<PAGE>
[AARP SCUDDER LOGO]
IMPORTANT NEWS FOR
AARP DIVERSIFIED GROWTH PORTFOLIO SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into
Scudder Pathway Series: Growth Portfolio. This proposal is part of a larger
effort to expand the offerings in the AARP Investment Program to include the
fund lineup of the Scudder Family of Funds. THE BOARD OF YOUR FUND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- GREATER INVESTMENT FLEXIBILITY. Scudder Pathway Series: Growth Portfolio
has the flexibility to invest in a broader array of underlying funds than
your Fund.
- 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.
Q: ARE THE INVESTMENT POLICIES OF SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
SIMILAR TO THOSE OF MY FUND?
A: Scudder Pathway Series: Growth Portfolio has an investment objective and
policies that are very similar to those of your Fund. Your Fund seeks
long-term growth of capital by investing in a diversified portfolio of
underlying AARP Funds. Scudder Pathway Series: Growth Portfolio seeks
long-term growth of capital by investing in a diversified portfolio of
underlying Scudder Funds. The Funds' managers use different styles of
analysis. Unlike your Fund, Scudder Pathway Series: Growth Portfolio does
not invest exclusively in underlying funds that actively seek to reduce
downside risk.
<PAGE>
Q: HOW DOES THIS AFFECT THE AARP INVESTMENT PROGRAM?
A: This consolidation of similar funds will enable Scudder to offer a broader
range of investment choices through the AARP Investment Program. Except for
the changes to your Fund outlined above, there are no plans to change the
characteristics of the AARP Investment Program:
- AARP classes will be created in the Scudder Funds for investors in the
AARP Investment Program.
- Scudder Kemper will continue its strong COMMITMENT TO EDUCATION, both for
AARP Investment Program shareholders and for AARP members in general.
- AARP, through its for-profit subsidiary, will continue to OVERSEE SERVICE
LEVELS AND COMMUNICATIONS to shareholders in the AARP Investment Program
and to AARP members. AARP will also continue to PROVIDE INSIGHT AND
DIRECTION as to what best represents the interests and concerns of its
membership.
- Scudder Kemper will continue to develop NEW PRODUCTS AND SERVICES with the
interests of AARP members in mind.
- Scudder Kemper will MAINTAIN SEPARATE RECORDS for AARP Investment Program
shareholders.
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single board of
trustees/directors responsible for most Scudder Funds. It is proposed that
this board would continue to have AARP representation. It is the Board's
belief that this has the potential for increasing efficiency and benefiting
fund shareholders. The Board also believes that a single board, responsible
for overseeing most of the no-load funds advised by Scudder Kemper, can more
effectively represent shareholder interests. THE BOARD OF YOUR FUND
RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NOMINEE.
(continued on inside back cover)
<PAGE>
April 18, 2000
Dear AARP Investment Program Shareholder,
Scudder Kemper Investments, investment manager for the AARP Investment
Program, is proposing a series of changes to offer you a wider range of fund
options to meet a broader range of investment goals. The current offering of 16
AARP mutual funds will soon expand to include 43 funds, six of which will
maintain a risk-managed focus. This will be accomplished by making the entire
lineup of funds from the Scudder Family of Funds available to AARP Investment
Program shareholders. In addition, subject to shareholder approval, most AARP
Investment Program funds will be combined with Scudder Funds that have similar
investment objectives. The funds will be called Scudder Funds, indicating
Scudder Kemper's distinct role as investment manager of the funds.
The involvement and level of participation from AARP in the AARP Investment
Program from Scudder is NOT changing. AARP will continue to oversee the
Investment Program's service quality and communications; and AARP will continue
to provide insight and direction as to what best represents the interests and
concerns of its membership.
PLEASE READ THE ENCLOSED MATERIALS
Enclosed with this letter is a packet of materials we ask that you read and,
where applicable, fill out and return to us. The Q&A that begins on the front
cover of the proxy statement explains the proposals we're making, why we're
making them, and how they apply to your AARP Fund. The packet also contains a
proxy card and a prospectus for the fund that we are proposing to merge your
Fund into.
After careful review, the members of your Fund's Board have approved each of
the proposals explained in the Q&A and described in the proxy statement. THE
BOARD RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE
FOR ALL THE PROPOSALS. (Because many of the funds for which Scudder Kemper acts
as investment manager are holding shareholder meetings, you may receive more
than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope. If you prefer, you
can save time and postage cost by voting on the Internet or by telephone -- the
enclosed flyer describes how. If we do not hear from you by May 17, our proxy
solicitor may contact you. Thank you for your response and for your continued
investment in the AARP Investment Program.
Respectfully,
<TABLE>
<S> <C>
/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chief Executive Officer Chairperson
Scudder Kemper Investments, Inc. Board of Trustees
AARP Investment Program
</TABLE>
<PAGE>
AARP DIVERSIFIED GROWTH PORTFOLIO
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
AARP Diversified Growth Portfolio (the "Fund"), a series of AARP Managed
Investment Portfolios Trust (the "Trust"), will be held at the offices of
Scudder Kemper Investments, Inc., 13th Floor, Two International Place, Boston,
MA 02110-4103, on July 11, 2000, at 2:00 p.m., Eastern time, for the following
purposes:
<TABLE>
<S> <C>
PROPOSAL 1: To elect Trustees of the Trust;
PROPOSAL 2: To approve an Agreement and Plan of Reorganization for
the Fund whereby all or substantially all of the assets
and liabilities of the Fund would be acquired by Scudder
Pathway Series: Growth Portfolio in exchange for shares
of the AARP Class of Scudder Pathway Series: Growth
Portfolio; and
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Fund for the Fund's
current fiscal year.
</TABLE>
The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on
April 17, 2000 are entitled to vote at the Meeting and at any adjournments
thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
April 18, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE
ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE
PROXY CARD(S)). YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING
BY OTHER AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS. IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON
AT THAT TIME, YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST...... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................ 15
SYNOPSIS....................................... 15
PRINCIPAL RISK FACTORS......................... 24
THE PROPOSED TRANSACTION....................... 25
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS................................... 31
ADDITIONAL INFORMATION...................................... 31
</TABLE>
i
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PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF AARP DIVERSIFIED GROWTH PORTFOLIO
(THE "ACQUIRED FUND"), A SEPARATE SERIES OF AARP MANAGED INVESTMENT PORTFOLIOS
TRUST (THE "ACQUIRED TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 253-2277
--------------------------
BY AND IN EXCHANGE FOR THE AARP CLASS OF SHARES OF BENEFICIAL INTEREST OF
SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO (THE "ACQUIRING FUND"), A SEPARATE
SERIES OF SCUDDER PATHWAY SERIES (THE "ACQUIRING TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of the
Acquired Fund in connection with three proposals (each a "Proposal,"
collectively, the "Proposals"). Proposal 1 describes the election of Trustees,
and Proposal 3 proposes the ratification of the selection of the Acquired Fund's
accountants.
In Proposal 2, shareholders are asked to approve a proposed reorganization
in which all or substantially all of the assets of the Acquired Fund would be
acquired by the Acquiring Fund, in exchange for shares of beneficial interest of
the AARP Class of the Acquiring Fund ("AARP Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, as described more
fully below (the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. As a result of the Reorganization,
each shareholder of the Acquired Fund would receive that number of AARP Shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Acquired Fund held as of the close of business
on the business day preceding the closing of the Reorganization (the "Valuation
Date"). Shareholders of the Acquired Fund will vote on an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Reorganization would be
consummated. A copy of the Plan is attached hereto as Exhibit A. The closing of
the Reorganization (the "Closing") is contingent upon shareholder approval of
the Plan. The Reorganization is expected to occur on or about September 25,
2000.
--------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), and
described in more detail below.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Acquired Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement/Prospectus as being taken by
either the Acquired Fund or the Acquiring Fund (each a "Fund" and collectively
the "Funds"), although all actions are actually taken either by the Acquired
Trust or the Acquiring Trust (together with the Acquired Trust, the "Trusts"),
on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment objective, policies, restrictions and risks of the Acquiring Fund,
see the Acquiring Fund's prospectus, dated January 1, 2000, as supplemented from
time to time, which is included herewith and incorporated herein by reference.
For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Acquired Fund, see the Acquired Fund's prospectus,
dated February 1, 2000, as supplemented from time to time, which is incorporated
herein by reference and a copy of which may be obtained upon request and without
charge by calling or writing the Acquired Fund at the telephone number or
address set forth on the preceding page.
The Acquiring Fund's statement of additional information, dated January 1,
2000, as supplemented from time to time, is incorporated herein by reference and
may be obtained upon request and without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth on the preceding
page. A Statement of Additional Information dated April 18, 2000, containing
additional information about the Reorganization and the parties thereto has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional Information relating
to the Reorganization is available upon request and without charge by calling or
writing the Acquiring Fund at the telephone number or address set forth on the
preceding page. Shareholder inquiries regarding the Acquired Fund may be made by
calling (800) 253-2277. Shareholder inquiries regarding the Acquiring Fund may
be made by calling (800) 728-3337. The information contained herein concerning
the Acquired Fund has been provided by, and is included herein in reliance upon,
the Acquired Fund. The information contained herein concerning the Acquiring
Fund has been provided by, and is
2
<PAGE>
included herein in reliance upon, the Acquiring Fund. The AARP Shares will be a
newly-established class of shares of the Acquiring Fund and will be identical in
all material respects to the Acquiring Fund shares currently offered and sold,
as described in the prospectus and statement of additional information for the
Acquiring Fund, dated January 1, 2000, except as otherwise described herein.
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of, respectively, the Acquiring Trust and the Acquired
Trust. The Acquiring Trust and the Acquired Trust are open-end management
investment companies organized as Massachusetts business trusts.
The Board of Trustees (except as otherwise noted, "Trustees" refers to the
Trustees of the Acquired Trust and "Board" refers to the Board of Trustees of
the Acquired Trust) is soliciting proxies from shareholders of the Acquired
Fund, on behalf of the Acquired Fund, for the Special Meeting of Shareholders to
be held on July 11, 2000, at Scudder Kemper's offices, 13th Floor, Two
International Place, Boston, MA 02110-4103, at 2:00 p.m. (Eastern time), or at
such later time made necessary by adjournment (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about April 18, 2000 or as soon as
practicable thereafter.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES
LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES
OF THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust, the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or the American Association of Retired
Persons ("AARP"). The nominees listed below are also being nominated for
election as Trustees of the Acquiring Trust and as trustees or directors of all
of the other AARP Funds (as defined below) and open-end directly-distributed,
no-load Scudder Funds.
Currently, five different boards of trustees or directors are responsible
for overseeing different groups of no-load funds advised by Scudder Kemper. As
3
<PAGE>
part of a broader restructuring effort described below under Proposal 2, Scudder
Kemper has recommended, and the Board of Trustees has agreed, that shareholder
interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card(s) will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the current Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation(s)
noted in the following paragraphs and table for at least the most recent five
years, although not necessarily in the same capacity, and (ii) the address of
each nominee is c/o Scudder Kemper Investments, Inc., Two International Place,
Boston, MA 02110-4103.
NOMINEES FOR ELECTION AS TRUSTEES:
HENRY P. BECTON, JR. (56)
Henry P. Becton, Jr. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from Harvard
Law School in 1968. Mr. Becton is a member of the PBS Board of Directors, a
Trustee of American Public Television, the New England Aquarium, the Boston
Museum of Science, Concord Academy, and the Massachusetts Corporation for
Educational Telecommunications, an Overseer of the Boston Museum of Fine Arts,
and a member of the Board of Governors of the Banff
4
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International Television Festival Foundation. He is also a Director of Becton
Dickinson and Company and A.H. Belo Company, a Trustee of the Committee for
Economic Development, and a member of the Board of Visitors of the Dimock
Community Health Center, the Dean's Council of Harvard University's Graduate
School of Education, and the Massachusetts Bar. Mr. Becton has served as a
trustee or director of various mutual funds advised by Scudder Kemper since
1990.
LINDA C. COUGHLIN (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group.
Ms. Coughlin received a B.A. degree in economics SUMMA CUM LAUDE from Fordham
University. Ms. Coughlin is a Trustee of the Acquired Trust and has served on
the boards of various funds advised by Scudder Kemper, including the AARP
Investment Program Funds, since 1996.
DAWN-MARIE DRISCOLL (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. Ms. Driscoll was recently named 1999 "Fund
Trustee of the Year" by Fund Directions, a publication of Institutional
Investor, Inc. She has been a director, trustee and overseer of many civic and
business institutions, including The Massachusetts Bay United Way and Regis
College. Ms. Driscoll was formerly a law partner at Palmer & Dodge in Boston and
served for over a decade as Vice President of Corporate Affairs and General
Counsel of Filene's, the Boston-based department store chain. Ms. Driscoll
received a B.A. from Regis College, a J.D. from Suffolk University Law School, a
D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary) from Bentley
College Graduate School of Business. Ms. Driscoll has served
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as a trustee or director of various mutual funds advised by Scudder Kemper since
1987.
EDGAR R. FIEDLER (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996.
Mr. Fiedler's business experience includes positions at Eastman Kodak in
Rochester (1956-59), Doubleday and Company in New York City (1959-60), and
Bankers Trust Company in New York City (1960-69). He also served as Assistant
Secretary of the Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler
graduated from the University of Wisconsin in 1951. He received his M.B.A. from
the University of Michigan and his doctorate from New York University. During
the 1980's, Mr. Fiedler was an Adjunct Professor of Economics at the Columbia
University Graduate School of Business. From 1990 to 1991, he was the Stephen
Edward Scarff Distinguished Professor at Lawrence University in Wisconsin.
Mr. Fiedler is a Director of The Stanley Works, Harris Insight Funds, Brazil
Fund, and PEG Capital Management, Inc. He is a Trustee of the Acquired Trust and
has served as a board member of various mutual funds advised by Scudder Kemper,
including the AARP Investment Program Funds, since 1984.
KEITH R. FOX (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976, and in 1981
received an M.B.A. degree from the Harvard Business School. Mr. Fox is also a
qualified accountant. He is a board member and former Chairman of the National
Association of Small Business Investment Companies, and a director of Golden
State Vintners, K-Communications, Progressive Holding Corporation 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 is a Trustee
of the Acquired Trust and 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 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 ACQUIRED TRUST,
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
Carole Lewis Anderson (55)........... Trustee; Principal, Suburban Capital
Markets, Inc. (1995-Present).
Ms. Anderson serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Adelaide Attard (69)................. Trustee; Member, NYC Department of
Aging Advisory Council (1995-Present).
Ms. Attard serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Robert N. Butler, M.D. (73).......... Trustee; CEO and President,
International Longevity Center and
Professor of Geriatrics and Adult
Development; Chairman, Henry L.
Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical
Center (1982-Present). Dr. Butler
serves on the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Esther Canja (73)*................... Trustee; President-Elect of AARP (to
assume the Presidency in May 2000).
Ms. Canja serves on the board of an
additional 1 trust whose funds are
advised by Scudder Kemper.
Lt. Gen. Eugene P. Forrester (74).... Trustee; Lt. General (Retired),
U.S. Army; International Trade
Counselor (1983-Present); Consultant.
Lt. Gen. Forrester serves on the boards
of an additional 4 trusts whose funds
are advised by Scudder Kemper.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST,
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
George L. Maddox, Jr. (74)........... Trustee; Professor Emeritus and
Director, Long Term Care Resources
Program, Duke University Medical
Center; Professor Emeritus of
Sociology, Departments of Sociology and
Psychiatry, Duke University.
Mr. Maddox serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Robert J. Myers (87)................. Trustee; Actuarial Consultant
(1983-Present). Mr. Myers serves on the
boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
James H. Schulz (63)................. Trustee; Professor of Economics and
Kirstein Professor of Aging Policy,
Policy Center on Aging, Florence Heller
School, Brandeis University.
Mr. Schulz serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Gordon Shillinglaw (74).............. Trustee; Professor Emeritus of
Accounting, Columbia University
Graduate School of Business.
Mr. Shillinglaw serves on the boards of
an additional 4 trusts whose funds are
advised by Scudder Kemper.
</TABLE>
- ------------------------
* Nominee or Trustee considered by the Acquired Trust and its counsel to be an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Acquired Trust, the Investment Manager or
AARP because of his or her employment by the Investment Manager or AARP, and,
in some cases, holding offices with the Acquired Trust.
Appendix 1 hereto sets forth the number of shares of each series of the
Acquired Trust owned directly or beneficially by the Trustees of the Acquired
Trust and by the nominees for election.
10
<PAGE>
RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS
A fund's board is responsible for the general oversight of fund business.
The board that is proposed for shareholder voting at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP and who are
called "independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive
rules under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the investment
performance of each fund of the Acquired Trust and other operational matters,
including policies and procedures designed to assure compliance with regulatory
and other requirements. Furthermore, the Independent Trustees review the fees
paid to the Investment Manager and its affiliates for investment advisory
services and other administrative and shareholder services. The Trustees have
adopted several policies and practices which help ensure their effectiveness and
independence in reviewing fees and representing shareholders. Many of these are
similar to those suggested in the Investment Company Institute's 1999 Report of
the Advisory Group on Best Practices for Fund Directors (the "Advisory Group
Report"). For example, the Independent Trustees select independent legal counsel
to work with them in reviewing fees, advisory and other contracts and overseeing
fund matters. The Trustees are also assisted in this regard by the funds'
independent public accountants and other independent experts retained from time
to time for this purpose. The Independent Trustees regularly meet privately with
their counsel and other advisors. In addition, the Independent Trustees from
time to time have appointed task forces and subcommittees from their members to
focus on particular matters.
The Board of the Acquired Trust has an Audit Committee and a Committee on
Independent Trustees, the responsibilities of which are described below. In
addition, the Acquired Trust has an Executive Committee, a Shareholder Service
Committee and a Valuation Committee.
AUDIT COMMITTEE
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things,
11
<PAGE>
the scope of the audit and the internal controls of each series of the Acquired
Trust and its agents, reviews and approves in advance the type of services to be
rendered by independent accountants, recommends the selection of independent
accountants for each series of the Acquired Trust to the Board, reviews the
independence of such firm and, in general, considers and reports to the Board on
matters regarding the accounting and financial reporting practices of each
series of the Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised of only Independent Trustees (all of whom serve on the
committee), meets privately with the independent accountants of each series of
the Acquired Trust, will receive annual representations from the accountants as
to their independence, and has a written charter that delineates the committee's
duties and powers.
COMMITTEE ON INDEPENDENT TRUSTEES
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised of all of the Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies and reviewing matters relating to the Independent
Trustees.
ATTENDANCE
The full Board of Trustees of the Acquired Trust met five times, the Audit
Committee met two times and the Committee on Independent Trustees met five times
during calendar year 1999. Each then current Trustee attended 100% of the total
meetings of the Board and each above named committee on which he or she served
as a regular member that were held during that period, except Esther Canja,
Robert J. Myers, James H. Schulz and Robert N. Butler, who attended 90%, 92%,
92% and 83%, respectively, of those meetings. In addition to these Board and
committee meetings, the Trustees of the Acquired Trust attended various other
meetings on behalf of the Acquired Trust during the year, including meetings
with their independent legal counsel and informational meetings.
12
<PAGE>
OFFICERS
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION YEAR FIRST BECAME
NAME (AGE) OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- --------------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48)....... Trustee and President; Managing
Director of Scudder Kemper 2000
William F. Glavin, Jr. (41).. Vice President; Managing Director of
Scudder Kemper 1997
Ann M. McCreary (43)......... Vice President; Managing Director of
Scudder Kemper 1998
James E. Masur (39).......... Vice President; Senior Vice President
of Scudder Kemper 1999
John Millette (37)........... Vice President and Assistant Secretary;
Vice President of Scudder Kemper 1999
James W. Pasman (48)......... Vice President; Senior Vice President
of Scudder Kemper 1996
Kathryn L. Quirk (47)........ Vice President and Secretary; Managing
Director of Scudder Kemper 1997
John R. Hebble (41).......... Treasurer; Senior Vice President,
Scudder Kemper 1997
</TABLE>
- ------------------------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Acquired Trust.
COMPENSATION OF TRUSTEES AND OFFICERS
The Acquired Trust does not directly pay any Trustee an annual Trustee's fee
or fees for Board and committee meetings attended. The compensation that the
Independent Trustees receive for service on the Acquired Trust's Board is borne
by certain of the underlying funds in which the series of the Acquired Trust
invest (each an "Underlying Fund," together with underlying funds in
13
<PAGE>
which the Acquiring Fund Invests, the "Underlying Funds") pursuant to a special
servicing agreement which provides that, subject to certain limitations, the
applicable Underlying Funds assume all expenses of the Acquired Trust. As of
April 1, 1999, each Independent Trustee receives an aggregate annual Trustee's
fee of $12,000 for service on the boards of trustees of the funds offered
through the AARP Investment Program (the "AARP Funds"). (Prior to April 1, 1999,
the annual Trustee's fee was $10,000.) Each Independent Trustee also receives
fees of $175 per fund for attending each meeting of the Board and between $80
and $150 per fund (depending on meeting type) for attending each committee
meeting, or meeting held for the purpose of considering arrangements between the
Acquired Trust and Scudder Kemper, or any of its affiliates. The
newly-constituted Board may determine to change its compensation structure.
The current compensation package for the Independent Trustees of the
Acquired Trust has not included any provisions for pensions or other retirement
benefits. A one-time benefit, however, will be provided to those Independent
Trustees who are not standing for re-election in an amount equal to twice a
Trustee's calendar year 1999 compensation from the AARP Funds. Inasmuch as
Scudder Kemper will also benefit from the administrative efficiencies of a
consolidated board, Scudder Kemper has agreed to bear one-half of the cost of
any such benefit.
Scudder Kemper supervises the Acquired Trust's investments and pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust. Each applicable Underlying Fund pays Scudder
Kemper a fee for its services to the Underlying Fund. Several of the Acquired
Trust's officers and Trustees are also officers, directors, employees or
stockholders of Scudder Kemper and participate in the fees paid to that firm by
Underlying Funds, although the Acquired Trust makes no direct payments to them.
The following Compensation Table provides in tabular form the following
data:
COLUMN (1) All Trustees who receive compensation for service on the Board of
Trustees of the Acquired Trust.
COLUMN (2) Aggregate compensation received by each Trustee of the Acquired
Trust during calendar year 1999.
COLUMN (3) Total compensation received by each Trustee from funds managed by
Scudder Kemper (collectively, the "Fund Complex") during calendar year 1999.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX PAID
TRUSTEES (NUMBER OF SERIES) TO TRUSTEE
- -------- ------------------ ----------------------
<S> <C> <C>
Carole Lewis Anderson........................ $5,078 (2 series) $40,935 (16 funds)
Adelaide Attard.............................. $4,758 (2 series) $38,375 (16 funds)
Robert N. Butler............................. $4,318 (2 series) $34,855 (16 funds)
Edgar R. Fiedler............................. $3,998 (2 series) $73,230 (29 funds)*
Eugene P. Forrester.......................... $5,078 (2 series) $40,935 (16 funds)
George L. Maddox, Jr......................... $5,078 (2 series) $40,935 (16 funds)
Robert J. Myers.............................. $4,758 (2 series) $38,200 (16 funds)
James H. Schulz.............................. $4,598 (2 series) $37,095 (16 funds)
Gordon Shillinglaw........................... $4,918 (2 series) $44,280 (16 funds)
Jean Gleason Stromberg....................... $5,078 (2 series) $40,935 (16 funds)
</TABLE>
- ------------------------
* Mr. Fiedler's total compensation includes $9,900 accrued, but not received,
through a deferred compensation program for serving on the Board of Directors
of Scudder Fund, Inc.
THE BOARD OF TRUSTEES OF AARP MANAGED INVESTMENT PORTFOLIOS TRUST RECOMMENDS
THAT THE SHAREHOLDERS OF AARP DIVERSIFIED GROWTH PORTFOLIO VOTE FOR EACH
NOMINEE.
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
I. SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus relating to the Reorganization. This summary is qualified
by reference to the more complete information contained elsewhere in this Proxy
Statement/Prospectus, the prospectuses and statements of additional information
of the Funds, and the Plan. Shareholders should read this entire Proxy
Statement/Prospectus carefully.
INTRODUCTION
The Board of the Acquired Trust, including all of the Independent Trustees,
approved the Plan at a meeting held on February 7, 2000. Subject to its approval
by the shareholders of the Acquired Fund, the Plan provides for
15
<PAGE>
(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 AARP
Shares; (b) the distribution of such shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund; and (c) the abolition of the
Acquired Fund as a series of the Acquired Trust. As a result of the
Reorganization, each shareholder of the Acquired Fund will become a shareholder
of the AARP Shares and will hold, immediately after the Reorganization, AARP
Shares having an aggregate net asset value equal to the aggregate net asset
value of such shareholder's shares of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information" below.
BACKGROUND OF THE REORGANIZATION
The Reorganization is part of a broader restructuring program proposed by
Scudder Kemper to respond to changing industry conditions and investor needs.
Scudder Kemper seeks to offer the full lineup of the Scudder Family of no-load
funds to members of the AARP Investment Program. The expanded offering should
position the AARP Investment Program to meet the increasingly diverse needs of
current and prospective AARP members.
Scudder Kemper and AARP have advised the Board that they believe that the
proposed changes in the AARP Investment Program from Scudder are in the
interests of shareholders of the AARP Funds and AARP members. The Program would
comprise the shares of the AARP Class of each of forty-three no-load funds,
compared with the current sixteen, and would retain its separate identity, with
separate statements and generally lower minimum investments for participating
shareholders; six core funds(1) would continue to have a risk managed strategy;
education will remain a focus of Scudder Kemper; and AARP will continue to be
involved with the Program and is proposed to have board representation.
- ------------------------
(1) The six core funds would be Scudder GNMA Fund (currently known as AARP
GNMA and U.S. Treasury Fund), Scudder Capital Growth Fund (currently known
as AARP Capital Growth Fund), Scudder Small Company Stock Fund (currently
known as AARP Small Company Stock Fund), Scudder Managed Municipal Bonds,
Scudder Global Fund and Scudder Growth and Income Fund.
16
<PAGE>
As part of this initiative, Scudder Kemper has sought ways to restructure
and streamline the management and operations of the funds it advises. Scudder
Kemper believes, and has advised the boards, that the consolidation of certain
funds advised by it would benefit fund shareholders. Scudder Kemper has,
therefore, proposed the consolidation of a number of no-load funds advised by it
that Scudder Kemper believes have similar or compatible investment objectives
and policies. In many cases, the proposed consolidations are designed to
eliminate the substantial overlap in current offerings by the Scudder Funds and
the AARP Funds, all of which are advised by Scudder Kemper. Consolidation plans
are proposed for other funds that have not gathered enough assets to operate
efficiently and, in turn, have relatively high expense ratios. Scudder Kemper
believes that these consolidations may help to enhance investment performance of
funds and increase efficiency of operations.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for the AARP Funds and for the open-end,
directly-distributed, no-load Scudder Funds would increase efficiency and
benefit fund shareholders. (See Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment of an
administrative fee by an Underlying Fund in which the Acquiring Fund invests,
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 most of the
Underlying Funds implement such an administrative fee.
Various third-party service providers (the "Service Providers"), some of
which are affiliated with Scudder Kemper, provide certain services for
Underlying Funds (such as computing net asset value; providing transfer agency,
shareholder servicing and dividend-paying agent services; providing custody of
portfolio securities; auditing financial statement and providing other audit,
tax and related services; and acting as general counsel). In addition to the
fees it pays under its current investment management agreement with Scudder
Kemper, an Underlying Fund pays the fees and expenses associated with these
service arrangements, as well as the Underlying Fund's insurance, registration,
printing, potage and other costs.
17
<PAGE>
Once an administration agreement becomes effective, each Service Provider
will continue to provide the services that it currently provides to each
particular Underlying Fund, as described above, under the current arrangements,
except that Scudder Kemper will pay these entities for the provision of their
services to the Underlying Fund and will pay most other Fund expenses, including
insurance, registration, printing and postage fees. In return, the Underlying
Fund will pay Scudder Kemper an administrative fee.
Certain expenses of an Underlying Fund would not be borne by Scudder Kemper
under an administration agreement, such as taxes, interest and extraordinary
expenses, and the fees and expenses of the independent trustees of the
Underlying Funds (including the fees and expenses of their independent counsel).
In addition, an Underlying Fund would continue to pay the fees required by its
investment management agreement with Scudder Kemper.
The fund consolidations, the adoption of administrative fees 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 September 22, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction -- Board Approval
of the Proposed Transaction" below.
The Trustees believe that the Reorganization may provide shareholders of the
Acquired Fund with the following benefits:
- GREATER INVESTMENT FLEXIBILITY. The Acquiring Fund has the flexibility to
invest in a broader array of Underlying Funds than the Acquired Fund.
- GREATER PREDICTABILITY OF INDIRECT EXPENSES. It is expected that on or
prior to the Closing, most Underlying Funds 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 Underlying
18
<PAGE>
Fund, and will pay most Underlying Fund expenses, in return for payment by
the Underlying Fund of a single administrative fee rate. This agreement,
which has an initial three year term, will protect the Acquiring Fund
shareholders (including the Acquiring Fund) from increases in the
Acquiring Fund's indirect costs attributed to any increases in the costs
of providing these services to the Underlying Funds.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The proposed combined
Acquiring Fund will continue to allocate its assets among stock funds,
bond funds, and cash in proportions similar to the allocations of the
Acquired Fund.
- TAX-FREE REORGANIZATION. It is a condition of the Reorganization that each
Fund receive an opinion of tax counsel that the transaction would be a
TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES RECOMMEND APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE ACQUIRING FUND
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 each
Fund is to seek long-term growth of capital. There can be no assurance that
either Fund will achieve its investment objective.
Each Fund invests mainly in the securities of Underlying Funds. The
Acquiring Fund invests in other Scudder Funds, and the Acquired Fund invests in
other AARP Funds. The Acquiring Fund and the Acquired Fund invest different
percentages of their assets in Underlying Funds with particular goals. The
Acquiring Fund generally invests 80% of its total assets in equity funds, 15% of
its total assets in bond funds, and 5% of its total assets in money funds. The
Acquired Fund generally invests 70% of its total assets in equity funds and 30%
of its total assets in some combination of bond funds, money funds, and/or
19
<PAGE>
cash. The Acquiring Fund has the flexibility to adjust the allocation of its
assets within the following ranges: investments in equity funds must account for
between 60% and 90% of total assets; bond funds must account for between 10% and
40% of total assets; and money funds must account for between 0% and 5% of total
assets.
The Funds are currently managed by different portfolio managers who use
different styles of analysis. The managers of the Acquiring Fund regularly
review the actual allocation of the Fund, and may adjust it in seeking to take
advantage of current or expected market conditions or to manage risk. In making
their allocation decisions for the Acquiring Fund, the managers take a top-down
approach, looking at the outlooks for various securities markets and segments of
those markets. Based on the desired exposure to particular investments, the
managers of the Acquiring Fund then decide which funds to use as Underlying
Funds and how much to invest in each Underlying Fund. The Acquired Fund invests
its assets in at least five Underlying Funds, with an emphasis on
growth-oriented funds, each of which is managed to limit downside risk in
comparison with similar funds. The Acquired Fund does not invest in securities
issued by tobacco-producing companies and has a stated goal of educating
shareholders on investment topics affecting their lives.
Each Fund's Underlying Funds use a broad array of investment styles. These
Underlying Funds can buy many types of securities, among them common stocks of
companies of any size, corporate bonds of varying credit quality, U.S.
government and agency bonds, mortgage- and asset-backed securities, money market
instruments, and others. These securities are mainly from U.S. issuers but may,
to a limited extent, be from foreign issuers.
The Acquiring Fund's investment restrictions are similar to the Acquired
Fund's investment restrictions, as such restrictions are set forth under
"Investment Restrictions" in each Fund's statement of additional information,
except that the Acquiring Fund may not, as a non-fundamental policy, invest in
companies for the purpose of exercising management or control. 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 August 31, 1999 (i.e., prior to the creation of AARP Shares) was 28%. The
20
<PAGE>
portfolio turnover rate for the Acquired Fund for the fiscal year ended
September 30, 1999 was 32%.
PERFORMANCE
The following table shows how each Fund's returns over different periods
average out. For context, the table also includes broad-based market indexes
(which, unlike the Funds, do not have any fees or expenses). The performances of
both Funds and the indexes vary over time. All figures assume reinvestment of
dividends and distributions.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED 3-MONTH U.S.
FUND(@) FUND S&P 500(+) LBAB(#) TREASURY BILL
--------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Past year............ 35.24% 12.56% 21.04% (0.82)% 4.72%
Since Inception*..... 19.24% N/A 25.90% 5.25% 4.93%
Since Inception**.... N/A 13.38% 25.81% 5.79% 4.93%
</TABLE>
- ------------------------
(@) AARP Shares were not offered during the periods covered. Performance shown
is for shares of the Acquiring Fund existing during the periods covered.
(*) Inception date of the Acquiring Fund is November 15, 1996. Index
comparisons begin on November 30, 1996.
(**) Inception date of the Acquired Fund is February 1, 1997. Index comparisons
begin on January 31, 1997.
(+) The Standard and Poor's (S&P) 500 Composite Stock Price Index is an
unmanaged, capitalization-weighted index of 500 stocks. The index is
designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries.
(#) The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged, market
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities.
Total return for each Fund would have been lower during all periods noted in
the table above if the Investment Manager had not maintained expenses of certain
Underlying Funds.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended August 31, 1999 (prior to the creation of AARP Shares), see
Exhibit B attached hereto.
21
<PAGE>
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 has agreed not to be paid a management fee for
performing its services for either Fund. The Investment Manager does receive
management fees for managing the Underlying Funds in which each of the Funds
invest. Each Fund, as a shareholder of the Underlying Funds in which it invests,
bears its proportionate share of fees and expenses paid by the Underlying Funds.
COMPARISON OF EXPENSES
The table and examples below are designed to assist you in understanding the
various costs and expenses that you will bear directly or indirectly as an
investor in the AARP Shares, and comparing these with the expenses of the
Acquired Fund. Unless otherwise noted, the information is based on each Fund's
expenses and average daily net assets during the twelve months ended
October 31, 1999 and on a pro forma basis as of such date and for the period
then ended, giving effect to the Reorganization. Each Fund has no sales charges
or other shareholder fees. Neither Fund bears any direct expenses, and thus both
Funds have total annual Fund operating expenses of 0.00%. However, each Fund's
shareholders will indirectly bear that Fund's pro rata share of fees and
expenses incurred by the Underlying Funds in which the Fund invests. Information
in the tables and examples relating to the Acquiring Fund relates to the
Acquiring Fund as a whole prior to the creation of the AARP Shares. Pro Forma
information in the table and examples relates to the AARP Shares and the S
Class of shares of the Acquiring Fund. (Please see "Description of the
Securities to be Issued" below.)
FEE TABLE (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ACQUIRING FUND ACQUIRED FUND (COMBINED)
-------------- -------------- --------------
<S> <C> <C> <C>
Range of Average Weighted Expense Ratio........... 0.74% to 2.40% 0.65% to 2.03% 0.72% to 1.81%
</TABLE>
22
<PAGE>
EXAMPLES (UNAUDITED)
Based on the costs above, the following examples are intended to help you
compare the cost of investing in the Funds with the cost of investing in other
mutual funds. The examples assume that you invest $10,000 in each Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The examples also assume that your investment has a 5% return each
year, you reinvested all dividends and distributions, and each Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as follows:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
YEAR FUND FUND (COMBINED)
- ---- --------- -------- ----------
<S> <C> <C> <C>
1ST..................................... $ 160 $ 136 $ 129
3RD..................................... $ 496 $ 425 $ 403
5TH..................................... $ 855 $ 734 $ 697
10TH.................................... $1,867 $1,613 $1,534
</TABLE>
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund prior to the creation
of the AARP Shares, which is intended to help you understand the Acquiring
Fund's financial performance since its inception on November 15, 1996, is
included in the Acquiring Fund's prospectus dated January 1, 2000, which is
included herewith and incorporated herein by reference.
DISTRIBUTION OF SHARES
Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of each Fund. SIS charges no direct fees in connection with the
distribution of shares of the Funds. Following the Reorganization, Acquiring
Fund shareholders will continue to be able to purchase shares of funds in the
Scudder Family of Funds on a no-load basis.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those that will be in place for the AARP Shares,
except for the range of funds available under the exchange privilege and the
minimum balance requirements.
Acquired Fund shareholders may currently exchange Acquired Fund shares only
into AARP Funds, while holders of AARP Shares will be able to exchange AARP
Shares into shares of any fund within the Scudder Family of Funds on a no-load
basis. The minimum balance for non-retirement accounts investing in
23
<PAGE>
the AARP Shares will be $1,000, which is lower than the minimum balance for
non-retirement accounts investing in the Acquired Fund. The minimum balance for
Individual Retirement Accounts ("IRAs") investing in AARP Shares will be $500,
as compared to $250 for the Acquired Fund. However, Acquired Fund IRA
shareholders receiving AARP Shares as a result of the Reorganization will only
be required to meet the Acquired Fund's $250 minimum balance requirement for
IRAs.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to distribute dividends from its net investment income on
an annual basis. The Acquiring Fund intends to distribute net realized capital
gains after utilization of capital loss carryforwards, if any, in November or
December of each year in order to prevent application of a federal excise tax.
The Acquired Fund intends to make similar distributions annually. 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
types of principal risks presented by the Acquiring Fund are similar to those
presented by the Acquired Fund. The main risks applicable to each Fund stem from
its investments in the Underlying Funds and include, among others, market risk,
and, to the extent the Fund invests in bond funds, risk associated
24
<PAGE>
with interest rates. As noted above, however, the Acquired Fund invests in
Underlying Funds that are managed to limit downside risk in comparison with
similar funds.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds, which are incorporated by reference herein.
III. THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund in exchange for
that number of full and fractional AARP Shares having an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund as of the
close of business on the Valuation Date. The Acquiring Fund will assume all of
the liabilities of the Acquired Fund. The Acquired Fund will distribute the AARP
Shares received in the exchange to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. The Acquired Fund will be abolished
as a series of the Acquired Trust.
Upon completion of the Reorganization, each shareholder of the Acquired Fund
will own that number of full and fractional AARP Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Acquiring Trust
identical in all material respects to the account currently maintained by the
Acquired Trust for such shareholder, except as noted above. In the interest of
economy and convenience, AARP Shares issued to the Acquired Fund's shareholders
will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption and purchase requests received by the transfer agent after the
Closing will be treated as requests received for the redemption or purchase of
AARP Shares received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of the Acquired Fund and the
Acquiring Fund, respectively, under the Plan are subject to various conditions,
as stated therein. Among other things, the Plan requires that all filings be
made
25
<PAGE>
with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Trust,
notwithstanding the approval of the Plan by the shareholders of the Acquired
Fund. However, no amendment may be made that materially adversely affects the
interests of the shareholders of the Acquired Fund without obtaining the
approval of the Acquired Fund's shareholders. The Acquired Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan. For a complete description of the terms
and conditions of the Reorganization, see the Plan at Exhibit A.
Scudder Kemper will pay the expenses associated with the Reorganization.
BOARD APPROVAL OF THE PROPOSED TRANSACTION
Scudder Kemper first proposed the Reorganization to the Independent Trustees
of the Acquired Fund at a meeting held on September 22, 1999. The Reorganization
was presented to the Trustees and considered by them as part of a broader
initiative by Scudder Kemper to restructure many of the mutual funds advised by
it that are currently offered to retail investors (see "Synopsis -- Background
of the Reorganization" above). This initiative includes four major components:
(i) The combination of funds with similar investment objectives and
policies, including in particular the combination of the AARP Funds with
similar Scudder Funds currently offered to the general public;
(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 most
Underlying Funds, covering, for a single fee rate, substantially all
services required for the operation of the Underlying Fund (other than those
provided under the Underlying 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.
26
<PAGE>
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the September 22 meeting, the Independent Trustees met in person or by telephone
on a number of occasions (including committee meetings) to review and discuss
these proposals, both among themselves and with representatives of Scudder
Kemper. On a number of occasions, these meetings included representatives of the
independent trustees or directors of other funds affected by these proposals. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees/directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. The Independent Trustees have also
agreed to recommend that the Reorganization be approved by the Acquired Fund's
shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of the Acquired Fund and the estimated operating expenses of the 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 certain Underlying
Funds, each for a fixed fee rate under an 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
27
<PAGE>
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 an Underlying Fund's administrative fee for an
initial three-year period. Because an Underlying Fund will pay only its stated
administrative fee amount for such services and expenses regardless of changes
in actual costs, the Acquiring Fund's shareholders will be indirectly protected
from increases in the 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. 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 agreed to recommend the election of a new consolidated board
comprised of representatives of each of the various boards currently serving as
trustees or directors of these funds.
Based on all of the foregoing, the Board concluded that the Acquired Fund's
participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE REORGANIZATION.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated July 1, 1994, as
amended. The Acquiring Trust's authorized capital consists of an unlimited
number of shares of beneficial interest, par value $0.01 per share. The Trustees
of the Acquiring Trust are authorized to divide the Acquiring Trust's shares
into separate series. The Acquiring Fund is one of three series of the Acquiring
Trust
28
<PAGE>
that the Board has created to date. The Trustees of the Acquiring Trust are also
authorized to further divide the shares of the series of the Acquiring Trust
into classes. The Trustees of the Acquiring Trust have authorized the division
of the Acquiring Fund into two classes, S Class and AARP Class. It is
anticipated that this division will occur prior to the Closing and that shares
of the Acquiring Fund existing at that time will be redesignated as S
Class shares of the Acquiring Fund. If AARP Shares are not created prior to the
Closing, then the Reorganization will not be consummated. Although shareholders
of different classes of a series have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution and certain other matters.
Each share of each class of the Acquiring Fund represents an interest in the
Acquiring Fund that is equal to and proportionate with each other share of that
class of the Acquiring Fund. Acquiring Fund shareholders are entitled to one
vote per share held on matters on which they are entitled to vote. In the areas
of shareholder voting and the powers and conduct of the Trustees, there are no
material differences between the rights of shareholders of the Acquired Fund and
the rights of shareholders of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Acquired Trust, on
behalf of the Acquired Fund, and the Acquiring Trust, on behalf of the Acquiring
Fund, of an opinion from Willkie Farr & Gallagher, substantially to the effect
that, based upon certain facts, assumptions and representations of the parties,
for federal income tax purposes: (i) the transfer to the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange solely for
AARP Shares and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution of such shares to the
Acquired Fund's shareholders in exchange for their shares of the Acquired Fund
in complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and
the Acquired Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of all or substantially all of its assets to the
Acquiring Fund in exchange solely for AARP Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund or upon the
distribution of the AARP Shares to the Acquired Fund shareholders in exchange
for their shares of the Acquired Fund; (iii) the basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund will be the same as the basis
of such assets of the Acquired Fund immediately prior to the transfer; (iv) the
holding period of the assets of the Acquired Fund in the hands of the
29
<PAGE>
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for AARP Shares and
the assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund; (vi) no gain or loss will be recognized by the shareholders of the
Acquired Fund upon the receipt of the AARP Shares solely in exchange for their
shares of the Acquired Fund as part of the transaction; (vii) the basis of the
AARP Shares received by the shareholders of the Acquired Fund will be the same
as the basis of the shares of the Acquired Fund exchanged therefor; and (viii)
the holding period of AARP Shares received by the shareholders of the Acquired
Fund will include the holding period during which the shares of the Acquired
Fund exchanged therefor were held, provided that at the time of the exchange the
shares of the Acquired Fund were held as capital assets in the hands of the
shareholders of the Acquired Fund.
After the Closing, the Acquiring Fund may dispose of certain securities
received by it from the Acquired Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
While the Acquired Trust is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders may wish to consult
their own tax adviser with respect to such matters.
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
Fund as of October 31, 1999 (i.e., prior to the creation of AARP Shares), and on
a pro forma basis as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED(1)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET ASSETS
S Class............................. $100,211,457 $100,211,457
AARP Shares......................... $134,456,663 $134,456,663
------------
Total Net Assets.................... $234,668,120
============
SHARES OUTSTANDING
S Class............................. 6,204,146 6,204,146
AARP Shares......................... 7,104,913 1,220,577 8,325,490
NET ASSET VALUE PER SHARE
S Class............................. $ 16.15 $ 16.15
AARP Shares......................... $ 18.92 $ 16.15
</TABLE>
- ------------------------------
(1) Assumes the Reorganization had been consummated on October 31, 1999, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund
30
<PAGE>
will be received by the shareholders of the Acquired Fund on the date the
Reorganization takes place, and the foregoing should not be relied upon to
reflect the number of shares of the Acquiring Fund that actually will be
received on or after such date.
THE BOARD OF TRUSTEES OF AARP MANAGED INVESTMENT PORTFOLIOS TRUST RECOMMENDS
THAT THE SHAREHOLDERS OF AARP DIVERSIFIED GROWTH PORTFOLIO VOTE IN FAVOR OF THIS
PROPOSAL 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Acquired Trust, including a majority of the Independent
Trustees, has selected PricewaterhouseCoopers LLP to act as independent
accountants of the Acquired Fund for the Acquired Fund's current fiscal year.
One or more representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
THE BOARD OF TRUSTEES OF AARP MANAGED INVESTMENT PORTFOLIOS TRUST RECOMMENDS
THAT THE SHAREHOLDERS OF AARP DIVERSIFIED GROWTH PORTFOLIO VOTE IN FAVOR OF THIS
PROPOSAL 3.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS
Additional information about the Trusts, the Funds and the Reorganization
has been filed with the SEC and may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103,
or by calling 1-800-225-2470.
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by the
Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL,
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670
31
<PAGE>
Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC
maintains an Internet World Wide Web site (at http://www.sec.gov) which contains
the statements of additional information for the Acquiring Trust and the
Acquired Trust, materials that are incorporated by reference into the
prospectuses and statements of additional information, and other information
about the Trusts and the Funds.
GENERAL
PROXY SOLICITATION. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
Any Acquired Fund shareholder giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of the
Acquired Fund, c/o Scudder Kemper Investments, Inc., at the address for the
Acquired Fund shown at the beginning of this Proxy Statement/Prospectus) or in
person at the Meeting, by executing a superseding proxy or by submitting a
notice of revocation to the Acquired Fund. All properly executed proxies
received in time for the Meeting will be voted as specified in the proxy or, if
no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the Acquired Trust (for a trust-wide vote)
or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum
32
<PAGE>
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 Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on, Proposal 1, and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000, there were 7,324,920 shares of
the Acquired Fund outstanding.
As of January 31, 2000, the officers and Trustees of the Acquiring Trust as
a group owned beneficially less than 1% of the outstanding shares of the
Acquiring Fund. To the best of the applicable Trust's knowledge, as of
January 31, 2000, no person owned beneficially at least 5% of either Fund's
outstanding shares or the shares of any other series of the Acquired Trust,
except that, as of such date, 435,501 shares in the aggregate, or 6.17% of the
outstanding shares, of Scudder Pathway Series: Growth Portfolio were held in the
name of Scudder Kemper Investments, Trustee for Ziff-Davis Retirement and
Savings Plan, 1 Park Avenue, New York, NY 10016, who may be deemed to be the
beneficial owner of certain of these shares.
Shareholder Communications Corporation ("SCC") has been engaged to assist in
the solicitation of proxies, at an estimated cost of $6,635. 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.
33
<PAGE>
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 1-800-605-1203. Any
proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts 02110, within a reasonable time
before the solicitation of proxies for such meeting. The timely submission of a
proposal does not guarantee its inclusion.
34
<PAGE>
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 Acquired Trust and/or the Acquired
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE
ADVANTAGE OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
35
<PAGE>
INDEX OF EXHIBITS AND APPENDIX
<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
</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 Pathway Series (the "Acquiring
Trust"), a Massachusetts business trust, on behalf of Scudder Pathway Series:
Growth Portfolio (the "Acquiring Fund"), a separate series of the Acquiring
Trust, and AARP Managed Investment Portfolios Trust (the "Acquired Trust" and,
together with the Acquiring Trust, each a "Trust" and collectively the
"Trusts"), a Massachusetts business trust, on behalf of AARP Diversified Growth
Portfolio (the "Acquired Fund" and, together with the Acquiring Fund, each a
"Fund" and collectively the "Funds"), a separate series of the Acquired Trust.
The principal place of business of each Trust is Two International Place,
Boston, Massachusetts 02110-4103.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest ($.01 par value per share) of the AARP Class of shares of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the
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manner and as of the time and date set forth in section 2.2; and (ii) to assume
all of the liabilities of the Acquired Fund. Such transactions shall take place
at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with
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section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Trust's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall
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be subject to confirmation by each Fund's respective independent accountants
upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
September 25, 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
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Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained
under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not
result, in violation of Massachusetts law or of the Acquired
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Trust's Declaration of Trust, as amended, or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking known
to counsel to which the Acquired Fund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the
Acquired Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund is a party or
by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended September 30, 1999, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of
each of which has been furnished to the Acquiring Fund) present fairly, in
all material respects, the financial position of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
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(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquired Fund Shareholders,
under certain circumstances, could be held personally liable for obligations
of the Acquired Fund), and (iii) will be held at the time of the Closing by
the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and
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the 1940 Act, except those restrictions as to which the Acquiring Fund has
received notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc. (the "NASD")), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the Acquiring Fund for use therein.
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4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquiring Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in
violation of Massachusetts law or of the Acquiring Trust's Declaration of
Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended August 31, 1999, have been
audited by PricewaterhouseCoopers LLP, independent
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accountants, and are in accordance with GAAP consistently applied, and such
statements (a copy of each of which has been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as
of such date not disclosed therein;
(g) Since August 31, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquiring
Fund due to declines in market values of securities in the Acquiring Fund's
portfolio, the discharge of Acquiring Fund liabilities, or the redemption of
Acquiring Fund shares by Acquiring Fund shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquiring Fund Shareholders, under certain circumstances, could be held
personally liable for the obligations of the Acquiring Fund). The Acquiring
Fund does not
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have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders,
under certain circumstances, could be held personally liable for the
obligations of the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust and this Agreement will
constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the NASD), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
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(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 11, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
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5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to
(i) vest and confirm to the Acquired Fund title to and possession of all
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<PAGE>
Acquiring Fund Shares to be transferred to the Acquired Fund pursuant to this
Agreement and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Trust, on behalf of the Acquiring Fund, made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing business
trust; (b) the Acquiring Fund has the power to carry on its
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business as presently conducted in accordance with the description thereof
in the Acquiring Fund's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquiring
Trust, on behalf of the Acquiring Fund, and constitutes a valid and legally
binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquiring Trust's
Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals or filings
required to be obtained or made by the Acquiring Fund under the Federal laws
of the United States or the laws of the Commonwealth of Massachusetts for
the exchange of the Acquired Fund's assets for Acquiring Fund Shares,
pursuant to the Agreement have been obtained or made.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
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.
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<PAGE>
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquired Trust's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquired
Trust, on behalf of the Acquired Fund, and constitutes a valid and legally
binding obligation of the Acquired Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquired Trust's Declaration
of Trust, as amended, or By-laws; and (e) to the knowledge of such counsel,
all regulatory consents, authorizations, approvals or filings required to be
obtained or made by the Acquired Fund under the Federal laws of the United
States or the laws of the Commonwealth of Massachusetts for the exchange of
the Acquired Fund's assets for Acquiring Fund Shares, pursuant to the
Agreement have been obtained or made.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
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
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<PAGE>
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Fund and the Acquired Fund, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the 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
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Fund and the Acquired Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by the Acquired Fund upon the transfer of all or substantially all of its assets
to the Acquiring Fund in exchange solely for Acquiring Fund Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund;
(iii) the basis of the assets of the Acquired Fund in the hands of the Acquiring
Fund will be the same as the basis of such assets of the Acquired Fund
immediately prior to the transfer; (iv) the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period during
which such assets were held by the Acquired Fund; (v) no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund; (vi) no gain or loss will
be recognized by Acquired Fund Shareholders upon the receipt of the Acquiring
Fund Shares solely in exchange for their shares of the Acquired Fund as part of
the transaction; (vii) the basis of the Acquiring Fund Shares received by
Acquired Fund Shareholders will be the same as the basis of the shares of the
Acquired Fund exchanged therefor; and (viii) the holding period of Acquiring
Fund Shares received by Acquired Fund Shareholders will include the holding
period during which the shares of the Acquired Fund exchanged therefor were
held, provided that at the time of the exchange the shares of the Acquired Fund
were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Trust and the
Acquired Trust. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from
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<PAGE>
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquiring
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquired Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Scudder Kemper Investments, Inc. ("Scudder Kemper") will pay the
expenses associated with the Reorganization. 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
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<PAGE>
on the part of any party or their respective Board members or officers, except
for any such material breach or intentional misrepresentation, as to each of
which all remedies at law or in equity of the party adversely affected shall
survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, Ten Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.
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
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<PAGE>
or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to each Trust mean and refer to the Board
members of the Trust from time to time serving under its Declaration of Trust on
file with the Secretary of State of the Commonwealth of Massachusetts, as the
same may be amended from time to time, pursuant to which the Trust conducts its
business. It is expressly agreed that the obligations of each Trust hereunder
shall not be binding upon any of the Board members, shareholders, nominees,
officers, agents, or employees of the Trusts or the Funds personally, but bind
only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement has been signed by authorized officers of each Fund acting as
such, and neither such authorization by such Board members, nor such execution
and delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to 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.
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<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: AARP MANAGED INVESTMENT PORTFOLIOS TRUST
on behalf of AARP Diversified Growth Portfolio
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: SCUDDER PATHWAY SERIES
on behalf of Scudder Pathway Series: Growth
Portfolio
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
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<PAGE>
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:
- ------------------------------
Its:
- ------------------------------
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<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
- --------------------------------------------------------------------------------
Portfolio Management Discussion August 31, 1999
We asked Benjamin W. Thorndike, lead portfolio manager of Scudder Pathway
Series, to discuss the recent market environment and Scudder's investment
strategy for the Pathway Series.
Q: The investment backdrop has changed substantially over the reporting period.
How would you characterize this shift?
A: A resurgence in global growth has been the most important factor in the
financial markets' performance during the past year. At the beginning of 1999,
with the financial crises of August-September 1998 still fresh in investors'
minds, the consensus expectation was that the U.S. economy would weaken, profit
growth would slow, and the economies of Japan and the emerging markets would
remain mired in recession. Many analysts were predicting outright deflation,
where a combination of excessive production and anemic demand would cause prices
to fall, thereby snuffing out the long-running bull market in equities. The
events of the past six months have discredited this notion, however, as the
resilient global economy has come back stronger in the wake of last year's
scare. Accordingly, investor sentiment has rebounded in kind.
The continued strength of the U.S. economy has been one of the primary
drivers of this recovery. Increases in consumption, investment, and property
values have all contributed to the ongoing expansion. Consumer spending
figures have been outstanding, with total sales volume roaring ahead at an 8%
clip, a pace that has been surpassed only once in the last 32 years. Most
important, the strength in the economy has not resulted in inflation,
although the possibility that the tight domestic labor market could
ultimately produce price pressures has prompted the Federal Reserve to raise
interest rates twice. The fear that further rate hikes would be forthcoming
was a key factor in stock price weakness after the close of the reporting
period.
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Overseas, many of the economies that have been lagging over the last few years
have begun to perk up. Japan, for example, has finally begun to show signs of
life after struggling for the entire decade. Continental Europe is also starting
to break out of its doldrums, and the emerging markets, which suffered from a
series of crises during the second half of 1997 and most of 1998, appear to have
stabilized. Although stronger growth is not always beneficial for the financial
markets, its recent revival has helped to set the stage for a rally in global
stock prices.
Q: In the last report you discussed how the market's gains were narrowly focused
on a small group of large-cap growth stocks. Has the change in the economic
outlook affected this trend?
A: It has to a degree -- value stocks and small companies awoke from their
slumber in April, but the nascent rally lost its luster by early June. Prior to
the second quarter, the market's focus on stocks that could maintain strong
earnings even during times of slow growth was the driving force that enabled
large caps to outperform other sectors of the market. Once it became apparent
that growth was on the upswing, however, investors began to feel more confident
venturing into other sectors of the market. Since the rally in these downtrodden
areas petered out, there has been a lack of distinct leadership in the market.
Although large-cap growth stocks outperformed the broader market over the full
twelve-month reporting period, it has proven much easier to make money in stocks
outside of the so-called "Nifty Fifty" in recent months. In this way, the
revival of the world economy has indeed created a more positive backdrop for the
broader market.
Q: How have foreign stocks reacted to the changing environment?
A: Since we last spoke in February, the investment climate overseas has changed
considerably. Over the past three
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years, European stocks surged to new highs on the strength of widespread
restructuring and consolidation. At the same time, Japan's stock market moved
steadily downward as both the public and private sectors failed to develop an
effective solution for the country's malaise. During the last six months,
however, Europe has become less attractive on a relative basis due to political
squabbles, the absence of meaningful structural reform, and the weak performance
of the new currency, the euro. At the same time, the combination of the pickup
in Japan's economy and the restructuring initiated by many of its leading
companies has attracted significant inflows of foreign capital as investors have
sought to increase their underweight positions. Overall, however, the investment
backdrop has been quite favorable -- the accelerating pace of consolidation in
Europe has presented a wide range of investment opportunities, while Japan is
only at the beginning of the restructuring phase that has proven so beneficial
for the U.S. and European markets during the 1990s. In the developing countries,
the resurgence in many of the formerly crisis-ridden economies has sparked
rallies in the downtrodden markets of Asia and Latin America. Consequently, we
believe that the foreign equity markets will continue to provide an excellent
vehicle for diversification going forward.
Q: How were bond prices affected by the strengthening global economy?
A: Bonds have fared poorly so far in 1999, and the fact is that the slump that
has extended across all sectors has left fixed-income investors with nowhere to
hide. Bonds generally thrive in an environment where growth is slow, or even
negative, since such a scenario is thought to reduce the probability of
inflation and, by extension, higher interest rates. Coming into the year,
concerns over a possible global recession had driven bond yields to historical
lows (as their prices rose). Bond yields began to creep upward again as the
recession scenario grew more remote throughout the first quarter, then
accelerated
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<PAGE>
through the spring as investors began to price in a rate hike by the Federal
Reserve. The yield on the bellwether 30-year Treasury bond rose to a high of
6.28% by August 12, well above its 5.1% level of December 31, 1998. Corporate
bonds were beset by the additional pressure of increased supply flooding into
the market at a time when rate fears were already slowing demand.
Mortgage-backed securities, which were hurt by fears of increasing prepayments
early in the year and rising rates during the summer months, also posted poor
performance.
Q: How did the Pathway portfolios respond?
A: The portfolios performed well overall, but in a period when stocks
outperformed bonds by such a wide margin, it can sometimes be frustrating for
investors to watch their funds go up less than the major equity indices.
However, it is important to keep in mind that we are focused on minimizing risk,
as well as maximizing return. We continue to believe that a diversified approach
will prove valuable over time. The fact that many of the foreign markets have
outperformed the S&P 500 Index over the first eight months of 1999 demonstrates
the importance of a broad exposure to multiple asset classes. Consequently, we
will maintain our strategy of constructing the portfolios' weightings based on
our analysis of long-term factors, and any changes we make to the portfolios
will be gradual.
Q: Did you make any adjustments to the portfolios during the period?
A: Yes, we made a few shifts that reflect our evolving view of the investment
environment. First, we reduced the portfolios' allocation to growth stocks, and
increased their exposure to value. We believe that the Federal Reserve's recent
shift toward higher rates will reinforce the market's expectation that the U.S.
economy is approaching the late stages of its cycle. Under such a scenario,
stronger global growth, above-consensus earnings, and rising inflation tend to
benefit value stocks over the large growth stocks that usually perform well when
the economy is still in
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<PAGE>
mid-cycle. What's more, value stocks remain inexpensive by historical norms, and
are positioned to benefit from a stabilization of commodity prices. We believe
that a more balanced approach is prudent in this environment.
We have also reduced our positions in the developing countries. Emerging markets
equities have performed well this year, but looking forward, we see some
potential stumbling blocks. Structural reforms have been slow, serious fiscal
imbalances remain in place, and many countries are still heavily dependant on
external financing. With serious questions remaining with respect to growth in
Asia and Latin America, we have found better opportunities in other sectors of
the market.
Q: What is your outlook for the financial markets from here?
A: We believe that investors will continue to focus on the direction of Fed
policy over the remainder of 1999. Although the Fed has already raised interest
rates twice, investors will be on the lookout for signs of incipient inflation.
Consequently, it is likely that the markets will remain volatile, as the
importance of each economic report will be magnified. While rapid fluctuations
are often confusing and unsettling to investors, we urge shareholders to
maintain a focus on their long-term investment objectives regardless of the
short-term direction of the markets. The events of 1999, which include
developments that only a few months ago would have seemed unlikely -- such as
the rallies in Japan and the emerging markets -- demonstrate once again that
even long-standing market trends can reverse unexpectedly. Amid this rapidly
changing environment, we intend to maintain a stable approach to managing the
Pathway Series, and we encourage investors to do the same with their own
portfolios.
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<PAGE>
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Portfolio Highlights August 31, 1999
Pathway Growth Portfolio
Pathway Growth Portfolio seeks long-term growth of capital by investing
primarily in equity mutual funds. The portfolio also invests a portion of assets
in bond funds, which offer the potential for capital appreciation as well as
income.
Performance
During the twelve-month period ended August 31, 1999, the Growth Portfolio
returned 31.69%, in line with the 29.77% of its custom benchmark. Over the most
recent three months the portfolio returned 5.65%, versus 2.54% for the
benchmark. The portfolio, which holds 84% of assets in equities, was
well-positioned to take advantage of the strong performance of the global stock
markets over the past year, and to provide strong risk-adjusted returns in a
period of high volatility.
An overweighting in growth-oriented funds had a positive impact on performance
in a period when growth stocks outperformed value stocks by a wide margin. Our
position in Large Company Growth Fund, which benefited from its focus on stocks
with reliable earnings growth characteristics, produced strong returns. As the
volatility of growth stocks increased as the period drew to a close, our newly
established position in Large Company Value Fund helped to dampen the
portfolio's fluctuations. Scudder 21st Century Growth Fund, which invests in
small caps, performed extremely well due to strong stock selection and the
positive performance of the growth sector as a whole. Our positions in
International Fund, Emerging Markets Growth Fund, and Micro Cap Fund all
contributed positively to both total returns and portfolio diversification.
The fixed income component of the portfolio, which made up 15% of assets on
August 31, performed well until inflation fears began to grip the market in the
latter part of the period. Emerging Markets Income Fund, which began the period
at extraordinarily low levels as a result of the emerging markets contagion,
rebounded strongly through
B-6
<PAGE>
the first quarter of 1999 as the series of rate cuts by the Federal Reserve sent
liquidity flowing back into the developing countries. Corporate Bond Fund also
rebounded from the latter part of 1998 through the spring, but lost ground over
the summer as high levels of new issuance battered the corporate market.
Portfolio Strategy
As always, the changes we made since the February semiannual report were
undertaken with a long-term focus in mind. Consistent with our view that a
greater balance between growth and value is warranted at this juncture, we
reduced our position in Large Company Growth Fund and initiated a position in
Large Company Value Fund. As of August 31 we held 13% of assets in the fund,
versus 0% at the end of February. We also trimmed the portfolio's holding in
Micro Cap Fund, based on our belief that small caps are unlikely to outperform
as long as interest rates are on the upswing. In addition, we cut our weighting
in High Yield Bond Fund to 0% from 5%, in order to reduce our exposure to a
volatile sector that may be vulnerable to a further increase in interest rates.
Other portfolio holdings remain essentially unchanged.
B-7
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
August 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
S&P 500 Index
(60%), MSCI All
Country (ex U.S.)
Scudder Pathway Index (20%), LBAB
Series: Growth Index (15%), 3-month
Portfolio S&P 500 Index* T-Bill (5%)*
11/96** 10000 10000 10000
2/97 10336 10496 10278
8/97 11340 12048 11407
2/98 12294 14172 12841
8/98 10633 13026 12029
2/99 12660 16969 14580
8/99 14003 18212 15609
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Pathway Series: Growth Portfolio
- --------------------------------------------------------------------------------
1 year $ 13,169 31.69% 31.69%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 14,166 41.66% 13.29%
- --------------------------------------------------------------------------------
S&P 500 Index (60%), MSCI All Country (ex U.S.) Index (20%), LBAB Index (15%),
3-month T-Bill (5%)*
- --------------------------------------------------------------------------------
1 year $ 12,977 29.77% 29.77%
- --------------------------------------------------------------------------------
Life of Portfolio** $ 15,609 56.09% 17.57%
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. The MSCI All Country (ex U.S.) Index is a
market value-weighted measure of stocks of 46 countries. The Lehman Brothers
Aggregate Bond (LBAB) Index is a market value-weighted measure of treasury
issues, agency issues, corporate bond issues and mortgage-backed securities.
Index returns assume reinvestment of dividends and, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
B-8
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER PATHWAY
SERIES: GROWTH PORTFOLIO TOTAL RETURN (%) AND BLENDED INDEX (S&P 500 INDEX
(60%), MSCI ALL COUNTRY (EX U.S.) INDEX (20%), LBAB INDEX (15%), 3-MONTH T-BILL
(5%)*) TOTAL RETURN (%)
BAR CHART DATA:
Yearly periods ended August 31
1997** 1998 1999
- --------------------------------------------------------------------------------
Portfolio Total
Return (%) 14.72 -6.23 31.69
- --------------------------------------------------------------------------------
Blended Index
Total Return (%) 14.07 5.46 29.77
- --------------------------------------------------------------------------------
Net Asset
Value ($) 13.44 12.17 15.33
- --------------------------------------------------------------------------------
Income
Dividends ($) .16 .21 .20
- --------------------------------------------------------------------------------
Capital Gains
Distributions ($) .13 .26 .43
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. The MSCI All Country (ex U.S.) Index is a
market value-weighted measure of stocks of 46 countries. The Lehman Brothers
Aggregate Bond (LBAB) Index is a market value-weighted measure of treasury
issues, agency issues, corporate bond issues and mortgage-backed securities.
Index returns assume reinvestment of dividends and, unlike Portfolio returns,
do not reflect any fees or expenses.
** The Portfolio commenced operations on November 15, 1996. Index comparisons
begin November 30, 1996.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total 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
some of the Underlying Funds' expenses, the total return for the Portfolio
would have been lower.
B-9
<PAGE>
APPENDIX 1
FUND SHARES OWNED BY NOMINEES AND TRUSTEES
Many of the nominees and Trustees own shares of the series of the Acquired
Trust and of other funds in the Scudder Family of Funds and AARP Funds,
allocating their investments among such funds based on their individual
investment needs. The following table sets forth, for each nominee and Trustee,
the number of shares owned in each series of the Acquired Trust as of
January 31, 2000. The information as to beneficial ownership is based on
statements furnished to the Acquired Trust by each nominee and Trustee. Unless
otherwise noted, beneficial ownership is based on sole voting and investment
power. Each nominee's and Trustee's individual shareholdings of any series of
the Acquired Trust constitute less than 1% of the outstanding shares of such
fund. As a group, the Trustees and officers own less than 1% of the shares of
any series of the Acquired Trust.
<TABLE>
<CAPTION>
AARP DIVERSIFIED AARP DIVERSIFIED INCOME
GROWTH PORTFOLIO WITH GROWTH PORTFOLIO
---------------- -----------------------
<S> <C> <C>
Carole Lewis Anderson(3)......................... 0 0
Adelaide Attard(1)............................... 597 0
Henry P. Becton, Jr(1)........................... 0 0
Robert N. Butler, M.D.(3)........................ 0 0
Esther Canja(3).................................. 117(5) 0
Linda C. Coughlin(1)............................. 0 0
Dawn-Marie Driscoll(1)........................... 0 0
Edgar R. Fiedler(1).............................. 0 0
Lt. Gen. Eugene P. Forrester(1).................. 766 0
Keith R. Fox(1).................................. 0 0
George L. Maddox, Jr.(1)......................... 0 0
Robert J. Myers(2)............................... 0 0
James H. Schulz(3)............................... 0 0
Gordon Shillinglaw(1)............................ 0 0
Joan Edelman Spero(2)............................ 0 0
Jean Gleason Stromberg(2)........................ 0 0
Jean C. Tempel(1)................................ 0 0
Steven Zaleznick(4).............................. 0 0
All Trustees and Officers as a Group............. 1,480(6) 0
</TABLE>
- ------------------------------
(1) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were over
$100,000.
(2) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $50,000 and $100,000.
(3) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $10,000 and $50,000.
(4) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were $0.
(5) Ms. Canja's shares in AARP Diversified Growth Portfolio are held with
shared investment and voting power.
(6) As a group, as of January 31, 2000, the Trustees and officers of AARP
Diversified Growth Portfolio held 1,363 shares with sole voting and
investment power and 117 shares with shared investment and voting power.
<PAGE>
You are also being asked to ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of your Fund for the current fiscal year.
THE BOARD OF YOUR FUND RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHEN WILL THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes will take effect during the third
calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-605-1203.
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-605-1203.
AA Div Growth
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated January 1, 2000, which was previously filed with the
Commission via EDGAR on December 23, 1999 (File No. 33-86070) and is
incorporated by reference herein.
<PAGE>
PART B
SCUDDER PATHWAY SERIES
- --------------------------------------------------------------------------------
Statement of Additional Information
April 18, 2000
- --------------------------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
AARP Diversified Growth Portfolio Scudder Pathway Series: Growth Portfolio
(the "Acquired Fund"), a series of (the "Acquiring Fund"), a series of
AARP Managed Investment Scudder Pathway Series
Portfolios Trust (the "Acquiring Trust")
Two International Place Two International Place
Boston, MA 02110-4103 Boston, MA 02110-4103
This Statement of Additional Information is available to the shareholders of the
Acquired Fund in connection with a proposed transaction whereby the Acquiring
Fund will acquire all or substantially all of the assets and all of the
liabilities of the Acquired Fund in exchange for shares of the Acquiring Fund
(the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in the
Prospectus/Proxy Statement of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this cover
page and the following documents:
1. The Acquiring Fund's statement of additional information dated January 1,
2000, which was previously filed with the Securities and Exchange
Commission (the "Commission") via EDGAR on December 23, 1999 (File No.
33-86070) and is incorporated by reference herein.
2. The Acquiring Fund's annual report to shareholders for the fiscal year
ended August 31, 1999, which was previously filed with the Commission via
EDGAR on October 26, 1999 (File No. 811-08606) and is incorporated by
reference herein.
3. The Acquired Fund's prospectus dated February 1, 2000, which was
previously filed with the Commission via EDGAR on February 1, 2000 (File No.
333-16315) and is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated February 1,
2000, which was previously filed with the Commission via EDGAR on February 1,
2000 (File No. 333-16315) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year
ended September 30, 1999, which was previously filed with the Commission via
EDGAR on December 3, 1999 (File No. 811-07933) 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.
-51-
<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.
-52-
<PAGE>
PRO FORMA
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
AARP
Pathway Diversified Pro Forms Pathway AARP Pro Forma
Growth Growth Combined Growth Diversified Combined
Share/Par Share/Par Share/Par Market Growth Market
Amount Amount Amount Values($) Market Value($) Value($)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET 1.2%
- -----------------------------------------
AARP High Quality Money Fund 1,224,744 1,224,744 1,224,746 1,224,746
Scudder Cash Investment Trust 1,538,735 1,538,735 1,538,735 1,538,735
========================================
MONEY MARKET TOTAL 1,538,735 1,224,746 2,763,481
========================================
MONEY MARKET (COST OF
$1,538,735 $1,224,746 AND
$2,763,481 RESPECTIVELY)
FIXED INCOME 22.0%
- -----------------------------------------
AARP Bond Fund for Income 1,769,270 1,769,270 24,999,780 24,999,780
AARP GNMA & U.S. Treasury Fund 804,934 804,934 11,768,135 11,768,135
Scudder Corporate Bond Fund 247,775 247,775 2,819,677 2,819,677
Scudder Emerging Market Income Fund 451,519 451,519 3,368,331 3,368,331
Scudder Income Fund 701,160 701,160 8,743,469 8,743,469
========================================
FIXED INCOME TOTAL 14,931,477 36,767,915 51,699,392
========================================
FIXED INCOME (COST OF
$17,010,171 $39,034,463
AND $56,044,634 RESPECTIVELY)
EQUITY 76.8%
- -----------------------------------------
AARP Capital Growth Fund 210,036 210,036 14,238,337 14,238,337
AARP Global Growth Fund 326,411 326,411 6,635,931 6,635,931
AARP Growth & Income Fund 289,686 289,686 14,776,861 14,776,861
AARP International Growth & Income Fund 282,552 282,552 5,625,613 5,625,613
AARP Small Company Stock Fund 367,611 367,611 6,337,617 6,337,617
AARP U.S. Stock Index Fund 1,887,545 1,887,545 48,849,654 48,849,654
Scudder 21st Century Growth Fund 552,976 552,976 11,728,614 11,728,614
Scudder Emerging Markets Growth Fund 145,175 145,175 1,707,264 1,707,264
Scudder International Fund - International Shares 424,976 424,976 24,835,615 24,835,615
Scudder Large Company Growth Fund -Scudder Shares 874,279 874,279 32,016,094 32,016,094
Scudder Large Company Value Company 383,205 383,205 11,059,296 11,059,296
Scudder Micro Cap Fund 204,702 204,702 2,937,474 2,937,474
========================================
EQUITY TOTAL 84,284,357 96,464,013 180,748,370
EQUITY (COST OF ========================================
$69,280,286 $88,973,035
AND $158,253,321 RESPECTIVELY)
========================================
INVESTMENT PORTFOLIO TOTAL - 100% 100,754,569 134,456,674 235,211,243
INVESTMENT PORTFOLIO (TOTAL COST ========================================
OF $87,829,192 $129,232,244
AND $217,061,436 RESPECTIVELY)
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PATHWAY AARP PRO FORMA PRO FORMA
GROWTH DIVERSIFIED GROWTH ADJUSTMENTS COMBINED
------------------ ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
Investments, at value $ 100,754,569 $ 134,456,674 $ 235,211,243
Cash - - -
Other assets less liabilities (543,112) (11) $ - (543,123)
------------------ ---------------- --------------- ----------------
Net assets $ 100,211,457 $ 134,456,663 $ - $ 234,668,120
================== ================ =============== ================
NET ASSETS
S Class $ 100,211,457
AARP Class $ 134,456,663
SHARE OUTSTANDING
S Class 6,204,146 6,204,146
AARP Class 7,104,913 1,220,577 8,325,490
NET ASSET VALUE PER SHARE
S Class $ 16.15 $ 16.15
AARP Class $ 18.92 $ 16.15
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PATHWAY AARP PRO FORMA PRO FORMA
GROWTH DIVERSIFIED GROWTH ADJUSTMENTS COMBINED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 1,063,155 $ 4,119,570 $ - $ 5,182,725
----------------------------------------------------------------------------
Total Investment Income 1,063,155 4,119,570 5,182,725
Expenses
Management fees - - - -
All other expenses - - - -
----------------------------------------------------------------------------
Total expenses before reductions - - - -
----------------------------------------------------------------------------
Expense reductions - - - -
Expenses, net - - - -
----------------------------------------------------------------------------
Net investment income (loss) 1,063,155 4,119,570 - 5,182,725
----------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments 5,930,206 5,173,176 -- 11,103,382
Net unrealized appreciation (depreciation)
of investments 14,956,818 5,546,110 -- 20,502,928
----------------------------------------------------------------------------
Net increase in net assets from operations $ 21,950,179 $ 14,838,856 $ - $ 36,789,035
============================================================================
</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 Pathway Growth Portfolio and AARP
Diversified Growth Portfolio 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.
