As filed with the Securities and Exchange Commission
on November 17, 2000
Securities Act File No.
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
Pre-Effective Amendment No. /____/ Post-Effective Amendment No. /____/
SCUDDER PATHWAY SERIES
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110-4103
(Address of Principal Executive Offices) (Zip Code)
John Millette
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110-4103
(Name and Address of Agent for Service)
(617) 295-1000
(Registrant's Area Code and Telephone Number)
with copies to:
Caroline Pearson, Esq. Joseph R. Fleming, Esq.
Scudder Kemper Investments, Inc. Dechert
Two International Place Ten Post Office Square - South
Boston, MA 02110-4103 Boston, MA 02109-4603
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement is declared effective.
Title of Securities Being Registered:
Shares of Beneficial Interest ($.01 par value)
of Scudder Pathway Series: Conservative Portfolio, Scudder Pathway Series:
Balanced Portfolio and Scudder
Pathway Series: Growth Portfolio, each a series of the Registrant
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It is proposed that this filing will become effective on December 18, 2000
pursuant to Rule 488 under the Securities Act of 1933.
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No filing fee is required because the Registrant has previously registered an
indefinite number of its shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
<PAGE>
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
FARMERS INVESTMENT TRUST
Please take notice that a Special Meeting of Shareholders (the
"Meeting") of each series (each, a "Farmers Fund") of Farmers Investment Trust
(the "Acquired Trust") will be held at the offices of Scudder Kemper
Investments, Inc., 13th Floor, Two International Place, Boston, MA 02110-4103,
on March 14, 2001, at [ ] [a][p].m., Eastern time, for the following purposes:
Proposal 1: To approve an Agreement and Plan of Reorganization (the "Plan")
as it relates to (i) the transfer of all or substantially all of the
assets and all of the liabilities of Farmers Income Portfolio to
Scudder Pathway Series: Conservative Portfolio ("Pathway
Conservative Portfolio"), (ii) the distribution to each shareholder
of Farmers Income Portfolio shares of Pathway Conservative Portfolio
of a corresponding class to those held by the shareholder in Farmers
Income Portfolio in an amount equal to the value of their holdings
in Farmers Income Portfolio and (iii) the termination of Farmers
Income Portfolio.
Proposal 2: To approve the Plan as it relates to (i) the transfer of all or
substantially all of the assets and all of the liabilities of
Farmers Income with Growth Portfolio to Scudder Pathway Series:
Moderate Portfolio ("Pathway Moderate Portfolio"), (ii) the
distribution to each shareholder of Farmers Income with Growth
Portfolio shares of Pathway Moderate Portfolio of a corresponding
class to those held by the shareholder in Farmers Income with Growth
Portfolio in an amount equal to the value of their holdings in
Farmers Income with Growth Portfolio and (iii) the termination of
Farmers Income with Growth Portfolio.
Proposal 3: To approve the Plan as it relates to (i) the transfer of all or
substantially all of the assets and all of the liabilities of
Farmers Balanced Portfolio to Scudder Pathway Series: Pathway
Moderate Portfolio, (ii) the distribution to each shareholder of
Farmers Balanced Portfolio shares of Pathway Moderate Portfolio of a
corresponding class to those held by the shareholder in Farmers
Balanced Portfolio in an amount equal to the value of their holdings
in Farmers Balanced Portfolio and (iii) the termination of Farmers
Balanced Portfolio.
Proposal 4: To approve the Plan as it relates to (i) the transfer of all or
substantially all of the assets and all of the liabilities of
Farmers Growth with Income Portfolio to Scudder Pathway Series:
Pathway Moderate Portfolio, (ii) the distribution to each
shareholder of Farmers Growth with Income Portfolio shares of
Pathway Moderate Portfolio of a corresponding class to those held by
the shareholder in Farmers Growth with Income Portfolio in an amount
equal to the value of their holdings in Farmers Growth with Income
Portfolio and (iii) the termination of Farmers Growth with Income
Portfolio.
Proposal 5: To approve the Plan as it relates to (i) the transfer of all or
substantially all of the assets and all of the liabilities of
Farmers Growth Portfolio to Scudder Pathway Series: Growth Portfolio
("Pathway Growth Portfolio"), (ii) the distribution to each
shareholder of Farmers Growth Portfolio shares of Pathway Growth
Portfolio of a corresponding class to those held by the shareholder
in Farmers Growth Portfolio in an amount equal to the value of their
holdings in Farmers Growth Portfolio and (iii) the termination of
Farmers Growth Portfolio.
The persons named as proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments or
postponements thereof.
Holders of record of shares of each Farmers Fund at the close of
business on January 10, 2001 are entitled to vote at the Meeting and at any
adjournments or postponements 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 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 relevant Farmers Fund's
shares present in person or by proxy at the Meeting. The persons named as
proxies will vote FOR any such adjournment those proxies which they are entitled
to vote in favor of that Proposal and will vote AGAINST any such adjournment
those proxies to be voted against that Proposal.
By Order of the Board,
/s/ John Millette
John Millette
Secretary
[Date], 2001
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.
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TABLE OF CONTENTS
<PAGE>
PROXY STATEMENT/PROSPECTUS
[DATE], 2001
Relating to the acquisition of the assets of the series of
FARMERS INVESTMENT TRUST (the "Acquired Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
by and in exchange for shares of beneficial interest of the series of
SCUDDER PATHWAY SERIES (the "Acquiring Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) [ ]
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Trustees of the Acquired Trust in
connection with the Special Meeting of Shareholders of each series of the
Acquired Trust (Farmers Income Portfolio, Farmers Income with Growth Portfolio,
Farmers Balanced Portfolio, Farmers Growth with Income Portfolio and Farmers
Growth Portfolio) (each, a "Farmers Fund" and collectively, the "Farmers Funds")
to be held on March 14, 2001, at the offices of Scudder Kemper Investments, Inc.
("Scudder Kemper"), 13th Floor, Two International Place, Boston, MA 02110-4103
at [ ] [a][p].m. (Eastern time), or at such later time made necessary by all
adjournments or postponements thereof (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 January 12, 2001 or as soon as
practicable thereafter.
At the meeting, shareholders of each Farmers Fund, voting separately,
will be asked to approve an Agreement and Plan of Reorganization (the "Plan")
pursuant to which all or substantially all of the assets of each Farmers Fund
would be acquired by a corresponding series of the Acquiring Trust (Scudder
Pathway Series: Conservative Portfolio; Scudder Pathway Series: Moderate
Portfolio (formerly known as Balanced Portfolio); and Scudder Pathway Series:
Growth Portfolio) (each, a "Pathway Fund" and collectively, the "Pathway
Funds"), in exchange for shares of beneficial interest of the applicable Pathway
Fund and the assumption by each Pathway Fund of all of the liabilities of its
corresponding Farmers Fund, listed in the chart below (each, a "Reorganization"
and collectively, the "Reorganizations"). Shares of each Pathway Fund received
would then be distributed to the shareholders of the corresponding Farmers Fund
in complete liquidation of each Farmers Fund. As a result of the
Reorganizations, each shareholder of a Farmers Fund will become a shareholder of
a corresponding Pathway Fund, as listed in the chart below, and will receive
shares of the applicable class of shares of a Pathway Fund in an amount equal to
the value of their holdings in the Farmers Fund as of the close of business on
the business day preceding the closing of each Reorganization (the "Valuation
Date"). The closing of each Reorganization (the "Closing") is contingent upon
shareholder approval of the Plan as it relates to such Reorganization. A copy of
the Plan is attached as Exhibit A. Each Reorganization is expected to occur on
or about [Date], 2001.
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.
The Plan provides that each Farmers Fund will transfer all or
substantially all of its assets and all of its liabilities to the corresponding
Pathway Fund listed opposite its name in the following chart:
Farmers Fund (Acquired Fund) Pathway Fund (Acquiring Fund)
Farmers Income Portfolio Scudder Pathway Series: Conservative Portfolio
Farmers Income with Scudder Pathway Series: Moderate Portfolio
Growth Portfolio
Farmers Balanced Portfolio Scudder Pathway Series: Moderate Portfolio
Farmers Growth with Scudder Pathway Series: Moderate Portfolio
Income Portfolio
Farmers Growth Portfolio Scudder Pathway Series: Growth Portfolio
Class A Shareholders of each Farmers Fund will receive an amount of
Class A shares of the corresponding Pathway Fund equal in value to their Class A
shares of the Farmers Fund. Class B Shareholders of each Farmers Fund will
receive an amount of Class B shares of the corresponding Pathway Fund equal in
value to their Class B shares of the Farmers Fund.
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 Farmers Funds whose proxy statement this is. In addition, for
simplicity, actions are described in this Proxy Statement/Prospectus as being
taken by either a Farmers Fund or a Pathway Fund (which are collectively
referred to as the "Funds" and each referred to as a "Fund"), 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 a Farmers Fund or
a Pathway Fund.
This Proxy Statement/Prospectus sets forth concisely the information
about each Pathway 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 each Pathway Fund,
see the Pathway Funds' prospectus dated December 29, 2000, as supplemented from
time to time, which is included in the materials you received with this document
and incorporated herein by reference (meaning that it is legally part of this
document). For a more detailed discussion of the investment objective, policies,
restrictions and risks of each Farmers Fund, see the Farmers Funds' prospectus
dated September 1, 2000, as supplemented from time to time, which is also
incorporated herein by reference and a copy of which may be obtained upon
request and without charge by calling or writing the Farmers Funds at the
telephone number or address listed on the preceding page.
Also incorporated herein by reference is the Pathway Funds' statement
of additional information dated December 29, 2000, as supplemented from time to
time, which may be obtained upon request and without charge by calling or
writing the Pathway Funds at the telephone number or address listed on the
preceding page. A Statement of Additional Information, dated [Date], 2001,
containing additional information about each Reorganization 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 this
Statement of Additional Information is available upon request and without charge
by calling or writing the Pathway Funds at the telephone number or address
listed on the preceding page. Shareholder inquiries regarding the Pathway Funds
may be made by calling (800) [ ] and shareholder inquiries regarding the Farmers
Funds may be made by calling (800) [ ]. The information contained in this
document concerning each Fund has been provided by, and is included herein in
reliance upon, that Fund.
The Pathway Funds and the Farmers Funds are diversified series of
shares of beneficial interest of the Acquiring Trust and the Acquired Trust,
respectively, which are open-end management investment companies organized as
Massachusetts business trusts.
The Board of Trustees unanimously recommends that shareholders of each
Farmers Fund vote FOR the Proposal that relates to the Reorganization of their
Fund into a corresponding Pathway Fund.
I. SYNOPSIS
The following is a summary of certain information contained in this
Proxy Statement/Prospectus relating to the Reorganizations. 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 Trustees of the Acquired Trust (unless otherwise noted,
references to the "Board of Trustees" or "Trustees" refers to the Board of
Trustees or Trustees of the Acquired Trust), including all of the Independent
Trustees, approved the Plan at a meeting held on November 9, 2000. Subject to
its approval by shareholders of each Farmers Fund, the Plan provides for (a) the
transfer of all or substantially all of the assets and all of the liabilities of
each Farmers Fund to its corresponding Pathway Fund in exchange for Class A and
Class B shares of beneficial interest of the applicable Pathway Fund, as noted
in the chart above; (b) the distribution of such Pathway Fund shares to
shareholders of its corresponding Farmers Fund in an amount equal to the value
of their holdings in the applicable Farmers Fund; and (c) the termination of
each Farmers Fund. As a result of the Reorganizations, each shareholder of a
Farmers Fund will become a shareholder of a corresponding Pathway Fund, as noted
in the chart above, and will hold, immediately after the Reorganizations, shares
of the class of shares of the Pathway Fund that corresponds to the class of
shares of the Farmers Fund held by that shareholder on the Valuation Date,
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Farmers Fund on the Valuation Date. No
front-end sales charges or contingent deferred sales charges will be imposed on
shares issued in connection with the Reorganizations.
Scudder Kemper is the investment manager of the Farmers Funds and the
Pathway Funds. If the Reorganizations are completed, the Farmers Funds'
shareholders will continue to enjoy all of the same shareholder privileges as
they currently enjoy, such as access to professional service representatives and
automatic dividend reinvestment, as well as expanded exchange privileges. See
"Purchases, Exchanges and Redemptions" below.
Reasons for the Proposed Reorganizations; Board Approval
The Trustees have conducted a thorough review of all aspects of each
proposed Reorganization. See "The Proposed Transactions - Board Approval of the
Proposed Transactions" below. The Trustees believe that the Reorganizations will
provide shareholders of each Farmers Fund with the following benefits:
o LOWER FUND LEVEL EXPENSES. Each Fund invests in certain underlying mutual
funds ("Underlying Funds") and therefore bears a portion of the expenses of
those Underlying Funds. In addition, each Farmers Fund also has fund level
operating expenses, which are currently capped by contract at an annual
rate of 1.00% and 1.75% of average daily net assets attributable to the
Class A and Class B shares of each Farmers Fund, respectively. Class A and
Class B shares of each Pathway Fund, through an agreement with Scudder
Kemper, currently bear no fund level operating expenses other than
distribution expenses at an annual rate of 0.25% and 1.00% of average daily
net assets attributable to the Class A and Class B shares of each Pathway
Fund, respectively. Thus, if the Reorganizations are approved, shareholders
of each Farmers Fund will benefit from lower total fund level operating
expenses as shareholders of a corresponding Pathway Fund. See "Comparison
of Expenses."
o EXPANDED EXCHANGE PRIVILEGES. The Shareholders of the Pathway Funds are
able to exchange into any fund in the Scudder Family of Funds, while
shareholders of the Farmers Funds currently may exchange only into other
Farmers Funds.
o SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined Funds will
continue to allocate their assets among other mutual funds in proportions
similar to the allocations of the applicable Farmers Fund. As described
below, the Pathway Funds may invest only in other Scudder Funds. The
Farmers Funds may invest in both Scudder Funds and in funds that are not
managed by Scudder Kemper.
o TAX-FREE REORGANIZATION. It is a condition of each Reorganization that each
Farmers 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
Transactions - Board Approval of the Proposed Transactions," the Board of
Trustees, including the Independent Trustees, has concluded that:
o each Reorganization is in the best interests of the applicable Farmers Fund
and its shareholders; and
o the interests of the existing shareholders of each Farmers Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Board of Trustees unanimously recommends approval of
the Plan effecting each Reorganization. If the Plan is not approved by a Farmers
Fund, that Farmers Fund will continue in existence unless other action is taken
by the Board of Trustees, which could include the liquidation of a Fund in a
taxable transaction.
Investment Objectives, Policies and Restrictions of the Funds
This section will help you compare the investment objective and
policies of each Farmers Fund with its corresponding Pathway Fund. Please be
aware that this is only a summary. More complete information may be found in the
Farmers Funds' and Pathway Funds' prospectuses.
Farmers Income Portfolio - Scudder Pathway Series: Conservative Portfolio
("Pathway Conservative Portfolio")
The investment objectives, policies and restrictions of Farmers Income
Portfolio and Pathway Conservative Portfolio are similar. Some differences do
exist. The investment objective of Farmers Income Portfolio is to seek a high
level of current income. The investment objective of Pathway Conservative
Portfolio is to seek current income and, as a secondary objective, 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. A
significant difference in the Funds' investment policies is that the Pathway
Conservative Portfolio may invest only in other Scudder Funds while the Farmers
Income Portfolio may invest in both Scudder Funds and funds that are not managed
by Scudder Kemper. Farmers Income Portfolio and Pathway Conservative Portfolio
invest different percentages of their assets in Underlying Funds with particular
goals. Each Fund has a target allocation, which the portfolio managers use as a
reference point in setting each Fund's actual allocation. While the actual
allocation may vary, the portfolio managers expect that over the long term it
will average out to be similar to that Fund's target allocation. Farmers Income
Portfolio's target allocation is as follows: 97% of its total assets in bond
funds and 3% of its total assets in money funds. The portfolio managers of
Farmers Income Portfolio have the flexibility to adjust the allocation of the
Fund's assets within the following ranges: investments in bond funds must
account for between 80% and 100% of total assets and money funds must account
for between 0% and 20% of total assets.
Pathway Conservative Portfolio's target allocation is as follows: 60%
of its total assets in bond funds and 40% of its total assets in equity funds.
The portfolio managers of Pathway Conservative Portfolio have the flexibility to
adjust the allocation of the Fund's assets within the following ranges:
investments in bond funds must account for between 50% and 70% of total assets,
of which no more than 20% of this allocation may be invested in high yield bond
funds, and equity funds must account for between 30% and 50% of total assets, of
which no more than 75% of this allocation may be invested in either all growth
or all value funds. Within the allocation of Pathway Conservative Portfolio's
assets in equity funds, the portfolio managers have the flexibility to invest
between 0% and 10% of the Fund's total assets in international equity funds,
excluding funds that invest in emerging markets, and between 0% and 5% of the
Fund's total assets in small cap stock equity funds. As a temporary defensive
measure, each Fund may shift up to 100% of its assets into investments such as
money market securities. This would mean that each Fund would not be pursuing
its objective.
The Funds are currently managed by different portfolio managers. The
respective managers of both Funds regularly review the actual allocation of each
respective 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 each respective 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 respective Funds then decide which funds to use as Underlying Funds and
how much to invest in each Underlying Fund.
Each Fund's Underlying Funds may use a range of investment styles, with
those of Farmers Income Portfolio emphasizing high-grade bonds. The Underlying
Funds of Farmers Income Portfolio can buy many types of income-producing
securities, among them, corporate bonds of varying credit qualities and
maturities, U.S. government and agency bonds, mortgage- and asset-backed
securities, money market instruments, and others. The Underlying Funds of
Pathway Conservative Portfolio can buy many types of securities, among them
common stock 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. Each Fund's Underlying Funds
invest mainly in securities from U.S. issuers but may also invest in securities
from foreign issuers.
The Funds' investment restrictions (as such restrictions are set forth
under "Investment Restrictions of the Portfolios" in each Fund's statement of
additional information) are identical, except that, as noted above, Pathway
Conservative Portfolio may invest only in Underlying Funds managed by Scudder
Kemper while Farmers Income Portfolio has no such restriction. Investment
restrictions of each Fund that are fundamental policies may not be changed
without the approval of Fund shareholders, while non-fundamental policies may be
changed by a Fund's Board without shareholder approval. Investors should refer
to each Fund's statement of additional information for a fuller description of
the Fund's investment policies and restrictions.
Farmers Income with Growth Portfolio - Scudder Pathway Series: Moderate
Portfolio ("Pathway Moderate Portfolio")
The investment objectives, policies and restrictions of Farmers Income
with Growth Portfolio and Pathway Moderate Portfolio are similar. Some
differences do exist. The investment objective of Farmers Income with Growth
Portfolio is to seek current income and, as a secondary objective, long-term
growth of capital. The investment objective of Pathway Moderate Portfolio is to
seek a balance of current income and 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. A
significant difference in the Funds' investment policies is that the Pathway
Moderate Portfolio may invest only in other Scudder Funds while the Farmers
Income with Growth Portfolio may invest in both Scudder Funds and in funds that
are not managed by Scudder Kemper. Farmers Income with Growth Portfolio and
Pathway Moderate Portfolio invest different percentages of their assets in
Underlying Funds with particular goals. Each Fund has a target allocation, which
the portfolio managers use as a reference point in setting each Fund's actual
allocation. While the actual allocation may vary, the portfolio managers expect
that over the long term it will average out to be similar to that Fund's target
allocation. Farmers Income with Growth Portfolio's target allocation is as
follows: 69% of its total assets in bond funds, 30% of its total assets in
equity funds, and 1% of its total assets in money funds. The portfolio managers
of Farmers Income with Growth Portfolio have the flexibility to adjust the
allocation of the Fund's assets within the following ranges: investments in bond
funds must account for between 60% and 80% of total assets; equity funds must
account for between 20% and 40% of total assets; and money funds must account
for between 0% and 15% of total assets.
Pathway Moderate Portfolio's target allocation is as follows: 60% of
its total assets in equity funds and 40% of its total assets in bond funds. The
portfolio managers of Pathway Moderate Portfolio have the flexibility to adjust
the allocation of the Fund's assets within the following ranges: investment in
equity funds must account for between 50% and 70% of total assets, of which no
more than 75% of this allocation may be invested in either all growth or all
value funds, and bond funds must account for between 30% and 50% of total
assets, of which no more than 20% of this allocation may be invested in high
yield bond funds. Within the allocation of Pathway Moderate Portfolio's assets
in equity funds, the portfolio managers have the flexibility to invest between
0% and 20% of the Fund's total assets in international equity funds, including
up to 5% in equity funds that invest in emerging markets, and between 0% and 10%
of the Fund's total assets in small cap stock equity funds. As a temporary
defensive measure, each Fund may shift up to 100% of its assets into investments
such as money market securities. This would mean that each Fund would not be
pursuing its objective.
The Funds are currently managed by different portfolio managers. The
respective managers of both funds regularly review the actual allocation of each
respective 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 each respective 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 respective Funds then decide which funds to use as Underlying Funds and
how much to invest in each Underlying Fund.
Each Fund's Underlying Funds may use a range 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 (and
varying credit qualities and maturities for Farmers Income with Growth
Portfolio), U.S. Government and agency bonds, mortgage- and asset-backed
securities, money market instruments, and others. Each Fund's Underlying Funds
invest mainly in securities from U.S. issuers but may also invest in securities
from foreign issuers.
The Funds' investment restrictions (as such restrictions are set forth
under "Investment Restrictions of the Portfolios" in each Fund's statement of
additional information) are identical, except that, as noted above, Pathway
Moderate Portfolio may invest only in Underlying Funds managed by Scudder Kemper
while Farmers Income with Growth Portfolio has no such restriction. Investment
restrictions of each Fund that are fundamental policies may not be changed
without the approval of Fund shareholders, while non-fundamental policies may be
changed by a Fund's Board without shareholder approval. Investors should refer
to each Fund's statement of additional information for a fuller description of
the Fund's investment policies and restrictions.
Farmers Balanced Portfolio - Pathway Moderate Portfolio
The investment objectives, policies and restrictions of Farmers
Balanced Portfolio and Pathway Moderate Portfolio are similar. Some differences
do exist. The investment objective of Farmers Balanced Portfolio is to seek a
balance of current income and long-term growth of capital. The investment
objective of Pathway Moderate Portfolio is to seek a balance of current income
and 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. A
significant difference in the Funds' investment policies is that the Pathway
Moderate Portfolio may invest only in other Scudder Funds while the Farmers
Balanced Portfolio may invest in both Scudder Funds and in funds that are not
managed by Scudder Kemper. Farmers Balanced Portfolio and Pathway Moderate
Portfolio invest different percentages of their assets in Underlying Funds with
particular goals. Each Fund has a target allocation, which the portfolio
managers use as a reference point in setting each Fund's actual allocation.
While the actual allocation may vary, the portfolio managers expect that over
the long term it will average out to be similar to that Fund's target
allocation. Farmers Balanced Portfolio's target allocation is as follows: 49% of
its total assets in bond funds, 50% of its total assets in equity funds, and 1%
of its total assets in money funds. The portfolio managers of Farmers Balanced
Portfolio have the flexibility to adjust the allocation of the Fund's assets
within the following ranges: investments in bond funds must account for between
40% and 60% of total assets; equity funds must account for between 40% and 60%
of total assets; and money funds must account for between 0% and 10% of total
assets.
Pathway Moderate Portfolio's target allocation is as follows: 60% of
its total assets in equity funds and 40% of its total assets in bond funds. The
portfolio managers of Pathway Moderate Portfolio have the flexibility to adjust
the allocation of the Fund's assets within the following ranges: investment in
equity funds must account for between 50% and 70% of total assets, of which no
more than 75% of this allocation may be invested in either all growth or all
value funds, and bond funds must account for between 30% and 50% of total
assets, of which no more than 20% of this allocation may be invested in high
yield bond funds. Within the allocation of Pathway Moderate Portfolio's assets
in equity funds, the portfolio managers have the flexibility to invest between
0% and 20% of the Fund's total assets in international equity funds, including
up to 5% in equity funds that invest in emerging markets, and between 0% and 10%
of the Fund's total assets in small cap stock equity funds. As a temporary
defensive measure, each Fund may shift up to 100% of its assets into investments
such as money market securities. This would mean that each Fund would not be
pursuing its objective.
The Funds are currently managed by different portfolio managers. The
respective managers of both funds regularly review the actual allocation of each
respective 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 each respective 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 respective Funds then decide which funds to use as Underlying Funds and
how much to invest in each Underlying Fund.
Each Fund's Underlying Funds may use a range 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 (and
varying credit qualities and maturities for Farmers Balanced Portfolio), U.S.
Government and agency bonds, mortgage- and asset-backed securities, money market
instruments, and others. Each Fund's Underlying Funds invest mainly in
securities from U.S. issuers but may also invest in securities from foreign
issuers.
The Funds' investment restrictions (as such restrictions are set forth
under "Investment Restrictions of the Portfolios" in each Fund's statement of
additional information) are identical, except that, as noted above, Pathway
Moderate Portfolio may invest only in Underlying Funds managed by Scudder Kemper
while Farmers Balanced Portfolio has no such restriction. Investment
restrictions of each Fund that are fundamental policies may not be changed
without the approval of Fund shareholders, while non-fundamental policies may be
changed by a Fund's Board without shareholder approval. Investors should refer
to each Fund's statement of additional information for a fuller description of
the Fund's investment policies and restrictions.
Farmers Growth with Income Portfolio - Pathway Moderate Portfolio
The investment objectives, policies and restrictions of Farmers Growth
with Income Portfolio and Pathway Moderate Portfolio are similar. Some
differences do exist. The investment objective of Farmers Growth with Income
Portfolio is to seek long-term growth of capital and modest income. The
investment objective of Pathway Moderate Portfolio is to seek a balance of
current income and 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. A
significant difference in the Funds' investment policies is that the Pathway
Moderate Portfolio may invest only in other Scudder Funds while the Farmers
Growth with Income Portfolio may invest in both Scudder Funds and in funds that
are not managed by Scudder Kemper. Farmers Growth with Income Portfolio and
Pathway Moderate Portfolio invest different percentages of their assets in
Underlying Funds with particular goals. Each Fund has a target allocation, which
the portfolio managers use as a reference point in setting each Fund's actual
allocation. While the actual allocation may vary, the portfolio managers expect
that over the long term it will average out to be similar to that Fund's target
allocation. Farmers Growth with Income Portfolio's target allocation is as
follows: 70% of its total assets in equity funds, 29% of its total assets in
bond funds, and 1% of its total assets in money funds. The portfolio managers of
Farmers Growth with Income Portfolio have the flexibility to adjust the
allocation of the Fund's assets within the following ranges: investments in
equity funds must account for between 60% and 80% of total assets; bond funds
must account for between 20% and 40% of total assets; and money funds must
account for between 0% and 10% of total assets.
Pathway Moderate Portfolio's target allocation is as follows: 60% of
its total assets in equity funds and 40% of its total assets in bond funds. The
portfolio managers of Pathway Moderate Portfolio have the flexibility to adjust
the allocation of the Fund's assets within the following ranges: investment in
equity funds must account for between 50% and 70% of total assets, of which no
more than 75% of this allocation may be invested in either all growth or all
value funds, and bond funds must account for between 30% and 50% of total
assets, of which no more than 20% of this allocation may be invested in high
yield bond funds. Within the allocation of Pathway Moderate Portfolio's assets
in equity funds, the portfolio managers have the flexibility to invest between
0% and 20% of the Fund's total assets in international equity funds, including
up to 5% in equity funds that invest in emerging markets, and between 0% and 10%
of the Fund's total assets in small cap stock equity funds. As a temporary
defensive measure, each Fund may shift up to 100% of its assets into investments
such as money market securities. This would mean that each Fund would not be
pursuing its objective.
The Funds are currently managed by different portfolio managers. The
respective managers of both funds regularly review the actual allocation of each
respective 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 each respective 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 respective Funds then decide which funds to use as Underlying Funds and
how much to invest in each Underlying Fund.
Each Fund's Underlying Funds may use a range 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 (and
varying credit qualities and maturities for Farmers Growth with Income
Portfolio), U.S. Government and agency bonds, mortgage- and asset-backed
securities, money market instruments, and others. Each Fund's Underlying Funds
invest mainly in securities from U.S. issuers but may also invest in securities
from foreign issuers.
The Funds' investment restrictions (as such restrictions are set forth
under "Investment Restrictions of the Portfolios" in each Fund's statement of
additional information) are identical, except that, as noted above, Pathway
Moderate Portfolio may invest only in Underlying Funds managed by Scudder Kemper
while Farmers Growth with Income Portfolio has no such restriction. Investment
restrictions of each Fund that are fundamental policies may not be changed
without the approval of Fund shareholders, while non-fundamental policies may be
changed by a Fund's Board without shareholder approval. Investors should refer
to each Fund's statement of additional information for a fuller description of
the Fund's investment policies and restrictions.
Farmers Growth Portfolio - Scudder Pathway Series: Growth Portfolio
("Pathway Growth Portfolio")
The investment objectives, policies and restrictions of Farmers Growth
Portfolio and Pathway Growth Portfolio 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. A
significant difference in the Funds' investment policies is that the Pathway
Growth Portfolio may invest only in other Scudder Funds while the Farmers Growth
Portfolio may invest in both Scudder Funds and in funds that are not managed by
Scudder Kemper. Farmers Growth Portfolio and Pathway Growth Portfolio invest
different percentages of their assets in Underlying Funds with particular goals.
Each Fund has a target allocation, which the portfolio managers use as a
reference point in setting each Fund's actual allocation. While the actual
allocation may vary, the portfolio managers expect that over the long term it
will average out to be similar to that Fund's target allocation. Farmers Growth
Portfolio's target allocation is as follows: 99% of its total assets in equity
funds and 1% of its total assets in money funds. The portfolio managers of
Farmers Growth Portfolio have the flexibility to adjust the allocation of the
Fund's assets within the following ranges: investments in equity funds must
account for between 95% and 100% of total assets and money funds must account
for between 0% and 5% of total assets.
Pathway Growth Portfolio's target allocation is as follows: 85% of its
total assets in equity funds and 15% of its total assets in bond funds. The
portfolio managers of Pathway Growth Portfolio have the flexibility to adjust
the allocation of the Fund's assets within the following ranges: investment in
equity funds must account for between 75% and 95% of total assets, of which no
more than 75% of this allocation may be invested in either all growth or all
value funds, and bond funds must account for between 5% and 25% of total assets,
of which no more than 20% of this allocation may be invested in high yield bond
funds. Within the allocation of Pathway Growth Portfolio's assets in equity
funds, the portfolio managers have the flexibility to invest between 0% and 30%
of the Fund's total assets in international equity funds, including up to 10% in
equity funds that invest in emerging markets, and between 0% and 20% of the
Fund's total assets in small cap stock equity funds. As a temporary defensive
measure, each Fund may shift up to 100% of its assets into investments such as
money market securities. This would mean that each Fund would not be pursuing
its objective.
The Funds are currently managed by different portfolio managers. The
respective managers of both funds regularly review the actual allocation of each
respective 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 each respective 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 respective Funds then decide which funds to use as Underlying Funds and
how much to invest in each Underlying Fund.
Each Fund's Underlying Funds may use a range of investment styles, with
those of Farmers Growth Portfolio emphasizing the growth component of their
holdings. The Underlying Funds of Farmers Growth Portfolio can buy many types of
securities, among them common stocks of companies of any size, money market
instruments, and others. The Underlying Funds of Pathway Growth Portfolio 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.
Each Fund's Underlying Funds invest mainly in securities from U.S. issuers but
may also invest in securities from foreign issuers.
The Funds' investment restrictions (as such restrictions are set forth
under "Investment Restrictions of the Portfolios" in each Fund's statement of
additional information) are identical, except that, as noted above, Pathway
Growth Portfolio may invest only in Underlying Funds managed by Scudder Kemper
while Farmers Growth Portfolio has no such restriction. Investment restrictions
of each Fund that are fundamental policies may not be changed without the
approval of Fund shareholders, while non-fundamental policies may be changed by
a Fund's Board without shareholder approval. Investors should refer to each
Fund's statement of additional information for a fuller description of the
Fund's investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for each Pathway 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, 2000, along with the portfolio turnover rate for each Farmers
Fund for the fiscal year ended April 30, 2000, is listed in the chart
immediately below.
Turnover Rates for Turnover Rates for the
Farmers Funds Pathway Funds as of
as of Fiscal Year Ended April 30, 2000 Fiscal Year ended August 31, 2000
Farmers Income Portfolio 59% Pathway Conservative Portfolio 26%
Farmers Income with Growth Portfolio 38% Pathway Moderate Portfolio 28%
Farmers Balanced Portfolio 20% Pathway Moderate Portfolio 28%
Farmers Growth with Income Portfolio 56% Pathway Moderate Portfolio 28%
Farmers Growth Portfolio 31% Pathway Growth Portfolio 27%
Performance
The following table shows how the returns of each Farmers Fund and each
Pathway Fund over different periods average out. For context, the table also
includes [a] broad-based market index[es] (which, unlike the Funds, do[es] not
have any fees or expenses). The performances of each Fund and the index[es] vary
over time, and past performance is not necessarily indicative of future results.
All figures assume reinvestment of dividends and distributions.
Average Annual Total Return
for the Periods Ended [ ]
[Tables to be inserted ]
[Total return for the _________ would have been lower from _____
through _____ if the Investment Manager had not maintained expenses of certain
Underlying Funds during that period.]
For management's discussion of each Pathway Fund's performance for the
fiscal year ended August 31, 2000, please refer to Exhibit B attached hereto.
Investment Manager; Fees and Expenses
Each Fund retains the investment management firm of Scudder Kemper,
pursuant to separate contracts, to manage its daily investment and business
affairs, subject to the policies established by each Fund's Trustees. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
The Investment Manager receives a fee for its services pursuant to its
investment management agreement with each class of the Farmers Funds. For these
services, each Farmers Fund pays the Investment Manager a fee at an annual rate
of 0.75% of the average daily net assets of each class of the Farmers Funds
payable monthly. As of April 30, 2000, the total net assets for Farmers Income
Portfolio were $106,712, for Farmers Income with Growth Portfolio were $870,103,
for Farmers Balanced Portfolio were $1,363,832, for Farmers Growth with Income
Portfolio were $1,084,360 and for Farmers Growth Portfolio were $2,463,887. For
the fiscal year ended April 30, 2000, each class of the Farmers Funds paid the
Investment Manager a fee of 0.75% of its average daily net assets. Shareholders
pay no direct charges or fees for investment management or other services. The
Investment Manager also receives management fees for managing certain of the
Underlying Funds in which the Farmers Funds invest.
The Investment Manager has agreed not to be paid a management fee for
performing its services for the Pathway Funds. The Investment Manager does
receive management fees for managing the Underlying Funds in which each of the
Pathway Funds invest. Each Pathway Fund and Farmers Fund, as shareholders of the
Underlying Funds in which they invest, bear their proportionate share of fees
and expenses paid by the Underlying Funds.
Administration Agreement
The Acquiring Trust, on behalf of each Pathway Fund, has entered into
an administration agreement with Scudder Kemper (the "Administration
Agreement"), pursuant to which Scudder Kemper provides or pays others to provide
substantially all of the administrative services required by each Pathway Fund
(other than those provided by Scudder Kemper under its investment management
agreement with the Pathway Funds). There is no fee currently payable by a
Pathway Fund under the Administration Agreement. One effect of this arrangement
is to make each Pathway Fund's future expense ratio more predictable. The
details of this arrangement are set out below.
Various service providers (the "Service Providers"), some of which are
affiliated with Scudder Kemper, provide certain services to each Pathway Fund
pursuant to separate agreements with each Pathway Fund. These Service Providers
may differ from current Service Providers of each Farmers Fund. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for each Pathway Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of each Pathway Fund. By
contract with Scudder Service Corporation, Kemper Service Company, also a
subsidiary of Scudder Kemper, will serve as shareholder servicing agent for the
Class A and Class B shares following the Reorganizations. Scudder Trust Company,
an affiliate of Scudder Kemper, provides subaccounting and recordkeeping
services for shareholder accounts in certain retirement and employee benefit
plans. As custodian, State Street Bank and Trust Company holds the portfolio
securities of each Pathway Fund, pursuant to a custodian agreement. Other
Service Providers include the independent public accountants and legal counsel
for each Pathway Fund.
Under the Administration Agreement, each Service Provider provides the
services to each Pathway Fund described above, except that Scudder Kemper pays
these entities for the provision of their services to each Pathway Fund and pays
most other fund expenses, including insurance, registration, printing and
postage fees.
The Administration Agreement will remain in effect with respect to the
Class A and Class B shares for an initial term ending September 30, 2003,
subject to earlier termination by the trustees that oversee each Pathway Fund.
Scudder Kemper has also agreed to bear certain other expenses of the Pathway
Funds that are not borne by Scudder Kemper under the Administration Agreement,
such as taxes, brokerage, interest and extraordinary expenses, and the fees and
expenses of the Independent Trustees (including the fees and expenses of their
independent counsel). In addition, each Pathway Fund will continue to pay any
fees required by its investment management agreement with Scudder Kemper.
Comparison of Expenses
The tables and examples below are designed to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly as an investor in the Class A and Class B shares of each Pathway
Fund, and compare these with the expenses of the Class A and Class B shares of
the corresponding Farmers Fund. As indicated below, it is expected that the
total expense ratio of each Pathway Fund following the Reorganizations will be
substantially lower than the current expense ratio for its corresponding Farmers
Fund. The information is based on each Pathway Fund's expenses and average daily
net assets during the twelve months ended August 31, 2000 and on each Farmers
Fund's expenses and average daily net assets during the twelve months ended
April 30, 2000. The information on a pro forma basis is as of August 31, 2000,
giving effect to the Reorganization.
Farmers Income Portfolio - Pathway Conservative Portfolio
Shareholder Transaction Expenses
Maximum Sales Charge Maximum Deferred
(Load) Imposed on Sales Charge (Load)
Purchases (as a per- (as a percentage of
FUND centage of offering purchase price or
price redemption proceeds)
Farmers Income Portfolio (Class A) 5.00% None*
Pathway Conservative Portfolio (Class A) 5.75% None*
Pro Forma (Combined) (Class A) 5.75% None*
Farmers Income Portfolio (Class B) None 4.00%
Pathway Conservative Portfolio (Class B) None 4.00%
Pro Forma (Combined) (Class B) None 4.00%
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total
Distribution Annual
Investment and/or Fund Expense
FUND Advisory service Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
Farmers Income 0.75% 0.25% 3.92%* 4.92% 3.92%** 1.00%
Portfolio (Class A)
Pathway None 0.25% None 0.25% N/A N/A
Conservative
Portfolio (Class
A)
Pro Forma None 0.25% None 0.25% N/A N/A
(Combined) (Class
A)
Farmers Income 0.75% 1.00% 3.92%* 5.67% 3.92%** 1.75%
Portfolio (Class B)
Pathway None 1.00% None 1.00% N/A N/A
Conservative
Portfolio (Class B)
Pro Forma None 1.00% None 1.00% N/A N/A
(Combined) (Class
B)
</TABLE>
* Includes compensation and expenses of the Board of Trustees.
** By contract, compensation and expenses of the Board of Trustees are
reimbursed by the Investment Manager until the Fund's assets reach
$50,000,000.
The range for the average weighted expense ratio borne by
Farmers Income Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.43% to 0.87%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Farmers Income
Portfolio invested in each of the Underlying Funds will fluctuate.
The range for the average weighted expense ratio borne by
Pathway Conservative Portfolio in connection with its investments in the
Underlying Funds is expected to be 0.73% to 0.97%. The range has been restated
to reflect new fixed rate administrative fees for certain affiliated Underlying
Funds. This information is provided as a range since the average assets of
Pathway Conservative Portfolio invested in each of the Underlying Funds will
fluctuate.
Examples
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:
Expenses assuming you sold your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Income Portfolio (Class A) $659 $1,747 $2,822 $5,457
Pathway Conservative Portfolio (Class A) $681 $905 $1,146 $1,838
Pro Forma (Combined) (Class A) $681 $905 $1,146 $1,838
Farmers Income Portfolio (Class B) $643 $1,823 $2,969 $5,494
Pathway Conservative Portfolio (Class B) $588 $882 $1,201 $1,793
Pro Forma (Combined) (Class B) $588 $882 $1,201 $1,793
Expenses assuming you held your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Income Portfolio (Class A) $659 $1,747 $2,822 $5,457
Pathway Conservative Portfolio (Class A) $681 $905 $1,146 $1,838
Pro Forma (Combined) (Class A) $681 $905 $1,146 $1,838
Farmers Income Portfolio (Class B) $243 $1,523 $2,769 $5,494
Pathway Conservative Portfolio (Class B) $188 $582 $1,001 $1,793
Pro Forma (Combined) (Class B) $188 $582 $1,001 $1,793
Farmers Income with Growth Portfolio - Pathway Moderate Portfolio
Shareholder Transaction Expenses
Maximum Sales Charge Maximum Deferred
(Load) Imposed on Sales Charge (Load)
Purchases (as a per- (as a percentage of
FUND centage of offering purchase price or
price redemption proceeds)
Farmers Income with Growth Portfolio 5.25% None*
(Class A)
Pathway Moderate Portfolio (Class A) 5.75% None*
Pro Forma (Combined) (Class A) 5.75% None*
Farmers Income with Growth Portfolio None 4.00%
(Class B)
Pathway Moderate Portfolio (Class B) None 4.00%
Pro Forma (Combined) (Class B) None 4.00%
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total
Distribution Annual
Investment and/or Fund Expense
FUND Advisory service Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
Farmers Income 0.75% 0.25% 1.41%* 2.41% 1.41%** 1.00%
with Growth
Portfolio (Class A)
Pathway Moderate None 0.25% None 0.25% N/A N/A
Portfolio (Class A)
Pro Forma None 0.25% None 0.25% N/A N/A
(Combined) (Class A)
Farmers Income 0.75% 1.00% 1.41%* 3.16% 1.41%** 1.75%
with Growth
Portfolio (Class B)
Pathway Moderate None 1.00% None 1.00% N/A N/A
Portfolio (Class B)
Pro Forma None 1.00% None 1.00% N/A N/A
(Combined) (Class B)
</TABLE>
* Includes compensation and expenses of the Board of Trustees.
** By contract, compensation and expenses of the Board of Trustees are
reimbursed by the Investment Manager until the Fund's assets reach
$50,000,000.
The range for the average weighted expense ratio borne by
Farmers Income with Growth Portfolio in connection with its investments in the
Underlying Funds is expected to be 0.54% to 0.88%. The range has been restated
to reflect new fixed rate administrative fees for certain affiliated Underlying
Funds. This information is provided as a range since the average assets of
Farmers Income with Growth Portfolio invested in each of the Underlying Funds
will fluctuate.
The range for the average weighted expense ratio borne by
Pathway Moderate Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.80% to 1.49%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Pathway Moderate
Portfolio invested in each of the Underlying Funds will fluctuate.
Examples
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:
Expenses assuming you sold your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Income with Growth Portfolio $690 $1,312 $1,958 $3,682
(Class A)
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Income with Growth Portfolio $649 $1,352 $2,073 $3,695
(Class B)
Pathway Moderate Portfolio (Class B) $618 $973 $1,354 $2,117
Pro Forma (Combined) (Class B) $618 $973 $1,354 $2,117
Expenses assuming you held your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Income with Growth Portfolio $690 $1,312 $1,958 $3,682
(Class A)
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Income with Growth Portfolio $249 $1,052 $1,873 $3,695
(Class B)
Pathway Moderate Portfolio (Class B) $218 $673 $1,154 $2,117
Pro Forma (Combined) (Class B) $218 $673 $1,154 $2,117
Farmers Balanced Portfolio - Pathway Moderate Portfolio
Shareholder Transaction Expenses
Maximum Sales Charge Maximum Deferred
(Load) Imposed on Sales Charge (Load)
Purchases (as a per- (as a percentage of
FUND centage of offering purchase price or
price redemption proceeds)
Farmers Balanced Portfolio (Class A) 5.75% None*
Pathway Moderate Portfolio (Class A) 5.75% None*
Pro Forma (Combined) (Class A) 5.75% None*
Farmers Balanced Portfolio (Class B) None 4.00%
Pathway Moderate Portfolio (Class B) None 4.00%
Pro Forma (Combined) (Class B) None 4.00%
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total
Distribution Annual
Investment and/or Fund Expense
FUND Advisory service Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
Farmers Balanced 0.75% 0.25% 0.95%* 1.95% 0.95%** 1.00%
Portfolio (Class A)
Pathway Moderate None 0.25% None 0.25% N/A N/A
Portfolio (Class A)
Pro Forma None 0.25% None 0.25% N/A N/A
(Combined) (Class A)
Farmers Balanced 0.75% 1.00% 0.95%* 2.70% 0.95%** 1.75%
Portfolio (Class B)
Pathway Moderate None 1.00% None 1.00% N/A N/A
Portfolio (Class B)
Pro Forma None 1.00% None 1.00% N/A N/A
(Combined) (Class B)
</TABLE>
* Includes compensation and expenses of the Board of Trustees.
** By contract, compensation and expenses of the Board of Trustees are
reimbursed by the Investment Manager until the Fund's assets reach
$50,000,000.
The range for the average weighted expense ratio borne by
Farmers Balanced Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.59% to 0.88%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Farmers Balanced
Portfolio invested in each of the Underlying Funds will fluctuate.
The range for the average weighted expense ratio borne by
Pathway Moderate Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.80% to 1.49%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Pathway Moderate
Portfolio invested in each of the Underlying Funds will fluctuate.
Examples
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:
Expenses assuming you sold your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Balanced Portfolio (Class A) $742 $1,277 $1,838 $3,358
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Balanced Portfolio (Class B) $652 $1,268 $1,907 $3,333
Pathway Moderate Portfolio (Class B) $618 $973 $1,354 $2,117
Pro Forma (Combined) (Class B) $618 $973 $1,354 $2,117
Expenses assuming you held your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Balanced Portfolio (Class A) $742 $1,277 $1,838 $3,358
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Balanced Portfolio (Class B) $252 $968 $1,707 $3,333
Pathway Moderate Portfolio (Class B) $218 $673 $1,154 $2,117
Pro Forma (Combined) (Class B) $218 $673 $1,154 $2,117
Farmers Growth with Income Portfolio - Pathway Moderate Portfolio
Shareholder Transaction Expenses
Maximum Sales Charge Maximum Deferred
(Load) Imposed on Sales Charge (Load)
Purchases (as a per- (as a percentage of
FUND centage of offering purchase price or
price redemption proceeds)
Farmers Growth with Income Portfolio 5.75% None*
(Class A)
Pathway Moderate Portfolio (Class A) 5.75% None*
Pro Forma (Combined) (Class A) 5.75% None*
Farmers Growth with Income Portfolio None 4.00%
(Class B)
Pathway Moderate Portfolio (Class B) None 4.00%
Pro Forma (Combined) (Class B) None 4.00%
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total
Distribution Annual
Investment and/or Fund Expense
FUND Advisory service Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
Farmers Growth 0.75% 0.25% 1.18%* 2.18% 1.18%** 1.00%
with Income
Portfolio (Class A)
Pathway Moderate None 0.25% None 0.25% N/A N/A
Portfolio (Class A)
Pro Forma None 0.25% None 0.25% N/A N/A
(Combined) (Class A)
Farmers Growth 0.75% 1.00% 1.18%* 2.93% 1.18%** 1.75%
with Income
Portfolio (Class B)
Pathway Moderate None 1.00% None 1.00% N/A N/A
Portfolio (Class B)
Pro Forma None 1.00% None 1.00% N/A N/A
(Combined) (Class B)
</TABLE>
* Includes compensation and expenses of the Board of Trustees.
** By contract, compensation and expenses of the Board of Trustees are
reimbursed by the Investment Manager until the Fund's assets reach
$50,000,000.
The range for the average weighted expense ratio borne by
Farmers Growth with Income Portfolio in connection with its investments in the
Underlying Funds is expected to be 0.66% to 1.00%. The range has been restated
to reflect new fixed rate administrative fees for certain affiliated Underlying
Funds. This information is provided as a range since the average assets of
Farmers Growth with Income Portfolio invested in each of the Underlying Funds
will fluctuate.
The range for the average weighted expense ratio borne by
Pathway Moderate Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.80% to 1.49%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Pathway Moderate
Portfolio invested in each of the Underlying Funds will fluctuate.
Examples
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:
Expenses assuming you sold your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Growth with Income Portfolio $750 $1,347 $1,968 $3,632
(Class A)
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Growth with Income Portfolio $661 $1,341 $2,040 $3,612
(Class B)
Pathway Moderate Portfolio (Class B) $618 $973 $1,354 $2,117
Pro Forma (Combined) (Class B) $618 $973 $1,354 $2,117
Expenses assuming you held your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Growth with Income Portfolio $750 $1,347 $1,968 $3,632
(Class A)
Pathway Moderate Portfolio (Class A) $709 $993 $1,297 $2,158
Pro Forma (Combined) (Class A) $709 $993 $1,297 $2,158
Farmers Growth with Income Portfolio $261 $1,041 $1,840 $3,612
(Class B)
Pathway Moderate Portfolio (Class B) $218 $673 $1,154 $2,117
Pro Forma (Combined) (Class B) $218 $673 $1,154 $2,117
<PAGE>
Farmers Growth Portfolio - Pathway Growth Portfolio
Shareholder Transaction Expenses
Maximum Sales Charge Maximum Deferred
(Load) Imposed on Sales Charge (Load)
Purchases (as a per- (as a percentage of
FUND centage of offering purchase price or
price redemption proceeds)
Farmers Growth Portfolio (Class A) 5.75% None*
Pathway Growth Portfolio (Class A) 5.75% None*
Pro Forma (Combined) (Class A) 5.75% None*
Farmers Growth Portfolio (Class B) None 4.00%
Pathway Growth Portfolio (Class B) None 4.00%
Pro Forma (Combined) (Class B) None 4.00%
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total
Distribution Annual
Investment and/or Fund Expense
FUND Advisory service Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
Farmers Growth 0.75% 0.25% 0.66%* 1.66% 0.66%** 1.00%
Portfolio (Class A)
Pathway Growth None 0.25% None 0.25% N/A N/A
Portfolio (Class A)
Pro Forma None 0.25% None 0.25% N/A N/A
(Combined) (Class A)
Farmers Growth 0.75% 1.00% 0.66%* 2.41% 0.66%** 1.75%
Portfolio (Class B)
Pathway Growth None 1.00% None 1.00% N/A N/A
Portfolio (Class B)
Pro Forma None 1.00% None 1.00% N/A N/A
(Combined) (Class B)
</TABLE>
* Includes compensation and expenses of the Board of Trustees.
** By contract, compensation and expenses of the Board of Trustees are
reimbursed by the Investment Manager until the Fund's assets reach
$50,000,000.
The range for the average weighted expense ratio borne by
Farmers Growth Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.75% to 1.21%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Farmers Growth
Portfolio invested in each of the Underlying Funds will fluctuate.
The range for the average weighted expense ratio borne by
Pathway Growth Portfolio in connection with its investments in the Underlying
Funds is expected to be 0.77% to 1.81%. The range has been restated to reflect
new fixed rate administrative fees for certain affiliated Underlying Funds. This
information is provided as a range since the average assets of Pathway Growth
Portfolio invested in each of the Underlying Funds will fluctuate.
Examples
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:
Expenses assuming you sold your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Growth Portfolio (Class A) $764 $1,289 $1,839 $3,332
Pathway Growth Portfolio (Class A) $722 $1,033 $1,366 $2,304
Pro Forma (Combined) (Class A) $722 $1,033 $1,366 $2,304
Farmers Growth Portfolio (Class B) $676 $1,281 $1,908 $3,307
Pathway Growth Portfolio (Class B) $632 $1,015 $1,425 $2,265
Pro Forma (Combined) (Class B) $632 $1,015 $1,425 $2,265
Expenses assuming you held your shares at the end of each period:
FUND 1 year 3 years 5 years 10 years
Farmers Growth Portfolio (Class A) $764 $1,289 $1,839 $3,332
Pathway Growth Portfolio (Class A) $722 $1,033 $1,366 $2,304
Pro Forma (Combined) (Class A) $722 $1,033 $1,366 $2,304
Farmers Growth Portfolio (Class B) $276 $981 $1,708 $3,307
Pathway Growth Portfolio (Class B) $232 $715 $1,225 $2,265
Pro Forma (Combined) (Class B) $232 $715 $1,225 $2,265
Financial Highlights
The financial highlights tables for the Pathway Funds prior to the
creation of the Class A and Class B shares, which are intended to help you
understand the Pathway Funds' financial performance for the past five years, is
included in the Pathway Funds' prospectus dated December 29, 2000, which is
included herewith and incorporated herein by reference.
Distribution and Services Fees
Pursuant to a shareholder services and distribution agreement with the
Acquiring Trust, Kemper Distributors, Inc. ("KDI"), 222 South Riverside Plaza,
Chicago, Illinois 60606, an affiliate of the Investment Manager, will serve as
principal underwriter and distributor for the Class A and Class B shares for the
combined Funds and will act as agent of each Fund in the continuous offering of
its shares. KDI will also provide execution services for the Funds in connection
with the Funds' purchase of Underlying Fund shares and will receive compensation
of up to 1% of the purchase price of such shares from the Underlying Funds'
underwriters in connection therewith.
Each Fund has adopted a substantially similar shareholder services and
distribution plan on behalf of Class A and Class B shares in accordance with
Rule 12b-1 (the "12b-1 Plan") under the 1940 Act. The 12b-1 Plan provides for
fees payable as expenses of the Class A and Class B shares that are used by KDI
to pay for distribution and services for those classes. Each fee is payable
monthly to KDI at an annual rate of 0.25% and 1.00% of average daily net assets
attributable to the Class A and Class B shares of each Fund, respectively. KDI
may engage other firms to provide information and shareholder services for
shareholders of each Fund. KDI may pay each such firm a service fee at annual
rate of up to 0.25% of net assets of the Class A and Class B shares maintained
and serviced by the firm.
Purchases, Exchanges and Redemptions
At the time of the Closing, the procedures for purchases, exchanges and
redemptions of Class A and Class B shares of the Pathway Funds will be identical
to those of the Farmers Funds. At the time of the Closing, corresponding classes
of shares of the Pathway Funds will have identical sales charges to those of the
Farmers Funds. The Pathway Funds will have a maximum initial sales charge of
5.75% on Class A shares. Shareholders who purchase $1 million or more of Class A
shares will pay no initial sales charge but may have to pay a contingent
deferred sales charge (a "CDSC") of up to 1.00% if the shares are sold within 2
years of the date on which they were purchased. Class B shares will be sold
without a front-end sales charge, but may be subject to a CDSC upon redemption,
depending on the length of time the shares are held. The CDSC will begin at
4.00% for shares sold in the first year, will decline to 1.00% in the sixth year
and is eliminated after the sixth year. After six years, Class B shares
automatically convert to Class A shares.
Class A and Class B shares of the Pathway Funds received in the
Reorganizations will be issued at net asset value, without a sales charge, and
no CDSC will be imposed on any shares of Farmers Funds exchanged for
corresponding shares of the Pathway Funds as a result of the Reorganizations.
However, following the Reorganizations, any CDSC that applies to shares of
Farmers Funds will continue to apply to shares of the corresponding Pathway
Funds received in the Reorganizations, using the original purchase date for such
shares to calculate the holding period, rather than the date such shares are
received in the Reorganizations.
Services available to shareholders of Farmers Funds will be identical
to those available to shareholders of the Pathway Funds and include the purchase
and redemption of shares through an automated telephone system and over the
Internet, telephone redemptions and reinvestment privileges. In addition, as
noted above, unlike shareholders of the Farmers Funds, shareholders of Pathway
Funds may exchange their shares into most other Scudder Funds that offer Class A
and Class B shares. Please see the Pathway Funds' prospectus for additional
information.
Dividends and Other Distributions
Pathway Conservative Portfolio, Pathway Moderate Portfolio, Farmers
Income Portfolio, Farmers Income with Growth Portfolio and Farmers Balanced
Portfolio intend to declare dividends from their net investment income daily and
distribute them quarterly. Farmers Growth with Income Portfolio and Farmers
Growth Portfolio intend to declare dividends from their net investment income
daily and distribute them in November or December of each year. Pathway Growth
Portfolio intends to declare dividends from its net investment income daily and
distribute them in December of each year. Each Fund intends to distribute net
realized capital gains after utilization of capital loss carryforwards, if any,
in November or December of each year. An additional distribution may be made if
necessary. Dividends and distributions of each Fund will be invested in
additional shares of the same class of that 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 Farmers Funds' shareholders, Farmers Funds
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 each Reorganization, each Pathway Fund and Farmers
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, each 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 a Reorganization constitutes a
tax-free reorganization, no gain or loss will be recognized by Farmers Funds or
their shareholders as a direct result of the Reorganization. See "The Proposed
Transactions - Federal Income Tax Consequences" below.
II. PRINCIPAL RISK FACTORS
Farmers Income Portfolio - Pathway Conservative Portfolio
Because of their similar investment objectives, policies and
strategies, the types of principal risks presented by Pathway Conservative
Portfolio are similar to those presented by Farmers Income Portfolio. Some
differences do exist. The main risks applicable to each Fund stem from
investments in the Underlying Funds and include, among others, market risk,
credit risk, interest rate risk and risk associated with exposure to foreign
markets. Unlike Farmers Income Portfolio, Pathway Conservative Portfolio has
equity fund exposure in its target allocation, including exposure to
international equity funds, and therefore Pathway Conservative Portfolio has a
greater level of equity market risk and risk associated with exposure to foreign
markets. The Funds are not insured or guaranteed by the FDIC or any other
government agency. Share prices will go up and down, so be aware that you could
lose money.
Farmers Income with Growth Portfolio - Pathway Moderate Portfolio
Because of their similar investment objectives, policies and
strategies, the types of principal risks presented by Pathway Moderate Portfolio
are similar to those presented by Farmers Income with Growth Portfolio. Some
differences do exist. The main risks applicable to each Fund stem from
investments in the Underlying Funds and include, among others, market risk,
credit risk, interest rate risk and risk associated with exposure to foreign
markets. Pathway Moderate Portfolio has substantially greater equity fund
exposure than Farmers Income with Growth Portfolio in its target allocation,
including exposure to international equity funds, and therefore Pathway Moderate
Portfolio has a greater level of equity market risk and risk associated with
exposure to foreign markets. The Funds are not insured or guaranteed by the FDIC
or any other government agency. Share prices will go up and down, so be aware
that you could lose money.
Farmers Balanced Portfolio - Pathway Moderate Portfolio
Because of their similar investment objectives, policies and
strategies, the types of principal risks presented by Pathway Moderate Portfolio
are similar to those presented by Farmers Balanced Portfolio. The main risks
applicable to each Fund stem from investments in the Underlying Funds and
include, among others, market risk, credit risk, interest rate risk and risk
associated with exposure to foreign markets. The Funds are not insured or
guaranteed by the FDIC or any other government agency. Share prices will go up
and down, so be aware that you could lose money.
Farmers Growth with Income Portfolio - Pathway Moderate Portfolio
Because of their similar investment objectives, policies and
strategies, the types of principal risks presented by Pathway Moderate Portfolio
are similar to those presented by Farmers Growth with Income Portfolio. The main
risks applicable to each Fund stem from investments in the Underlying Funds and
include, among others, market risk, credit risk, interest rate risk and risk
associated with exposure to foreign markets. The Funds are not insured or
guaranteed by the FDIC or any other government agency. Share prices will go up
and down, so be aware that you could lose money.
Farmers Growth Portfolio - Pathway Growth Portfolio
Because of their similar investment objectives, policies and
strategies, the types of principal risks presented by Pathway Growth Portfolio
are similar to those presented by Farmers Growth Portfolio. Some differences do
exist. The main risks applicable to each Fund stem from investments in the
Underlying Funds and include, among others, market risk and risk associated with
exposure to foreign markets. Unlike Farmers Growth Portfolio, Pathway Growth
Portfolio has bond fund exposure in its target allocation, and therefore Pathway
Growth Portfolio has an attendant interest rate risk. The Funds are not insured
or guaranteed by the FDIC or any other government agency. Share prices will go
up and down, so be aware that you could lose money.
* * *
For a further discussion of the investment techniques and risk factors
applicable to each Fund, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds.
III. THE PROPOSED TRANSACTIONS
Description of the Plan
As stated above, the Plan provides for the transfer of all or
substantially all of the assets of Farmers Funds to the Pathway Funds in
exchange for that number of full and fractional Class A and Class B shares
having an aggregate net asset value equal to the aggregate net asset value of
Farmers Funds as of the close of business on the Valuation Date. The Pathway
Funds will assume all of the liabilities of Farmers Funds. Farmers Funds will
distribute the Class A and Class B shares received in the exchange to the
shareholders of Farmers Funds in complete liquidation of Farmers Funds. Farmers
Funds will then be terminated.
Upon completion of the Reorganization, each shareholder of Farmers
Funds will own that number of full and fractional Class A and Class B shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the corresponding class held in that Farmers Fund
as of the close of business on the Valuation Date. Such shares will be held in
an account with the Pathway Funds identical in all material respects to the
account currently maintained by Farmers Funds for such shareholder. In the
interest of economy and convenience, Class A and Class B shares issued to
Farmers Funds' shareholders in the Reorganizations will be in uncertificated
form. If Class A or Class B shares of Farmers Funds are represented by
certificates prior to the Closing, such certificates should be returned to
Farmers Funds' shareholder servicing agent. Any Class A and Class B shares of
the Pathway Funds distributed in the Reorganizations to shareholders in exchange
for certificated shares of Farmers Funds may not be transferred, exchanged or
redeemed without delivery of such certificates.
Until the Closing, shareholders of Farmers Funds will continue to be
able to redeem their shares at the net asset value next determined after receipt
by Farmers Funds' 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
Class A or Class B shares of the Pathway Funds received by the shareholder in
connection with each Reorganization.
The obligations of each Trust on behalf of the respective Funds under
the Plan are subject to various conditions, as stated therein. Among other
things, the Plan requires that all filings be made with, and all authority be
received from, the SEC and state securities commissions as may be necessary in
the opinion of counsel to permit the parties to carry out the transactions
contemplated by the Plan. Each Fund is in the process of making the necessary
filings. To provide for unforeseen events, the Plan may be terminated: (i) by
the mutual agreement of the parties; (ii) by either party if the Closing has not
occurred by ____ __, 2001, unless such date is extended by mutual agreement of
the parties; or (iii) by either party if the other party has materially breached
its obligations under the Plan or made a material misrepresentation in the Plan
or in connection with the Reorganizations. The Plan may also be amended by
mutual agreement in writing. However, no amendment may be made following the
shareholder Meeting if such amendment would have the effect of changing the
provisions for determining the number of shares of each Pathway Fund to be
issued to its corresponding Farmers Fund in the Plan to the detriment of the
Farmers Funds' shareholders without their approval. For a complete description
of the terms and conditions of each Reorganization, please refer to the Plan at
Exhibit A.
Board Approval of the Proposed Transactions
Scudder Kemper presented the Reorganizations to the Trustees based on
its determination that the investment portfolios offered through the Acquired
Trust as presently configured had been unable to achieve an efficient operating
size, and in Scudder Kemper's judgment were unlikely to do so as currently
structured. As a result, Scudder Kemper proposed, and the Trustees considered,
the merger of each portfolio of the Acquired Trust with and into a Pathway Fund
with similar investment objectives and policies. The Independent Trustees of the
Farmers Funds reviewed the potential implications of these proposals for each
Farmers Fund. 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 conclusion of this process, the Board of each Farmers
Fund, including the Independent Trustees of each Farmers Fund, approved the
terms of the Reorganizations and certain related proposals. The Independent
Trustees have also unanimously agreed to recommend that the Reorganizations be
approved by each Farmers Fund's shareholders.
In determining to recommend that the shareholders of each Farmers Fund
approve the Reorganizations, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of each Farmers Fund and the estimated operating expenses of each corresponding
Pathway Fund, and between the estimated operating expenses of each Pathway Fund
and other mutual funds with similar investment objectives; (b) the terms and
conditions of each Reorganization and whether a Reorganization would result in
the dilution of shareholder interests; (c) the compatibility of each Farmers
Fund's and Pathway Fund's investment objectives, policies, restrictions and
portfolios; (d) the service features available to shareholders of each Farmers
Fund and Pathway Fund; (e) prospects for each participating Pathway Fund to
attract additional assets; (f) the tax consequences of each Reorganization on
the relevant Farmers Fund, Pathway Fund and their respective shareholders; and
(g) the investment performance of each Farmers Fund and Pathway Fund.
The Trustees also considered the impact of each Reorganization on the
total expenses to be borne by shareholders of each Farmers Fund. As noted above
under "Comparison of Expenses," the pro forma expense ratio for each combined
Fund following the Reorganization is substantially lower than the current
expense ratio for the relevant Farmers Fund. The Board also considered that the
Reorganizations would permit the shareholders of each Farmers Fund to pursue
similar investment goals in a larger fund. Finally, the Board considered the
fact that Scudder Kemper would pay all costs associated with the proposed
Reorganizations.
Based on all of the foregoing, the Board concluded that each Farmers
Fund's participation in the Reorganizations would be in the best interests of
the Farmers Fund and would not dilute the interests of the Farmers Fund's
shareholders. The Board of Trustees, including the Independent Trustees,
unanimously recommends that shareholders of the Farmers Funds approve the
Reorganizations.
Description of the Securities to Be Issued
The Pathway Funds are 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 Pathway Funds are the only three series of the
Acquiring Trust that the Board has created to date. The Trustees of the
Acquiring Trust are also authorized to further divide the shares of the series
of the Acquiring Trust into classes. The shares of the Pathway Funds are
currently divided into five classes, Class S, Class AARP, Class A, Class B and
Class C. Although shareholders of different classes of a series have an interest
in the same portfolio of assets, shareholders of different classes bear
different expenses in connection with different methods of distribution and
certain other matters.
Each share of each class of a Pathway Fund represents an interest in
the Pathway Fund that is equal to and proportionate with each other share of
that class of the Pathway Fund. Pathway 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 Farmers Funds and the
rights of shareholders of the Pathway Funds.
Federal Income Tax Consequences
Each Reorganization is conditioned upon the receipt by each Fund of an
opinion from Willkie Farr & Gallagher substantially to the effect that, based
upon certain facts, assumptions and representations of the parties, for federal
income tax purposes: (i) the transfer to the Pathway Funds of all or
substantially all of the assets of Farmers Funds in exchange solely for Class A
and Class B shares and the assumption by the Pathway Funds of all of the
liabilities of Farmers Funds, followed by the distribution of such shares to
Farmers Funds' shareholders in exchange for their shares of Farmers Funds in
complete liquidation of Farmers Funds, will constitute a "reorganization" within
the meaning of Section 368(a)(1) of the Code, and the Pathway Funds and Farmers
Funds 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 Farmers Funds
upon the transfer of all or substantially all of its assets to the Pathway Funds
in exchange solely for Class A and Class B shares and the assumption by the
Pathway Funds of all of the liabilities of Farmers Funds or upon the
distribution of the Class A and Class B shares to shareholders of Farmers Funds
in exchange for their shares of Farmers Funds; (iii) the basis of the assets of
Farmers Funds in the hands of the Pathway Funds will be the same as the basis of
such assets of Farmers Funds immediately prior to the transfer; (iv) the holding
period of the assets of Farmers Funds in the hands of the Pathway Funds will
include the period during which such assets were held by Farmers Funds; (v) no
gain or loss will be recognized by the Pathway Funds upon the receipt of the
assets of Farmers Funds in exchange for Class A and Class B shares and the
assumption by the Pathway Funds of all of the liabilities of Farmers Funds; (vi)
no gain or loss will be recognized by the shareholders of Farmers Funds upon the
receipt of the Class A and Class B shares solely in exchange for their shares of
Farmers Funds as part of the transaction; (vii) the basis of the Class A and
Class B shares received by each shareholder of Farmers Funds will be the same as
the basis of the shares of Farmers Funds exchanged therefor; and (viii) the
holding period of Class A and Class B shares received by each shareholder of
Farmers Funds will include the holding period during which the shares of Farmers
Funds exchanged therefor were held, provided that at the time of the exchange
the shares of Farmers Funds were held as capital assets in the hands of such
shareholder of Farmers Funds.
After the Closing, each Pathway Fund may dispose of certain securities
received by it from a Farmers Fund in connection with the Reorganizations, which
may result in transaction costs and capital gains.
While Farmers Funds are not aware of any adverse state or local tax
consequences of the proposed Reorganizations, they have 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.
Expenses of the Transaction
Scudder Kemper has agreed to pay all expenses incurred in connection
with the Reorganizations. The Independent Trustees of the Farmers Funds are not
entitled to benefits under any pension or retirement plan. A one-time benefit
will be provided to each Independent Trustee of the Farmers Funds who will not
serve on the board of the Pathway Funds. Inasmuch as Scudder Kemper will also
benefit from the administrative efficiencies of merging the Farmers Funds with
and into the Pathway Funds, Scudder Kemper has agreed to pay the entire cost of
this benefit, which is expected to be an amount equal to two times each
non-continuing Independent Trustee's annual compensation from the Farmers Funds,
without giving effect to any fee waiver or deferral arrangements.
Legal Matters
Certain legal matters concerning the federal income tax consequences of
the Reorganizations will be passed on by Willkie Farr & Gallagher, 787 7th
Avenue, New York, New York 10019. Certain legal matters concerning the issuance
of shares of the Pathway Funds will be passed on by Dechert, Ten Post Office
Square, South, Boston, Massachusetts 02109.
Capitalization
The following table shows on an unaudited basis the capitalization of
Pathway Conservative Portfolio and Farmers Income Portfolio as of September 30,
2000 and on a pro forma basis, as of that date, giving effect to the
Reorganization:
<TABLE>
<S> <C> <C> <C> <C>
Pathway Farmers Pro Pro
Conservative Income Forma Forma
Portfolio Portfolio Adjustments Combined(1)
Net Asset Value
S Class....................... $ 28,443,661 $ 28,443,661
AARP Shares................... $ 75,448,906 $ 75,448,906
Class A Shares................ $ 287,115 $ 287,115
Class B Shares................ $ 70,102 $ 70,102
Total Net Assets.............. $ 104,249,784
Shares Outstanding
S Class....................... 2,336,452 2,336,452
AARP Shares................... 6,196,137 6,196,137
Class A Shares................ 25,332 (1,747) 23,585
Class B Shares................ 6,184 (426) 5,758
Net Asset Value per Share
S Class....................... $ 12.17 $ 12.17
AARP Shares................... $ 12.18 $ 12.18
Class A Shares................ $ 11.33 $ 12.17
Class B Shares................ $ 11.34 $ 12.17
</TABLE>
(1) Assumes the Reorganization had been consummated on September 30, 2000, and
is for information purposes only. No assurance can be given as to how many
shares of Pathway Conservative Portfolio will be received by the
shareholders of Farmers Income Portfolio on the date the Reorganization
takes place, and the foregoing should not be relied upon to reflect the
number of shares of Pathway Conservative Portfolio that actually will be
received on or after such date.
The following table shows on an unaudited basis the capitalization of
Pathway Moderate Portfolio, Farmers Income with Growth Portfolio, Farmers
Balanced Portfolio and Farmers Growth with Income Portfolio as of September 30,
2000 and on a pro forma basis, as of that date, giving effect to the
Reorganizations:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Farmers Farmers
Pathway Income with Farmers Growth with Pro Forma Pro Forma
Moderate Growth Balanced Income Adjustments Combined(1)
Portfolio Portfolio Portfolio Portfolio
Net Asset Value
S Class................... $ 251,643,694 $ 251,643,694
Class A Shares............ $ 608,243 $ 867,951 $ 873,525 $ 2,349,719
Class B Shares............ $ 384,699 $ 1,148,062 $ 1,110,665 $ 2,643,426
Total Net Assets.......... $ 256,636,839
Shares Outstanding
S Class................... 18,211,066 18,211,066
Class A Shares............ 46,786 66,615 67,369 (10,724) 170,046
Class B Shares............ 29,642 88,205 85,935 (12,481) 191,301
Net Asset Value per Share
S Class................... $ 13.82 $ 13.82
Class A Shares............ $ 13.00 $ 13.03 $ 12.97 $ 13.82
Class B Shares............ $ 12.98 $ 13.02 $ 12.92 $ 13.82
</TABLE>
<PAGE>
(1) Assumes the Reorganization had been consummated on September 30, 2000, and
is for information purposes only. No assurance can be given as to how many
shares of Pathway Moderate Portfolio will be received by the shareholders
of Farmers Income with Growth Portfolio, Farmers Balanced Portfolio and
Farmers Growth with Income Portfolio on the date the Reorganization takes
place, and the foregoing should not be relied upon to reflect the number of
shares of Pathway Moderate Portfolio that actually will be received on or
after such date.
The following table shows on an unaudited basis the capitalization of
Pathway Growth Portfolio and Farmers Growth Portfolio as of September 30, 2000
and on a pro forma basis, as of that date, giving effect to the Reorganization:
<TABLE>
<S> <C> <C> <C> <C>
Pathway Farmers Pro Pro Forma
Growth Growth Forma Combined(1)
Net Asset Value Portfolio Portfolio Adjustments
S Class........................$ 123,151,028 $ 123,151,028
AARP Shares....................$ 133,314,183 $ 133,314,183
Class A Shares................. $ 2,755,302 $ 2,755,302
Class B Shares................. $ 1,698,677 $ 1,698,677
Total Net Assets............... $ 260,919,190
Shares Outstanding
S Class........................ 8,047,782 8,047,782
AARP Shares.................... 8,711,832 8,711,832
Class A Shares................. 204,709 (24,653) 180,056
Class B Shares................. 126,759 (15,752) 111,007
Net Asset Value per Share
S Class........................$ 15.30 $ 15.30
AARP Shares....................$ 15.30 $ 15.30
Class A Shares................. $ 13.46 $ 15.30
Class B Shares................. $ 13.40 $ 15.30
</TABLE>
(1) Assumes the Reorganization had been consummated on September 30, 2000, and
is for information purposes only. No assurance can be given as to how many
shares of Pathway Growth Portfolio will be received by the shareholders of
Farmers Growth Portfolio on the date the Reorganization takes place, and
the foregoing should not be relied upon to reflect the number of shares of
Pathway Growth Portfolio that actually will be received on or after such
date.
The Board of Trustees unanimously recommends that
shareholders of each Farmers Fund vote FOR the Proposal
that relates to the Reorganization
of their Fund into a corresponding Pathway Fund.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Trusts, the Funds and the
Reorganizations 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-[ ].
The Trusts are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith, file reports, proxy material and other information about each of the
Funds with the SEC. Such reports, proxy material and other information filed by
the Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the prospectuses and
statements of additional information for the Funds, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts and the Funds.
Interests of Certain Persons
The Investment Manager has a financial interest in the Reorganizations
because it manages all of the Underlying Funds in which the Pathway Funds
invest, but only certain of the Underlying Funds in which the Farmers Funds
invest. Accordingly, the Investment Manager may benefit from increased fees as a
result of the Reorganizations.
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 shareholder of a Farmers Fund giving a proxy has the power to
revoke it by mail (addressed to the Secretary at the principal executive office
of the Farmers Funds, c/o Scudder Kemper Investments, Inc., at the address for
Farmers Funds 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 applicable Farmers 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 at least 30% of the shares of a Farmers Fund 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 a Farmers Fund's shares present
in person or by proxy at the Meeting. The persons named as proxies will vote in
favor of any such adjournment those proxies which they are entitled to vote in
favor of that Proposal and will vote against any such adjournment those proxies
to be voted against that Proposal. For purposes of determining the presence of a
quorum for transacting business at the Meeting, abstentions and broker
"non-votes" will be treated as shares that are present but which have not been
voted. Broker non-votes are proxies received by Farmers Funds 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.
Each Farmers Fund will vote separately on the Proposal relating to its
reorganization into its corresponding Pathway Fund. Approval of a Proposal
requires the affirmative vote of the holders of a majority of each Farmers
Fund's shares outstanding and entitled to vote thereon. Abstentions and broker
non-votes will have the effect of a "no" vote on the applicable Proposal.
Holders of record of the shares of each Farmers Fund at the close of
business on January 10, 2001 will be entitled to one vote per share on all
business of the Meeting. As of January 10, 2001 there were [___] Class A shares
and [___] Class B shares of Farmers Income Portfolio outstanding; there were
[___] Class A shares and [___] Class B shares of Farmers Income with Growth
Portfolio outstanding; there were [___] Class A shares and [___] Class B shares
of Farmers Balanced Portfolio outstanding; there were [___] Class A shares and
[___] Class B shares of Farmers Growth with Income Portfolio outstanding; and
there were [___] Class A shares and [___] Class B shares of Farmers Growth
Portfolio outstanding.
[Appendix 1 hereto sets forth the beneficial owners of more than 5% of
each class of each Farmers Fund's and Pathway Fund's shares. To the best of each
Trust's knowledge, as of ___________ ___, 2000, no person owned beneficially
more than 5% of a class of either a Pathway Fund's or Farmers Fund's outstanding
shares, except as stated on Appendix 1].
Shareholder Communications Corporation ("SCC") has been engaged to
assist in the solicitation of proxies, at an estimated cost of $[ ], all of
which will be borne by Scudder Kemper. As the Meeting date approaches, certain
shareholders of Farmers Funds 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 Farmers Funds. Proxies that are obtained
telephonically will be recorded in accordance with the procedures described
below. The Trustees believe that these procedures are reasonably designed to
ensure that both the identity of the shareholder casting the vote and the voting
instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each shareholder's full name and address,
or the last four digits of the shareholder's social security or employer
identification number, or both, and to confirm that the shareholder has received
the proxy materials in the mail. If the shareholder is a corporation or other
entity, the SCC representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the shares.
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.
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.
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-[ ]. Any
proxy given by a shareholder is revocable until voted at the Meeting.
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., 222 South
Riverside Plaza, Chicago, Illinois 60606, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board is not aware of any
matters that will be presented for action at the Meeting other than the matters
described in this material. 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 applicable Farmers Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
/s/ John Millette
John Millette
Secretary
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION......................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF PATHWAY CONSERVATIVE...................
PORTFOLIO'S, PATHWAY MODERATE PORTFOLIO'S AND
PATHWAY GROWTH PORTFOLIO'S PERFORMANCE............................
APPENDIX 1: BENEFICIAL OWNERS OF FUND SHARES....................................
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this [ ] day of [ ], 2001, by and between Scudder Pathway Series (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Scudder Pathway
Series: Conservative Portfolio, Scudder Pathway Series: Moderate Portfolio and
Scudder Pathway Series: Growth Portfolio, each a separate series of the
Acquiring Trust (each, an "Acquiring Fund" and together, the "Acquiring Funds")
and Farmers Investment Trust (the "Acquired Trust" and, together with the
Acquiring Trust, each a "Trust" and together the "Trusts"), a Massachusetts
business trust, on behalf of Farmers Income Portfolio, Farmers Income with
Growth Portfolio, Farmers Balanced Portfolio, Farmers Growth with Income
Portfolio and Farmers Growth Portfolio, each a separate series of the Acquired
Trust (each, an "Acquired Fund" and together, the "Acquired Funds") (each
Acquiring Fund or Acquired Fund referred to as a "Fund" and together, the
"Funds"). The principal place of business of the Acquiring Trust is Two
International Place, Boston, Massachusetts 02110-4103 and the principal place of
business of the Acquired Trust is 222 South Riverside Plaza, Chicago, Illinois
60606.
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 (i) the transfer of all or substantially all
of the assets of each Acquired Fund to its respective Acquiring Fund in exchange
solely for Class A and Class B voting shares of beneficial interest of ($0.01
par value per share) of its respective Acquiring Fund (the "Acquiring Fund
Shares") as set forth on Schedule A attached hereto; (ii) the assumption by each
Acquiring Fund of all of the liabilities of its respective Acquired Fund; and
(iii) the distribution of the Acquiring Fund Shares to the Class A and Class B
shareholders of each Acquired Fund in complete liquidation of each 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 EACH ACQUIRED FUND TO ITS RESPECTIVE ACQUIRING
FUND IN EXCHANGE FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL
ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF EACH ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, each Acquired Fund
agrees to transfer to its respective Acquiring Fund all or substantially all of
the Acquired Fund's assets as set forth in section 1.2, and each Acquiring Fund
agrees in exchange therefor (i) to deliver to its respective Acquired Fund that
number of full and fractional Class A and Class B Acquiring Fund Shares
determined by dividing the value of its respective Acquired Fund's net assets
with respect to each class, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share of
the class, computed in the manner and as of the time and date set forth in
section 2.2; and (ii) to assume all of the liabilities of its respective
Acquired Fund. Such transactions shall take place at the closing provided for in
section 3.1 (the "Closing").
1.2. The assets of each Acquired Fund to be acquired by its respective
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 such Acquired Fund prepared as of the
effective time of its respective 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 each Acquired Fund immediately before
its respective Closing (excluding for these purposes assets used to pay the
dividends and other distributions paid pursuant to section 1.4).
1.3. Each Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to its respective Closing Date as defined in
section 3.1.
1.4. On or as soon as practicable prior to its Closing Date as defined
in section 3.1, each 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 its respective Closing Date.
1.5. Immediately after the transfer of Assets provided for in section
1.1, each Acquired Fund will distribute to such Acquired Fund's shareholders of
record with respect to each class of its shares (the "Acquired Fund
Shareholders"), determined as of the Valuation Time (as defined in section 2.1),
on a pro rata basis within that class, the Acquiring Fund Shares of the same
class received by such Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished with respect
to each class of each Acquired Fund 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 Class A and
Class B Acquiring Fund Shares to be so credited to the Class A and Class B
Acquired Fund Shareholders shall, with respect to each class, be equal to the
aggregate net asset value of the applicable Acquired Fund shares of the same
class owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of each Acquired Fund will simultaneously be cancelled on the
books of that Acquired Fund, although share certificates representing interests
in Class A and Class B shares of the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
section 2.3. No Acquiring Fund will 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
each Acquiring Fund. Shares of each 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 each 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 applicable Acquired Fund.
1.8. All books and records of each 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 its respective Acquiring Fund from and after its Closing Date and
shall be turned over to its respective Acquiring Fund as soon as practicable
following its 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 each respective 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 each Acquiring Fund's Declaration of Trust, as amended,
and then-current prospectus or statement of additional information.
2.2. The net asset value of a Class A and Class B Acquiring Fund Share
shall be the net asset value per share computed with respect to that class as of
the Valuation Time using the valuation procedures referred to in section 2.1.
2.3. The number of Class A and Class B Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Assets shall be
determined with respect to each such class by dividing the value of the Assets
with respect to Class A and Class B shares of each Acquired Fund, as the case
may be, determined in accordance with section 2.1 by the net asset value of an
Acquiring Fund Share of the same class determined in accordance with section
2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement
shall be [ ], 2001, 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, Ten Post Office Square - South, Boston, MA 02109, or at such other
place and time as the parties may agree.
3.2. Each Acquired Fund shall deliver to its respective Acquiring Fund
on the Closing Date a schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian
for each 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 each 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. Each Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by the custodian for each Acquired Fund to the custodian for
each Acquiring Fund for examination no later than five business days preceding
the Closing Date and transferred and delivered by each Acquired Fund as of the
Closing Date by each Acquired Fund for the account of its respective Acquiring
Fund duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof. Each 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 its respective Acquiring Fund. The cash to be transferred by each Acquired
Fund shall be delivered by wire transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent for each Acquired Fund, on behalf
of each Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
each Acquired Fund Shareholders and the number and percentage ownership (to
three decimal places) of outstanding each Class A and Class B Acquired Fund
shares owned by each such shareholder immediately prior to the Closing. Each
Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring
Fund Shares to be credited on the Closing Date to its respective Acquired Fund
or provide evidence satisfactory to its respective 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 an Acquiring
Fund or an 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 Class A and Class B shares of an Acquiring Fund or an
Acquired Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of each Acquired Fund, represents
and warrants to the respective 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 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 [ ], 200[ ], 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 respective 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 [ ], 200[ ], 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 applicable 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's liabilities, or the redemption of Acquired Fund's
shares by Acquired Fund Shareholders shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquired Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws, (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable (recognizing
that, under Massachusetts law, Acquired Fund Shareholders, under certain
circumstances, could be held personally liable for obligations of the Acquired
Fund), and (iii) will be held at the time of the Closing by the persons and in
the amounts set forth in the records of State Street, as provided in section
3.4. The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Acquired Fund shares, nor is
there outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act and the 1940 Act,
except those restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Board members of the Acquired Trust, and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes a valid and binding
obligation of the Acquired Trust, on behalf of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquiring Fund for use
therein.
4.2. The Acquiring Trust, on behalf of each Acquiring Fund, represents
and warrants to the respective 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 [ ], 200[ ], have been audited
by PricewaterhouseCoopers LLP, independent accountants, and are in accordance
with GAAP consistently applied, and such statements (a copy of each of which has
been furnished to the Acquired Fund) present fairly, in all material respects,
the financial position of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquiring Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since [ ], 200[ ], there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed to
and accepted in writing by the Acquired Fund. For purposes of this subsection
(g), a decline in net asset value per share of the Acquiring Fund due to
declines in market values of securities in the Acquiring Fund's portfolio, the
discharge of Acquiring Fund liabilities, or the redemption of Acquiring Fund
shares by Acquiring Fund shareholders shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquiring Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible to
and has computed its federal income tax under Section 852 of the Code, and will
do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws and (ii) are, and on the Closing Date will be,
duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquiring Fund). The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring Fund
shares, nor is there outstanding any security convertible into any of the
Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly 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;
(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. Each Acquiring Fund and Acquired Fund 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, each Acquiring Fund's officers and agents
shall have reasonable access to its respective Acquired Fund's books and records
necessary to maintain current knowledge of its respective Acquired Fund and to
ensure that the representations and warranties made by its respective Acquired
Fund are accurate.
5.3. Each 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 [ ], 2001.
5.4. Each Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.5. Each Acquired Fund covenants that it will assist its respective
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, each Acquiring Fund
and its respective 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. Each Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. Each Acquired Fund will
provide its respective 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. Each Acquired Fund covenants that it will, from time to time, as
and when reasonably requested by its respective 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. Each 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 each Acquiring Fund
may take such actions it reasonably deems advisable after the Closing Date as
circumstances change.
5.10. Each Acquiring Fund covenants that it will, from time to time, as
and when reasonably requested by its respective 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 its respective Acquired Fund may reasonably deem
necessary or desirable in order to (i) vest and confirm to the Acquired Fund
title to and possession of all Acquiring Fund shares to be transferred to the
Acquired Fund pursuant to this Agreement and (ii) assume the liabilities from
the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, each
Acquired Fund shall make a liquidating distribution to its shareholders
consisting of the Acquiring Fund Shares received at the Closing.
5.12. Each Acquiring Fund and Acquired Fund shall 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 EACH ACQUIRED FUND
The obligations of each Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquired Trust, on
behalf of each 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 an Acquiring Fund, its adviser or any of their affiliates)
against an Acquired Fund or its investment adviser(s), Board members or officers
arising out of this Agreement and (ii) no facts known to an Acquired Fund which
an Acquired Fund reasonably believes might result in such litigation.
6.2. Each Acquiring Fund shall have delivered to its respective
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
Trust, on behalf of the Acquiring Fund, and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquiring Fund made in
this Agreement are true and correct on and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Acquired Fund shall reasonably request.
6.3. Each Acquired Fund shall have received on the Closing Date an
opinion of Dechert, in a form reasonably satisfactory to the Acquired Funds, 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 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. Each 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 each Acquiring Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of each Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
respective 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 each 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 an Acquired Fund, its adviser or any of their affiliates)
against an Acquiring Fund or its investment adviser(s), Board members or
officers arising out of this Agreement and (ii) no facts known to an Acquiring
Fund which an Acquiring Fund reasonably believes might result in such
litigation.
7.2. Each Acquired Fund shall have delivered to its respective
Acquiring Fund a statement of the Acquired Fund's assets and liabilities as of
the Closing Date, certified by the Treasurer of the Acquired Fund.
7.3. Each Acquired Fund shall have delivered to its respective
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. Each Acquiring Fund shall have received on the Closing Date an
opinion of Dechert, in a form reasonably satisfactory to the Acquiring Funds,
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. Each 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 each Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH ACQUIRING FUND AND
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to each Acquired Fund or its respective Acquiring
Fund, the other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein, with
respect to each Acquired Fund, shall have been approved by the requisite vote of
the holders of the outstanding shares of the respective 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 respective Acquiring Fund. Notwithstanding anything herein to
the contrary, neither an Acquiring Fund nor an 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
an Acquiring Fund or an 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 an
Acquiring Fund or an 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 opinions of Willkie Farr &
Gallagher addressed to each Acquiring Fund and 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 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 Fund and Acquired
Trust. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. Each Acquiring Fund agrees to indemnify and hold harmless its
respective Acquired Fund and each of such 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. Each Acquired Fund agrees to indemnify and hold harmless its
respective Acquiring Fund and each of such Acquiring Fund's Board members and
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which jointly and severally, the
Acquiring Fund or any of its Board members or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by the Acquired Fund of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund on behalf of the Acquiring Fund, and
the Acquired Trust, on behalf of the Acquired Fund, represents and warrants to
the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Scudder Kemper will bear all 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.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. Each Acquiring Fund and each Acquired Fund agree that no 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
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 any party as it relates to the
transaction applicable to such party by (i) mutual agreement of the parties, or
(ii) by either party if the Closing shall not have occurred on or before [ ] ,
2001, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by any authorized officer of the
Acquired Trust and any authorized officer of the Acquiring Trust; provided,
however, that following the meeting of each Acquired Fund's Shareholders called
by the Acquired Trust 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, 222 South Riverside Plaza, Chicago, Illinois 60606, with a copy
to Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention:
Joseph R. Fleming, Esq., or to the Acquiring Fund, Two International Place,
Boston, MA 02110-4103, with a copy to Dechert, Ten Post Office Square South,
Boston, MA 02109-4603, Attention: Joseph R. Fleming, Esq., or to any other
address that the Acquired Fund or the Acquiring Fund shall have last designated
by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of each
Acquiring Fund and each Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to the Trust mean and refer to the
Board members of the Trust from time to time serving under its Declaration of
Trust on file with the Secretary of State of the Commonwealth of Massachusetts,
as the same may be amended from time to time, pursuant to which the Trust
conducts its business. It is expressly agreed that the obligations of each Trust
hereunder shall not be binding upon any of the Board members, shareholders,
nominees, officers, agents, or employees of the Trusts or the Funds personally,
but bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the 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 State of Massachusetts, without regard to
its principles of conflicts of laws.
<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: FARMERS INVESTMENT TRUST
on behalf of Farmers Income Portfolio, Farmers Income
with Growth Portfolio, Farmers Balanced Portfolio,
_____________________ Farmers Growth with Income Portfolio and
Secretary Farmers Growth Portfolio
By:___________________________
Its:__________________________
Attest: SCUDDER PATHWAY SERIES
on behalf of Scudder Pathway Series: Conservative
_________________________ Portfolio, Scudder Pathway Series: Moderate Portfolio
Secretary and Scudder Pathway Series: Growth Portfolio
By:___________________________
Its:__________________________
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:_________________________________
Its:_________________________________
<PAGE>
Schedule A
Farmers Fund (Acquired Fund) Pathway Fund (Acquiring Fund)
Farmers Income Portfolio Scudder Pathway Series: Conservative Portfolio
Farmers Income with Scudder Pathway Series: Moderate Portfolio
Growth Portfolio
Farmers Balanced Portfolio Scudder Pathway Series: Moderate Portfolio
Farmers Growth with Scudder Pathway Series: Moderate Portfolio
Income Portfolio
Farmers Growth Portfolio Scudder Pathway Series: Growth Portfolio
<PAGE>
EXHIBIT B
[Management's Discussion of Pathway Conservative Portfolio's, Pathway Moderate
Portfolio's and Pathway Growth Portfolio's Performance]
<PAGE>
APPENDIX 1
[Beneficial Owners of Fund Shares]
<PAGE>
PART B
SCUDDER PATHWAY SERIES
-------------------------------------------------------------------------------
Statement of Additional Information
[Date], 2001
-------------------------------------------------------------------------------
Acquisition of the Assets By and in Exchange for shares of beneficial interest
of of each portfolio series of the three series of Farmers Investment Trust
Scudder Pathway Series (the "Acquiring Trust") 222 South Riverside Plaza Two
International Place Chicago, IL 60606 Boston, MA 02110-4103
This Statement of Additional Information is available to the
shareholders of each series of Farmers Investment Trust (Farmers Income
Portfolio, Farmers Income with Growth Portfolio, Farmers Balanced Portfolio,
Farmers Growth with Income Portfolio and Farmers Growth Portfolio) (each, a
"Farmers Fund" and collectively, the "Farmers Funds") in connection with a
proposed transaction whereby three series of the Acquiring Trust (Scudder
Pathway Series: Conservative Portfolio; Scudder Pathway Series: Balanced
Portfolio; and Scudder Pathway Series: Growth Portfolio) (each a "Pathway Fund"
and collectively, the "Pathway Funds") will acquire all or substantially all of
the assets and all of the liabilities of its corresponding Farmers Fund in
exchange for the Class A and Class B shares of beneficial interest of the
applicable Pathway Fund (each, a "Reorganization" and collectively, the
"Reorganizations").
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 Proxy Statement/Prospectus of the Acquiring Trust relating to
the Reorganizations. This Statement of Additional Information consists of this
cover page and the following documents:
1. Pathway Funds' statement of additional information dated December 29,
2000, which was previously filed with the Securities and Exchange Commission
(the "Commission") via EDGAR on [ ], 2000 (File No. [ ]) and is incorporated by
reference herein.
2. Pathway Funds' annual report to shareholders for the fiscal year ended
August 31, 2000, which was previously filed with the Commission via EDGAR on
October 18, 2000 (File No. 811-08606) and is incorporated by reference herein.
3. Farmers Funds' prospectus dated September 1, 2000, which was previously
filed with the Commission via EDGAR on August 31, 2000 (File No. 333-66385) and
is incorporated by reference herein.
4. Farmers Funds' statement of additional information dated September 1,
2000, which was previously filed with the Commission via EDGAR on August 31,
2000 (File No. 333-66385) and is incorporated by reference herein.
5. Farmers Funds' annual report to shareholders for the fiscal year ended
April 30, 2000, which was previously filed with the Commission via EDGAR on
September 5, 2000 (File No. 811-09085) and is incorporated by reference herein.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated [Date], 2000 relating to the Reorganizations may be
obtained by writing Farmers Funds at 222 South Riverside Drive, Chicago, IL
60606 or by calling [ ] at 1-800-[ ]. This Statement of Additional Information
should be read in conjunction with the Proxy Statement/Prospectus.
PART C. OTHER INFORMATION
Item 15. Indemnification
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised by
Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with
the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to
any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim or
liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of
the one or more Series of which the Shareholder who is entitled
to indemnification or reimbursement was a Shareholder at the
time the act or event occurred which gave rise to the claim
against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any
other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law
against all liability and against all expenses
reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in
which he becomes involved as a party or
otherwise by virtue of his being or having been
a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal,
administrative or other, including appeals),
actual or threatened; and the words "liability"
and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a
final adjudication by a court or other body
before which a proceeding was brought that he
engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he
shall have been finally adjudicated not to
have acted in good faith in the reasonable
belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication
as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or
officer, unless there has been a determination
that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body
approving the settlement or
other disposition; or
(B) based upon a review of readily
available facts (as opposed to a
full trial-type inquiry) by (x)
vote of a majority of the
Disinterested Trustees acting on
the matter (provided that a
majority of the Disinterested
Trustees then in office act on
the matter) or (y) written
opinion of independent legal
counsel.
(c) The rights of indemnification herein
provided may be insured against by policies
maintained by the Trust, shall be severable,
shall not affect any other rights to which
any Trustee or officer may now or hereafter
be entitled, shall continue as to a person
who has ceased to be such Trustee or officer
and shall insure to the benefit of the
heirs, executors, administrators and assigns
of such a person. Nothing contained herein
shall affect any rights to indemnification
to which personnel of the Trust other than
Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of
a defense to any claim, action, suit or
proceeding of the character described in
paragraph (a) of this Section 4.3 may be
advanced by the Trust prior to final
disposition thereof upon receipt of an
undertaking by or on behalf of the recipient
to repay such amount if it is ultimately
determined that he is not entitled to
indemnification under this Section 4.3,
provided that either:
(i) such undertaking is secured by a
surety bond or some other
appropriate security provided by
the recipient, or the Trust
shall be insured against losses
arising out of any such
advances; or
(ii) a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees act on
the matter) or an independent
legal counsel in a written
opinion shall determine, based
upon a review of readily
available facts (as opposed to a
full trial-type inquiry), that
there is reason to believe that
the recipient ultimately will be
found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 16. Exhibits
(1)(a)(1) Declaration of Trust dated July 1, 1994,
is incorporated by reference to the
Registrant's original Registration
Statement on Form N-1A, as amended (the
"Registration Statement").
(1)(a)(2) Certificate of Amendment to Declaration
of Trust dated January 10, 1995, is
incorporated by reference to
Pre-Effective Amendment No. 1 to the
Registration Statement.
(1)(a)(3) Certificate of Amendment to Declaration
of Trust dated September 16, 1996, is
incorporated by reference to
Pre-Effective Amendment No. 1 to the
Registration Statement.
(1)(a)(4) Establishment and Designation of Shares
of Beneficial Interest, $0.01 par value,
Class S and Class AARP with respect to
Balanced Portfolio, Conservative
Portfolio and Growth Portfolio is
incorporated by reference to
Post-Effective Amendment No. 8 to the
Registration Statement.
(2) By-Laws, dated July 1, 1994, is
incorporated by reference to the
original Registration Statement.
(3) Inapplicable.
(4) Form of Agreement and Plan of
Reorganization filed as Exhibit A to
Part A herein.
(5) Inapplicable.
(6) Investment Management Agreement between
the Registrant and Scudder Kemper
Investments, Inc., dated September 7,
1998, is incorporated by reference to
Post-Effective Amendment No. 5 to the
Registration Statement.
(7)(e)(1) Underwriting Agreement between the
Registrant and Scudder Investor
Services, Inc., dated September 7, 1998,
is incorporated by reference to Post
Effective Amendment No. 5 to the
Registration Statement. (Previously
filed as Exhibit (e) to Post-Effective
Amendment No. 5.)
(7)(e)(2) Underwriting Agreement between the
Registrant and Scudder Investor
Services, Inc., dated May 18, 2000, is
incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(8) Inapplicable.
(9)(g)(1) Custodian Contract between the
Registrant and State Street Bank and
Trust Company, dated November 15, 1996,
is incorporated by reference to
Post-Effective Amendment No. 3 to the
Registration Statement.
(9)(g)(2) Amendment to Custodian Agreement between
Registrant and State Street Bank and
Trust Company, is incorporated by
reference to Post-Effective Amendment
No. 6 to the Registration Statement.
(10)(n)(1) Plan with respect to Scudder Pathway
Balanced Portfolio pursuant to Rule
18f-3 is incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(10)(n)(2) Plan with respect to Scudder Pathway
Conservative Portfolio pursuant to Rule
18f-3 is incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(10)(n)(3) Plan with respect to Scudder Pathway
Growth Portfolio pursuant to Rule 18f-3
is incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(10)(n)(4) Amended and Restated Plan with respect
to Scudder Pathway Balanced Portfolio
pursuant to Rule 18f-3 is incorporated
by reference to Post-Effective Amendment
No. 9 to the Registration Statement.
(10)(n)(5) Amended and Restated Plan with respect
to Scudder Pathway Conservative
Portfolio pursuant to Rule 18f-3 is
incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(10)(n)(6) Amended and Restated Plan with respect
to Scudder Pathway Growth Portfolio
pursuant to Rule 18f-3 is incorporated
by reference to Post-Effective Amendment
No. 9 to the Registration Statement.
(11) Opinion and Consents of Dechert filed
herein.
(12) Opinion and Consent of Willkie Farr &
Gallagher to be filed by post-effective
amendment.
(13)(h)(1)(a) Special Servicing Agreement between the
Registrant, the Underlying Scudder
Funds, Scudder Service Corporation,
Scudder Fund Accounting Corporation,
Scudder Trust Company and Scudder,
Stevens & Clark, Inc. dated November 15,
1996, is incorporated by reference to
Post-Effective Amendment No. 1 to the
Registration Statement.
(13)(h)(1)(b) Amendment to Special Servicing Agreement
between Registrant and the Underlying
Scudder Funds, Scudder Servicing
Corporation, Scudder Fund Accounting
Corporation, Scudder Trust Company and
Scudder Stevens & Clark dated May
15,1997, is incorporated by reference to
Post-Effective Amendment No. 4 to the
Registration Statement.
(13)(h)(2) Transfer Agency and Service Agreement
between the Registrant and Scudder
Service Corporation dated November 15,
1996, is incorporated by reference to
Post-Effective Amendment No. 1 to the
Registration Statement.
(13)(h)(3) COMPASS Service Agreement between the
Registrant and Scudder Trust Company,
dated November 15, 1996, is incorporated
by reference to Post-Effective Amendment
No. 3 to the Registration Statement.
(13)(h)(4)(a) Fund Accounting Services Agreement
between Scudder Pathway Series:
Conservative Portfolio and Scudder Fund
Accounting Corporation dated November
15, 1996, is incorporated by reference
to Post-Effective Amendment No. 1 to the
Registration Statement.
(13)(h)(4)(b) Fund Accounting Services Agreement
between Scudder Pathway Series: Balanced
Portfolio and Scudder Fund Accounting
Corporation dated November 14, 1996, is
incorporated by reference to
Post-Effective Amendment No. 1 to the
Registration Statement.
(13)(h)(4)(c) Fund Accounting Services Agreement
between Scudder Pathway Series: Growth
Portfolio and Scudder Fund Accounting
Corporation dated November 14, 1996, is
incorporated by reference to
Post-Effective Amendment No. 1 to the
Registration Statement.
(13)(h)(5) Form of Administrative Agreement between
the Registrant and Scudder Kemper
Investments, Inc. dated September 25,
2000, is incorporated by reference to
Post-Effective Amendment No. 9 to the
Registration Statement.
(14) Consents of PricewaterhouseCoopers LLP
filed herein.
(15) Inapplicable.
(16) Powers of Attorney filed herein.
(17) Form of Proxy filed herein.
Item 17. Undertakings.
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of
a prospectus which is a part of this registration statement
by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17
CFR 230.145c], the reoffering prospectus will contain the
information called for by the applicable registration form
for C-8 350 reofferings by persons who may be deemed
underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a
part of an amendment to the registration statement and will
not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein,
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant undertakes to file, by
post-effective amendment, an opinion of counsel supporting
the tax consequences of the proposed reorganization within
a reasonable time after receipt of such opinion.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Scudder Pathway Series has duly caused this
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 15th day of November, 2000.
SCUDDER PATHWAY SERIES
By: /s/ Linda C. Coughlin
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Linda C. Coughlin President & Trustee November 15, 2000
Linda C. Coughlin
/s/ Henry P. Becton, Jr.* Trustee November 15, 2000
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll* Trustee November 15, 2000
Dawn-Marie Driscoll
/s/ Edgar R. Fiedler* Trustee November 15, 2000
Edgar R. Fiedler
/s/ Keith R. Fox* Trustee November 15, 2000
Keith R. Fox
/s/ Joan Edelman Spero* Trustee November 15, 2000
Joan Edelman Spero
/s/ Jean Gleason Stromberg* Trustee November 15, 2000
Jean Gleason Stromberg
/s/ Jean C. Tempel* Trustee November 15, 2000
Jean C. Tempel
/s/ Steven Zaleznick* Trustee November 15, 2000
Steven Zaleznick
<PAGE>
/s/ John R. Hebble Treasurer (Principal November 15, 2000
John R. Hebble Financial and
Accounting Office)
*By: /s/ Joseph R. Fleming November 15, 2000
Joseph R. Fleming, Attorney-in-fact
*Executed pursuant to powers of attorney filed with the Registrant's
Registration Statement on Form N-14 as filed with the Commission electronically
herewith.
