<PAGE>
[AARP SCUDDER LOGO]
IMPORTANT NEWS FOR
AARP U.S. STOCK INDEX FUND SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into
Scudder S&P 500 Index Fund. This proposal is part of a larger effort to
expand the offerings in the AARP Investment Program to include the fund
lineup of the Scudder Family of Funds. THE BOARD OF YOUR FUND RECOMMENDS
THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- LOWER EXPENSES. The combination of the two Funds is expected to result in
REDUCED expenses for shareholders of your Fund.
- GREATER PREDICTABILITY OF EXPENSES. As part of the proposal to combine
funds, a new administrative fee rate arrangement would be implemented. The
arrangement protects shareholders from most ordinary administrative
expense increases for a minimum of three years.
- TAX-FREE REORGANIZATION. It is a condition of the proposed combination
that your Fund receive an opinion of tax counsel that the transaction
would be a TAX-FREE transaction.
<PAGE>
Q: ARE THE INVESTMENT POLICIES OF SCUDDER S&P 500 INDEX FUND SIMILAR TO THOSE OF
MY FUND?
A: Although Scudder S&P 500 Index Fund does not have a policy of seeking to
reduce downside risk, its investment objective, policies and restrictions
are similar to those of your Fund. Both Funds attempt to track the
performance of the S&P 500 Index, although your Fund has a somewhat higher
emphasis on dividend yield than does the Scudder S&P 500 Index Fund. Your
Fund also may not invest in securities issued by tobacco-producing
companies. The combined fund will continue to seek investment results that,
before expenses, correspond to the total return of common stocks pubicly
traded in the United States, as represented by the S&P 500 Index.
Q: HOW DOES THIS AFFECT THE AARP INVESTMENT PROGRAM?
A: This consolidation of similar funds will enable Scudder to offer a broader
range of investment choices through the AARP Investment Program. Except for
the changes to your Fund outlined above, there are no plans to change the
characteristics of the AARP Investment Program:
- AARP classes will be created in the Scudder Funds for investors in the
AARP Investment Program.
- Scudder Kemper Investments, Inc. will continue its strong commitment to
education, both for AARP Investment Program shareholders and for AARP
members in general.
- AARP, through its for-profit subsidiary, will continue to OVERSEE SERVICE
LEVELS AND COMMUNICATIONS to shareholders in the AARP Investment Program
and to AARP members. AARP will also continue to PROVIDE INSIGHT AND
DIRECTION as to what best represents the interests and concerns of its
membership.
- Scudder Kemper will continue to develop NEW PRODUCTS AND SERVICES with the
interests of AARP members in mind.
- Scudder Kemper will MAINTAIN SEPARATE RECORDS for AARP Investment Program
shareholders.
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single board of
trustees/directors responsible for most Scudder Funds.
(continued on inside back cover)
<PAGE>
April 18, 2000
Dear AARP Investment Program Shareholder,
Scudder Kemper Investments, investment manager for the AARP Investment
Program, is proposing a series of changes to offer you a wider range of fund
options to meet a broader range of investment goals. The current offering of 16
AARP mutual funds will soon expand to include 43 funds, six of which will
maintain a risk-managed focus. This will be accomplished by making the entire
lineup of funds from the Scudder Family of Funds available to AARP Investment
Program shareholders. In addition, subject to shareholder approval, most AARP
Investment Program funds will be combined with Scudder Funds that have similar
investment objectives. The funds will be called Scudder Funds, indicating
Scudder Kemper's distinct role as investment manager of the funds.
The involvement and level of participation from AARP in the AARP Investment
Program from Scudder is not changing. AARP will continue to oversee the
Investment Program's service quality and communications; and AARP will continue
to provide insight and direction as to what best represents the interests and
concerns of its membership.
PLEASE READ THE ENCLOSED MATERIALS
Enclosed with this letter is a packet of materials we ask that you read and,
where applicable, fill out and return to us. The Q&A that begins on the front
cover of the proxy statement explains the proposals we're making, why we're
making them, and how they apply to your AARP Fund. The packet also contains a
proxy card and a prospectus for the fund that we are proposing to merge your
Fund into.
After careful review, the members of your Fund's Board have approved each of
the proposals explained in the Q&A and described in the proxy statement. The
Board recommends that you read the enclosed materials carefully and then vote
for all the proposals. (Because many of the funds for which Scudder Kemper acts
as investment manager are holding shareholder meetings, you may receive more
than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope. If you prefer, you
can save time and postage cost by voting on the Internet or by telephone -- the
enclosed flyer describes how. If we do not hear from you by May 17, our proxy
solicitor may contact you. Thank you for your response and for your continued
investment in the AARP Investment Program.
Respectfully,
<TABLE>
<S> <C>
/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chief Executive Officer Chairperson
Board of Trustees
Scudder Kemper Investments, Inc. AARP Investment Program
</TABLE>
<PAGE>
AARP U.S. STOCK INDEX FUND
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
AARP GROWTH TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
AARP U.S. Stock Index Fund (the "Fund"), a series of AARP Growth Trust (the
"Trust"), will be held at the offices of Scudder Kemper Investments, Inc., Two
International Place, 13th Floor, Boston, MA 02110-4103, on July 11, 2000, at
2:00 p.m., Eastern time, for the following purposes:
<TABLE>
<S> <C>
PROPOSAL 1: To elect Trustees of the Trust;
PROPOSAL 2: To approve an Agreement and Plan of Reorganization for
the Fund whereby all or substantially all of the assets
and liabilities of the Fund would be acquired by Scudder
S&P 500 Index Fund in exchange for shares of the AARP
Class of Scudder S&P 500 Index Fund; and
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Fund for the Fund's
current fiscal year.
</TABLE>
The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on April
17, 2000 are entitled to vote at the Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
April 18, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE
ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE
PROXY CARD(S)). YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING
BY OTHER AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS. IF YOU WISH TO ATTEND THE MEETING AND TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST...... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................ 15
SYNOPSIS....................................... 15
PRINCIPAL RISK FACTORS......................... 29
THE PROPOSED TRANSACTION....................... 30
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS................................... 36
ADDITIONAL INFORMATION...................................... 36
</TABLE>
"Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-,"
"S&P 500-Registered Trademark-," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by
Scudder Kemper Investments, Inc. The Scudder S&P 500 Index Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
Fund. Additional information may be found in such Fund's Statement of Additional
Information.
i
<PAGE>
PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF AARP U.S. STOCK INDEX FUND (THE
"ACQUIRED FUND"), A SEPARATE SERIES OF AARP GROWTH TRUST (THE "ACQUIRED TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 253-2277
--------------------------
BY AND IN EXCHANGE FOR THE AARP CLASS OF SHARES OF BENEFICIAL INTEREST OF
SCUDDER S&P 500 INDEX FUND (THE "ACQUIRING FUND"), A SEPARATE SERIES OF
INVESTMENT TRUST (THE "ACQUIRING TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of the
Acquired Fund in connection with three proposals (each a "Proposal,"
collectively, the "Proposals"). Proposal 1 describes the election of Trustees,
and Proposal 3 proposes the ratification of the selection of the Acquired Fund's
accountants.
In Proposal 2, shareholders are asked to approve a proposed reorganization
in which all or substantially all of the assets of the Acquired Fund would be
acquired by the Acquiring Fund, in exchange for shares of beneficial interest of
the AARP Class of the Acquiring Fund ("AARP Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, as described more
fully below (the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. As a result of the Reorganization,
each shareholder of the Acquired Fund would receive that number of AARP Shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Acquired Fund held as of the close of business
on the business day preceding the closing of the Reorganization (the
--------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
"Valuation Date"). Shareholders of the Acquired Fund will vote on an Agreement
and Plan of Reorganization (the "Plan") pursuant to which the Reorganization
would be consummated. A copy of the Plan is attached hereto as Exhibit A. The
closing of the Reorganization (the "Closing") is contingent upon shareholder
approval of the Plan. The Reorganization is expected to occur on or about
September 11, 2000.
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager") and
described in more detail below.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Acquired Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement/Prospectus as being taken by
either the Acquired Fund or the Acquiring Fund (each a "Fund" and collectively
the "Funds"), although all actions are actually taken either by the Acquired
Trust or the Acquiring Trust (together with the Acquired Trust, the "Trusts"),
on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment objective, policies, restrictions and risks of the Acquiring Fund,
see the Acquiring Fund's prospectus, dated April 12, 2000, as supplemented from
time to time, which is included herewith and incorporated herein by reference.
For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Acquired Fund, see the Acquired Fund's prospectus,
dated February 1, 2000, as supplemented from time to time, which is incorporated
herein by reference and a copy of which may be obtained upon request and without
charge by calling or writing the Acquired Fund at the telephone number or
address set forth on the preceding page.
The Acquiring Fund's statement of additional information, dated April 12,
2000, as supplemented from time to time, is incorporated herein by reference and
may be obtained upon request and without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth on the preceding
page. A Statement of Additional Information dated April 18, 2000, containing
additional information about the Reorganization and the parties thereto has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy Statement/
Prospectus. A copy of the Statement of Additional Information relating to the
Reorganization is available upon request and without charge by calling or
writing the Acquiring Fund at the telephone number or address set forth above.
2
<PAGE>
Shareholder inquiries regarding the Acquired Fund may be made by calling (800)
253-2277. Shareholder inquiries regarding the Acquiring Fund may be made by
calling (800) 728-3337. The information contained herein concerning the Acquired
Fund has been provided by, and is included herein in reliance upon, the Acquired
Fund. The information contained herein concerning the Acquiring Fund has been
provided by, and is included herein in reliance upon, the Acquiring Fund. The
AARP Shares will be a newly-established class of shares of the Acquiring Fund
and will be identical in all material respects to the Acquiring Fund shares
currently offered and sold, as described in the prospectus and statement of
additional information for the Acquiring Fund, dated April 12, 2000, except as
otherwise described herein.
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of, respectively, the Acquiring Trust and the Acquired
Trust. The Acquiring Trust and the Acquired Trust are open-end management
investment companies organized as Massachusetts business trusts.
The Board of Trustees (except as otherwise noted, "Trustees" refers to the
Trustees of the Acquired Trust and "Board" refers to the Board of Trustees of
the Acquired Trust) is soliciting proxies from the shareholders of the Acquired
Fund, on behalf of the Acquired Fund, for the Special Meeting of Shareholders to
be held on July 11, 2000, at Scudder Kemper's offices, 13th Floor, Two
International Place, Boston, MA 02110-4103, at 2:00 p.m. (Eastern time), or at
such later time made necessary by adjournment (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about April 18, 2000 or as soon as
practicable thereafter.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES
LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust or the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or the American Association of Retired
Persons ("AARP"). The nominees listed below are also being nominated for
election as Trustees of the Acquiring Trust and as trustees or directors
3
<PAGE>
of the other AARP Funds (as defined below) and the open-end, directly-
distributed, no-load Scudder Funds.
Currently, five different boards of trustees or directors are responsible
for overseeing different groups of no-load funds advised by Scudder Kemper. As
part of a broader restructuring effort described below under Proposal 2, Scudder
Kemper has recommended, and the Board of Trustees has agreed, that shareholder
interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card(s) will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the current Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation(s)
noted in the following paragraphs and table for at least the most recent five
years, although not necessarily in the same capacity, and (ii) the address of
each nominee is c/o Scudder Kemper Investments, Inc., Two International Place,
Boston, MA 02110-4103.
NOMINEES FOR ELECTION AS TRUSTEES:
HENRY P. BECTON, JR. (56)
Henry P. Becton, Jr. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from Harvard
Law School in 1968. Mr. Becton is a member of the PBS Board of
4
<PAGE>
Directors, a Trustee of American Public Television, the New England Aquarium,
the Boston Museum of Science, Concord Academy, and the Massachusetts Corporation
for Educational Telecommunications, an Overseer of the Boston Museum of Fine
Arts, and a member of the Board of Governors of the Banff International
Television Festival Foundation. He is also a Director of Becton Dickinson and
Company and A.H. Belo Company, a Trustee of the Committee for Economic
Development, and a member of the Board of Visitors of the Dimock Community
Health Center, the Dean's Council of Harvard University's Graduate School of
Education, and the Massachusetts Bar. Mr. Becton has served as a trustee or
director of various mutual funds advised by Scudder Kemper since 1990.
LINDA C. COUGHLIN (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group.
Ms. Coughlin received a B.A. degree in economics SUMMA CUM LAUDE from Fordham
University. Ms. Coughlin is a Trustee of the Acquired Trust and has served on
the boards of various funds advised by Scudder Kemper, including the AARP
Investment Program Funds, since 1996.
DAWN-MARIE DRISCOLL (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. Ms. Driscoll was recently named 1999 "Fund
Trustee of the Year" by Fund Directions, a publication of Institutional
Investor, Inc. She has been a director, trustee and overseer of many civic and
business institutions, including The Massachusetts Bay United Way and Regis
College. Ms. Driscoll was formerly a law partner at Palmer & Dodge in Boston and
served for over a decade as Vice President of Corporate Affairs and
5
<PAGE>
General Counsel of Filene's, the Boston-based department store chain.
Ms. Driscoll received a B.A. from Regis College, a J.D. from Suffolk University
Law School, a D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary)
from Bentley College Graduate School of Business. Ms. Driscoll has served as a
trustee or director of various mutual funds advised by Scudder Kemper since
1987.
EDGAR R. FIEDLER (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996.
Mr. Fiedler's business experience includes positions at Eastman Kodak in
Rochester (1956-59), Doubleday and Company in New York City (1959-60), and
Bankers Trust Company in New York City (1960-69). He also served as Assistant
Secretary of the Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler
graduated from the University of Wisconsin in 1951. He received his M.B.A. from
the University of Michigan and his doctorate from New York University. During
the 1980's, Mr. Fiedler was an Adjunct Professor of Economics at the Columbia
University Graduate School of Business. From 1990 to 1991, he was the Stephen
Edward Scarff Distinguished Professor at Lawrence University in Wisconsin.
Mr. Fiedler is a Director of The Stanley Works, Harris Insight Funds, Brazil
Fund, and PEG Capital Management, Inc. He is a Trustee of the Acquired Trust and
has served as a board member of various mutual funds advised by Scudder Kemper,
including the AARP Investment Program Funds, since 1984.
KEITH R. FOX (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976 and in 1981 received
an M.B.A. degree from the Harvard Business School. Mr. Fox is also a qualified
accountant. He is a board member and former Chairman of the National Association
of Small Business Investment Companies, and a director of Golden State Vintners,
K-Communications, Progressive Holding Corporation and Facts On File, as well as
a former director of over twenty companies.
6
<PAGE>
Mr. Fox has served as a trustee or director of various mutual funds advised by
Scudder Kemper since 1996.
JOAN EDELMAN SPERO (55)
Joan E. Spero is the president of the Doris Duke Charitable Foundation, a
position to which she was named in January 1997. From 1993 to 1997, Ms. Spero
served as Undersecretary of State for Economic, Business and Agricultural
Affairs under President Clinton. From 1981 to 1993, she was an executive at the
American Express Company, where her last position was executive vice president
for Corporate Affairs and Communications. Ms. Spero served as U.N. Ambassador to
the United Nations Economic and Social Council under President Carter from 1980
to 1981. She was an assistant professor at Columbia University from 1973 to
1979. She graduated Phi Beta Kappa from the University of Wisconsin and holds a
master's degree in international affairs and a doctorate in political science
from Columbia University. Ms. Spero is a member of the Council on Foreign
Relations and the Council of American Ambassadors. She also serves as a trustee
of the Wisconsin Alumni Research Foundation, The Brookings Institution and
Columbia University and is a Director of First Data Corporation. Ms. Spero has
served as a trustee or director of various mutual funds advised by Scudder
Kemper since 1998.
JEAN GLEASON STROMBERG (56)
Ms. Stromberg acts as a consultant on regulatory matters. From 1996 to 1997,
Ms. Stromberg represented the U.S. General Accounting Office before Congress and
elsewhere on issues involving banking, securities, securities markets, and
government-sponsored enterprises. Prior to that, Ms. Stromberg was a corporate
and securities law partner at the Washington, D.C. law office of Fulbright and
Jaworski, a national law firm. She served as Associate Director of the SEC's
Division of Investment Management from 1977 to 1979 and prior to that was
Special Counsel for the Division of Corporation Finance from 1972 to 1977.
Ms. Stromberg graduated Phi Beta Kappa from Wellesley College and received her
law degree from Harvard Law School. From 1988 to 1991 and 1993 to 1996, she was
a Trustee of the American Bar Retirement Association, the funding vehicle for
American Bar Association-sponsored retirement plans. Ms. Stromberg serves on the
Wellesley College Business Leadership Council and the Council for Mutual Fund
Director Education at Northwestern University Law School and was a panelist at
the SEC's Investment Company Director's Roundtable. Ms. Stromberg is a Trustee
of the Acquired Trust and has served as a board member of the AARP Investment
Program Funds since 1997.
7
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JEAN C. TEMPEL (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in Wayne,
Pennsylvania. Ms. Tempel concentrates on investment opportunities in the Boston
area. She spent 25 years in technology/operations executive management at
various New England banks, building custody operations and real time
financial/securities processing systems, most recently as Chief Operations
Officer at The Boston Company. From 1991 until 1993 she was president/COO of
Safeguard Scientifics, a Pennsylvania technology venture company. In that role
she was a founding investor, director and vice chairman of Cambridge Technology
Partners. She is a director of XLVision, Inc., Marathon Technologies, Inc.,
Aberdeen Group and Sonesta Hotels International, and is a Trustee of
Northeastern University, Connecticut College, and The Commonwealth Institute.
She received a B.A. from Connecticut College, an M.S. from Rensselaer
Polytechnic Institute of New York, and attended Harvard Business School's
Advanced Management Program. Ms. Tempel has served as a trustee or director of
various mutual funds advised by Scudder Kemper since 1994.
STEVEN ZALEZNICK (45)*
Steven Zaleznick is President and CEO of AARP Services, Inc., a wholly-owned and
independently-operated subsidiary of AARP which manages a range of products and
services offered to AARP members, provides marketing services to AARP and its
member service providers and establishes an electronic commerce presence for
AARP members. Mr. Zaleznick previously served as AARP's general counsel for nine
years. He was responsible for the legal affairs of AARP, which included tax and
legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined AARP as a
legislation representative responsible for issues involving taxes, pensions, age
discrimination, and other national issues affecting older Americans.
Mr. Zaleznick is President of the Board of Cradle of Hope Adoption Center in
Washington, D.C. He is a former treasurer and currently a board member of the
National Senior Citizens Law Center. Mr. Zaleznick received his B.A. in
economics from Brown University. He received his J.D. degree from Georgetown
University Law Center and is a member of the District of Columbia Bar
Association.
8
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TRUSTEES NOT STANDING FOR RE-ELECTION:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
Horace B. Deets (61)*................ Vice Chairperson and Trustee; Executive
Director, AARP (1989-Present).
Mr. Deets serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Carole Lewis Anderson (55)........... Trustee; Principal, Suburban Capital
Markets, Inc. (1995-Present).
Ms. Anderson serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Adelaide Attard (69)................. Trustee; Member, NYC Department of
Aging Advisory Council (1995-Present).
Ms. Attard serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Robert N. Butler, M.D. (73).......... Trustee; CEO and President,
International Longevity Center and
Professor of Geriatrics and Adult
Development; Chairman, Henry L.
Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical
Center (1982-present). Dr. Butler
serves on the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Lt. Gen. Eugene P. Forrester (74).... Trustee; Lt. General (Retired),
U.S. Army; International Trade
Counselor (1983-present); Consultant.
Lt. Gen. Forrester serves on the boards
of an additional 4 trusts whose funds
are advised by Scudder Kemper.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- ---------------------------------------
<S> <C>
George L. Maddox, Jr. (74)........... Trustee; Professor Emeritus and
Director, Long Term Care Resources
Program, Duke University Medical
Center; Professor Emeritus of
Sociology, Departments of Sociology and
Psychiatry, Duke University.
Mr. Maddox serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Robert J. Myers (87)................. Trustee; Actuarial Consultant
(1983-present). Mr. Myers serves on the
boards of an additional 4 trusts whose
funds are advised by Scudder Kemper.
James H. Schulz (63)................. Trustee; Professor of Economics and
Kirstein Professor of Aging Policy,
Policy Center on Aging, Florence Heller
School, Brandeis University.
Mr. Schulz serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
Gordon Shillinglaw (74).............. Trustee; Professor Emeritus of
Accounting, Columbia University
Graduate School of Business.
Mr. Shillinglaw serves on the boards of
an additional 4 trusts whose funds are
advised by Scudder Kemper.
</TABLE>
- ------------------------
*Nominee or Trustee considered by the Acquired Trust and its counsel to be an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Acquired Trust, the Investment Manager or AARP
because of his or her employment by the Investment Manager or AARP, and, in
some cases, holding offices with the Acquired Trust.
Appendix 1 hereto sets forth the number of shares of each series of the
Acquired Trust owned directly or beneficially by the Trustees of the Acquired
Trust and by the nominees for election.
10
<PAGE>
RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS
A fund's board is responsible for the general oversight of fund business.
The board that is proposed for shareholder voting at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP and who are
called "independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the investment
performance of each fund of the Acquired Trust and other operational matters,
including policies and procedures designed to assure compliance with regulatory
and other requirements. Furthermore, the Independent Trustees review the fees
paid to the Investment Manager and its affiliates for investment advisory
services and other administrative shareholder services. The Trustees have
adopted several policies and practices which help ensure their effectiveness and
independence in reviewing fees and representing shareholders. Many of these are
similar to those suggested in the Investment Company Institute's 1999 Report of
the Advisory Group on Best Practices for Fund Directors (the "Advisory Group
Report"). For example, the Independent Trustees select independent legal counsel
to work with them in reviewing fees, advisory and other contracts and overseeing
fund matters. The Trustees are also assisted in this regard by the funds'
independent public accountants and other independent experts retained from time
to time for this purpose. The Independent Trustees regularly meet privately with
their counsel and other advisors. In addition, the Independent Trustees from
time to time have appointed task forces and subcommittees from their members to
focus on particular matters.
The Board of the Acquired Trust has an Audit Committee and a Committee on
Independent Trustees, the responsibilities of which are described below. In
addition, the Acquired Trust has an Executive Committee, a Shareholder Service
Committee and a Valuation Committee.
AUDIT COMMITTEE
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things,
11
<PAGE>
the scope of the audit and the internal controls of each series of the Acquired
Trust and its agents, reviews and approves in advance the type of services to be
rendered by independent accountants, recommends the selection of independent
accountants for each series of the Acquired Trust to the Board, reviews the
independence of such firm and, in general, considers and reports to the Board on
matters regarding the accounting and financial reporting practices of each
series of the Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised of only Independent Trustees (all of whom serve on the
committee), meets privately with the independent accountants of each series of
the Acquired Trust, will receive annual representations from the accountants as
to their independence, and has a written charter that delineates the committee's
duties and powers.
COMMITTEE ON INDEPENDENT TRUSTEES
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised of all of the Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies and reviewing matters relating to the Independent
Trustees.
ATTENDANCE
The full Board of Trustees of the Acquired Trust met six times, the Audit
Committee met two times and the Committee on Independent Trustees met five times
during calendar year 1999. Each then current Trustee attended 100% of the total
meetings of the Board and each above named committee on which he or she served
as a regular member that were held during that period, except Horace B. Deets,
Robert J. Myers, James H. Schulz and Robert N. Butler, who attended 90%, 85%,
92% and 85%, respectively, of those meetings. In addition to these Board and
committee meetings, the Trustees of the Acquired Trust attended various other
meetings on behalf of the Acquired Trust during the year, including meetings
with their independent legal counsel and informational meetings.
12
<PAGE>
OFFICERS
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE ACQUIRED TRUST;
PRINCIPAL OCCUPATION OR YEAR FIRST BECAME
NAME (AGE) EMPLOYMENT(1) AN OFFICER(2)
- ---------- --------------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48)....... Trustee and President; Managing
Director of Scudder Kemper 2000
William F. Glavin, Jr. (41).. Vice President; Managing Director of
Scudder Kemper 1997
Ann M. McCreary (43)......... Vice President; Managing Director of
Scudder Kemper 1998
James E. Masur (39).......... Vice President; Senior Vice President
of Scudder Kemper 1999
John Millette (37)........... Vice President and Assistant Secretary;
Vice President of Scudder Kemper 1999
James W. Pasman (48)......... Vice President; Senior Vice President
of Scudder Kemper 1996
Kathryn L. Quirk (47)........ Vice President and Secretary; Managing
Director of Scudder Kemper 1997
John R. Hebble (41).......... Treasurer; Senior Vice President of
Scudder Kemper 1997
</TABLE>
- ------------------------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Acquired Trust.
COMPENSATION OF TRUSTEES AND OFFICERS
The Acquired Trust pays each Independent Trustee an annual Trustee's fee
plus specified amounts for Board and committee meetings attended and reimburses
expenses related to the business of any series of the Acquired Trust. As of
April 1, 1999, each Independent Trustee receives an aggregate annual
13
<PAGE>
Trustee's fee of $12,000 for service on the boards of trustees of the funds
offered through the AARP Investment Program (the "AARP Funds"). (Prior to
April 1, 1999, the annual Trustee's fee was $10,000.) Each Independent Trustee
also receives fees of $175 per fund for attending each meeting of the Board and
between $80 and $150 per fund (depending on meeting type) for attending each
committee meeting, or meeting held for the purpose of considering arrangements
between the Acquired Trust and Scudder Kemper, or any of its affiliates. The
newly-constituted Board may determine to change its compensation structure.
The current compensation package for the Independent Trustees of the
Acquired Trust has not included any provisions for pensions or other retirement
benefits. A one-time benefit, however, will be provided to those Independent
Trustees who are not standing for re-election in an amount equal to twice a
Trustee's calendar year 1999 compensation from the AARP Funds. Inasmuch as
Scudder Kemper will also benefit from the administrative efficiencies of a
consolidated board, Scudder Kemper has agreed to bear one-half of the cost of
any such benefit.
Scudder Kemper supervises the Acquired Trust's investments, pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust and receives a management fee for its services.
Several of the Acquired Trust's officers and Trustees are also officers,
directors, employees or stockholders of Scudder Kemper and participate in the
fees paid to that firm, although the Acquired Trust makes no direct payments to
them other than for reimbursement of travel expenses in connection with their
attendance at certain Board and committee meetings.
The following Compensation Table provides in tabular form the following
data:
COLUMN (1) All Trustees who receive compensation from the Acquired Trust.
COLUMN (2) Aggregate compensation received by each Trustee of the Acquired
Trust during calendar year 1999.
COLUMN (3) Total compensation received by each Trustee from funds managed by
Scudder Kemper (collectively, the "Fund Complex") during calendar year 1999.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX
TRUSTEES (NUMBER OF SERIES) PAID TO TRUSTEE
- -------- ------------------ ---------------------
<S> <C> <C>
Carole Lewis Anderson........................ $20,280 (7 series) $40,935 (16 funds)
Adelaide Attard.............................. $19,013 (7 series) $38,375 (16 funds)
Robert N. Butler............................. $17,271 (7 series) $34,855 (16 funds)
Edgar R. Fiedler............................. $16,013 (7 series) $73,230 (29 funds)*
Eugene P. Forrester.......................... $20,280 (7 series) $40,935 (16 funds)
George L. Maddox, Jr......................... $20,280 (7 series) $40,935 (16 funds)
Robert J. Myers.............................. $18,838 (7 series) $38,200 (16 funds)
James H. Schulz.............................. $18,381 (7 series) $37,095 (16 funds)
Gordon Shillinglaw........................... $24,083 (7 series) $44,280 (16 funds)
Jean Gleason Stromberg....................... $20,276 (7 series) $40,935 (16 funds)
</TABLE>
- ------------------------
* Mr. Fiedler's total compensation includes $9,900 accrued, but not received,
through a deferred compensation program for serving on the Board of Directors
of Scudder Fund, Inc.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP U.S. STOCK INDEX FUND VOTE FOR EACH NOMINEE.
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
I. SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus relating to the Reorganization. This summary is qualified
by reference to the more complete information contained elsewhere in this Proxy
Statement/Prospectus, the prospectuses and statements of additional information
of the Funds, and the Plan. Shareholders should read this entire Proxy
Statement/Prospectus carefully.
INTRODUCTION
The Board of the Acquired Trust, including all of the Independent Trustees,
approved the Plan at a meeting held on February 7, 2000. Subject to its approval
by the shareholders of the Acquired Fund, the Plan provides for (a) the transfer
of all or substantially all of the assets and all of the liabilities of
15
<PAGE>
the Acquired Fund to the Acquiring Fund, in exchange for AARP Shares; (b) the
distribution of such shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund; and (c) the abolition of the Acquired Fund as
a series of the Acquired Trust. As a result of the Reorganization, each
shareholder of the Acquired Fund will become a shareholder of the AARP Shares
and will hold, immediately after the Reorganization, AARP Shares having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information" below.
BACKGROUND OF THE REORGANIZATION
The Reorganization is part of a broader restructuring program proposed by
Scudder Kemper to respond to changing industry conditions and investor needs.
Scudder Kemper seeks to offer the full lineup of the Scudder Family of no-load
funds to members of the AARP Investment Program. The expanded offering should
position the AARP Investment Program to meet the increasingly diverse needs of
current and prospective AARP members.
Scudder Kemper and AARP have advised the Board that they believe that the
proposed changes in the AARP Investment Program from Scudder are in the
interests of shareholders of the AARP Funds and AARP members. The Program would
comprise the shares of the AARP Class of each of forty-three no-load funds,
compared with the current sixteen, and would retain its separate identity, with
separate statements and generally lower minimum investments for participating
shareholders; six core funds(1) would continue to have a risk managed strategy;
education will remain a focus of Scudder Kemper; and AARP will continue to be
involved with the Program and is proposed to have board representation.
- ------------------------
(1) The six core funds would be Scudder GNMA Fund (currently known as AARP
GNMA and U.S. Treasury Fund), Scudder Capital Growth Fund (currently known
as AARP Capital Growth Fund), Scudder Small Company Stock Fund (currently
known as AARP Small Company Stock Fund), Scudder Managed Municipal Bonds,
Scudder Global Fund and Scudder Growth and Income Fund.
16
<PAGE>
As part of this initiative, Scudder Kemper has sought ways to restructure
and streamline the management and operations of the funds it advises. Scudder
Kemper believes, and has advised the boards, that the consolidation of certain
funds advised by it would benefit fund shareholders. Scudder Kemper has,
therefore, proposed the consolidation of a number of no-load funds advised by it
that Scudder Kemper believes have similar or compatible investment objectives
and policies. In many cases, the proposed consolidations are designed to
eliminate the substantial overlap in current offerings by the Scudder Funds and
the AARP Funds, all of which are advised by Scudder Kemper. Consolidation plans
are proposed for other funds that have not gathered enough assets to operate
efficiently and, in turn, have relatively high expense ratios. Scudder Kemper
believes that these consolidations may help to enhance investment performance of
funds and increase efficiency of operations. The Reorganization is also expected
to result in lower operating expenses for Acquired Fund shareholders, as
described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for the AARP Funds and for the open-end,
directly-distributed, no-load Scudder Funds would increase efficiency and
benefit fund shareholders. (See Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by a fund of
an administrative fee, Scudder Kemper would agree to provide or pay for
substantially all services that the fund normally requires for its operations,
other than those provided under the fund's investment management agreement
(except as described herein) and certain other expenses. Such an administrative
fee would enable investors to determine with greater certainty the expense level
that a fund will experience, and, for the term of the administrative agreement,
would transfer substantially all of the risk of increased costs to Scudder
Kemper. Scudder Kemper has proposed that the Acquiring Fund implement such an
administrative fee upon the Closing, as described in "Administrative Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in reduced costs (and the
potential for increased profitability) for Scudder Kemper in advising or
servicing funds.
17
<PAGE>
REASONS FOR THE PROPOSED REORGANIZATION; BOARD APPROVAL
Since receiving Scudder Kemper's proposals on September 22, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
The Trustees believe that the Reorganization may provide shareholders of the
Acquired Fund with the following benefits:
- LOWER EXPENSES. If the Reorganization is approved, Acquired Fund
shareholders are expected to benefit from lower total Fund operating
expenses. Please refer to "Comparison of Expenses" below.
- GREATER PREDICTABILITY OF EXPENSES. On or prior to the Closing, the
Acquiring Fund and Scudder Kemper will enter into an administration
agreement pursuant to which Scudder Kemper will provide or pay others to
provide substantially all of the administrative services required by the
Acquiring Fund (other than those provided by Scudder Kemper under its
investment management agreement and current Administrative Services
Agreement with the Fund), and will pay most Acquiring Fund expenses, in
return for payment by the Acquiring Fund of an administrative fee. This
agreement, which has an initial three year term, will protect the
Acquiring Fund's shareholders from increases in the Acquiring Fund's
expense ratio attributed to any increases in the costs of providing these
services.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. Both Funds attempt to track
the performance of the S&P 500 Index, although the Acquired Fund has more
of a yield emphasis than does the Acquiring Fund and, unlike the Acquiring
Fund, the Acquired Fund is risk-managed and may not invest in securities
issued by tobacco-producing companies. The combined fund will continue to
seek investment results that, before expenses, correspond to the total
return of common stocks publicly traded in the United States, as
represented by the S&P 500 Index.
- TAX-FREE REORGANIZATION. It is a condition of the Reorganization that each
Fund receive an opinion of tax counsel that the transaction would be a
TAX-FREE transaction.
18
<PAGE>
For these reasons, as more fully described below under "The Proposed
Transaction - Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES RECOMMEND APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS
The investment objectives, policies and restrictions of the Acquired Fund
and the Acquiring Fund (and, consequently, the risks of investing in either
Fund) are similar. Some differences do exist. The investment objective of the
Acquiring Fund is to provide investment results that, before expenses,
correspond to the total return of common stocks publicly traded in the United
States, as represented by the Standard & Poor's 500 Composite Stock Price Index
("S&P 500 Index"). The investment objective of the Acquired Fund is to provide
long-term capital growth and income but with less risk of loss to its portfolio
than other mutual funds that track the S&P 500 Index, measured by the frequency
and amount by which total return fluctuates downward. There can be no assurance
that either Fund will achieve its investment objective. Both Funds have the same
portfolio managers and are managed in a substantially similar manner, except
that the Acquired Fund seeks to reduce downside risk by emphasizing
high-dividend companies in the S&P 500 Index.
The structures of the Acquired Fund and the Acquiring Fund are different.
The Acquiring Fund is a feeder fund in a master/feeder fund arrangement. This
means that the Acquiring Fund pursues its objective by investing substantially
all of its assets in a master portfolio advised by Bankers Trust Company, the
Equity 500 Index Portfolio (the "Portfolio"), which has the same investment
objective as the Acquiring Fund. The Acquired Fund, for which Bankers Trust
Company serves as sub-adviser, invests directly in the stocks which make up the
S&P 500 Index.
The policies and restrictions of the Portfolio and the Acquired Fund differ
in some respects. For example, under normal circumstances, the Portfolio intends
to invest at least 80% of its assets in the common stocks of the companies that
comprise the S&P 500 Index. The Portfolio's securities are weighted to make its
investment characteristics similar to those of the S&P 500
19
<PAGE>
Index as a whole. The Acquired Fund normally invests at least 95% of its assets
in common stocks in the S&P 500 Index.
The Portfolio seeks a correlation between the performance of the Portfolio
(before expenses) and the S&P 500 Index of 98% or better, while the Acquired
Fund seeks to track the S&P 500 Index within 1% on an annualized basis (99%
correlation). Neither the Portfolio nor the Acquired Fund will purchase every
stock included in the S&P 500 Index, so the holdings of the two funds will not
be identical. Lastly, the Acquired Fund does not invest in securities issued by
tobacco-producing companies and has a stated goal of educating shareholders on
investment topics affecting their lives.
There are no material differences between the fundamental investment
restrictions of the Acquiring Fund and the Acquired Fund, as such restrictions
are set forth under "Investment Restrictions" in each Fund's statement of
additional information. There are some differences in the non-fundamental
investment restrictions, as such restrictions are set forth under "Investment
Restrictions" in each Fund's statement of additional information, that are on
the types of instruments in which the Funds can invest. For example, the
Acquiring Fund may not borrow money in excess of 10% of the Acquiring Fund's
total assets (except for temporary defensive purposes, in which case it may
borrow up to one-third of its net assets), while the Acquired Fund has a 5%
limit on borrowing (except for temporary defensive purposes). The conditions
under which each Fund may make short sales and engage in dollar roll
transactions also are somewhat different.
Following is a summary of additional non-fundamental investment restrictions
applicable to the Acquiring Fund and not the Acquired Fund.
The Acquiring Fund may not:
- sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
- invest for the purpose of exercising control or management;
- purchase securities issued by an investment company, with some exceptions.
This restriction does not prevent the Acquiring Fund from investing all of
its assets in the Portfolio;
- write puts and calls on securities unless certain limiting conditions are
met;
20
<PAGE>
In addition, the Acquiring Fund has a non-fundamental investment restriction
that the Acquiring Fund may not buy and sell puts and calls on securities, stock
index futures or options on stock index futures, or financial futures or options
on financial futures unless certain limiting conditions are met. This policy is
more restrictive than a corresponding non-fundamental investment restriction of
the Acquired Fund, which prohibits the Acquired Fund from entering into futures
contracts or purchasing options on futures contracts unless slightly different,
less restrictive conditions are met. The limitation on premiums paid on options
is 20% for each Fund. The Acquiring Fund has a limit of 5% of total assets on
margin deposits required on futures or options. The Acquired Fund does not have
such a limitation, but requires that the aggregate value of the obligations
underlying all put options must not exceed 50% of the Acquired Fund's assets.
The Acquiring Fund does not have this restriction.
Investment restrictions of each Fund that are fundamental policies may not
be changed without the approval of Fund shareholders. Investors should refer to
the respective statements of additional information of the Funds for a fuller
description of each Fund's investment policies and restrictions.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund, i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less), for the fiscal year
ended December 31, 1999 (i.e., prior to the creation of AARP Shares) was 1.1%
and was 13.0% for the Portfolio. The portfolio turnover rate for the Acquired
Fund for the fiscal year ended September 30, 1999 was 3.6%.
PERFORMANCE
The following table shows how each Fund's returns over different periods
average out. For context, the table also includes a broad-based market index
(which, unlike the Funds, does not have any fees or expenses). The performances
of both Funds and the index vary over time. All figures assume reinvestment of
dividends and distributions.
21
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUIRING
FUND(#) ACQUIRED FUND BENCHMARK INDEX**
------------ ------------- -----------------
<S> <C> <C> <C>
Past year................ 20.37% 22.01% 21.04%
Since Inception*......... 24.60% N/A 25.17%
Since Inception(+)....... N/A 25.81% 25.81%
</TABLE>
- ------------------------
(#) AARP Shares were not offered during the periods covered. Performance shown
is for shares of the Acquiring Fund existing during the periods covered.
* The Acquiring Fund's inception date was August 29, 1997. Index comparisons
begin on August 31, 1997.
(+) The Acquired Fund's inception date was February 1, 1997. Index comparisons
begin on January 31, 1997.
** Each Fund's benchmark index is the S&P 500 Index, an unmanaged,
capitalization-weighted index that includes 500 large-cap U.S. stocks. Index
returns are calculated monthly.
Total return for each Fund would have been lower during the periods noted in
the table above if the Investment Manager had not maintained expenses since
inception.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended December 31, 1999 (prior to the creation of AARP Shares), see
Exhibit B attached hereto.
INVESTMENT MANAGER; FEES AND EXPENSES
Each Fund retains the investment management firm of Scudder Kemper, pursuant
to separate contracts, to manage its daily investment and business affairs,
subject to the policies established by the Fund's Trustees. Shareholders pay no
direct charges or fees for investment management or other services. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
The Investment Manager's management responsibilities pursuant to its
arrangement with the Acquiring Fund are limited to monitoring the Fund's
investments in the Portfolio, subject to the authority of and supervision by the
Acquiring Trust's Board of Trustees. The Investment Manager receives no fee for
these services. Under its investment advisory agreement with the Portfolio,
Bankers Trust Company receives a fee at an annual rate of 0.075% of the
22
<PAGE>
average daily net assets of the Portfolio. For the most recent fiscal year,
Bankers Trust Company received an investment advisory fee of 0.075% of the
Portfolio's average daily net assets. Should the Acquiring Trust's Board of
Trustees determine it is in the best interests of the Acquiring Fund's
shareholders to withdraw its investment in the Portfolio, the Investment Manager
would become responsible for directly managing the assets of the Acquiring Fund
and would receive an annual fee of 0.15% of the Acquiring Fund's average daily
net assets. The Investment Manager also provides shareholder and administration
services to the Acquiring Fund pursuant to an Administrative Services Agreement.
For these services, the Acquiring Fund pays the Investment Manager a fee equal
to 0.10% of the Acquiring Fund's average daily net assets. The Administrative
Services Agreement will remain in effect after the implementation of the new
administration agreement described below under "Administrative Fee." By
contract, the total annual Fund operating expenses of the Acquiring Fund are
maintained at a maximum of 0.40% of its annual average daily net assets
(including the Acquiring Fund's pro rata share of the expenses of the Portfolio)
until April 30, 2000 and at a maximum of 0.43% from May 1, 2000 until April 30,
2001. Additionally, the Investment Manager will cap voluntarily Acquiring Fund
expenses at 0.40% until September 11, 2000. Portfolio expenses are capped by
Bankers Trust Company at 0.08% until April 30, 2001. As of December 31, 1999,
the Acquiring Fund had total net assets of $328,368,096.
The Investment Manager receives a fee pursuant to an investment management
agreement as compensation for its services on behalf of the Acquired Fund.
Pursuant to the Acquired Fund's investment management agreement, the fee payable
to Scudder Kemper is calculated using a formula based on the combined net assets
of all AARP Funds, except for the two series of AARP Managed Investment
Portfolios Trust. The Acquired Fund currently pays the Investment Manager a fee
at an annual rate of 0.28% of average daily net assets. The Investment Manager
pays a portion of its fee to Bankers Trust Company, the Acquired Fund's
sub-adviser, at a rate that decreases as the net assets of the Acquired Fund
increase. By contract, the total annual Fund operating expenses of the Acquired
Fund are maintained at a maximum of 0.50% of its annual average daily net assets
until January 31, 2001. The fee for the Acquiring Fund is calculated in a
different manner than is currently used for the Acquired Fund. Unlike the fee
for the Acquired Fund, the Acquiring Fund's fee will not go up or down based on
the net assets of other funds managed by the Investment Manager, but it will go
up or down based on the net assets of the Acquiring Fund. As of September 30,
1999, the Acquired Fund had total net assets of $576,973,616. For the fiscal
year ended September 30, 1999, the Acquired Fund paid the Investment Manager a
fee of 0.02% of average daily net assets. There is currently an arrangement
between Scudder Kemper and
23
<PAGE>
AARP Financial Services Corporation ("AFSC") pursuant to which Scudder Kemper
currently pays AFSC a monthly fee based on the net assets of AARP Funds.
ADMINISTRATIVE FEE
On or prior to the Closing, the Acquiring Fund will have entered into an
administration agreement with Scudder Kemper (the "Administration Agreement"),
pursuant to which Scudder Kemper will provide or pay others to provide
substantially all of the administrative services required by the Acquiring Fund
(other than those provided by Scudder Kemper under its investment management
agreement and current Administrative Services Agreement with the Fund, as
described above) in exchange for the payment by the Acquiring Fund of an
administrative fee (the "Administrative Fee") of 0.25% of average daily net
assets. One effect of this arrangement is to make the Acquiring Fund's future
expense ratio more predictable. The details of this arrangement (including
expenses that are not covered) are set out below.
Various third-party service providers (the "Service Providers"), some of
which are affiliated with Scudder Kemper, provide certain services to the
Acquiring Fund pursuant to separate agreements with the Fund, subject to
oversight and approval by the Acquiring Trust's trustees. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for the Acquiring Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Acquiring Fund.
Scudder Trust Company, an affiliate of Scudder Kemper, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Dechert
Price & Rhoads acts as general counsel for the Acquiring Fund. In addition to
the fees it pays under its current investment management agreement with Scudder
Kemper, the Acquiring Fund pays the fees and expenses associated with these
service arrangements, as well as the Acquiring Fund's insurance, registration,
printing, postage and other costs.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services that it currently provides to the
Acquiring Fund, as described above, under the current arrangements, except that
Scudder Kemper will pay these entities for the provision of their services to
the Acquiring Fund and will pay most other Fund expenses, including insurance,
24
<PAGE>
registration, printing and postage fees. In return, the Acquiring Fund will pay
Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will have an initial term of three
years, subject to earlier termination by the Acquiring Trust's trustees. The fee
payable by the Acquiring Fund to Scudder Kemper pursuant to the Administration
Agreement would be reduced by the amount of any credit received from the
Acquiring Fund's custodian for cash balances.
Certain expenses of the Acquiring Fund would not be borne by Scudder Kemper
under the Administration Agreement, such as taxes, brokerage, interest and
extraordinary expenses, and the fees and expenses of the Independent Trustees
(including the fees and expenses of their independent counsel). In addition, the
Acquiring Fund would continue to pay the fees required by its current
Administrative Services Agreement with Scudder Kemper and would continue to
bear, indirectly, the fees paid under the Portfolio's investment advisory
agreement with Bankers Trust Company.
COMPARISON OF EXPENSES
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the AARP Shares, and comparing these with the expenses of the
Acquired Fund. AS INDICATED BELOW, IT IS EXPECTED THAT THE TOTAL EXPENSE RATIO
OF THE ACQUIRING FUND FOLLOWING THE REORGANIZATION WILL BE LOWER THAN THE
CURRENT EXPENSE RATIO OF THE ACQUIRED FUND. Unless otherwise noted, the
information is based on each Fund's expenses and average daily net assets during
the twelve months ended December 31, 1999 and on a pro forma basis as of that
date and for the period then ended, giving effect to the Reorganization.
Information in the tables and examples relating to the Acquiring Fund relates to
the Acquiring Fund as a whole prior to the creation of the AARP Shares. Pro
Forma information in the tables and examples relates to the AARP Shares and the
S Class of shares of the Acquiring Fund. (Please see "Description of the
Securities to be Issued" below.) The information contained in the tables and
examples reflect the aggregate expenses for both the Acquiring Fund and the
Portfolio.
25
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
FUND FUND (COMBINED)
--------- -------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............. None None None
Maximum deferred sales charge (load) (as a
percentage of purchase price or redemption
proceeds)....................................... None None None
Maximum deferred sales charge (load) imposed on
reinvested dividends............................ None None None
Redemption fee (as a percentage of amount
redeemed, if applicable)+....................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA**
FUND FUND (COMBINED)
--------- -------- -----------
<S> <C> <C> <C>
Management fees................................... 0.08% 0.28% 0.08%
Distribution and/or service (12b-1) fees.......... None None None
Other expenses.................................... 0.50% 0.44% 0.35%##
Total annual Fund operating expenses.............. 0.58% 0.72% 0.43%
Expense reimbursement............................. 0.15% 0.22% N/A
Net annual Fund operating expenses................ 0.43%* 0.50%# N/A
</TABLE>
- ------------------------
+ There is a $5 wire service fee for receiving redemption proceeds via wire.
* Acquiring Fund expenses include expenses of the Portfolio. By contract, the
total annual Fund operating expenses of the Acquiring Fund are maintained at
a maximum of 0.40% of its annual average daily net assets until April 30,
2000 and at 0.43% of its annual average daily net assets (including the
Acquiring Fund's pro rata share of the expenses of the Portfolio) from
May 1, 2000 until April 30, 2001. Additionally, the Investment Manager will
cap voluntarily Acquiring Fund expenses at 0.40% until September 11, 2000.
Portfolio expenses are capped by Bankers Trust Company at 0.08% until
April 30, 2001. Annual Fund operating expenses in the table above have been
restated to reflect the Acquiring Fund's net annualized operating expenses
at 0.43% of average daily net assets. There is no guarantee that these
expense waivers will continue beyond April 30, 2001.
# By contract, the total annual Fund operating expenses of the Acquired Fund
are maintained at a maximum of 0.50% of its annual average daily
26
<PAGE>
net assets until January 31, 2001. There is no guarantee that this expense
waiver will continue beyond January 31, 2001.
** Pro Forma expenses reflect the implementation of the Administrative Fee for
the Acquiring Fund to be effective upon the Reorganization.
## Pro Forma other expenses are comprised of the 0.25% fee paid under the new
Administration Agreement and the 0.10% fee paid under the current
Administrative Services Agreement.
In evaluating the Reorganization, the Independent Trustees also considered
the Acquiring Fund's and the Acquired Fund's estimated expense ratios calculated
utilizing Fund net assets at December 31, 1999 (rather than average daily net
assets for a full year, as used in the table above), the number of shareholder
accounts at that date, and other relevant factors. This calculation resulted in
an estimated total annual expense ratio (without reflecting any expense
reimbursements) of 0.58% for the Acquiring Fund and 0.69% for the Acquired Fund.
EXAMPLES (UNAUDITED)
Based on the costs above (including one year of capped expenses in each
period included in the Acquiring Fund and Acquired Fund columns), the following
examples are intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in each Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The examples also assume that your
investment has a 5% return each year, you reinvested all dividends and
distributions, and each Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be as follows:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
YEAR FUND FUND (COMBINED)**
- ---- --------- -------- ------------
<S> <C> <C> <C>
1ST................................... $ 44 $ 51 $ 44
3RD................................... $171 $208 $138
5TH................................... $309 $379 $241
10TH.................................. $711 $874 $542
</TABLE>
- ------------------------
** Pro Forma expenses reflect the implementation of the Administrative Fee for
the Acquiring Fund to be effective upon the Reorganization.
27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund prior to the creation
of the AARP Shares, which is intended to help you understand the Acquiring
Fund's financial performance for the past five years, is included in the
Acquiring Fund's prospectus dated April 12, 2000, which is included herewith and
incorporated herein by reference.
DISTRIBUTION OF SHARES
Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of each Fund. SIS charges no direct fees in connection with the
distribution of shares of the Funds. Following the Reorganization, Acquiring
Fund shareholders will continue to be able to purchase shares of funds in the
Scudder Family of Funds on a no-load basis.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those that will be in place for the AARP Shares,
except for the range of funds available under the exchange privilege and the
minimum balance requirements.
Acquired Fund shareholders may currently exchange Acquired Fund shares only
into AARP Funds, while holders of AARP Shares will be able to exchange shares
into shares of any fund within the Scudder Family of Funds on a no-load basis.
The minimum balance for non-retirement accounts investing in the AARP Shares
will be $1,000, which is lower than the minimum balance for non-retirement
accounts investing in the Acquired Fund. The minimum balance for Individual
Retirement Accounts ("IRAs") investing in AARP Shares will be $500, as compared
to $250 for the Acquired Fund. However, Acquired Fund IRA shareholders receiving
AARP Shares as a result of the Reorganization will only be required to meet the
Acquired Fund's $250 minimum balance requirement for IRAs.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Funds intends to distribute dividends from its net investment
income in March, June, September and December. Both Funds intend to distribute
net realized capital gains after utilization of capital loss carryforwards, if
any, in December of each year. An additional distribution may be made if
28
<PAGE>
necessary. Dividends and distributions of each Fund will be invested in
additional shares of the Fund at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash.
If the Plan is approved by the Acquired Fund's shareholders, the Acquired
Fund will pay its shareholders a distribution of all undistributed net
investment income and undistributed realized net capital gains immediately prior
to the Closing.
TAX CONSEQUENCES
As a condition to the Reorganization, the Acquiring Fund and the Acquired
Fund will have received an opinion of Willkie Farr & Gallagher in connection
with the Reorganization, to the effect that, based upon certain facts,
assumptions and representations, the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Reorganization constitutes a
tax-free reorganization, no gain or loss will be recognized by the Acquired Fund
or its shareholders as a direct result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Consequences" below.
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies, the
principal risks presented by the Acquiring Fund are similar to those presented
by the Acquired Fund. The main risks applicable to each Fund include, among
others, market risk and, to a more limited extent, investment risk.
In addition, the performance of the Acquired Fund or of the Portfolio and,
consequently, the Acquiring Fund, may not be able to mirror the S&P 500 Index
closely enough to meet the S&P 500 Index's performance for a number of reasons,
including transaction expenses. In addition, as noted above, the Acquired Fund
actively seeks to reduce downside risk as compared with other S&P 500 Index
mutual funds while the Acquiring Fund does not. Accordingly, the Acquiring Fund
may present more downside risk than the Acquired Fund in a weak stock market.
Conversely, the Acquiring Fund may perform better than the Acquired Fund in a
strong market.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see the "Investment Objectives, Policies and
Restrictions of the Funds" herein, and the prospectuses and statements of
additional information for the Funds, which are incorporated by reference
herein.
29
<PAGE>
III. THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund in exchange for
that number of full and fractional AARP Shares having an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund as of the
close of business on the Valuation Date. The Acquiring Fund will assume all of
the liabilities of the Acquired Fund. Upon the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund, the Acquiring Fund
will immediately contribute the assets to the Portfolio in exchange for an
interest in the Portfolio. The Acquired Fund will distribute the AARP Shares
received in the exchange to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund. The Acquired Fund will be abolished as a
series of the Acquired Trust.
Upon completion of the Reorganization, each shareholder of the Acquired Fund
will own that number of full and fractional AARP Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Acquiring Trust
identical in all material respects to the account currently maintained by the
Acquired Trust for such shareholder, except as noted above. In the interest of
economy and convenience, AARP Shares issued to the Acquired Fund's shareholders
will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption and purchase requests received by the transfer agent after the
Closing will be treated as requests received for the redemption or purchase of
AARP Shares received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of the Acquired Fund and the
Acquiring Fund, respectively, under the Plan are subject to various conditions,
as stated therein. Among other things, the Plan requires that all filings be
made with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Trust,
notwithstanding
30
<PAGE>
the approval of the Plan by the shareholders of the Acquired Fund. However, no
amendment may be made that materially adversely affects the interests of the
shareholders of the Acquired Fund without obtaining the approval of the Acquired
Fund's shareholders. The Acquired Fund and the Acquiring Fund may at any time
waive compliance with certain of the covenants and conditions contained in the
Plan. For a complete description of the terms and conditions of the
Reorganization, see the Plan at Exhibit A.
Scudder Kemper will pay the Acquiring Fund's allocable share of expenses
associated with the Reorganization. The Acquired Fund will pay its own allocable
share of expenses associated with the Reorganization, except that Scudder Kemper
will bear any such expenses in excess of $532,842 for the Acquired Fund
(approximately $0.0202 per share, based on December 31, 1999 net assets for the
Acquired Fund). As investors in the Acquired Fund, Acquired Fund shareholders
indirectly bear a portion of these expenses.
BOARD APPROVAL OF THE PROPOSED TRANSACTION
Scudder Kemper first proposed the Reorganization to the Independent Trustees
of the Acquired Fund at a meeting held on September 22, 1999. The Reorganization
was presented to the Trustees and considered by them as part of a broader
initiative by Scudder Kemper to restructure many of the mutual funds advised by
it that are currently offered to retail investors (see "Synopsis -- Background
of the Reorganization" above). This initiative includes four major components:
(i) The combination of funds with similar investment objectives and
policies, including in particular the combination of the AARP Funds with
similar Scudder Funds currently offered to the general public;
(ii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient operating
size;
(iii) The implementation of an administration agreement for each fund,
covering, for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's investment
management agreement) and most expenses; and
(iv) The consolidation of the separate boards currently responsible for
overseeing several groups of no-load funds managed by Scudder Kemper into a
single board.
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
31
<PAGE>
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the September 22 meeting, the Independent Trustees met in person or by telephone
on a number of occasions (including committee meetings) to review and discuss
these proposals, both among themselves and with representatives of Scudder
Kemper. On a number of occasions, these meetings included representatives of the
independent trustees or directors of other funds affected by these proposals. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees/directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. The Independent Trustees have also
agreed to recommend that the Reorganization be approved by the Acquired Fund's
shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of the Acquired Fund and the estimated operating expenses of the Acquiring Fund,
and between the estimated operating expenses of the Acquiring Fund and other
mutual funds with similar investment objectives; (b) the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution
of shareholder interests; (c) the compatibility of the Acquired Fund's and the
Acquiring Fund's investment objectives, policies, restrictions and portfolios;
(d) the agreement by Scudder Kemper to provide services to the Acquiring Fund
for a fixed fee rate under the Administration Agreement with an initial three
year term; (e) the service features available to shareholders of the Acquired
Fund and the Acquiring Fund; (f) the costs to be borne by the Acquired Fund, the
Acquiring Fund and Scudder Kemper as a result of the Reorganization; (g)
prospects for the Acquiring Fund to attract additional assets; (h) the tax
consequences of the Reorganization on the Acquired Fund, the Acquiring Fund and
their respective shareholders; and (i) the investment performance of the
Acquired Fund and the Acquiring Fund.
32
<PAGE>
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal. The Trustees concluded that these economies
were appropriately reflected in the fee and expense arrangements of the
Acquiring Fund, as proposed to be revised upon completion of the Reorganization.
In particular, the Trustees considered the benefits to shareholders resulting
from locking in the rate of the Acquiring Fund's Administrative Fee for an
initial three-year period. Because the Acquiring Fund will pay only its stated
Administrative Fee rate for such services and expenses regardless of changes in
actual costs, the Acquiring Fund's shareholders will be protected from increases
in the Acquiring Fund's expense ratio attributable to increases in such actual
costs. The Board also considered the protection this would afford shareholders
if the Acquiring Fund's net assets declined as a result of market fluctuations
or net redemptions.
The Trustees also considered the impact of the Reorganization on the total
expenses to be borne by shareholders of the Acquired Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is
substantially lower than the current expense ratio for the Acquired Fund. The
Board also considered that the Reorganization would permit the shareholders of
the Acquired Fund to pursue similar investment goals in a larger fund.
Finally, the Trustees concluded that the shareholders of the Acquired Fund
would be better served by having their interests represented by a single board
of trustees or directors with responsibility for overseeing substantially all of
the funds to be marketed as a "family of funds" through Scudder's no-load
distribution channels. Accordingly, the Trustees agreed to recommend the
election of a new consolidated board comprised of representatives of each of the
various boards currently serving as trustees or directors of these funds.
Based on all of the foregoing, the Board concluded that the Acquired Fund's
participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE REORGANIZATION.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 20,
1984, as amended. The Acquiring Trust's authorized capital consists of an
33
<PAGE>
unlimited number of shares of beneficial interest, par value $0.01 per share.
The Trustees of the Acquiring Trust are authorized to divide the Acquiring
Trust's shares into separate series. The Acquiring Fund is one of eight series
of the Acquiring Trust that the Board has created to date. The Trustees of the
Acquiring Trust are also authorized to further divide the shares of the series
of the Acquiring Trust into classes. The Trustees of the Acquiring Trust have
authorized the division of the Acquiring Fund into two classes, S Class and AARP
Class. It is anticipated that this division will occur prior to the Closing and
that shares of the Acquiring Fund existing at that time will be redesignated as
S Class shares of the Acquiring Fund. If AARP Shares are not created prior to
the Closing, then the Reorganization will not be consummated. Although
shareholders of different classes of a series have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution and certain other
matters.
Each share of each class of the Acquiring Fund represents an interest in the
Acquiring Fund that is equal to and proportionate with each other share of that
class of the Acquiring Fund. Acquiring Fund shareholders are entitled to one
vote per share held on matters on which they are entitled to vote. In the areas
of shareholder voting and the powers and conduct of the Trustees, there are no
material differences between the rights of shareholders of the Acquired Fund and
the rights of shareholders of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Acquired Trust, on
behalf of the Acquired Fund, and the Acquiring Trust, on behalf of the Acquiring
Fund, of an opinion from Willkie Farr & Gallagher, substantially to the effect
that, based upon certain facts, assumptions and representations of the parties,
for federal income tax purposes: (i) the transfer to the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange solely for
AARP Shares and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution of such shares to the
Acquired Fund's shareholders in exchange for their shares of the Acquired Fund
in complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and
the Acquired Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of all or substantially all of its assets to the
Acquiring Fund in exchange solely for AARP Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund or upon the
distribution of the AARP Shares to the Acquired Fund shareholders in exchange
for their shares of the Acquired Fund; (iii) the basis of the assets
34
<PAGE>
of the Acquired Fund in the hands of the Acquiring Fund will be the same as the
basis of such assets of the Acquired Fund immediately prior to the transfer;
(iv) the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for AARP Shares and
the assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund; (vi) no gain or loss will be recognized by the shareholders of the
Acquired Fund upon the receipt of the AARP Shares solely in exchange for their
shares of the Acquired Fund as part of the transaction; (vii) the basis of the
AARP Shares received by the shareholders of the Acquired Fund will be the same
as the basis of the shares of the Acquired Fund exchanged therefor; and (viii)
the holding period of AARP Shares received by the shareholders of the Acquired
Fund will include the holding period during which the shares of the Acquired
Fund exchanged therefor were held, provided that at the time of the exchange the
shares of the Acquired Fund were held as capital assets in the hands of the
shareholders of the Acquired Fund.
While the Acquired Trust is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders may wish to consult
their own tax adviser with respect to such matters.
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
Fund as of December 31, 1999 (i.e., prior to the creation of AARP Shares), and
on a pro forma basis as of that date, giving effect to the Reorganization:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED(1)
------------ ------------ ---------------- -----------------
<S> <C> <C> <C> <C>
NET ASSETS
S Class...................... $328,368,096 $ 328,368,096(2)
AARP Shares.................. $735,598,601 ($ 532,842)(3) $ 735,065,759
--------------
Total Net Assets............. $1,063,433,855
==============
SHARES OUTSTANDING
S Class...................... 16,751,366 16,751,366
AARP Shares.................. 26,354,882 11,148,473 37,503,355
NET ASSET VALUE PER SHARE
S Class...................... $ 19.60 $ 19.60
AARP Shares.................. $ 27.91 $ 19.60
</TABLE>
- ------------------------------
(1) Assumes the Reorganization had been consummated on December 31, 1999, and
is for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by the shareholders of the
Acquired Fund on the date the Reorganization
35
<PAGE>
takes place, and the foregoing should not be relied upon to reflect the
number of shares of the Acquiring Fund that actually will be received on or
after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of the Administrative Fee for the Acquiring
Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Acquired Fund.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP U.S. STOCK INDEX FUND VOTE IN FAVOR OF
THIS PROPOSAL 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Acquired Trust, including a majority of the Independent
Trustees, has selected PricewaterhouseCoopers LLP to act as independent
accountants of the Acquired Fund for the Acquired Fund's current fiscal year.
One or more representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
THE BOARD OF TRUSTEES OF AARP GROWTH TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
AARP U.S. STOCK INDEX FUND VOTE IN FAVOR OF
THIS PROPOSAL 3.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS
Additional information about the Trusts, the Funds and the Reorganization
has been filed with the SEC and may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103,
or by calling 1-800-225-2470.
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by the
Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300,
36
<PAGE>
New York, NY 10048; Southeast Regional Office, 1401 Brickell Avenue, Suite 200,
Miami, FL 33131; Midwest Regional Office, Citicorp Center, 500 W. Madison
Street, Chicago, IL, 60661-2511; Central Regional Office, 1801 California
Street, Suite 4800, Denver, CO 80202-2648; and Pacific Regional Office, 5670
Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC
maintains an Internet World Wide Web site (at http:www.sec.gov) which contains
the statements of additional information for the Trusts, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts and the Funds.
INTERESTS OF CERTAIN PERSONS
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- Investment Manager; Fees and Expenses."
GENERAL
PROXY SOLICITATION. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
Any Acquired Fund shareholder giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of the
Acquired Fund, c/o Scudder Kemper Investments, Inc., at the address for the
Acquired Fund shown at the beginning of this Proxy Statement/Prospectus) or in
person at the Meeting, by executing a superseding proxy or by submitting a
notice of revocation to the Acquired Fund. All properly executed proxies
received in time for the Meeting will be voted as specified in the proxy or, if
no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the Acquired Trust (for a trust-wide vote)
or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
37
<PAGE>
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of the Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on Proposal 1, and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000, there were 30,297,453 shares of
the Acquired Fund outstanding.
As of January 31, 2000, the officers and Trustees of the Acquiring Trust as
a group owned beneficially less than 1% of the outstanding shares of the
Acquiring Fund. Appendix 2 hereto sets forth the beneficial owners of more than
5% of each Fund's shares, as well as the beneficial owners of more than 5% of
the shares of each other series of the Acquired Trust. To the best of the
applicable Trust's knowledge, as of January 31, 2000, no person owned
beneficially more than 5% of either Fund's outstanding shares or the shares of
any other series of the Acquired Trust, except as stated in Appendix 2.
Shareholder Communications Corporation ("SCC") has been engaged to assist in
the solicitation of proxies, at an estimated cost of $27,265. As the Meeting
date approaches, certain shareholders of the Acquired Fund may
38
<PAGE>
receive a telephone call from a representative of SCC if their votes have not
yet been received. Authorization to permit SCC to execute proxies may be
obtained by telephonic or electronically transmitted instructions from
shareholders of the Acquired Fund. Proxies that are obtained telephonically will
be recorded in accordance with the procedures set forth below. The Trustees
believe that these procedures are reasonably designed to ensure that both the
identity of the shareholder casting the vote and the voting instructions of the
shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card(s), and ask for the shareholder's instructions
on the Proposals. Although the SCC representative is permitted to answer
questions about the process, he or she is not permitted to recommend to the
shareholder how to vote, other than to read any recommendation set forth in the
proxy statement. SCC will record the shareholder's instructions on the card.
Within 72 hours, the shareholder will be sent a letter or mailgram to confirm
his or her vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy card(s), they may contact SCC toll-free at 1-800-605-1203. Any
proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
39
<PAGE>
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts 02110, within a reasonable time
before the solicitation of proxies for such meeting. The timely submission of a
proposal does not guarantee its inclusion.
OTHER MATTERS TO COME BEFORE THE MEETING. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters requiring a vote of shareholders
arise, the proxy in the accompanying form will confer upon the person or persons
entitled to vote the shares represented by such proxy the discretionary
authority to vote the shares as to any such other matters in accordance with
their best judgment in the interest of the Acquired Trust and/or the Acquired
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE
ADVANTAGE OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
40
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<S> <C>
EXHIBIT A: Agreement and Plan of Reorganization
EXHIBIT B: Management's Discussion of Acquiring Fund's
Performance
APPENDIX 1: Trustee and Nominee Shareholdings
APPENDIX 2: Beneficial Owners of Fund Shares
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, by and between Investment Trust (the "Acquiring
Trust"), a Massachusetts business trust, on behalf of Scudder S&P 500 Index Fund
(the "Acquiring Fund"), a separate series of the Acquiring Trust, and AARP
Growth Trust (the "Acquired Trust" and, together with the Acquiring Trust, each
a "Trust" and collectively the "Trusts"), a Massachusetts business trust, on
behalf of AARP U.S. Stock Index Fund (the "Acquired Fund" and, together with the
Acquiring Fund, each a "Fund" and collectively the "Funds"), a separate series
of the Acquired Trust. The principal place of business of each Trust is Two
International Place, Boston, Massachusetts 02110-4103
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest of the AARP Class of shares ($.01 par value per share) of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the
A-1
<PAGE>
manner and as of the time and date set forth in section 2.2; (ii) to assume all
of the liabilities of the Acquired Fund; and (iii) to immediately transfer all
of the Acquired Fund's assets to the Equity 500 Index Portfolio (the
"Portfolio") in exchange for an interest in the Portfolio. Such transactions
shall take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates
A-2
<PAGE>
representing interests in shares of the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
A-3
<PAGE>
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
September 11, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 9:00 a.m., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
Dechert Price & Rhoads, Ten Post Office Square -- South, Boston, MA 02109, or at
such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets shall have been delivered in proper form to
State Street, custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by the custodian for the Acquired Fund to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Scudder Service Corp. (the "Transfer Agent"), on behalf of the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding Acquired Fund shares owned by each such shareholder
A-4
<PAGE>
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Acquired Fund or provide evidence satisfactory to the Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained
under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate
A-5
<PAGE>
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 September 30, 1999, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of
each of which has been furnished to the Acquiring Fund) present fairly, in
all material respects, the financial position of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or
A-6
<PAGE>
the redemption of Acquired Fund shares by Acquired Fund Shareholders shall
not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquired Fund Shareholders,
under certain circumstances, could be held personally liable for obligations
of the Acquired Fund), and (iii) will be held at the time of the Closing by
the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer
A-7
<PAGE>
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.
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4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquiring Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in
violation of Massachusetts law or of the Acquiring Trust's Declaration of
Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended December 31, 1999, have been
audited by PricewaterhouseCoopers LLP, independent
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accountants, and are in accordance with GAAP consistently applied, and such
statements (a copy of each of which has been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as
of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquiring
Fund due to declines in market values of securities in the Acquiring Fund's
portfolio, the discharge of Acquiring Fund liabilities, or the redemption of
Acquiring Fund shares by Acquiring Fund shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquiring Fund Shareholders, under certain circumstances, could be held
personally liable for the obligations of the Acquiring Fund). The Acquiring
Fund does not
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have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders,
under certain circumstances, could be held personally liable for the
obligations of the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust and this Agreement will
constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the NASD), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
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(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 11, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
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5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to
(i) vest and confirm to the Acquired Fund title to and possession of all
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Acquiring Fund Shares to be transferred to the Acquired Fund pursuant to this
Agreement and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Trust, on behalf of the Acquiring Fund, made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing business
trust; (b) the Acquiring Fund has the power to carry on its
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business as presently conducted in accordance with the description thereof
in the Acquiring Fund's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquiring
Trust, on behalf of the Acquiring Fund, and constitutes a valid and legally
binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquiring Trust's
Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals or filings
required to be obtained or made by the Acquiring Fund under the Federal laws
of the United States or the laws of the Commonwealth of Massachusetts for
the exchange of the Acquired Fund's assets for Acquiring Fund Shares,
pursuant to the Agreement have been obtained or made.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5. The Acquiring Fund shall have entered into an administrative services
agreement with Scudder Kemper Investments, Inc. ("Scudder Kemper") in a form
reasonably satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
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7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquired Trust's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquired
Trust, on behalf of the Acquired Fund, and constitutes a valid and legally
binding obligation of the Acquired Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquired Trust's Declaration
of Trust, as amended, or By-laws; and (e) to the knowledge of such counsel,
all regulatory consents, authorizations, approvals or filings required to be
obtained or made by the Acquired Fund under the Federal laws of the United
States or the laws of the Commonwealth of Massachusetts for the exchange of
the Acquired Fund's assets for Acquiring Fund Shares, pursuant to the
Agreement have been obtained or made.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
7.6. The Acquiring Fund shall have entered into an administrative services
agreement with Scudder Kemper.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Fund and the Acquired Fund, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the effect that, based upon certain facts, assumptions and representations of
the parties, for federal income tax purposes: (i) the transfer to the Acquiring
Fund of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund shares and the assumption by the Acquiring Fund of all
of
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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 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. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
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9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Fund on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Scudder Kemper will pay the Acquiring Fund's allocable share of
expenses associated with the Reorganization. The Acquired Fund will pay its own
allocable share of expenses associated with the Reorganization, except that
Scudder Kemper will bear any such expenses in excess of $532,842 for the
Acquired Fund (approximately $0.0202 per share, based on December 31, 1999 net
assets for the Acquired Fund). Any such expenses which are so borne by Scudder
Kemper will be solely and directly related to the Reorganization within the
meaning of Revenue Ruling 73-54, 1973-1 C.B. 187. Acquired Fund Shareholders
will pay their own expenses, if any, incurred in connection with the
Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the
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parties, or (ii) by either party if the Closing shall not have occurred on or
before October 31, 2000, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, Ten Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.
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.
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15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to each Trust mean and refer to the Board
members of the Trust from time to time serving under its Declaration of Trust on
file with the Secretary of State of the Commonwealth of Massachusetts, as the
same may be amended from time to time, pursuant to which the Trust conducts its
business. It is expressly agreed that the obligations of each Trust hereunder
shall not be binding upon any of the Board members, shareholders, nominees,
officers, agents, or employees of the Trusts or the Funds personally, but bind
only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement has been signed by authorized officers of each Fund acting as
such, and neither such authorization by such Board members, nor such execution
and delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
A-21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: AARP GROWTH TRUST
on behalf of AARP U.S. Stock Index Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: INVESTMENT TRUST
on behalf of Scudder S&P 500 Index Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:
- ------------------------------
Its:
- ------------------------------
A-22
<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
- --------------------------------------------------------------------------------
Performance Update December 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Scudder S&P 500 Index Fund S&P 500 Index*
8/97** 10000 8/97** 10000
12/97 10834 12/97 10851
6/98 12715 6/98 12773
12/98 13899 12/98 13953
6/99 15563 6/99 15681
12/99 16730 12/99 16889
Yearly periods ended December 31
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder S&P 500 Index Fund
- --------------------------------------------------------------------------------
1 year $ 12,037 20.37% 20.37%
- --------------------------------------------------------------------------------
Life of Fund** $ 16,730 67.30% 24.60%
- --------------------------------------------------------------------------------
S&P 500 Index*
- --------------------------------------------------------------------------------
1 year $ 12,104 21.04% 21.04%
- --------------------------------------------------------------------------------
Life of Fund** $ 16,889 68.89% 25.17%
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on August 29, 1997. Index comparisons begin
August 31, 1997.
Performance is historical, assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total returns would have been lower for
the one year and life of Fund period.
B-1
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Management Discussion December 31, 1999
Dear Shareholders,
Scudder S&P 500 Index Fund seeks to match the performance, before expenses, of
common stocks publicly traded in the U.S., as represented by the S&P 500 Index.
For its most recent annual period ended December 31, 1999, Scudder S&P 500 Index
Fund provided a 20.37% total return, closely tracking the 21.04% return of the
S&P 500 Index over the same period.
Market Review
Broad market equity index returns closed the year on a positive note across
small, mid-sized and large capitalization asset classes. The Russell 2000 Index
outperformed the S&P 500 Index on an annual basis for the first time in five
years. Top-performing stocks in the S&P 500 Index during 1999 included Qualcomm
(0.92% of market value), Sprint (PCS) (0.36%) and Nextel Communications -- Class
A (0.29%). Negative performers included McKesson HBOC (0.05% of market value),
Rite Aid (0.03%), and Service Corporation International (0.02%). Large growth
stocks outperformed large value stocks over the period. In addition, there were
41 additions and deletions to the Index for the 12-month period. Changes to the
Index at year end included Yahoo!, which replaced Laidlaw; Teradyne replaced
Case Corporation, which was acquired by New Holland NV; and T. Rowe Price
Associates replaced Data General, which was acquired by EMC Corporation. Strong
performing sectors for the year included technology (up 75.13%), capital goods
(up 28.91%) and basic materials (up 26.37%). Weaker performing sectors included
health care (down 8.24%), utilities (down 8.88%) and transportation (down
9.68%).
In 1999, the S&P 500 marked its fifth consecutive year of returns exceeding 20%.
Growth stocks continued their predominance, posting returns more than double
those of value stocks. The breadth of the S&P 500 Index's advance continued to
narrow during the period, as seven stocks contributed 50% of the Index's return
for 1999 and the
B-2
<PAGE>
top 100 stocks made up 90% of its return. Equity markets experienced significant
volatility as market participants wrestled with strong economic data, lofty
stock price valuations, and the Federal Reserve's change to a tightening mode
during the second half of the year. Lastly, the pace of mergers and acquisitions
continued at an all-time high, resulting in 41 changes to the S&P 500 Index
during 1999.
Manager Outlook
We expect GDP growth to slow gradually over the next 12 months and beyond,
accompanied by a mild pickup in inflation, somewhat slower growth in corporate
profits, and a continuation of recent increases in interest rates. We also
anticipate some downward pressure on the U.S. dollar (mainly versus the Euro) as
growth and investment opportunities improve abroad (especially in Euroland),
making foreigners somewhat less willing to finance the United States' current
account deficit. In this context, we think that U.S. equity markets are likely
to be less ebullient than in recent years, though we do not anticipate a sharp
correction. That's largely because the macroeconomic backdrop we envision for
the U.S., though clearly not as spectacular as the boom we've experienced over
the past few years, is still upbeat by historical standards.
As managers of an index fund, designed to replicate the broad diversification
and returns of the S&P 500 Index, we neither evaluate short-term fluctuations in
the fund's performance nor manage according to a given outlook for the equity
markets or the economy in general. Still, we will continue to monitor economic
conditions as well as how they affect the financial markets, as we seek to
closely track the performance of the stock market.
Sincerely,
/s/J.A. Creighton
James Creighton
Portfolio Manager
B-3
<PAGE>
APPENDIX 1
FUND SHARES OWNED BY NOMINEES AND TRUSTEES
Many of the nominees and Trustees own shares of the series of the Acquired
Trust and of other funds in the Scudder Family of Funds and AARP Funds,
allocating their investments among such funds based on their individual
investment needs. The following table sets forth, for each nominee and Trustee,
the number of shares owned in each series of the Acquired Trust as of January
31, 2000. The information as to beneficial ownership is based on statements
furnished to the Acquired Trust by each nominee and Trustee. Unless otherwise
noted, beneficial ownership is based on sole voting and investment power. Each
nominee's and Trustee's individual shareholdings of any series of the Acquired
Trust constitute less than 1% of the outstanding shares of such fund. As a
group, the Trustees and officers own less than 1% of the shares of any series of
the Acquired Trust.
<TABLE>
<CAPTION>
AARP
BALANCED AARP AARP AARP AARP SMALL AARP U.S.
STOCK AND CAPITAL AARP GLOBAL GROWTH AND INTERNATIONAL COMPANY STOCK INDEX
BOND FUND GROWTH FUND GROWTH FUND INCOME FUND STOCK FUND STOCK FUND FUND
---------- ------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Carole Lewis Anderson
(3)...................... 0 371 806 0 0 0 0
Adelaide Attard (1)........ 552(5) 607(8) 303 431(11) 0 0 632
Henry P. Becton, Jr. (1)... 0 0 0 0 00 0 0
Robert N. Butler, M.D.
(3)...................... 0 0 0 0 0 0 401(20)
Linda C. Coughlin (1)...... 0 547 487 343 1,468 417 352
Horace B. Deets (1)........ 3,003(6) 0 0 1,567(12) 0 37(18) 82
Dawn-Marie Driscoll (1).... 0 28 0 0 0 113 0
Edgar R. Fiedler (1)....... 0 0 0 0 0 0 0
Lt. Gen. Eugene P.
Forrester (1)............ 981 2,560 506 3,328 711 546 625
Keith R. Fox (1)........... 0 0 0 0 0 0 0
George L. Maddox, Jr.
(1)...................... 0 0 0 2,869(13) 0 0 0
Robert J. Myers (2)........ 0 0 0 0 0 0 0
James H. Schulz (3)........ 0 62(9) 0 55(14) 296(16) 0 0
Gordon Shillinglaw (1)..... 1,447 1,859 1,372 2,299 2,577 0 585
Joan Edelman Spero (2)..... 0 0 0 0 0 0 0
Jean Gleason Stromberg
(2)...................... 0 0 0 1,044 0 0 0
Jean C. Tempel (1)......... 0 0 0 0 0 0 0
Steven Zaleznick (4)....... 0 0 0 0 0 0 0
All Trustees and Officers
as a Group............... 6,535(7) 6,034(10) 3,474 11,938(15) 5,052(17) 1,113(19) 2,677(21)
</TABLE>
<PAGE>
- ------------------------------
(1) Total aggregate holdings in each series of the Acquired Trust listed and all
other funds in the Scudder Family of Funds and AARP Funds were over
$100,000.
(2) Total aggregate holdings in each series of the Acquired Trust listed and all
other funds in the Scudder Family of Funds and AARP Funds ranged between
$50,000 and $100,000.
(3) Total aggregate holdings in each series of the Acquired Trust listed and all
other funds in the Scudder Family of Funds and AARP Funds ranged between
$10,000 and $50,000.
(4) Total aggregate holdings in each series of the Acquired Trust listed and all
other funds in the Scudder Family of Funds and AARP Funds were $0.
(5) Ms. Attard's shares in AARP Balanced Stock and Bond Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(6) Mr. Deets's shares in AARP Balanced Stock and Bond Fund include 67 shares
with sole investment and voting power, and 2,936 shares with shared
investment and voting power.
(7) As a group, as of January 31, 2000, the Trustees and officers of AARP
Balanced Stock and Bond Fund held 3,047 shares with sole voting and
investment power, 2,936 shares with shared investment and voting power, and
552 shares with sole investment but no voting power. Shares held with sole
investment but no voting power are shares held in profit sharing and 401(k)
plans for which Scudder Kemper serves as trustee.
(8) Ms. Attard's shares in AARP Capital Growth Fund include 36 shares with sole
investment and voting power and 571 with sole investment but no voting
power. Shares held with sole investment but no voting power are shares held
in profit sharing and 401(k) plans for which Scudder Kemper serves as
trustee.
(9) Mr. Schulz's shares in AARP Capital Growth Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(10) As a group, as of January 31, 2000, the Trustees and officers of AARP
Capital Growth Fund held 5,402 shares with sole voting and investment power
and 632 shares with sole investment but no voting power. Shares held with
sole investment but no voting power are shares held in profit sharing and
401(k) plans for which Scudder Kemper serves as trustee.
(11) Ms. Attard's shares in AARP Growth and Income Fund include 153 shares with
sole investment and voting power and 278 with sole investment but no voting
power. Shares held with sole investment but no voting power are shares held
in profit sharing and 401(k) plans for which Scudder Kemper serves as
trustee.
(12) Mr. Deets's shares in AARP Growth and Income Fund include 1,180 shares with
shared investment and voting power, and 387 shares with sole investment but
no voting power. Shares held with sole investment but no voting power are
shares held in profit sharing and 401(k) plans for which Scudder Kemper
serves as trustee.
(13) Mr. Maddox's shares in AARP Growth and Income Fund include 743 shares with
sole investment and voting power, and 2,126 shares with shared investment
and voting power.
(14) Mr. Schulz's shares in AARP Growth and Income Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
(15) As a group, as of January 31, 2000, the Trustees and officers of AARP
Growth and Income Fund held 7,911 shares with sole voting and investment
power, 3,307 shares with shared investment and voting power, and 720 shares
with sole investment but no voting power. Shares held with sole investment
but no voting power are shares held in profit sharing and 401(k) plans for
which Scudder Kemper serves as trustee.
(16) Mr. Schulz's shares in AARP International Stock Fund are held with sole
investment but no voting power. Shares held with sole investment but no
voting power are shares held in profit sharing and 401(k) plans for which
Scudder Kemper serves as trustee.
<PAGE>
(17) As a group, as of January 31, 2000, the Trustees and officers of AARP
International Stock Fund held 4,756 shares with sole voting and investment
power and 296 shares with sole investment but no voting power. Shares held
with sole investment but no voting power are shares held in profit sharing
and 401(k) plans for which Scudder Kemper serves as trustee.
(18) Mr. Deets's shares in AARP Small Company Stock Fund are held with shared
investment and voting power.
(19) As a group, as of January 31, 2000, the Trustees and officers of AARP Small
Company Stock Fund held 1,076 shares with sole voting and investment power
and 37 shares with shared investment and voting power.
(20) Dr. Butler's shares in AARP U.S. Stock Index Fund are held with shared
investment and voting power.
(21) As a group, as of January 31, 2000, the Trustees and officers of AARP U.S.
Stock Index Fund held 2,276 shares with sole voting and investment power and
401 shares with shared investment but no voting power.
<PAGE>
APPENDIX 2
BENEFICIAL OWNERS OF MORE THAN 5% OF FUND SHARES
As of January 31, 2000, 244,625 shares in the aggregate, or 11.48% of the
outstanding shares, of AARP INTERNATIONAL STOCK FUND were held in the name of
State Street Bank & Trust Company, Custodian of AARP Managed Investment
Portfolio Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA
02171, who may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 359,439 shares in the aggregate, or 11.66% of the
outstanding shares, of AARP SMALL COMPANY STOCK FUND were held in the name of
State Street Bank & Trust Company, Custodian of AARP Managed Investment
Portfolio Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA
02171, who may be deemed to be the beneficial owner of certain of these shares.
As of January 31, 2000, 1,875,347 shares in the aggregate, or 6.38% of the
outstanding shares, of AARP U.S. STOCK INDEX FUND were held in the name of State
Street Bank & Trust Company, Custodian of AARP Managed Investment Portfolio
Trust: Diversified Growth Portfolio, One Heritage Drive, Quincy, MA 02171, who
may be deemed to be the beneficial owner of certain of these shares.
<PAGE>
It is proposed that this board would continue to have AARP representation.
It is the Board's belief that this has the potential for increasing
efficiency and benefiting fund shareholders. The Board also believes that a
single board, responsible for overseeing most of the no-load funds advised
by Scudder Kemper, can more effectively represent shareholder interests. THE
BOARD OF YOUR FUND RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NOMINEE.
You are also being asked to ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of your Fund for the current fiscal year.
THE BOARD OF YOUR FUND RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHEN WILL THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes will take effect during the third
calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-605-1203.
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-605-1203.
AA US Stk Index 2
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated April 12, 2000, which was previously filed with the Commission
via EDGAR on February 11, 2000 (File No. 2-13628) and is incorporated by
reference herein.
<PAGE>
PART B
INVESTMENT TRUST
- -------------------------------------------------------------------------------
Statement of Additional Information
April 18, 2000
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Acquisition of the Assets of By and in Exchange for Shares of
AARP U.S. Stock Index Fund (the "Acquired Scudder S&P 500 Index Fund (the "Acquiring
Fund"), a series of AARP Growth Trust Fund"), a series of Investment Trust (the
Two International Place "Acquiring Trust")
Boston, MA 02110-4103 Two International Place
Boston, MA 02110-4103
</TABLE>
This Statement of Additional Information is available to the shareholders of the
Acquired Fund in connection with a proposed transaction whereby the Acquiring
Fund will acquire all or substantially all of the assets and all of the
liabilities of the Acquired Fund in exchange for shares of the Acquiring Fund
(the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in the
Prospectus/Proxy Statement of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this cover
page and the following documents:
1. The Acquiring Fund's statement of additional information dated April 12,
2000, which was previously filed with the Securities and Exchange Commission
(the "Commission") via EDGAR on February 11, 2000 (File No. 2-13628) and is
incorporated by reference herein.
2. The Acquiring Fund's annual report to shareholders for the fiscal year
ended December 31, 1999, which was previously filed with the Commission via
EDGAR on March 3, 2000 (File No. 811-00043) and is incorporated by
reference herein.
3. The Acquired Fund's prospectus dated February 1, 2000, which was previously
filed with the Commission via EDGAR on February 1, 2000 (File No. 2-91578) and
is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated February 1,
2000, which was previously filed with the Commission via EDGAR on February 1,
2000 (File No. 2-91578) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year ended
September 30, 1999, which was previously filed with the Commission via EDGAR on
December 3, 1999 (File No. 811-04048) and is incorporated by reference herein.
6. The financial statements and schedules of the Acquiring Fund and the
Acquired Fund required by Regulation S-X for the periods specified in Article 3
thereof, which are filed herein.
54
<PAGE>
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 18, 2000 relating to the Reorganization
may be obtained by writing the Acquired Fund at Two International Place, Boston,
MA 02110-4103 or by calling Scudder Investor Services, Inc. at 1-800-225-2470.
This Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
55
<PAGE>
Pro Forma
Portfolio of Investments
as of December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Repurchase Agreements
State Street Bank and Trust Company, 15,415,000 (15,415,000) 0
2.800%, 01/03/2000
U. S. Treasury Obligations
U.S. Treasury Bill, 5.100%, 750,000 (750,000) 0
04/06/2000
Common Stocks
Consumer Discretionary
Apparel & Shoes
Liz Claiborne, Inc. 400 (400) 0
Nike, Inc. "B" 12,600 (12,600) 0
Russell Corp. 60,100 (60,100) 0
Department & Chain Stores
Best Buy Co., Inc. 17,000 (17,000) 0
CVS Corp. 11,700 (11,700) 0
Consolidated Stores Corp. 300 (300) 0
Costco Wholesale Corp. 16,600 (16,600) 0
Dayton Hudson Corp. 32,200 (32,200) 0
Dillard's Inc. 100 (100) 0
Dollar General Corp. 2,968 (2,968) 0
Federated Department Stores, Inc. 2,400 (2,400) 0
Gap, Inc. 57,925 (57,925) 0
Home Depot, Inc. 136,800 (136,800) 0
J.C. Penney Co., Inc. 71,000 (71,000) 0
Kmart Corp. 2,800 (2,800) 0
Kohl's Corp. 9,500 (9,500) 0
Longs Drug Stores, Inc. 600 (600) 0
Lowe's Companies, Inc. 23,000 (23,000) 0
May Department Stores 24,150 (24,150) 0
Neiman Marcus Group, Inc. 30 (30) 0
Nordstrom, Inc. 4,700 (4,700) 0
Rite Aid Corp. 15,700 (15,700) 0
Sears, Roebuck & Co. 22,800 (22,800) 0
TJX Companies, Inc. (New) 12,200 (12,200) 0
The Limited, Inc. 10,214 (10,214) 0
Wal-Mart Stores, Inc. 207,900 (207,900) 0
Walgreen Co. 65,000 (65,000) 0
Home Furnishings
Newell Rubbermaid, Inc. 16,000 (16,000) 0
Tupperware Corp. 51,600 (51,600) 0
Hotels & Casinos
Carnival Corp. "A" 41,900 (41,900) 0
Hilton Hotels Corp. 3,100 (3,100) 0
Marriott International, Inc. "A" 3,600 (3,600) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Repurchase Agreements
State Street Bank and Trust Company, 15,415,000 (15,415,000) 0
2.800%, 01/03/2000
U. S. Treasury Obligations
U.S. Treasury Bill, 5.100%, 739,815 (739,815) 0
04/06/2000
Common Stocks
Consumer Discretionary
Apparel & Shoes
Liz Claiborne, Inc. 15,050 (15,050) 0
Nike, Inc. "B" 624,488 (624,488) 0
Russell Corp. 1,006,675 (1,006,675) 0
Department & Chain Stores
Best Buy Co., Inc. 853,188 (853,188) 0
CVS Corp. 467,269 (467,269) 0
Consolidated Stores Corp. 4,875 (4,875) 0
Costco Wholesale Corp. 1,514,750 (1,514,750) 0
Dayton Hudson Corp. 2,364,688 (2,364,688) 0
Dillard's Inc. 2,019 (2,019) 0
Dollar General Corp. 67,522 (67,522) 0
Federated Department Stores, Inc. 121,350 (121,350) 0
Gap, Inc. 2,664,550 (2,664,550) 0
Home Depot, Inc. 9,379,350 (9,379,350) 0
J.C. Penney Co., Inc. 1,415,563 (1,415,563) 0
Kmart Corp. 28,175 (28,175) 0
Kohl's Corp. 685,781 (685,781) 0
Longs Drug Stores, Inc. 15,488 (15,488) 0
Lowe's Companies, Inc. 1,374,250 (1,374,250) 0
May Department Stores 778,838 (778,838) 0
Neiman Marcus Group, Inc. 808 (808) 0
Nordstrom, Inc. 123,081 (123,081) 0
Rite Aid Corp. 175,644 (175,644) 0
Sears, Roebuck & Co. 693,975 (693,975) 0
TJX Companies, Inc. (New) 249,338 (249,338) 0
The Limited, Inc. 442,394 (442,394) 0
Wal-Mart Stores, Inc. 14,371,088 (14,371,088) 0
Walgreen Co. 1,901,250 (1,901,250) 0
Home Furnishings
Newell Rubbermaid, Inc. 464,000 (464,000) 0
Tupperware Corp. 873,975 (873,975) 0
Hotels & Casinos
Carnival Corp. "A" 2,003,344 (2,003,344) 0
Hilton Hotels Corp. 29,838 (29,838) 0
Marriott International, Inc. "A" 113,625 (113,625) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Recreational Products
Brunswick Corp. 11,300 (11,300) 0
Hasbro, Inc. 1,875 (1,875) 0
Mattel, Inc. 25,600 (25,600) 0
Restaurants
Darden Restaurants Inc. 100 (100) 0
McDonald's Corp. 86,600 (86,600) 0
Tricon Global Restaurants 7,720 (7,720) 0
Wendy's International, Inc. 100 (100) 0
Specialty Products
AutoZone, Inc. 100 (100) 0
Circuit City Stores, Inc. 17,400 (17,400) 0
Office Depot, Inc. 5,700 (5,700) 0
Pep Boys - Manny, Moe & Jack 100 (100) 0
Staples, Inc. 24,100 (24,100) 0
Tandy Corp. 9,600 (9,600) 0
Toys "R" Us, Inc. 100 (100) 0
Consumer Staples
Alcohol & Tobacco
Anheuser-Busch Companies, Inc. 16,700 (16,700) 0
Seagram Co., Ltd. 15,100 (15,100) 0
Consumer Electronic &
Photographic
Eastman Kodak Co. 25,600 (25,600) 0
Maytag Corp. 1,400 (1,400) 0
Polaroid Corp. 100 (100) 0
Whirlpool Corp. 9,200 (9,200) 0
Consumer Specialties
American Greeting Corp., "A" 8,900 (8,900) 0
Jostens, Inc. 82,700 (82,700) 0
Farming
Archer-Daniels-Midland Co. 115 (115) 0
Food & Beverage
Agribrands International, Inc. 20 (20) 0
Albertson's, Inc. 7,164 (7,164) 0
Bestfoods 3,400 (3,400) 0
Campbell Soup Co. 9,600 (9,600) 0
Coca-Cola Co., Inc. 118,500 (118,500) 0
Coca-Cola Enterprises 23,800 (23,800) 0
ConAgra, Inc. 40,400 (40,400) 0
General Mills, Inc. 10,800 (10,800) 0
H.J. Heinz Co. 25,900 (25,900) 0
Hershey Foods Corp. 100 (100) 0
Kellogg Co. 24,200 (24,200) 0
Kroger Co. 42,800 (42,800) 0
Nabisco Group Holdings 103,700 (103,700) 0
PepsiCo, Inc. 94,600 (94,600) 0
Quaker Oats Co. 6,100 (6,100) 0
Ralston Purina Group 1,500 (1,500) 0
SUPERVALU, Inc. 2,000 (2,000) 0
Safeway, Inc. 27,700 (27,700) 0
Unilever NV(New York Shares) 42,403 (42,403) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Recreational Products
Brunswick Corp. 251,425 (251,425) 0
Hasbro, Inc. 35,742 (35,742) 0
Mattel, Inc. 336,000 (336,000) 0
Restaurants
Darden Restaurants Inc. 1,813 (1,813) 0
McDonald's Corp. 3,491,063 (3,491,063) 0
Tricon Global Restaurants 298,185 (298,185) 0
Wendy's International, Inc. 2,063 (2,063) 0
Specialty Products
AutoZone, Inc. 3,231 (3,231) 0
Circuit City Stores, Inc. 784,088 (784,088) 0
Office Depot, Inc. 62,344 (62,344) 0
Pep Boys - Manny, Moe & Jack 913 (913) 0
Staples, Inc. 500,075 (500,075) 0
Tandy Corp. 472,200 (472,200) 0
Toys "R" Us, Inc. 1,431 (1,431) 0
Consumer Staples
Alcohol & Tobacco
Anheuser-Busch Companies, Inc. 1,183,613 (1,183,613) 0
Seagram Co., Ltd. 678,556 (678,556) 0
Consumer Electronic &
Photographic
Eastman Kodak Co. 1,696,000 (1,696,000) 0
Maytag Corp. 67,200 (67,200) 0
Polaroid Corp. 1,881 (1,881) 0
Whirlpool Corp. 598,575 (598,575) 0
Consumer Specialties
American Greeting Corp., "A" 210,263 (210,263) 0
Jostens, Inc. 2,010,644 (2,010,644) 0
Farming
Archer-Daniels-Midland Co. 1,402 (1,402) 0
Food & Beverage
Agribrands International, Inc. 920 (920) 0
Albertson's, Inc. 231,039 (231,039) 0
Bestfoods 178,713 (178,713) 0
Campbell Soup Co. 371,400 (371,400) 0
Coca-Cola Co., Inc. 6,902,625 (6,902,625) 0
Coca-Cola Enterprises 478,975 (478,975) 0
ConAgra, Inc. 911,525 (911,525) 0
General Mills, Inc. 386,100 (386,100) 0
H.J. Heinz Co. 1,031,144 (1,031,144) 0
Hershey Foods Corp. 4,750 (4,750) 0
Kellogg Co. 745,663 (745,663) 0
Kroger Co. 807,850 (807,850) 0
Nabisco Group Holdings 1,101,813 (1,101,813) 0
PepsiCo, Inc. 3,334,650 (3,334,650) 0
Quaker Oats Co. 400,313 (400,313) 0
Ralston Purina Group 41,813 (41,813) 0
SUPERVALU, Inc. 40,000 (40,000) 0
Safeway, Inc. 985,081 (985,081) 0
Unilever NV(New York Shares) 2,308,313 (2,308,313) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
William Wrigley Jr. Co. 100 (100) 0
Winn-Dixie Stores, Inc. 9,900 (9,900) 0
Package Goods/Cosmetics
Avon Products, Inc. 21,700 (21,700) 0
Clorox Co. 10,000 (10,000) 0
Colgate-Palmolive Co. 47,500 (47,500) 0
Gillette Co. 76,700 (76,700) 0
International Flavors & Fragrances, 43,000 (43,000) 0
Inc.
Kimberly-Clark Corp. 30,400 (30,400) 0
Procter & Gamble Co. 63,500 (63,500) 0
Textiles
Springs Industries, Inc. "A" 27,200 (27,200) 0
VF Corp. 3,300 (3,300) 0
Health
Biotechnology
Amgen, Inc. 81,600 (81,600) 0
PE Corp-PE Biosystems Group 5,400 (5,400) 0
Health Industry Services
Cardinal Health, Inc. 19,050 (19,050) 0
HEALTHSOUTH Corp. 6,000 (6,000) 0
Humana Inc. 800 (800) 0
IMS Health, Inc. 12,700 (12,700) 0
McKesson HBOC, Inc. 9,900 (9,900) 0
PerkinElmer, Inc. 4,400 (4,400) 0
Quintiles Transnational Corp. 6,700 (6,700) 0
Shared Medical Systems Corp. 1,400 (1,400) 0
United Healthcare Corp. 12,000 (12,000) 0
Wellpoint Health Networks, Inc. 2,700 (2,700) 0
Hospital Management
Columbia/HCA Healthcare Corp. 26,800 (26,800) 0
LifePoint Hospitals, Inc. 1 (1) 0
Tenet Healthcare Corp. 500 (500) 0
Triad Hospitals, Inc. 1 (1) 0
Medical Supply & Specialty
Bausch & Lomb, Inc. 5,400 (5,400) 0
Baxter International, Inc. 22,600 (22,600) 0
Becton, Dickinson & Co. 8,800 (8,800) 0
Biomet, Inc. 5,600 (5,600) 0
Boston Scientific Corp. 20,100 (20,100) 0
C.R. Bard, Inc. 10,500 (10,500) 0
Guidant Corp. 22,500 (22,500) 0
Mallinckrodt, Inc. 5,900 (5,900) 0
Medtronic, Inc. 94,700 (94,700) 0
St. Jude Medical, Inc. 600 (600) 0
Pharmaceuticals
Abbott Laboratories 113,800 (113,800) 0
Allergan Specialty Therapeutics, 5 (5) 0
Inc.
Allergan, Inc. 13,600 (13,600) 0
Alza Corp. 2,000 (2,000) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
William Wrigley Jr. Co. 8,294 (8,294) 0
Winn-Dixie Stores, Inc. 236,981 (236,981) 0
Package Goods/Cosmetics
Avon Products, Inc. 716,100 (716,100) 0
Clorox Co. 503,750 (503,750) 0
Colgate-Palmolive Co. 3,087,500 (3,087,500) 0
Gillette Co. 3,159,081 (3,159,081) 0
International Flavors & Fragrances, 1,623,250 (1,623,250) 0
Inc.
Kimberly-Clark Corp. 1,983,600 (1,983,600) 0
Procter & Gamble Co. 6,957,219 (6,957,219) 0
Textiles
Springs Industries, Inc. "A" 1,086,300 (1,086,300) 0
VF Corp. 99,000 (99,000) 0
Health
Biotechnology
Amgen, Inc. 4,901,100 (4,901,100) 0
PE Corp-PE Biosystems Group 649,688 (649,688) 0
Health Industry Services
Cardinal Health, Inc. 912,019 (912,019) 0
HEALTHSOUTH Corp. 32,250 (32,250) 0
Humana Inc. 6,550 (6,550) 0
IMS Health, Inc. 345,281 (345,281) 0
McKesson HBOC, Inc. 223,369 (223,369) 0
PerkinElmer, Inc. 183,425 (183,425) 0
Quintiles Transnational Corp. 125,206 (125,206) 0
Shared Medical Systems Corp. 71,313 (71,313) 0
United Healthcare Corp. 637,500 (637,500) 0
Wellpoint Health Networks, Inc. 178,031 (178,031) 0
Hospital Management
Columbia/HCA Healthcare Corp. 785,575 (785,575) 0
LifePoint Hospitals, Inc. 12 (12) 0
Tenet Healthcare Corp. 11,750 (11,750) 0
Triad Hospitals, Inc. 15 (15) 0
Medical Supply & Specialty
Bausch & Lomb, Inc. 369,563 (369,563) 0
Baxter International, Inc. 1,419,563 (1,419,563) 0
Becton, Dickinson & Co. 235,400 (235,400) 0
Biomet, Inc. 224,000 (224,000) 0
Boston Scientific Corp. 439,688 (439,688) 0
C.R. Bard, Inc. 556,500 (556,500) 0
Guidant Corp. 1,057,500 (1,057,500) 0
Mallinckrodt, Inc. 187,694 (187,694) 0
Medtronic, Inc. 3,450,631 (3,450,631) 0
St. Jude Medical, Inc. 18,413 (18,413) 0
Pharmaceuticals
Abbott Laboratories 4,132,353 (4,132,353) 0
Allergan Specialty Therapeutics, 63 (63) 0
Inc.
Allergan, Inc. 676,600 (676,600) 0
Alza Corp. 69,250 (69,250) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
American Home Products Corp. 92,100 (92,100) 0
Bristol-Myers Squibb Co. 92,900 (92,900) 0
Eli Lilly & Co. 77,800 (77,800) 0
Johnson & Johnson 68,500 (68,500) 0
Merck & Co., Inc. 115,300 (115,300) 0
Pfizer, Inc. 193,400 (193,400) 0
Pharmacia & Upjohn, Inc. 30,500 (30,500) 0
Schering-Plough Corp. 104,300 (104,300) 0
Warner-Lambert Co. 61,100 (61,100) 0
Watson Pharmaceuticals, Inc. 4,800 (4,800) 0
Communications
Cellular Telephone
Nextel Communications, Inc. "A" 24,600 (24,600) 0
Sprint Corp. (PCS Group) 34,350 (34,350) 0
Telephone/Communications
ADC Telecommunications, Inc. 4,400 (4,400) 0
AT&T Corp. 163,056 (163,056) 0
Alltel Corp. 13,000 (13,000) 0
Bell Atlantic Corp. 101,506 (101,506) 0
BellSouth Corp. 123,000 (123,000) 0
GTE Corp. 57,000 (57,000) 0
Global Crossing Ltd. 46,775 (46,775) 0
MCI WorldCom, Inc. 143,129 (143,129) 0
Nortel Networks Corp. 90,280 (90,280) 0
SBC Communicatons, Inc. 168,512 (168,512) 0
Sprint Corp. 57,200 (57,200) 0
US West, Inc. 54,354 (54,354) 0
Financial
Banks
BB&T Corp. 3,800 (3,800) 0
Bank One Corp. 89,780 (89,780) 0
Bank of America Corp. 102,993 (102,993) 0
Bank of New York Co., Inc. 34,400 (34,400) 0
Chase Manhattan Corp. 61,100 (61,100) 0
Comerica, Inc. 1,350 (1,350) 0
Fifth Third Bancorp. 3,025 (3,025) 0
First Union Corp. 86,112 (86,112) 0
Firstar Corp. 24,691 (24,691) 0
FleetBoston Financial Corp. 53,614 (53,614) 0
Huntington Bancshares, Inc. 5,126 (5,126) 0
J.P. Morgan & Co., Inc. 17,800 (17,800) 0
KeyCorp 58,800 (58,800) 0
MBNA Corp. 66,875 (66,875) 0
National City Corp. 65,900 (65,900) 0
Old Kent Financial Corp. 7,100 (7,100) 0
PNC Bank Corp. 26,000 (26,000) 0
Regions Financial Corp. 100 (100) 0
State Street Corp. 2,400 (2,400) 0
Summit Bancorp. 37,600 (37,600) 0
SunTrust Banks, Inc. 6,700 (6,700) 0
US Bancorp 27,106 (27,106) 0
Union Planters Corp. 49,400 (49,400) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
American Home Products Corp. 3,632,194 (3,632,194) 0
Bristol-Myers Squibb Co. 5,963,019 (5,963,019) 0
Eli Lilly & Co. 5,173,700 (5,173,700) 0
Johnson & Johnson 6,379,063 (6,379,063) 0
Merck & Co., Inc. 7,732,306 (7,732,306) 0
Pfizer, Inc. 6,273,413 (6,273,413) 0
Pharmacia & Upjohn, Inc. 1,372,500 (1,372,500) 0
Schering-Plough Corp. 4,400,156 (4,400,156) 0
Warner-Lambert Co. 5,006,381 (5,006,381) 0
Watson Pharmaceuticals, Inc. 171,900 (171,900) 0
Communications
Cellular Telephone
Nextel Communications, Inc. "A" 2,536,875 (2,536,875) 0
Sprint Corp. (PCS Group) 3,520,875 (3,520,875) 0
Telephone/Communications
ADC Telecommunications, Inc. 319,270 (319,270) 0
AT&T Corp. 8,275,082 (8,275,082) 0
Alltel Corp. 1,074,938 (1,074,938) 0
Bell Atlantic Corp. 6,248,963 (6,248,963) 0
BellSouth Corp. 5,757,938 (5,757,938) 0
GTE Corp. 4,022,063 (4,022,063) 0
Global Crossing Ltd. 2,338,750 (2,338,750) 0
MCI WorldCom, Inc. 7,594,756 (7,594,756) 0
Nortel Networks Corp. 9,118,280 (9,118,280) 0
SBC Communicatons, Inc. 8,214,960 (8,214,960) 0
Sprint Corp. 3,850,275 (3,850,275) 0
US West, Inc. 3,913,488 (3,913,488) 0
Financial
Banks
BB&T Corp. 104,025 (104,025) 0
Bank One Corp. 2,878,571 (2,878,571) 0
Bank of America Corp. 5,168,961 (5,168,961) 0
Bank of New York Co., Inc. 1,376,000 (1,376,000) 0
Chase Manhattan Corp. 4,746,706 (4,746,706) 0
Comerica, Inc. 63,028 (63,028) 0
Fifth Third Bancorp. 221,959 (221,959) 0
First Union Corp. 2,825,550 (2,825,550) 0
Firstar Corp. 521,597 (521,597) 0
FleetBoston Financial Corp. 1,866,437 (1,866,437) 0
Huntington Bancshares, Inc. 122,383 (122,383) 0
J.P. Morgan & Co., Inc. 2,253,925 (2,253,925) 0
KeyCorp 1,300,950 (1,300,950) 0
MBNA Corp. 1,822,344 (1,822,344) 0
National City Corp. 1,561,006 (1,561,006) 0
Old Kent Financial Corp. 251,163 (251,163) 0
PNC Bank Corp. 1,157,000 (1,157,000) 0
Regions Financial Corp. 2,513 (2,513) 0
State Street Corp. 175,350 (175,350) 0
Summit Bancorp. 1,151,500 (1,151,500) 0
SunTrust Banks, Inc. 461,044 (461,044) 0
US Bancorp 645,462 (645,462) 0
Union Planters Corp. 1,948,213 (1,948,213) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Wachovia Corp. 4,800 (4,800) 0
Washington Mutual, Inc. 21,116 (21,116) 0
Wells Fargo Co. 118,200 (118,200) 0
Insurance
AFLAC, Inc. 13,600 (13,600) 0
Aetna, Inc. 2,600 (2,600) 0
Allstate Corp. 29,200 (29,200) 0
American General Corp. 10,600 (10,600) 0
American International Group, Inc. 77,941 (77,941) 0
Aon Corp. 5,475 (5,475) 0
Chubb Corp. 300 (300) 0
Cigna Corp. 8,800 (8,800) 0
Cincinnati Financial Corp. 900 (900) 0
Conseco, Inc. 8,783 (8,783) 0
Hartford Financial Services Group, 1,800 (1,800) 0
Inc.
Jefferson Pilot Corp. 2,800 (2,800) 0
Lincoln National Corp. 12,000 (12,000) 0
MGIC Investment Corp. 700 (700) 0
Progressive Corp. 3,200 (3,200) 0
Providian Financial Corp. 11,850 (11,850) 0
Safeco Corp. 39,500 (39,500) 0
St. Paul Companies, Inc. 43,856 (43,856) 0
Torchmark Corp. 400 (400) 0
UnumProvident Corp. 8,400 (8,400) 0
Consumer Finance
American Express Co. 32,800 (32,800) 0
Associates First Capital Corp. 59,746 (59,746) 0
Capital One Finance Corp. 15,200 (15,200) 0
Citigroup, Inc. 165,603 (165,603) 0
Household International, Inc. 33,159 (33,159) 0
Mellon Financial Corp. 18,400 (18,400) 0
SLM Holding Corp. 20,300 (20,300) 0
Other Financial Companies
Federal Home Loan Mortgage Corp. 39,900 (39,900) 0
Federal National Mortgage 73,700 (73,700) 0
Association
Marsh & McLennan Companies, Inc. 27,750 (27,750) 0
Media
Advertising
Interpublic Group of Companies, Inc. 16,600 (16,600) 0
Omnicom Group, Inc. 15,100 (15,100) 0
Broadcasting & Entertainment
CBS Corp. 50,600 (50,600) 0
Clear Channel Communications, Inc. 17,800 (17,800) 0
Time Warner, Inc. 90,100 (90,100) 0
Viacom, Inc. "B" 46,500 (46,500) 0
Walt Disney Co. 123,100 (123,100) 0
Cable Television
Comcast Corp. "A" 47,100 (47,100) 0
Media One Group, Inc. 30,600 (30,600) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Wachovia Corp. 326,400 (326,400) 0
Washington Mutual, Inc. 549,016 (549,016) 0
Wells Fargo Co. 4,779,713 (4,779,713) 0
Insurance
AFLAC, Inc. 641,750 (641,750) 0
Aetna, Inc. 145,103 (145,103) 0
Allstate Corp. 700,800 (700,800) 0
American General Corp. 804,275 (804,275) 0
American International Group, Inc. 8,427,366 (8,427,366) 0
Aon Corp. 219,000 (219,000) 0
Chubb Corp. 16,894 (16,894) 0
Cigna Corp. 708,950 (708,950) 0
Cincinnati Financial Corp. 28,069 (28,069) 0
Conseco, Inc. 156,998 (156,998) 0
Hartford Financial Services Group, 85,275 (85,275) 0
Inc.
Jefferson Pilot Corp. 191,100 (191,100) 0
Lincoln National Corp. 480,000 (480,000) 0
MGIC Investment Corp. 42,131 (42,131) 0
Progressive Corp. 234,000 (234,000) 0
Providian Financial Corp. 1,079,091 (1,079,091) 0
Safeco Corp. 982,563 (982,563) 0
St. Paul Companies, Inc. 1,477,399 (1,477,399) 0
Torchmark Corp. 11,625 (11,625) 0
UnumProvident Corp. 269,325 (269,325) 0
Consumer Finance
American Express Co. 5,453,000 (5,453,000) 0
Associates First Capital Corp. 1,639,281 (1,639,281) 0
Capital One Finance Corp. 732,450 (732,450) 0
Citigroup, Inc. 9,201,317 (9,201,317) 0
Household International, Inc. 1,235,173 (1,235,173) 0
Mellon Financial Corp. 626,750 (626,750) 0
SLM Holding Corp. 857,675 (857,675) 0
Other Financial Companies
Federal Home Loan Mortgage Corp. 1,877,794 (1,877,794) 0
Federal National Mortgage 4,601,644 (4,601,644) 0
Association
Marsh & McLennan Companies, Inc. 2,655,328 (2,655,328) 0
Media
Advertising
Interpublic Group of Companies, Inc. 957,613 (957,613) 0
Omnicom Group, Inc. 1,510,000 (1,510,000) 0
Broadcasting & Entertainment
CBS Corp. 3,235,238 (3,235,238) 0
Clear Channel Communications, Inc. 1,588,650 (1,588,650) 0
Time Warner, Inc. 6,526,619 (6,526,619) 0
Viacom, Inc. "B" 2,810,344 (2,810,344) 0
Walt Disney Co. 3,600,675 (3,600,675) 0
Cable Television
Comcast Corp. "A" 2,366,775 (2,366,775) 0
Media One Group, Inc. 2,350,463 (2,350,463) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Print Media
Gannett Co., Inc. 3,400 (3,400) 0
Harcourt General, Inc. 100 (100) 0
Knight-Ridder, Inc. 200 (200) 0
New York Times Co. "A" 200 (200) 0
Times Mirror Co. "A" 100 (100) 0
Tribune Co. 1,000 (1,000) 0
Service Industries
Edp Services
Automatic Data Processing, Inc. 35,200 (35,200) 0
Electronic Data Systems Corp. 33,700 (33,700) 0
First Data Corp. 38,200 (38,200) 0
Environmental Services
Transocean Offshore Inc. 14,517 (14,517) 0
Waste Management, Inc. 27,900 (27,900) 0
Investment
Bear Stearns Companies, Inc. 2,094 (2,094) 0
Charles Schwab Corp. 74,950 (74,950) 0
Franklin Resources, Inc. 8,000 (8,000) 0
Lehman Brothers Holdings, Inc. 7,100 (7,100) 0
Merrill Lynch & Co., Inc. 28,200 (28,200) 0
Morgan Stanley Dean Witter & Co. 41,995 (41,995) 0
Paine Webber Group, Inc. 5,500 (5,500) 0
Waddel & Reed Financial, Inc. "A" 22 (22) 0
Miscellaneous Commercial
Services
Ecolab, Inc. 3,600 (3,600) 0
Paychex, Inc. 11,150 (11,150) 0
Sodexho Marriott Services, Inc. 25 (25) 0
Sysco Corp. 800 (800) 0
Tektronix Inc. 3,000 (3,000) 0
Miscellaneous Consumer Services
Cendant Corp. 18,771 (18,771) 0
H & R Block, Inc. 7,300 (7,300) 0
Service Corp. International 18,900 (18,900) 0
Yahoo!, Inc. 15,400 (15,400) 0
Printing/Publishing
Deluxe Corp. 73,000 (73,000) 0
Dow Jones & Co., Inc. 1,200 (1,200) 0
Dun & Bradstreet Corp. (New) 19,300 (19,300) 0
Equifax, Inc. 700 (700) 0
McGraw-Hill, Inc. 10,100 (10,100) 0
R.R. Donnelley & Sons Co. 5,200 (5,200) 0
Durables
Aerospace
B.F. Goodrich Co. 38,200 (38,200) 0
Boeing Co. 52,850 (52,850) 0
Lockheed Martin Corp. 25,700 (25,700) 0
Northrop Grumman Corp. 5,800 (5,800) 0
Rockwell International Corp. 13,000 (13,000) 0
Teledyne Technologies Inc. 9,242 (9,242) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Print Media
Gannett Co., Inc. 277,313 (277,313) 0
Harcourt General, Inc. 4,025 (4,025) 0
Knight-Ridder, Inc. 11,900 (11,900) 0
New York Times Co. "A" 9,825 (9,825) 0
Times Mirror Co. "A" 6,700 (6,700) 0
Tribune Co. 55,063 (55,063) 0
Service Industries
Edp Services
Automatic Data Processing, Inc. 1,896,400 (1,896,400) 0
Electronic Data Systems Corp. 2,255,794 (2,255,794) 0
First Data Corp. 1,883,738 (1,883,738) 0
Environmental Services
Transocean Offshore Inc. 489,028 (489,028) 0
Waste Management, Inc. 479,531 (479,531) 0
Investment
Bear Stearns Companies, Inc. 89,519 (89,519) 0
Charles Schwab Corp. 2,876,206 (2,876,206) 0
Franklin Resources, Inc. 256,500 (256,500) 0
Lehman Brothers Holdings, Inc. 601,281 (601,281) 0
Merrill Lynch & Co., Inc. 2,354,700 (2,354,700) 0
Morgan Stanley Dean Witter & Co. 5,994,786 (5,994,786) 0
Paine Webber Group, Inc. 213,469 (213,469) 0
Waddel & Reed Financial, Inc. "A" 597 (597) 0
Miscellaneous Commercial
Services
Ecolab, Inc. 140,850 (140,850) 0
Paychex, Inc. 446,000 (446,000) 0
Sodexho Marriott Services, Inc. 325 (325) 0
Sysco Corp. 31,650 (31,650) 0
Tektronix Inc. 116,625 (116,625) 0
Miscellaneous Consumer Services
Cendant Corp. 498,605 (498,605) 0
H & R Block, Inc. 319,375 (319,375) 0
Service Corp. International 131,119 (131,119) 0
Yahoo!, Inc. 6,663,388 (6,663,388) 0
Printing/Publishing
Deluxe Corp. 2,002,938 (2,002,938) 0
Dow Jones & Co., Inc. 81,600 (81,600) 0
Dun & Bradstreet Corp. (New) 569,350 (569,350) 0
Equifax, Inc. 16,494 (16,494) 0
McGraw-Hill, Inc. 622,413 (622,413) 0
R.R. Donnelley & Sons Co. 129,025 (129,025) 0
Durables
Aerospace
B.F. Goodrich Co. 1,050,500 (1,050,500) 0
Boeing Co. 2,196,578 (2,196,578) 0
Lockheed Martin Corp. 562,188 (562,188) 0
Northrop Grumman Corp. 313,563 (313,563) 0
Rockwell International Corp. 622,375 (622,375) 0
Teledyne Technologies Inc. 87,221 (87,221) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
United Technologies Corp. 26,500 (26,500) 0
Automobiles
Cummins Engine Co., Inc. 1,500 (1,500) 0
Dana Corp. 16,092 (16,092) 0
Delphi Automotive Systems Corp. 22,365 (22,365) 0
Eaton Corp. 4,300 (4,300) 0
Ford Motor Co. 83,600 (83,600) 0
General Motors Corp. 42,600 (42,600) 0
Genuine Parts Co. 43,600 (43,600) 0
Midas Inc. 16 (16) 0
Construction/Agricultural
Equipment
Caterpillar, Inc. 17,600 (17,600) 0
Deere & Co. 7,800 (7,800) 0
Leasing Companies
IKON Office Solutions, Inc. 2,900 (2,900) 0
Ryder System, Inc. 1,800 (1,800) 0
Telecommunications Equipment
Andrew Corp. 250 (250) 0
General Instrument Corp. 8,900 (8,900) 0
Lucent Technologies, Inc. 134,050 (134,050) 0
Scientific-Atlanta, Inc. 2,400 (2,400) 0
Tellabs, Inc. 28,400 (28,400) 0
Tires
Cooper Tire & Rubber Co. 100 (100) 0
Goodyear Tire & Rubber Co. 5,300 (5,300) 0
Manufacturing
Chemicals
Dow Chemical Co. 22,900 (22,900) 0
E.I. du Pont de Nemours & Co. 67,596 (67,596) 0
Eastman Chemical Co. 26,600 (26,600) 0
Engelhard Corp. 100 (100) 0
Great Lakes Chemicals Corp. 100 (100) 0
Hercules, Inc. 39,900 (39,900) 0
Monsanto Co. 37,600 (37,600) 0
Octel Corp. 25 (25) 0
Praxair, Inc. 100 (100) 0
Rohm & Haas Co. 2,347 (2,347) 0
Sigma-Aldrich Corp. 100 (100) 0
Union Carbide Corp. 1,100 (1,100) 0
W.R. Grace & Co. 8,500 (8,500) 0
Containers & Paper
Boise Cascade Corp. 800 (800) 0
Crown Cork & Seal Co. 44,200 (44,200) 0
Fort James Corp. 4,000 (4,000) 0
International Paper Co. 17,208 (17,208) 0
Pactiv Corp. 80,400 (80,400) 0
Sealed Air Corp. 353 (353) 0
Temple-Inland, Inc. 500 (500) 0
Diversified Manufacturing
Briggs & Stratton Corp. 1,600 (1,600) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
United Technologies Corp. 1,722,500 (1,722,500) 0
Automobiles
Cummins Engine Co., Inc. 72,469 (72,469) 0
Dana Corp. 481,754 (481,754) 0
Delphi Automotive Systems Corp. 352,249 (352,249) 0
Eaton Corp. 312,288 (312,288) 0
Ford Motor Co. 4,467,375 (4,467,375) 0
General Motors Corp. 3,096,488 (3,096,488) 0
Genuine Parts Co. 1,081,825 (1,081,825) 0
Midas Inc. 350 (350) 0
Construction/Agricultural
Equipment
Caterpillar, Inc. 828,300 (828,300) 0
Deere & Co. 338,325 (338,325) 0
Leasing Companies
IKON Office Solutions, Inc. 19,756 (19,756) 0
Ryder System, Inc. 43,988 (43,988) 0
Telecommunications Equipment
Andrew Corp. 4,734 (4,734) 0
General Instrument Corp. 756,500 (756,500) 0
Lucent Technologies, Inc. 10,028,616 (10,028,616) 0
Scientific-Atlanta, Inc. 133,500 (133,500) 0
Tellabs, Inc. 1,822,925 (1,822,925) 0
Tires
Cooper Tire & Rubber Co. 1,556 (1,556) 0
Goodyear Tire & Rubber Co. 149,394 (149,394) 0
Manufacturing
Chemicals
Dow Chemical Co. 3,060,013 (3,060,013) 0
E.I. du Pont de Nemours & Co. 4,452,887 (4,452,887) 0
Eastman Chemical Co. 1,268,488 (1,268,488) 0
Engelhard Corp. 1,888 (1,888) 0
Great Lakes Chemicals Corp. 3,819 (3,819) 0
Hercules, Inc. 1,112,213 (1,112,213) 0
Monsanto Co. 1,339,500 (1,339,500) 0
Octel Corp. 259 (259) 0
Praxair, Inc. 5,031 (5,031) 0
Rohm & Haas Co. 95,494 (95,494) 0
Sigma-Aldrich Corp. 3,006 (3,006) 0
Union Carbide Corp. 73,425 (73,425) 0
W.R. Grace & Co. 117,938 (117,938) 0
Containers & Paper
Boise Cascade Corp. 32,400 (32,400) 0
Crown Cork & Seal Co. 988,975 (988,975) 0
Fort James Corp. 109,500 (109,500) 0
International Paper Co. 971,177 (971,177) 0
Pactiv Corp. 854,250 (854,250) 0
Sealed Air Corp. 18,290 (18,290) 0
Temple-Inland, Inc. 32,969 (32,969) 0
Diversified Manufacturing
Briggs & Stratton Corp. 85,800 (85,800) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Cooper Industries, Inc. 16,100 (16,100) 0
Dover Corp. 1,100 (1,100) 0
Fortune Brands, Inc. 1,700 (1,700) 0
Honeywell International, Inc. 43,750 (43,750) 0
ITT Industries, Inc. 700 (700) 0
Minnesota Mining & Manufacturing Co. 29,500 (29,500) 0
National Service Industries, Inc. 30,200 (30,200) 0
TRW, Inc. 9,800 (9,800) 0
Textron, Inc. 4,100 (4,100) 0
Tyco International Ltd. (New) 116,774 (116,774) 0
Water Pik Technologies, Inc. 3,235 (3,235) 0
Electrical Products
Emerson Electric Co. 24,300 (24,300) 0
General Electric Co. 156,500 (156,500) 0
Thomas & Betts Corp. 8,100 (8,100) 0
Hand Tools
Black & Decker Corp. 100 (100) 0
Danaher Corp. 1,700 (1,700) 0
Snap-On, Inc. 2,500 (2,500) 0
Stanley Works 15,800 (15,800) 0
Industrial Specialty
Avery Dennison Corp. 2,000 (2,000) 0
Corning, Inc. 11,600 (11,600) 0
Fleetwood Enterprises 46,200 (46,200) 0
Milacron Inc. 1,200 (1,200) 0
PPG Industries, Inc. 8,700 (8,700) 0
Pall Corp. 32,500 (32,500) 0
QUALCOMM Inc. 47,600 (47,600) 0
Sherwin-Williams Co. 200 (200) 0
Machinery/Components/Controls
Illinois Tool Works, Inc. 4,700 (4,700) 0
Ingersoll-Rand Co. 1,450 (1,450) 0
Parker-Hannifin Corp. 1,100 (1,100) 0
Pitney Bowes, Inc. 11,000 (11,000) 0
Timken Co. 53,300 (53,300) 0
Office Equipment/Supplies
Lexmark International Group, Inc. 5,600 (5,600) 0
"A"
Xerox Corp. 24,600 (24,600) 0
Specialty Chemicals
Air Products & Chemicals, Inc. 1,500 (1,500) 0
Technology
Computer Software
Adobe Systems, Inc. 10,800 (10,800) 0
America Online, Inc. 124,800 (124,800) 0
Autodesk, Inc. 1,500 (1,500) 0
BMC Software, Inc. 16,100 (16,100) 0
Citrix Systems, Inc. 5,200 (5,200) 0
Computer Associates International, 37,800 (37,800) 0
Inc.
Compuware Corp. 21,500 (21,500) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Cooper Industries, Inc. 651,044 (651,044) 0
Dover Corp. 49,913 (49,913) 0
Fortune Brands, Inc. 56,206 (56,206) 0
Honeywell International, Inc. 2,523,828 (2,523,828) 0
ITT Industries, Inc. 23,406 (23,406) 0
Minnesota Mining & Manufacturing Co. 2,887,313 (2,887,313) 0
National Service Industries, Inc. 890,900 (890,900) 0
TRW, Inc. 508,988 (508,988) 0
Textron, Inc. 314,419 (314,419) 0
Tyco International Ltd. (New) 4,539,589 (4,539,589) 0
Water Pik Technologies, Inc. 30,935 (30,935) 0
Electrical Products
Emerson Electric Co. 1,394,213 (1,394,213) 0
General Electric Co. 24,218,375 (24,218,375) 0
Thomas & Betts Corp. 258,188 (258,188) 0
Hand Tools
Black & Decker Corp. 5,225 (5,225) 0
Danaher Corp. 82,025 (82,025) 0
Snap-On, Inc. 66,406 (66,406) 0
Stanley Works 475,975 (475,975) 0
Industrial Specialty
Avery Dennison Corp. 145,750 (145,750) 0
Corning, Inc. 1,495,675 (1,495,675) 0
Fleetwood Enterprises 952,875 (952,875) 0
Milacron Inc. 18,450 (18,450) 0
PPG Industries, Inc. 544,294 (544,294) 0
Pall Corp. 700,781 (700,781) 0
QUALCOMM Inc. 8,383,550 (8,383,550) 0
Sherwin-Williams Co. 4,200 (4,200) 0
Machinery/Components/Controls
Illinois Tool Works, Inc. 317,544 (317,544) 0
Ingersoll-Rand Co. 79,841 (79,841) 0
Parker-Hannifin Corp. 56,444 (56,444) 0
Pitney Bowes, Inc. 531,438 (531,438) 0
Timken Co. 1,089,319 (1,089,319) 0
Office Equipment/Supplies
Lexmark International Group, Inc. 506,800 (506,800) 0
"A"
Xerox Corp. 558,113 (558,113) 0
Specialty Chemicals
Air Products & Chemicals, Inc. 50,344 (50,344) 0
Technology
Computer Software
Adobe Systems, Inc. 726,300 (726,300) 0
America Online, Inc. 9,414,600 (9,414,600) 0
Autodesk, Inc. 50,625 (50,625) 0
BMC Software, Inc. 1,286,994 (1,286,994) 0
Citrix Systems, Inc. 639,600 (639,600) 0
Computer Associates International, 2,643,638 (2,643,638) 0
Inc.
Compuware Corp. 800,875 (800,875) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Microsoft Corp. 284,700 (284,700) 0
Oracle Corp. 102,950 (102,950) 0
Parametric Technology Corp. 11,000 (11,000) 0
PeopleSoft, Inc. 4,600 (4,600) 0
Diversified Electronic Products
Applied Materials, Inc. 30,200 (30,200) 0
Dell Computer Corp. 165,900 (165,900) 0
KLA Tencor Corp. 6,500 (6,500) 0
Molex Incorporated 8,700 (8,700) 0
Motorola, Inc. 44,400 (44,400) 0
Solectron Corp. 20,500 (20,500) 0
Teradyne, Inc. 9,900 (9,900) 0
Edp Peripherals
EMC Corp. 72,062 (72,062) 0
Network Appliance, Inc. 9,200 (9,200) 0
Electronic
Components/Distributors
Adaptec, Inc. 9,100 (9,100) 0
Analog Devices, Inc. 14,000 (14,000) 0
Cisco Systems, Inc. 167,050 (167,050) 0
Gateway, Inc. 18,700 (18,700) 0
Electronic Data Processing
Apple Computer, Inc. 6,400 (6,400) 0
Ceridian Corp. 3,000 (3,000) 0
Compaq Computer Corp. 88,758 (88,758) 0
Hewlett-Packard Co. 68,200 (68,200) 0
International Business Machines 86,000 (86,000) 0
Corp.
Seagate Technology, Inc. 8,600 (8,600) 0
Silicon Graphics, Inc. 700 (700) 0
Sun Microsystems, Inc. 108,800 (108,800) 0
Unisys Corp. 18,500 (18,500) 0
Military Electronics
Computer Sciences Corp. 9,700 (9,700) 0
General Dynamics Corp. 300 (300) 0
Raytheon Co. "B" 8,000 (8,000) 0
Office/Plant Automation
3Com Corp. 15,800 (15,800) 0
Cabletron Systems, Inc. 500 (500) 0
Novell, Inc. 21,900 (21,900) 0
Semiconductors
Advanced Micro Devices, Inc. 2,100 (2,100) 0
Intel Corp. 154,900 (154,900) 0
LSI Logic Corp. 13,900 (13,900) 0
Micron Technology, Inc. 15,800 (15,800) 0
National Semiconductor Corp. 8,000 (8,000) 0
Texas Instruments, Inc. 56,700 (56,700) 0
Xilinx, Inc. 18,200 (18,200) 0
Energy
Engineering
Fluor Corp. 5,200 (5,200) 0
Foster Wheeler Corp. 136,500 (136,500) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Microsoft Corp. 33,238,725 (33,238,725) 0
Oracle Corp. 11,536,834 (11,536,834) 0
Parametric Technology Corp. 297,688 (297,688) 0
PeopleSoft, Inc. 98,038 (98,038) 0
Diversified Electronic Products
Applied Materials, Inc. 3,825,963 (3,825,963) 0
Dell Computer Corp. 8,460,900 (8,460,900) 0
KLA Tencor Corp. 723,938 (723,938) 0
Molex Incorporated 493,181 (493,181) 0
Motorola, Inc. 6,537,900 (6,537,900) 0
Solectron Corp. 1,950,063 (1,950,063) 0
Teradyne, Inc. 653,400 (653,400) 0
Edp Peripherals
EMC Corp. 7,872,774 (7,872,774) 0
Network Appliance, Inc. 764,175 (764,175) 0
Electronic
Components/Distributors
Adaptec, Inc. 453,853 (453,853) 0
Analog Devices, Inc. 1,302,000 (1,302,000) 0
Cisco Systems, Inc. 17,895,231 (17,895,231) 0
Gateway, Inc. 1,347,569 (1,347,569) 0
Electronic Data Processing
Apple Computer, Inc. 658,000 (658,000) 0
Ceridian Corp. 64,688 (64,688) 0
Compaq Computer Corp. 2,402,013 (2,402,013) 0
Hewlett-Packard Co. 7,770,538 (7,770,538) 0
International Business Machines 9,288,000 (9,288,000) 0
Corp.
Seagate Technology, Inc. 400,438 (400,438) 0
Silicon Graphics, Inc. 6,869 (6,869) 0
Sun Microsystems, Inc. 8,425,200 (8,425,200) 0
Unisys Corp. 590,844 (590,844) 0
Military Electronics
Computer Sciences Corp. 917,863 (917,863) 0
General Dynamics Corp. 15,825 (15,825) 0
Raytheon Co. "B" 212,500 (212,500) 0
Office/Plant Automation
3Com Corp. 742,600 (742,600) 0
Cabletron Systems, Inc. 13,000 (13,000) 0
Novell, Inc. 874,631 (874,631) 0
Semiconductors
Advanced Micro Devices, Inc. 60,769 (60,769) 0
Intel Corp. 12,750,206 (12,750,206) 0
LSI Logic Corp. 938,250 (938,250) 0
Micron Technology, Inc. 1,228,450 (1,228,450) 0
National Semiconductor Corp. 342,500 (342,500) 0
Texas Instruments, Inc. 5,492,813 (5,492,813) 0
Xilinx, Inc. 827,531 (827,531) 0
Energy
Engineering
Fluor Corp. 238,550 (238,550) 0
Foster Wheeler Corp. 1,211,438 (1,211,438) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
McDermott International, Inc. 400 (400) 0
Oil & Gas Production
Burlington Resources, Inc. 100 (100) 0
Conoco, Inc. "B" 31,942 (31,942) 0
Kerr-McGee Corp. 33,000 (33,000) 0
Occidental Petroleum Corp. 101,200 (101,200) 0
Royal Dutch Petroleum Co. (New York 108,700 (108,700) 0
shares)
Oil Companies
Amerada Hess Corp. 100 (100) 0
Ashland Inc. 100 (100) 0
Atlantic Richfield Co. 30,600 (30,600) 0
Chevron Corp. 27,100 (27,100) 0
Exxon Mobil Corp. 168,889 (168,889) 0
Phillips Petroleum Co. 7,800 (7,800) 0
Texaco, Inc. 23,700 (23,700) 0
USX Marathon Group 14,200 (14,200) 0
Unocal Corp. 100 (100) 0
Oil /Gas Transmission
El Paso Energy Corporation 5,500 (5,500) 0
Enron Corp. 29,600 (29,600) 0
Sempra Energy 89,271 (89,271) 0
Sunoco, Inc. 39,600 (39,600) 0
Williams Companies, Inc. 10,100 (10,100) 0
Oilfield Services/Equipment
Baker Hughes, Inc. 14,800 (14,800) 0
Halliburton Co. 33,000 (33,000) 0
Rowan Companies, Inc. 3,400 (3,400) 0
Schlumberger Ltd. 43,900 (43,900) 0
Metals & Minerals
Precious Metals
Barrick Gold Corp. 5,100 (5,100) 0
Freeport McMoRan Copper & Gold, Inc. 5,600 (5,600) 0
"B"
Homestake Mining Co. 100 (100) 0
Newmont Mining Corp. 143 (143) 0
Placer Dome Inc. 100 (100) 0
Steel & Metals
Alcan Aluminium Ltd. 800 (800) 0
Alcoa, Inc. 12,800 (12,800) 0
Allegheny Technologies, Inc. 32,350 (32,350) 0
Bethlehem Steel Corp. 100 (100) 0
Inco Ltd. 100 (100) 0
Nucor Corp. 100 (100) 0
Phelps Dodge Corp. 25,331 (25,331) 0
Reynolds Metals Co. 3,000 (3,000) 0
USX-US Steel Group, Inc. 41,100 (41,100) 0
Worthington Industries, Inc. 53,100 (53,100) 0
Construction
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
McDermott International, Inc. 3,625 (3,625) 0
Oil & Gas Production
Burlington Resources, Inc. 3,306 (3,306) 0
Conoco, Inc. "B" 794,557 (794,557) 0
Kerr-McGee Corp. 2,046,000 (2,046,000) 0
Occidental Petroleum Corp. 2,188,450 (2,188,450) 0
Royal Dutch Petroleum Co. (New York 6,569,556 (6,569,556) 0
shares)
Oil Companies
Amerada Hess Corp. 5,675 (5,675) 0
Ashland Inc. 3,294 (3,294) 0
Atlantic Richfield Co. 2,646,900 (2,646,900) 0
Chevron Corp. 2,347,538 (2,347,538) 0
Exxon Mobil Corp. 13,606,120 (13,606,120) 0
Phillips Petroleum Co. 366,600 (366,600) 0
Texaco, Inc. 1,287,206 (1,287,206) 0
USX Marathon Group 350,563 (350,563) 0
Unocal Corp. 3,356 (3,356) 0
Oil /Gas Transmission
El Paso Energy Corporation 213,469 (213,469) 0
Enron Corp. 1,313,500 (1,313,500) 0
Sempra Energy 1,551,084 (1,551,084) 0
Sunoco, Inc. 930,600 (930,600) 0
Williams Companies, Inc. 308,681 (308,681) 0
Oilfield Services/Equipment
Baker Hughes, Inc. 311,725 (311,725) 0
Halliburton Co. 1,328,250 (1,328,250) 0
Rowan Companies, Inc. 73,738 (73,738) 0
Schlumberger Ltd. 2,469,375 (2,469,375) 0
Metals & Minerals
Precious Metals
Barrick Gold Corp. 90,206 (90,206) 0
Freeport McMoRan Copper & Gold, Inc. 118,300 (118,300) 0
"B"
Homestake Mining Co. 781 (781) 0
Newmont Mining Corp. 3,504 (3,504) 0
Placer Dome Inc. 1,066 (1,066) 0
Steel & Metals
Alcan Aluminium Ltd. 32,893 (32,893) 0
Alcoa, Inc. 1,062,400 (1,062,400) 0
Allegheny Technologies, Inc. 725,853 (725,853) 0
Bethlehem Steel Corp. 838 (838) 0
Inco Ltd. 2,350 (2,350) 0
Nucor Corp. 5,481 (5,481) 0
Phelps Dodge Corp. 1,700,343 (1,700,343) 0
Reynolds Metals Co. 229,875 (229,875) 0
USX-US Steel Group, Inc. 1,356,300 (1,356,300) 0
Worthington Industries, Inc. 879,469 (879,469) 0
Construction
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Building Products
Armstrong World Industries, Inc. 22,900 (22,900) 0
Georgia-Pacific Group 800 (800) 0
Masco Corp. 9,800 (9,800) 0
Owens Corning 2,800 (2,800) 0
Forest Products
Louisiana-Pacific Corp. 4,900 (4,900) 0
Potlatch Corp. 41,900 (41,900) 0
Westvaco Corp. 9,900 (9,900) 0
Weyerhaeuser Co. 9,900 (9,900) 0
Homebuilding
Kaufman & Broad Home Corp. 600 (600) 0
Transportation
Air Freight
FDX Corp. 28,520 (28,520) 0
Airlines
AMR Corp. 400 (400) 0
Southwest Airlines Co. 25,025 (25,025) 0
US Airways Group, Inc. 2,400 (2,400) 0
Railroads
Burlington Northern Santa Fe Corp. 4,300 (4,300) 0
CSX Corp. 18,300 (18,300) 0
Kansas City Southern Industries, 3,300 (3,300) 0
Inc.
Norfolk Southern Corp. 27,200 (27,200) 0
Union Pacific Corp. 2,700 (2,700) 0
Utilities
Electric Utilities
Ameren Corp. 48,600 (48,600) 0
American Electric Power Co. 56,000 (56,000) 0
CINergy Corp. 19,400 (19,400) 0
Carolina Power & Light Co. 100 (100) 0
Central & South West Corp. 87,600 (87,600) 0
Consolidated Edison, Inc. 4,500 (4,500) 0
Constellation Energy Group 25,000 (25,000) 0
DTE Energy Co. 3,900 (3,900) 0
Dominion Resources, Inc. 46,800 (46,800) 0
Duke Energy Corp. 5,604 (5,604) 0
Edison International 100 (100) 0
Entergy Corp. 14,800 (14,800) 0
FPL Group, Inc. 100 (100) 0
FirstEnergy Corp. 3,400 (3,400) 0
GPU, Inc. 7,600 (7,600) 0
New Century Energies, Inc. 25,100 (25,100) 0
Northern States Power Co. 49,500 (49,500) 0
P G & E Corp. 100 (100) 0
PP&L Resources, Inc. 27,828 (27,828) 0
Peco Energy Co. 11,300 (11,300) 0
Public Service Enterprise Group 31,300 (31,300) 0
Southern Co. 18,200 (18,200) 0
Texas Utilities Co., Inc. 38,622 (38,622) 0
Unicom Corp. 1,600 (1,600) 0
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Building Products
Armstrong World Industries, Inc. 764,288 (764,288) 0
Georgia-Pacific Group 40,600 (40,600) 0
Masco Corp. 248,675 (248,675) 0
Owens Corning 54,075 (54,075) 0
Forest Products
Louisiana-Pacific Corp. 69,825 (69,825) 0
Potlatch Corp. 1,869,788 (1,869,788) 0
Westvaco Corp. 322,988 (322,988) 0
Weyerhaeuser Co. 710,944 (710,944) 0
Homebuilding
Kaufman & Broad Home Corp. 14,513 (14,513) 0
Transportation
Air Freight
FDX Corp. 1,167,538 (1,167,538) 0
Airlines
AMR Corp. 26,800 (26,800) 0
Southwest Airlines Co. 405,092 (405,092) 0
US Airways Group, Inc. 76,950 (76,950) 0
Railroads
Burlington Northern Santa Fe Corp. 104,275 (104,275) 0
CSX Corp. 574,163 (574,163) 0
Kansas City Southern Industries, 246,263 (246,263) 0
Inc.
Norfolk Southern Corp. 557,600 (557,600) 0
Union Pacific Corp. 117,788 (117,788) 0
Utilities
Electric Utilities
Ameren Corp. 1,591,650 (1,591,650) 0
American Electric Power Co. 1,799,000 (1,799,000) 0
CINergy Corp. 468,025 (468,025) 0
Carolina Power & Light Co. 3,044 (3,044) 0
Central & South West Corp. 1,752,000 (1,752,000) 0
Consolidated Edison, Inc. 155,250 (155,250) 0
Constellation Energy Group 725,000 (725,000) 0
DTE Energy Co. 122,363 (122,363) 0
Dominion Resources, Inc. 1,836,900 (1,836,900) 0
Duke Energy Corp. 280,901 (280,901) 0
Edison International 2,619 (2,619) 0
Entergy Corp. 381,100 (381,100) 0
FPL Group, Inc. 4,281 (4,281) 0
FirstEnergy Corp. 77,138 (77,138) 0
GPU, Inc. 227,525 (227,525) 0
New Century Energies, Inc. 762,413 (762,413) 0
Northern States Power Co. 965,250 (965,250) 0
P G & E Corp. 2,050 (2,050) 0
PP&L Resources, Inc. 636,566 (636,566) 0
Peco Energy Co. 392,675 (392,675) 0
Public Service Enterprise Group 1,089,631 (1,089,631) 0
Southern Co. 427,700 (427,700) 0
Texas Utilities Co., Inc. 1,373,495 (1,373,495) 0
Unicom Corp. 53,600 (53,600) 0
<PAGE>
<CAPTION>
AARP U.S.
Stock Pro Forma S&P 500
Index Pro Forma Combined Index Fund
Par/Share Adjustment Par/Share Market Value
Amount (1) Amount ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
Natural Gas Distribution
Consolidated Natural Gas Corp. 4,900 (4,900) 0
Eastern Enterprises 43,200 (43,200) 0
NICOR, Inc. 44,700 (44,700) 0
ONEOK, Inc. 49,100 (49,100) 0
Peoples Energy Corp. 46,300 (46,300) 0
Reliant Energy, Inc. 74,911 (74,911) 0
Other
Investment in Equity 500 Index 329,212,590
Portfolio
------------
------------
Total Investment Portfolio - 100% 329,212,590
------------
------------
Investment Portfolio (The total cost of the AARP U.S. Stock
Index Fund is $609,293,283)
<CAPTION>
AARP U.S. Pro Forma
Stock Index Pro Forma Combined
Market Adjustment Market Value
Value ($) (1) ($)
-----------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution
Consolidated Natural Gas Corp. 318,194 (318,194) 0
Eastern Enterprises 2,481,300 (2,481,300) 0
NICOR, Inc. 1,452,750 (1,452,750) 0
ONEOK, Inc. 1,233,638 (1,233,638) 0
Peoples Energy Corp. 1,551,050 (1,551,050) 0
Reliant Energy, Inc. 1,713,589 (1,713,589) 0
Other
Investment in Equity 500 Index - 734,781,485 1,063,994,075
Portfolio
-----------------------------------------
-----------------------------------------
Total Investment Portfolio - 100% 734,781,485 0 1,063,994,075
-----------------------------------------
-----------------------------------------
Investment Portfolio (The total cost of the AARP U.S. Stock
Index Fund is $609,293,283)
</TABLE>
Notes
1. Reflects the contribution by the AARP U.S. Stock Index Fund of its securities
to the Equity 500 Index Portfolio in which the Scudder S&P 500 Index Fund
invests.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER AARP U.S.
S&P 500 STOCK PRO FORMA PRO FORMA
INDEX FUND INDEX FUND ADJUSTMENTS COMBINED
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Investments, at value $ 329,212,590 $ 734,781,485 $1,063,994,075
Cash - - -
Other assets less liabilities (844,494) 817,116 $ (532,842) (2) (560,220)
-------------- ------------- ------------ --------------
Net assets $ 328,368,096 $ 735,598,601 $ (532,842) $1,063,433,855
-------------- ------------- ------------ --------------
-------------- ------------- ------------ --------------
NET ASSETS
S Class $ 328,368,096
AARP Class $ 735,065,759
SHARES OUTSTANDING
S Class 16,751,366 16,751,366
AARP Class 26,354,882 11,148,473 37,503,355
NET ASSET VALUE PER SHARE
S Class $ 19.60 $ 19.60
AARP Class $ 27.91 $ 19.60
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER AARP U.S.
S&P 500 STOCK PRO FORMA PRO FORMA
INDEX FUND INDEX FUND ADJUSTMENTS COMBINED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest and dividend income $ 3,413,030 $ 9,137,796 $ $ 12,550,826
---------------------------------------------------------------
Total Investment Income 3,413,030 9,137,796 12,550,826
Expenses
Management fees 251,451 1,401,102 (303,048)(3) 1,349,505
Trustee fees 29,408 33,674 (33,674)(4) 29,408
All other expenses 1,163,549 2,154,431 (1,443,667)(5) 1,874,313
---------------------------------------------------------------
Total expenses before reductions 1,444,408 3,589,207 (1,780,389) 3,253,226
Expense reductions (657,347) (1,090,836) 1,748,183 (6) -
---------------------------------------------------------------
Expenses, net 787,061 2,498,371 (32,206) 3,253,226
---------------------------------------------------------------
Net investment income (loss) 2,625,969 6,639,425 32,206 9,297,600
---------------------------------------------------------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) from investments (680,969) 253,611 -- (427,358)
and futures contracts
Net unrealized appreciation (depreciation)
of investments and futures contracts 45,696,637 98,173,545 -- 143,870,182
---------------------------------------------------------------
Net increase in net assets from operations $ 47,641,637 $105,066,581 $ 32,206 $ 152,740,424
---------------------------------------------------------------
</TABLE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1999
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of December 31, 1999, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended December 31, 1999 for S&P 500 Index Fund and AARP U.S. Stock
Index Fund as adjusted giving effect to the Reorganization as if it had
occurred as of the beginning of the period. These statements have been
derived from the books and records utilized in calculating daily net asset
value for each fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $532,842 to be borne by the Acquired Fund.
3. Represents reduction in management fees resulting from the application of
Scudder S&P 500 Index Fund's lower management fee.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
6. Represents the elimination of expense reimbursements.
