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SCUDDER INVESTMENTS LOGO
IMPORTANT NEWS FOR
SCUDDER CORPORATE 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.
Q & A: QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into
Scudder Income Fund. This proposal is part of a larger effort to restructure
the Scudder Family of Funds. THE BOARD OF YOUR FUND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- LOWER LONG-TERM EXPENSES. The combination of the two Funds may result in
REDUCED gross expenses for shareholders of your Fund over the long term
(before giving effect to expense reimbursements or waivers).
- GREATER PREDICTABILITY OF EXPENSES. As part of the proposal to combine
funds, a new fixed administrative fee rate arrangement would be
implemented. The arrangement protects shareholders from most
administrative expense increases for a minimum of three years.
- LARGER FUND. The combined fund would likely have the ability to effect
portfolio transactions on more favorable terms and provide Scudder Kemper
Investments, the investment manager of each Fund, with greater investment
flexibility and the ability to increase diversification through the
purchase of portfolio issues.
- TAX-FREE REORGANIZATION. It is a condition of the proposed combination
that your Fund receive an opinion of tax counsel that the transaction
would be a TAX-FREE transaction.
<PAGE>
Q: ARE THE INVESTMENT POLICIES OF SCUDDER INCOME FUND SIMILAR TO THOSE OF MY
FUND?
A: The Funds have similar investment objectives and policies. The combined fund
will continue to seek to provide high income while managing its portfolio in
a way that is consistent with the prudent investment of shareholders'
capital. Both Funds are currently managed by the same portfolio manager and
have similar investments. However, Scudder Income Fund invests in a broader
range of bonds (including government securities) and invests no more than
20% of its total assets in high-yield bonds (your Fund may invest up to 35%
in such bonds).
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single board of
trustees/directors responsible for most Scudder Funds. It is the Board's
belief that this has the potential for increasing efficiency and benefiting
fund shareholders. The Board also believes that a single board, responsible
for overseeing most of the no-load funds advised by Scudder Kemper, can more
effectively represent shareholder interests. THE BOARD OF YOUR FUND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NOMINEE.
You are also being asked to ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of your Fund for the current fiscal year.
THE BOARD OF YOUR FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS
PROPOSAL.
Q: WHEN WILL THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes will take effect during the third
calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-603-1915.
<PAGE>
April 18, 2000
Dear Shareholder,
To continue to provide you with the highest level of investment management
and service, we're making some important changes to the Scudder Funds. Scudder
Kemper Investments, with the strong support of your Fund's Board of Trustees, is
proposing a series of measures to streamline the Scudder Family of Funds. The
goals are to reduce costs and make Scudder's lineup of fund offerings easier for
investors to utilize and understand. We believe these proposals will benefit
Scudder Fund shareholders over time. We need your participation in order to make
the necessary changes.
Along with this letter, you'll find a packet of materials that we ask you to
read and, where applicable, fill out and return to us. The Q&A that begins on
the front cover of the proxy statement explains the proposals we're making, why
we're making them, and how they apply to your Fund. The packet also contains a
proxy card and a prospectus for the fund that we are proposing to merge your
Fund into.
After careful review, the members of your Fund's Board have unanimously
approved each of the proposals explained in the Q&A and described in the proxy
statement. THE BOARD RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY
AND THEN VOTE FOR ALL THE PROPOSALS. (Because many of the funds for which
Scudder Kemper acts as investment manager are holding shareholder meetings, you
may receive more than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope; or help us save time
and postage cost by voting on the Internet or by telephone -- the enclosed flyer
describes how. If we do not hear from you by May 17, our proxy solicitor may
contact you.
Thank you for your response and for your continued investment in the Scudder
Funds.
Respectfully,
<TABLE>
<S> <C>
/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chief Executive Officer President
Scudder Kemper Investments, Inc. Scudder Portfolio Trust
</TABLE>
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SCUDDER CORPORATE BOND FUND
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SCUDDER PORTFOLIO TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
Scudder Corporate Bond Fund (the "Fund"), a series of Scudder Portfolio Trust
(the "Trust"), will be held at the offices of Scudder Kemper Investments, Inc.,
13th Floor, Two International Place, Boston, MA 02110-4103, on July 13, 2000, at
3:00 p.m., Eastern time, for the following purposes:
<TABLE>
<S> <C>
PROPOSAL 1: To elect Trustees of the Trust;
PROPOSAL 2: To approve an Agreement and Plan of Reorganization for
the Fund whereby all or substantially all of the assets
and liabilities of the Fund would be acquired by Scudder
Income Fund in exchange for shares of the S Class of
Scudder Income Fund; and
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Fund for the Fund's
current fiscal year.
</TABLE>
The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on
April 17, 2000 are entitled to vote at the Meeting and at any adjournments
thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ John Millette
John Millette
Secretary
April 18, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE
ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE
PROXY CARD(S)). YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING
BY OTHER AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS. IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON
AT THAT TIME, YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE TRUST............... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................ 14
SYNOPSIS....................................... 14
PRINCIPAL RISK FACTORS......................... 26
THE PROPOSED TRANSACTION....................... 27
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS................................... 34
ADDITIONAL INFORMATION...................................... 34
</TABLE>
i
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PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF
SCUDDER CORPORATE BOND FUND (THE "ACQUIRED FUND"),
A SEPARATE SERIES OF
SCUDDER PORTFOLIO TRUST (THE "TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
BY AND IN EXCHANGE FOR THE S CLASS OF SHARES OF
BENEFICIAL INTEREST OF
SCUDDER INCOME FUND (THE "ACQUIRING FUND"),
A SEPARATE SERIES OF THE 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 S Class of the Acquiring Fund ("S Class Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, as described more
fully below (the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. As a result of the Reorganization,
each shareholder of the Acquired Fund would receive that number of S
Class Shares having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the Acquired Fund held as of the
--------------------------
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>
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 July 31, 2000.
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), and
described in more detail below.
It is being proposed to shareholders of AARP Bond Fund for Income, another
fund advised by Scudder Kemper, the investment manager for each of the Funds (as
defined below), that the Acquiring Fund acquire the assets of that other fund.
Each of the closing of this other acquisition and the Closing is contingent upon
the other.
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 by the Trust, 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 April 12, 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
2
<PAGE>
additional information about the Reorganization and the parties thereto has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy Statement/
Prospectus. A copy of the Statement of Additional Information relating to the
Reorganization is available upon request and without charge by calling or
writing the Acquiring Fund at the telephone number or address set forth above.
Shareholder inquiries regarding either 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. It is anticipated
that existing Acquiring Fund shares will be redesignated as S Class Shares.
(Please see "Description of the Securities to be Issued" below.)
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of the Trust. The Trust is an open-end management investment
company organized as a Massachusetts business trust.
The Board of Trustees (except as otherwise noted, "Trustees" refers to the
Trustees of the Trust and "Board" refers to the Board of Trustees of the Trust)
is soliciting proxies from shareholders of the Acquired Fund, on behalf of the
Acquired Fund, for the Special Meeting of Shareholders to be held on July 13,
2000, at Scudder Kemper's offices, 13th Floor, Two International Place, Boston,
MA 02110-4103, at 3:00 p.m. (Eastern time), or at such later time made necessary
by adjournment (the "Meeting"). This Proxy Statement/Prospectus, the Notice of
Special Meeting and the proxy card(s) are first being mailed to shareholders on
or about April 18, 2000 or as soon as practicable thereafter.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
NOMINEES LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES OF THE TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Trust. These individuals were nominated
after a careful and deliberate selection process by the present Board of
Trustees of the Trust. The nominees for election, who are listed below, include
seven persons who currently serve as Independent Trustees (as defined below) of
the Trust or as independent trustees or directors of other no-load funds advised
by Scudder Kemper and who have no affiliation with Scudder Kemper or the
American Association of Retired Persons ("AARP"). The nominees listed below are
also being nominated for election as trustees or directors of all of the other
AARP Funds (as defined below) and open-end, directly-distributed, no-load
Scudder Funds.
3
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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
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 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 Trust. Each
of the nominees has indicated that he or she is willing to serve as a Trustee.
If any or all of the nominees should become unavailable for election due to
events not now known or anticipated, the persons named as proxies will vote for
such other nominee or nominees as the current Trustees may recommend. The
following paragraphs and table set forth information concerning the nominees and
the Trustees not standing for re-election. Each nominee's or Trustee's age is in
parentheses after his or her name. Unless otherwise noted, (i) each of the
nominees and Trustees has engaged in the principal occupation(s) noted in the
following paragraphs and table for at least the most recent five years, although
not necessarily in the same capacity, and (ii) the address of each nominee is
c/o Scudder Kemper Investments, Inc., Two International Place, Boston, MA
02110-4103.
NOMINEES FOR ELECTION AS TRUSTEES:
HENRY P. BECTON, JR. (56)
Henry P. Becton, Jr. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from Harvard
Law School in 1968. Mr. Becton is a member of the PBS Board of Directors, a
Trustee of American Public Television, the New England Aquarium, the Boston
Museum of Science, Concord Academy, and the Massachusetts
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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 is a Trustee of the Trust and
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 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 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
5
<PAGE>
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 is a Trustee of
the Trust and 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 has served as a board member of
various mutual funds advised by Scudder Kemper, including the AARP Investment
Program Funds, since 1984.
KEITH R. FOX (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976 and in 1981 received
an M.B.A. degree from the Harvard Business School. Mr. Fox is also a qualified
accountant. He is a board member and former Chairman of the National Association
of Small Business Investment Companies, and a director of Golden State Vintners,
K-Communications, Progressive Holding Corporation and Facts On File, as well as
a former director of over twenty companies. Mr. Fox has served as a trustee or
director of various mutual funds advised by Scudder Kemper since 1996.
6
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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 has served as
a board member of the AARP Investment Program Funds since 1997.
JEAN C. TEMPEL (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in
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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 is a Trustee of the Trust and 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.
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TRUSTEES NOT STANDING FOR RE-ELECTION:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
Peter B. Freeman (67).......... Trustee; Corporate Director and
Trustee. Mr. Freeman serves on the
boards of various other trusts or
corporations whose funds are advised by
Scudder Kemper.
George M. Lovejoy, Jr. (70).... Trustee; President and Director, Fifty
Associates (real estate corporation).
Mr. Lovejoy serves on the boards of
various other trusts or corporations
whose funds are advised by Scudder
Kemper.
Wesley W. Marple, Jr. (68)..... Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration. Mr. Marple serves on
the boards of various other trusts or
corporations whose funds are advised by
Scudder Kemper.
Kathryn L. Quirk (47)*......... Trustee, Vice President and Assistant
Secretary; Managing Director of Scudder
Kemper. Ms. Quirk serves on the boards
of various other trusts or corporations
whose funds are advised by Scudder
Kemper.
</TABLE>
- ------------------------
* Nominee or Trustee considered by the 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 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 Trust.
Appendix 1 hereto sets forth the number of shares of each series of the
Trust owned directly or beneficially by the Trustees of the Trust and by the
nominees for election.
RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS
A fund's board is responsible for the general oversight of fund business.
The board that is proposed for shareholder voting at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP and who are
called
9
<PAGE>
"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 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 Trust and other operational matters, including
policies and procedures designed to assure compliance with regulatory and other
requirements. In 1999, the Trustees conducted over 20 meetings to deal with fund
issues (including committee and subcommittee meetings and special meetings of
the Independent Trustees). Furthermore, the Independent Trustees review the fees
paid to the Investment Manager and its affiliates for investment advisory
services and other administrative and shareholder services. The Trustees have
adopted several policies and practices which help ensure their effectiveness and
independence in reviewing fees and representing shareholders. Many of these are
similar to those suggested in the Investment Company Institute's 1999 Report of
the Advisory Group on Best Practices for Fund Directors (the "Advisory Group
Report"). For example, the Independent Trustees select independent legal counsel
to work with them in reviewing fees, advisory and other contracts and overseeing
fund matters. The Trustees are also assisted in this regard by the funds'
independent public accountants and other independent experts retained from time
to time for this purpose. The Independent Trustees regularly meet privately with
their counsel and other advisors. In addition, the Independent Trustees from
time to time have appointed task forces and subcommittees from their members to
focus on particular matters such as investment, accounting and shareholder
servicing issues.
The Board of the Trust has an Audit Committee and a Committee on Independent
Trustees, the responsibilities of which are described below. In addition, the
Trust has an Executive Committee and a Valuation Committee.
AUDIT COMMITTEE
The Audit Committee reviews with management and the independent public
accountants for each series of the Trust, among other things, the scope of the
audit and the internal controls of each series of the 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
10
<PAGE>
each series of the 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 Trust.
As suggested by the Advisory Group Report, the 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 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 Trust has a Committee on Independent Trustees,
comprised of all of the Independent Trustees, charged with the duty of making
all nominations of Independent Trustees, establishing Trustees' compensation
policies, retirement policies and fund ownership policies, reviewing Trustees'
affiliations and relationships annually, and periodically assessing and
reviewing evaluations of the Board of Trustees' effectiveness.
ATTENDANCE
As noted above, the Trustees conducted over 20 meetings in calendar year
1999 to deal with fund matters, including various committee and subcommittee
meetings and special meetings of the Independent Trustees. The full Board of
Trustees of the Trust met eleven times, the Audit Committee met two times and
the Committee on Independent Trustees met one time during calendar year 1999.
Each then current Trustee attended 100% of the total meetings of the full Board
of Trustees held during calendar year 1999. In addition, each Independent
Trustee attended 100% of the total meetings of the Audit Committee and the
Committee on Independent Trustees held during that period.
11
<PAGE>
OFFICERS
The following persons are officers of the Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE TRUST; PRINCIPAL YEAR FIRST BECAME
NAME (AGE) OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- ---------------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48)....... Trustee, President; Managing Director of
Scudder Kemper 2000
Kathryn L. Quirk (47)........ Trustee, Vice President and Assistant
Secretary; Managing Director of Scudder
Kemper 1997
Kelly D. Babson (41)......... Vice President; Managing Director of
Scudder Kemper 1996
Robert S. Cessine (50)....... Vice President; Managing Director of
Scudder Kemper 1999
Gary A. Langbaum (51)........ Vice President; Managing Director of
Scudder Kemper 1999
Ann M. McCreary (43)......... Vice President; Managing Director of
Scudder Kemper 1998
John Millette (37)........... Vice President and Secretary; Vice
President of Scudder Kemper 1999
John R. Hebble (41).......... Treasurer; Senior Vice President of
Scudder Kemper 1998
Caroline Pearson (38)........ Assistant Secretary; Senior Vice
President of Scudder Kemper; Associate,
Dechert Price & Rhoads (law firm) 1989
to 1997 1997
</TABLE>
- ------------------------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Trust.
COMPENSATION OF TRUSTEES AND OFFICERS
The Trust pays each Independent Trustee an annual Trustee's fee for each
series of the Trust plus specified amounts for Board and committee meetings
12
<PAGE>
attended and reimburses expenses related to the business of any series of the
Trust. Each Independent Trustee receives an annual Trustee's fee of $2,400 per
fund if the fund's total net assets do not exceed $100 million, $4,800 per fund
if the fund's total net assets exceed $100 million but do not exceed $1 billion
and $7,200 per fund if the fund's total net assets exceed $1 billion. The lead
Trustee receives an additional annual retainer fee of $500 per fund. Each
Independent Trustee also receives fees of $150 per fund for attending each Board
meeting, Audit Committee meeting or other meeting held for the purpose of
considering arrangements between the Trust and Scudder Kemper, or any of its
affiliates. Each Independent Trustee also receives $75 per fund for all other
committee meetings attended. The newly-constituted Board may determine to change
its compensation structure.
The Independent Trustees of the Trust are not entitled to benefits under any
pension or retirement plan. A one-time benefit will be provided to those
Independent Trustees who have volunteered to leave the Board prior to their
normal retirement date in order to facilitate the nomination of a consolidated
board. Inasmuch as Scudder Kemper will also benefit from the administrative
efficiencies of a consolidated board, Scudder Kemper has agreed to pay one-half
of the cost of this benefit. The remaining portion, ranging from $1,248 to
$2,495 per Trustee, will be paid by the Acquired Fund.
Scudder Kemper supervises the Trust's investments, pays the compensation and
certain expenses of its personnel who serve as Trustees and officers of the
Trust and receives a management fee for its services. Several of the 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 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 Trust.
COLUMN (2) Aggregate compensation received by each Trustee of the 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.
13
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX
TRUSTEES (NUMBER OF SERIES) PAID TO TRUSTEE
- -------- ------------------ ---------------------
<S> <C> <C>
Henry P. Becton Jr........................... $21,785 (4 series) $140,000 (30 funds)
Dawn-Marie Driscoll.......................... $23,153 (4 series) $150,000 (30 funds)
Peter B. Freeman............................. $23,853 (4 series) $179,783 (46 funds)
George M. Lovejoy, Jr........................ $21,690 (4 series) $153,200 (31 funds)
Wesley W. Marple, Jr......................... $21,690 (4 series) $140,000 (30 funds)
Jean C. Tempel............................... $21,690 (4 series) $140,000 (30 funds)
</TABLE>
THE BOARD OF TRUSTEES OF SCUDDER PORTFOLIO TRUST UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF SCUDDER CORPORATE 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 Trust, including all of the Independent Trustees, approved
the Plan at a meeting held on February 7, 2000. Subject to its approval by the
shareholders of the Acquired Fund, the Plan provides for (a) the transfer of all
or substantially all of the assets and all of the liabilities of the Acquired
Fund to the Acquiring Fund in exchange for S Class Shares; (b) the distribution
of such shares to the shareholders of the Acquired Fund in complete liquidation
of the Acquired Fund; and (c) the abolition of the Acquired Fund as a series of
the Trust. As a result of the Reorganization, each shareholder of the Acquired
Fund will become a shareholder of the S Class Shares and will hold, immediately
after the Reorganization, S Class Shares having an aggregate net asset value
equal to the aggregate net asset value of such shareholder's shares of the
Acquired Fund on the Valuation Date.
14
<PAGE>
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy all of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. All services provided to shareholders of the Acquiring Fund are
identical to those provided to shareholders of the Acquired Fund. See "Purchase,
Redemption and Exchange Information" below.
BACKGROUND OF THE REORGANIZATION
The Reorganization is part of a broader restructuring program proposed by
Scudder Kemper to respond to changing industry conditions and investor needs.
The mutual fund industry has grown dramatically over the last ten years. During
this period of rapid growth, investment managers expanded the range of fund
offerings that they make available to investors in an effort to meet the growing
and changing needs and desires of an increasingly large and dynamic group of
investors. With this expansion has come increased complexity and competition
among mutual funds, as well as increased confusion among investors. The group of
no-load funds advised by Scudder Kemper has followed this pattern, increasing
from 44 no-load funds in 1990 to 77 no-load funds at present.
As a result, Scudder Kemper has sought ways to restructure and streamline
the management and operations of the funds it advises. Scudder Kemper believes,
and has advised the boards, that the consolidation of certain funds advised by
it would benefit fund shareholders. Scudder Kemper has, therefore, proposed the
consolidation of a number of no-load funds advised by it that Scudder Kemper
believes have similar or compatible investment objectives and policies. In many
cases, the proposed consolidations are designed to eliminate the substantial
overlap in current offerings by the Scudder Funds and the funds offered through
the AARP Investment Program (the "AARP Funds"), all of which are advised by
Scudder Kemper. Consolidation plans are proposed for other funds that have not
gathered enough assets to operate efficiently and, in turn, have relatively high
expense ratios. Scudder Kemper believes that these consolidations may help to
enhance investment performance of funds and increase efficiency of operations.
The Reorganization is also expected to result in lower operating expenses for
Acquired Fund shareholders, as described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for the AARP Funds and for the open-
15
<PAGE>
end, directly-distributed, no-load Scudder Funds would increase efficiency and
benefit fund shareholders. (See Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by a fund of
an administrative fee, Scudder Kemper would agree to provide or pay for
substantially all services that the fund normally requires for its operations,
other than those provided under the fund's investment management agreement and
certain other expenses. Such an administrative fee would enable investors to
determine with greater certainty the expense level that a fund will experience,
and, for the term of the administrative agreement, would transfer substantially
all of the risk of increased costs to Scudder Kemper. Scudder Kemper has
proposed that the Acquiring Fund implement such an administrative fee upon the
Closing, as described in "Administrative Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in reduced costs (and the
potential for increased profitability) for Scudder Kemper in advising or
servicing funds.
REASONS FOR THE PROPOSED REORGANIZATION; BOARD APPROVAL
Since receiving Scudder Kemper's proposals on October 5, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and 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 LONG-TERM EXPENSES. Although the Investment Manager has
contractually agreed to maintain the Acquired Fund's total annual Fund
operating expenses at 0.00% of average daily net assets through April 30,
2000 and at 1.25% between May 1, 2000 and April 30, 2001 (and,
voluntarily, at 0.00% from April 30, 2000 until July 31, 2000), the
Investment Manager is under no obligation to continue subsidizing the
Acquired Fund's expenses beyond such dates. The Acquired Fund's
16
<PAGE>
estimated total annual Fund operating expenses at December 31, 1999 (based
on net assets, the number of shareholder accounts and other relevant
factors as of that date), without giving effect to any waiver or
reimbursement, were 1.78%. It is expected that the total annual Fund
operating expenses of the S Class Shares following the Reorganization will
be 0.89%. Please refer to "Comparison of Expenses" below.
- GREATER PREDICTABILITY OF EXPENSES. On or prior to the Closing, the
Acquiring Fund and Scudder Kemper will enter into an administrative
services agreement pursuant to which Scudder Kemper will provide or pay
others to provide substantially all of the administrative services
required by the Acquiring Fund, and will pay most Acquiring Fund expenses,
in return for payment by the Acquiring Fund of a single administrative fee
rate. This agreement, which has an initial three year term, will protect
the Acquiring Fund's shareholders from increases in the Acquiring Fund's
expense ratio attributed to any increases in the costs of providing these
services.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will
continue to seek to provide high income while managing its portfolio in a
way that is consistent with the prudent investment of shareholders
capital. The Funds are currently managed by the same portfolio manager and
have similar investments, subject to certain differences described below.
- INVESTMENT IN A LARGER FUND. Scudder Kemper has advised the Trustees that
the Acquired Fund's shareholders will benefit from an investment in a
larger fund which will likely have the ability to effect portfolio
transactions on more favorable terms and provide Scudder Kemper with
greater investment flexibility and the ability to select a larger number
of portfolio securities for the combined fund, with the attendant ability
to spread investment risks among a larger number of portfolio securities.
- 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
Trust, including the Independent Trustees, have concluded that:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
17
<PAGE>
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES UNANIMOUSLY RECOMMEND APPROVAL OF THE PLAN
EFFECTING THE REORGANIZATION. If the Plan is not approved, the Acquired Fund
will continue in existence unless other action is taken by the Trustees.
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 provide high income while managing its portfolio in a way
that is consistent with the prudent investment of shareholders' capital. The
investment objective of the Acquired Fund is to provide high income. There can
be no assurance that either Fund will achieve its investment objective. Both
Funds have the same portfolio manager and are managed in a substantially similar
manner.
The Acquired Fund invests primarily in corporate bonds, but can invest in
other types of bonds, such as Treasuries and mortgage- and asset-backed
securities. The Acquiring Fund's primary investments encompass a broader range
of income-producing securities, including corporate bonds, U.S. government and
agency bonds, and mortgage- and asset-backed securities. Each Fund generally
invests in securities from U.S. issuers, but bonds of foreign issuers are
permissible investments. The Acquired Fund limits its investments in foreign
debt securities denominated in currencies other than the U.S. dollar to 20% of
total assets, while the Acquiring Fund does not have this stated limit.
Each Fund normally invests at least 65% of its total assets in investment-
grade bonds, although the Funds have different requirements for the quality of
the bonds in which they invest. The Acquiring Fund normally invests at least 65%
of its total assets in bonds rated in the three highest quality ratings of
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Services ("S&P"). It may invest up to 20% of its total assets in "high-yield" or
"junk" bonds, which are rated in the fifth and sixth quality ratings of Moody's
and S&P. The Acquired Fund normally invests at least 65% of its total assets in
corporate bonds rated in the four highest quality ratings of Moody's or S&P. It
may invest up to 35% of its total assets in high-yield or junk bonds, including
bonds below the sixth quality rating.
The Acquiring Fund generally invests in intermediate- and long-term fixed-
income securities, but may invest in securities with shorter maturities. The
Acquired Fund invests primarily in intermediate corporate bonds, but can also
18
<PAGE>
invest in short-term and long-term issues. The Investment Manager intends to
keep the Acquired Fund's average weighted maturity (the effective maturity of
the Fund's portfolio) between 5 and 10 years, while the Acquiring Fund may have
an average weighted maturity of greater than 10 years from time to time. The
Investment Manager generally intends to keep each Fund's duration (a measure of
sensitivity to interest rate movements) between four and six years.
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.
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 January 31, 2000 was 81%. The portfolio turnover rate for the Acquired
Fund for the fiscal year ended January 31, 2000 was 104%.
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.
19
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDING DECEMBER 31, 1999 FOR EACH FUND
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND
ACQUIRING FUND ACQUIRED FUND BENCHMARK INDEX** BENCHMARK INDEX**
-------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Past year............ (1.49%) (0.61%) (0.82%) 0.49%
Past 5 years......... 6.84% N/A 7.73% 1.71%
Past 10 years........ 7.35% N/A 7.70% N/A
Since Inception*..... N/A 2.75% N/A 2.92%
</TABLE>
- ------------------------
* The inception date of the Acquired Fund was August 31, 1998.
** The Acquiring Fund's benchmark index is the Lehman Brothers Aggregate Bond
Index, an unmanaged, market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. The Acquired Fund's
benchmark index is the Lehman Brothers Corporate Intermediate Bond Index, a
subset of the Lehman Brothers Corporate Bond Index with maturities of less
than 10 years, calculated on a total return basis. Index returns are
calculated monthly.
Total return for the Acquiring Fund would have been lower during 1998 and
1999 if the Investment Manager had not maintained expenses during those years.
Total return for the Acquired Fund would have been lower during both periods
noted in the table above if the Investment Manager had not maintained expenses
since inception.
There may be differences in the Funds' yields. For information regarding
each Fund's current 30-day yield, please call (800) 728-3337.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended January 31, 2000, 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 0.65% of
the first $200 million of average daily net assets, 0.60% of the next
20
<PAGE>
$300 million, and 0.55% on average daily net assets in excess of $500 million.
The fee is graduated so that increases in the Acquiring Fund's net assets may
result in a lower annual fee rate and decreases in its net assets may result in
a higher annual fee rate. As of January 31, 2000, the Acquiring Fund had total
net assets of $687,855,292. For the fiscal year ended January 31, 2000, the
Acquiring Fund paid the Investment Manager a fee of 0.12% of average daily net
assets. By contract, the total annual Fund operating expenses of the Acquiring
Fund are maintained at not more than 0.95% of average daily net assets until
April 30, 2001.
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 the same as or lower than the current
rate applicable to the Acquiring Fund. The proposed new fee rate is 0.65% of the
first $200 million of average daily net assets, 0.60% of the next $300 million,
0.55% of the next $500 million, 0.525% of the next $500 million and 0.50% on
average daily net assets in excess of $1.5 billion. The effectiveness of each of
the new investment management agreement and the Closing is contingent upon the
other.
The Investment Manager receives a fee for its services pursuant to its
investment management agreement with the Acquired Fund. For these services, the
Acquired Fund pays the Investment Manager a fee at an annual rate of 0.65% of
average daily net assets. As of January 31, 2000, the Acquired Fund had total
net assets of $40,212,800. For the fiscal year ended January 31, 2000, the
Acquired Fund paid the Investment Manager a fee of 0.00% of average daily net
assets. By contract, the total annual Fund operating expenses of the Acquired
Fund are maintained at 0.00% of average daily net assets until April 30, 2000
and at 1.25% from May 1, 2000 until April 30, 2001. In addition, total annual
Fund operating expenses of the Acquired Fund are voluntarily maintained at 0.00%
from April 30, 2000 until July 31, 2000.
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.
21
<PAGE>
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 Trustees. Scudder Fund Accounting Corporation, a
subsidiary of Scudder Kemper, computes net asset value for the Acquiring Fund
and maintains its accounting records. Scudder Service Corporation, also a
subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Acquiring Fund. Scudder Trust
Company, an affiliate of Scudder Kemper, provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Dechert
Price & Rhoads acts as general counsel for the Acquiring Fund. In addition to
the fees it pays under its current investment management agreement with Scudder
Kemper, the Acquiring Fund pays the fees and expenses associated with these
service arrangements, as well as the Acquiring Fund's insurance, registration,
printing, postage and other costs.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services that it currently provides to the
Acquiring Fund, as described above, under the current arrangements, except that
Scudder Kemper will pay these entities for the provision of their services to
the Acquiring Fund and will pay most other Fund expenses, including insurance,
registration, printing and postage fees. In return, the Acquiring Fund will pay
Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will have an initial term of three
years, subject to earlier termination by the 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.
22
<PAGE>
COMPARISON OF EXPENSES
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the S Class Shares, and comparing these with the expenses of the
Acquired Fund. AS INDICATED BELOW, IT IS EXPECTED THAT THE TOTAL EXPENSE RATIO
OF THE ACQUIRING FUND FOLLOWING THE REORGANIZATION WILL BE SUBSTANTIALLY LOWER
THAN THE CURRENT GROSS EXPENSE RATIO OF THE ACQUIRED FUND (BEFORE GIVING EFFECT
TO EXPENSE REIMBURSEMENTS AND WAIVERS). 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 a pro forma basis as of that date and for the
period then ended, giving effect to the Reorganization.
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
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................................... 0.60% 0.65% 0.58%
Distribution and/or service (12b-1) fees.......... None None None
Other expenses.................................... 0.90% 1.31% 0.31%
Total annual Fund operating expenses.............. 1.50% 1.96% 0.89%
Expense reimbursement............................. 0.55% 0.71% N/A
Net annual Fund operating expenses................ 0.95%* 1.25%(#) N/A
</TABLE>
- ------------------------
(+) There is a $5 wire service fee for receiving redemption proceeds via wire.
* By contract, the total annual Fund operating expenses of the Acquiring Fund
are maintained at not more than 0.95% of average daily net assets
23
<PAGE>
until April 30, 2001. There is no guarantee that this expense reimbursement
will continue beyond April 30, 2001.
(#) By contract, the total annual Fund operating expenses of the Acquired Fund
are maintained at 0.00% of average daily net assets until April 30, 2000 and
at 1.25% from May 1, 2000 until April 30, 2001. In addition, total annual
Fund operating expenses of the Acquired Fund are voluntarily maintained at
0.00% from April 30, 2000 until July 31, 2000. Annual Fund operating
expenses in the table above have been restated to reflect the Acquired
Fund's net annual Fund operating expenses at 1.25% of average daily net
assets. There is no guarantee that these expense waivers will continue
beyond April 30, 2000, July 31, 2000 or April 30, 2001, respectively.
** 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.
(@) It is being proposed to shareholders of AARP Bond Fund for Income, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition and the
Closing is contingent upon the other. Pro Forma expenses reflect the
acquisition by the Acquiring Fund of both this other fund and the Acquired
Fund.
In evaluating the Reorganization, the Independent Trustees also considered
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 (without reflecting any expense
reimbursements) of 1.47% for the Acquiring Fund and 1.78% for the Acquired Fund.
EXAMPLES (UNAUDITED)
Based on the costs above (including one year of capped expenses in each
period included in the Acquiring Fund and Acquired Fund columns), 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 operating expenses remain the same.
24
<PAGE>
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................................... $ 97 $ 127 $ 91
3RD................................... $ 420 $ 547 $ 284
5TH................................... $ 766 $ 992 $ 493
10TH.................................. $1,744 $2,228 $1,096
</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.
(@) It is being proposed to shareholders of AARP Bond Fund for Income, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition and the
Closing is contingent upon the other. Pro Forma expenses reflect the
acquisition by the Acquiring Fund of both this other fund and the Acquired
Fund.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund, which is intended to
help you understand the Acquiring Fund's financial performance for the past five
years, is included in the Acquiring Fund's prospectus dated 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 the funds in
the Scudder Family of Funds on a no-load basis.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those of the S Class Shares.
25
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
The Acquiring Fund intends to distribute investment company taxable income,
exclusive of net short-term capital gains in excess of net long-term capital
losses, in March, June, September and December of each year. Following the
Reorganization, the Acquiring Fund intends to make such distributions monthly.
The Acquired Fund intends to declare dividends from net investment income daily
and to distribute them monthly. 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),
risk associated with interest rates, and risk associated with credit quality.
Interest rate risk is generally greater for funds investing in fixed income
securities with longer maturities. Because the Acquiring Fund generally invests
in securities with longer maturities than does the Acquired Fund, interest rate
risk will generally be greater for the Acquiring Fund than for the Acquired
Fund.
26
<PAGE>
To the extent that either Fund emphasizes bonds from any given industry, it
could be hurt if that industry does not do well and its securities become less
desirable. If bonds are paid off substantially earlier than expected, this would
also hurt each Fund's performance. Mortgage-backed securities carry additional
risks and may be more volatile than many other types of debt securities. While
both Funds may invest in these securities, the Acquiring Fund is likely to
invest more in these securities than the Acquired Fund.
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. This risk may affect both Funds,
but may be more pronounced for the Acquired Fund, which may invest a larger
percentage of its assets in high-yield bonds than the Acquiring Fund. Certain
risks are also associated particularly with corporate bonds. These may affect
both Funds, but may be more significant for the Acquired Fund, which primarily
invests in corporate bonds. Because the economy affects corporate bond
performance, the Acquired Fund may perform less well than other types of bond
funds when the economy is weak.
Lastly, to the extent that a Fund invests in foreign securities, it may be
exposed to the risks associated with such investments and foreign currency risk.
Foreign investments tend to be more volatile than their U.S. counterparts, for
various reasons including political and economic uncertainties and difficulty in
obtaining accurate information. While both Funds may invest in foreign debt
securities denominated in currencies other than the U.S. dollar, the Acquiring
Fund is permitted to do so to a greater extent than the Acquired Fund and may,
therefore, have more exposure to the risks of investing in such securities and
to foreign currency risk.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see the "Investment Objectives, Policies and
Restrictions of the Funds" above, and the Prospectuses and Statements of
Additional Information for the Funds, which are incorporated by reference
herein.
III. THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund in exchange for
that number of full and fractional S Class Shares having an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund as of the
close of business on the Valuation Date. The Acquiring Fund will assume all of
the liabilities of the Acquired Fund. The Acquired Fund will distribute the
27
<PAGE>
S Class Shares received in the exchange to the shareholders of the Acquired Fund
in complete liquidation of the Acquired Fund. The Acquired Fund will be
abolished as a series of the Trust.
Upon completion of the Reorganization, each shareholder of the Acquired Fund
will own that number of full and fractional S Class Shares having an aggregate
net asset value equal to the aggregate net asset value of such shareholder's
shares held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Trust identical
in all material respects to the account currently maintained by the Trust for
such shareholder. In the interest of economy and convenience, S Class Shares
issued to the Acquired Fund's shareholders will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption and purchase requests received by the transfer agent after the
Closing will be treated as requests received for the redemption or purchase of
S Class Shares received by the shareholder in connection with the
Reorganization.
The obligations of the Trust on behalf of each of the Acquired Fund and the
Acquiring Fund under the Plan are subject to various conditions, as stated
therein. Among other things, the Plan requires that all filings be made with,
and all authority be received from, the SEC and state securities commissions as
may be necessary in the opinion of counsel to permit the parties to carry out
the transactions contemplated by the Plan. The Acquired Fund and the Acquiring
Fund are in the process of making the necessary filings. To provide against
unforeseen events, the Plan may be terminated or amended at any time prior to
the Closing by action of the Trustees of the 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.
Scudder Kemper will pay the Acquired Fund's allocable share of expenses
associated with the Reorganization. The Acquiring Fund will pay its own
allocable share of expenses associated with the Reorganization, except that
Scudder Kemper will bear any such expenses in excess of $450,559 (approximately
$0.0077 per share, based on December 31, 1999 net assets for the
28
<PAGE>
Acquiring Fund). Acquiring Fund shareholders indirectly bear a portion of these
Acquiring Fund expenses.
BOARD APPROVAL OF THE PROPOSED TRANSACTION
Scudder Kemper first proposed the Reorganization to the Independent Trustees
of the Acquired Fund at a meeting held on October 5, 1999. The Reorganization
was presented to the Trustees and considered by them as part of a broader
initiative by Scudder Kemper to restructure many of the mutual funds advised by
it that are currently offered to retail investors (see "Synopsis -- Background
of the Reorganization" above). This initiative includes four major components:
(i) The combination of funds with similar investment objectives and
policies, including in particular the combination of the AARP Funds with
similar Scudder Funds currently offered to the general public;
(ii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient operating
size;
(iii) The implementation of an administration agreement for each fund,
covering, for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's investment
management agreement) and most expenses; and
(iv) The consolidation of the separate boards currently responsible for
overseeing several groups of no-load funds managed by Scudder Kemper into a
single board.
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the October 5 meeting, the Independent Trustees met in person or by telephone on
seven occasions (including committee meetings) to review and discuss these
proposals, both among themselves and with representatives of Scudder Kemper. On
a number of occasions, these meetings included representatives of the
independent trustees or directors of other funds affected by these proposals. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
29
<PAGE>
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees or directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. The Independent Trustees have also
unanimously agreed to recommend that the Reorganization be approved by the
Acquired Fund's shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of the Acquired Fund and the estimated operating expenses of the Acquiring Fund,
and between the estimated operating expenses of the Acquiring Fund and other
mutual funds with similar investment objectives; (b) the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution
of shareholder interests; (c) the compatibility of the Acquired Fund's and the
Acquiring Fund's investment objectives, policies, restrictions and portfolios;
(d) the agreement by Scudder Kemper to provide services to the Acquiring Fund
for a fixed fee rate under the Administration Agreement with an initial three
year term; (e) the service features available to shareholders of the Acquired
Fund and the Acquiring Fund; (f) the costs to be borne by the Acquired Fund, the
Acquiring Fund and Scudder Kemper as a 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
30
<PAGE>
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 total expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is
substantially lower than the current gross expense ratio of the Acquired Fund
(before giving effect to expense reimbursements and waivers). The Board also
considered that the Reorganization would permit the shareholders of the Acquired
Fund to pursue similar investment goals in a larger fund. In this regard,
Scudder Kemper advised the Trustees of the Acquired Fund that the Acquired
Fund's shareholders will benefit from being in a larger fund which will likely
have the ability to effect portfolio transactions on more favorable terms and
provide Scudder Kemper with greater investment flexibility and the ability to
select a larger number of portfolio securities for the combined Fund, with the
ability to spread investment risks among a larger number of portfolio
securities.
Finally, the Trustees concluded that the shareholders of the Acquired Fund
would be better served by having their interests represented by a single board
of trustees with responsibility for overseeing substantially all of the funds to
be marketed as a "family of funds" through Scudder's no-load distribution
channels. Accordingly, the Trustees unanimously agreed to recommend the election
of a new consolidated board comprised of representatives of each of the various
boards currently serving as trustees or directors of these funds.
Based on all of the foregoing, the Board concluded that the Acquired Fund's
participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE
REORGANIZATION.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Trust, a Massachusetts business trust
established under a Declaration of Trust dated September 20, 1984, as amended.
The Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trustees of the Trust are
authorized to divide the Trust's shares into separate series. The Acquiring Fund
is one of four series of the Trust that the Board has created to date. The
Trustees of the Trust are also authorized to further divide the shares of the
31
<PAGE>
series of the Trust into classes. The Trustees of the 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 the division does not occur 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.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Trust, on behalf
of each Fund, of an opinion from Willkie Farr & Gallagher, substantially to the
effect that, based upon certain facts, assumptions and representations of the
parties, for federal income tax purposes: (i) the transfer to the Acquiring Fund
of all or substantially all of the assets of the Acquired Fund in exchange
solely for S Class Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution of such shares to
the Acquired Fund's shareholders in exchange for their shares of the Acquired
Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for S Class Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
or upon the distribution of the S Class Shares to the Acquired Fund shareholders
in exchange for their shares of the Acquired Fund; (iii) the basis of the assets
of the Acquired Fund in the hands of the Acquiring Fund will be the same as the
basis of such assets of the Acquired Fund immediately prior to the transfer;
(iv) the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for
32
<PAGE>
S Class Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund; (vi) no gain or loss will be recognized by the
shareholders of the Acquired Fund upon the receipt of the S Class Shares solely
in exchange for their shares of the Acquired Fund as part of the transaction;
(vii) the basis of the S Class Shares received by the shareholders of the
Acquired Fund will be the same as the basis of the shares of the Acquired Fund
exchanged therefor; and (viii) the holding period of S Class Shares received by
the shareholders of the Acquired Fund will include the holding period during
which the shares of the Acquired Fund exchanged therefor were held, provided
that at the time of the exchange the shares of the Acquired Fund were held as
capital assets in the hands of the shareholders of the Acquired Fund.
After the Closing, the Acquiring Fund may dispose of certain securities
received by it from the Acquired Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
While the 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 and AARP Bond Fund for Income(@) as of October 31, 1999, and on a pro forma
basis as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
ACQUIRING AARP BOND ACQUIRED PRO FORMA PRO FORMA
FUND FUND FOR INCOME FUND ADJUSTMENTS COMBINED(1)
------------ --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSETS
S Class Shares....... $734,185,802 $39,378,995 ($450,559)(2) $773,114,238
AARP Class........... $207,756,913 $207,756,913
------------
Total Net Assets..... $980,871,151(3)
============
SHARES OUTSTANDING
S Class Shares....... 58,884,573 3,461,403 300,970 62,045,006
AARP Class........... 14,699,471 1,974,439 16,673,910
NET ASSET VALUE PER
SHARE
S Class Shares....... $ 12.47 $ 11.38 $ 12.46
AARP Class........... $ 14.13 $ 12.46
</TABLE>
- ------------------------------
(@) It is being proposed to shareholders of AARP Bond Fund for Income, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition and the
Closing is contingent upon the other. The Pro Forma capitalization
information above reflects the acquisition by the Acquiring Fund of both
this other fund and the Acquired Fund.
33
<PAGE>
(1) Assumes the Reorganization had been consummated on October 31, 1999, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by the shareholders of the
Acquired Fund and AARP Bond Fund for Income 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) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $450,559 to be borne by the Acquiring Fund.
(3) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of the Administrative Fee and a new
investment management fee for the Acquiring Fund.
THE BOARD OF TRUSTEES OF SCUDDER PORTFOLIO TRUST UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF SCUDDER CORPORATE BOND FUND VOTE IN FAVOR OF THIS PROPOSAL 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Trust, including a majority of the Independent Trustees,
has selected PricewaterhouseCoopers LLP to act as independent accountants of the
Acquired Fund for the Acquired Fund's current fiscal year. One or more
representatives of PricewaterhouseCoopers LLP are expected to be present at the
Meeting and will have an opportunity to make a statement if they so desire. Such
representatives are expected to be available to respond to appropriate questions
posed by shareholders or management.
THE BOARD OF TRUSTEES OF SCUDDER PORTFOLIO TRUST UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF SCUDDER CORPORATE BOND FUND VOTE IN FAVOR OF THIS PROPOSAL 3.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS
Additional information about the Trust, 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 Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
files reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by
34
<PAGE>
the 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 Trust, materials that
are incorporated by reference into the Trust's prospectuses and statements of
additional information, and other information about the Trust and the Funds.
INTERESTS OF CERTAIN PERSONS
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- 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 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.
35
<PAGE>
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the 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 Trust's (for a trust-wide vote) or the Acquired Fund's (for
a fund-wide vote) shares present in person or by proxy at the Meeting. The
persons named as proxies will vote in favor of any such adjournment those
proxies which they are entitled to vote in favor of that Proposal and will vote
against any such adjournment those proxies to be voted against that Proposal.
For purposes of determining the presence of a quorum for transacting business at
the Meeting, abstentions and broker "non-votes" will be treated as shares that
are present but which have not been voted. Broker non-votes are proxies received
by the Acquired Fund from brokers or nominees when the broker or nominee has
neither received instructions from the beneficial owner or other persons
entitled to vote nor has discretionary power to vote on a particular matter.
Accordingly, shareholders are urged to forward their voting instructions
promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of the Trust voting at the Meeting. Approval of Proposal 2 requires the
affirmative vote of the holders of a majority of the Acquired Fund's shares
outstanding and entitled to vote thereon. Approval of Proposal 3 requires the
affirmative vote of a majority of the shares of the Acquired Fund voting at the
Meeting. Abstentions and broker non-votes will not be counted in favor of, but
will have no other effect on, Proposal 1 and will have the effect of a "no" vote
on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000 there were 3,787,806 shares of the
Acquired Fund outstanding.
As of January 31, 2000, the officers and Trustees of the Trust as a group
owned beneficially less than 1% of the outstanding shares of the Acquiring Fund.
Appendix 2 hereto sets forth the beneficial owners of at least 5% of each Fund's
shares, as well as the beneficial owners of at least 5% of the shares of each
other series of the Trust. To the best of the Trust's knowledge, as of
January 31, 2000, no person owned beneficially at least 5% of either Fund's
36
<PAGE>
outstanding shares or the shares of any other series of the 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 $488. As the Meeting date
approaches, certain shareholders of the Acquired Fund may receive a telephone
call from a representative of SCC if their votes have not yet been received.
Authorization to permit SCC to execute proxies may be obtained by telephonic or
electronically transmitted instructions from shareholders of the Acquired Fund.
Proxies that are obtained telephonically will be recorded in accordance with the
procedures set forth below. The Trustees believe that these procedures are
reasonably designed to ensure that both the identity of the shareholder casting
the vote and the voting instructions of the shareholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card(s), and ask for the shareholder's instructions
on the Proposals. Although the SCC representative is permitted to answer
questions about the process, he or she is not permitted to recommend to the
shareholder how to vote, other than to read any recommendation set forth in the
proxy statement. SCC will record the shareholder's instructions on the card.
Within 72 hours, the shareholder will be sent a letter or mailgram to confirm
his or her vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy card(s), they may contact SCC toll-free at 1-800-603-1915. Any
proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting
37
<PAGE>
their voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Trust, c/o Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
OTHER MATTERS TO COME BEFORE THE MEETING. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters requiring a vote of shareholders
arise, the proxy in the accompanying form will confer upon the person or persons
entitled to vote the shares represented by such proxy the discretionary
authority to vote the shares as to any such other matters in accordance with
their best judgment in the interest of the Trust and/or the Acquired Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE
ADVANTAGE OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
[/S/ JOHN MILLETTE]
John Millette
Secretary
38
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<S> <C>
EXHIBIT A: Agreement and Plan of Reorganization
EXHIBIT B: Management's Discussion of Acquiring Fund's
Performance
APPENDIX 1: Trustee and Nominee Shareholdings
APPENDIX 2: Beneficial Owners of Fund Shares
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, by and between Scudder Portfolio Trust (the
"Trust"), a Massachusetts business trust with its principal place of business at
Two International Place, on behalf of each of Scudder Income Fund (the
"Acquiring Fund") and Scudder Corporate Bond Fund (the "Acquired Fund" and,
together with the Acquiring Fund, each a "Fund" and collectively the "Funds").
Each of the Acquiring Fund and the Acquired Fund is a separate series of the
Trust.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest of the S Class of shares ($.01 par value per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund and the distribution of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the 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").
A-1
<PAGE>
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by the Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with section 2.3. The
Acquiring Fund will not issue certificates representing Acquiring Fund Shares in
connection with such exchange.
A-2
<PAGE>
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 Trust's Declaration of Trust, as amended, and then-current prospectus or
statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
A-3
<PAGE>
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
July 31, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 9:00 a.m., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
Dechert Price & Rhoads, Ten Post Office Square -- South, Boston, MA 02109, or at
such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets shall have been delivered in proper form to
State Street, custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by the custodian for the Acquired Fund to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Scudder Service Corp. (the "Transfer Agent"), on behalf of the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding Acquired Fund shares owned by each such shareholder immediately
prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Acquired Fund or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share
A-4
<PAGE>
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 Trust, on behalf of the Acquired Fund, represents and warrants to
the Acquiring Fund as follows:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under the
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 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 Trust is not, and the execution, delivery and
performance of this Agreement by the Trust will not result, in violation of
Massachusetts law or of the 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
A-5
<PAGE>
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 January 31, 2000, 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 January 31, 2000, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
A-6
<PAGE>
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquired Fund Shareholders,
under certain circumstances, could be held personally liable for obligations
of the Acquired Fund), and (iii) will be held at the time of the Closing by
the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(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 Trust, and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes a valid and
A-7
<PAGE>
binding obligation of the Trust, on behalf of the Acquired Fund, enforceable
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc. (the "NASD")), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the Acquiring Fund for use therein.
4.2. The Trust, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under the
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;
A-8
<PAGE>
(b) The 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 Trust is not, and the execution, delivery and performance of
this Agreement by the Trust will not result, in violation of Massachusetts
law or of the 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 January 31, 2000 have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of
each of which has been furnished to the Acquired Fund) present fairly, in
all material respects, the financial position of the Acquiring Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquiring Fund required to be reflected on a balance
sheet (including the notes thereto) in accordance with GAAP as of such date
not disclosed therein;
A-9
<PAGE>
(g) Since January 31, 2000, 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 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
A-10
<PAGE>
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 Trust and this Agreement will
constitute a valid and binding obligation of the 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;
(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
A-11
<PAGE>
the Proxy Statement and the Registration Statement made in reliance upon and
in conformity with information that was furnished or should have been
furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and
(ii) such changes as are contemplated by the Funds' normal operations; and
(b) each Fund shall retain exclusive control of the composition of its portfolio
until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 13, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
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.
A-12
<PAGE>
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
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.
A-13
<PAGE>
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 Trust, on behalf of the
Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that:
(a) The Trust has been duly formed and is an existing business trust;
(b) the Trust has the power to carry on its business as presently conducted
in accordance with the description thereof in the Trust's registration
statement under the 1940 Act; (c) the Agreement has been duly authorized,
executed and delivered by the Trust, on behalf of the Acquiring Fund, and
constitutes a valid and legally binding obligation 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
Trust's Declaration
A-14
<PAGE>
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 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
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Trust with respect to the Acquired Fund made in this Agreement are true and
correct on and as of the Closing Date, except as they may be affected by the
A-15
<PAGE>
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 Trust has been duly formed and is an existing business trust;
(b) the Trust has the power to carry on its business as presently conducted
in accordance with the description thereof in the Trust's registration
statement under the 1940 Act; (c) the Agreement has been duly authorized,
executed and delivered by the Trust, on behalf of the Acquired Fund, and
constitutes a valid and legally binding obligation of the 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
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.
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 Trust's Declaration
A-16
<PAGE>
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 the Trust, on behalf of each Fund, in a form reasonably
satisfactory to each such party to this Agreement, substantially to the effect
that, based upon certain facts, assumptions and representations of the parties,
for federal income tax purposes: (i) the transfer to the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange solely for
Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution of such shares to
the Acquired Fund 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
A-17
<PAGE>
be the same as the basis of such assets of the Acquired Fund immediately prior
to the transfer; (iv) the holding period of the assets of the Acquired Fund in
the hands of the Acquiring Fund will include the period during which such assets
were held by the Acquired Fund; (v) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange
for Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund; (vi) no gain or loss will be recognized by
Acquired Fund Shareholders upon the receipt of the Acquiring Fund Shares solely
in exchange for their shares of the Acquired Fund as part of the transaction;
(vii) the basis of the Acquiring Fund Shares received by Acquired Fund
Shareholders will be the same as the basis of the shares of the Acquired Fund
exchanged therefor; and (viii) the holding period of Acquiring Fund Shares
received by Acquired Fund Shareholders will include the holding period during
which the shares of the Acquired Fund exchanged therefor were held, provided
that at the time of the exchange the shares of the Acquired Fund were held as
capital assets in the hands of Acquired Fund Shareholders. The delivery of such
opinion is conditioned upon receipt by Willkie Farr & Gallagher of
representations it shall request of the Trust. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
A-18
<PAGE>
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund on behalf of the Acquiring Fund, and the
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. Scudder Kemper will pay the Acquired Fund's allocable share of expenses
associated with the Reorganization. The Acquiring Fund will pay its own
allocable share of expenses associated with the Reorganization, except that
Scudder Kemper will bear any such expenses in excess of $450,559 (approximately
$0.0077 per share, based on December 31, 1999 net assets for the Acquiring
Fund).Any such expenses which are so borne by Scudder Kemper will be solely and
directly related to the Reorganization within the meaning of Revenue Ruling
73-54, 1973-1 C.B. 187. Acquired Fund Shareholders will pay their own expenses,
if any, incurred in connection with the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before
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.
A-19
<PAGE>
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.
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.
A-20
<PAGE>
15.4. References in this Agreement to the Trust mean and refer to the Board
members of the Trust from time to time serving under its Declaration of Trust on
file with the Secretary of State of the Commonwealth of Massachusetts, as the
same may be amended from time to time, pursuant to which the Trust conducts its
business. It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Board members, shareholders, nominees,
officers, agents, or employees of the Trust or the Funds personally, but bind
only the respective property of the Funds, as provided in the Trust's
Declaration of Trust. Moreover, no series of the Trust other than the Funds
shall be responsible for the obligations of the Trust hereunder, and all persons
shall look only to the assets of the Funds to satisfy the obligations of the
Trust hereunder. The execution and the delivery of this Agreement have been
authorized by the Trust's Board members, on behalf of each Fund, and this
Agreement has been signed by authorized officers of each Fund acting as such,
and neither such authorization by such Board members, nor such execution and
delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the property of the Funds, as provided in the 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 Trust or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
A-21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: SCUDDER PORTFOLIO TRUST
on behalf of Scudder Corporate Bond Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: SCUDDER PORTFOLIO TRUST
on behalf of Scudder Income Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:
- ------------------------------
Its:
- ------------------------------
A-22
<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
- --------------------------------------------------------------------------------
Performance Update January 31, 2000
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
<TABLE>
<CAPTION>
Scudder Income Fund LB Aggregate Bond Index*
<S> <C>
90 10000 10000
91 11140 11161
92 12658 12615
93 14033 13999
94 15840 15278
95 15053 14925
96 17690 17453
97 18215 18021
98 19938 19956
99 21143 21565
00 20591 21163
</TABLE>
Yearly periods ended January 31
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Scudder Income Fund
- --------------------------------------------------------------------------------
1 year $ 9,739 -2.61% -2.61%
- --------------------------------------------------------------------------------
5 year $ 13,678 36.78% 6.46%
- --------------------------------------------------------------------------------
10 year $ 20,591 105.91% 7.49%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index*
- --------------------------------------------------------------------------------
1 year $ 9,814 -1.86% -1.86%
- --------------------------------------------------------------------------------
5 year $ 14,180 41.80% 7.23%
- --------------------------------------------------------------------------------
10 year $ 21,163 111.63% 7.78%
- --------------------------------------------------------------------------------
</TABLE>
* The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a 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.
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 returns would
have been lower.
B-1
<PAGE>
Portfolio Management Discussion January 31, 2000
- --------------------------------------------------------------------------------
In the following interview, portfolio manager Robert S. Cessine discusses
Scudder Income Fund's strategy and the market environment in the twelve-month
period ended January 31, 2000.
Q: The bond market experienced extremely poor performance over the past year.
How did this play out in the various subsectors you follow, and what were some
of the causes?
A: The fact that growth in both the United States and the overseas economies has
come in well above expectations has put pressure on bond prices since early last
year. Yields on long-term Treasuries began 1999 at slightly above 5%, reflecting
the widely held expectation that growth would remain tame and that deflation,
not inflation, would be the market's primary concern. As the year progressed,
however, it became apparent that the global economy would in fact be much
stronger than expected. Asia staged a sharp recovery, thereby removing one of
the key factors that was supporting bond prices in 1998. Commodity prices have
also staged a rebound, led by the surge in oil prices to nine-year highs in
January 2000. On the domestic front, continued gains in the stock market helped
fuel a 9% rise in holiday sales, and gross domestic product posted a strong 5.8%
gain in the fourth quarter. Most important, the extreme tightness in the labor
markets sparked concerns that a sharp increase in wage growth was inevitable.
While actual evidence of inflation on the consumer level remains spotty, the
consensus opinion among market participants is that the Fed will be forced to
raise interest rates on multiple occasions in 2000. These factors have combined
to create an extremely negative environment for bonds. The yield on the
benchmark 30-year Treasury issue, which stood at 5.09% on January 29, 1999, rose
to a peak of 6.75% by January 18, 2000. Five- and ten-year notes were hit
especially hard in the latter half of the period.
Other sectors of the bond market held up relatively well in relation to
Treasuries over the full year. Mortgage- and asset-backed securities both
outperformed, as did
B-2
<PAGE>
government agency notes (such as those issued by Fannie Mae). Corporate issues
performed poorly over the period, but outperformed Treasuries in the fourth
quarter of 1999 as fears of a supply-demand imbalance associated with Y2K
dissipated. The stronger performance of these sectors had a positive effect on
fund performance. Our emphasis on diversifying the portfolio among a variety of
corporates, asset-backeds, and agency notes helped mitigate the effects of a
difficult interest rate environment.
Q: How has the fund performed in this environment?
A: For the twelve-month period ended January 31, 2000, the fund provided a
return of -2.61%, which trailed the -1.86% return of its unmanaged benchmark,
the Lehman Brothers Aggregate Bond Index. However, the fund's return placed it
in the top 25% of all domestic taxable bond funds, as calculated by Lipper
Analytical Services. The fund has also outperformed its peer group over the
five- and ten-year periods ended on the same date.
Q: The fund is heavily weighted in corporate bonds. How did you position the
portfolio within that sector?
A: In the last report, which covered the six months ended July 31, we stated
that we were raising our weighting in corporates. At that juncture, market
participants were concerned that the approach of Y2K would bring about a glut of
supply in the third quarter -- as corporations rushed to complete their
financing needs ahead of year-end -- as well as a reduction in demand as
investors shunned riskier assets in anticipation of possible disruptions
associated with Y2K. Believing that these fears were overblown, we added to the
portfolio's position in corporates in order to take advantage of their more
attractive yields, and the fund was therefore positioned to benefit when the
sector outperformed Treasuries over the latter part of the period. Even though
yield spreads (the difference between the yield on corporates and the Treasury
bond of equivalent maturity) have contracted, we believe that the sector remains
attractive relative to
B-3
<PAGE>
historical levels. We currently hold 61% of assets in corporate bonds, including
17% of assets in high yield issues. The fund is currently approaching the
maximum allocation it can hold in high yield bonds (20%), so this represents a
relatively aggressive positioning. We feel that the combination of attractive
valuations, continued strength in the domestic economy, and powerful corporate
earnings growth should work to the benefit of high yield issues in the coming
month.
Within the corporate sector, we continue to focus on bonds issued by companies
with strong, reliable cash flows. The financial press generally focuses on the
way a company's earnings report affects its stock price, but the strength and
quality of earnings is also an important driver of corporate bond prices. As a
result, we utilize intensive credit research in order to avoid companies whose
bonds can "blow up" due to disappointing earnings. The fund has also been
well-positioned to benefit from the rally in the media and telecom sectors. In
addition, our position in the energy sector was boosted by the sharp rise in oil
prices. Looking ahead, we are confident that the fund's diversified mix of
high-quality bonds in a variety of industries -- including utilities,
financials, retailers, and auto manufacturers -- will help the fund produce
steady performance over time.
Q: What was your strategy with respect to duration and credit quality?
A: When we last spoke six months ago, we mentioned that we were reducing the
fund's duration to a neutral level with respect to its benchmark. We
accomplished this by moving out of bonds with the longest maturities (20-30
years) and investing in intermediate-term bonds, which we believed were more
attractive given the flattening of the yield curve. Although intermediate-term
bonds suffered a sell-off in the latter part of January, this decision had a
positive effect on performance in the negative interest rate environment of the
last six months.
As of January 31, the average credit quality of the fund's holdings stood at A1,
which was down slightly from the
B-4
<PAGE>
end of July. We achieved this rating by employing a "barbell" approach, whereby
we balanced the fund's increased weighting in high-yield issues (which carry
ratings of BB or below) with an increased weighting in bonds A rated. The
impetus for this strategy has been our belief that high-quality investment grade
bonds and high-yield issues offer better value than bonds that lie in between
the two (such as those rated BBB).
Q: What is your outlook for the year ahead?
A: We believe that the bond market will remain unsettled well into 2000.
Economic reports should continue to have a significant impact on short-term
market movements as investors search for signs of incipient inflation. Until
there is a clearer indication that the Fed will be able to move away from its
current bias toward higher rates, we expect bond market performance to remain
volatile. As a result, we intend to maintain a neutral duration strategy until
the interest rate outlook stabilizes. In doing so, we intend to position the
portfolio to ride out the effects of further bond market volatility, while at
the same time providing the portfolio with the flexibility to increase the
fund's interest rate exposure once it becomes apparent that the Fed is finished
raising rates. Until that time, the fund's positioning should help mitigate the
effects of bond market volatility. We have increased the level of liquidity and
diversification in the portfolio, and are confident that the fund's mix of
corporate bonds, government issues, and mortgage-backed securities will provide
strong risk-adjusted returns going forward.
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 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 Trust as of January 31, 2000. The information as to
beneficial ownership is based on statements furnished to the 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 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 Trust.
<TABLE>
<CAPTION>
SCUDDER SCUDDER
SCUDDER CORPORATE SCUDDER HIGH YIELD
BALANCED FUND BOND FUND INCOME FUND BOND FUND
-------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Henry P. Becton, Jr.(1)....... 2,501(4) 1,817(7) 2,085(9) 1,082(11)
Linda C. Coughlin(1).......... 0 0 0 336
Dawn-Marie Driscoll(1)........ 13,271(5) 232 494 5,796
Edgar R. Fiedler(1)........... 0 0 0 0
Peter B. Freeman(1)........... 1,079 0 1,647 568
Keith R. Fox(1)............... 0 0 0 0
George M. Lovejoy, Jr.(1)..... 595 0 1,338(12)
Wesley W. Marple, Jr.(1)...... 101 0 1,607 149
Kathryn L. Quirk(2)........... 0 0 0 0
Joan Edelman Spero(2)......... 49 0 82 88
Jean Gleason Stromberg(2)..... 0 0 0 0
Jean C. Tempel(1)............. 5542 0 1,571 888
Steven Zaleznick(3)........... 0 0 0 0
All Trustees and Officers as a
Group....................... 63,977(6) 2,049(8) 7,486(10) 10,245(13)
</TABLE>
- ------------------------------
(1) Total aggregate holdings in the Trust listed and all other funds in the
Scudder Family of Funds and AARP Funds were over $100,000.
(2) Total aggregate holdings in the 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 the Trust listed and all other funds in the
Scudder Family of Funds and AARP Funds were $0.
(4) Mr. Becton's shares in Scudder Balanced 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.
(5) Ms. Driscoll's shares in Scudder Balanced Fund include 3,490 shares held
with sole investment and voting power, and 9,781 shares 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.
<PAGE>
(6) As of January 31, 2000, as a group, the Trustees and officers of Scudder
Balanced Fund held 10,856 shares with sole investment and voting power, and
53,121 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.
(7) Mr. Becton's shares in Scudder Corporate 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.
(8) As of January 31, 2000, as a group, the Trustees and officers of Scudder
Corporate Bond Fund held 232 shares with sole investment and voting power,
and 1,817 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.
(9) Mr. Becton's shares in Scudder 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.
(10) As of January 31, 2000, as a group, the Trustees and officers of Scudder
Income Fund held 6,525 shares with sole investment and voting power, and
961 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) Mr. Becton's shares in Scudder High Yield Bond Fund include 100 shares
held with sole investment and voting power, and 884 shares 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.
(12) Mr. Lovejoy's shares in Scudder High Yield Bond Fund include 810 shares
held with sole investment and voting power, and 529 shares held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(13) As of January 31, 2000, as a group, the Trustees and officers of Scudder
High Yield Bond Fund held 8,832 shares with sole investment and voting
power, and 1,413 shares with sole investment but no voting power. Shares
held with sole investment but no voting power are shares held in profit
sharing and 401(k) plans for which Scudder Kemper serves as trustee.
2
<PAGE>
APPENDIX 2
BENEFICIAL OWNERS OF FUND SHARES
As of January 31, 2000, 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, 179,530 shares in the aggregate, or 5.01% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway
Series: Conservative 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, 297,282 shares in the aggregate, or 8.30% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway Series: 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, 1,799,026 shares in the aggregate, or 50.26% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway
Series: Balanced 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, 6,486,994 shares in the aggregate, or 11.49% of the
outstanding shares, of SCUDDER INCOME FUND were held in the name of State Street
Bank & Trust Company, Custodian for Scudder Pathway Series: Balanced 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, 2,297,023 shares in the aggregate, or 17.10% of the
outstanding shares, of SCUDDER HIGH YIELD BOND FUND were held in the name of
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be
deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 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, 179,530 shares in the aggregate, or 5.01% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway
<PAGE>
Series: Conservative 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, 297,282 shares in the aggregate, or 8.30% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway Series: 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, 1,799,026 shares in the aggregate, or 50.26% of the
outstanding shares, of SCUDDER CORPORATE BOND FUND were held in the name of
State Street Bank & Trust Company, Custodian for Scudder Pathway
Series: Balanced 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, 6,486,994 shares in the aggregate, or 11.49% of the
outstanding shares, of SCUDDER INCOME FUND were held in the name of State Street
Bank & Trust Company, Custodian for Scudder Pathway Series: Balanced 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, 2,297,023 shares in the aggregate, or 17.10% of the
outstanding shares, of SCUDDER HIGH YIELD BOND FUND were held in the name of
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94104, who may be
deemed to be the beneficial owner of certain of these shares.
SCUDDER KEMPER'S OWNERSHIP OF FUND SHARES
Certain accounts for which Scudder Kemper acts as investment adviser owned
3,448,174 shares in the aggregate, or 6.11% of the outstanding shares, of
SCUDDER INCOME FUND on January 31, 2000. Scudder Kemper may be deemed to be the
beneficial owner of such shares, but disclaims any beneficial ownership in such
shares.
2
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-603-1915.
SD Corp 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 April 18, 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 Scudder By and in Exchange for Shares of
Corporate Bond Fund (the "Acquired Scudder Income Fund (the "Acquiring
Fund"), a series of Scudder Portfolio Fund"), a series of the Trust
Trust (the "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 Trust contains material which
may be of interest to investors but which is not included in the
Prospectus/Proxy Statement of the 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 April 18, 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 January 31, 2000, which was previously filed with the Commission via
EDGAR on March 29, 2000 (File No. 811-00042) and is incorporated by
reference herein.
3. The Acquired Fund's prospectus dated April 12, 2000, which was
previously filed with the Commission via EDGAR on April 18, 2000 (File
No. 2-13627) and is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated April 12,
2000, which was previously filed with the Commission via EDGAR on April 18,
2000 (File No. 2-13627) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year
ended January 31, 2000, which was previously filed with the Commission via
EDGAR on March 29, 2000 (File No. 811-00042) 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.
-55-
<PAGE>
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 18, 2000 relating to the
Reorganization may be obtained by writing the Acquired Fund at Two
International Place, Boston, MA 02110-4103 or by calling Scudder Investor
Services, Inc. at 1-800-225-2470. This Statement of Additional Information
should be read in conjunction with the Prospectus/Proxy Statement.
-56-
<PAGE>
PRO FORMA
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Scudder AARP Bond Fund Scudder Pro Forma
Income Fund for Income Corporate Bond Combined
Principal Principal Fund Principal Principal Amount
Amount ($) Amount($) Amount ($) ($)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 0.9%
- ---------------------------------------------------------
Repurchase Agreement with State Street 3,484,000 4,332,000 1,195,000 9,011,000
Bank and Trust Company, 5.200%,
11/1/99
REPURCHASE AGREEMENT TOTAL
REPURCHASE AGREEMENT (COST OF $3,484,000 $4,332,000
$1,195,000 AND $9,011,000 RESPECTIVELY)
U. S. GOVERNMENT & AGENCIES 24.6%
- ---------------------------------------------------------
Federal Home Loan Mortgage Corp., 3,000,000 1,000,000 4,000,000
5.750%, 07/15/2003
U.S. Treasury Bond Inflationary Index 15,750,000 3,500,000 19,250,000
3.625%, 04/15/2028
U.S. Treasury Bond, 6.125%, 08/15/2029 3,500,000 3,500,000
U.S. Treasury Bond, 6.250%, 08/15/2023 11,500,000 3,000,000 14,500,000
U.S. Treasury Bond, 7.250%, 05/15/2016 29,000,000 4,250,000 33,250,000
U.S. Treasury Bond, 9.375%, 02/15/2006 15,000,000 15,000,000
U.S. Treasury Bond, 10.750%, 8/15/05 27,000,000 9,000,000 36,000,000
U.S. Treasury Note Inflationary Index, 16,000,000 4,000,000 20,000,000
3.875%, 01/15/2009
U.S. Treasury Note, 5.500%, 05/31/2003 10,000,000 10,000,000
U.S. Treasury Note, 5.625%, 12/31/2002 5,000,000 3,000,000 8,000,000
U.S. Treasury Note, 5.625%, 09/30/2001 10,400,000 7,100,000 5,000,000 22,500,000
U.S. Treasury Note, 6.000%, 05/15/2004 4,400,000 1,000,000 500,000 5,900,000
U.S. Treasury Note, 6.000%, 08/15/2009 21,200,000 1,900,000 23,100,000
U.S. Treasury Note, 6.500%, 10/15/2006 12,000,000 12,000,000
U. S. GOVERNMENT & AGENCIES TOTAL
U. S. GOVERNMENT & AGENCIES (COST OF $201,861,395
$44,098,690 $6,507,698 AND 252,467,783 RESPECTIVELY)
GOVT NATIONAL MORTGAGE ASSOCIATION 3.7%
- ---------------------------------------------------------
Government National Mortgage 22,667,812 5,831,699 28,499,511
Association Pass-thru 7.00% with
various maturities to 05/15/2029
Government National Mortgage 4,870,302 1,896,388 6,766,690
Association Pass-thru 7.50% with
various maturities to 07/15/2029
Government National Mortgage 912,953 912,953
Association Pass-thru 9.50% with
various maturities to 11/15/2017
GOVT NATIONAL MORTGAGE ASSOCIATION TOTAL
GOVT NATIONAL MORTGAGE ASSOCIATION (COST OF $27,941,143
$8,822,908 $0 AND $36,764,051 RESPECTIVELY)
U. S. GOVERNMENT BACKED MORTGAGES 6.9%
- ---------------------------------------------------------
Federal National Mortgage Association 37,550,112 9,387,528 1,408,129 48,345,769
6.50% with various maturities to
3/1/28
Federal National Mortgage Association 16,974,148 2,750,157 19,724,305
8.00% with various maturities to
2/1/13
U. S. GOVERNMENT BACKED MORTGAGES TOTAL
U. S. GOVERNMENT BACKED MORTGAGES (COST OF $55,328,008
$12,286,610 $1,416,655 AND $69,031,273 RESPECTIVELY)
COLLATERALIZED MORTGAGE OBLIGATIONS 1.7%
- ---------------------------------------------------------
GMAC Commercial Mortgage Securities 1,000,000 1,000,000
Inc., 6.87%, 08/15/2007
Residential Accredit Loans, Inc., 13,103,677 2,937,210 16,040,887
Series 1997-QS12 A7, 7.250%, 11/25/2027
COLLATERALIZED MORTGAGE OBLIGATIONS TOTAL
COLLATERALIZED MORTGAGE OBLIGATIONS (COST OF $13,324,801
$4,001,772 $0 AND 17,326,573 RESPECTIVELY)
FOREIGN BONDS -U.S.$ DENOMINATED 2.4%
- ---------------------------------------------------------
PacifiCorp Australia LLC, 6.150%, 9,000,000 2,000,000 1,000,000 12,000,000
1/15/08
Petroleum Geo-Services, 6.625%, 8,000,000 2,000,000 500,000 10,500,000
3/30/08
Saga Petroleum ASA, 7.250%, 09/23/2027 1,000,000 1,000,000
Tembec Industries, Inc., 8.625%, 965,000 200,000 1,165,000
6/30/09
FOREIGN BONDS -U.S.$ DENOMINATED TOTAL
FOREIGN BONDS -U.S.$ DENOMINATED (COST OF $16,736,870
$5,902,561 $1,702,720 AND $24,342,151 RESPECTIVELY)
<CAPTION>
AARP Bond Scudder Pro Forma
Scudder Fund for Corporate Bond Combined
Income Fund Income Market Fund Market Market
Market Value ($) Value($) Value($) Value ($)(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 0.9%
- --------------------------------------------------
Repurchase Agreement with State Street 3,484,000 4,332,000 1,195,000 9,011,000
Bank and Trust Company, 5.200%,
11/1/99
======================================================================
REPURCHASE AGREEMENT TOTAL 3,484,000 4,332,000 1,195,000 9,011,000
======================================================================
REPURCHASE AGREEMENT (COST OF $3,484,000 $4,332,000
$1,195,000 AND $9,011,000 RESPECTIVELY)
U. S. GOVERNMENT & AGENCIES 24.6%
- --------------------------------------------------
Federal Home Loan Mortgage Corp., 2,940,000 980,000 3,920,000
5.750%, 07/15/2003
U.S. Treasury Bond Inflationary Index 14,910,799 3,313,511 18,224,310
3.625%, 04/15/2028
U.S. Treasury Bond, 6.125%, 08/15/2029 3,484,670 3,484,670
U.S. Treasury Bond, 6.250%, 08/15/2023 11,253,785 2,935,770 14,189,555
U.S. Treasury Bond, 7.250%, 05/15/2016 31,252,140 4,580,055 35,832,195
U.S. Treasury Bond, 9.375%, 02/15/2006 17,451,600 17,451,600
U.S. Treasury Bond, 10.750%, 8/15/05 32,901,930 10,967,310 43,869,240
U.S. Treasury Note Inflationary Index, 15,993,119 3,998,280 19,991,399
3.875%, 01/15/2009
U.S. Treasury Note, 5.500%, 05/31/2003 9,853,100 9,853,100
U.S. Treasury Note, 5.625%, 12/31/2002 4,959,350 2,975,610 7,934,960
U.S. Treasury Note, 5.625%, 09/30/2001 10,364,224 7,075,576 4,982,800 22,422,600
U.S. Treasury Note, 6.000%, 05/15/2004 4,410,296 1,002,340 501,170 5,913,806
U.S. Treasury Note, 6.000%, 08/15/2009 21,170,108 1,897,321 23,067,429
U.S. Treasury Note, 6.500%, 10/15/2006 12,211,920 12,211,920
======================================================================
U. S. GOVERNMENT & AGENCIES TOTAL 190,217,041 41,685,773 6,463,970 238,366,784
======================================================================
U. S. GOVERNMENT & AGENCIES (COST OF $201,861,395
$44,098,690 $6,507,698 AND 252,467,783 RESPECTIVELY)
GOVT NATIONAL MORTGAGE ASSOCIATION 3.7%
- -----------------------------------------------------
Government National Mortgage 22,236,017 5,721,444 27,957,461
Association Pass-thru 7.00% with
various maturities to 05/15/2029
Government National Mortgage 4,882,478 1,902,620 6,785,098
Association Pass-thru 7.50% with
various maturities to 07/15/2029
Government National Mortgage 970,578 970,578
Association Pass-thru 9.50% with
various maturities to 11/15/2017
======================================================================
GOVT NATIONAL MORTGAGE ASSOCIATION TOTAL 27,118,495 8,594,642 35,713,137
======================================================================
GOVT NATIONAL MORTGAGE ASSOCIATION (COST OF $27,941,143
$8,822,908 $0 AND $36,764,051 RESPECTIVELY)
U. S. GOVERNMENT BACKED MORTGAGES 6.9%
- ---------------------------------------------------------
Federal National Mortgage Association 36,036,373 9,009,093 1,351,364 46,396,830
6.50% with various maturities to
3/1/28
Federal National Mortgage Association 17,343,560 2,810,121 20,153,681
8.00% with various maturities to
2/1/13
=====================================================================
U. S. GOVERNMENT BACKED MORTGAGES TOTAL 53,379,933 11,819,214 1,351,364 66,550,511
=====================================================================
U. S. GOVERNMENT BACKED MORTGAGES (COST OF $55,328,008
$12,286,610 $1,416,655 AND $69,031,273 RESPECTIVELY)
COLLATERALIZED MORTGAGE OBLIGATIONS 1.7%
- ---------------------------------------------------------
GMAC Commercial Mortgage Securities 973,906 973,906
Inc., 6.87%, 08/15/2007
Residential Accredit Loans, Inc., 12,720,804 2,851,388 15,572,192
Series 1997-QS12 A7, 7.250%, 11/25/2027
=====================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS TOTAL 12,720,804 3,825,294 16,546,098
=====================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS (COST OF $13,324,801
$4,001,772 $0 AND 17,326,573 RESPECTIVELY)
FOREIGN BONDS -U.S.$ DENOMINATED 2.4%
- ---------------------------------------------------------
PacifiCorp Australia LLC, 6.150%, 8,329,770 1,851,060 925,530 11,106,360
1/15/08
Petroleum Geo-Services, 6.625%, 7,510,000 1,877,500 469,375 9,856,875
3/30/08
Saga Petroleum ASA, 7.250%, 09/23/2027 917,830 917,830
Tembec Industries, Inc., 8.625%, 955,350 198,000 1,153,350
6/30/09
====================================================================
FOREIGN BONDS -U.S.$ DENOMINATED TOTAL 15,839,770 5,601,740 1,592,905 23,034,415
====================================================================
FOREIGN BONDS -U.S.$ DENOMINATED (COST OF $16,736,870
$5,902,561 $1,702,720 AND $24,342,151 RESPECTIVELY)
<PAGE>
<CAPTION>
Scudder AARP Bond Fund Scudder Pro Forma
Income Fund for Income Corporate Bond Combined
Principal Principal Fund Principal Principal Amount
Amount ($) Amount($) Amount ($) ($)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED 4.6%
- ---------------------------------------------------------
AUTOMOBILE RECEIVABLES
First Security Auto Owner Trust, 7,000,000 2,000,000 500,000 9,500,000
Series 1999-2 A3, 6.000%, 10/15/2003
Premier Auto Trust Asset Backed 4,931,595 4,931,595
Certificate, Series 1996-3 A4, 6.750%,
11/6/00
CREDIT CARD RECEIVABLES
Citibank Credit Card Master Trust I, 1,500,000 1,500,000
6.000%, 04/10/2003
MBNA Master Credit Card Trust, 5.800%, 10,000,000 2,000,000 12,000,000
12/15/05
HOME EQUITY LOANS
First Plus Residential Trust Series 1,384,222 1,384,222
1998A, 8.500%, 05/15/2023
MANUFACTURED HOUSING RECEIVABLES
Associated Manufactured Housing Corp. 375,000 375,000
Series 1997-1 B1, 7.600%, 06/15/2028
Green Tree Financial Corp. Series 498,414 498,414
1997-2 B2, 8.050%, 06/15/2028
Green Tree Financial Corp. Series 5,000,000 5,000,000
1998-2 B1, 7.170%, 01/15/2029
Green Tree Financial Corp., Series 5,000,000 5,000,000
1998-2 B1, 7.36%. 10/1/2020
Merrill Lynch Mortgage Investors Inc., 7,050,370 7,050,370
"B", Series 1991-D, 9.850%, 07/15/2011
ASSET BACKED TOTAL
ASSET BACKED (COST OF $38,840,662 $7,744,129 $500,000 AND
$47,084,791 RESPECTIVELY)
CORPORATE BONDS 53.8%
- -------------------------------------------------------------
CONSUMER DISCRETIONARY
Finlay Fine Jewelry Co., 8.375%, 250,000 250,000
5/1/08
Harrah's Operating Co., Inc., 7.875%, 2,000,000 250,000 2,250,000
12/15/05
Imax Corp., 7.875%, 12/01/2005 1,000,000 1,000,000
Tricon Global Restaurants, 7.650%, 1,500,000 500,000 2,000,000
5/15/08
CONSUMER STAPLES
Aurora Foods, Inc., 8.750%, 07/01/2008 1,000,000 1,000,000
Bass America Inc., 6.625%, 03/01/2003 9,500,000 1,500,000 500,000 11,500,000
Borden Inc., 7.875%, 02/15/2023 5,000,000 5,000,000
Dyersburg Corp., 9.750%, 09/01/2007 250,000 250,000
Fleming Companies, Inc., 10.625%, 1,250,000 250,000 1,500,000
7/31/07
Pepsi Bottling Holdings, Inc., 5.625%, 10,000,000 2,500,000 500,000 13,000,000
2/17/09
Racers-Kellogg, 5.750%, 02/02/2001 10,000,000 10,000,000
Safeway Inc., 6.050%, 11/15/2003 6,000,000 2,000,000 500,000 8,500,000
The Great Atlantic & Pacific Tea Co., 3,000,000 1,000,000 4,000,000
Inc., 7.700%, 01/15/2004
Westpoint Stevens, Inc., 7.875%, 7,000,000 1,000,000 8,000,000
6/15/05
HEALTH
NBTY Inc., 8.625%, 09/15/2007 325,000 150,000 475,000
Tenet Healthcare Corp., 8.625%, 3,000,000 500,000 3,500,000
1/15/07
COMMUNICATIONS
AT&T Corp., 6.000%, 03/15/2009 7,000,000 2,000,000 500,000 9,500,000
Allegiance Telecom, Inc., 12.875%, 250,000 250,000
5/15/08
<CAPTION>
AARP Bond Scudder Pro Forma
Scudder Fund for Corporate Bond Combined
Income Fund Income Market Fund Market Market
Market Value ($) Value($) Value($) Value ($)(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED 4.6%
- ----------------------------------------------------
AUTOMOBILE RECEIVABLES
First Security Auto Owner Trust, 6,943,125 1,983,750 495,938 9,422,813
Series 1999-2 A3, 6.000%, 10/15/2003
Premier Auto Trust Asset Backed 4,937,760 4,937,760
Certificate, Series 1996-3 A4, 6.750%,
11/6/00
------------------------------------------------------------------------
11,880,885 1,983,750 495,938 14,360,573
------------------------------------------------------------------------
CREDIT CARD RECEIVABLES
Citibank Credit Card Master Trust I, 1,485,000 1,485,000
6.000%, 04/10/2003
MBNA Master Credit Card Trust, 5.800%, 9,712,500 1,942,500 11,655,000
12/15/05
------------------------------------------------------------------------
9,712,500 3,427,500 13,140,000
------------------------------------------------------------------------
HOME EQUITY LOANS
------------------------------------------------------------------------
First Plus Residential Trust Series 1,038,166 1,038,166
1998A, 8.500%, 05/15/2023
------------------------------------------------------------------------
MANUFACTURED HOUSING RECEIVABLES
Associated Manufactured Housing Corp. 270,000 270,000
Series 1997-1 B1, 7.600%, 06/15/2028
Green Tree Financial Corp. Series 365,711 365,711
1997-2 B2, 8.050%, 06/15/2028
Green Tree Financial Corp. Series 3,978,125 3,978,125
1998-2 B1, 7.170%, 01/15/2029
Green Tree Financial Corp., Series 3,928,125 3,928,125
1998-2 B1, 7.36%. 10/1/2020
Merrill Lynch Mortgage Investors Inc., 7,220,002 7,220,002
"B", Series 1991-D, 9.850%, 07/15/2011
------------------------------------------------------------------------
15,126,252 635,711 15,761,963
------------------------------------------------------------------------
========================================================================
ASSET BACKED TOTAL 36,719,637 7,085,127 495,938 44,300,702
========================================================================
ASSET BACKED (COST OF $38,840,662 $7,744,129
$500,000 AND $47,084,791 RESPECTIVELY)
CORPORATE BONDS 53.8%
- ------------------------------------------------------
CONSUMER DISCRETIONARY
Finlay Fine Jewelry Co., 8.375%, 225,000 225,000
5/1/08
Harrah's Operating Co., Inc., 7.875%, 1,905,000 238,125 2,143,125
12/15/05
Imax Corp., 7.875%, 12/01/2005 927,500 927,500
Tricon Global Restaurants, 7.650%, 1,428,750 476,250 1,905,000
5/15/08
------------------------------------------------------------------------
4,261,250 939,375 5,200,625
------------------------------------------------------------------------
CONSUMER STAPLES
Aurora Foods, Inc., 8.750%, 07/01/2008 952,500 952,500
Bass America Inc., 6.625%, 03/01/2003 9,356,645 1,477,365 492,455 11,326,465
Borden Inc., 7.875%, 02/15/2023 3,937,400 3,937,400
Dyersburg Corp., 9.750%, 09/01/2007 75,000 75,000
Fleming Companies, Inc., 10.625%, 1,118,750 223,750 1,342,500
7/31/07
Pepsi Bottling Holdings, Inc., 5.625%, 8,999,100 2,249,775 449,955 11,698,830
2/17/09
Racers-Kellogg, 5.750%, 02/02/2001 9,937,500 9,937,500
Safeway Inc., 6.050%, 11/15/2003 5,768,760 1,922,920 480,730 8,172,410
The Great Atlantic & Pacific Tea Co., 2,917,920 972,640 3,890,560
Inc., 7.700%, 01/15/2004
Westpoint Stevens, Inc., 7.875%, 6,510,000 930,000 7,440,000
6/15/05
------------------------------------------------------------------------
44,509,405 11,569,230 2,694,530 58,773,165
------------------------------------------------------------------------
HEALTH
NBTY Inc., 8.625%, 09/15/2007 277,063 127,875 404,938
Tenet Healthcare Corp., 8.625%, 2,797,500 466,250 3,263,750
1/15/07
------------------------------------------------------------------------
2,797,500 743,313 127,875 3,668,688
------------------------------------------------------------------------
COMMUNICATIONS
AT&T Corp., 6.000%, 03/15/2009 6,470,940 1,848,840 462,210 8,781,990
Allegiance Telecom, Inc., 12.875%, 274,374 274,374
<PAGE>
<CAPTION>
Scudder AARP Bond Fund Scudder Pro Forma
Income Fund for Income Corporate Bond Combined
Principal Principal Fund Principal Principal Amount
Amount ($) Amount($) Amount ($) ($)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/15/08
Call-Net Enterprises Inc., Senior 1,800,000 1,800,000
Note, 8.000%, 08/15/2008
Intermedia Communications, Inc., 2,000,000 250,000 2,250,000
8.875%, 11/01/2007
Level 3 Communications, Inc., 9.125%, 2,000,000 250,000 2,250,000
5/1/08
McLeodUSA Inc., 8.125%, 02/15/2009 1,500,000 500,000 2,000,000
McLeodUSA, Inc., Exchange Shares, 500,000 500,000
8.375%, 03/15/2008
Qwest Communications International, 10,000,000 3,000,000 1,000,000 14,000,000
7.500%, 11/01/2008
SBA Communications Corp., Step-up 400,000 400,000
Coupon, 0% to 03/01/2003, 12.000% to
3/1/08
Sprint Capital Corp., 5.875%, 500,000 500,000
5/1/04
Sprint Capital Corp., 6.125%, 18,000,000 5,000,000 1,000,000 24,000,000
11/15/08
WorldCom, Inc., 6.400%, 08/15/2005 3,000,000 3,000,000
FINANCIAL
Bank United Capital Trust, 10.250%, 4,250,000 250,000 4,500,000
12/31/26
Boeing Capital Corp., 6.750%, 10,000,000 1,500,000 11,500,000
12/23/03
Capital One Bank, 6.570%, 01/27/2003 5,000,000 2,500,000 250,000 7,750,000
Commerce Bancorporation, 11.750%, 6,200,000 6,200,000
6/6/27
First USA Bank, 5.850%, 02/22/2001 9,750,000 1,500,000 250,000 11,500,000
First Union Institutional Capital II, 14,000,000 1,000,000 1,000,000 16,000,000
7.850%, 01/01/2027
Ford Motor Credit Co., 6.125%, 500,000 500,000
4/28/03
Ford Motor Credit Corp., 7.375%, 10,000,000 10,000,000
10/28/09
GS Escrow Corp., 7.000%, 08/01/2003 7,000,000 2,000,000 9,000,000
General Electric Capital Corp. "A", 9,000,000 2,000,000 1,000,000 12,000,000
6.020%, 05/04/2001
Home Savings of America, 6.000%, 10,000,000 2,500,000 1,000,000 13,500,000
11/1/00
Merrill Lynch & Co., Inc., 6.000%, 8,000,000 2,500,000 500,000 11,000,000
2/17/09
Prudential Insurance Co., 6.375%, 10,000,000 2,000,000 1,000,000 13,000,000
7/23/06
United Bank Corp., 8.000%, 03/15/2009 2,500,000 500,000 3,000,000
MEDIA
AMFM Inc., 10.500%, 01/15/2007 1,000,000 1,000,000
AMFM, Inc., 8.000%, 11/01/2008 6,000,000 2,500,000 500,000 9,000,000
CSC Holdings Inc., 7.875%, 10,000,000 1,500,000 11,500,000
2/15/18
Charter Communication Holdings LLC, 7,000,000 2,500,000 500,000 10,000,000
8.250%, 04/01/2007
News America Holdings Inc., 9.250%, 10,000,000 2,500,000 500,000 13,000,000
2/1/13
Outdoor Systems, Inc., 8.875%, 10,000,000 1,000,000 250,000 11,250,000
6/15/07
TCI-Communications, Inc., 8.000%, 11,250,000 2,500,000 1,000,000 14,750,000
8/1/05
Time Warner Inc., 9.125%, 01/15/2013 12,000,000 1,000,000 13,000,000
SERVICE INDUSTRIES
Allied Waste North America, 7.375%, 3,500,000 1,250,000 250,000 5,000,000
1/1/04
Cendant Corp., 7.750%, 12/01/2003 3,000,000 500,000 3,500,000
Integrated Electrical Services, Inc., 2,000,000 500,000 2,500,000
9.375%, 02/01/2009
<CAPTION>
AARP Bond Scudder Pro Forma
Scudder Fund for Corporate Bond Combined
Income Fund Income Market Fund Market Market
Market Value ($) Value($) Value($) Value ($)(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/15/08
Call-Net Enterprises Inc., Senior 1,557,000 1,557,000
Note, 8.000%, 08/15/2008
Intermedia Communications, Inc., 1,790,000 223,750 2,013,750
8.875%, 11/01/2007
Level 3 Communications, Inc., 9.125%, 1,845,000 230,625 2,075,625
5/1/08
McLeodUSA Inc., 8.125%, 02/15/2009 1,395,000 465,000 1,860,000
McLeodUSA, Inc., Exchange Shares, 470,000 470,000
8.375%, 03/15/2008
Qwest Communications International, 9,921,500 2,976,450 992,150 13,890,100
7.500%, 11/01/2008
SBA Communications Corp., Step-up 218,000 218,000
Coupon, 0% to 03/01/2003, 12.000% to
3/1/08
Sprint Capital Corp., 5.875%, 479,800 479,800
5/1/04
Sprint Capital Corp., 6.125%, 16,644,600 4,623,500 924,700 22,192,800
11/15/08
WorldCom, Inc., 6.400%, 08/15/2005 2,915,940 2,915,940
------------------------------------------------------------------------
33,037,040 19,421,730 4,270,609 56,729,379
------------------------------------------------------------------------
FINANCIAL
Bank United Capital Trust, 10.250%, 3,867,500 227,500 4,095,000
12/31/26
Boeing Capital Corp., 6.750%, 10,029,800 1,504,470 11,534,270
12/23/03
Capital One Bank, 6.570%, 01/27/2003 4,861,000 2,430,500 243,050 7,534,550
Commerce Bancorporation, 11.750%, 6,634,000 6,634,000
6/6/27
First USA Bank, 5.850%, 02/22/2001 9,668,100 1,487,400 247,900 11,403,400
First Union Institutional Capital II, 13,358,520 954,180 954,180 15,266,880
7.850%, 01/01/2027
Ford Motor Credit Co., 6.125%, 488,315 488,315
4/28/03
Ford Motor Credit Corp., 7.375%, 10,052,000 10,052,000
10/28/09
GS Escrow Corp., 7.000%, 08/01/2003 6,556,148 1,873,185 8,429,333
General Electric Capital Corp. "A", 8,955,000 1,990,000 995,000 11,940,000
6.020%, 05/04/2001
Home Savings of America, 6.000%, 9,925,600 2,481,400 992,560 13,399,560
11/1/00
Merrill Lynch & Co., Inc., 6.000%, 7,307,360 2,283,550 456,710 10,047,620
2/17/09
Prudential Insurance Co., 6.375%, 9,413,700 1,882,740 941,370 12,237,810
7/23/06
United Bank Corp., 8.000%, 03/15/2009 2,303,000 460,600 2,763,600
------------------------------------------------------------------------
100,628,728 19,190,425 6,007,185 125,826,338
------------------------------------------------------------------------
MEDIA
AMFM Inc., 10.500%, 01/15/2007 1,090,000 1,090,000
AMFM, Inc., 8.000%, 11/01/2008 5,955,000 2,481,250 496,250 8,932,500
CSC Holdings Inc., 7.875%, 9,477,900 1,421,685 10,899,585
2/15/18
Charter Communication Holdings LLC, 6,580,000 2,350,000 470,000 9,400,000
8.250%, 04/01/2007
News America Holdings Inc., 9.250%, 10,988,400 2,747,100 549,420 14,284,920
2/1/13
Outdoor Systems, Inc., 8.875%, 10,150,000 1,015,000 253,750 11,418,750
6/15/07
TCI-Communications, Inc., 8.000%, 11,744,888 2,609,975 1,043,990 15,398,853
8/1/05
Time Warner Inc., 9.125%, 01/15/2013 13,477,680 1,123,140 14,600,820
------------------------------------------------------------------------
68,373,868 14,838,150 2,813,410 86,025,428
------------------------------------------------------------------------
SERVICE INDUSTRIES
Allied Waste North America, 7.375%, 3,045,000 1,087,500 217,500 4,350,000
1/1/04
Cendant Corp., 7.750%, 12/01/2003 2,979,540 496,590 3,476,130
Integrated Electrical Services, Inc., 1,930,000 482,500 2,412,500
9.375%, 02/01/2009
<PAGE>
<CAPTION>
Scudder AARP Bond Fund Scudder Pro Forma
Income Fund for Income Corporate Bond Combined
Principal Principal Fund Principal Principal Amount
Amount ($) Amount($) Amount ($) ($)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Hospitality Corp., 9.250%, 1,000,000 1,000,000
1/15/06
Primedia, Inc., 7.625%, 04/01/2008 1,500,000 1,500,000
DURABLES
BE Aerospace, Inc., 8.000%, 03/01/2008 2,000,000 2,000,000
Lear Corp., 7.960%, 05/15/2005 8,000,000 2,500,000 500,000 11,000,000
Martin Marietta Corp., 6.500%, 8,000,000 1,500,000 9,500,000
4/15/03
MANUFACTURING
AEP Industries Inc., 9.875%, 250,000 250,000
11/15/07
Apache Corp., 7.700%, 03/15/2026 2,000,000 2,000,000
Columbus McKinnon Corp., 8.500%, 1,000,000 1,000,000
4/1/08
Fort James Corp., 6.625%, 09/15/2004 2,000,000 2,000,000
Graham Packaging Co., 8.750%, 5,150,000 750,000 5,900,000
1/15/08
Lyondell Chemical Co., 9.875%, 1,000,000 500,000 1,500,000
5/1/07
Radnor Holdings Corp., 10.000%, 250,000 250,000
12/1/03
TRW, Inc., 6.625%, 06/01/2004 2,000,000 500,000 2,500,000
Xerox Corp., 5.500%, 11/15/2003 5,000,000 1,000,000 500,000 6,500,000
TECHNOLOGY
IBM Corp., 5.100%, 11/10/2003 1,000,000 1,000,000
Raytheon Co. 6.000%, 12/15/2010 8,000,000 2,000,000 500,000 10,500,000
ENERGY
Anadarko Petroleum Corp., 7.000%, 11,600,000 3,000,000 700,000 15,300,000
11/15/27
Barrett Resources Corp., 7.550%, 6,700,000 1,500,000 300,000 8,500,000
2/1/07
Conoco Inc., 5.900%, 04/15/2004 750,000 750,000
Conoco, Inc., 6.350%, 04/15/2009 5,500,000 2,000,000 7,500,000
Duke Energy Corp., 10.000%, 08/15/2001 2,000,000 500,000 2,500,000
Lomak Petroleum, Inc., 8.750%, 5,000,000 5,000,000
1/15/07
Louis Dreyfus Natural Gas Corp., 2,500,000 500,000 3,000,000
6.875%, 12/01/2007
Louisiana Land & Exploration, 7.650%, 5,000,000 2,500,000 1,000,000 8,500,000
12/1/23
Pioneer Natural Resources Co., 7.200%, 6,500,000 2,000,000 8,500,000
1/15/28
Texas Eastern Transmission Corp., 5,500,000 5,500,000
10.000%, 08/15/2001
CONSTRUCTION
American Standard Companies Inc., 1,500,000 1,500,000
7.625%, 02/15/2010
NVR Inc., 8.000%, 06/01/2005 2,000,000 2,000,000
Nortek, Inc., 9.125%, 09/01/2007 3,250,000 250,000 3,500,000
Nortek, Inc., 9.250%, 03/15/2007 250,000 250,000
TRANSPORTATION
Allied Holdings Inc., 8.625%, 4,000,000 500,000 4,500,000
10/1/07
Continental Airlines Inc., 6.795%, 8,000,000 8,000,000
8/2/18
Newport News Shipbuilding Co., 8.625% 5,000,000 1,500,000 6,500,000
12/1/06
Northwest Airlines Corp., 7.875%, 1,500,000 1,500,000
3/15/08
UTILITIES
<CAPTION>
AARP Bond Scudder Pro Forma
Scudder Fund for Corporate Bond Combined
Income Fund Income Market Fund Market Market
Market Value ($) Value($) Value($) Value ($)(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Hospitality Corp., 9.250%, 960,000 960,000
1/15/06
Primedia, Inc., 7.625%, 04/01/2008 1,380,000 1,380,000
------------------------------------------------------------------------
3,045,000 8,337,040 1,196,590 12,578,630
------------------------------------------------------------------------
DURABLES
BE Aerospace, Inc., 8.000%, 03/01/2008 1,745,000 1,745,000
Lear Corp., 7.960%, 05/15/2005 7,797,600 2,436,750 487,350 10,721,700
Martin Marietta Corp., 6.500%, 7,780,000 1,458,750 9,238,750
4/15/03
------------------------------------------------------------------------
15,577,600 5,640,500 487,350 21,705,450
------------------------------------------------------------------------
MANUFACTURING
AEP Industries Inc., 9.875%, 237,500 237,500
11/15/07
Apache Corp., 7.700%, 03/15/2026 1,964,180 1,964,180
Columbus McKinnon Corp., 8.500%, 840,000 840,000
4/1/08
Fort James Corp., 6.625%, 09/15/2004 1,944,460 1,944,460
Graham Packaging Co., 8.750%, 4,853,875 706,875 5,560,750
1/15/08
Lyondell Chemical Co., 9.875%, 995,000 497,500 1,492,500
5/1/07
Radnor Holdings Corp., 10.000%, 251,250 251,250
12/1/03
TRW, Inc., 6.625%, 06/01/2004 1,941,400 485,350 2,426,750
Xerox Corp., 5.500%, 11/15/2003 4,729,000 945,800 472,900 6,147,700
------------------------------------------------------------------------
11,547,055 7,373,535 1,944,500 20,865,090
------------------------------------------------------------------------
TECHNOLOGY
IBM Corp., 5.100%, 11/10/2003 943,125 943,125
Raytheon Co. 6.000%, 12/15/2010 7,012,960 1,753,240 438,310 9,204,510
------------------------------------------------------------------------
7,012,960 1,753,240 1,381,435 10,147,635
------------------------------------------------------------------------
ENERGY
Anadarko Petroleum Corp., 7.000%, 10,200,343 2,638,020 615,538 13,453,901
11/15/27
Barrett Resources Corp., 7.550%, 6,365,000 1,425,000 285,000 8,075,000
2/1/07
Conoco Inc., 5.900%, 04/15/2004 722,010 722,010
Conoco, Inc., 6.350%, 04/15/2009 5,227,310 1,900,840 7,128,150
Duke Energy Corp., 10.000%, 08/15/2001 2,108,740 527,185 2,635,925
Lomak Petroleum, Inc., 8.750%, 4,525,000 4,525,000
1/15/07
Louis Dreyfus Natural Gas Corp., 2,184,075 436,815 2,620,890
6.875%, 12/01/2007
Louisiana Land & Exploration, 7.650%, 4,857,450 2,428,725 971,490 8,257,665
12/1/23
Pioneer Natural Resources Co., 7.200%, 4,854,688 1,493,750 6,348,438
1/15/28
Texas Eastern Transmission Corp., 5,799,035 5,799,035
10.000%, 08/15/2001
------------------------------------------------------------------------
41,828,826 14,179,150 3,558,038 59,566,014
------------------------------------------------------------------------
CONSTRUCTION
American Standard Companies Inc., 1,320,000 1,320,000
7.625%, 02/15/2010
NVR Inc., 8.000%, 06/01/2005 1,830,000 1,830,000
Nortek, Inc., 9.125%, 09/01/2007 3,120,000 240,000 3,360,000
Nortek, Inc., 9.250%, 03/15/2007 241,875 241,875
------------------------------------------------------------------------
3,120,000 3,391,875 240,000 6,751,875
------------------------------------------------------------------------
TRANSPORTATION
Allied Holdings Inc., 8.625%, 3,480,000 435,000 3,915,000
10/1/07
Continental Airlines Inc., 6.795%, 7,432,800 7,432,800
8/2/18
Newport News Shipbuilding Co., 8.625% 4,975,000 1,492,500 6,467,500
12/1/06
Northwest Airlines Corp., 7.875%, 1,293,555 1,293,555
3/15/08
------------------------------------------------------------------------
15,887,800 3,221,055 19,108,855
------------------------------------------------------------------------
UTILITIES
<PAGE>
<CAPTION>
Scudder AARP Bond Fund Scudder Pro Forma
Income Fund for Income Corporate Bond Combined
Principal Principal Fund Principal Principal Amount
Amount ($) Amount($) Amount ($) ($)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CalEnergy Co., Inc., 7.230%, 2,500,000 500,000 3,000,000
9/15/05
Cleveland Electric Illumination Co., 1,500,000 1,500,000
6.860%, 10/01/2008
Houston Lighting & Power Capital Trust 6,500,000 250,000 6,750,000
II, 8.257%, 02/01/2037
Niagara Mohawk Power Corp., 7.375%, 9,829,271 2,268,293 756,098 12,853,662
7/1/03
Niagara Mohawk Power Corp., 7.625%, 1,512,196 1,512,196
10/1/05
Public Service Co. of Colorado, 10,000,000 10,000,000
6.000%, 04/15/2003
CORPORATE BONDS TOTAL
CORPORATE BONDS (COST OF $392,388,616 $129,515,229
$28,714,358 AND $550,618,203 RESPECTIVELY)
OTHER 1.4%
- -------------------------------------------------------------
Riverside Loan Trust I, 7.438%, 15,000,000 15,000,000
7/16/08
OTHER TOTAL
OTHER (COST OF $15,000,000 $0 $0 AND $15,000,000
RESPECTIVELY)
TOTAL INVESTMENT PORTFOLIO - 100%
INVESTMENT PORTFOLIO (TOTAL COST OF $764,905,495
$216,703,899 $40,036,431 AND $1,021,645,825 RESPECTIVELY)
<CAPTION>
AARP Bond Scudder Pro Forma
Scudder Fund for Corporate Bond Combined
Income Fund Income Market Fund Market Market
Market Value ($) Value($) Value($) Value ($)(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CalEnergy Co., Inc., 7.230%, 2,471,100 494,220 2,965,320
9/15/05
Cleveland Electric Illumination Co., 1,404,510 1,404,510
6.860%, 10/01/2008
Houston Lighting & Power Capital Trust 5,866,250 225,625 6,091,875
II, 8.257%, 02/01/2037
Niagara Mohawk Power Corp., 7.375%, 9,847,652 2,272,535 757,512 12,877,699
7/1/03
Niagara Mohawk Power Corp., 7.625%, 1,525,881 1,525,881
10/1/05
Public Service Co. of Colorado, 9,754,900 9,754,900
6.000%, 04/15/2003
------------------------------------------------------------------------
25,468,802 7,674,026 1,477,357 34,620,185
------------------------------------------------------------------------
========================================================================
CORPORATE BONDS TOTAL 372,834,584 121,594,519 27,138,254 521,567,357
========================================================================
CORPORATE BONDS (COST OF $392,388,616 $129,515,229
$28,714,358 AND $550,618,203 RESPECTIVELY)
OTHER 1.4%
- ---------------------------------------------------
Riverside Loan Trust I, 7.438%, 14,060,625 14,060,625
7/16/08
========================================================================
OTHER TOTAL 14,060,625 14,060,625
========================================================================
OTHER (COST OF $15,000,000 $0 $0 AND $15,000,000
RESPECTIVELY)
========================================================================
TOTAL INVESTMENT PORTFOLIO - 100% 726,374,889 204,538,309 38,237,431 969,150,629
========================================================================
INVESTMENT PORTFOLIO (TOTAL COST OF $764,905,495
$216,703,899 $40,036,431 AND $1,021,645,825
RESPECTIVELY)
</TABLE>
1) Certain securities that do not conform to the investment policies to be in
effect after the Reorganization will be disposed of prior to the Reorganization.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER SCUDDER
INCOME AARP CORPORATE PRO FORMA PRO FORMA
FUND BOND FUND FOR INCOME BOND FUND ADJUSTMENTS COMBINED
---------------------------------------------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
Investments, at value $ 726,374,889 $ 204,538,309 $ 38,237,431 $ 969,150,629
Cash 478 42 248 768
Other assets less liabilities 7,810,435 3,218,562 1,141,316 $ (450,559)(2) 11,719,754
========================================================== =================== ====================
Net assets $ 734,185,802 $ 207,756,913 $ 39,378,995 $ (450,559) $ 980,871,151
========================================================== =================== ====================
NET ASSETS
S Class $ 773,114,238
AARP Class $ 207,756,913
SHARES OUTSTANDING
S Class 58,884,573 3,461,403 (300,970) 62,045,006
AARP Class 14,699,471 1,974,439 16,673,910
NET ASSET VALUE PER SHARE
S Class $ 12.47 $ 11.38 $ 12.46
AARP Class $ 14.13 12.46
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER SCUDDER
INCOME AARP CORPORATE PRO FORMA PRO FORMA
FUND BOND FUND FOR INCOME BOND FUND ADJUSTMENTS COMBINED
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest income $ 54,396,305 $ 15,073,941 $ 2,622,262 $ -- $ 72,092,508
---------------------------------------------------------------------------------------
Total Investment Income 54,396,305 15,073,941 2,622,262 72,092,508
Expenses
Management fees 4,620,541 1,169,588 242,082 (63,737)(3) 5,968,474
Trustee fees 53,027 26,807 28,068 (54,875)(4) 53,027
All other expenses 6,947,193 679,019 459,437 (5,017,949)(5) 3,067,700
---------------------------------------------------------------------------------------
Total expenses before reductions 11,620,761 1,875,414 729,587 (5,136,561) 9,089,201
Expense reductions (4,244,371) (954,825) (729,587) 5,928,783 (6) -
---------------------------------------------------------------------------------------
Expenses, net 7,376,390 920,589 - 792,222 9,089,201
---------------------------------------------------------------------------------------
Net investment income (loss) 47,019,915 14,153,352 2,622,262 (792,222) 63,003,307
---------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (8,947,138) (2,965,572) (364,639) -- (12,277,349)
Net unrealized appreciation (depreciation)
of investments (37,446,738) (10,044,444) (1,840,402) -- (49,331,584)
---------------------------------------------------------------------------------------
Net increase in net assets from operations $ 626,039 $ 1,143,336 $ 417,221 $ (792,222) $ 1,394,374
=======================================================================================
</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 Income Fund, AARP Bond Fund for
Income and Scudder Corporate 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 $450,559 to be borne by the Acquiring Fund.
3. Represents reduction in management fees resulting from a new management
agreement.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
6. Represents the elimination of expense reimbursements.
