to work with them in reviewing fees, advisory and other contracts and overseeing
fund matters. The Trustees are also assisted in this regard by the funds'
independent public accountants and other independent experts retained from time
to time for this purpose. The Independent Trustees regularly meet privately with
their counsel and other advisors. In addition, the Independent Trustees from
time to time have appointed task forces and subcommittees from their members to
focus on particular matters.
The Board of the Acquired Trust has an Audit Committee and a Committee on
Independent Trustees, the responsibilities of which are described below. In
addition, the Acquired Trust has an Executive Committee, a Shareholder Service
Committee and a Valuation Committee.
AUDIT COMMITTEE
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things,
11
<PAGE>
the scope of the audit and the internal controls of each series of the Acquired
Trust and its agents, reviews and approves in advance the type of services to be
rendered by independent accountants, recommends the selection of independent
accountants for each series of the Acquired Trust to the Board, reviews the
independence of such firm, and, in general, considers and reports to the Board
on matters regarding the accounting and financial reporting practices of each
series of the Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised of only Independent Trustees (all of whom serve on the
committee), meets privately with the independent accountants of each series of
the Acquired Trust, will receive annual representations from the accountants as
to their independence, and has a written charter that delineates the committee's
duties and powers.
COMMITTEE ON INDEPENDENT TRUSTEES
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised of all of the Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies and reviewing matters relating to the Independent
Trustees.
ATTENDANCE
The full Board of Trustees of the Acquired Trust met six times, the Audit
Committee met two times and the Committee on Independent Trustees met five times
during calendar year 1999. Each then current Trustee attended 100% of the total
meetings of the Board and each above named committee on which he or she served
as a regular member that were held during that period, except Horace B. Deets,
Robert J. Myers, James H. Schulz and Robert N. Butler, who attended 90%, 85%,
92% and 85%, respectively, of those meetings. In addition to these Board and
committee meetings, the Trustees of the Acquired Trust attended various other
meetings on behalf of the Acquired Trust during the year, including meetings
with their independent legal counsel and informational meetings.
12
<PAGE>
OFFICERS
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL YEAR FIRST BECAME
NAME (AGE) OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- --------------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48)......... Trustee and President; Managing
Director of Scudder Kemper 2000
William F. Glavin, Jr. (41).... Vice President; Managing Director of
Scudder Kemper 1997
Ann M. McCreary (43)........... Vice President; Managing Director of
Scudder Kemper 1998
James E. Masur (39)............ Vice President; Senior Vice President
of Scudder Kemper 1999
John Millette (37)............. Vice President and Assistant Secretary;
Vice President of Scudder Kemper 1999
James W. Pasman (48)........... Vice President; Senior Vice President
of Scudder Kemper 1996
Kathryn L. Quirk (47).......... Vice President and Secretary; Managing
Director of Scudder Kemper 1997
John R. Hebble (41)............ Treasurer; Senior Vice President,
Scudder Kemper 1997
</TABLE>
- ------------------------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Acquired Trust.
COMPENSATION OF TRUSTEES AND OFFICERS
The Acquired Trust pays each Independent Trustee an annual Trustee's fee
plus specified amounts for Board and committee meetings attended and reimburses
expenses related to the business of any series of the Acquired Trust. As of
April 1, 1999, each Independent Trustee receives an aggregate annual Trustee's
fee of $12,000 for service on the boards of trustees of the funds offered
through the AARP Investment Program (the "AARP Funds"). (Prior to April 1, 1999,
the annual Trustee's fee was $10,000.) Each Independent Trustee also
13
<PAGE>
receives fees of $175 per fund for attending each meeting of the Board and
between $80 and $150 per fund (depending on meeting type) for attending each
committee meeting, or meeting held for the purpose of considering arrangements
between the Acquired Trust and Scudder Kemper, or any of its affiliates. The
newly-constituted Board may determine to change its compensation structure.
The current compensation package for the Independent Trustees of the
Acquired Trust has not included any provisions for pensions or other retirement
benefits. A one-time benefit, however, will be provided to those Independent
Trustees who are not standing for re-election in an amount equal to twice a
Trustee's calendar year 1999 compensation from the AARP Funds. Inasmuch as
Scudder Kemper will also benefit from the administrative efficiencies of a
consolidated board, Scudder Kemper has agreed to bear one-half of the cost of
any such benefit.
Scudder Kemper supervises the Acquired Trust's investments, pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust and receives a management fee for its services.
Several of the Acquired Trust's officers and Trustees are also officers,
directors, employees or stockholders of Scudder Kemper and participate in the
fees paid to that firm, although the Acquired Trust makes no direct payments to
them other than for reimbursement of travel expenses in connection with their
attendance at certain Board and committee meetings.
The following Compensation Table provides in tabular form the following
data:
COLUMN (1) All Trustees who receive compensation from the Acquired Trust.
COLUMN (2) Aggregate compensation received by each Trustee of the Acquired
Trust during calendar year 1999.
COLUMN (3) Total compensation received by each Trustee from funds managed by
Scudder Kemper (collectively, the "Fund Complex") during calendar year 1999.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX
TRUSTEES (NUMBER OF SERIES) PAID TO TRUSTEE
- -------- ------------------ ---------------------
<S> <C> <C>
Carole Lewis Anderson........................ $20,280 (7 series) $40,935 (16 funds)
Adelaide Attard.............................. $19,013 (7 series) $38,375 (16 funds)
Robert N. Butler............................. $17,271 (7 series) $34,855 (16 funds)
Edgar R. Fiedler............................. $16,013 (7 series) $73,230 (29 funds)*
Eugene P. Forrester.......................... $20,280 (7 series) $40,935 (16 funds)
George L. Maddox, Jr......................... $20,280 (7 series) $40,935 (16 funds)
Robert J. Myers.............................. $18,838 (7 series) $38,200 (16 funds)
James H. Schulz.............................. $18,381 (7 series) $37,095 (16 funds)
Gordon Shillinglaw........................... $24,083 (7 series) $44,280 (16 funds)
Jean Gleason Stromberg....................... $20,276 (7 series) $40,935 (16 funds)
</TABLE>
- ------------------------
* Mr. Fiedler's total compensation includes $9,900 accrued, but not received,
through a deferred compensation program for serving on the Board of Directors
of Scudder Fund, Inc.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP BALANCED STOCK AND BOND FUND VOTE FOR EACH NOMINEE.
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
I. SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus relating to the Reorganization. This summary is qualified
by reference to the more complete information contained elsewhere in this Proxy
Statement/Prospectus, the prospectuses and statements of additional information
of the Funds, and the Plan. Shareholders should read this entire Proxy
Statement/Prospectus carefully.
INTRODUCTION
The Board of the Acquired Trust, including all of the Independent Trustees,
approved the Plan at a meeting held on February 7, 2000. Subject to its approval
by the shareholders of the Acquired Fund, the Plan provides for (a) the transfer
of all or substantially all of the assets and all of the liabilities of
15
<PAGE>
the Acquired Fund to the Acquiring Fund in exchange for AARP Shares; (b) the
distribution of such shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund; and (c) the abolition of the Acquired Fund as
a series of the Acquired Trust. As a result of the Reorganization, each
shareholder of the Acquired Fund will become a shareholder of the AARP Shares
and will hold, immediately after the Reorganization, AARP Shares having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information" below.
BACKGROUND OF THE REORGANIZATION
The Reorganization is part of a broader restructuring program proposed by
Scudder Kemper to respond to changing industry conditions and investor needs.
Scudder Kemper seeks to offer the full lineup of the Scudder Family of no-load
funds to members of the AARP Investment Program. The expanded offering should
position the AARP Investment Program to meet the increasingly diverse needs of
current and prospective AARP members.
Scudder Kemper and AARP have advised the Board that they believe that the
proposed changes in the AARP Investment Program from Scudder are in the
interests of shareholders of the AARP Funds and AARP members. The Program would
comprise the shares of the AARP Class of each of forty-three no-load funds,
compared with the current sixteen, and would retain its separate identity, with
separate statements and generally lower minimum investments for participating
shareholders; six core funds(1) would continue to have a risk managed strategy;
education will remain a focus of Scudder Kemper; and AARP will continue to be
involved with the Program and is proposed to have board representation.
- ------------------------
(1) The six core funds would be Scudder GNMA Fund (currently known as AARP GNMA
and U.S. Treasury Fund), Scudder Capital Growth Fund (currently known as
AARP Capital Growth Fund), Scudder Small Company Stock Fund (currently
known as AARP Small Company Stock Fund), Scudder Managed Municipal Bonds,
Scudder Global Fund and Scudder Growth and Income Fund.
16
<PAGE>
As part of this initiative, Scudder Kemper has sought ways to restructure
and streamline the management and operations of the funds it advises. Scudder
Kemper believes, and has advised the boards, that the consolidation of certain
funds advised by it would benefit fund shareholders. Scudder Kemper has,
therefore, proposed the consolidation of a number of no-load funds advised by it
that Scudder Kemper believes have similar or compatible investment objectives
and policies. In many cases, the proposed consolidations are designed to
eliminate the substantial overlap in current offerings by the Scudder Funds and
the AARP Funds, all of which are advised by Scudder Kemper. Consolidation plans
are proposed for other funds that have not gathered enough assets to operate
efficiently and, in turn, have relatively high expense ratios. Scudder Kemper
believes that these consolidations may help to enhance investment performance of
funds and increase efficiency of operations. The Reorganization is also expected
to result in lower operating expenses for Acquired Fund shareholders, as
described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for the AARP Funds and for the open-end,
directly-distributed, no-load Scudder Funds would increase efficiency and
benefit fund shareholders. (See Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by a fund of
an administrative fee, Scudder Kemper would agree to provide or pay for
substantially all services that the fund normally requires for its operations,
other than those provided under the fund's investment management agreement and
certain other expenses. Such an administrative fee would enable investors to
determine with greater certainty the expense level that a fund will experience,
and, for the term of the administrative agreement, would transfer substantially
all of the risk of increased costs to Scudder Kemper. Scudder Kemper has
proposed that the Acquiring Fund implement such an administrative fee upon the
Closing, as described in "Administrative Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in reduced costs (and the
potential for increased profitability) for Scudder Kemper in advising or
servicing funds.
17
<PAGE>
REASONS FOR THE PROPOSED REORGANIZATION; BOARD APPROVAL
Since receiving Scudder Kemper's proposals on September 22, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
The Trustees believe that the Reorganization may provide shareholders of the
Acquired Fund with the following benefits:
- LOWER EXPENSES. If the Reorganization is approved, Acquired Fund
shareholders will benefit from lower total Fund operating expenses. Please
refer to "Comparison of Expenses" below.
- GREATER PREDICTABILITY OF EXPENSES. On or prior to the Closing, the
Acquiring Fund and Scudder Kemper will enter into an administrative
services agreement pursuant to which Scudder Kemper will provide or pay
others to provide substantially all of the administrative services
required by the Acquiring Fund, and will pay most Acquiring Fund expenses,
in return for payment by the Acquiring Fund of a single administrative fee
rate. This agreement, which has an initial three year term, will protect
the Acquiring Fund's shareholders from increases in the Acquiring Fund's
expense ratio attributed to any increases in the costs of providing these
services.
- OPPORTUNITY FOR HIGHER RETURN. The Acquiring Fund does not seek to reduce
downside risk as part of its strategy. The Acquiring Fund may provide an
opportunity for a higher level of return, with greater risk, than the
Acquired Fund, although there can be no assurances in this regard. The
Acquiring Fund has outperformed the Acquired Fund over the past one,
three, and five year periods, and has been in the top quartile of all
funds in the Lipper Balanced Funds category for each of those periods.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. Although the combined fund
will not have the Acquired Fund's current policy of seeking to reduce
downside risk, the combined fund will continue to seek a balance of growth
and income by investing in a mix of stocks and bonds.
18
<PAGE>
- TAX-FREE REORGANIZATION. It is a condition of the Reorganization that each
Fund receive an opinion of tax counsel that the transaction would be a
TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction - Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES RECOMMEND APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS
The investment objectives, policies and restrictions of the Acquired Fund
and the Acquiring Fund (and, consequently, the risks of investing in either
Fund) are similar. Some differences do exist. The investment objective of the
Acquiring Fund is to seek a balance of growth and income from a diversified
portfolio of equity and fixed-income securities. The investment objective of the
Acquired Fund is to provide long-term capital growth and income while actively
seeking to reduce downside risk as compared with other balanced mutual funds.
There can be no assurance that either Fund will achieve its investment
objective.
Both Funds are managed in a substantially similar manner, except that the
Acquired Fund actively seeks to reduce downside risk by diversifying widely
among industries and companies. In addition, the Acquired Fund invests
significantly in dividend-paying stocks, whose prices have, oftentimes, tended
to fall less in down markets. The Acquired Fund's bond investments are also
diversified by maturity, credit quality and industry.
Each Fund invests primarily in the equity and fixed-income securities of
U.S. companies. The Acquiring Fund normally invests from 50% to 75% of its net
assets in common stocks and other equity securities, and 25% to 50% of its net
assets in investment grade bonds and other fixed-income securities of any
maturity. The Acquired Fund may invest up to 70% of its net assets in equity
securities. The Acquiring Fund focuses on equity securities that the Investment
Manager believes offer the potential for sustainable above-average earnings
growth and whose market values appear reasonable in light of their business
prospects, while the Acquired Fund focuses its equity investments on companies
whose dividends and earnings prospects are believed to be attractive relative to
19
<PAGE>
the average derived from the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500 Index").
The Acquiring Fund will invest at least 25% of its net assets in
fixed-income senior securities, including corporate bonds, U.S. government
securities and other fixed-income securities. The Acquired Fund will invest at
least 30% of its net assets in investment-grade debt securities of any maturity
issued by U.S. and foreign governments or corporations. At least 75% of the
value of the Acquired Fund's debt securities must be rated within the three
highest quality ratings of Standard & Poor's Ratings Services ("S&P") or Moody's
Investors Service, Inc. ("Moody's"). Unlike the Acquired Fund, the Acquiring
Fund may invest up to 20% of its bond assets (up to 10% of total portfolio
assets) in high yield securities (i.e., junk bonds). However, the Acquiring
Fund's fixed income investments normally are predominantly investment-grade
corporate debt securities which are rated within the four highest grades by S&P
or Moody's.
The Acquired Fund may make only limited use (in terms of type of transaction
and amount) of derivatives, futures and options. The Acquiring Fund, while
limited to 5% of assets committed to such transactions entered into for
non-hedging purposes, may make more use (in terms of type of transaction and
amount) of such transactions. Lastly, unlike the Acquiring Fund, the Acquired
Fund does not invest in securities issued by tobacco-producing companies and has
a stated goal of educating shareholders on investment topics affecting their
lives.
The Acquiring Fund's investment restrictions are identical to the Acquired
Fund's investment restrictions, as such restrictions are set forth under
"Investment Restrictions" in each Fund's statement of additional information,
except that the Acquiring Fund may not, as a non-fundamental policy, lend
portfolio securities in an amount greater than 5% of its total assets.
Investment restrictions of each Fund that are fundamental policies may not be
changed without the approval of Fund shareholders. Investors should refer to the
respective statements of additional information of the Funds for a fuller
description of each Fund's investment policies and restrictions.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund, i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less), for the fiscal year
ended December 31, 1999 (i.e., prior to the creation of AARP Shares) was 102.3%.
The portfolio turnover rate for the Acquired Fund for the fiscal year ended
September 30, 1999 was 47.6%. A higher portfolio turnover rate involves
20
<PAGE>
greater brokerage and transaction expenses to a fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed.
PERFORMANCE
The following table shows how each Fund's returns over different periods
average out. For context, the table also includes broad-based market indexes
(which, unlike the Funds, do not have any fees or expenses). The performances of
both Funds and the indexes vary over time. All figures assume reinvestment of
dividends and distributions.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED
FUND(+) FUND S&P 500** LBAB***
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Past year...................... 13.46% 2.87% 21.04% (0.82%)
Past 5 years................... 18.94% 13.54% 28.56% 7.73%
Since Inception*............... 13.47% N/A 21.53% 6.42%
Since Inception(++)............ N/A 11.02% 23.23% 5.72%
</TABLE>
- ------------------------
(+) AARP Shares were not offered during the periods covered. Performance shown
is for shares of the Acquiring Fund existing during the periods covered.
* The inception date for the Acquiring Fund is January 4, 1993. Index
comparisons begin on January 1, 1993.
(++) The inception date for the Acquired Fund is February 1, 1994.
** The S&P 500 Index is an unmanaged, capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
*** The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities.
Total return for the Acquiring Fund would have been lower from 1993 through
1998 if the Investment Manager had not maintained expenses during that period.
21
<PAGE>
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended December 31, 1999 (prior to the creation of AARP Shares), see
Exhibit B attached hereto.
INVESTMENT MANAGER; FEES AND EXPENSES
Each Fund retains the investment management firm of Scudder Kemper, pursuant
to separate contracts, to manage its daily investment and business affairs,
subject to the policies established by the Fund's Trustees. Shareholders pay no
direct charges or fees for investment management or other services. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
The Investment Manager receives a fee for its services pursuant to its
investment management agreement with the Acquiring Fund. For these services, the
Acquiring Fund pays the Investment Manager a fee at an annual rate of 0.70% of
average daily net assets. As of December 31, 1999, the Acquiring Fund had total
net assets of $572,244,745. For the fiscal year ended December 31, 1999, the
Acquiring Fund paid the Investment Manager a fee of 0.70% of average daily net
assets.
Scudder Kemper has proposed a new investment management agreement for the
Acquiring Fund. The proposed new investment management agreement includes a new
fee rate, which, at all asset levels, is lower than the current rate applicable
to the Acquiring Fund. The proposed new fee rate is 0.47% of the first $1.5
billion of average daily net assets, 0.445% of the next $500 million, and 0.42%
on average daily net assets in excess of $2 billion. Each of the effectiveness
of the new investment management agreement for the Acquiring Fund and the
Closing is contingent upon the other.
The Investment Manager receives a fee pursuant to an investment management
agreement as compensation for its services on behalf of the Acquired Fund.
Pursuant to the Acquired Fund's investment management agreement, the fee payable
to Scudder Kemper is calculated using a formula based in part on the combined
net assets of all AARP Funds, except for the two series of AARP Managed
Investment Portfolios Trust. The Acquired Fund currently pays the Investment
Manager a fee at an annual rate of 0.47% of average daily net assets. The fee
for the Acquiring Fund is calculated in a different manner than is currently
used for the Acquired Fund. Unlike the fee for the Acquired Fund, the Acquiring
Fund's fee will not go up or down based on the net assets of other funds managed
by the Investment Manager, but it will go up or down based on the net assets of
the Acquiring Fund. As of September 30, 1999, the Acquired Fund had total net
assets of $681,933,451. For the fiscal year ended September 30, 1999, the
Acquired Fund paid the Investment Manager a fee of 0.47% of
22
<PAGE>
average daily net assets. There is currently an arrangement between Scudder
Kemper and AARP Financial Services Corporation ("AFSC") pursuant to which
Scudder Kemper currently pays AFSC a monthly fee based on the net assets of AARP
Funds.
ADMINISTRATIVE FEE
On or prior to the Closing, the Acquiring Fund will have entered into an
administrative services agreement with Scudder Kemper (the "Administration
Agreement"), pursuant to which Scudder Kemper will provide or pay others to
provide substantially all of the administrative services required by the
Acquiring Fund (other than those provided by Scudder Kemper under its investment
management agreement with the Fund, as described above) in exchange for the
payment by the Acquiring Fund of an administrative services fee (the
"Administrative Fee") of 0.30% of average daily net assets. One effect of this
arrangement is to make the Acquiring Fund's future expense ratio more
predictable. The details of this arrangement (including expenses that are not
covered) are set out below.
Various third-party service providers (the "Service Providers"), some of
which are affiliated with Scudder Kemper, provide certain services to the
Acquiring Fund pursuant to separate agreements with the Fund, subject to
oversight and approval by the Acquiring Trust's trustees. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for the Acquiring Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Acquiring Fund.
Scudder Trust Company, an affiliate of Scudder Kemper, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Dechert
Price & Rhoads acts as general counsel for the Acquiring Fund. In addition to
the fees it pays under its current investment management agreement with Scudder
Kemper, the Acquiring Fund pays the fees and expenses associated with these
service arrangements, as well as the Acquiring Fund's insurance, registration,
printing, postage and other costs.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services that it currently provides to the
Acquiring Fund, as described above, under the current arrangements, except that
Scudder Kemper will pay these entities for the provision of their services to
23
<PAGE>
the Acquiring Fund and will pay most other Fund expenses, including insurance,
registration, printing and postage fees. In return, the Acquiring Fund will pay
Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will have an initial term of three
years, subject to earlier termination by the Acquiring Trust's trustees. The fee
payable by the Acquiring Fund to Scudder Kemper pursuant to the Administration
Agreement would be reduced by the amount of any credit received from the
Acquiring Fund's custodian for cash balances.
Certain expenses of the Acquiring Fund would not be borne by Scudder Kemper
under the Administration Agreement, such as taxes, brokerage, interest and
extraordinary expenses, and the fees and expenses of the Independent Trustees
(including the fees and expenses of their independent counsel). In addition, the
Acquiring Fund would continue to pay the fees required by its investment
management agreement with Scudder Kemper.
COMPARISON OF EXPENSES
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the AARP Shares, and comparing these with the expenses of the
Acquired Fund. AS INDICATED BELOW, IT IS EXPECTED THAT THE TOTAL EXPENSE RATIO
OF THE ACQUIRING FUND WILL BE LOWER THAN THE CURRENT EXPENSE RATIO OF THE
ACQUIRED FUND. Unless otherwise noted, the information is based on each Fund's
expenses (and average daily net assets) during the twelve months ended October
31, 1999 and on a pro forma basis as of that date and for the period then ended,
giving effect to the Reorganization. Information in the tables and examples
relating to the Acquiring Fund relates to the Acquiring Fund as a whole prior to
the creation of the AARP Shares. Pro Forma information in the tables and
examples relates to the AARP Shares and the S Class of shares of the Acquiring
Fund. (Please see "Description of the Securities to be Issued" below.)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
FUND FUND (COMBINED)
--------- -------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............. None None None
Maximum deferred sales charge (load) (as a
percentage of purchase price or redemption
proceeds)....................................... None None None
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
FUND FUND (COMBINED)
--------- -------- ----------
<S> <C> <C> <C>
Maximum deferred sales charge (load) imposed on
reinvested dividends............................ None None None
Redemption fee (as a percentage of amount
redeemed, if applicable)(+)..................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA*
FUND FUND (COMBINED)
--------- -------- ----------
<S> <C> <C> <C>
Management fees................................... 0.70% 0.47% 0.47%
Distribution and/or service (12b-1) fees.......... None None None
Other expenses.................................... 0.57% 0.41% 0.30%
Total annual Fund operating expenses 1.27% 0.88% 0.77%
</TABLE>
- ------------------------
(+) There is a $5 wire service fee for receiving redemption proceeds via wire.
* Pro Forma expenses reflect the implementation of the Administrative Fee and
of a new investment management fee for the Acquiring Fund to be effective
upon the Reorganization.
In evaluating the Reorganization, the Independent Trustees focused their
consideration on the Acquiring Fund's and the Acquired Fund's estimated expense
ratios calculated utilizing Fund net assets at December 31, 1999 (rather than
average daily net assets for a full year, as used in the table above), the
number of shareholder accounts at that date, and other relevant factors. This
calculation resulted in an estimated total annual expense ratio of 1.25% for the
Acquiring Fund and 0.86% for the Acquired Fund.
EXAMPLES (UNAUDITED)
Based on the costs above, the following examples are intended to help you
compare the cost of investing in the Funds with the cost of investing in other
mutual funds. The examples assume that you invest $10,000 in each Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The examples also assume that your investment has a 5% return each
year, you reinvested all dividends and distributions, and each Fund's
25
<PAGE>
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be as follows:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
YEAR FUND FUND (COMBINED)*
- ---- --------- -------- -----------
<S> <C> <C> <C>
1ST................................... $ 129 $ 90 $ 79
3RD................................... $ 403 $ 281 $246
5TH................................... $ 697 $ 488 $428
10TH.................................. $1,534 $1,084 $954
</TABLE>
- ------------------------
* Pro Forma expenses reflect the implementation of the Administrative Fee and
of a new investment management fee for the Acquiring Fund to be effective
upon the Reorganization.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund prior to the creation
of the AARP Shares, which is intended to help you understand the Acquiring
Fund's financial performance for the past five years, is included in the
Acquiring Fund's prospectus dated April 12, 2000, which is included herewith and
incorporated herein by reference.
DISTRIBUTION OF SHARES
Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of each Fund. SIS charges no direct fees in connection with the
distribution of shares of the Funds. Following the Reorganization, Acquiring
Fund shareholders will continue to be able to purchase shares of funds in the
Scudder Family of Funds on a no-load basis.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those that will be in place for the AARP Shares,
except for the range of funds available under the exchange privilege and the
minimum balance requirements.
Acquired Fund shareholders may currently exchange Acquired Fund shares only
into AARP Funds, while holders of AARP Shares will be able to exchange AARP
Shares into shares of any fund within the Scudder Family of Funds on a no-load
basis. The minimum balance for non-retirement accounts investing in the AARP
Shares will be $1,000, which is higher than the minimum balance for
non-retirement accounts investing in the Acquired Fund. The minimum balance
26
<PAGE>
for Individual Retirement Accounts ("IRAs") investing in AARP Shares will be
$500, as compared to $250 for the Acquired Fund. However, Acquired Fund
non-retirement account shareholders receiving AARP Shares as a result of the
Reorganization will only be required to meet the Acquired Fund's $500 minimum
balance requirement for non-retirement accounts and Acquired Fund IRA
shareholders receiving AARP Shares as a result of the Reorganization will only
be required to meet the Acquired Fund's $250 minimum balance requirement for
IRAs.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Funds intends to distribute dividends from its net investment
income in March, June, September and December of each year. Each Fund intends to
distribute net realized capital gains after utilization of capital loss
carryforwards, if any, in December of each year. An additional distribution may
be made if necessary. Dividends and distributions of each Fund will be invested
in additional shares of the Fund at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash.
If the Plan is approved by the Acquired Fund's shareholders, the Acquired
Fund will pay its shareholders a distribution of all undistributed net
investment income and undistributed realized net capital gains immediately prior
to the Closing.
TAX CONSEQUENCES
As a condition to the Reorganization, the Acquiring Fund and the Acquired
Fund will have received an opinion of Willkie Farr & Gallagher in connection
with the Reorganization, to the effect that, based upon certain facts,
assumptions and representations, the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Reorganization constitutes a
tax-free reorganization, no gain or loss will be recognized by the Acquired Fund
or its shareholders as a direct result of the Reorganization. See "The Proposed
Transaction - Federal Income Tax Consequences."
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies, the
principal risks presented by the Acquiring Fund are similar to those presented
by the Acquired Fund. The main risks applicable to each Fund include, among
others, management risk (i.e., securities selection by the Investment Manager),
market risk, and, to the extent the Fund invests in bonds, risk associated with
27
<PAGE>
interest rates and risk associated with credit quality. Investments in high
yield securities, or "junk bonds," entail relatively greater risk of loss of
income and principal than investments in higher rated securities, and may
fluctuate more in value. As a result, an investment in the Acquiring Fund which,
unlike the Acquired Fund, may invest in high yield securities (up to 10% of its
total assets), may involve greater credit risk. Because the Acquiring Fund does
not actively seek to reduce downside risk as compared with other balanced mutual
funds, it may present more significant risks than the Acquired Fund in a weak
market. Conversely, the Acquiring Fund may perform better than the Acquired Fund
in a strong market.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds, which are incorporated by reference herein.
III. THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund in exchange for
that number of full and fractional AARP Shares having an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund as of the
close of business on the Valuation Date. The Acquiring Fund will assume all of
the liabilities of the Acquired Fund. The Acquired Fund will distribute the AARP
Shares received in the exchange to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. The Acquired Fund will be abolished
as a series of the Acquired Trust.
Upon completion of the Reorganization, each shareholder of the Acquired Fund
will own that number of full and fractional AARP Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Acquiring Trust
identical in all material respects to the account currently maintained by the
Acquired Trust for such shareholder, except as noted above. In the interest of
economy and convenience, AARP Shares issued to the Acquired Fund's shareholders
will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption and purchase requests received by the transfer agent after the
28
<PAGE>
Closing will be treated as requests received for the redemption or purchase of
AARP Shares received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of the Acquired Fund and the
Acquiring Fund, respectively, under the Plan are subject to various conditions,
as stated therein. Among other things, the Plan requires that all filings be
made with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Trust,
notwithstanding the approval of the Plan by the shareholders of the Acquired
Fund. However, no amendment may be made that materially adversely affects the
interests of the shareholders of the Acquired Fund without obtaining the
approval of the Acquired Fund's shareholders. The Acquired Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan. For a complete description of the terms
and conditions of the Reorganization, see the Plan at Exhibit A.
Each Fund will pay its own allocable share of expenses associated with the
Reorganization, except that Scudder Kemper will bear any such expenses in excess
of $313,877 for the Acquiring Fund and $582,380 for the Acquired Fund
(approximately $0.0116 and $0.0171 per share, respectively, based on December
31, 1999 net assets for each Fund). As investors in a Fund, Fund shareholders
indirectly bear a portion of these expenses.
BOARD APPROVAL OF THE PROPOSED TRANSACTION
Scudder Kemper first proposed the Reorganization to the Independent Trustees
of the Acquired Fund at a meeting held on September 22, 1999. The Reorganization
was presented to the Trustees and considered by them as part of a broader
initiative by Scudder Kemper to restructure many of the mutual funds advised by
it that are currently offered to retail investors (see "Synopsis - Background of
the Reorganization" above). This initiative includes four major components:
(i) The combination of funds with similar investment objectives and
policies, including in particular the combination of the AARP Funds with
similar Scudder Funds currently offered to the general public;
29
<PAGE>
(ii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient operating
size;
(iii) The implementation of an administration agreement for each fund,
covering, for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's investment
management agreement) and most expenses; and
(iv) The consolidation of the separate boards currently responsible for
overseeing several groups of no-load funds managed by Scudder Kemper into a
single board.
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the September 22 meeting, the Independent Trustees met in person or by telephone
on a number of occasions (including committee meetings) to review and discuss
these proposals, both among themselves and with representatives of Scudder
Kemper. On a number of occasions, these meetings included representatives of the
independent trustees or directors of other funds affected by these proposals. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees/directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. The Independent Trustees have also
agreed to recommend that the Reorganization be approved by the Acquired Fund's
shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of the Acquired Fund and the estimated operating expenses of the
30
<PAGE>
Acquiring Fund, and between the estimated operating expenses of the Acquiring
Fund and other mutual funds with similar investment objectives; (b) the terms
and conditions of the Reorganization and whether the Reorganization would result
in the dilution of shareholder interests; (c) the compatibility of the Acquired
Fund's and the Acquiring Fund's investment objectives, policies, restrictions
and portfolios; (d) the agreement by Scudder Kemper to provide services to the
Acquiring Fund for a fixed fee rate under the Administration Agreement with an
initial three year term; (e) the service features available to shareholders of
the Acquired Fund and the Acquiring Fund; (f) the costs to be borne by the
Acquired Fund, the Acquiring Fund and Scudder Kemper as a result of the
Reorganization; (g) prospects for the Acquiring Fund to attract additional
assets; (h) the tax consequences of the Reorganization on the Acquired Fund, the
Acquiring Fund and their respective shareholders; and (i) the investment
performance of the Acquired Fund and the Acquiring Fund.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal. The Trustees concluded that these economies
were appropriately reflected in the fee and expense arrangements of the
Acquiring Fund, as proposed to be revised upon completion of the Reorganization.
In particular, the Trustees considered the benefits to shareholders resulting
from locking in the rate of the Acquiring Fund's Administrative Fee for an
initial three-year period. Because the Acquiring Fund will pay only its stated
Administrative Fee rate for such services and expenses regardless of changes in
actual costs, the Acquiring Fund's shareholders will be protected from increases
in the Acquiring Fund's expense ratio attributable to increases in such actual
costs. The Board also considered the protection this would afford shareholders
if the Acquiring Fund's net assets declined as a result of market fluctuations
or net redemptions.
The Trustees also considered the impact of the Reorganization on the total
expenses to be borne by shareholders of the Acquired Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is lower
than the current expense ratio for the Acquired Fund. The Board also considered
that the Reorganization would permit the shareholders of the Acquired Fund to
pursue similar investment goals in a larger fund.
Finally, the Trustees concluded that the shareholders of the Acquired Fund
would be better served by having their interests represented by a single board
of trustees with responsibility for overseeing substantially all of the funds to
be
31
<PAGE>
marketed as a "family of funds" through Scudder's no-load distribution channels.
Accordingly, the Trustees agreed to recommend the election of a new consolidated
board comprised of representatives of each of the various boards currently
serving as trustees or directors of these funds.
Based on all of the foregoing, the Board concluded that the Acquired Fund's
participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE REORGANIZATION.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 20,
1984, as amended. The Acquiring Trust's authorized capital consists of an
unlimited number of shares of beneficial interest, par value $0.01 per share.
The Trustees of the Acquiring Trust are authorized to divide the Acquiring
Trust's shares into separate series. The Acquiring Fund is one of four series of
the Acquiring Trust that the Board has created to date. The Trustees of the
Acquiring Trust are also authorized to further divide the shares of the series
of the Acquiring Trust into classes. The Trustees of the Acquiring Trust have
authorized the division of the Acquiring Fund into two classes, S Class and AARP
Class. It is anticipated that this division will occur prior to the Closing and
that shares of the Acquiring Fund existing at that time will be redesignated as
S Class shares of the Acquiring Fund. If AARP Shares are not created prior to
the Closing, then the Reorganization will not be consummated. Although
shareholders of different classes of a series have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution and certain other
matters.
Each share of each class of the Acquiring Fund represents an interest in the
Acquiring Fund that is equal to and proportionate with each other share of that
class of the Acquiring Fund. Acquiring Fund shareholders are entitled to one
vote per share held on matters on which they are entitled to vote. In the areas
of shareholder voting and the powers and conduct of the Trustees, there are no
material differences between the rights of shareholders of the Acquired Fund and
the rights of shareholders of the Acquiring Fund.
32
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Acquired Trust, on
behalf of the Acquired Fund, and the Acquiring Trust, on behalf of the Acquiring
Fund, of an opinion from Willkie Farr & Gallagher, substantially to the effect
that, based upon certain facts, assumptions and representations of the parties,
for federal income tax purposes: (i) the transfer to the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange solely for
AARP Shares and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution of such shares to the
Acquired Fund's shareholders in exchange for their shares of the Acquired Fund
in complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and
the Acquired Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of all or substantially all of its assets to the
Acquiring Fund in exchange solely for AARP Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund or upon the
distribution of the AARP Shares to the Acquired Fund shareholders in exchange
for their shares of the Acquired Fund; (iii) the basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund will be the same as the basis
of such assets of the Acquired Fund immediately prior to the transfer; (iv) the
holding period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which such assets were held by the Acquired
Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for AARP Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund;
(vi) no gain or loss will be recognized by the shareholders of the Acquired Fund
upon the receipt of the AARP Shares solely in exchange for their shares of the
Acquired Fund as part of the transaction; (vii) the basis of the AARP Shares
received by the shareholders of the Acquired Fund will be the same as the basis
of the shares of the Acquired Fund exchanged therefor; and (viii) the holding
period of AARP Shares received by the shareholders of the Acquired Fund will
include the holding period during which the shares of the Acquired Fund
exchanged therefor were held, provided that at the time of the exchange the
shares of the Acquired Fund were held as capital assets in the hands of the
shareholders of the Acquired Fund.
After the Closing, the Acquiring Fund may dispose of certain securities
received by it from the Acquired Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
33
<PAGE>
While the Acquired Trust is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders may wish to consult
their own tax adviser with respect to such matters.
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
Fund as of October 31, 1999 (i.e., prior to the creation of AARP Shares), and,
on a pro forma basis, as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED(1)
------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
NET ASSETS
S Class........................ $538,736,461 ($313,877)(3) $ 538,422,584
AARP Class..................... $685,178,567 ($582,380)(4) $ 684,596,187
--------------
Total Net Assets............... $1,223,018,771(2)
==============
SHARES OUTSTANDING
S Class........................ 26,799,863 26,799,863
AARP Class 34,605,226 (528,761) 34,076,465
NET ASSET VALUE PER SHARE
S Class........................ $ 20.10 $ 20.09
AARP Class $ 19.80 $ 20.09
</TABLE>
- ------------------------------
(1) Assumes the Reorganization had been consummated on October 31, 1999, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by the shareholders of the
Acquired Fund on the date the Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of shares of the Acquiring
Fund that actually will be received on or after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of the Administrative Fee and of a new
investment management fee for the Acquiring Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquiring Fund.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquired Fund.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP BALANCED STOCK AND BOND FUND VOTE IN FAVOR OF THIS PROPOSAL 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Acquired Trust, including a majority of the Independent
Trustees, has selected PricewaterhouseCoopers LLP to act as independent
34
<PAGE>
accountants of the Acquired Fund for the Acquired Fund's current fiscal year.
One or more representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP BALANCED STOCK AND BOND FUND VOTE IN FAVOR OF THIS PROPOSAL 3.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS
Additional information about the Trusts, the Funds and the Reorganization
has been filed with the SEC and may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103,
or by calling 1-800-225-2470.
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by the
Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL,
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the statements of
additional information for the Trusts, materials that are incorporated by
reference into the prospectuses and statements of additional information, and
other information about the Trusts and the Funds.
35
<PAGE>
INTERESTS OF CERTAIN PERSONS
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- Investment Manager; Fees and Expenses" above.
GENERAL
PROXY SOLICITATION. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
Any Acquired Fund shareholder giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of the
Acquired Fund, c/o Scudder Kemper Investments, Inc., at the address for the
Acquired Fund shown at the beginning of this Proxy Statement/Prospectus) or in
person at the Meeting, by executing a superseding proxy or by submitting a
notice of revocation to the Acquired Fund. All properly executed proxies
received in time for the Meeting will be voted as specified in the proxy or, if
no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the Acquired Trust (for a trust-wide vote)
or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
36
<PAGE>
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of the Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on, Proposal 1, and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000, there were 30,415,879 shares of
the Acquired Fund outstanding.
As of January 31, 2000, the officers and Trustees of the Acquiring Trust as
a group owned beneficially less than 1% of the outstanding shares of the
Acquiring Fund. Appendix 2 hereto sets forth the beneficial owners of more than
5% of each Fund's shares, as well as the beneficial owners of more than 5% of
the shares of each other series of the Acquired Trust. To the best of the
applicable Trust's knowledge, as of January 31, 2000, no person owned
beneficially more than 5% of either Fund's outstanding shares or the shares of
any other series of the Acquired Trust, except as stated in Appendix 2.
Shareholder Communications Corporation ("SCC") has been engaged to assist in
the solicitation of proxies, at an estimated cost of $34,146. As the Meeting
date approaches, certain shareholders of the Acquired Fund may receive a
telephone call from a representative of SCC if their votes have not yet been
received. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Acquired Fund. Proxies that are obtained telephonically will be recorded in
accordance with the procedures set forth below. The Trustees believe that these
procedures are reasonably designed to ensure that both the identity of the
shareholder casting the vote and the voting instructions of the shareholder are
accurately determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on
37
<PAGE>
behalf of an entity, such as a corporation), and the number of shares owned, and
to confirm that the shareholder has received the proxy materials in the mail. If
the information solicited agrees with the information provided to SCC, then the
SCC representative has the responsibility to explain the process, read the
Proposals on the proxy card(s), and ask for the shareholder's instructions on
the Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the proxy
statement. SCC will record the shareholder's instructions on the card. Within 72
hours, the shareholder will be sent a letter or mailgram to confirm his or her
vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy card(s), they may contact SCC toll-free at 1-800-605-1203. Any
proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts 02110, within a reasonable time
before the solicitation of proxies for such meeting. The timely submission of a
proposal does not guarantee its inclusion.
OTHER MATTERS TO COME BEFORE THE MEETING. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters requiring a vote of shareholders
arise, the proxy in the accompanying form will confer upon the person or
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<PAGE>
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 Acquired Trust and/or the Acquired
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE
ADVANTAGE OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
[SIGNATURE]
Kathryn L. Quirk
Secretary
39
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<S> <C> <C>
EXHIBIT A: Agreement and Plan of Reorganization
EXHIBIT B: Management's Discussion of Acquiring Fund's
Performance
APPENDIX 1: Trustee and Nominee Shareholdings
APPENDIX 2: Beneficial Owners of Fund Shares
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, by and between Scudder Portfolio Trust (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Scudder
Balanced Fund (the "Acquiring Fund"), a separate series of the Acquiring Trust,
and AARP Growth Trust (the "Acquired Trust" and, together with the Acquiring
Trust, each a "Trust" and collectively the "Trusts"), a Massachusetts business
trust, on behalf of AARP Balanced Stock and Bond Fund (the "Acquired Fund" and,
together with the Acquiring Fund, each a "Fund" and collectively the "Funds"), a
separate series of the Acquired Trust. The principal place of business of each
Trust is Two International Place, Boston, Massachusetts 02110-4103
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest of the AARP Class of shares ($.01 par value per share) of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the
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<PAGE>
manner and as of the time and date set forth in section 2.2; and (ii) to assume
all of the liabilities of the Acquired Fund. Such transactions shall take place
at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with
A-2
<PAGE>
section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall
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<PAGE>
be subject to confirmation by each Fund's respective independent accountants
upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
August 28, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 9:00 a.m., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
Dechert Price & Rhoads, Ten Post Office Square -- South, Boston, MA 02109, or at
such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets shall have been delivered in proper form to
State Street, custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by the custodian for the Acquired Fund to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Scudder Service Corp. (the "Transfer Agent"), on behalf of the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding Acquired Fund shares owned by each such shareholder immediately
prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Acquired Fund or provide evidence satisfactory to the
A-4
<PAGE>
Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained
under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not
result, in violation of Massachusetts law or of the Acquired
A-5
<PAGE>
Trust's Declaration of Trust, as amended, or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking known
to counsel to which the Acquired Fund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the
Acquired Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund is a party or
by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended September 30, 1999, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of
each of which has been furnished to the Acquiring Fund) present fairly, in
all material respects, the financial position of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
A-6
<PAGE>
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquired Fund Shareholders,
under certain circumstances, could be held personally liable for obligations
of the Acquired Fund), and (iii) will be held at the time of the Closing by
the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and
A-7
<PAGE>
the 1940 Act, except those restrictions as to which the Acquiring Fund has
received notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc. (the "NASD")), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the Acquiring Fund for use therein.
A-8
<PAGE>
4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquiring Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in
violation of Massachusetts law or of the Acquiring Trust's Declaration of
Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended December 31, 1999 have been
audited by PricewaterhouseCoopers LLP, independent
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<PAGE>
accountants, and are in accordance with GAAP consistently applied, and such
statements (a copy of each of which has been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as
of such date not disclosed therein;
(g) Since December 31, 1999 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquiring
Fund due to declines in market values of securities in the Acquiring Fund's
portfolio, the discharge of Acquiring Fund liabilities, or the redemption of
Acquiring Fund shares by Acquiring Fund shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquiring Fund Shareholders, under certain circumstances, could be held
personally liable for the obligations of the Acquiring Fund). The Acquiring
Fund does not
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have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders,
under certain circumstances, could be held personally liable for the
obligations of the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust and this Agreement will
constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the NASD), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
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<PAGE>
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 11, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
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5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all
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<PAGE>
Acquiring Fund Shares to be transferred to the Acquired Fund pursuant to this
Agreement and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Trust, on behalf of the Acquiring Fund, made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing business
trust; (b) the Acquiring Fund has the power to carry on its
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<PAGE>
business as presently conducted in accordance with the description thereof
in the Acquiring Fund's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquiring
Trust, on behalf of the Acquiring Fund and constitutes a valid and legally
binding obligation of the Acquiring Trust, 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 Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquiring Trust's
Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals or filings
required to be obtained or made by the Acquiring Fund under the Federal laws
of the United States or the laws of the Commonwealth of Massachusetts for
the exchange of the Acquired Fund's assets for Acquiring Fund Shares,
pursuant to the Agreement have been obtained or made.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5 The Acquiring Fund shall have (i) adopted a new investment management
agreement and (ii) entered into an administrative services agreement with
Scudder Kemper Investments, Inc. ("Scudder Kemper"), each in a form reasonably
satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
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<PAGE>
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquired Trust's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquired
Trust, on behalf of the Acquired Fund, and constitutes a valid and legally
binding obligation of the Acquired Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquired Trust's Declaration
of Trust, as amended, or By-laws; and (e) to the knowledge of such counsel,
all regulatory consents, authorizations, approvals or filings required to be
obtained or made by the Acquired Fund under the Federal laws of the United
States or the laws of the Commonwealth of Massachusetts for the exchange of
the Acquired Fund's assets for Acquiring Fund Shares, pursuant to the
Agreement have been obtained or made.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
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<PAGE>
7.6 The Acquiring Fund shall have (i) adopted a new investment management
agreement and (ii) entered into an administrative services agreement with
Scudder Kemper.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Fund and the Acquired Fund, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the
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effect that, based upon certain facts, assumptions and representations of the
parties, for federal income tax purposes: (i) the transfer to the Acquiring Fund
of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by Acquired Fund Shareholders upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the transaction; (vii) the basis of the Acquiring Fund Shares
received by Acquired Fund Shareholders will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
Acquiring Fund Shares received by Acquired Fund Shareholders will include the
holding period during which Acquired Fund Shareholders exchanged therefor were
held, provided that at the time of the exchange the shares of the Acquired Fund
were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Fund and Acquired
Fund. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or
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any of its Board members or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Each Fund will pay its own allocable share of expenses associated with
the Reorganization, except that Scudder Kemper will bear any such expenses in
excess of $313,877 for the Acquiring Fund and $582,380 for the Acquired Fund
(approximately $0.0116 and $0.0171 per share, respectively, based on
December 31, 1999 net assets for each Fund). Any such expenses which are so
borne by Scudder Kemper will be solely and directly related to the
Reorganization within the meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.
Acquired Fund Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
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12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before
October 31, 2000, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, Ten Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.
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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. References in this Agreement to each Trust mean and refer to the Board
members of the Trust from time to time serving under its Declaration of Trust on
file with the Secretary of State of the Commonwealth of Massachusetts, as the
same may be amended from time to time, pursuant to which the Trust conducts its
business. It is expressly agreed that the obligations of each Trust hereunder
shall not be binding upon any of the Board members, shareholders, nominees,
officers, agents, or employees of the Trusts or the Funds personally, but bind
only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement has been signed by authorized officers of each Fund acting as
such, and neither such authorization by such Board members, nor such execution
and delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to
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the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: AARP GROWTH TRUST
on behalf of AARP Balanced Stock and Bond Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: SCUDDER PORTFOLIO TRUST
on behalf of Scudder Balanced Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
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AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:
- ------------------------------
Its:
- ------------------------------
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EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
- --------------------------------------------------------------------------------
Performance Update December 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
<TABLE>
<CAPTION>
Scudder Balanced Fund S&P 500 Index* LBAB Index*
<S> <C> <C>
1/31/93** 10000 1/31/93** 10000 1/31/93** 10000
93 10412 93 10915 93 10768
94 10164 94 11059 94 10454
95 12855 95 15214 95 12386
96 14339 96 18707 96 12833
97 17605 97 24951 97 14075
98 21319 98 32083 98 15295
99 24188 99 38834 99 15167
</TABLE>
Yearly periods ended December 31
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Scudder Balanced Fund
- --------------------------------------------------------------------------------
1 year $ 11,346 13.46% 13.46%
- --------------------------------------------------------------------------------
5 year $ 23,799 137.99% 18.94%
- --------------------------------------------------------------------------------
Life of Fund** $ 24,188 141.88% 13.47%
- --------------------------------------------------------------------------------
S&P 500 Index (60%) and LBAB Index (40%)*
- --------------------------------------------------------------------------------
1 year $ 11,199 11.99% 11.99%
- --------------------------------------------------------------------------------
5 year $ 24,971 149.71% 20.07%
- --------------------------------------------------------------------------------
Life of Fund** $ 27,029 170.29% 15.46%
- --------------------------------------------------------------------------------
</TABLE>
* The Standard & Poor's 500 Index is a capitalization-weighted index of
500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. The Lehman Brothers Aggregate
Bond (LBAB) Index is an unmanaged market value-weighted measure of
treasury issues, agency issues, corporate bond issues and mortgage
securities. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
** The Fund commenced operation on January 4, 1993. Index comparisons
begin January 31, 1993.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. If the
Adviser had not maintained the Fund's expenses, total return for the
Fund would have been lower.
B-1
<PAGE>
Portfolio Management Discussion December 31, 1999
In the following interview, portfolio manager Gary Langbaum discusses the recent
market environment and the strategy of Scudder Balanced Fund in the twelve-month
period ended December 31, 1999.
Q: The stock market produced another stellar year in 1999, but bonds lagged.
What were some of the key factors driving market performance?
A: The potent combination of favorable liquidity factors, stronger than expected
economic growth, and a powerful rise in corporate earnings helped propel the
U.S. stock market to strong gains in 1999, the fifth consecutive year in which
the S&P 500 has delivered a total return of over 20%. The Nasdaq average rose
85.6% behind the incredible gains in technology stocks, which once again
benefited from investors' emphasis on earnings growth over valuation. Bonds, on
the other hand, posted poor performance due to persistent fears of inflation and
three interest rate hikes by the U.S. Federal Reserve. The yield on the
benchmark 30-year Treasury issue rose from 5.10% to 6.48% in 1999 (as its price
fell), its second worst performance since 1973. However, certain sectors of the
bond market -- such as mortgage-backed securities and high-yield corporates --
outperformed government issues.
Q: How did the fund perform in this environment?
A: For the twelve months ended December 31, 1999, the fund returned 13.46%,
beating the 11.99% return of its unmanaged benchmark, which is a combination of
the S&P 500 (60%) and the Lehman Brothers Aggregate Bond Index (40%). The equity
portion of the portfolio produced a return of 25.46%, which beat the 21.04%
return of the S&P 500. The fund's 13.46% return stacked up well against the
8.72% average return of funds in the balanced category, as calculated by Lipper
Analytical Services. The fund has performed well against its peers over the long
term, as well. Its total return through December 31 placed it in the top 23%,
10%, and 19% of comparable funds over the one-, three-, and five-year periods,
respectively.
B-2
<PAGE>
Q: What was your strategy with respect to the equity portion of the portfolio?
A: Fund strategy has been shaped by our strongly bullish view on the stock
market. We held a larger than normal weighting in equities, and were
well-positioned to capitalize on the rally in technology stocks. Performance has
been boosted by our holdings in a number of the large cap tech stocks that led
the market in 1999, such as Microsoft, Oracle, Applied Materials, Motorola,
America Online, and Sun Microsystems. The fund's equity position has also been
buoyed by its holdings in broadcasting, retail, and biotechnology, but its
positions in pharmaceuticals and financials lagged.
We employ a strategy known as "GARP," which stands for "growth at a reasonable
price." Essentially, we are using a value-oriented approach to select what we
see as the strongest candidates from a growth universe. Utilizing a quantitative
discipline, we evaluate current and potential holdings based on their
fundamental strengths, sustainability of earnings, and valuations. In the
process, we screen out stocks whose valuations have climbed to what we see as
excessive levels with respect to their growth potential, a condition that
usually increases their vulnerability to earnings disappointments. In our view,
good companies with superior long-term growth characteristics are worth more
than less reliable companies that are often "cheap" for a reason. However, we
are very conscious of valuation, and have been reducing our positions in the
types of high-octane stocks that drove market performance in 1999.
Q: What are some individual companies that performed well for the fund?
A: The retail sector provided mixed returns in 1999, but we benefited from our
positions in two of the best performers in the group: Wal-Mart and Home Depot.
The top players in their respective categories, both companies continue to
produce outstanding earnings growth and same-store sales figures. While higher
interest rates are
B-3
<PAGE>
usually a negative for retailers, we believe that Wal-Mart and Home Depot will
remain two of the best long-term retail stories even if growth slows from its
current pace. Both companies sell at a premium multiple in relation to their
peer group, but we believe they are worth it given their outstanding track
records.
Our selection of some of the top-performing stocks in the media sector also
provided a boost to fund performance. An example of a company that has done well
for us is Clear Channel Communications, which owns and operates radio stations
across the United States. The company has been a direct beneficiary of the
"dot.com" fever, since many of the Internet companies that have gone public over
the past year have put the cash to work by launching aggressive marketing
campaigns. The ensuing increase in demand for advertising time -- a product for
which there is a relatively stable supply -- has been a windfall for radio
companies like Clear Channel. Even after the company's outstanding performance
in 1999, we remain optimistic on its prospects due to its strong management,
outstanding execution, and history of steady earnings growth.
Q: Where have you found opportunities on the fixed income side?
A: Even though bonds produced poor performance over the course of the year, we
gained an incremental advantage by being well-positioned within the sector. At
the end of the second quarter, we increased our weighting in corporate bonds
when yields reached attractive levels in relation to Treasuries. As Y2K fears
dissipated in the second half of the year, corporates held up well even as the
interest rate environment deteriorated. The fund gained particularly strong
performance from its fixed income holdings in the energy and telecommunications
sectors.
As the year drew to a close, we cut back on our holdings in corporates and added
to our weighting in Treasuries. We made this move in order to increase our
flexibility with respect to the fund's duration. While the duration of the
portfolio (or interest rate sensitivity) is neutral at the present time, we are
preparing for a shift in the interest
B-4
<PAGE>
rate outlook later in 2000 when the threat of further rate hikes by the Federal
Reserve begin to diminish. Since it is much easier to make adjustments to the
portfolio when it has a larger position in Treasuries -- which are more liquid
than corporates -- we feel this move will make it easier for us to take
advantage of the shifts in the interest rate environment that we see occurring
in the first half of 2000.
Q: What is your outlook for the year ahead?
A: We believe that the key variable could be November's elections. In recent
years, the markets have performed best in periods when there is a spilt
government; in other words, when different parties are in control of Congress
and the White House. If we were to see a return of one-party government in favor
of either the Democrats or the Republicans, the change in the political
environment may have a negative impact on individual sectors of the market. For
example, the Democrats may attempt to pass a comprehensive health care bill,
which in turn would be likely to depress pharmaceutical stocks. We believe that
as the interest rate picture becomes clearer toward mid-year, these political
issues will move to the forefront of the markets' attention.
Nevertheless, we remain bullish on the outlook for the stock market. Although it
is likely that we will see an even higher level of volatility than last year, we
believe that the fundamental underpinnings of the stock market -- increasing
productivity, strong economic growth, and rising corporate earnings -- remain in
place. On the fixed income side, we feel that bonds are poised for a rebound
following their poor performance in 1999. Once the end of the Fed's current
tightening cycle is in sight, the pressure that has been on the bond market for
the past year will be eased, making investors more inclined to take advantage of
the high real yields that currently exist. Despite our expectation for a more
challenging investment environment in the coming months, we are confident that
the combination of solid growth stocks and high-quality bonds will position the
portfolio for long-term outperformance.
B-5
<PAGE>
APPENDIX 1
FUND SHARES OWNED BY NOMINEES AND TRUSTEES
Many of the nominees and Trustees own shares of the series of the Acquired
Trust and of other funds in the Scudder Family of Funds and AARP Funds,
allocating their investments among such funds based on their individual
investment needs. The following table sets forth, for each nominee and Trustee,
the number of shares owned in each series of the Acquired Trust as of
January 31, 2000. The information as to beneficial ownership is based on
statements furnished to the Acquired Trust by each nominee and Trustee. Unless
otherwise noted, beneficial ownership is based on sole voting and investment
power. Each nominee's and Trustee's individual shareholdings of any series of
the Acquired Trust constitute less than 1% of the outstanding shares of such
fund. As a group, the Trustees and officers own less than 1% of the shares of
any series of the Acquired Trust.
<TABLE>
<CAPTION>
AARP AARP
BALANCED AARP AARP AARP SMALL AARP
STOCK CAPITAL GLOBAL GROWTH AND AARP COMPANY U.S. STOCK
AND BOND GROWTH GROWTH INCOME INTERNATIONAL STOCK INDEX
FUND FUND FUND FUND STOCK FUND FUND FUND
--------- -------- -------- ----------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Carole Lewis Anderson (3).... 0 371 806 0 0 0 0
Adelaide Attard (1).......... 552(5) 607(8) 303 431(11) 0 0 632
Henry P. Becton, Jr. (1)..... 0 0 0 0 00 0 0
Robert N. Butler, M.D. (3)... 0 0 0 0 0 0 401(20)
Linda C. Coughlin (1)........ 0 547 487 343 1,468 417 352
Horace B. Deets (1).......... 3,003(6) 0 0 1,567(12) 0 37(18) 82
Dawn-Marie Driscoll (1)...... 0 28 0 0 0 113 0
Edgar R. Fiedler (1)......... 0 0 0 0 0 0 0
Lt. Gen. Eugene P. Forrester
(1)........................ 981 2,560 506 3,328 711 546 625
Keith R. Fox (1)............. 0 0 0 0 0 0 0
George L. Maddox, Jr. (1).... 0 0 0 2,869(13) 0 0 0
Robert J. Myers (2).......... 0 0 0 0 0 0 0
James H. Schulz (3).......... 0 62(9) 0 55(14) 296(16) 0 0
Gordon Shillinglaw (1)....... 1,447 1,859 1,372 2,299 2,577 0 585
Joan Edelman Spero (2)....... 0 0 0 0 0 0 0
Jean Gleason Stromberg (2)... 0 0 0 1,044 0 0 0
Jean C. Tempel (1)........... 0 0 0 0 0 0 0
Steven Zaleznick (4)......... 0 0 0 0 0 0 0
All Trustees and Officers as
a Group.................... 6,535(7) 6,034(10) 3,474 11,938(15) 5,052(17) 1,113(19) 2,677(21)
</TABLE>
- ------------------------------
(1) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were over
$100,000.
(2) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $50,000 and $100,000.
(3) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $10,000 and $50,000.
(4) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were $0.
<PAGE>
(5) Ms. Attard's shares in AARP Balanced Stock and Bond Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(6) Mr. Deets' shares in AARP Balanced Stock and Bond Fund include 67 shares
with sole investment and voting power, and 2,936 shares with shared
investment and voting power.
(7) As a group, as of January 31, 2000, the Trustees and officers of AARP
Balanced Stock and Bond Fund held 3,047 shares with sole voting and
investment power, 2,936 shares with shared investment and voting power, and
552 shares with sole investment but no voting power. Shares held with sole
investment but no voting power are shares held in profit sharing and 401(k)
plans for which Scudder Kemper serves as trustee.
(8) Ms. Attard's shares in AARP Capital Growth Fund include 36 shares with sole
investment and voting power and 571 with sole investment but no voting
power. Shares held with sole investment but no voting power are shares held
in profit sharing and 401(k) plans for which Scudder Kemper serves as
trustee.
(9) Mr. Schulz' shares in AARP Capital Growth Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(10) As a group, as of January 31, 2000, the Trustees and officers of AARP
Capital Growth Fund held 5,402 shares with sole voting and investment
power and 632 shares with sole investment but no voting power. Shares held
with sole investment but no voting power are shares held in profit sharing
and 401(k) plans for which Scudder Kemper serves as trustee.
(11) Ms. Attard's shares in AARP Growth and Income Fund include 153 shares with
sole investment and voting power and 278 with sole investment but no
voting power. Shares held with sole investment but no voting power are
shares held in profit sharing and 401(k) plans for which Scudder Kemper
serves as trustee.
(12) Mr. Deets' shares in AARP Growth and Income Fund include 1,180 shares with
shared investment and voting power, and 387 shares with sole investment
but no voting power. Shares held with sole investment but no voting power
are shares held in profit sharing and 401(k) plans for which Scudder
Kemper serves as trustee.
(13) Mr. Maddox's shares in AARP Growth and Income Fund include 743 shares with
sole investment and voting power, and 2,126 shares with shared investment
and voting power.
(14) Mr. Schulz' shares in AARP Growth and Income Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(15) As a group, as of January 31, 2000, the Trustees and officers of AARP
Growth and Income Fund held 7,911 shares with sole voting and investment
power, 3,307 shares with shared investment and voting power, and 720
shares with sole investment but no voting power. Shares held with sole
investment but no voting power are shares held in profit sharing and
401(k) plans for which Scudder Kemper serves as trustee.
(16) Mr. Schulz' shares in AARP International Stock Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(17) As a group, as of January 31, 2000, the Trustees and officers of AARP
International Stock Fund held 4,756 shares with sole voting and investment
power and 296 shares with sole investment but no voting power. Shares held
with sole investment but no voting power are shares held in profit sharing
and 401(k) plans for which Scudder Kemper serves as trustee.
2
<PAGE>
(18) Mr. Deets' shares in AARP Small Company Stock Fund are held with shared
investment and voting power.
(19) As a group, as of January 31, 2000, the Trustees and officers of AARP
Small Company Stock Fund held 1,076 shares with sole voting and investment
power and 37 shares with shared investment and voting power.
(20) Dr. Butler's shares in AARP U.S. Stock Index Fund are held with shared
investment and voting power.
(21) As a group, as of January 31, 2000, the Trustees and officers of AARP U.S.
Stock Index Fund held 2,276 shares with sole voting and investment power
and 401 shares with shared investment but no voting power.
3
<PAGE>
APPENDIX 2
BENEFICIAL OWNERS OF MORE THAN 5% OF FUND SHARES
As of January 31, 2000, 244,625 shares in the aggregate, or 11.48% of the
outstanding shares, of AARP INTERNATIONAL STOCK FUND were held in the name of
State Street Bank and Trust Company, Custodian of AARP Managed Investment
Portfolio Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA
02171, who may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 359,439 shares in the aggregate, or 11.66% of the
outstanding shares, of AARP SMALL COMPANY STOCK FUND were held in the name of
State Street Bank and Trust Company, Custodian of AARP Managed Investment
Portfolio Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA
02171, who may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 1,875,347 shares in the aggregate, or 6.38% of the
outstanding shares, of AARP U.S. STOCK INDEX FUND were held in the name of State
Street Bank and Trust Company, Custodian of AARP Managed Investment Portfolio
Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA 02171, who
may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 6,491,011 shares in the aggregate, or 24.01% of the
outstanding shares, of SCUDDER BALANCED FUND were held in the name of Scudder
Kemper Investments, Trustee for Farmer's Group Inc. Profit Sharing Savings Plan,
4680 Wilshire Blvd., Los Angeles, CA 90010, who may be deemed to be the
beneficial owner of certain of these shares.
As of January 31, 2000, 6,491,011 shares in the aggregate, or 24.01% of the
outstanding shares, of SCUDDER BALANCED FUND were held in the name of Scudder
Kemper Investments, Trustee for Farmer's Group Inc. Profit Sharing Savings Plan,
4680 Wilshire Blvd., Los Angeles, CA 90010, who may be deemed to be the
beneficial owner of certain of these shares.
<PAGE>
You are also being asked to ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of your Fund for the current fiscal year.
The Board of your Fund recommends that you vote in favor of this proposal.
Q: WHEN WILL THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes will take effect during the third
calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-605-1203.
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-605-1203.
AA Bal Stock & Bond
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated April 12, 2000, which was previously filed with the
Commission via EDGAR on February 11, 2000 (File No. 2-13627) and is
incorporated by reference herein.
<PAGE>
PART B
SCUDDER PORTFOLIO TRUST
______________________________________________________________________________
Statement of Additional Information
April 18, 2000
______________________________________________________________________________
Acquisition of the Assets of By and in Exchange for Shares of
AARP Balanced Stock and Bond Fund Scudder Balanced Fund (the "Acquiring
(the "Acquired Fund"), a series Fund"), a series of Scudder Portfolio
of AARP Growth Trust Trust (the "Acquiring Trust")
Two International Place Two International Place
Boston, MA 02110-4103 Boston, MA 02110-4103
This Statement of Additional Information is available to the shareholders of
the Acquired Fund in connection with a proposed transaction whereby the
Acquiring Fund will acquire all or substantially all of the assets and all of
the liabilities of the Acquired Fund in exchange for shares of the Acquiring
Fund (the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in
the Prospectus/Proxy Statement of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this
cover page and the following documents:
1. The Acquiring Fund's statement of additional information dated
April 12, 2000, which was previously filed with the Securities and
Exchange Commission (the "Commission") via EDGAR on February 11, 2000
(File No. 2-13627) and is incorporated by reference herein.
2. The Acquiring Fund's annual report to shareholders for the fiscal year
ended December 31, 1999, which was previously filed with the Commission
via EDGAR on February 24, 2000 (File No. 811-42) and is incorporated by
reference herein.
3. The Acquired Fund's prospectus dated February 1, 2000, which was
previously filed with the Commission via EDGAR on February 1, 2000 (File
No. 2-91578) and is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated
February 1, 2000, which was previously filed with the Commission via EDGAR
on February 1, 2000 (File No. 2-91578) and is incorporated by reference
herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year
ended September 30, 1999, which was previously filed with the Commission
via EDGAR on December 3, 1999 (File No. 811-4048) and is incorporated by
reference herein.
6. The financial statements and schedules of the Acquiring Fund and the
Acquired Fund required by Regulation S-X for the periods specified in
Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 18, 2000 relating to the
Reorganization may be obtained by writing the Acquired Fund at
<PAGE>
Two International Place, Boston, MA 02110-4103 or by calling Scudder Investor
Services, Inc. at 1-800-225-2470. This Statement of Additional Information
should be read in conjunction with the Prospectus/Proxy Statement.
<PAGE>
PRO FORMA
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS 0.1%
- -------------------------------------
Repurchase Agreement with State Street 1,953,000 1,953,000 1,953,000 1,953,000
Bank and Trust Company, 5.200%,
11/1/99
================================================
REPURCHASE AGREEMENTS 1,953,000 1,953,000
================================================
REPURCHASE AGREEMENTS (COST OF $0
$1,953,000 AND $1,953,000
RESPECTIVELY)
U. S. GOVERNMENT & AGENCIES 13.0%
- --------------------------------------
Federal Home Loan Mortgage Corp., 3,000,000 3,000,000 2,940,000 2,940,000
5.750%, 07/15/2003
U.S. Treasury Bond Inflationary Index 1,750,000 5,750,000 7,500,000 1,656,755 5,443,625 7,100,380
3.625%, 04/15/2028
U.S. Treasury Bond, 6.250%, 08/15/2023 3,000,000 3,750,000 6,750,000 2,935,770 3,669,713 6,605,483
U.S. Treasury Bond, 9.375%, 02/15/2006 16,000,000 16,000,000 18,615,040 18,615,040
U.S. Treasury Bond, 7.250%, 05/15/2016 20,000,000 20,000,000 21,553,200 21,553,200
U.S. Treasury Note, 3.875%, 01/15/2009 2,000,000 4,000,000 6,000,000 1,999,140 3,998,280 5,997,420
U.S. Treasury Note, 5.500%, 05/31/2003 15,250,000 15,250,000 15,025,978 15,025,978
U.S. Treasury Note, 5.625%, 09/30/2001 9,800,000 9,800,000 9,766,288 9,766,288
U.S. Treasury Note, 5.625%, 12/31/2002 8,500,000 8,500,000 8,430,895 8,430,895
U.S. Treasury Note, 6.000%, 08/15/2004 8,700,000 1,700,000 10,400,000 8,720,358 1,703,978 10,424,336
U.S. Treasury Note, 6.000%, 08/15/2009 28,000,000 28,000,000 27,960,520 27,960,520
U.S. Treasury Note, 7.500%, 02/15/2005 16,000,000 16,000,000 17,002,560 17,002,560
U.S. Treasury Note, 6.500%, 10/15/2006 4,000,000 4,000,000 4,070,640 4,070,640
================================================
U. S. GOVERNENT & AGENCIES 105,287,016 50,205,724 155,492,740
================================================
U. S. GOVERNENT & AGENCIES
(COST OF $106,334,544 $52,614,455
AND $158,948,999 RESPECTIVELY)
GOV'T NATIONAL MORTGAGE ASSOCIATION 1.2%
- ---------------------------------------
Government National Mortgage 5,188 5,188 5,509 5,509
Association Pass-thru, 9.500%,
8/15/19
Government National Mortgage 6,349,932 7,375,839 13,725,771 6,229,878 7,236,390 13,466,268
Association Pass-thru 7.00% with
various maturities to 5/01/2029
================================================
GOV'T NATIONAL MORTGAGE ASSOCIATION 6,235,387 7,236,390 13,471,777
================================================
GOV'T NATIONAL MORTGAGE ASSOCIATION
(COST OF $6,439,895 $7,473,799
AND $13,913,694 RESPECTIVELY)
U.S.GOVERNMENT BACKED MORTGAGES 3.0%
- ---------------------------------------
Federal Home Loan Mortgage Corp. 627,165 627,165 636,905 636,905
8.00% with various maturities to
4/1/08
Federal National Mortgage Association 6,038,302 24,399,104 30,437,406 5,804,338 23,456,645 29,260,983
6.50% with various maturities to
3/1/28
Federal National Mortgage Association 1,315,442 3,888,472 5,203,914 1,344,521 3,973,513 5,318,034
8.00% with various maturities to
2/1/13
================================================
U.S.GOVERNMENT BACKED MORTGAGES 7,785,764 27,430,158 35,215,922
================================================
U.S.GOVERNMENT BACKED MORTGAGES
(COST OF $7,984,512 $28,036,347
AND $36,020,859 RESPECTIVELY)
COLLATERALIZED MORTGAGE OBLIGATIONS 1.2%
- ---------------------------------------
Residential Accredit Loans, Inc., 3,930,893 3,930,893 7,861,786 3,816,037 3,816,037 7,632,074
Series 1997-QS12, A7, 7.250%, 11/25/2027
Residential Asset Securitization Trust 1,541,000 1,541,000 1,541,000 1,541,000
Series 1997-A6, 7.250%, 09/25/2012
Residential Funding Mortgage 2,453,275 2,453,275 2,440,242 2,440,242
Securities Series 1993-A2, 6.850%,
9/25/23
Ryland Mortgage Securities Corp., 2,195,207 2,195,207 2,220,589 2,220,589
8.000%, 08/25/2025
================================================
COLLATERALIZED MORTGAGE OBLIGATIONS 5,357,037 8,476,868 13,833,905
================================================
COLLATERALIZED MORTGAGE OBLIGATIONS
(COST OF $5,561,584 $8,697,114
AND $14,258,698 RESPECTIVELY)
FOREIGN BONDS - U.S. $ DENOMINATED 2.0%
- ---------------------------------------
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norsk Hydro AS, 7.750%, 06/15/2023 1,000,000 5,000,000 6,000,000 991,200 4,956,000 5,947,200
PacifiCorp Australia LLC, 6.150%, 2,000,000 6,000,000 8,000,000 1,851,060 5,553,180 7,404,240
1/15/08
Petroleum Geo-Services, 6.625%, 1,000,000 4,000,000 5,000,000 938,750 3,755,000 4,693,750
3/30/08
Saga Petroleum ASA, 7.250%, 09/23/2027 1,000,000 5,000,000 6,000,000 917,830 4,589,150 5,506,980
================================================
FOREIGN BONDS - U.S. $ DENOMINATED 4,698,840 18,853,330 23,552,170
================================================
FOREIGN BONDS - U.S. $ DENOMINATED
(COST OF $5,083,440 $20,422,280
AND $25,505,720 RESPECTIVELY)
ASSET BACKED 2.2%
- ---------------------------------------
Automobile Receivables 0.5%
First Security Auto Owner Trust, 2,000,000 3,000,000 5,000,000 1,983,750 2,975,625 4,959,375
Series 1999-2 A3, 6.000%, 10/15/2003
Premier Auto Trust Asset Backed 493,160 493,160 493,776 493,776
Certificate, Series 1996-3 A4, 6.750%,
11/6/00
------------------------------------------------
2,477,526 2,975,625 5,453,151
------------------------------------------------
Credit Card Receivables 1.0%
Citibank Credit Card Master Trust I, 2,000,000 2,000,000 1,905,620 1,905,620
Series 1999-1 A, 5.500%, 02/15/2006
Citibank Credit Card Master Trust I, 3,500,000 3,500,000 3,465,000 3,465,000
6.000%, 04/10/2003
MBNA Master Credit Card Trust, 5.800%, 1,500,000 5,000,000 6,500,000 1,456,875 4,856,250 6,313,125
12/15/05
------------------------------------------------
3,362,495 8,321,250 11,683,745
------------------------------------------------
Home Equity Loans 0.5%
First Plus Home Loan Trust, Series 1,000,000 5,000,000 6,000,000 985,000 4,925,000 5,910,000
1998, 6.250%, 11/10/2016 ------------------------------------------------
Manufacturing Housing Receivables 0.2%
Green Tree Financial Corp., Series 3,000,000 3,000,000 2,349,375 2,349,375
1997-2 B1, 7.560%, 06/15/2028 ------------------------------------------------
================================================
ASSET BACKED 6,825,021 18,571,250 25,396,271
================================================
ASSET BACKED (COST OF $6,984,039
$19,515,614 AND $26,499,653
RESPECTIVELY)
CORPORATE BONDS 13.7%
- ---------------------------------------
Consumer Staples 1.3%
Bass America Inc., 6.625%, 03/01/2003 1,500,000 5,000,000 6,500,000 1,477,365 4,924,550 6,401,915
Pepsi Bottling Holdings, Inc., 5.625%, 1,500,000 3,500,000 5,000,000 1,349,865 3,149,685 4,499,550
2/17/09
Racers-Kellogg, 5.750%, 02/02/2001 1,000,000 4,000,000 5,000,000 993,750 3,975,000 4,968,750
------------------------------------------------
3,820,980 12,049,235 15,870,215
------------------------------------------------
Communications 1.3%
AT&T Corp., 6.000%, 03/15/2009 2,000,000 2,000,000 1,848,840 1,848,840
Lucent Technologies Inc., 6.900%, 1,250,000 1,250,000 1,261,000 1,261,000
7/15/01
Sprint Capital Corp., 6.125%, 3,500,000 3,000,000 6,500,000 3,236,450 2,774,100 6,010,550
11/15/08
WorldCom, Inc., 6.400%, 08/15/2005 2,000,000 5,000,000 7,000,000 1,943,960 4,859,900 6,803,860
------------------------------------------------
8,290,250 7,634,000 15,924,250
------------------------------------------------
Financial 5.2%
Associates Corp. of North America, 500,000 5,850,000 6,350,000 501,350 5,865,795 6,367,145
6.625%, 05/15/2001
Boeing Capital Corp., Medium Term 1,000,000 3,000,000 4,000,000 1,002,980 3,008,940 4,011,920
Note, 6.750%, 12/23/2003
Capital One Bank, Medium Term Note, 1,000,000 4,000,000 5,000,000 985,520 3,942,080 4,927,600
5.950%, 02/15/2001
First USA Bank, 5.850%, 02/22/2001 1,000,000 3,000,000 4,000,000 991,600 2,974,800 3,966,400
First Union Corporation, 8.125%, 1,000,000 2,500,000 3,500,000 1,031,680 2,579,200 3,610,880
6/24/02
Fleet Financial Group, 6.875%, 1,000,000 4,000,000 5,000,000 899,120 3,596,480 4,495,600
1/15/28
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ford Motor Credit Co., 6.125%, 2,500,000 5,000,000 7,500,000 2,441,575 4,883,150 7,324,725
4/28/03
General Electric Capital Corp., 1,000,000 4,000,000 5,000,000 995,000 3,980,000 4,975,000
6.020%, 05/04/2001
Home Savings of America, 6.000%, 1,000,000 3,000,000 4,000,000 992,560 2,977,680 3,970,240
11/1/00
Merrill Lynch & Co., Inc., 6.000%, 1,500,000 3,000,000 4,500,000 1,370,130 2,740,260 4,110,390
2/17/09
Prudential Insurance Co., 6.375%, 1,000,000 3,000,000 4,000,000 941,370 2,824,110 3,765,480
7/23/06
Southern National Corp., 7.050%, 1,000,000 4,000,000 5,000,000 993,120 3,972,480 4,965,600
5/23/03
Wachovia Corp., 6.700%, 06/21/2004 3,000,000 3,000,000 2,994,510 2,994,510
Wells Fargo & Co., 6.875%, 04/01/2006 2,000,000 2,000,000 1,966,440 1,966,440
------------------------------------------------
16,140,515 45,311,415 61,451,930
------------------------------------------------
Media 1.3%
News America Holdings Inc., 9.250%, 1,000,000 3,000,000 4,000,000 1,098,840 3,296,520 4,395,360
2/1/13
TCI-Communications, Inc., 8.000%, 1,000,000 4,000,000 5,000,000 1,043,990 4,175,960 5,219,950
8/1/05
Time Warner Inc., 9.125%, 01/15/2013 1,000,000 4,500,000 5,500,000 1,123,140 5,054,130 6,177,270
------------------------------------------------
3,265,970 12,526,610 15,792,580
------------------------------------------------
Durables 0.3%
Martin Marietta Corp., 6.500%, 1,000,000 3,000,000 4,000,000 972,500 2,917,500 3,890,000
4/15/03 ------------------------------------------------
Manufacturing 0.9%
Fort James Corp., 6.625%, 09/15/2004 1,000,000 3,000,000 4,000,000 972,230 2,916,690 3,888,920
TRW, Inc., 6.625%, 06/01/2004 2,000,000 2,000,000 1,941,400 1,941,400
Tyco International Group, 6.125%, 2,500,000 2,500,000 2,269,875 2,269,875
1/15/09
Xerox Corp., 5.500%, 11/15/2003 750,000 2,000,000 2,750,000 709,350 1,891,600 2,600,950
------------------------------------------------
5,892,855 4,808,290 10,701,145
------------------------------------------------
Technology 1.0%
IBM Corp., 5.100%, 11/10/2003 1,500,000 5,500,000 7,000,000 1,414,688 5,187,188 6,601,876
Raytheon Co., 6.000%, 12/15/2010 2,500,000 3,000,000 5,500,000 2,191,550 2,629,860 4,821,410
------------------------------------------------
3,606,238 7,817,048 11,423,286
------------------------------------------------
Energy 1.6%
Anadarko Petroleum Corp., 5.875%, 1,500,000 5,000,000 6,500,000 1,424,220 4,747,400 6,171,620
10/15/03
Atlantic Richfield Co., 5.550%, 2,000,000 2,000,000 1,932,400 1,932,400
4/15/03
Conoco Inc., 5.900%, 04/15/2004 2,500,000 2,500,000 2,406,700 2,406,700
Louisiana Land & Exploration Co., 1,250,000 5,000,000 6,250,000 1,214,363 4,857,450 6,071,813
7.650%, 12/01/2023
Occidental Petroleum Corp., 8.450%, 2,500,000 2,500,000 2,629,700 2,629,700
2/15/29
------------------------------------------------
9,607,383 9,604,850 19,212,233
------------------------------------------------
Transportation 0.4%
Continental Airlines Inc., 6.795%, 1,500,000 3,000,000 4,500,000 1,393,650 2,787,300 4,180,950
2/2/20 -------------------------------------------------
Utilities 0.4%
Public Service Co. of Colorado, 1,000,000 3,500,000 4,500,000 975,490 3,414,215 4,389,705
------------------------------------------------
6.000%, 04/15/2003
================================================
CORPORATE BONDS 53,965,831 108,870,463 162,836,294
================================================
CORPORATE BONDS (COST OF
$56,377,690 $113,244,335
AND $169,622,025
RESPECTIVELY)
CONVERTIBLE BONDS 0.5%
- ----------------------------
Media
Advertising
Interpublic Group of Companies Inc., 4,500,000 4,500,000 5,265,000 5,265,000
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.800%, 09/16/2004
================================================
CONVERTIBLE BONDS 5,265,000 5,265,000
================================================
CONVERTIBLE BONDS
(COST OF $0 $3,839,362
AND $3,839,362 RESPECTIVELY)
CONVERTIBLE PREFERRED STOCKS 0.3%
- -------------------------------------
Health 0.2%
Biotechnolgy
Monsanto Co., 6.5% 62,600 62,600 2,370,975 2,370,975
------------------------------------------------
Financial 0.1%
Real Estate
ProLogis Trust "B" (REIT), 7.000% 18,900 18,900 463,050 463,050
------------------------------------------------
================================================
CONVERTIBLE PREFERRED STOCKS 0 2,834,025 2,834,025
================================================
CONVERTIBLE PREFERRED STOCKS
(COST OF $0 $3,055,886 AND
$3,055,886 RESPECTIVELY)
COMMON STOCKS 62.8%
- -------------------------------------
CONSUMER DISCRETIONARY 3.5%
Department & Chain Stores 2.6%
Dayton Hudson Corp. 67,400 67,400 4,355,725 4,355,725
Federated Department Stores, Inc. 57,500 57,500 2,454,531 2,454,531
Home Depot, Inc. 114,400 114,400 8,637,200 8,637,200
Wal-Mart Stores, Inc. 153,500 115,000 268,500 8,701,531 6,519,063 15,220,594
------------------------------------------------
24,148,987 6,519,063 30,668,050
------------------------------------------------
Restaurants 0.4%
McDonald's Corp. 111,400 111,400 4,595,250 4,595,250
------------------------------------------------
Specialty Retail 0.5%
Tandy Corp. 103,500 103,500 6,514,031 6,514,031
------------------------------------------------
CONSUMER STAPLES 3.5%
Food & Beverage 1.4%
Albertson's Inc. 71,045 71,045 2,579,801 2,579,801
Bestfoods 40,000 40,000 2,350,000 2,350,000
H.J. Heinz Co. 72,000 104,050 176,050 3,438,000 4,968,388 8,406,388
PepsiCo, Inc. 98,100 98,100 3,402,844 3,402,844
------------------------------------------------
9,190,844 7,548,189 16,739,033
------------------------------------------------
Package Goods/Cosmetics 2.1%
Avon Products, Inc. 252,900 252,900 8,156,025 8,156,025
Colgate-Palmolive Co. 110,800 110,800 6,703,400 6,703,400
Estee Lauder Companies "A" 61,200 61,200 2,853,450 2,853,450
Gillette Co. 82,900 82,900 2,999,944 2,999,944
Procter & Gamble Co. 48,200 48,200 5,054,975 5,054,975
------------------------------------------------
14,611,825 11,155,969 25,767,794
------------------------------------------------
HEALTH 6.0%
Biotechnology 0.3%
Biogen, Inc. 32,000 32,000 2,372,000 2,372,000
Genentech, Inc. 12,100 12,100 1,763,575 1,763,575
------------------------------------------------
4,135,575 4,135,575
------------------------------------------------
Medical Supply & Specialty 0.3%
Baxter International, Inc. 54,000 54,000 3,503,250 3,503,250
------------------------------------------------
Pharmaceuticals 5.4%
Abbott Laboratories 60,000 60,000 2,422,500 2,422,500
Allergan, Inc. 28,500 28,500 3,060,188 3,060,188
American Home Products Corp. 80,000 214,300 294,300 4,180,000 11,197,175 15,377,175
Bristol-Myers Squibb Co. 75,000 85,000 160,000 5,760,938 6,529,063 12,290,001
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Glaxo Wellcome PLC (ADR) 67,100 67,100 4,017,613 4,017,613
Johnson & Johnson 38,700 45,200 83,900 4,053,825 4,734,700 8,788,525
Merck & Co., Inc. 30,000 30,000 2,386,875 2,386,875
Pfizer, Inc. 83,500 83,500 3,298,250 3,298,250
Schering-Plough Corp. 70,100 70,100 3,469,950 3,469,950
SmithKline Beecham PLC (ADR) 56,100 56,100 3,590,400 3,590,400
Warner-Lambert Co. 69,600 69,600 5,554,950 5,554,950
------------------------------------------------
34,187,476 30,068,951 64,256,427
------------------------------------------------
COMMUNICATIONS 6.8%
Telephone/Communications 6.8%
Alltel Corp. 99,000 99,000 8,241,750 8,241,750
AT&T Corp. 53,000 53,000 2,477,746 2,477,746
Bell Atlantic Corp. 50,000 119,564 169,564 3,246,875 7,764,187 11,011,062
BellSouth Corp. 274,500 274,500 12,352,500 12,352,500
GTE Corp. 27,000 160,200 187,200 2,025,000 12,015,000 14,040,000
Global Crossing Ltd. 62,525 120,530 183,055 2,164,928 4,173,351 6,338,279
MCI WorldCom, Inc. 62,800 62,800 5,389,025 5,389,025
SBC Communicatons, Inc. 108,000 164,625 272,625 5,501,250 8,385,586 13,886,836
Sprint Corp. 106,700 106,700 7,929,144 7,929,144
------------------------------------------------
20,804,824 60,861,518 81,666,342
------------------------------------------------
FINANCIAL 11.5%
Banks 4.4%
Bank of America Corp. 35,000 156,300 191,300 2,253,125 10,061,813 12,314,938
Chase Manhattan Corp. 97,600 97,600 8,527,800 8,527,800
First Union Corp. 109,866 109,866 4,689,905 4,689,905
Fleet Boston Corp. 170,400 170,400 7,433,700 7,433,700
First Tennessee National Corp. 67,600 67,600 2,298,400 2,298,400
J.P. Morgan & Co., Inc. 15,000 14,900 29,900 1,963,125 1,950,038 3,913,163
KeyCorp 87,800 87,800 2,452,913 2,452,913
US Bancorp 49,000 172,600 221,600 1,816,063 6,396,988 8,213,051
Wells Fargo Co. 70,000 70,000 3,351,250 3,351,250
------------------------------------------------
11,681,963 41,513,157 53,195,120
------------------------------------------------
Insurance 2.5%
American International Group, Inc. 72,484 72,484 7,461,321 7,461,321
Cigna Corp. 40,000 40,000 2,990,000 2,990,000
Jefferson Pilot Corp. 42,000 42,000 3,152,625 3,152,625
Lincoln National Corp. 59,800 59,800 2,758,275 2,758,275
Marsh & McLennan Companies, Inc. 30,700 30,700 2,427,219 2,427,219
Safeco Corp. 2,500 2,500 68,780 68,780
St. Paul Companies, Inc. 108,000 108,000 3,456,000 3,456,000
XL Capital Ltd. " A" 136,505 136,505 7,328,612 7,328,612
------------------------------------------------
17,059,946 12,582,886 29,642,832
------------------------------------------------
Consumer Finance 2.3%
American Express co. 21,300 17,600 38,900 3,280,200 2,710,400 5,990,600
Capital One Finance Corp. 66,600 66,600 3,529,800 3,529,800
Citigroup, Inc. 80,000 108,100 188,100 4,330,000 5,850,913 10,180,913
Household International, Inc. 97,000 97,000 4,328,625 4,328,625
SLM Holding Corp. 61,900 61,900 3,029,231 3,029,231
------------------------------------------------
15,468,625 11,590,544 27,059,169
------------------------------------------------
Other Financial Companies 1.4%
Federal National Mortgage Association 116,700 116,700 8,256,525 8,256,525
Morgan Stanley Dean Witter & Co. 32,700 40,400 73,100 3,607,219 4,456,625 8,063,844
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
3,607,219 12,713,150 16,320,369
------------------------------------------------
Real Estate 0.9%
Arden Realty Group, Inc. 84,500 84,500 1,700,563 1,700,563
Boston Properties, Inc. (REIT) 51,500 51,500 1,535,344 1,535,344
Equity Office Properties Trust (REIT) 85,300 85,300 1,887,263 1,887,263
General Growth Properties, Inc. (REIT) 95,200 95,200 2,754,850 2,754,850
ProLogis Trust (REIT) 171,154 171,154 3,305,412 3,305,412
------------------------------------------------
11,183,432 11,183,432
------------------------------------------------
MEDIA 3.0%
Advertising 0.6%
Omnicom Group, Inc. 60,100 60,100 5,288,800 5,288,800
Outdoor Systems, Inc. 48,262 48,262 2,045,102 2,045,102
------------------------------------------------
7,333,902 7,333,902
------------------------------------------------
Broadcasting & Entertainment 1.6%
Clear Channel Communications, Inc. 98,800 98,800 7,941,050 7,941,050
Infinity Broadcasting Corp. 102,600 102,600 3,546,113 3,546,113
Time Warner, Inc. 40,000 40,000 2,787,500 2,787,500
Univision Communication, Inc. 54,000 54,000 4,593,375 4,593,375
------------------------------------------------
18,868,038 18,868,038
------------------------------------------------
Cable Television 0.5%
AT&T Corp - Liberty Media Group 82,600 82,600 3,278,188 3,278,188
Comcast Corp. "A" 56,000 56,000 2,359,000 2,359,000
------------------------------------------------
5,637,188 5,637,188
------------------------------------------------
Print Media 0.3%
Tribune Co. 60,000 60,000 3,600,000 3,600,000
------------------------------------------------
SERVICE INDUSTRIES 1.2%
Edp Services 0.5%
Electronic Data Systems Corp. 68,600 31,200 99,800 4,013,100 1,825,200 5,838,300
------------------------------------------------
Printing/Publishing 0.7%
McGraw-Hill, Inc. 33,100 110,000 143,100 1,973,588 6,558,750 8,532,338
------------------------------------------------
DURABLES 2.7%
Aerospace 1.2%
Lockheed Martin Corp. 211,718 211,718 4,234,360 4,234,360
Northrop Grumman Corp. 24,800 24,800 1,360,900 1,360,900
Rockwell International Corp. 125,500 125,500 6,078,906 6,078,906
United Technologies Corp. 45,000 45,000 2,722,500 2,722,500
------------------------------------------------
2,722,500 11,674,166 14,396,666
------------------------------------------------
Automobiles 1.0%
Ford Motor Co. 194,300 194,300 10,662,213 10,662,213
Meritor Automotive, Inc. 113,466 113,466 1,921,830 1,921,830
------------------------------------------------
12,584,043 12,584,043
------------------------------------------------
Construction/Agricultural Equipment 0.2%
PACCAR, Inc. 57,100 57,100 2,690,838 2,690,838
------------------------------------------------
Telecommunications Equipment 0.3%
Lucent Technologies, Inc. 49,800 49,800 3,199,650 3,199,650
------------------------------------------------
MANUFACTURING 7.1%
Chemicals 0.5%
Dow Chemical Co. 22,800 22,800 2,696,100 2,696,100
E.I. du Pont de Nemours & Co. 41,100 41,100 2,648,381 2,648,381
<PAGE>
<CAPTION>
AARP Balanced Pro Forma AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
5,344,481 5,344,481
------------------------------------------------
Containers & Paper 0.0%
Temple-Inland Inc. 6,900 6,900 401,063 401,063
------------------------------------------------
Diversified Manufacturing 2.3%
General Electric Co. 115,400 41,100 156,500 15,643,913 5,571,619 21,215,532
Tyco International Ltd. 160,200 160,200 6,397,988 6,397,988
------------------------------------------------
22,041,901 5,571,619 27,613,520
------------------------------------------------
Electrical Products 0.8%
Emerson Electric Co. 37,500 69,900 107,400 2,252,344 4,198,369 6,450,713
Thomas & Betts Corp. 61,200 61,200 2,746,350 2,746,350
------------------------------------------------
2,252,344 6,944,719 9,197,063
------------------------------------------------
Industry Specialty 2.1%
Corning, Inc. 325,000 325,000 25,553,125 25,553,125
------------------------------------------------
Machinery/Components/Controls 0.8%
Parker-Hannifin Corp. 75,000 138,400 213,400 3,435,938 6,340,450 9,776,388
------------------------------------------------
Office Equipment/Supplies 0.4%
Xerox Corp. 156,800 156,800 4,390,400 4,390,400
------------------------------------------------
Specialty Chemicals 0.2%
Air Products & Chemicals, Inc. 45,000 49,000 94,000 1,237,500 1,347,500 2,585,000
------------------------------------------------
TECHNOLOGY 7.5%
Computer Software 2.5%
America Online Inc. 39,500 39,500 5,122,638 5,122,638
Computer Associates International, 57,100 57,100 3,226,150 3,226,150
Inc.
Electronic Arts Inc. 64,800 64,800 5,236,650 5,236,650
Microsoft Corp. 101,400 101,400 9,385,838 9,385,838
Oracle Systems Corp. 40,000 112,400 152,400 1,902,500 5,346,025 7,248,525
------------------------------------------------
16,524,988 13,694,813 30,219,801
------------------------------------------------
Diverse Electronic Products 1.2%
Applied Materials, Inc. 51,900 51,900 4,661,269 4,661,269
Motorola, Inc. 32,800 32,800 3,195,950 3,195,950
Solectron Corp. 46,500 46,500 3,499,125 3,499,125
Teradyne, Inc. 76,700 76,700 2,952,950 2,952,950
------------------------------------------------
14,309,294 14,309,294
------------------------------------------------
Electronic Components/Distributors 1.0%
Altera Corp. 37,500 37,500 1,823,438 1,823,438
Cisco Systems, Inc. 133,550 133,550 9,882,700 9,882,700
------------------------------------------------
11,706,138 11,706,138
------------------------------------------------
Electronic Data Processing 1.3%
Hewlett-Packard Co. 24,900 24,900 1,844,156 1,844,156
International Business Machines Corp. 38,200 38,200 3,757,925 3,757,925
Sun Microsystems, Inc. 96,000 96,000 10,158,000 10,158,000
------------------------------------------------
13,915,925 1,844,156 15,760,081
------------------------------------------------
Semicononductors 1.5%
Intel Corp. 128,700 60,600 189,300 9,966,206 4,692,713 14,658,919
Linear Technology Corp. 50,000 50,000 3,496,875 3,496,875
------------------------------------------------
13,463,081 4,692,713 18,155,794
------------------------------------------------
ENERGY 5.5%
Oil & Gas Production 1.7%
Coastal Corp. 51,000 51,000 2,148,375 2,148,375
Conoco, Inc. "A" 70,000 162,700 232,700 1,920,625 4,464,081 6,384,706
Conoco, Inc. "B" 134,758 134,758 3,655,311 3,655,311
<PAGE>
<CAPTION>
SCUDDER AARP Balanced Pro Forma SCUDDER AARP Balanced
Balanced Stock & Bond Combined Balanced Stock & Bond Pro Forma
Par/Share Par/Share Par/Share Market Market Value Combined
Amount Amount Amount Value($) ($) Market Value($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Royal Dutch Petroleum Co. (New York 56,000 87,500 143,500 3,356,500 5,244,531 8,601,031
shares)
------------------------------------------------
7,425,500 13,363,923 20,789,423
------------------------------------------------
Oil Companies 3.1%
Exxon Corp. 37,500 37,500 2,777,344 2,777,344
Mobil Corp. 33,000 48,800 81,800 3,184,500 4,709,200 7,893,700
Texaco, Inc. 31,000 124,000 155,000 1,902,625 7,610,500 9,513,125
Total SA (ADR) 247,674 247,674 16,516,760 16,516,760
------------------------------------------------
7,864,469 28,836,460 36,700,929
------------------------------------------------
Oil /Gas Transmission 0.5%
Williams Cos., Inc. 159,100 159,100 5,966,250 5,966,250
------------------------------------------------
Oilfield Services/Equipment 0.2%
Schlumberger Ltd. 39,300 39,300 2,380,106 2,380,106
------------------------------------------------
METALS & MINERALS 0.4%
Steel & Metals 0.4%
Allegheny Teledyne Inc. 275,135 275,135 4,178,613 4,178,613
Oregon Steel Mills, Inc. 68,300 68,300 576,281 576,281
------------------------------------------------
4,754,894 4,754,894
------------------------------------------------
CONSTRUCTION 0.6%
Building Products 0.1%
Georgia Pacific Group 15,900 15,900 631,031 631,031
------------------------------------------------
Forest Products 0.5%
Weyerhaeuser Co. 106,200 106,200 6,338,813 6,338,813
------------------------------------------------
TRANSPORTATION 2.1%
Airlines 0.5%
AMR Corp. 41,800 41,800 2,654,300 2,654,300
Air New Zealand Ltd. "B" 2,248,500 2,248,500 3,327,456 3,327,456
------------------------------------------------
5,981,756 5,981,756
------------------------------------------------
Marine Transportation 0.1%
Knightsbridge Tankers Ltd. 80,000 80,000 1,230,000 1,230,000
------------------------------------------------
Railroads 1.5%
CSX Corp. 211,500 211,500 8,671,500 8,671,500
Canadian National Railway Co. 74,000 130,200 204,200 2,245,701 3,951,220 6,196,921
Norfolk Southern Corp. 120,100 120,100 2,934,944 2,934,944
------------------------------------------------
2,245,701 15,557,664 17,803,365
------------------------------------------------
UTILITIES 1.4%
Electric Utilities 1.4%
CINergy Corp. 160,400 160,400 4,531,300 4,531,300
PacifiCorp 285,400 285,400 5,886,375 5,886,375
Unicom Corp. 166,300 166,300 6,371,369 6,371,369
195,104,403 261,586,380 456,690,783
------------------------------------------------
16,789,044 16,789,044
------------------------------------------------
------------------------------------------------
COMMON STOCKS 335,660,666 416,644,730 752,305,396
================================================
COMMON STOCKS (COST OF $250,439,105 $324,089,726 AND $574,528,831 RESPECTIVELY)
================================================
TOTAL INVESTMENT PORTFOLIO -100% 525,815,562 666,340,938 1,192,156,500
================================================
INVESTMENT PORTFOLIO (TOTAL COST OF $445,204,809 $582,941,918 AND $1,028,146,727 RESPECTIVELY)
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER
BALANCED AARP BALANCED PRO FORMA PRO FORMA
FUND STOCK & BOND ADJUSTMENTS COMBINED
--------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Investments, at value $ 525,815,562 $ 666,340,938 $ 1,192,156,500
Cash 11,959,755 - 11,959,755
Other assets less liabilities 961,144 18,837,629 $ (896,257) (2) 18,902,516
--------------------- -------------------- ------------------- --------------------
Total Net assets $ 538,736,461 $ 685,178,567 $ (896,257) $ 1,223,018,771
===================== ==================== =================== ====================
NET ASSETS
S Class $ 538,422,584
AARP Class $ 684,596,187
SHARES OUTSTANDING
S Class 26,799,863 26,799,863
AARP Class 34,605,226 (528,761) 34,076,465
NET ASSET VALUE PER SHARE
S Class $ 20.10 $ 20.09
AARP Class $ 19.80 $ 20.09
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER
BALANCED AARP BALANCED PRO FORMA PRO FORMA
FUND STOCK & BOND ADJUSTMENTS COMBINED
----------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest and dividend income $ 12,631,207 $30,519,640 $ -- $ 43,150,847
---------------------------------------------------------------------------------
Total Investment Income 12,631,207 30,519,640 43,150,847
Expenses
Management fees 2,941,885 3,480,597 (965,678) (3) 5,456,804
Trustees Fees 54,425 28,559 (28,559) (4) 54,425
All other expenses 2,334,646 2,999,206 (1,850,786) (5) 3,483,066
---------------------------------------------------------------------------------
Total expenses before reductions 5,330,956 6,508,362 (2,845,023) 8,994,295
Expense reductions - - - -
---------------------------------------------------------------------------------
Expenses, net 5,330,956 6,508,362 (2,845,023) 8,994,295
---------------------------------------------------------------------------------
Net investment income (loss) 7,300,251 24,011,278 2,845,023 34,156,552
---------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments 14,248 6,257,075 -- 6,271,323
Net unrealized appreciation (depreciation)
of investments 46,584,571 9,732,886 -- 56,317,457
---------------------------------------------------------------------------------
Net increase in net assets from operations $ 53,899,070 $40,001,239 $ 2,845,023 $ 96,745,332
=================================================================================
</TABLE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1999
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of October 31, 1999, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended October 31, 1999 for Scudder Balanced Fund and AARP Balanced
Stock & Bond Fund as adjusted giving effect to the Reorganization as if it
had occurred as of the beginning of the period. These statements have been
derived from the books and records utilized in calculating daily net asset
value for each fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $313,877 and $582,380 to be borne by the Acquiring Fund
and the Acquired Fund, respectively.
3. Represents reduction in management fees resulting from a new management
agreement.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
