Filed with the Securities and Exchange Commission on January 24, 1997.
File No. 333-16315
File No. 811-07933
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
---
Post-Effective Amendment No.
---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
---
AARP Managed Investment Portfolios Trust
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
-----
on ________________ pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(i)
-----
X on February 1, 1997 pursuant to paragraph (a)(i)
-----
75 days after filing pursuant to paragraph (a)(ii)
-----
on _________________ pursuant to paragraph (a)(ii) of Rule 485
-----
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-1A
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND AN
OVERVIEW OF THE AARP INVESTMENT PROGRAM
WHAT DOES THE AARP INVESTMENT PROGRAM
OFFER ME?
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE
4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and ADDITIONAL INFORMATION ABOUT
Other Securities DISTRIBUTIONS AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS
8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
9. Pending Legal NOT APPLICABLE
Proceedings
</TABLE>
Cross Reference-Page 1
<PAGE>
<TABLE>
<CAPTION>
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES
and Policies AND POLICIES
BROKERAGE AND PORTFOLIO TURNOVER
14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION
17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER
18. Capital Stock and TRUST ORGANIZATION
Other Securities
19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Pricing of Securities PURCHASES
Being Offered REDEMPTIONS
RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculations of DIVIDENDS AND YIELD
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS
February 1, 1997
There are 15 pure no-load(TM) AARP Mutual Fund Portfolios that have been
developed to help meet the investment needs of AARP members. The Funds are
organized into five Trusts (see page 72 for more information on the Trusts).
Trusts AARP Mutual Funds
------ -----------------
AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Bond Fund for Income
AARP Tax Free Income Trust AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Growth Trust AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Global Growth Fund
AARP Capital Growth Fund
AARP International Stock Fund
AARP Small Company Stock Fund
AARP Managed Investment AARP Diversified Income Portfolio
Portfolios Trust AARP Diversified Growth Portfolio
This combined Prospectus provides information about the AARP Investment
Program from Scudder that a prospective investor should know before investing.
Please keep it for future reference.
The U.S. Government does not and has never insured or guaranteed shares of
any mutual fund, including the AARP Mutual Funds. For limitations on insurance
relative to the AARP Insured Tax Free General Bond Fund, see page 39. The AARP
High Quality Money Fund and the AARP High Quality Tax Free Money Fund each seek
to maintain a constant net asset value of $1.00 per share. The Fund Manager
cannot assure investors that these funds will be able to maintain a stable $1.00
per share or constant net asset value.
You may get more detailed information in the combined Statement of
Additional Information (SAI) dated February 1, 1997, as amended from time to
time. The SAI is considered part of this Prospectus by reference to it. The SAI
is on file with the Securities and Exchange Commission (SEC).
You may get a copy of the SAI or a LARGER PRINT VERSION OF THIS PROSPECTUS
without charge. Call 1-800-253-2277, or write to Scudder Investor Services,
Inc., P.O. Box 2540, Boston, MA 02208-2540.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
PROSPECTUS
1
<PAGE>
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND EXPENSES
Shareholder Transaction Expenses
The AARP Mutual Funds do not charge sales fees or commissions.
100% of your investment goes to work for you.
o No fees to open your account
o No fees to open or maintain an AARP IRA or AARP Keogh Plan account
o No fees to buy shares
o No fees to exchange (move investments from one fund to another)
o No fees to sell (redeem) shares
o No marketing fees or distribution fees (12b-1 fees)
o No fees to reinvest dividends
There are Annual Fund Operating Expenses for each of the AARP Funds. You do not
pay these expenses directly. The AARP Funds pay these expenses before
distributing net investment income to you. These expenses include the management
fee paid to the Fund Manager as well as other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and fund
reports. The expenses are reflected in the AARP Funds' share prices or dividends
and are not directly charged to shareholder accounts.
The following tables present information on the projected costs and expenses of
investing in an AARP Fund. You may use these tables to compare the fees and
expenses of the AARP Funds with other mutual funds.
Annual Fund Operating Expenses are expressed as a percentage of each AARP Fund's
average daily net assets.
The chart shows the expenses for each of the Funds, except for the AARP Bond
Fund for Income, the AARP U.S. Stock Index Fund, the AARP International Stock
Fund, and the AARP Small Company Stock Fund for the fiscal year ended September
30, 1996. For these four Funds, which were introduced on February 1, 1997,
expenses have been estimated for the coming year.
Effective Total Fund
Management Other Operating
Fund Fee Rate+ Expenses Expenses
---- --------- -------- --------
AARP High Quality Money Fund .39% .57% .96%
AARP High Quality Tax Free Money .46% .39% .85%
Fund
AARP GNMA and U.S. Treasury Fund .41% .23% .64%
AARP High Quality Bond Fund .48% .43% .91%
AARP Bond Fund for Income 0%* 1.00% 1.00%*
AARP Insured Tax Free General .49% .17% .66%
Bond Fund
PROSPECTUS
2
<PAGE>
AARP Balanced Stock and Bond Fund .48% .40% .88%
AARP Growth and Income Fund .49% .20% .69%
AARP U.S. Stock Index Fund 0%** .50% .50%**
AARP Global Growth Fund .29%*** 1.46% 1.75%***
AARP Capital Growth Fund .62% .28% .90%
AARP International Stock Fund 0%**** 1.75% 1.75%****
AARP Small Company Stock Fund .51%***** 1.24% 1.75%*****
+ The AARP Funds' fee structure is designed to recognize the degree to
which the pooled resources of the Program provide economies in the
management of the AARP Funds. The fee consists of two elements: a "Base
Fee" and an "Individual Fund Fee." The combined Base Fee and Individual
Fund Fee is called the Effective Management Fee Rate. See page 64 for
information on how the Effective Management Fee Rate is calculated.
* The AARP Bond Fund for Income was introduced on February 1, 1997. Fund
expenses are projected given the asset forecast as of September 30,
1997. Until January 31, 1998, the Fund Manager has agreed to waive a
portion of its management fee for AARP Bond Fund for Income to the
extent necessary so that the total annualized expenses of the Fund do
not exceed 1.00% of average daily net assets. If the Fund Manager had
not agreed to waive a portion of its fee, it is estimated that the total
annualized expenses of the Fund would be: investment management fee
.57%, other expenses .84% and total operating expenses 1.41% for the
initial fiscal year.
** The AARP U.S. Stock Index Fund was introduced on February 1, 1997. Fund
expenses are projected given the asset forecast as of September 30,
1997. Until January 31, 1998, the Fund Manager has agreed to waive a
portion of its management fee for AARP U.S. Stock Index Fund to the
extent necessary so that the total annualized expenses of the Fund do
not exceed .50% of average daily net assets. If the Fund Manager had not
agreed to waive a portion of its fee, it is estimated that the total
annualized expenses of the Fund would be: investment management fee
.29%, other expenses 1.59% and total operating expenses 1.88% for the
initial fiscal year.
*** Until January 31, 1998, the Fund Manager has agreed to waive a portion
of its management fee for AARP Global Growth Fund to the extent
necessary so that the total annualized expenses of the Fund do not
exceed 1.75% of average daily net assets. If the Fund Manager had not
agreed to waive a portion of its fee, it is estimated that the total
annualized expenses of the Fund would be: investment management fee
.84%, other expenses 1.47% and total operating expenses 2.31% for the
fiscal year.
**** The AARP International Stock Fund was introduced on February 1, 1997.
Fund expenses are projected given the asset forecast of September 30,
1997. Until January 31, 1998, the Fund Manager has agreed to waive a
portion of its management fee for AARP International Stock Fund to the
extent necessary so that the total annualized expenses of the Fund do
not exceed 1.75% of average daily net assets. If the Fund Manager had
not agreed to waive a portion of its fee, it is estimated that the total
annualized expenses of the Fund would be: investment management fee
.89%, other expenses 2.44% and total operating expenses 3.33% for the
initial fiscal year.
***** TheAARP Small Company Stock Fund was introduced on February 1, 1997.
Fund expenses are projected given the asset forecast of September 30,
1997. Until January 31, 1998, the Fund Manager has agreed to waive a
portion of its management fee for AARP Small Company Stock Fund to the
extent necessary so that the total annualized expenses of the Fund do
not exceed 1.75% of average daily net assets. If the Fund Manager had
not agreed to waive a portion of its fee, it is estimated that the total
annualized expenses of the Fund would be: investment management fee
.84%, other expenses 1.47% and total operating expenses 2.31% for the
initial fiscal year.
Effective Total Fund
Management Other Operating
Managed Investment Portfolios Fee Rate+ Expenses Expenses
----------------------------- --------- -------- --------
AARP Diversified Income Portfolio@ 0 0 0
AARP Diversified Growth Portfolio@ 0 0 0
@ The Diversified Portfolios are expected to operate at a zero expense
level. However, each Portfolio's shareholders will indirectly bear that
Portfolio's pro rata share of fees and expenses incurred by the
Underlying AARP Mutual Funds in which that Portfolio is invested. The
investment returns of each Portfolio, therefore, will be net of that
Portfolio's share of the expenses of the Underlying AARP Mutual Funds in
which that Portfolio is invested. The chart on pages 2 and 3 shows the
expense ratios of each Underlying AARP Mutual Fund after fee waiver or
reimbursement where applicable, as of September 30, 1996. Based on this
information, the range for the average weighted expense ratio borne by
PROSPECTUS
3
<PAGE>
the AARP Diversified Income Portfolio is expected to be .81% to 1.24%,
and .68% to 1.04% for the AARP Diversified Growth Portfolio. A range is
provided since the average assets of each Portfolio invested in each of
the Underlying AARP Funds will fluctuate. Using the midpoint of the
ratios set forth above, an example of the expenses of each Portfolio are
included in the chart below.
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH AARP FUND
Based on the level of assets as of September 30, 1996 (and projected September
30, 1997 assets for the AARP Bond Fund for Income, the AARP U.S. Stock Index
Fund, the AARP International Stock Fund and the AARP Small Company Stock Fund),
we have calculated the forecasted total expenses of a $1,000 investment in each
AARP Fund over specified periods. These examples assume 5% annual return. There
are three other assumptions: (1) redemption at the end of each period, (2)
reinvestment of all dividends and distributions, and (3) total fund operating
expenses noted on page 2 remain the same each year.
For additional information, including reference to a $5.00 wire service fee that
is charged in some cases, please refer to page 81.
Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- --------
AARP High Quality Money Fund $ 10 $ 31 $ 53 $ 118
AARP High Quality Tax Free Money 9 27 48 105
Fund
AARP GNMA and U.S. Treasury Fund 7 20 36 80
AARP High Quality Bond Fund 9 29 50 112
AARP Bond Fund for Income 10 32 55 122
AARP Insured Tax Free General Bond 7 21 37 82
Fund
AARP Balanced Stock and Bond Fund 9 28 49 108
AARP Growth and Income Fund 7 22 38 86
AARP U.S. Stock Index Fund 5 16 28 63
AARP Global Growth Fund 18 55 95 206
AARP Capital Growth Fund 9 29 50 111
AARP International Stock Fund 18 55 95 206
AARP Small Company Stock Fund 18 55 95 206
AARP Diversified Income Portfolio 9 27 N/A N/A
AARP Diversified Growth Portfolio 10 33 N/A N/A
You should not consider these examples as representations of past or future
expenses or returns. Actual fund expenses may be higher or lower in the future.
PROSPECTUS
4
<PAGE>
FINANCIAL HIGHLIGHTS
On the next nine pages you will find a variety of information about the income
and the expenses of each AARP Fund, except for AARP Bond Fund for Income, AARP
U.S. Stock Index Fund, AARP International Stock Fund, AARP Small Company Stock
Fund, AARP Diversified Income Portfolio, and AARP Diversified Growth Portfolio,
which are newly organized. You will also find the following: (1) the net gain or
loss on the investments, (2) the distributions, if any, of income and gain, and,
(3) the change in net asset value per share from the beginning to the end of the
stated periods. Price Waterhouse LLP, the AARP Funds' independent accountants,
have examined this information. The Annual Report to Shareholders includes their
report.
For a copy of the Annual Report to Shareholders which includes more detailed
information concerning the Funds' performance, complete portfolio listings and
audited financial statements, please contact an AARP Mutual Fund Representative
at 1-800-253-2277.
PROSPECTUS
5
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Money Fund For the Years Ended September 30
-------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
at Beginning of
Period ........ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000$1.000 $1.000
Net Investment
Income ........ .045 .049 .028 .021 .040 .060 .073 .080 .060 .050
Dividends from
Net Investment
Income ........ (.045) (.049) (.028) (.021) (.040)(a)(.060) (.073) (.080)(.060) (.050)
Total
Distributions.. (.049) (.028) (.021) (.040) (.060) (.073) (.080)(.060) (.050)
Net Asset Value
at End of
Period ........ 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Total Return %
(b) ........... 4.62 4.99 2.84 2.13 4.12 6.22 7.58 8.32 6.15 5.13
Net Assets End
of Period
($ millions)... 412 384 333 254 323 357 376 324 224 178
Ratio of Operating
Expenses to
Average Net
Assets % ...... .963 .978 1.125 1.312 1.151 1.053 1.058 1.071 1.022 1.160
Ratio of Operating
Expenses Before
Expense Reductions
to Average Net
Assets %....... .963 .978 1.125 1.312 1.190 1.132 1.169 1.181 1.097 1.593
Ratio of Net
Investment
Income to
Average Net
Assets % ...... 4.535 4.887 2.889 2.123 3.613 6.050 7.319 8.061 6.025 5.090
Portfolio Turnover
Rate % ........ -- -- -- -- -- -- -- -- -- --
(a) Includes approximately $.005 per share of net realized short-term capital gains.
(b) Total returns would have been lower had certain expenses not been reduced.
</TABLE>
PROSPECTUS
6
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Tax Free Money Fund For the Years Ended September 30
----------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
at Beginning of
Period ........ $1.000 $1.000 $1.000 $1.000 $1.000 $.996 $.998 $1.008 $.998 $1.027
Net
Investment
Income ........ .028 .029 .017 .016 .026 .055 .061 .059 .055 .049
Dividends from
Net Investment
Income ........ (.028) (.029) (.017) (.016) (.026) (.055) (.061) (.059) (.055) (.049)
Distributions from
Net Realized
Gains.......... -- -- -- -- -- -- -- -- -- (.003)
Total
Distributions.. (.028) (.029) (.017) (.016) (.026) (.055) (.061) (.059) (.055) (.052)
Net Asset Value
at End of Period 1.000 1.000 1.000 1.000 1.000 1.0000 .996 .998 1.008 .998
Total Return %
(a) ........... 2.80 2.99 1.76 1.62 2.58 6.10 6.02 4.98 6.65 2.25
Net Assets End
of Period
($ millions)... 111 120 129 134 127 119 98 90 79 70
Ratio of Operating
Expenses to
Average Net
Assets % ...... .85 .87 .90 .93 .95 1.06 1.12 1.17 1.27 1.31
Ratio of Operating
Expenses
Before Expense
Reductions to
Average Net
Assets % ...... .850 .870 .906 1.147 1.133 1.133 1.120 1.170 1.302 1.348
Ratio of Net
Investment
Income to
Average Net
Assets % ...... 2.77 2.94 1.75 1.60 2.54 5.43 6.06 5.85 5.47 4.80
Portfolio
Turnover
Rate % ........ -- -- -- -- -- -- 39.88 21.28 62.73 22.20
(a) Total returns would have been lower had certain expenses not been reduced.
</TABLE>
PROSPECTUS
7
<PAGE>
<TABLE>
<CAPTION>
AARP GNMA and U.S. Treasury Fund For the Years Ended September 30
-----------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value at
Beginning
of Period ..... $15.19 $14.73 $15.96 $16.19 $15.72 $14.95 $14.98 $15.11 $14.89 $15.99
Net Investment
Income ........ .99 1.01 .93 1.15 1.22 1.26 1.31 1.31 1.37 1.35
Net Realized
& Unrealized
Investment
Gain (Loss).... (.28) .46 (1.23) (.23) .47 .77 (.03) (.13) .22 (1.09)
Total from
Investment
Operations .... .71 1.47 (.30) .92 1.69 2.03 1.28 1.18 1.59 .26
Dividends
from Net
Investment
Income ........ (.99) (.98) (.93) (1.15) (1.22) (1.26) (1.31) (1.31) (1.37) (1.35)
Distributions
from Net
Realized
Gains ......... -- -- -- -- -- -- -- -- -- (.01)
Distributions
from Tax
Return of
Capital........ -- (.03) -- -- -- -- -- -- -- --
Total
Distributions.. (.99) (1.01) (.93) (1.15) (1.22) (1.26) (1.31) (1.31) (1.37) (1.36)
Net Asset
Value at End
of Period...... 14.91 15.19 14.73 15.96 16.19 15.72 14.95 14.98 15.11 14.89
Total Return
%............. 4.79 10.31 (1.90) 5.89 11.19 14.12 8.86 8.17 11.07 1.54
Net Assets
End of
Period
($ millions)... 4,904 5,252 5,585 6,712 5,232 3,311 2,583 2,518 2,837 2,827
Ratio of
Operating
Expenses to
Average Net
Assets % ...... .64 .67 .66 .70 .72 .74 .79 .79 .81 .88
Ratio of Net
Investment
Income to
Average Net
Assets %....... 6.55 6.77 6.09 7.15 7.69 8.23 8.71 8.76 9.09 8.76
Portfolio
Turnover
Rate % ........ 83.44 70.35 114.54 105.49 74.3 86.64 60.54 48.35 84.72 50.68
</TABLE>
PROSPECTUS
8
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Bond Fund For the Years Ended September 30
------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value at
Beginning
of Period ..... $16.01 $15.05 $17.19 $16.44 $15.71 $14.63 $15.04 $14.80 $14.45 $15.87
Net
Investment
Income......... .92 .94 .85 .93 1.03 1.10 1.17 1.23 1.27 1.22
Net Realized &
Unrealized
Investment
Gain (Loss).... (.19) .95 (1.76) .93 .73 1.08 (.41) .24 .46 (1.19)
Total from
Investment
Operations..... .73 1.89 (.91) 1.86 1.76 2.18 .76 1.47 1.73 .03
Dividends from
Net Investment
Income ........ (.92) (.93) (.85) (.93) (1.03) (1.10) (1.17) (1.23) (1.27) (1.22)
Distributions
from Net
Realized Gains. -- -- -- (.18) -- -- -- -- (.11) (.23)
Distributions in
Excess of Net
Realized Gains. -- -- (.38) -- -- -- -- -- -- --
Total
Distributions.. (.92) (.93) (1.23) (1.11) (1.03) (1.10) (1.17) (1.23) (1.38) (1.45)
Net Asset
Value at
End of
Period......... 15.82 16.01 15.05 17.19 16.44 15.71 14.63 15.04 14.80 14.45
Total Return
%.............. 4.59 12.98 (5.55) 11.88 11.56 15.44 5.21 10.38 12.38 (.09)
Net Assets
End of
Period
($ millions)... 512 533 568 604 384 201 151 129 123 108
Ratio of
Operating
Expenses to
Average Net
Assets %....... .91 .95 .95 1.01 1.13 1.17 1.14 1.16 1.17 1.18
Ratio of
Operating
Expenses
Before Expense
Reductions to
Average Net
Assets %....... .91 .95 .95 1.01 1.13 1.17 1.20 1.21 1.20 1.40
Ratio of Net
Investment
Income to
Average Net
Assets %....... 5.76 6.13 5.31 5.64 6.40 7.26 7.86 8.33 8.55 7.81
Portfolio
Turnover
Rate %......... 169.96 201.07 63.75 100.98 63.00 90.43 47.39 5 7.69 23.57 192.80
</TABLE>
PROSPECTUS
9
<PAGE>
<TABLE>
<CAPTION>
AARP Insured Tax Free General Bond Fund For the Years Ended September 30
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
at Beginning of
Period .......... $17.74 $16.93 $19.00 $17.88 $17.30 $16.12 $16.61 $16.02 $15.00 $16.69
Net Investment
Income .......... .87 .87 .86 .90 .93 1.00 1.04 1.08 1.08 1.07
Net Realized &
Unrealized
Investment
Gain (Loss)...... .16 .81 (1.67) 1.55 .75 1.18 (.24) .59 1.02 (1.49)
Total from
Investment
Operations ...... 1.03 1.68 (.81) 2.45 1.68 2.18 .80 1.67 2.10 (.42)
Dividends
from Net
Investment
Income........... (.87) (.87) (.86) (.90) (.93) (1.00) (1.04) (1.08) (1.08) (1.07)
Distributions in
Excess of Net
Realized Gains... -- -- (.34) (.43) (.17) -- (.25) -- -- (.20)
Distributions
from Tax
Return of
Capital ......... -- -- (.06) -- -- -- -- -- -- --
Total
Distributions.... (.87) (.87) (1.26) (1.33) (1.10) (1.00) (1.29) (1.08) (1.08) (1.27)
Net Asset Value
at End of
Period........... 17.90 17.74 16.93 19.00 17.88 17.30 16.12 16.61 16.02 15.00
Total Return
%................ 5.88 10.21 (4.48) 14.31 10.01 13.85 4.89 10.66 14.39 (2.94)
Net Assets End
of Period
($ millions)..... 1,755 1,807 1,914 2,087 1,487 1,068 771 527 312 238
Ratio of Operating
Expenses to
Average Net
Assets %......... .66 .69 .68 .72 .74 .77 .80 .84 .92 1.00
Ratio of Net
Investment
Income to
Average Net
Assets %......... 4.83 5.06 4.80 4.90 5.31 5.92 6.29 6.52 6.95 6.58
Portfolio Turnover
Rate %........... 18.69 17.45 38.39 47.96 62.45 32.18 48.24 148.94 163.51 135.32
</TABLE>
PROSPECTUS
10
<PAGE>
AARP Balanced Stock and Bond Fund
---------------------------------
For the Years Ended
September 30
------------
1996 1995 1994(a)
---- ---- -------
Net Asset Value at Beginning of Period $16.40 $14.64 $15.00
Net Investment Income .66 .61 .25
Net Realized & Unrealized Investment Gain (Loss) 1.44 1.79 (.37)(b)
Total from Investment Operations 2.10 2.40 (.12)
Dividends from Net Investment Income (.66) (.60) (.24)
Distributions from Net Realized Gains (.21) (.04) --
Distributions in Excess of Net Realized Gains -- -- --
Total Distributions (.87) (.64) (.24)
Net Asset Value at End of Period 17.63 16.40 14.64
Total Return % 13.08 16.80 (.78)(d)
Net Assets End of Period ($ millions) 403 247 175
Ratio of Operating Expenses to Average Net Assets % .88 1.01 1.31(e)
Ratio of Net Investment Income to Average Net Assets % 4.09 4.12 3.58(e)
Portfolio Turnover Rate % 35.22 63.77 49.32(e)
Average Commission Rate Paid (c) .0549 -- --
(a) Commencement of Operations
(b) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating market values during
the period.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after September 1, 1995.
(d) Not annualized.
(e) Annualized.
PROSPECTUS
11
<PAGE>
<TABLE>
<CAPTION>
AARP Growth and Income Fund For the Years Ended September 30
------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
at Beginning of
Period ......... $38.36 $34.13 $32.91 $28.67 $26.97 $22.30 $26.11 $20.94 $25.54 $20.88
Net Investment
Income......... 1.17 1.11 .94 .83 .97 1.11 1.11 1.01 1.04 .67
Net Realized
& Unrealized
Investment
Gain (Loss)... 6.40 5.44 1.62 4.58 2.11 4.78 (3.69) 5.20 (3.93) 5.51
Total from
Investment
Operations.... 7.57 6.55 2.56 5.41 3.08 5.89 (2.58) 6.21 (2.89) 6.18
Dividends from
Net Investment
Income........ (1.15) (1.09) (1.13) (.87) (.90) (1.17) (1.15) (1.04) (.94) (.64)
Distributions from
Net Realized
Gains......... (.84) (1.23) (.21) (.30) (.48) (.05) (.08) -- (.77) (.88)
Total
Distributions. (1.99) (2.32) (1.34) (1.17) (1.38) (1.22) (1.23) (1.04) (1.71) (1.52)
Net Asset Value
at End of Period 43.94 38.36 34.13 32.91 28.67 26.97 22.30 26.11 20.94 25.54
Total Return %.. 20.20 20.43 7.99 19.38 11.59 27.19 (10.19) 30.58 (10.75) 30.92
Net Assets End
of Period
($ millions)... 4,219 3,007 2,312 1,560 748 392 248 236 228 358
Ratio of Operating
Expenses to
Average Net
Assets %....... .69 .72 .76 .84 .91 .96 1.03 1.04 1.06 1.08
Ratio of Operating
Expense Before
Expense Reductions
to Average Net
Assets %....... .69 .72 .76 .84 .91 .96 1.03 1.04 1.06 1.08
Ratio of Net
Investment
Income to
Average Net
Assets %....... 2.94 3.28 3.00 3.08 3.84 4.61 4.76 4.19 4.52 3.81
Portfolio
Turnover
Rate %......... 25.02 31.26 31.82 17.44 36.40 53.68 58.47 55.21 61.34 43.25
Average
Commission
Paid Rate (a).. .0542 -- -- -- -- -- -- -- -- --
(a) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
</TABLE>
PROSPECTUS
12
<PAGE>
AARP Global Growth Fund
-----------------------
For the Year Ended
September 30
------------
1996
----
Net Asset Value at Beginning of Period ................... $15.00
Net Investment Income ..................................... .06
Net Realized & Unrealized Investment Gain (Loss)........... .43
Total from Investment Operations .......................... .49
Net Asset Value at End of Period .......................... 15.49
Total Return % (a)......................................... 3.27 (c)
Net Assets End of Period ($ millions) ..................... 78
Ratio of Operating Expenses to Average Net Assets %........ 1.75 (d)
Ratio of Operating Expenses to Average Net Assets Before 2.31 (d)
Expense Reductions% ......................................
Ratio of Net Investment Income to Average Net Assets % .... 1.03 (d)
Portfolio Turnover Rate % ................................. 12.56 (d)
Average Commission Rate Paid (b) .......................... .0150
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(c) Not Annualized.
(d) Annualized.
PROSPECTUS
13
<PAGE>
<TABLE>
<CAPTION>
AARP Capital Growth Fund For the Years Ended September 30
---------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
at Beginning of
Period......... $38.36 $31.74 $36.20 $30.30 $30.23 $23.32 $34.17 $23.88 $27.55 $21.13
Net Investment
Income......... .42 .36 .00 .06 .15 .24 .54 .21 .10 .11
Net Realized &
Unrealized
Investment
Gain (Loss).... 5.59 6.91 (1.51) 7.19 1.09 9.05 (9.27) 10.17 (1.97) 7.40
Total from
Investment
Operations..... 6.01 7.27 (1.51) 7.25 1.24 9.29 (8.73) 10.38 (1.87) 7.51
Dividends from
Net Investment
Income......... (.39) (.01) (.05) (.14) (.23) (.59) (.19) (.09) (.15) (.19)
Distributions
from Net Realized
Gains.......... (.51) (.64) (2.90) (1.21) (.94) (1.79) (1.93) -- (1.65) (.90)
Total
Distributions.. (.90) (.65) (2.95) (1.35) (1.17) (2.38) (2.12) (.09) (1.80) (1.09)
Net Asset Value
at End of
Period........ 43.47 38.36 31.74 36.20 30.30 30.23 23.32 34.17 23.88 27.55
Total Return %. 15.97 23.47 (4.70) 24.53 3.94 42.81 (26.94) 43.62 (5.44) 37.02
Net Assets End
of Period ($
millions).... 826 692 683 607 424 242 160 180 91 116
Ratio of
Operating
Expenses to
Average Net
Assets %..... .90 .95 .97 1.05 1.13 1.17 1.11 1.16 1.23 1.24
Ratio of
Operating
Expenses Before
Expense
Reductions to
Average Net
Assets %..... .90 .95 .97 1.05 1.13 1.17 1.14 1.16 1.40 1.38
Ratio of Net
Investment
Income to
Average Net
Assets %..... 1.05 1.00 .02 .22 .61 .90 2.00 .89 .37 .62
Portfolio
Turnover
Rate %....... 64.84 98.44 79.65 100.63 89.20 99.62 83.28 63.51 45.37 53.61
Average
Commission Rate
Paid (a)..... .0614 -- -- -- -- -- -- -- -- --
(a) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
</TABLE>
PROSPECTUS
14
<PAGE>
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
AARP is a nonprofit organization dedicated to addressing the needs and interests
of persons aged 50 and older. It seeks through education, advocacy, and service
to enhance the quality of life for all by promoting independence, dignity, and
purpose. In the early 1980s, research conducted by AARP indicated that many
members were not taking steps to invest adequately for their future. To
encourage members to plan for their retirement and beyond, AARP decided to make
available a family of mutual funds. The family of funds would provide members
with a limited number of distinct investment choices that were managed by an
experienced investment adviser. AARP sought an investment management firm to
develop and manage the funds. After interviewing a number of investment
managers, AARP selected Scudder, Stevens & Clark, Inc., who will be referred to
in this prospectus as Scudder or the Fund Manager.
Who is Scudder, Stevens & Clark?
Scudder, Stevens & Clark is America's oldest independent investment counsel
firm. Its founder, Theodore T. Scudder, established the profession of long-term,
fee-based investment counsel in 1919 at a time when investment firms were
focused on short-term, commission-based trading. In the more than 75 years that
have passed since then, Scudder has grown to be one of America's largest
independent investment managers. Today, Scudder manages more than $100 billion
in assets for clients around the world. Scudder manages corporate funds, pension
plans, and endowments for institutions, and provides an array of investment
products and services for individual clients and other investors. These include
the Scudder Funds, a family of no-load mutual funds; a no-load variable annuity;
401(k) Plans; and several closed-end funds.
Scudder brings decades of experience and innovation to mutual fund investing. In
1928, Scudder offered America's first no-load mutual fund. Over 40 years ago,
Scudder was the first company to offer an international mutual fund to U.S.
investors. In 1984, Scudder was selected by AARP to develop and manage the AARP
Mutual Funds.
What are the roles of AARP and Scudder?
The AARP Investment Program from Scudder was established in accordance with
criteria set by AARP. Specifically, these criteria include providing members
with competitive investment performance, allowing easy access to investments,
offering easy-to-understand information concerning investing, and delivering
superior service. Fulfilling this mandate is the mission of AARP and Scudder.
Both organizations work closely to ensure these criteria are met. Scudder
provides investment management and administrative services for the AARP Funds
and brings to the Program more than 75 years of investment counseling and
management experience. AARP provides insight into the diversity and changing
character of AARP members. Association staff closely monitor Program services
and review all Program materials to ensure conformity to AARP's high standards.
Members of AARP leadership also serve as Trustees for the AARP Funds.
PROSPECTUS
15
<PAGE>
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER?
The Program was created to address the investment concerns of AARP members and
to help you make informed investment decisions. It features several benefits
that may make investing advantageous and give you greater confidence that you've
made decisions appropriate for your needs:
o A Unique Family of Funds: The Program offers a range of mutual funds which
recognize the needs of AARP members. Each of the AARP Funds is conservatively
managed, seeking to moderate share price volatility, while seeking competitive
returns. This makes the AARP Funds distinct from other mutual funds, which may
seek higher returns but do not focus on reducing share price volatility.
o No Sales Fees or Commissions: Unlike most other mutual funds, the AARP Funds
are pure no-loadt, so you don't pay any sales fees or commissions to purchase,
exchange or sell (redeem) shares. In addition, the Funds do not charge 12b-1
fees, which are a form of a sales charge that covers marketing and
distribution expenses.
o No Fees to open and maintain an AARP IRA or AARP Keogh Plan account: You'll
pay no separate fees to open or maintain your retirement plan account. All
your money goes to work for your retirement.
o Low initial investment: Open an account for just $500 for AARP GNMA and U.S.
Treasury Fund, AARP Balanced Stock and Bond Fund and AARP Growth and Income
Fund, and for $2000 for all other AARP Mutual Funds. You can open an AARP IRA
or AARP UGMA/UTMA with an initial investment of only $250 per fund account. So
it's easy to get started. See page 67 of this prospectus for more information
on minimum investments.
o Professional investment management by Scudder, Stevens & Clark: Scudder brings
over 75 years of investment management experience to the AARP Funds.
o Responsive Service from AARP Mutual Fund Representatives: Our knowledgeable
representatives are ready to answer your questions, initiate transactions or
help you select the AARP Fund which meets your needs--call them toll-free
Monday through Friday, from 8 a.m. to 8 p.m. Eastern time.
o Access to your investment when you need it. You'll be able to redeem your
investment at no charge by simply calling toll-free or writing--your
investment is not locked in. See page 70 of this prospectus for more
information.
You'll also benefit from:
o Informative Communications, such as newsletters and free guides;
o Consolidated Monthly Statements or Quarterly AARP IRA or AARP Keogh
Plan Statements;
o Prompt transaction confirmations;
o Special Services designed to make investing simple and convenient; and
o AARP's commitment to represent your interests.
WHAT DO THE AARP MUTUAL FUNDS OFFER?
The 15 AARP Mutual Funds offer members a choice of conservatively managed
investments which vary in the potential returns and risk they offer. The Funds
PROSPECTUS
16
<PAGE>
address four major investment needs: stability of principal, income, tax-free
income and growth. Each of the AARP Mutual Funds is managed to offer you returns
competitive with comparable funds or securities. In addition, each AARP Fund
follows a conservative investment approach which seeks to moderate share price
volatility relative to funds investing in these same markets or asset classes,
so you can feel confident when you invest. The AARP Funds are managed with the
needs of AARP investors always in mind. Other mutual funds not designed and
managed for AARP investors may have higher share price volatility and have
higher returns. None of the AARP Funds invest in securities issued by companies
whose primary business involves tobacco products.
While the AARP Funds are conservatively managed, it is important to realize that
your principal is never insured or guaranteed, and the value of your investment
and your return will move up and down as market conditions change. The share
price of a mutual fund, other than a money market fund, typically moves up and
down on a day-to-day basis. Share price volatility reflects the level of
fluctuation in the value of a Fund's shares over relatively short time periods.
A mutual fund that experiences large changes in its share price on a daily basis
would be considered to have high share price volatility. The AARP Funds will be
managed to seek to reduce share price volatility as compared to other mutual
funds or securities described in a Fund's investment objective and policies.
This does not mean a Fund's share price will not be affected by market forces,
such as shifts in the stock market, interest rates or foreign currencies. The
result will be upward or downward movements in the Fund's share price. For more
details on each AARP Fund, please read the "Investment Objectives and Policies"
section on page 19.
Information on each AARP Fund is included in this Prospectus, focusing on how
the AARP Funds differ in their potential return and risk. Before investing, you
should determine your investment objectives and time horizons. This will help
you decide which of the AARP Funds fits your needs.
The following is a brief summary of the investment needs the AARP Funds seek to
meet. The nature of each Fund will affect the length of time you should plan to
invest.
If you are investing for stability of principal and income:
Consider the AARP High Quality Money Fund or the AARP High Quality Tax Free
Money Fund. Each provides opportunities to meet short-term needs (1 year or
less) while providing a modest level of income. Both seek to provide
stability of principal through a constant $1.00 share price, although this
may not always be achieved. The AARP Money Funds invest in short-term
securities whose yields tend to follow changes in short-term interest
rates. If short-term interest rates rise or fall dramatically, so could the
yields of the AARP Money Funds in relatively short periods of time. Keep in
mind the income paid by the AARP High Quality Money Fund is taxable,
whereas the income paid by the AARP High Quality Tax Free Money Fund is
normally free from federal income taxes.
PROSPECTUS
17
<PAGE>
If you are investing for the longer term and are interested in monthly
income:
Consider the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond
Fund, the AARP Bond Fund for Income, the AARP Insured Tax Free General Bond
Fund or the AARP Diversified Income Portfolio. When you choose one of these
conservatively managed funds, remember that both the value of shares and
the yield will change daily, generally in reaction to shifting interest
rates. In most cases, as interest rates rise, the value of investments in
these Funds tends to fall. As interest rates fall, the value of investments
in these Funds tends to rise. Investing in these Funds offers the
opportunity for gain through the monthly income that the Funds seek to
provide, and also by possible growth in the value of shares. While each of
these Funds is managed to moderate share price volatility, the value of
your investment can decline. That's why you should be prepared to tolerate
fluctuation in both the value of your investment and the income you earn
and to invest for the longer term (3 years or more).
If you are investing for the long term and you are interested in growth:
Consider the AARP Balanced Stock and Bond Fund, the AARP Growth and Income
Fund, the AARP U.S. Stock Index Fund, the AARP Global Growth Fund, the AARP
Capital Growth Fund, the AARP International Stock Fund, the AARP Small
Company Stock Fund or the AARP Diversified Growth Portfolio. When you
invest in one of these Funds, remember that any investment in stocks
involves risk and that the value of your shares will fluctuate daily. The
share price of these AARP Funds will tend to rise when the stock market
rises and decline when the stock market declines. Investing in these Funds
offers the opportunity for gain through potential appreciation in the value
of your investment as well as from any income that the investment earns.
While each of these Funds is managed to moderate share price volatility,
the value of your investment can decline. That's why you should consider
your investment as one that you can afford to let work for you over
time--generally for a period of 3 to 5 years or more for the AARP Balanced
Stock and Bond Fund and AARP Diversified Growth Portfolio, and 5 years or
more for the other equity funds listed above.
How is my investment managed?
The AARP Mutual Funds are managed to seek competitive returns and to moderate
share price volatility. Each of the AARP Mutual Funds is managed by a team of
investment professionals at Scudder. Professional portfolio managers develop
investment strategies and select securities for each AARP Fund's portfolio. They
are supported by Scudder's dedicated staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. At Scudder, there has always been a strong partnership
between research analysts and portfolio managers. Scudder's large staff of
independent researchers help the portfolio managers assess economic and industry
trends and security valuations as they make investment decisions. Generally, the
portfolio managers do not take a short-term approach to investing. Instead, they
PROSPECTUS
18
<PAGE>
seek to add value over the long term, carefully selecting investments they
believe have superior potential for achieving each Fund's objectives.
INVESTMENT OBJECTIVES AND POLICIES
The following pages provide detail on the investment objectives and policies of
the AARP Mutual Funds. Included are each Fund's objectives, whom it is designed
for, what it offers investors, what it can invest in, the risks involved, when
distributions are paid and who at Scudder manages the Fund. As with any
investment, there is no guarantee that the AARP Funds will successfully meet
their investment objectives. Be sure to read the section titled "Other
Investment Policies and Risk Factors" on page 54.
Each Trust's Trustees can modify a Fund's objectives without the approval of a
majority of that Fund's shareholders. If there is a change in investment
objective, shareholders should consider whether the Fund is still an appropriate
investment for their situation.
AARP HIGH QUALITY MONEY FUND
Fund Objective:
From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and
safety of principal while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances
under which this goal cannot be achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors with short-term needs or who do
not want the risk of investing in stocks or bonds. These include:
o Investors creating a diversified portfolio who want a portion of their
assets in an investment designed to offer safety and stability.
o Investors seeking a short-term investment prior to making longer-term
investment choices.
o Investors seeking money market income to meet regular needs.
o Investors who need immediate access to their money through free
checkwriting.
The Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income, while maintaining stability
and safety of principal. In addition, it provides a convenient way to
easily access your money through free checkwriting.
What does the Fund invest in?
The Fund invests in high quality short-term securities. These securities
will have remaining maturities of 397 calendar days or less, except for
PROSPECTUS
19
<PAGE>
U.S. Government securities, which may have maturities up to 762 calendar
days. The average dollar-weighted maturity of the Fund's investments is 90
days or less. All of the securities purchased are U.S. dollar-denominated.
Amendments have been proposed to the federal rules regulating quality,
maturity and diversification requirements of money market funds, like the
Fund. If the amendments are adopted the Fund intends to comply with such
new requirements.
These money market securities consist of obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; obligations of
supranational organizations such as the International Bank for
Reconstruction and Development (the World Bank); obligations of domestic
banks and their foreign branches, including bankers' acceptances,
certificates of deposit, deposit notes and time deposits; obligations of
savings and loan institutions; instruments whose credit has been enhanced
by: banks (letters of credit), insurance companies (surety bonds), or other
corporate entities (corporate guarantees); corporate obligations, including
commercial paper, notes, bonds, loans and loan participations; securities
with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities
including notes, bonds and participation interests, either taxable or
tax-free, as described in more detail for the AARP High Quality Tax Free
Money Fund; securities with put features; and repurchase agreements.
All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. Generally, the
Fund may purchase only securities rated, or issued by an entity with
comparable securities rated, within the two highest quality rating
categories of one or more rating agencies such as: Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), and Fitch Investors
Service, Inc. (Fitch). Securities rated by only one agency may be purchased
if the rating falls within the categories above. Unrated securities may be
purchased if the Fund Manager judges them to be comparable in quality to
securities described above. Generally, the Fund will invest in securities
rated in the highest quality rating by at least two of these rating
agencies. If a security ceases to be rated or is reduced below the Fund's
standards, it will be sold unless the Trustees determine that disposing of
the security would not be in the best interests of the Fund.
The Fund has certain nonfundamental policies designed to maintain
diversification. These policies may be changed without shareholder
approval. The amount of total assets of the Fund that may be invested in
the securities of a single issuer is limited in accordance with federal
law.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began in June 1985, there may be situations under which this
goal cannot be achieved. The level of income you receive will be affected
by movements up and down in short-term interest rates. By investing
PROSPECTUS
20
<PAGE>
generally in highest-quality securities, the Fund may offer less income
than a money market fund investing in other high-quality money market
securities. See "Other Investment Policies and Risk Factors" on page 54.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors.
Generally, net realized capital gain or loss is included in the daily
declaration of income. See page 61 for additional information on
distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David Wines assumed responsibility for setting the
Fund's investment strategy and for overseeing the Fund's day-to-day
management in February 1997. Mr. Wines has eight years of investment
industry experience and joined Scudder in 1996. Stephen L. Akers, Portfolio
Manager, focuses on securities selection and assists with the creation and
implementation of investment strategy for the Fund. Mr. Akers has been a
member of the AARP High Quality Money Fund team since 1995 and has managed
several other fixed-income portfolios since joining Scudder in 1984. Debra
A. Hanson, Portfolio Manager, assists with the development and execution of
investment strategy and has been with Scudder since 1983. K. Sue Cote,
Portfolio Manager, joined Scudder in 1983 and has 13 years of experience in
the investment industry.
AARP HIGH QUALITY TAX FREE MONEY FUND
Fund Objective:
From investments in high quality municipal securities, the Fund is designed
to provide current income free from federal income taxes. The Fund also
seeks to maintain stability and safety of principal, while offering
liquidity. The Fund seeks to maintain a constant net asset value of $1.00
per share. There may be circumstances under which this goal cannot be
achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors in high tax brackets who have
short-term investment needs or who do not want the risk of investing in
stocks or bonds. These include:
o Investors creating a diversified portfolio who want a portion of their
assets in an investment designed to offer safety and stability.
o Investors seeking a short-term investment prior to making longer-term
investment choices.
PROSPECTUS
21
<PAGE>
o Investors seeking tax free money market income to meet regular
day-to-day expenses.
o Investors who need immediate access to their money through free
checkwriting.
This Fund is not available for AARP IRA or other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income free from federal income tax,
while providing stability and safety of principal. Depending on your tax
bracket, the after-tax income from the Fund may be higher than from a
taxable investment of comparable quality and risk. In addition, it provides
a convenient way to easily access your money through checkwriting.
What does the Fund invest in?
The Fund invests in high-quality, short-term municipal securities. These
securities will have remaining maturities of 397 calendar days or less. The
average dollar-weighted maturity of its investments is 90 days or less.
These municipal securities may include obligations issued by or on behalf
of states, territories and possessions of the United States and the
District of Columbia. Interest from these securities is, in the opinion of
the issuer's bond counsel, exempt from federal income taxes. The Fund has
no current intention to invest in securities whose income is subject to
federal income tax, including the individual alternative minimum tax (AMT).
Amendments have been proposed to the federal rules regulating quality,
maturity and diversification requirements of money market funds, like the
Fund. If the amendments are adopted the Fund intends to comply with such
new requirements.
Municipal securities may include municipal notes such as tax anticipation
notes, revenue anticipation notes, bond anticipation notes and construction
loan notes; municipal bonds, which include general obligation bonds secured
by the issuer's pledge of its faith, credit and taxing power for payment of
principal and interest; and revenue bonds (including private activity
bonds), which are generally paid from the revenues of a particular
facility, a specific excise tax, or other source. The Fund's municipal
investments may also include participation interests in bank holdings of
municipal securities, municipal lease obligations, securities with variable
or floating interest rates, demand obligations, and tax-exempt commercial
paper. The Fund may also purchase securities on a "when-issued" or "forward
delivery" basis, and may enter into stand-by commitments, which are
securities that may be sold back to the seller at the Fund's option.
All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. These securities
are generally rated or issued by an issuer rated within the two highest
quality ratings of two or more rating agencies such as: Moody's (Aaa and
Aa, M1G1 and M1G2, and P1), S&P (AAA and AA, SP1+ and SP1, A1+ and A1) and
Fitch (AAA and AA, F1 and F2). The Fund may purchase a security rated by
PROSPECTUS
22
<PAGE>
only one rating agency if it meets the above rating standards. An unrated
security may be purchased if the Fund Manager judges it to be of comparable
quality to securities described above. Generally, the Fund will invest in
securities rated in the highest quality rating by at least two of these
rating agencies.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
in federally tax-exempt securities.
As a fundamental policy, under normal circumstances, at least 80% of the
Fund's net assets will be invested in tax-exempt securities. Up to 20% of
the Fund's net assets may be invested in taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in taxable securities may exceed 20% when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
All of the securities purchased are U.S. dollar-denominated. The securities
must meet credit standards applied by the Fund Manager, following
procedures established by the Trustees. If a security ceases to be rated,
or its rating is reduced below the Fund's standard, it will be sold unless
the Trustees determine that disposing of the security would not be in the
best interests of the Fund. As a matter of nonfundamental policy, which may
be changed without a shareholder vote, the Fund, with respect to 75% of its
total assets, may not invest more than 5% of its total assets in securities
subject to puts from any one issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began operating as a tax-free money fund in August 1991,
there may be situations under which this goal cannot be achieved. The level
of income you receive will be affected by movements up and down in
short-term interest rates. By investing generally in highest-quality
securities, the Fund may offer less income than a money market fund
investing in other high-quality money market securities. See "Other
Investment Policies and Risk Factors" on page 54.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. Income may be subject to state and local income taxes. Each
year you will be provided with a breakdown of the Fund's investments by
state so that you can determine your state and local income tax liability.
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Your state or local Department of Revenue or tax advisor can answer
questions regarding taxability of distributions. Should there be any income
from taxable securities, it would not be exempt from federal income taxes.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 61 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager K. Sue Cote has been responsible for setting
investment strategy and overseeing the Fund's day-to-day management since
1991. Ms. Cote joined Scudder in 1983 and has 13 years of experience in the
investment industry. Donald C. Carleton, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Carleton has over 20 years of
experience in tax-free investing and has been at Scudder since 1983.
AARP GNMA AND U.S. TREASURY FUND
Fund Objective:
To produce a high level of current income and to keep the value of its
shares more stable than that of a long-term bond. The Fund pursues this
objective by investing principally in U.S. Government-guaranteed GNMA
securities and U.S.
Treasury obligations.
For whom is the Fund designed?
The Fund is suitable for conservative investors who want high current
income but want a degree of protection from bond market price risk.
Investors should be seeking to invest for the longer term (3 years or more)
and be comfortable with fluctuation in the value of their principal. The
Fund is also available for AARP IRA or other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income from a portfolio of
high-quality securities. The level of income should generally be higher
than that available from fixed-price money market mutual funds,
government-insured bank accounts and fixed-rate, government-insured CDs. By
including short-term U.S. Treasury securities in its portfolio, the Fund
seeks to offer less share price volatility than long-term bonds or many
other GNMA mutual funds, although its yield may be lower.
What does the Fund invest in?
The Fund invests principally in U.S. Treasury bills, notes, and bonds, and
other securities issued or backed by the full faith and credit of the U.S.
Government. These include Government National Mortgage Association (GNMA)
securities. GNMA securities represent part ownership of a pool of U.S.
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Government-guaranteed mortgage loans each of which is insured by the
Federal Housing Administration or guaranteed by the Veterans
Administration. Each pool of mortgages is also guaranteed by GNMA as to the
timely payment of principal and interest (regardless of whether the
mortgagors actually make their payments). This guarantee by GNMA represents
the full faith and credit of the U.S. Government. However, this guarantee
is not related to the Fund's yield or the value of shareholders'
investments, which will fluctuate daily.
The maturities and types of securities held by the Fund may vary with
current market conditions. At any time, the Fund may invest a substantial
portion of its assets in securities of a particular maturity. With GNMA
securities, principal is paid back to the Fund over the life of the bond,
rather than at maturity. The Fund will receive monthly scheduled payments
of principal and interest and may receive unscheduled principal payments
resulting from prepayments of the underlying mortgages. The Fund may
realize a gain or loss upon receiving principal payments. The Fund
typically reinvests all payments and prepayments of principal in additional
GNMA securities or other U.S. Government-guaranteed securities. The Fund
may also purchase "when-issued" securities and invest in repurchase
agreements.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. The level of income you receive will also be affected by
movements up or down in interest rates. Like bonds, the value of
mortgage-backed securities decreases when interest rates rise. However,
when interest rates fall their value may not rise as much as does the value
of bonds because of the anticipation of prepayment of the underlying
mortgages. This prepayment may expose the Fund to a lower rate of return
upon reinvestment. Thus, the prepayment rate may also tend to limit any
increase in net asset value. See "Other Investment Policies and Risk
Factors" on page 54.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce share price volatility, by investing in a
combination of short-, intermediate-, and long-term securities. The Fund
may also, on occasion, use portfolio management techniques to seek to
reduce volatility. These techniques, which are subject to applicable
regulatory guidelines, may include limited transactions in financial
futures contracts and related option transactions which are unrated (see
"Other Investment Policies and Risk Factors" on page 49). The Fund may
write (sell) covered call options to enhance investment returns. These
techniques will be entered into to reduce risk, but such techniques involve
risks themselves and could reduce current income.
What is the minimum initial investment?
The minimum initial investment is $500.
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You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 61 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has been responsible for investment
strategy and overseeing security selection since the Fund's inception in
1985. Mr. Glen joined Scudder in 1982 and has over 15 years' experience in
finance and investing. Mark S. Boyadjian, Portfolio Manager, focuses on
securities selection and assists with investment strategy for the Fund. Mr.
Boyadjian joined the Fund's team in 1995 and has been involved in
investment management since joining Scudder in 1989. Thomas M. Poor,
Portfolio Manager, joined the Fund in 1997 and Scudder in 1970. Scott E.
Dolan, Portfolio Manager, also joined the team in 1997. Mr. Dolan, who
joined Scudder in 1989, has four years of experience in compliance analysis
and account administration and has worked as a portfolio manager since
1993.
AARP HIGH QUALITY BOND FUND
Fund Objective:
Consistent with investments primarily in high quality securities, the Fund
seeks to provide a high level of income and to keep the value of its shares
more stable than that of a long-term bond.
For whom is the Fund designed?
The Fund is suitable for investors who want high current income with
moderate risk from a high quality portfolio. Investors should be seeking to
invest for the intermediate term or longer (at least 3 years or more) and
be comfortable with fluctuation in the value of their principal. The Fund
is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer a high level of current income from a
portfolio comprised primarily of high-quality securities. The level of
total investment return (i.e., income plus any capital appreciation) should
typically be higher than available from the AARP GNMA and U.S. Treasury
Fund, with greater fluctuation in the value of your principal.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many long-term
bond funds, although its yield and total return may be lower.
What does the Fund invest in?
Under normal circumstances, the Fund will invest substantially all, and no
less than 65%, of its assets in U.S. Government, corporate and other
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fixed-income securities. All the Fund's securities will be rated or judged
by the Fund Manager to be the equivalent of those rated investment-grade or
higher by Moody's (Aaa, Aa, A, and Baa) or S&P (AAA, AA, A and BBB), and at
least 65% of the Fund's assets must be in securities rated in the two
highest rating categories by Moody's or S&P. The Fund may invest up to 20%
of its assets in bonds rated Baa by Moody's or rated BBB by S&P. Securities
rated Baa by Moody's or BBB by S&P are neither highly protected nor poorly
secured. These securities normally pay higher yields and are regarded as
having adequate capacity to repay principal and pay interest but involve
potentially greater price variability than higher-quality securities.
Moody's considers bonds it rates Baa to have speculative elements as well
as investment-grade characteristics. The Fund does not purchase securities
rated below investment-grade, commonly known as "junk" bonds.
The Fund may invest in any investment eligible for the AARP GNMA and U.S.
Treasury Fund. It may also purchase corporate notes and bonds, including
convertible issues, and obligations of federal agencies that are not backed
by the full faith and credit of the U.S. Government. Additionally, the Fund
may purchase obligations of international agencies, U.S. dollar-denominated
foreign debt securities, mortgage-backed and other asset-backed securities,
and money market instruments such as commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign
branches of U.S. banks. The Fund may invest up to 20% of total assets in
foreign debt securities denominated in currencies other than the U.S.
dollar, but no more than 5% of the Fund's total assets will be represented
by a given foreign currency. The Fund may also purchase "when-issued"
securities and invest in repurchase agreements and trust preferred
securities.
The Fund will invest in a broad range of short-, intermediate- and
long-term securities. The maturities and types of securities held by the
Fund will vary with current market conditions. The Fund may have a
substantial portion of its assets in securities of a particular maturity.
The non-governmental investments of the Fund will be spread among a variety
of companies and will not be concentrated in any one industry.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. Due to the greater market price risk of the securities in which
it invests, the Fund will usually have more share price volatility than the
AARP GNMA and U.S. Treasury Fund. See "Other Investment Policies and Risk
Factors" on page 54.
The level of income provided will be affected by movements up and down in
interest rates. Also, income from the high-quality and other
investment-grade securities the Fund purchases may be lower than income
from lower-quality securities.
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How does the Fund seek to manage risk?
The Fund actively seeks to reduce share price volatility by investing in
securities with varying maturities, including short- and medium-term bonds.
Also, the Fund may use approved portfolio management techniques, if
appropriate, such as limited transactions in financial futures contracts
and related option transactions which are unrated (see "Other Investment
Policies and Risk Factors" on page 64). The Fund may write (sell) covered
call options to enhance investment returns. These techniques will be
entered into to reduce risk, but such techniques involve risks themselves
and could reduce current income.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 61 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has set the Fund's investment strategy
and overseen its day-to-day operations since 1995. Mr. Glen, who started at
Scudder in 1982 and has been a portfolio manager since 1985, has over 15
years' experience in finance and investing. William M. Hutchinson,
Portfolio Manager, who is also responsible for implementing the Fund's
strategy, has been involved with the Fund since 1987. Mr. Hutchinson joined
Scudder in 1986 as a portfolio manager and has over 20 years of investment
experience. Scott E. Dolan, Portfolio Manager, joined the team in 1997. Mr.
Dolan, who joined Scudder in 1989, has four years of experience in
compliance analysis and account administration and has worked as a
portfolio manager since 1993.
AARP BOND FUND FOR INCOME
Fund Objective:
The Fund seeks to provide a high level of current income consistent with
investments primarily in investment-grade debt securities, and to keep the
value of its shares more stable than that of a long-term bond.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors who want high current income, but are willing to accept
interest rate, credit, and other risks associated with a portfolio of
investment-grade and, to a lesser extent, below investment-grade bonds (up
to 35% of total assets). Investors should be seeking to invest for the
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longer term (at least 3 years or more) and be comfortable with fluctuation
in the value of their principal. The Fund is also available for AARP IRA
and other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer investors a convenient way to enjoy high
monthly income through a professionally managed, diversified portfolio of
largely investment-grade bonds. The Fund should offer higher income than
any other AARP income fund, although its share price volatility will
normally be higher. The Fund also can help add balance to a portfolio
holding stocks or stock mutual funds.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many long-term
bond funds, although its yield may be lower.
What does the Fund invest in?
In pursuit of its investment objectives, under normal market conditions,
the Fund invests at least 65% of its assets in investment-grade debt
securities. Investment-grade securities are securities that are rated
Aaa,Aa,A, or Baa by Moody's or AAA, AA, A, or BBB by S&P, or, if unrated,
are of equivalent quality as determined by the Fund Manager. In addition,
the Fund may invest up to 35% of its assets in securities rated Ba or B by
Moody's or BB or B by S&P. No more than 10% of the Fund's assets may be
invested in securities rated B by Moody's or S&P. These two grades of
securities are considered to be below investment grade. Below
investment-grade securities are considered predominantly speculative with
respect to their capacity to pay interest and repay principal. They
generally involve a greater risk of default and at times, can have more
price volatility than higher rated securities. See "Other Investment
Policies and Risk Factors" on page 54.
The Fund may invest in U.S. Treasury and Agency securities, corporate bonds
and notes, trust preferred securities, mortgage-backed and other
asset-backed securities, dollar-denominated debt of international agencies
or investment-grade foreign institutions, and money market instruments such
as commercial paper, bankers' acceptances, and certificates of deposit
issued by domestic and foreign branches of U.S. banks. The Fund may invest
up to 20% of total assets in foreign debt securities denominated in
currencies other than the U.S. dollar, but no more than 5% of the Fund's
total assets will be represented by a given foreign currency. The Fund may
also invest in "when-issued" securities and repurchase agreements.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments or invest all or a substantial
portion of its assets in high quality domestic debt securities when the
Fund Manager deems such a position advisable in light of economic or market
conditions.
What are the risks?
While the Fund is designed to provide monthly income, it is not a fixed
price money market fund. The value of its shares and the level of income
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provided will fluctuate up and down with changes in interest rates and
other market conditions. Due to the greater overall interest rate and
credit risk of the securities in which it invests, the Fund should offer
higher income but have a more variable share price over time than the AARP
GNMA and U.S. Treasury Fund or the AARP High Quality Bond Fund. See "Other
Investment Policies and Risk Factors" on page 54.
The Fund can invest a limited portion of its assets in below
investment-grade securities, sometimes referred to as "junk" bonds.
Investing in high yielding, lower-quality bonds involves various types of
risks including the risk that issuers of bonds held in the portfolio will
not make timely payment of either interest or principal, or may default
entirely. This risk of default can increase with changes in the financial
condition of a company or with changes in the U.S. economy, such as a
recession. Compared to investing in higher quality issues, investors may be
rewarded for the additional risk of high yield bonds through higher
interest payments and the opportunity for greater capital appreciation.
How does the Fund seek to manage risk?
The Fund seeks to reduce share price volatility through active portfolio
management and diversification. The Fund Manager will invest in a broad
number of securities with varying maturities, quality and industry
representation. Also, the Fund may use approved portfolio management
techniques, if appropriate, such as limited transactions in financial
futures contracts and related option transactions which are unrated (see
"Other Investment Policies and Risk Factors" on page 64). The Fund may
write (sell) covered call options to enhance investment returns. These
techniques will be entered into to reduce risk, but such techniques involve
risks themselves and may reduce current income.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 61 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
William M. Hutchinson, Lead Portfolio Manager, has over 20 years of
investment experience. Mr. Hutchinson joined Scudder in 1986 and is a
member of Scudder's Global Bond Group. Kelly D. Babson, Portfolio Manager,
is a portfolio manager in Scudder's Global Bond Group, with 15 years of
experience in fixed-income investing including ten years of high yield
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portfolio management prior to joining Scudder. Ms. Babson joined Scudder in
1994. Portfolio Manager David H. Glen, also a member of Scudder's Global
Bond Group, has over 15 years of experience in finance and investing. Mr.
Glen joined Scudder in 1982.
AARP INSURED TAX FREE GENERAL BOND FUND
Fund Objective:
From a portfolio consisting primarily of municipal securities covered by
insurance, the Fund seeks to provide high income free from federal income
taxes and to keep the value of its shares more stable than that of a
long-term municipal bond.
For whom is the Fund designed?
The Fund is suitable for investors in higher tax brackets who want high
income free from federal income taxes. Investors should invest for the
longer term (at least 3 years or more) and be comfortable with fluctuation
in the value of their principal. The Fund is not available for AARP IRA or
other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer high income free from federal tax. Depending
on an investor's tax bracket, the after-tax income from the Fund may be
higher than that from a taxable investment of comparable quality and risk.
The Fund will typically pay higher income than the AARP High Quality Tax
Free Money Fund, although yield and principal value will fluctuate up and
down with market conditions. By including short- and medium-term bonds in
its portfolio, the Fund seeks to offer less share price volatility than
long-term municipal bonds or many long-term municipal bond funds, although
its yield may be lower.
The Fund is one of a distinct group of tax-free mutual funds with insurance
on the majority of its investments. Insurance on its securities protects
the Fund against loss from default by the municipal issuer. However, it
does not protect the investor from fluctuation in yield or share price.
What does the Fund invest in?
The Fund invests primarily in a mix of short-, intermediate-, and long-term
municipal securities that are insured against default by private insurers.
The municipal securities purchased by the Fund will be only high-grade
securities or repurchase agreements on such securities. These may include
obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia to raise money for public
purposes. Interest from these securities is, in the opinion of the issuer's
bond counsel, exempt from federal income taxes. The Fund has no current
intention of investing in securities whose income is subject to federal
income tax, including the individual alternative minimum tax (AMT).
However, under unusual circumstances, the Fund may invest in taxable
securities for defensive purposes or to benefit from disparities in the
financial markets.
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Municipal securities may include municipal notes, municipal bonds,
municipal lease obligations, participation interests in bank holdings of
municipal securities, securities with variable or floating interest rates,
demand obligations, and tax-exempt commercial paper. The Fund may purchase
securities on a "when-issued" or "forward delivery" basis, and may enter
into stand-by commitments in which securities may be sold back to the
seller at the Fund's option. Also, the Fund may use approved portfolio
techniques, if appropriate, such as limited use of financial futures
contracts and related options transactions. See "Other Investment Policies
and Risk Factors" on page 54.
What portion of the securities is insured?
At least 65% of the Fund's assets are fully insured by private insurers as
to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by
the U.S. Government are purchased and expected to be held for 60 days or
more, insurance will be obtained within 30 days to ensure that 65% of the
Fund's assets are insured by the issuer or arranged for by the Fund. If at
least 65% of its assets are not insured securities, the Fund will obtain
insurance for a portion of its U.S. Government guaranteed or backed
securities so that the 65% standard is achieved.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will move up and down as interest rates and other market conditions change.
The level of income you receive will be affected by movements up and down
in interest rates. Income from the high-quality securities which the Fund
purchases may be lower than the income from lower-quality securities. See
"Other Investment Policies and Risk Factors" on page 54.
How does the Fund seek to manage risk?
The Fund actively seeks to manage share price volatility by investing in
securities of varying maturities. The Fund may also use approved portfolio
management techniques.
Insurance on the securities held by the Fund protects the Fund as to
default by the municipal issuer. It does not protect an investor from
fluctuation in the Fund's yield or value per share, which change daily.
Insurance also involves a cost to the Fund which will reduce yield.
Historically, the yields on insured securities have been attractive in
comparison to the yields on uninsured securities of comparable quality.
There can be no assurance, however, that this relationship will continue.
Moreover, to the extent the Fund must purchase insurance on U.S. Government
securities, this will involve a cost to the Fund while not increasing the
quality rating since U.S. Government-guaranteed or backed securities are
already high quality. Although the financial condition of each insurer of
its securities is periodically reviewed by the Fund, there can be no
guarantee that insurers can honor their obligations under all
circumstances. See "Other Investment Policies and Risk Factors" on page 54.
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What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. Income may be subject to state and local income taxes.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
in federally tax-exempt securities. As a fundamental policy, under normal
circumstances, at least 80% of the Fund's net assets will be invested in
federally tax-exempt securities. Up to 20% of the Fund's net assets may be
invested in federally taxable securities. For defensive purposes, or if
unusual circumstances make it advisable, the Fund may purchase U.S.
Government securities and repurchase agreements collateralized by such
securities. For temporary defensive purposes, the Fund's investment in
federally taxable securities may exceed 20%. Each year you will be provided
with a breakdown of the Fund's investments by state so that you can
determine your state and local income tax liability. Your state or local
Department of Revenue or tax advisor can answer questions regarding the
taxability of distributions.
In the event there is income from taxable securities, it would not be
exempt from federal income taxes. In addition, any capital gains earned by
the Fund are usually taxable.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 61 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Donald C. Carleton has been responsible for
investment strategy and overseeing the Fund's day-to-day management since
1990. Mr. Carleton has over 20 years' experience in tax-free investing and
joined Scudder in 1983. Philip G. Condon, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Condon has been with Scudder since
1983 and has more than 18 years of investment experience.
AARP BALANCED STOCK AND BOND FUND
Fund Objective:
To seek to provide long-term growth of capital and income while attempting
to keep the value of its shares more stable than other balanced mutual
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funds. The Fund pursues these objectives by investing in a combination of
stocks, bonds, and cash reserves.
For whom is the Fund designed?
This Fund is suitable for conservative investors who are seeking long-term
growth of their assets, but want less risk than an investment solely in
stocks. Investors should invest for the longer term (at least 3 to 5 years
or more) and be comfortable with the value of their principal fluctuating
up and down. The Fund is also available for AARP IRA and other retirement
plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal through a
single investment combining stocks, bonds, and cash reserves. Growth will
come from possible appreciation in the value of common stocks and other
equity investments. Bonds and other fixed-income investments provide
current income and may help reduce fluctuation in the Fund's share price.
Through a broadly diversified portfolio consisting primarily of stocks with
above average dividend yields and investment-grade bonds, the Fund seeks to
offer less share price volatility than many balanced mutual funds. The Fund
should typically have less risk and a lower return than the other AARP
growth funds.
The Fund does not take extreme investment positions as part of an effort to
"time the market." Shifts between stocks and fixed-income investments are
expected to occur in generally small increments. On occasion, the Fund will
adjust its investment mix. The Fund Manager will do so after analyzing
factors such as the level and direction of interest rates, capital flows,
inflationary expectations, and the financial climate worldwide.
What does the Fund invest in?
The Fund seeks to manage fluctuation by investing in a broadly diversified
mix of equity securities, bonds, and cash reserves. The Fund may invest up
to 70% of its assets in equity securities (stocks). At least 30% of the
Fund will be in investment-grade fixed-income securities and cash reserves.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments when the Fund Manager deems such a
position advisable in light of economic or market conditions. These include
commercial paper, bankers' acceptances, certificates of deposit issued by
domestic and foreign branches of U.S. banks, and repurchase agreements.
Equity securities consist of common stocks, securities convertible into
common stocks, and preferred stocks. A research-oriented approach to
investing is used by the Fund, taking advantage of Scudder's large research
department. The Fund emphasizes securities of companies that offer the
opportunity for capital growth and growth of earnings while providing
dividends. The Fund will generally invest in companies domiciled in the
U.S., but may invest in foreign securities without limit.
All of the Fund's debt securities will be investment-grade, i.e., rated at
the time of purchase, Baa or higher by Moody's or BBB or higher by S&P, or
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deemed of comparable quality by the Fund's Manager. At least 75% of these
will be securities rated within the three highest quality ratings of
Moody's (Aaa, Aa and A) or S&P (AAA, AA, and A) or those the Fund Manager
judges are of equivalent quality (high-grade). Securities rated BBB by S&P
or Baa by Moody's are neither highly protected nor poorly secured. These
securities normally pay higher yields but involve potentially greater price
variability than higher-quality securities and are regarded as having
adequate capacity to repay principal and pay interest. Moody's considers
bonds it rates Baa to have speculative elements as well as investment-grade
characteristics. If the rating agencies downgrade a security, the Fund
Manager will determine whether to keep it or eliminate it based on the best
interests of the Fund. The Fund does not purchase securities rated below
investment-grade, commonly known as "junk" bonds.
The Fund can invest in a broad range of corporate bonds and notes,
convertible bonds, preferred and convertible preferred securities and trust
preferred securities. The Fund may also invest in U.S. Government
securities, obligations of federal agencies, and instruments not backed by
the full faith and credit of the U.S. Government. The latter include
obligations of the Federal Home Loan Banks, Farm Credit Banks, and the
Federal Home Loan Mortgage Corporation. The Fund may invest in obligations
of international agencies, U.S. and non-U.S. dollar denominated foreign
debt securities, mortgage-backed and other asset-backed securities,
municipal obligations, zero-coupon securities, and restricted securities
issued in private placements.
The Fund may make limited use of financial futures contracts and related
options and may also invest in forward foreign currency exchange contracts.
The Fund may write (sell) covered call options to enhance investment
returns and may purchase and sell options on stock indices for hedging
purposes. It may also invest in securities on a "when-issued" or forward
delivery basis.
What are the risks?
The risk to principal is consistent with an investment primarily in stocks
and bonds. The value of shares will fluctuate up and down with changes in
interest rates and other market conditions. Investors should focus on the
longer-term and be comfortable with fluctuation in the value of their
principal.
The level of income will be affected by movements up and down in interest
rates and by dividends paid on the stocks held by the Fund. See "Other
Investment Policies and Risk Factors" on page 54.
What is the minimum initial investment?
The minimum initial investment is $500.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
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typically will be distributed annually after September 30. See page 61 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman is responsible for managing the
stock portion of the Fund. Mr. Hoffman, who joined Scudder in 1990, has 11
years of experience in the investment industry. William M. Hutchinson,
Portfolio Manager, is responsible for the bond portion of the Fund. Mr.
Hutchinson joined Scudder in 1986 and has over 20 years of investment
experience. Messrs. Hutchinson and Hoffman have been Portfolio Managers for
the Fund since it commenced operations on February 1, 1994. Benjamin W.
Thorndike, Portfolio Manager, focuses on asset allocation strategy and
stock selection. Mr. Thorndike has more than 15 years of investment
experience and joined Scudder in 1986.
AARP GROWTH AND INCOME FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth and
income, and to keep the value of its shares more stable than other growth
and income mutual funds.
For whom is the Fund designed?
The Fund is suitable for investors who are seeking long-term growth of
their assets to keep ahead of inflation. Investors should invest for the
longer-term (at least 5 years or more) and be comfortable with fluctuation
of their principal that is associated with investing in stocks. The Fund is
also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal with some
income. This growth will come from possible appreciation in the value of
shares, as well as quarterly dividend distributions if they are reinvested
in additional shares of the Fund. Dividends can also produce current income
for investors. Through a broadly diversified portfolio consisting primarily
of stocks with above average dividend yields, the Fund seeks to offer less
share price volatility than many growth and income funds. The Fund should
offer a greater opportunity for share price appreciation, with greater
share price fluctuation than the AARP Balanced Stock and Bond Fund.
What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stocks. The Fund
emphasizes securities of companies that offer the opportunity for capital
growth and growth of earnings while providing dividends. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department.
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The Fund will invest in a variety of industries and companies. Generally,
the Fund will invest in companies domiciled in the United States, but it
may invest in foreign securities without limit. Also, the Fund may write
(sell) covered call options to enhance investment return, and may purchase
and sell options on stock indices for hedging purposes. See "Other
Investment Policies and Risk Factors" on page 54.
The Fund's policy is to remain substantially invested in stocks and
securities convertible into stocks. However, for temporary defensive
purposes, the Fund may invest without limit in high quality money market
securities when the Fund Manager deems such a position advisable in light
of economic or market conditions. These securities include U.S. Treasury
bills, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and repurchase
agreements.
What are the risks?
The risk to principal is consistent with an investment in stocks. The stock
market doesn't go up every year, and can rise and fall--sometimes quite
dramatically over a short period of time. Investors should focus on the
longer term (at least 5 years or more) and be comfortable with fluctuation
in the value of their principal. See "Other Investment Policies and Risk
Factors" on page 54.
The level of income you receive will be affected by dividends paid on the
securities held by the Fund.
What is the minimum initial investment?
The minimum initial investment is $500.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 61 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting
investment strategy and overseeing the Fund's day-to-day management since
1991. Mr. Hoffman, who joined Scudder in 1990, has 11 years of experience
in the investment industry. Benjamin W. Thorndike, Portfolio Manager, is
the Fund's chief analyst and strategist for convertible securities. Mr.
Thorndike, who has more than 15 years of investment experience, joined
Scudder and the Fund in 1986. Kathleen T. Millard, Portfolio Manager,
focuses on stock investing strategy and stock selection. Ms. Millard has
worked in the investment industry since 1983 and at Scudder since 1991.
Lori Ensinger, Portfolio Manager, joined the Fund in 1996 and focuses on
stock selection and investment strategy. Ms. Ensinger has worked in the
investment industry since 1983 and at Scudder since 1993. Deborah Chaplin,
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Portfolio Manager, joined the Fund in 1997 and Scudder in 1996. Ms. Chaplin
has five years of investment experience as a securities analyst and
institutional investment portfolio manager.
AARP U.S. STOCK INDEX FUND
Fund Objective:
Taking an indexing approach to investing in common stocks, the Fund seeks
to provide long-term capital growth and income, and to keep the value of
its shares more stable than a S&P 500 Index fund. The Fund seeks these dual
objectives by emphasizing higher dividend stocks while maintaining
investment characteristics otherwise similar to the S&P 500 Index.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors seeking a "passive" investment approach to stock market
investing. The Fund may be appropriate for more conservative investors who
are seeking higher dividend income and somewhat lower average volatility
than a S&P 500 Index fund. Investors should invest for the longer term (at
least 5 years or more) and be comfortable with the value of their principal
fluctuating up and down with changing U.S. stock market conditions. The
Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the potential for long-term growth of principal and current
income. Through a broadly-diversified portfolio consisting of S&P 500
companies, the Fund's performance is expected to track the overall
performance of the U.S. stock market, as characterized by the S&P 500
Composite Stock Price Index. The Fund, however, is designed to have less
share price volatility due to its focus on companies in the S&P 500 Index
that pay higher dividends.
What does the Fund invest in?
The Fund attempts to remain fully invested in common stocks of S&P 500
companies. Under normal circumstances, the Fund will invest at least 95% of
its assets in common stocks and futures contracts and options, primarily on
the S&P 500 Index. The Fund, using a proprietary model, selects common
stocks of S&P 500 companies that are expected to, on average, pay higher
dividends than S&P 500 companies in the aggregate. In managing the Fund
this way, the Fund Manager expects performance will be somewhat less
volatile than that of the S&P 500 over time, and the total return will
normally track the S&P 500 within 1% annually. A tracking error of 0% would
indicate perfect correlation to the Index. After the Fund's start-up phase,
the portfolio will typically consist of common stocks of between 400 and
470 of the S&P 500 companies. The Fund normally expects to match the
relative weighting of the S&P 500 closely but because of the Fund's focus
on companies in the S&P 500 that pay higher dividends, the Fund may at
times have its portfolio weighted differently from the S&P 500 in order to
try to reduce volatility. The investment approach is "passive" in that
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after the dividend screening described above, there is no additional
financial analysis regarding the securities held in the Fund.
Under normal circumstances, the Fund may invest up to 5% of its assets in
certain short-term fixed income securities including high quality money
market securities such as U.S. Treasury bills, repurchase agreements,
commercial paper, certificates of deposit issued by domestic and foreign
branches of U.S. banks and bankers' acceptances, although cash or cash
equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may invest up to 20% of its assets in stock futures
contracts and options in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or to minimize trading
costs. The Fund may also invest in Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs typically trade like a share of common stock and provide
investment results that generally correspond to the price and yield
performance of the component common stocks of the S&P 500 Index. See "Other
Investment Policies and Risk Factors" on page 54. Unlike most non-index
funds, the Fund will not invest in cash reserves, futures contracts or
options as part of a temporary defensive strategy, such as lowering the
Fund's investment in common stocks to protect against potential stock
market declines. Thus, the Fund will not take specific steps to minimize
losses that reflect a decline in the S&P 500. In the event that the Fund
does not track within 1% annually the total return of the S&P 500, the Fund
Manager will consider alternative approaches.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
What are the risks?
The risk to principal is consistent with the Fund's investment approach,
which should result in a performance pattern similar to the U.S. stock
market as measured by the S&P 500 Index. The stock market doesn't go up
every year, and can rise and fall--sometimes quite dramatically over a
short period of time. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline. Investors should focus on the longer term (at least 5 years or
more) and be comfortable with fluctuation in the value of their principal.
See "Other Investment Policies and Risk Factors" on page 54.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
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typically will be distributed annually after September 30. See page 61 for
additional information on distributions and taxes.
Who manages my investment?
Lead Portfolio Manager Philip S. Fortuna joined Scudder in 1986 as manager
of institutional equity accounts. He became director of quantitative
research in 1987 and served as director of investment operations from 1993
to 1994. James M. Eysenbach, Portfolio Manager, joined Scudder in 1991 as a
senior quantitative analyst and is currently director of quantitative
research for Scudder. Mr. Eysenbach has more than ten years of investment
research and management experience.
Scudder, Stevens & Clark, the investment adviser to the Fund, has retained
Bankers Trust Company as Subadviser to the Fund. The Subadviser will handle
day-to-day investment and trading functions. The Portfolio Managers will be
in regular contact with the Subadviser, receive records of daily
transactions, monitor returns and relative risk, and scrutinize portfolio
activity.
Bankers Trust has a long and successful history of equity index management
and is currently one of the largest passive managers in the U.S.
AARP GLOBAL GROWTH FUND
Fund Objective:
From investments primarily in equity securities of corporations worldwide,
the Fund seeks to offer long-term capital growth in a globally diversified
portfolio, and to keep the value of its shares more stable than other
global equity funds.
For whom is the Fund designed?
This Fund is suitable for investors who want to add both U.S. and foreign
equity opportunities to their portfolio through a single investment. The
Fund is designed for investors seeking long-term growth of their principal.
Investors should invest for the longer term (at least 5 years or more) and
be comfortable with the value of their principal fluctuating up and down.
The Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal from a
professionally managed portfolio of securities selected from the U.S. and
foreign equity markets. It also offers the opportunity for investors to
further diversify their portfolios which could help to lower their overall
risk.
Global investing takes advantage of the investment opportunities created by
the growing integration of economies around the world. The world has become
highly integrated in economic, industrial and financial terms. Companies
increasingly operate globally as they purchase raw materials, produce and
sell their products and raise capital. The Fund affords investors access to
opportunities wherever they arise, without being constrained by the
location of a company's headquarters or the trading market for its shares.
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Because the Fund's portfolio invests globally, it provides the potential to
augment returns available from the U.S. stock market. In addition, since
U.S. and foreign markets do not always move in step with each other, a
global portfolio will be more diversified than one invested solely in U.S.
securities.
Investing directly in foreign securities is usually impractical for most
investors because it presents complications and extra costs. Investors
often find it difficult to arrange purchases and sales, to obtain current
information, to hold securities in safekeeping and to convert the value of
their investments from foreign currencies into dollars. The Fund manages
these problems for the investor. With a single investment, the investor has
a diversified worldwide investment portfolio which is managed actively by
experienced professionals. Scudder has had many years of experience
investing globally and dealing with trading, custody and currency
transactions around the world. Scudder has the benefit of information it
receives from worldwide research and believes the Fund affords investors an
efficient and cost-effective method of investing worldwide.
Through a broadly diversified portfolio consisting primarily of stocks of
established companies which are incorporated in the U.S. or in foreign
countries, and applying a strategy of relatively low portfolio turnover,
the Fund seeks to offer less share price volatility than many global growth
funds. However, in pursuing long-term growth, the Fund typically will have
more share price fluctuation than other AARP Funds, except the AARP Capital
Growth Fund, the AARP International Stock Fund and the AARP Small Company
Stock Fund. See "What are the risks?" below. Growth will come primarily
from possible appreciation in the value of shares. The Fund is not expected
to provide regular income.
What does the Fund invest in?
The Fund will invest in securities of companies that the Fund Manager
believes will benefit from global economic trends, promising technologies
or products and changing geopolitical, currency or economic relationships.
The Fund will normally invest at least 65% of its total assets in
securities of at least three different countries. Typically it is expected
that the Fund will invest in a wide variety of regions and countries,
including both foreign and U.S. issues. However, the Fund may be invested
100% in non-U.S. issues, and for temporary defensive purposes may be
invested 100% in U.S. issues. For temporary defensive purposes, the Fund
may invest without limit in high quality money market securities, including
U.S. Treasury bills, repurchase agreements, commercial paper, certificates
of deposit issued by domestic and foreign branches of U.S. banks, bankers'
acceptances and other debt securities, such as U.S. Government obligations
and corporate debt instruments when the Fund Manager deems such a position
advisable in light of economic or market conditions.
The Fund generally invests in equity securities of established companies
listed on U.S. or foreign securities exchanges, but also may invest in
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securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible
preferred stocks. Fixed-income securities of governments, government
agencies, supranational agencies and companies may also be used when the
Fund Manager believes the potential for appreciation for these investments
will equal or exceed that available from investments in equity securities.
These debt and fixed-income securities will be exclusively investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P or those of equivalent quality as determined by Scudder.
Securities rated BBB by S&P or Baa by Moody's are neither highly protected
nor poorly secured. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics.
The Fund may invest in zero coupon securities and closed-end investment
companies holding foreign securities. The Fund may make limited use of
financial futures contracts and related options and may also invest in
forward foreign currency exchange contracts. The Fund may write (sell)
covered call options to enhance investment return, and may purchase and
sell options on stock indices for hedging purposes. See "Other Investment
Policies and Risk Factors" on page 54.
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced the first mutual fund available in
the U.S. investing internationally in securities of issuers in several
foreign countries, and in 1987, introduced the first no-load global equity
fund. Today, Scudder manages over $8 billion in assets invested in foreign
markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through global investing. Global investing involves
economic and political considerations not typically found in investments
restricted solely to U.S. markets.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in both U.S. and
foreign securities markets, changes in the Fund's share price may have a
low correlation with movements in the U.S. markets. The Fund's share price
will reflect the movements of the different markets in which it is invested
and the currencies in which the investments are denominated. The strength
or weakness of the U.S. dollar against foreign currencies may account for
part of the Fund's investment performance. Investors should focus on the
longer term (at least 5 years or more) and be comfortable with fluctuation
to the value of their principal. Because of the Fund's global investment
policies and the investment considerations discussed above, investment in
shares of the Fund should be considered as part of a broadly diversified
portfolio. See "Other Investment Policies and Risk Factors" on page 54.
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How does the Fund seek to manage risk?
While the Fund involves above-average equity risk, it is designed to lessen
the volatility of its share price relative to other global stock funds. It
does this by diversifying widely among stocks issued in developed markets
worldwide.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30. See
page 61 for additional information on distributions and taxes.
Who at Scudder manages my investment?
William E. Holzer is the Lead Portfolio Manager for the Fund. Mr. Holzer
has day-to-day responsibility for setting the Fund's worldwide strategy and
investment themes. Mr. Holzer has over 20 years' experience in global
investing and joined Scudder in 1980. Nicholas Bratt, Portfolio Manager,
directs Scudder's overall global equity investment strategies. Mr. Bratt
joined Scudder in 1976. Alice Ho, Portfolio Manager, is also responsible
for implementing the Fund's strategy. Ms. Ho, who joined Scudder in 1986 as
a member of the institutional and private investment counsel area, has
worked as a portfolio manager since 1989.
AARP CAPITAL GROWTH FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth, and to
keep the value of its shares more stable than other capital growth funds.
For whom is the Fund designed?
The Fund is suitable for investors seeking high long-term growth of their
principal. Investors should invest for the longer term (at least 5 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA and other retirement plan
accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal. This
growth will come primarily from possible appreciation in the value of
shares. The Fund is not expected to provide regular income.
In pursuing long-term growth, the Fund will typically have more share price
fluctuation than the AARP Balanced Stock and Bond Fund, AARP Growth and
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Income Fund, AARP U.S. Stock Index Fund and AARP Global Growth Fund, but
less share price fluctuation than AARP International Stock Fund and AARP
Small Company Stock Fund.
By diversifying among securities of high quality, medium- to large-sized
companies with strong competitive positions in their industries, the Fund
seeks to have less share price volatility than many growth funds.
What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stocks. The Fund's
policy is to remain substantially invested in these securities.
In seeking capital growth, the Fund will invest in stocks which will offer
above-average potential for long-term growth of market value as represented
by the Standard & Poor's 500 Composite Stock Price Index. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department. The Fund will invest in a
variety of industries and companies. Generally, the Fund will invest in
companies domiciled in the U.S., but it may invest in foreign securities
without limit. Also, the Fund may write (sell) covered call options to
enhance investment return, and may purchase and sell options on stock
indices for hedging purposes. See "Other Investment Policies and Risk
Factors" on page 54.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as U.S. Government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth. The Fund generally has greater share price fluctuation
and potential for return than the AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP U.S. Stock Index Fund, and AARP Global Growth
Fund. The stock market doesn't go up every year, and can rise and
fall--sometimes quite dramatically--over a short period of time. Some of
the securities selected may have above-average stock market risk. Investors
should focus on the longer term (at least 5 years or more) and be
comfortable with fluctuation to the value of their principal. See "Other
Investment Policies and Risk Factors" on page 54.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
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When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30. See
page 61 for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager William F. Gadsden has set the Fund's overall
investment strategy since 1994 and has been part of the Fund's day-to-day
management since 1989. He has 15 years of investment industry experience
and joined Scudder in 1983. Bruce F. Beaty, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. He has 16 years of investment industry
experience and joined Scudder in 1991.
AARP INTERNATIONAL STOCK FUND
Fund Objective:
The Fund seeks to offer long-term capital growth from a diversified
portfolio of foreign equity securities, and to keep the value of its shares
more stable than other international equity funds.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors who want to add international stock market opportunities to
their portfolio in a convenient, low-cost way. The Fund is designed for
investors seeking long-term growth of their principal. Investors should
invest for the longer term (at least 5 years or more) and be comfortable
with the value of their principal fluctuating up and down. The Fund is also
available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal from a
professionally managed portfolio of securities selected from developed
foreign stock markets. It also offers the opportunity for investors to
further diversify their investment portfolios, which could help to lower
their overall risk. Unlike the AARP Global Growth Fund, which invests in
both U.S. and foreign markets, the AARP International Stock Fund will
invest solely in foreign markets.
One reason that some investors may wish to invest overseas is that certain
foreign economies may grow more rapidly than the U.S. economy and may offer
opportunities for achieving investment returns superior to those available
from investing in a fund which invests primarily in domestic equity
securities. Another reason is that foreign markets do not always move in
step with each other or with the U.S. market. A portfolio invested in a
number of markets worldwide will be better diversified than a portfolio
that is restricted to a single market.
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Another benefit of the Fund is that it eliminates the complications and
extra costs associated with direct investment in individual foreign
securities. Individuals investing directly in foreign stocks may find it
difficult to make purchases and sales, to obtain current information, to
hold securities in safekeeping, and to convert the value of their
investments from foreign currencies into U.S. dollars. The Fund manages
these tasks for the investor. With a single investment, the investor has a
diversified international investment portfolio, which is actively managed
by experienced professionals. The Fund Manager has had long experience in
dealing in foreign markets and with brokers and custodian banks around the
world. The Fund Manager also has the benefit of an established information
network and believes the Fund affords a convenient and cost-effective
method of investing internationally.
In pursuing long-term growth, the Fund typically will have more share price
fluctuation than most other AARP Funds. See "What are the risks?" below.
Growth will come primarily from possible appreciation in the value of
shares.
What does the Fund invest in?
The Fund generally invests in equity securities of established
dividend-paying companies listed on foreign exchanges within developed
foreign markets. The Fund does not invest in emerging markets, but instead,
focuses its investments on the 21 developed foreign countries included in
the Morgan Stanley Capital International World ex-US Index. The Fund will
normally invest at least 65% of its total assets in securities of at least
three different countries.
When the Fund Manager believes that it is appropriate, the Fund may invest
up to 20% of its total assets in investment-grade foreign debt securities.
Such debt securities include debt of foreign governments, supranational
organizations and private issuers, including bonds denominated in the
European Currency Unit (ECU). Debt investments will be selected on yield,
credit quality, and the outlooks for currency and interest rates in
different parts of the globe, taking into account the ability to hedge a
degree of currency or local bond price risk. The Fund may purchase
investment-grade bonds, which are those rated Aaa, Aa, A or Baa by Moody's
or AAA, AA, A or BBB by S&P or, if unrated, judged by the Fund Manager to
be of equivalent quality. Securities rated Baa by Moody's or BBB by S&P are
neither highly protected nor poorly secured. Moody's considers bonds it
rates Baa to have speculative elements as well as investment-grade
characteristics.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as Canadian or U.S. government obligations or currencies,
corporate debt instruments, and securities of companies incorporated in and
having their principal activities in Canada or the U.S. when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
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The Fund may make limited use of financial futures contracts and related
options and may also invest in foreign currency exchange contracts. The
Fund may write (sell) covered call options to enhance investment return,
and may purchase and sell options on stock indices for hedging purposes.
See "Other Investment Policies and Risk Factors" on page 54.
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced the first mutual fund available in
the U.S. investing internationally in securities of issuers in several
foreign countries. Today, Scudder manages over $8 billion in assets
invested in foreign markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through international investing. International investing
involves economic and political considerations not typically found in U.S.
financial markets.
Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory
taxes, possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities
may be less liquid and more volatile than comparable domestic securities,
and there is less government regulation of stock exchanges, brokers, listed
companies and banks than in the U.S. Purchases of foreign securities are
usually made in foreign currencies and, as a result, the Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in foreign
stocks, changes in the Fund's share value may be quite different than
movements in the U.S. stock markets. The Fund's share price will reflect
the movements of the different markets in which it is invested and the
currencies in which the investments are denominated. The strength or
weakness of the U.S. dollar against foreign currencies may account for part
of the Fund's investment performance. Investors should focus on the longer
term (at least 5 years or more) and be comfortable with fluctuation in the
value of their principal. Because of the Fund's international approach and
its associated risks, investment in shares of the Fund should be considered
as part of a broadly-diversified portfolio. See "Other Investment Policies
and Risk Factors" on page 54.
How does the Fund seek to manage risk?
While the Fund involves above-average equity risk, it is designed to lessen
volatility of its share price relative to other international stock funds.
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It does this by diversifying widely among relatively high dividend-paying
stocks issued in developed foreign markets.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30. See
page 61 for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Sheridan Reilly joined Scudder in 1995. He has
worked in Scudder's Global Equity Group and has over 10 years of investment
industry experience. Portfolio Manager Irene Cheng joined Scudder in 1993.
In addition to her 13 years of investment experience, Ms. Cheng has worked
on Scudder's institutional international equity accounts.
AARP SMALL COMPANY STOCK FUND
Fund Objective:
From investments primarily in the stocks of small U.S. companies, the Fund
seeks to provide long-term capital growth, and to keep the value of its
shares more stable than other small company stock funds.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors seeking high long-term growth of their principal. Investors
should invest for the longer term (at least 5 years or more) and be
comfortable with the value of their principal fluctuating up and down. The
Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
AARP Small Company Stock Fund combines the long-term capital appreciation
potential of small company stocks with the conservative nature of a
value-oriented, growth and income approach to investing. The Fund focuses
primarily on U.S. small capitalization stocks. The stocks held by the Fund
will have a higher average dividend yield than the small capitalization
stock segment of the market as a whole. These securities may be out of
favor or not closely followed by investors, yet, in the opinion of the Fund
Manager, may reward investors with substantial returns over time. U.S.
small capitalization stocks have outperformed large capitalization stocks
over time, although with greater volatility in returns. Since the Fund
involves both above-average performance opportunity and risk, it is
suitable for those individuals who are investing for a long-term goal, such
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as accumulating assets for retirement. The Fund should be considered as
part of a diversified portfolio, since it is not, by itself, a complete
investment program. Nonetheless, it can help round out an investment
portfolio already holding other types of stock and fixed-income
investments.
The Fund offers low-cost, convenient access to a part of the U.S. stock
market in which investors might otherwise find it difficult to participate.
On their own, individual investors might find it a challenge to analyze
data on small companies, receive complete, up-to-date financial
information, and buy and sell securities at favorable prices. The Fund's
management team assumes these responsibilities for investors.
What does the Fund invest in?
In pursuing its objective of long-term growth of principal, the Fund
normally remains substantially invested in the common stocks of small U.S.
companies. Using a quantitative investment approach developed by the Fund
Manager, the Fund focuses on equity securities of companies with market
capitalization below $1 billion that, as a group, have a dividend yield
higher than the average of those in the Russell 2000 IndexR and that the
Fund Manager believes are undervalued relative to the stocks in the Russell
2000 IndexR. The Russell 2000 IndexR is a widely used measure of small
stocks. The Fund will sell securities of companies that have grown in
market capitalization above this level as necessary to keep the Fund
focused on smaller companies.
The Fund takes a diversified approach to investing in small capitalization
stocks. After the Fund's start-up phase, it will not be unusual for it to
hold stocks of more than one hundred small companies, representing a
variety of U.S.
industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either
convertible or nonconvertible), rights and warrants. Securities may be
listed on national exchanges or traded over-the-counter. The Fund may
invest up to 20% of its assets in U.S. Treasury, agency and instrumentality
obligations, may enter into repurchase agreements and may make use of
financial futures contracts and related options. The Fund may purchase and
sell options or futures on stock indices for hedging purposes or as a
temporary investment to accommodate cash flows. See "Other Investment
Policies and Risk Factors" on page 54.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as U.S. government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
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What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through investing in small company stocks. Investors
should focus on the longer term (at least 5 years or more) and be
comfortable with fluctuation in the value of their principal which may be
considerable at times. See "Other Investment Policies and Risk Factors" on
page 54.
How does the Fund seek to manage risk?
While the Fund involves above-average stock market risk, the Fund is
designed to lessen volatility of its share price relative to other small
company stock funds. It does this by using a highly systematic investment
style that focuses on value-oriented, small capitalization issues which,
grouped together, provide higher than average dividend income. Risk is
further managed by diversifying among a large number of stocks, and by
using specialized portfolio management techniques.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as
little as $500, if you establish an Automatic Investment Plan for at least
$100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
only $250.
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
gain typically will be distributed annually after September 30. See page 61
for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager James M. Eysenbach has responsibility for setting
the Fund's investment strategy and for overseeing the Fund's day-to-day
management. Mr. Eysenbach joined Scudder in 1991 as a senior quantitative
analyst and is currently director of quantitative research for Scudder. Mr.
Eysenbach has more than ten years investment research and management
experience. Philip S. Fortuna, Portfolio Manager, joined Scudder in 1986 as
manager of institutional equity accounts. He became director of
quantitative research in 1987 and served as director of investment
operations from 1993 to 1994.
AARP MANAGED INVESTMENT PORTFOLIOS:
DIVERSIFIED INCOME PORTFOLIO
DIVERSIFIED GROWTH PORTFOLIO
The AARP Managed Investment Portfolios are two professionally managed,
diversified portfolios of the AARP Managed Investment Portfolios Trust (the
"Trust"). In pursuit of its investment objective, each Portfolio invests in a
select mix of the conservatively managed AARP mutual funds ("underlying mutual
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funds"). Each portfolio is designed to serve as a complete investment program or
as a core part of a larger portfolio, while keeping the value of its shares more
stable than a similar mix of stock and bond investments.
Portfolio Objectives:
o The Diversified Income Portfolio seeks to provide current income with
modest long-term appreciation by investing primarily in AARP bond
mutual funds.
o The Diversified Growth Portfolio seeks long-term growth of capital by
investing primarily in AARP stock mutual funds.
For whom are the Portfolios designed?
The AARP Managed Investment Portfolios are designed for individuals who prefer
to have asset allocation decisions made by professional money managers and
appreciate the advantages of broad diversification through a single investment.
o The Diversified Income Portfolio may be appropriate for conservative
investors nearing retirement or investors enjoying retirement, who are
looking for income with some appreciation potential. Investors should
be prepared to invest for 3 years or more.
o The Diversified Growth Portfolio may be appropriate for long-term
investors planning for retirement or more aggressive retired investors
with an investment time horizon of at least 5 years or more.
What do the Portfolios offer to investors?
Both Portfolios offer investors a simple means to allocate their assets to
pursue a certain goal. Each Portfolio can serve as a complete investment
program, or as a core part of a larger portfolio.
o The Diversified Income Portfolio offers investors the opportunity for
income and some share price appreciation by investing in a diversified
portfolio consisting primarily of AARP bond mutual funds, and
secondarily, AARP stock and AARP money market mutual funds.
o The Diversified Growth Portfolio offers investors the opportunity for
long-term growth of principal by investing in a diversified portfolio
comprised primarily of AARP stock mutual funds, and secondarily, AARP
bond and AARP money market mutual funds.
o Both portfolios offer shareholders an investment choice that is
broadly diversified.
o Both portfolios are managed by investment professionals at Scudder.
o No additional management fees or expenses are charged for allocation
among the AARP mutual funds.
What does each Portfolio invest in?
Each Portfolio may invest in any of the AARP mutual funds, except for those
designed to provide tax-free income. Both Portfolios will avoid taking extreme
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investment positions in an effort to "time the market." Rather, shifts among
AARP stock and bond mutual funds are expected to occur only periodically and in
generally small increments.
Under normal market conditions, each of the AARP Managed Investment Portfolios
will invest within the investment ranges described below:
o The Diversified Income Portfolio will normally invest 60-80% of total
assets in AARP bond mutual funds; and 20-40% of total assets in AARP
stock mutual funds; and 0-20% of total assets in cash or equivalents.
o The Diversified Growth Portfolio will normally invest 60-80% of total
assets in AARP stock mutual funds; 20-40% of total assets in AARP bond
mutual funds; and 0-20% of total assets in cash or cash equivalents.
If, as a result of appreciation or depreciation, the percentage of the
Portfolios' assets invested in the above categories exceeds or is less than the
applicable range, the Fund Manager will consider whether to reallocate the
assets of the Portfolio to comply with the stated ranges.
Each Portfolio will purchase or sell shares of underlying AARP mutual funds to:
(a) accommodate purchases and sales of each Portfolio's shares, (b) change the
percentages of each Portfolio's assets invested in each of the underlying AARP
mutual funds in response to changing market conditions, and (c) maintain or
modify the allocation of each Portfolio's assets in accordance with the
investment mix described above. To provide for redemptions or for temporary
defensive purposes, each Portfolio may invest without limit in cash or cash
equivalents, including repurchase agreements, commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks.
What are the risks?
Each Portfolio's risks are determined by the nature of the securities held by
the underlying AARP mutual funds as well as the proportion of investment in each
underlying AARP mutual fund that, in turn, reflects the portfolio management
strategies used by the Fund Manager. The following are descriptions of certain
risks related to investments in each Portfolio.
o As the investments in each Portfolio are oriented within a group of
underlying AARP mutual funds, the performance of a Portfolio is
directly related to the investment performance of these underlying AARP
mutual funds. The ability of a Portfolio to meet its investment
objective is directly related to the ability of the underlying AARP
mutual funds to meet their objectives as well as the allocation among
those underlying AARP mutual funds by the portfolio management team.
o Each Portfolio's share price and yield will fluctuate in response to
various market and economic factors related to both the stock and bond
markets. Certain of the underlying AARP mutual funds invest in debt
securities making them subject to credit risk, interest rate risk and
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pre-payment risk. Other underlying AARP mutual funds invest in equity
securities that will fluctuate in value with changing stock market
conditions and related factors. Also, each Portfolio can invest in
underlying AARP mutual funds that are, in turn, invested in
international securities and thus are subject to additional risks of
these investments including changes in foreign currency exchange rates
and political risk.
For information about the investment techniques and the risks involved in the
underlying AARP mutual funds, please refer to each underlying Fund's description
elsewhere in this prospectus and "Other Investment Policies and Risk Factors" on
page 54.
How do the Portfolios seek to manage risk?
The Portfolios seek to manage risk through active portfolio management and
diversification. Each Portfolio will invest in at least five underlying AARP
mutual funds, all of which are managed for reduced share price volatility.
What is the minimum initial investment?
The minimum initial investment is $2,000. You may open an account with as little
as $500, if you establish an Automatic Investment Plan for at least $100/month.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of only
$250.
When are distributions paid?
Dividends on the Diversified Income Portfolio will be declared and distributed
monthly to investors. Any dividends on the Diversified Growth Portfolio will be
distributed in December. Any net realized capital gain for the Portfolios
typically will be distributed after September 30. See page 61 for additional
information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Philip S. Fortuna joined Scudder in 1986 as manager of
institutional equity accounts. He became director of quantitative research in
1987 and served as director of investment operations from 1993 to 1994.
Portfolio Manager Salvatore J. Bruno joined Scudder in 1991 and serves as a
quantitative analyst in Scudder's Quantitative Services Group. Mr. Bruno has
over 5 years of investment experience and is responsible for the strategic
decision making and periodic reallocation of the funds. Shahram Tajbakhsh,
Portfolio Manager, joined Scudder in 1996 and is also responsible for the
strategic decision making and allocation of the funds. Mr. Tajbakhsh has over 5
years of industry experience, which includes work in developing analytical
investment tools.
Description of the Underlying AARP Mutual Funds
Details on the investment objectives and policies of the underlying AARP mutual
funds are included in this prospectus. As with any investment, there is no
guarantee that the AARP Investment Portfolios or the underlying AARP mutual
funds will successfully meet their investment objectives.
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The Portfolios may invest in the following AARP money market mutual fund which
is designed to provide stability of principal and income:
AARP High Quality Money Fund see page 19
The Portfolios may invest in the following AARP mutual funds which are designed
to provide current income:
AARP GNMA and U.S. Treasury Fund see page 24
AARP High Quality Bond Fund see page 26
AARP Bond Fund for Income see page 28
The Portfolios may invest in the following AARP mutual funds designed to provide
long-term growth of capital:
AARP Balanced Stock and Bond Fund see page 33
AARP Growth and Income Fund see page 36
AARP U.S. Stock Index Fund see page 38
AARP Global Growth Fund see page 40
AARP Capital Growth Fund see page 43
AARP International Stock Fund see page 45
AARP Small Company Stock Fund see page 48
OTHER INVESTMENT POLICIES AND RISK FACTORS
Below are some detailed descriptions of several types of securities and
investment techniques referred to in this prospectus.
Maintaining $1.00 Constant Share Price in Money Funds
The AARP High Quality Money Fund and the AARP High Quality Tax Free Money Fund
attempt to maintain a constant net asset value per share. To do so, they operate
in accordance with a rule of the Securities and Exchange Commission (SEC) that
requires all assets to be cash, cash items, and high-quality U.S.
dollar-denominated investments having a remaining maturity of generally not more
than 397 calendar days from the date of purchase. The AARP High Quality Money
Fund, however, may invest in U.S. Government securities having maturities of up
to 762 calendar days. The SEC also requires that the average dollar-weighted
maturity of these Funds not exceed 90 days.
When-Issued Securities
All AARP Mutual Funds, except the AARP Growth and Income Fund, the AARP U.S.
Stock Index Fund, the AARP Global Growth Fund, the AARP Capital Growth Fund, the
AARP International Stock Fund, and the AARP Small Company Stock Fund, may
purchase securities on a when-issued or forward delivery basis. That means
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payment and delivery of the security will be at a later date. The price and
yield are generally fixed on the date of commitment to purchase. The Fund does
not earn interest before delivery of the security. At the time of settlement,
the market value of the security may be more or less than the purchase price.
Repurchase Agreements
This is an agreement under which a Fund may buy one or more U.S. Government
obligations which the seller simultaneously agrees to repurchase at a specified
time and price. The Fund can earn income for periods as short as overnight. Such
an agreement may enhance liquidity since it is normally a short-term commitment.
If the seller under a repurchase agreement becomes insolvent, the Fund's right
to sell the securities may be restricted. Also, the value of such securities may
decline before the Fund can sell them. The Fund might also incur transaction
costs by selling the securities.
Each of the AARP Mutual Funds may enter into repurchase agreements only with
Federal Reserve member banks or broker-dealers recognized as reporting
government securities dealers.
Mortgage and other asset-backed securities
The AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond Fund, the AARP
Bond Fund for Income, and the AARP Balanced Stock and Bond Fund may invest in
mortgage-backed securities, which are securities representing interests in pools
of mortgage loans. These securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of a Fund's shares. When interest
rates rise, mortgage prepayment rates decline, thus lengthening the life of a
mortgage-related security and increasing the price volatility of that security,
affecting the price volatility of the Fund's shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. In addition, the AARP High Quality Bond Fund and the AARP
Balanced Stock and Bond Fund may invest in mortgage-backed securities issued by
other issuers, such as the Federal National Mortgage Association (FNMA), which
are not guaranteed by the U.S. Government. Moreover, the Funds may invest in
debt securities which are secured with collateral consisting of mortgage-backed
securities and in other types of mortgage-related securities.
The AARP High Quality Bond Fund, the AARP Bond Fund for Income, and the AARP
Balanced Stock and Bond Fund may also invest in securities representing
interests in pools of certain other consumer loans, such as automobile loans or
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credit card receivables. In some cases, principal and interest payments are
partially guaranteed by a letter of credit from a financial institution.
Zero Coupon Securities
The AARP Balanced Stock and Bond Fund, AARP Bond Fund for Income and the AARP
Global Growth Fund may invest in zero coupon securities which pay no cash income
and are issued at substantial discounts from their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
cash distributions of interest.
High Yield/High Risk Securities
AARP Bond Fund for Income may invest a limited amount of assets in debt
securities which are rated below investment-grade (hereinafter referred to as
"lower rated securities") or which are unrated, but deemed equivalent to those
rated below investment-grade by the Fund Manager. The lower the ratings of such
debt securities, the greater their risks. These debt instruments generally offer
a higher current yield than that available from higher grade issues, but
typically involve greater risk. The yields on high yield/high risk bonds will
fluctuate over time. In general, prices of all bonds rise when interest rates
fall and fall when interest rates rise. While less sensitive to changing
interest rates than investment-grade debt, lower rated securities are especially
subject to adverse changes in general economic conditions and to changes in the
financial condition of their issuers. During periods of economic downturn or
rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities
especially in a market characterized by only a small amount of trading and with
relatively few participants. These factors can also limit the Fund's ability to
obtain accurate market quotations for these securities, making it more difficult
to determine the Funds' net asset value.
In cases where market quotations are not available, lower rated securities are
valued using guidelines established by the Fund's Board of Trustees. Perceived
credit quality in this market can change suddenly and unexpectedly, and may not
fully reflect the actual risk posed by a particular lower rated or unrated
security.
Foreign Securities
Each of the Funds in the AARP Growth Trust, and the AARP High Quality Bond Fund
and the AARP Bond Fund for Income may invest without limit in foreign
securities.
Investments in foreign securities may benefit a Fund by providing access to
different markets and opportunities. It may also help to reduce risk by
increasing diversification. However, foreign securities involve special
considerations. Brokerage costs are higher. Information about foreign securities
is more limited. Foreign companies or securities often have different and less
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stringent government regulations, different accounting standards, slower
settlement of transactions, and more limited and volatile trading markets.
Investments in foreign securities may also involve other risks. These include
possible imposition of withholding, confiscatory and other taxes; possible
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; and the difficulty of
enforcing obligations in other countries. A Fund may incur currency conversion
costs of purchases made in foreign currencies. There may also be favorable or
unfavorable consequences from the changes in the value of foreign currencies
against the U.S. dollar.
Derivatives
The following descriptions of Forward Foreign Currency Exchange Contracts,
Options Transactions, Futures Contracts and Related Options discuss the types of
derivatives in which certain of the AARP Mutual Funds may invest.
Forward Foreign Currency Exchange Contracts
Each of the Funds in the AARP Growth Trust, and the AARP High Quality Bond Fund
and the AARP Bond Fund for Income may enter into forward foreign currency
exchange contracts. These contracts, which involve costs, permit the funds to
purchase or sell a specific amount of a particular currency at a specified price
on a specified future date. They may be used by a Fund only to hedge against
possible variations in exchange rates of currencies in countries in which it may
invest.
A Fund will realize a benefit only to the extent that the relevant currencies
move as anticipated. If the currencies do not move as anticipated, the use of
these contracts may result in losses greater than if they had not been used.
Options Transactions
In an attempt to enhance investment returns, Funds in the AARP Growth Trust and
the AARP Income Trust may each write covered call options. These are agreements
to sell a particular security in the Fund's portfolio at a specified price on or
before the expiration date of the option. Covered call options may be written on
portfolio securities worth up to 25% of the Fund's net assets.
There are risks associated with writing covered options. These include the
possible inability to make closing transactions at favorable prices or because
an exercise notice has been received. The Funds also risk giving up appreciation
on the underlying security in excess of the exercise price.
Each of the Funds in the AARP Growth Trust may purchase and sell exchange-traded
options on stock indices. In addition, these Funds may engage in
over-the-counter options transactions with broker-dealers who make markets in
these options. Over-the-counter options may be more difficult to terminate than
exchange-traded options. They are frequently illiquid, and involve counterparty
credit risk. The Fund Manager will engage in such transactions to hedge against
unfavorable price movements which can adversely affect the value of the Fund's
securities or securities the Fund intends to buy. These transactions involve
risk, including the risk that market prices may move in unanticipated directions
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or will not correlate well with a Fund's portfolio, causing a Fund to lose the
value of the option premium and to fail to realize any benefit from the
transaction. Further, a closing transaction may not be available when a Fund
wishes to close out a transaction.
Futures Contracts and Related Options
To a limited extent, the Funds in the AARP Income Trust and the AARP Insured Tax
Free General Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP Global
Growth Fund, the AARP International Stock Fund, AARP U.S. Stock Index Fund, and
the AARP Small Company Stock Fund may enter into financial futures contracts
including futures contracts on securities indices, may purchase and write
related put and call options, and may engage in related closing transactions.
These techniques are used to attempt to protect against adverse effects of
interest rates changes or currency changes in the case of the AARP High Quality
Bond Fund, the AARP Bond Fund for Income, the AARP Global Growth Fund, and the
AARP International Stock Fund. For example, a particular index-based futures
contract may be used when the Fund Manager believes that correlation exists
between price movements in an index-based futures contract and securities in a
Fund's portfolio. Such correlation is not likely to be perfect. That is because
a Fund's portfolio is not likely to contain the same securities used in the
index.
The margin deposits for futures contracts and premiums paid for related options
may not be more than 5% of a Fund's total assets. These transactions require a
Fund to segregate assets (such as liquid securities and cash) to cover contracts
that would require it to purchase securities. These transactions also result in
brokerage costs.
These techniques involve some risk. A Fund may be precluded from realizing a
benefit from favorable price movements in the related portfolio position of the
Fund and could lose the expected benefit of the transactions if interest rates
or currency changes in the case of AARP High Quality Bond Fund, AARP Bond Fund
for Income, AARP Global Growth Fund, or AARP International Stock Fund, move in
an unanticipated manner. To the extent that the Fund Manager's view of market
movements is incorrect, the use of such instruments may result in losses greater
than if they had not been used. In addition, if the AARP Insured Tax Free
General Bond Fund purchases futures contracts on taxable securities or indices
of such securities, their value may not fluctuate in proportion to the value of
the Fund's securities. This would limit that Fund's ability to hedge effectively
against interest rate risk. Further, while a Fund buys a futures contract only
if there appears to be a liquid secondary market for such contracts, there can
be no assurance that a Fund will be able to close out any particular futures
contract.
Segregated Accounts
Each Fund may be required to segregate assets (such as cash, U.S. Government
securities and other high grade debt obligations) or otherwise provide coverage
consistent with applicable regulatory policies. This would be in respect to the
Fund's permissible obligations under the call and put options it writes, the
forward foreign currency exchange contracts it enters into and the futures
contracts it enters into.
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Convertible Securities
Each Fund in the AARP Growth Trust, AARP High Quality Bond Fund, and AARP Bond
Fund for Income may invest in convertible securities. Convertible securities
include convertible bonds, notes and debentures, convertible preferred stocks,
and other securities that give the holder the right to exchange the security for
a specific number of shares of common stock. Convertible securities entail less
credit risk than the issuer's common stock because they are considered to be
"senior" to common stock. Convertible securities generally offer lower interest
or dividend yields than non-convertible debt securities of similar quality. They
may also reflect changes in value of the underlying common stock.
Demand Obligations
Each of the AARP Mutual Funds may purchase demand obligations. Demand
obligations permit the holder to demand payment of a specified amount prior to
maturity. The holder's right to payment depends upon the issuer's ability to pay
principal and interest on demand. A Fund will purchase demand notes only to
enhance liquidity. The Fund Manager will continuously monitor the
creditworthiness of issuers of such obligations.
Stand-by Commitments
The AARP Tax Free Funds may enter into stand-by commitments (also known as puts)
to facilitate liquidity. Stand-by commitments permit a Fund to resell municipal
securities to the original seller at a specified price and generally involve no
cost. Costs, in any event, are limited to .5% of a Fund's total assets. To
minimize the risk that the seller may not be able to repurchase the security,
the Fund Manager will monitor the creditworthiness of the seller.
"Put" Bonds
The AARP Tax Free Funds may also purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution. This
allows the Funds to tender (or "put") bonds to the institution at specified
intervals and receive the face value of them. For the AARP High Quality Tax Free
Money Fund, an interval can not exceed 397 calendar days. These third party puts
are available in several different forms. They may be custodial receipts or
trust certificates, and may be combined with other features such as interest
rate swaps.
Tax-exempt Participation Interests
The AARP Tax Free Funds may purchase tax-exempt participation interests from a
bank representing a fully-insured portion of the bank's holdings of municipal
securities. The Fund will obtain an irrevocable letter of credit or guarantee
from the bank and will have, under certain circumstances, the right to resell
the participation to the bank on 7 days' notice. To the extent any participation
interest is illiquid, it is subject to the Fund's limit on restricted and not
readily marketable securities.
Municipal Lease Obligations
The AARP Tax Free Funds may also invest in municipal lease obligations generally
as a participation interest in a municipal obligation from a bank or other
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financial intermediary. Municipal lease obligations are issued by state and
local governments to acquire land, equipment or facilities. Unlike general
obligation or revenue bonds, these contracts are not secured by the issuer's
credit, and if the issuing state or local government does not appropriate
payments, the lease may terminate, leaving the funds with property that may
prove costly to dispose of. In deciding which contracts to invest in, the Fund
Manager evaluates the likelihood of the governmental issuer discontinuing
appropriation for the leased property.
Portfolio Turnover
Each of the AARP Funds may buy and sell securities to take advantage of
investment opportunities. The Fund Manager will do so to improve overall
investment return consistent with that Fund's objectives. These transactions
involve transaction costs in the form of spreads or brokerage commissions.
Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the AARP High Quality Bond
Fund. A higher rate involves greater transaction costs to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed.
In the case of AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund, it is anticipated,
under normal investment conditions, that the Fund's portfolio turnover rate will
not exceed 75% for the initial fiscal year. In the case of AARP Diversified
Income Portfolio and AARP Diversified Growth Portfolio, it is anticipated, under
normal investment conditions, that the Fund's portfolio turnover rate will not
exceed 50% for the initial fiscal year. However, economic and market conditions
may necessitate more active trading, resulting in a higher portfolio turnover
rate.
INVESTMENT RESTRICTIONS
To help reduce investment risk, each of the AARP Mutual Funds has adopted
certain investment policies. Only the shareholders can approve changes to the
following policies:
o A Fund may not make loans. (A purchase of a debt security is not a loan
for this purpose.) However, the Fund may lend its portfolio securities
and enter into repurchase agreements.
o A Fund may borrow money only for temporary or emergency purposes.
A complete description of these and other policies and restrictions is contained
in the Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES
Are taxes withheld?
Generally, taxes are not withheld on purchases, redemptions, or distributions.
However, federal tax law requires the AARP Mutual Funds to withhold 31% of
taxable dividends, capital gain distributions and redemption or exchange
proceeds for accounts without a certified social security or tax identification
number, or other certified information. To avoid this withholding, make sure you
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complete and sign the Signature and Investor Information Section of your
Enrollment Form. AARP IRA, AARP SEP-IRA and AARP Keogh Plan accounts are exempt
from withholding regulations.
The AARP Mutual Funds reserve the right to reject Enrollment Forms or close
accounts without a certified Social Security or tax identification number. In
such cases, Enrollment Forms received without this information will be returned
to the investor with a check for the amount invested.
What else should I know about distributions and taxes?
o You can receive your dividend and capital gain distributions in one of
three ways:
1. You can have a check sent to your address or to your bank;
2. You can reinvest them in additional shares of an AARP Mutual
Fund; or
3. You can invest them in shares of another AARP Mutual Fund.
o If your investment is in the form of an AARP IRA, AARP SEP-IRA or AARP
Keogh Plan account, all distributions are automatically reinvested.
o If you reinvest your dividends and capital gains, you will be
purchasing shares at the current share price.
o All taxable dividends from net investment income are taxable to you as
ordinary income. This is so whether you receive dividends as cash or
additional shares.
o Capital gains distributions are also currently taxable, whether
received in cash or reinvested.
o Distributions of short-term capital gains by all the AARP Mutual Funds
are taxable as ordinary income.
o Distributions of long-term capital gains are taxable for federal income
tax purposes as long-term capital gains regardless of the length of
time you have owned shares. Any capital gain distributed by the AARP
Tax Free Funds are generally taxable in the same manner as
distributions by other Funds.
o The AARP Tax Free Funds are managed to pay you dividends free from
federal income taxes, including the Alternative Minimum Tax (AMT).
However, these dividends may be subject to state and local income
taxes. Also, these dividends are taken into account in determining
whether your income is large enough to subject a portion of your Social
Security benefits and certain Railroad Retirement benefits, if any, to
federal income taxes.
o If you are a shareholder in the AARP Global Growth Fund or the AARP
International Stock Fund, you may be able to claim a credit or
deduction on your income tax return for your pro rata portion of
qualified taxes paid by the Fund to foreign countries.
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o Each AARP Mutual Fund annually sends you detailed tax information about
the amount and type of its distributions.
o A redemption involves a sale of shares and may result in a capital gain
or loss for federal income tax purposes. Exchanges are treated as
redemptions for federal income tax purposes. Exchanges occur when you
sell shares in one AARP Mutual Fund and purchase shares in another AARP
Mutual Fund.
o The AARP Mutual Funds reserve the right to make extra distributions for
tax purposes.
FUND ORGANIZATION
The AARP Investment Program Trusts
The 15 mutual fund portfolios described in this prospectus are organized as five
Massachusetts business trusts--AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust, AARP Growth Trust and AARP Managed Investment
Portfolios Trust. Each trust is a diversified, open-end management investment
company registered under the Investment Company Act of 1940. The AARP Cash
Investment Funds was organized in January 1983, and the AARP Income Trust, the
AARP Tax Free Income Trust and the AARP Growth Trust were organized in June
1984. The AARP Tax Free Income Trust (formerly the AARP Insured Tax Free Income
Trust) was renamed effective August 1, 1991. The AARP Managed Investment
Portfolios Trust was organized in October 1996.
General Management
The Trustees have overall responsibility for the management of the Trusts under
Massachusetts law. Under their direction, the Fund Manager--Scudder, Stevens &
Clark, Inc.--provides general investment management of the AARP Mutual Funds.
The Trustees supervise each Trust's activities. The shareholders elect the
Trustees and may remove them. Shareholders have one vote per share held on
matters on which they are entitled to vote.
The Trusts are not required to hold annual shareholder meetings and have no
current intention to do so. There may be special meetings for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment advisory contract. The Fund Manager will help shareholders to
communicate with other shareholders in connection with removing a Trustee as if
Section 16(c) of the Investment Company Act of 1940 applied.
Since the Trusts use a combined prospectus, it is possible that one Trust or
AARP Mutual Fund might become liable for a misstatement in this prospectus
regarding another Trust or AARP Mutual Fund. The Trustees of each Trust
considered this risk when approving the use of a combined prospectus.
The right of the Trusts and AARP Mutual Funds to use the AARP name will end upon
termination of the member services agreement with the Fund Manager unless AARP
otherwise agrees to let the AARP Mutual Funds continue to use the AARP name.
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Management Fees
Each AARP Mutual Fund, except for the AARP Managed Investment Portfolios, pays
the Fund Manager a fee for management and administrative services. The
management fee consists of two elements: a Base Fee and an Individual Fund Fee.
The Base Fee is calculated as a percentage of the combined net assets of all of
the AARP Mutual Funds. Each AARP Mutual Fund, except for the AARP Managed
Investment Portfolios, pays, as its portion of the Base Fee, an amount equal to
the ratio of its daily net assets to the daily net assets of all of the AARP
Mutual Funds. The table below shows the annual Base Fee Rate at specified levels
of Program assets:
Annual Base Fee Rate Program Assets
---------------------------------------------------
.350% First $2 billion
.330% Next $2 billion
.300% Next $2 billion
.280% Next $2 billion
.260% Next $3 billion
.250% Next $3 billion
.240% Thereafter
In addition to the Base Fee Rate, each AARP Mutual Fund, except for the AARP
Managed Investment Portfolios, pays a flat Individual Fund Fee based on the net
assets of that Fund. This fee rate is not linked to the total assets of the
Program. The Individual Fee Rate recognizes the different characteristics of
each AARP Mutual Fund, the varying levels of complexity of investment research
and securities trading required to manage each Fund, as well as the relative
value that can be, and has been, added by the Fund Manager. The table below
shows the Individual Fund Fee Rate for each of the AARP Mutual Funds:
Fund Individual Fee Rate
-----------------------------------------------------------
AARP High Quality Money Fund .10%
AARP High Quality Tax Free Money Fund .10%
AARP GNMA and U.S. Treasury Fund .12%
AARP High Quality Bond Fund .19%
AARP Bond Fund for Income .28%
AARP Insured Tax Free General Bond .19%
Fund
AARP Balanced Stock and Bond Fund .19%
AARP Growth and Income Fund .19%
AARP U.S. Stock Index Fund 0%
AARP Global Growth Fund .55%
AARP Capital Growth Fund .32%
AARP International Stock Fund .60%
AARP Small Company Stock Fund .55%
Under this fee structure, the combined Base Fee and the Individual Fund Fee,
called the "Effective Management Fee Rate," would be reduced if total Program
assets increase to certain levels, regardless of whether an individual AARP
Mutual Fund's assets increase or decrease. The converse is also true--if assets
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decrease to certain levels, the Effective Management Fee Rate increases,
regardless of any increase or decrease in assets of an individual AARP Fund. For
the fiscal year ended September 30, 1996, fees paid to the Fund Manager totaled
.39 of 1% of the average daily net assets of the AARP High Quality Money Fund,
.46 of 1% of the AARP High Quality Tax Free Money Fund, .41 of 1% of the AARP
GNMA and U.S. Treasury Fund, .62 of 1% of the AARP Capital Growth Fund, .48 of
1% of the AARP High Quality Bond Fund, .49 of 1% of the AARP Insured Tax Free
General Bond Fund and AARP Growth and Income Fund, .48 of 1% of the AARP
Balanced Stock and Bond Fund and .29 of 1% of the AARP Global Growth Fund.
The Fund Manager pays a portion of the management fee to AARP Financial Services
Corporation (AFSC). AFSC provides the Fund Manager with advice and other
services relating to AARP Fund investment by AARP members.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
Under the Investment Management Agreements with the Fund Manager, the Funds are
responsible for all of their expenses, including fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and executive employees of the Trusts who are not affiliated
with the Fund Manager; the cost of printing and distributing reports and notices
to shareholders; and the fees and disbursements of custodians.
Special Servicing Agreement for the AARP Managed Investment Portfolios
All the expenses of the AARP Managed Investment Portfolios will be paid for in
accordance with a Special Servicing Agreement (the "Agreement") entered into by
the Fund Manager, the underlying AARP mutual funds, Scudder Service Corporation,
Scudder Fund Accounting Corporation, Scudder Investor Services, Inc. and each
Portfolio. Under each Agreement, the Fund Manager will arrange for all services
pertaining to each operation of each Portfolio including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolio. If
the Trustees determine that the aggregate expenses of a Portfolio are less than
the estimated savings to the underlying AARP mutual fund from the operation of
the Portfolio, the underlying AARP mutual fund will bear those expenses in
proportion to the average daily value of its shares owned by the Portfolio.
Consequently, no underlying AARP fund will be expected to carry expenses that
are in excess of the estimate of savings to it. The estimated savings are
expected to result from the reduction of shareholder servicing costs due to the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the underlying AARP mutual funds. The estimated
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savings produced by the operation of a Portfolio will most likely suffice to
offset most, if not all, the expenses incurred by the Portfolio.
In the event that the aggregate financial benefits to the underlying AARP mutual
funds do not exceed the costs of a Portfolio, the Fund Manager will pay, on
behalf of the Portfolio, that portion of costs determined to be greater than the
benefits.
All expenses of each Portfolio, excluding certain non-recurring and
extraordinary expenses, will be paid for in accordance with the Agreement,
including fees and expenses incurred in connection with membership in investment
company organizations; fees and expenses of the Portfolio's accounting agent;
brokers' commissions; legal, auditing and accounting expenses; taxes and
governmental fees; the fees and expenses of the transfer agent; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Portfolio who are not
affiliated with the Fund Manager; the cost of printing and distributing reports
and notices to shareholders; and the fees and disbursements of custodians.
UNDERSTANDING FUND PERFORMANCE
Performance of an AARP Mutual Fund may be included in advertisements, sales
literature or shareholder reports. Important components of performance are
yield, total return and cumulative total return. These components vary based on
changes in market conditions, the level of interest rates and the level of the
Fund's expenses. Yield, total return, and cumulative total return are based on
historical earnings and are not intended to indicate future performance.
What is Yield?
For the AARP High Quality Money Fund, the AARP Income Funds, AARP Tax Free Funds
and AARP Diversified Income Portfolio, yield is a measure of income. Yield
refers to the net investment income generated over a specific period of time. It
is always calculated using a standard industry formula so it is a useful way to
compare the income produced by different mutual funds. For non-money market
funds, the "SEC yield" is an annualized expression of net investment income
generated by the investments in the fund over a specified 30-day period. This
income is then annualized and then expressed as a percentage. This yield is
calculated according to methods required by the SEC, and may not equate to the
level of income paid to shareholders. For money market funds, yield refers to
the net investment income generated by the fund over a specified 7-day period.
This income is then annualized and expressed as a percentage. For the money
market funds, effective yield is expressed similarly but, when annualized, the
income earned by an investment in the fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
For GNMA securities, net investment income includes realized gains or losses
based on historic cost for principal repayments received. For other securities,
net investment income includes the amortization of market premium or market
discount.
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What is Total Return?
The total return of a mutual fund refers to the average annual percentage change
in value of an investment in the fund assuming that the investment has been held
for the stated period. Total return quotations are expressed in terms of average
annual compound rates of return for all periods quoted and assume that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is Cumulative Total Return?
Cumulative total return of a mutual fund represents the cumulative change in
value of an investment in a fund for various periods. It assumes that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is meant by Tax-Equivalent Yield and how is it calculated?
To determine if tax-free investing is right for you, it is helpful to convert a
yield from a tax-free mutual fund to its equivalent taxable yield. The
tax-equivalent yields of the AARP Tax Free Funds, which may be quoted from time
to time, let you determine the yield you would have to receive from a fully
taxable investment to produce an after-tax yield equivalent to a tax-free fund.
The calculation is as follows:
Tax-Free Yield = Tax-Equivalent Yield
--------------------
100% - your tax rate
Example: If a tax-free mutual fund has a 30-day average annualized yield of
5.30% and you are in the 31% tax bracket, the calculation would be:
5.30% = 7.68%
----------
100% - 31%
You would need to earn 7.68% with a taxable investment to equal the 5.30% yield
of a tax-free fund. The tax-equivalent yield will vary depending upon your
income tax bracket.
UNDERSTANDING SHARE PRICE
How is a Fund's share price determined?
Share price is based on a Fund's net assets. It is calculated by dividing the
current market value (amortized cost in the case of the AARP High Quality Tax
Free Money Fund) of total fund assets, less all liabilities, by the total number
of shares outstanding. Scudder Fund Accounting Corporation, a subsidiary of the
Fund Manager, determines net asset value per share of each Fund as of the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern
time on each day the Exchange is open for trading. For AARP High Quality Money
Fund and AARP High Quality Tax Free Money Fund, Scudder Fund Accounting
Corporation also determines net asset value per share as of noon Eastern time on
each day the Exchange is open for trading. The Trusts reserve the right to
suspend the sale of Fund shares after appropriate notice to shareholders if the
Trustees determine that it is in the best interest of shareholders.
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OPENING AN ACCOUNT
How do I get started?
Decide on the AARP Mutual Fund or Funds which meets your needs. Then fill out,
sign and return your Enrollment Form with your check in the postage paid
envelope provided. Once your Enrollment Form is received, an account number will
be assigned to you. Your check should only be drawn on a U.S. bank and be
payable to the AARP Investment Program.
If you don't want to send your check through the mail, you can send a bank wire.
Simply fill out and return your Enrollment Form in the mail. Then, before you
send the wire, call an AARP Mutual Fund Representative. The Representative will
set up the account and contact you to provide you with your account number and
further wiring instructions. To complete the wire transfer, follow the special
wire transfer instructions below. Please note you cannot open AARP IRA or AARP
Keogh Plan accounts by wire.
What is the minimum investment?
The minimum initial investment for the AARP GNMA and U.S. Treasury Fund, the
AARP Balanced Stock and Bond Fund, and the AARP Growth and Income Fund is $500.
All other AARP Mutual Funds have a minimum initial investment of $2,000:
AARP High Quality Money Fund AARP U.S. Stock Index Fund
AARP High Quality Bond Fund AARP Global Growth Fund
AARP Bond Fund for Income AARP Capital Growth Fund
AARP High Quality Tax Free Money Fund AARP International Stock Fund
AARP Insured Tax Free General Bond Fund AARP Small Company Stock Fund
AARP Managed Investment Portfolios:
AARP Diversified Income Portfolio AARP Diversified Growth Portfolio
You may open an account in one of the mutual funds listed above with as little
as $500, if you establish an Automatic Investment Plan for at least $100/month.
Please call an AARP Mutual Fund Representative at 1-800-253-2277 for more
information.
You can open an AARP IRA or AARP UGMA/UTMA in any of the AARP Mutual Funds with
an initial investment of only $250 per fund account.
What happens if my investment falls below its minimum balance?
The Funds reserve the right to redeem accounts below the minimum balance and
return the proceeds to you if you do not increase an account above the minimum
within 60 days after notice. However, if your account falls below the minimum
solely as a result of market activity, your account will not be closed.
What is the normal processing time of checks when purchasing shares?
If checks are drawn on a Federal Reserve System member bank, the Program will
normally execute checks (and wire transfers) received in good order on the same
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business day that they are received. Accepted purchases for shares in all the
AARP Funds will be filled at the net asset value next computed after receipt of
payment by check.
When do I start earning income on this purchase?
For AARP Funds paying daily dividends (AARP Money Funds, AARP Income Funds and
AARP Insured Tax Free General Bond Fund), income begins to accrue on the
business day following actual execution of the order.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
- --------------------------------------------------------------------------------
WIRE TRANSFER INSTRUCTIONS
o To open an account (mail Enrollment Form first and make sure to call a
Representative to obtain an account number--AARP IRA and AARP Keogh Plan
accounts cannot be opened by wire)
o To add to your account
Contact your bank with the following information:
1) the name(s) on your account;
2) your AARP Fund account number;
3) the name of the Fund(s) you want to invest in;
4) the following name and address: State Street Bank and Trust Company,
Boston, MA 02101;
5) the routing numbers ABA Number 011000028 and AC-99035420.
- --------------------------------------------------------------------------------
Can I add another AARP Mutual Fund to my account?
You can open another AARP Mutual Fund at any time. The new investment must meet
the minimum initial investment described above. Your new AARP Mutual Fund will
have the same account number and registration as your existing one(s). You can
open a new AARP Mutual Fund in a number of ways:
- --------------------------------------------------------------------------------
Mail your request Send a letter stating your request and naming the new
AARP Fund. Include a check made payable to the AARP
Investment Program.
- --------------------------------------------------------------------------------
Wire the money Have your account number ready and follow the wire
instructions above.
- --------------------------------------------------------------------------------
Exchange from See instructions on how to exchange--page 69.
an AARP Fund
- --------------------------------------------------------------------------------
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Telephone Transactions
When you open an account you automatically become eligible to exchange shares by
telephone and to redeem by telephone up to $100,000 to your registered address.
You may also request by telephone that redemption proceeds be wired to a bank
account you select. When exchange or redemption requests are made over the
telephone, procedures are in place to give reasonable assurance that telephone
instructions are genuine, including recording telephone calls, testing a
caller's identity and sending written confirmation of such transactions. If an
AARP Mutual Fund does not follow such procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. The Trusts and their
agents each reserve the right to modify, interrupt, suspend, or terminate any of
the telephone services at any time, without notice.
ADDING TO YOUR INVESTMENT
How do I add to my investment?
After your account is opened, you can add to your AARP Fund investment in any
amount in the following ways:
- --------------------------------------------------------------------------------
Mail your request Send your check with a personalized investment slip or
with a letter naming your account number and AARP
Mutual Fund.
- --------------------------------------------------------------------------------
Call Toll-Free If you selected the Transact By Phone service, you'll
be able to call and have money transferred from your
checking account to cover the purchase. See page 73.
- --------------------------------------------------------------------------------
Wire the purchase Have your account number ready and follow the wire
instructions on page 68.
- --------------------------------------------------------------------------------
Exchange from an See Exchanging below.
AARP Fund
- --------------------------------------------------------------------------------
Invest See page 74 for information on the Automatic
Automatically Investment Plan.
- --------------------------------------------------------------------------------
EXCHANGING
What is an exchange?
You make an exchange when you sell shares in one AARP Mutual Fund to purchase
shares in another. This is technically two transactions, a sale and a purchase
of shares. If the value of the shares sold in the exchange was higher or lower
than your original purchase price, you may have a capital gain or loss. This is
important to note for tax planning purposes. You may exchange all or part of
your shares in one AARP Mutual Fund for shares in another AARP Mutual Fund.
Exchanges between existing AARP Mutual Funds can be for any amount. Exchanges
that open a new AARP Mutual Fund must meet the minimum balance.
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How can I exchange shares?
There are several ways to exchange, including:
- --------------------------------------------------------------------------------
Mail or fax your Tell us the AARP Mutual Fund from which to take the
request money and the AARP Mutual Fund to exchange to. Include
your account number, registered name(s) and address,
and either the dollar amount or number of shares you
want to exchange. Be sure to sign your name(s) exactly
as it appears on the account statement.
- --------------------------------------------------------------------------------
Call Toll-Free Call us before 4:00 p.m. Eastern time to exchange by
close of business the same day.
- --------------------------------------------------------------------------------
Call the You can exchange shares through this automated
Easy-Access Line toll-free line. It is available 24 hours a day, 7 days
a week. Simply call toll-free and follow the recorded
voice instructions.
- --------------------------------------------------------------------------------
ACCESS TO YOUR INVESTMENT
How do I redeem?
You can sell (redeem) fund shares in a number of ways. The share price may be
more or less than your original purchase price. Therefore, you may have either a
taxable capital gain or loss. Keep in mind that you can redeem shares of your
AARP IRA or AARP Keogh Plan account only by sending your request in writing.
- --------------------------------------------------------------------------------
Mail or Fax your Tell us the name of the AARP Mutual Fund and the
request number of shares or dollar amount you wish to sell.
Make sure to give us your account number, registered
name(s) and where you want the proceeds sent. If you
want the proceeds to go to an address other than your
registered address, to your bank, or to someone else,
please provide complete details. Under certain
circumstances, this may require a special type of
authorization called a Signature Guarantee (see page
83). Sign the letter exactly as it appears on your
account statement. If your request requires a
Signature Guarantee, you must mail the request instead
of faxing it.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Call Toll-Free Call before 4:00 p.m. Eastern time business days and
redeem up to $100,000 per AARP Fund. The proceeds will
be mailed to your registered address or to your bank
(unless you declined the Telephone Redemption to your
Bank feature on your Enrollment Form). The proceeds
can also be wired to your bank if it is a member of
the Federal Reserve System. A $5.00 fee will be
charged for each wire to your bank. Your bank may also
charge you for receiving a wire. In the event that you
are unable to reach us by telephone, you should write
to the AARP Investment Program; see "Service
Information" for the address. If you elected the
Transact by Phone option on your Enrollment Form, you
can have the proceeds sent electronically to your
checking account. See page 73 for more information on
Transact By Phone.
- --------------------------------------------------------------------------------
Call the You can redeem shares through this automated toll-free
Easy-Access Line line. Initiate redemptions any time--24 hours a day.
Simply call toll-free and follow the recorded voice
instructions.
- --------------------------------------------------------------------------------
Sell See page 74 for information on the Automatic
Automatically Withdrawal Plan or Systematic Withdrawal Plan for AARP
IRA or AARP Keogh Plan accounts.
- --------------------------------------------------------------------------------
When are redemptions processed?
Any redemption request received in good order prior to 4:00 p.m. Eastern time
during normal business operations will be processed on that day. The request
will be processed at that night's closing share price. Normally, requests
received in good order after 4:00 p.m. Eastern time will be processed on the
next business day.
Shares redeemed from Funds in the AARP Income Trust, AARP Tax Free Income Trust
or the AARP High Quality Money Fund will earn a dividend on the day of
redemption.
Normally, proceeds of your redemption will be sent on the business day following
a redemption request in good order. In any event, the AARP Mutual Funds may take
no more than 7 calendar days to send your redemption proceeds.
When can I expect to receive my money?
We will mail your redemption proceeds promptly. If you purchase shares by check
or by telephone and then redeem them by letter within 7 business days of the
purchase, the redemption proceeds may be held until the purchase check has
cleared the banking system. When the check has cleared, we will mail your
redemption proceeds promptly.
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We will not accept redemption requests by telephone or by checkwriting prior to
the expiration of the 7 business day period. You may avoid this delay by
purchasing shares by wire.
- --------------------------------------------------------------------------------
Purchase Restrictions
You should make purchases and sales for long-term investment purposes only. The
AARP Mutual Funds do not permit a pattern of frequent purchases and sales in
response to short-term changes in share price.
When such a pattern occurs, the AARP Mutual Funds and Scudder Investor Services,
Inc. reserve the right to reject purchases or exchanges for any reason. This
restriction does not apply to the AARP money funds. This right extends to
individual purchasers or groups of related purchasers.
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEES
What is a "Signature Guarantee"?
A "Signature Guarantee" is a certification of your signature. We require this
for your protection and to prevent fraudulent redemptions. In effect, the
appropriate institution (see below) guarantees that you are authorized to make
certain requests.
When do I need one?
A "Signature Guarantee" from each person on the account registration is needed
for the following redemption requests:
1) Redemptions of more than $100,000;
2) When redemption proceeds are payable to someone other than the
registered shareholder(s);
3) When redemption proceeds are to be sent to an address other than the
registered address; or
4) If the account's registered address has changed during the last 15
days.
Transactions requiring signature guarantees cannot be faxed.
Where can I get one?
You can get your signature guaranteed through most banks, credit unions or
savings associations, or from broker-dealers, government securities
broker-dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the Securities and
Exchange Commission. Signature Guarantees by notary publics are not acceptable.
INVESTOR SERVICES
To make investing simpler and more convenient there are many free investor
services available to you.
PROSPECTUS
72
<PAGE>
Easy-Access Line
- --------------------------------------------------------------------------------
o Exchange between AARP Mutual Funds
o Exchange to open a new AARP Mutual Fund CALL TOLL-FREE
1-800-631-4636
o Redeem money to your registered address
24 HOURS A DAY
o Get current performance information
7 DAYS A WEEK
o Get current account balance information
o Confirm your last transaction
- --------------------------------------------------------------------------------
With the Easy-Access Line you can get performance, and account information. If
you have a touch-tone phone, you can also exchange or redeem shares worth up to
$100,000. Simply call toll-free 1-800-631-4636 using a touch-tone phone and
follow the easy pre-recorded voice instructions.
Transact By Phone
- --------------------------------------------------------------------------------
o Add to an AARP Mutual Fund by transfer from
your bank checking or NOW account CALL TOLL-FREE
1-800-253-2277
o Redeem and send the proceeds to your
checking or NOW account
- --------------------------------------------------------------------------------
Transact By Phone allows you to call toll-free to purchase and redeem shares.
The money will be automatically transferred to or from your bank checking
account. Your bank must be a member of the Automated Clearing House for you to
take advantage of this service.
- --------------------------------------------------------------------------------
Buying Shares Call us before 4:00 p.m. Eastern time, business days,
through Transact when you want to buy additional shares, and money will
By Phone: be transferred from your bank account to your AARP
Mutual Fund account to cover the purchase. Purchases
must be for at least $250 but not more than $250,000.
Your purchase will generally be completed in 2
business days at the closing share price on the day of
your call. Requests received after 4:00 p.m. will be
purchased at the next business day's closing price.
Shares purchased in this manner will not be redeemable
for a period of up to 7 business days.
- --------------------------------------------------------------------------------
Selling Shares Call us before 4:00 p.m. Eastern time, business days,
through Transact when you want to sell shares. We'll sell your shares
By Phone: and transfer the proceeds to your bank
account--generally within 2 business days from the day
of your request. You can redeem any amount greater
than $250. Shares will be sold at that night's closing
price on the day of your request. Requests received
after 4:00 p.m. will be sold at the next business
day's closing price.
- --------------------------------------------------------------------------------
PROSPECTUS
73
<PAGE>
Free Checkwriting
Shareholders in the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund have free checkwriting privileges. There is no charge to
shareholders for this service, but the AARP Mutual Funds reserve the right to
impose a charge in the future. To enroll, you must fill out a signature card on
the Enrollment Form. If shares were purchased by your personal check, you may
only write checks against your purchase 7 business days from the day that the
purchase took place. Keep in mind that you cannot close your account by writing
a check. This service may be suspended or terminated at any time upon notice to
shareholders.
Distributions Direct
You may choose to have dividend and capital gain distributions automatically
deposited into your bank checking or NOW account. To enroll in this service,
your bank must be a member of the Automated Clearing House (ACH) network. Once
you enroll, your dividends and capital gains will be automatically deposited
into your personal bank account within 3 business days of the distribution date.
You'll receive a statement confirming the amount. There is no charge to
shareholders for the service.
Systematic Plans
Several other investor services are available. These include:
o Automatic Investment Plan: Arrange for regular investments into your
AARP Mutual Fund through automatic deductions from your bank checking
account. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is
not paid, or by written notice to the shareholder at least thirty days
prior to the next scheduled payment to the Automatic Investment Plan.
o Direct Deposit: At your direction, your Social Security, U.S.
Government or any regular income checks (pension, dividend, interest or
payroll) will be automatically deposited into your AARP Mutual Fund.
o Automatic Withdrawal Plan: At your direction, we will automatically
send a monthly redemption of $50 or more directly to you when you have
at least $10,000 or more in an AARP Mutual Fund.
o Direct Payment of Fixed Bills: With $10,000 or more in an AARP Mutual
Fund, you can arrange for us to automatically pay regular bills of a
fixed amount. Pay your rent, mortgage or other payments of $50 or
more.
o Systematic Retirement Withdrawal Plan: You can receive periodic
distributions from an AARP IRA or AARP Keogh Plan account.
PROSPECTUS
74
<PAGE>
STATEMENTS AND REPORTS
What kinds of statements do I receive?
You will receive a prompt confirmation statement for your transactions. You will
also receive a monthly Consolidated Statement. AARP IRA or AARP Keogh Plan
accounts will receive a quarterly Consolidated Statement.
The Consolidated Statement details the market value of all the AARP Mutual Funds
in your account. It also includes a listing of recent transactions. You should
keep these statements for your records.
What other reports do I get?
Each year, you will receive a current prospectus, mid year report and annual
report. To reduce the volume of mail, we will only send one copy of most reports
to a household (same surname, same address). Please contact us if you wish to
receive additional reports.
SERVICE PROVIDERS OF THE AARP FUNDS
Legal Counsel
Dechert Price & Rhoads,
Washington, D.C.
Independent Accountants
Price Waterhouse LLP, Boston, MA
Underwriter
Scudder Investor Services, Inc., Two International Place, Boston, MA (a
subsidiary of Scudder) is principal underwriter of the AARP Mutual Funds.
Scudder Investor Services, Inc. offers for sale and confirms as agent all
purchases of shares of the AARP Mutual Funds.
Custodians
Brown Brothers Harriman & Co., Boston, MA
State Street Bank and Trust Company, Boston, MA
Fund Accounting Agent
Scudder Fund Accounting Corporation, Two International Place, Boston, MA (a
subsidiary of Scudder) is responsible for determining the daily net asset value
per share and maintaining the general accounting records of the AARP Mutual
Funds.
Transfer and Dividend-Disbursing Agent
Scudder Service Corporation, P.O. Box 2540, Boston, MA 02208-2540 (a subsidiary
of Scudder)
Investment Adviser
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York is
investment adviser for the AARP Funds.
Subadviser
Bankers Trust Company, One Bankers Trust Plaza, New York, NY, is subadviser for
the AARP U.S. Stock Index Fund.
PROSPECTUS
75
<PAGE>
TRUSTEES AND OFFICERS
CAROLE LEWIS ANDERSON, Trustee, President, MASDUN Capital Advisors; Formerly
Principal, Suburban Capital Markets, Inc.; Director, VICORP Restaurants, Inc.;
Member of the Board, Association for Corporate Growth of Washington, D.C.;
Trustee, Hasbro Children's Foundation and Mary Baldwin College.
ADELAIDE ATTARD, Trustee, Consultant, Gerontology; Commissioner, County of
Nassau, New York, Department of Senior Citizen Affairs (1971-1991); Chairperson,
Federal Council on Aging (1981-1986).
CYRIL F. BRICKFIELD, Trustee, Honorary President and Special Counsel, American
Association of Retired Persons.
ROBERT N. BUTLER, M.D., Trustee, Director, International Longevity Center and
Professor of Geriatrics and Adult Development; Chairman, Henry L. Schwartz
Department of Geriatrics and Adult Development, Mount Sinai Medical Center;
Formerly Director, National Institute on Aging, National Institute of Health.
ESTHER CANJA, Trustee, Vice President, American Association of Retired Persons;
Trustee and Chair, AARP Group Health Insurance Plan; Board Liaison, National
Volunteer Leadership Network Advisory Committee; Chair, Board Operations
Committee; AARP State Director of Florida (1990-1992).
LINDA C. COUGHLIN, Chairman and Trustee, Managing Director, Scudder, Stevens &
Clark, Inc., Director and Senior Vice President, Scudder Investor Services,
Inc.*
HORACE B. DEETS, Vice Chairman and Trustee, Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.
EDGAR R. FIEDLER, Trustee, Vice President and Economic Counselor, The Conference
Board, Inc.
EUGENE P. FORRESTER, Trustee, Lt. General (Retired) U.S. Army; International
Trade Counselor; Consultant.
WAYNE F. HAEFER, Trustee, Director, Membership Division of AARP; Formerly
Secretary, Employee's Pension and Welfare Trusts of AARP and Retired Persons
Services, Inc.; Formerly Director, Administration and Data Management Division
of AARP.
GEORGE L. MADDOX, JR., 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.
ROBERT J. MYERS, Trustee, Actuarial Consultant; Formerly Executive Director,
National Commission on Social Security Reform; Formerly Chairman, Commission on
Railroad Retirement Reform.
.
PROSPECTUS
76
<PAGE>
THOMAS W. JOSEPH*, Vice President
DAVID S. LEE*, Vice President and Assistant Treasurer
THOMAS F. McDONOUGH*, Vice President and Assistant Secretary
PAMELA A. McGRATH*, Vice President and Treasurer
EDWARD J. O'CONNELL*, Vice President and Assistant Treasurer
JAMES W. PASMAN*, Vice President
KATHRYN L. QUIRK*, Vice President and Secretary
HOWARD SCHNEIDER*, Vice President
CORNELIA M. SMALL*, President
*Scudder, Stevens & Clark, Inc.
77
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND
AARP Income Trust:
AARP GNMA and U.S. TREASURY FUND
AARP HIGH QUALITY BOND FUND
AARP BOND FUND FOR INCOME
AARP Tax Free Income Trust:
AARP HIGH QUALITY TAX FREE MONEY FUND
AARP INSURED TAX FREE GENERAL BOND FUND
AARP Growth Trust:
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND
AARP U.S. STOCK INDEX FUND
AARP GLOBAL GROWTH FUND
AARP CAPITAL GROWTH FUND
AARP INTERNATIONAL STOCK FUND
AARP SMALL COMPANY STOCK FUND
AARP Managed Investment Portfolios Trust:
AARP DIVERSIFIED INCOME PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the combined Prospectus for all fifteen of the above
Funds, dated February 1, 1997, as amended from time to time, copies of which may
be obtained without charge by writing to the AARP INVESTMENT PROGRAM FROM
SCUDDER, P.O. Box 2540, Boston, Massachusetts 02208-2540 or by calling
1-800-253-2277.
<PAGE>
TABLE OF CONTENTS
Page
----
AARP INVESTMENT PROGRAM FROM SCUDDER...........................................1
Summary of Advantages and Benefits....................................1
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES..................................3
AARP Money Funds......................................................3
AARP Income Funds.....................................................4
AARP Insured Tax Free Income Fund.....................................7
AARP Growth Funds....................................................12
AARP Managed Investment Portfolios...................................16
Special Investment Policies of the AARP Funds........................16
General Investment Policies of the AARP Funds........................31
Investment Restrictions..............................................31
PURCHASES.....................................................................37
General Information..................................................37
Checks...............................................................37
Share Price..........................................................37
Share Certificates...................................................37
Direct Deposit Program...............................................38
Wire Transfers.......................................................38
Holidays.............................................................38
Other Information....................................................38
REDEMPTIONS...................................................................38
General Information..................................................38
Redemption by Telephone..............................................39
Redemption by Mail or Fax............................................40
Redemption by Checkwriting...........................................40
Redemption-in-Kind...................................................41
Other Information....................................................41
EXCHANGES.....................................................................41
TRANSACT BY PHONE.............................................................42
Purchasing Shares by Transact by Phone...............................42
Redeeming Shares by Transact by Phone................................42
FEATURES AND SERVICES OFFERED BY THE FUNDS....................................43
Automatic Dividend Reinvestment......................................43
Distributions Direct.................................................43
Reports to Shareholders..............................................43
Consolidated Statements..............................................43
RETIREMENT PLANS..............................................................44
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")........44
AARP Keogh Plan......................................................45
OTHER PLANS...................................................................46
Automatic Investment.................................................46
Automatic Withdrawal Plan............................................46
Direct Payment of Regular Fixed Bills................................46
DIVIDENDS AND YIELD...........................................................46
Performance Information: Computation of Yields and Total Return......47
Taking a Global Approach.............................................53
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
TRUST ORGANIZATION............................................................53
MANAGEMENT OF THE FUNDS.......................................................55
Personal Investments by Employees of Scudder.........................60
TRUSTEES AND OFFICERS.........................................................61
REMUNERATION..................................................................64
DISTRIBUTOR...................................................................65
TAXES 66
BROKERAGE AND PORTFOLIO TURNOVER..............................................70
Brokerage Commissions................................................70
Portfolio Turnover...................................................71
NET ASSET VALUE...............................................................72
AARP Money Funds.....................................................72
AARP Non-Money Market Funds..........................................72
ADDITIONAL INFORMATION........................................................73
Experts..............................................................73
Shareholder Indemnification..........................................73
Ratings of Corporate Bonds...........................................73
Ratings of Commercial Paper..........................................74
Ratings of Municipal Bonds...........................................74
Other Information....................................................75
Tax-Exempt Income vs. Taxable Income.................................77
FINANCIAL STATEMENTS..........................................................78
ii
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Investment Program from Scudder (the "Program") was developed by
the American Association of Retired Persons ("AARP") to provide an array of
conservatively managed investment options for its members. Today's financial
markets present an enormous, ever-changing selection of investments suited for
investors with varying needs. AARP, a non-profit organization dedicated to
improving the quality of life, independence and dignity of older people, has
undertaken to help its members by designing an investment program which attempts
to satisfy the investment and retirement planning needs of most of its members,
whether they be experienced investors or savers who have never invested at all.
As with any program with the "AARP" name, the Program includes special benefits
as described in the combined prospectus for five Trusts -- AARP Cash Investment
Funds, AARP Income Trust, AARP Tax Free Income Trust, AARP Growth Trust, and
AARP Managed Investment Portfolios Trust (the "Trusts"), dated February 1, 1997
(the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder, Stevens & Clark, Inc. ("the Fund Manager" or "Scudder"),
a firm with over 75 years of investment counseling and management experience.
Scudder, Stevens & Clark, Inc. was selected after an extensive search among
qualified candidates, and provides the Program with continuous and conservative
professional investment management. (See "MANAGEMENT OF THE FUNDS.")
Each of the Trusts is an open-end, management investment company authorized
to issue its shares of beneficial interest in separate series ("the AARP
Funds"). A total of 15 Funds are currently offered by the five Trusts. The
differing investment objectives of the 15 Funds in the Program provide AARP
members with a variety of sensible investment alternatives, and by matching
their own objectives with those of the different AARP Funds, AARP members may
design an investment program to meet their personal needs. Not all your money is
the same. There is short-term money, for example money needed for your regular
budgeting and for emergencies, and there is money which can be invested for the
longer term. It is generally thought that three months of income/expenses should
be set aside in a savings account or money market fund to cover short-term
needs. The Program is designed to offer alternatives to keeping all of your
money in short-term fixed price investments like money market funds, insured
short-term savings accounts and insured six-month certificates of deposit. The
AARP Money Funds provide a taxable and a tax free alternative for short-term
monies and the AARP Income Funds, the AARP Insured Tax Free General Bond Fund,
the AARP Growth Funds provide a range of choices for longer term investment
dollars and the AARP Managed Investment Portfolios provide diversification of
investment by investing in a select mix of AARP Funds.
The Program includes functions performed by AARP Member Services; the AARP
Funds; Scudder Investor Services, Inc., the AARP Funds' "underwriter"; Scudder
Service Corporation ("SSC"), the AARP Funds' "transfer agent"; and Brown
Brothers Harriman & Co. and State Street Bank and Trust Company, the AARP Funds'
"custodians."
Summary of Advantages and Benefits
o Experienced Professional Management: Scudder, Stevens & Clark, Inc.,
investment counsel since 1919 and mutual Fund managers since 1928, provides
investment advice to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong ongoing representation of the members'
interests and to help ensure a high level of service.
o Wide Selection of Investment Objectives: you can emphasize money market
returns and liquidity, income, tax-free income, growth, or any combination.
o Diversification: you benefit from investing in one or more large portfolios
of carefully selected securities.
o $2000 Minimum Starting Investment for 12 of the Funds ($500 Minimum
Starting Investment for AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund and AARP GNMA and U.S. Treasury Fund): you may make additional
investments in any amount at any time.
o No Sales Commissions: the AARP Funds are pure no-load(TM), so you pay no
sales charges to purchase, transfer or redeem shares nor do you pay Rule
12b-1 fees.
<PAGE>
o Investment Flexibility and Exchange: you may exchange among the 15 AARP
Funds in the Program at any time without charge.
o Dividends: the AARP Money Funds, the AARP Income Funds, the AARP Insured
Tax Free Income Fund and the AARP Diversified Income Portfolio all pay
dividends monthly, the AARP Balanced Stock and Bond Fund, the AARP Growth
and Income Fund and the AARP U.S. Stock Index Fund are expected to pay
dividends quarterly and the AARP Global Growth Fund, the AARP Capital
Growth Fund, the AARP International Stock Fund, the AARP Small Company
Stock Fund and the AARP Diversified Growth Portfolio pay dividends, if any,
annually.
o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.
o Readily Available Account, Price, Yield and Total Return Information: the
yield for the AARP Money Funds is quoted weekly and the net asset value of
each other Fund is quoted daily in the financial pages of leading
newspapers. You may also dial our automated Easy-Access Line, toll-free,
1-800-631-4636 for recorded account information, share price, yield and
total return information, 7 days a week.
o Convenience and Efficiency: simplified investment procedures save you time
and help your money work harder for you.
o Liquidity: on any business day (subject to a 7 day waiting period for
investment checks to clear), you may request redemption of your shares at
the next determined net asset value, and, in the case of the AARP Money
Funds, you may elect free Checkwriting and write checks for $100 or more on
your account to make payments to any person or business.
o Direct Deposit Program: you may have your Social Security or other checks
from the U.S. Government or any other regular income checks, such as
pension, dividend, interest, and even payroll checks automatically
deposited directly to your account.
o Automatic Withdrawal Plan: with a minimum qualifying balance of $10,000 in
one AARP Fund, you may arrange to receive monthly, quarterly or periodic
checks from your account for any designated amount of $50 or more.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying balance of
$10,000 in one AARP Fund, you may arrange to have your regular fixed bills
that are of fixed amounts, such as rent, mortgage, or other payments of $50
or more sent directly from your account at the end of the month.
o Personal Service and Information: professionally trained service
representatives help you whenever you have questions through our toll-free
number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation statement
of each transaction in your account, you receive, without extra charge, a
convenient monthly consolidated statement. (Retirement Plan statements are
mailed quarterly.) This statement contains the market value of all your
holdings and a complete listing of your transactions for the statement
period.
o Shareholder Handbook: the Shareholder Handbook was created to help answer
many of the questions you may have about investing in the Program.
o IRA Shareholder Handbook: The IRA Shareholder Handbook was created to help
answer many of the questions you may have about investing in the no-fee
AARP IRA.
o A Glossary of Investment Terms: the Glossary defines commonly used
financial and investment terms.
2
<PAGE>
o Newsletter: every month, shareholders receive our newsletter, Financial
Focus (retirement plan shareholders receive a special edition of Financial
Focus on a quarterly basis) which is designed to help keep you up to date
on economic and investment developments, and any new financial services and
features of the Program.
This Statement of Additional Information supplements the Prospectus, and
provides more detailed information about the Trusts and the Funds.
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
AARP Money Fund
(See "AARP High Quality Money Fund," "INVESTMENT OBJECTIVES AND POLICIES,"
and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
The AARP Funds offer a choice of a taxable and a tax free money fund for
small savers, big savers and people looking for a way to invest. People who earn
a relatively low interest rate in an insured bank savings account, who have to
make withdrawals or deposits in person or whose money isn't easily accessible
may find that the AARP Money Funds can help.
AARP High Quality Money Fund. The AARP High Quality Money Fund is a
separate series of AARP Cash Investment Funds and is the only Fund currently
offered by that Trust. Additional series of the Trust may be offered in the
future. From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and safety of
principal while offering liquidity. The Fund seeks to maintain a constant net
asset value of $1.00 per share. There may be circumstances under which this goal
cannot be achieved. The Fund invests in securities with remaining maturities of
397 calendar days or less, except in the case of U.S. Government securities
which may have maturities of up to 762 calendar days. The average
dollar-weighted maturity of its investments is 90 days or less. The investment
policies and restrictions of the Fund are described as follows:
To provide safety and liquidity, the investments of the AARP High Quality
Money Fund are limited to those that at the time of purchase are rated, or
judged by the Fund Manager to be the equivalent of those rated, within the two
highest credit ratings ("high quality instruments") by one or more rating
agencies such as: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
("S&P") or Fitch Investors Service ("Fitch"). In addition, the Fund Manager
seeks through its own credit analysis to limit investments to high-quality
instruments presenting minimal credit risks. If a security ceases to be rated or
is downgraded below the second highest quality rating indicated above, the Fund
will promptly dispose of the security, unless the Trustees determine that
continuing to hold such security is in the best interests of the Fund.
Generally, the Fund will invest in securities rated in the highest quality
rating by at least two of these rating agencies. Amendments have been proposed
to the federal rules regulating quality, maturity and diversification
requirements of money market funds, like the Fund. If the amendments are adopted
the Fund intends to comply with such new requirements.
Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (1) 1% of its total assets, or (2) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
3
<PAGE>
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including bankers'
acceptances, certificates of deposit, deposit notes and time deposits;
obligations of savings and loan institutions; instruments whose credit has been
enhanced by: banks (letters of credit), insurance companies (surety bonds), or
other corporate entities (corporate guarantees); corporate obligations,
including commercial paper, notes, bonds, loans and loan participations;
securities with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities including
notes, bonds and participation interests, either taxable or tax-free, as
described in more detail for the AARP High Quality Tax Free Money Fund;
securities with put features; and repurchase agreements. The Fund may hold cash,
which does not earn interest, to facilitate stabilizing its net asset value per
share and for liquidity purposes.
Commercial paper at the time of purchase will be rated, or judged by the
Fund Manager under the supervision of the Trustees, to be the equivalent of
securities rated, A-1 or higher by S&P, Prime-1 or higher by Moody's or F-1 or
higher by Fitch. Investments in other corporate obligations, such as bonds or
notes, will be limited to securities rated, or judged by the Fund Manager to be
the equivalent of securities rated, AA or higher by S&P or Fitch or Aa or higher
by Moody's. Obligations which are the subject of repurchase agreements will be
limited to those of the type described above. Shares of this Fund are not
insured or guaranteed by the U.S. Government.
The Fund may invest in certificates of deposit and bankers' acceptances of
large domestic banks (i.e., banks which at the time of their most recent annual
financial statements show total assets in excess of $1 billion) and their
foreign branches and of smaller banks as described below. These as well as all
other investments of the Fund must be U.S. dollar denominated. The Fund will not
invest in certificates of deposit or bankers' acceptances of foreign banks
without additional consideration by and the approval of the Trustees of the
Trust. Although the Fund recognizes that the size of a bank is important, this
fact alone is not necessarily indicative of its creditworthiness.
Investment in certificates of deposit and bankers' acceptances issued by
foreign branches of domestic banks involves investment risks that are different
in some respects from those associated with investment in obligations issued by
domestic banks. Such investment risks include the possible imposition of
withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations, or other adverse political or economic
developments. In addition, it might be more difficult to obtain and enforce a
judgment against a foreign branch of a domestic bank.
The Fund may also invest in certificates of deposit issued by banks which
had, at the time of their most recent annual financial statements, total assets
of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's net assets (taken at current value) are invested in
certificates of deposit and bankers' acceptances of banks having total assets
not in excess of $1 billion.
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System whose creditworthiness has been determined by the Fund
Manager to be equal to that of issuers of commercial paper rated within the two
highest grades. See "Repurchase Agreements" under "Special Investment Policies
of the AARP Funds."
AARP Income Funds
(See "AARP GNMA and U.S. Treasury Fund," "AARP High Quality Bond Fund,"
"AARP Bond Fund for Income," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER
INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.) Each of the Funds
seeks to earn a high level of income consistent with its investment policies.
AARP GNMA and U.S. Treasury Fund. AARP GNMA and U.S. Treasury Fund is
designed for investors who are seeking high current income from high quality
securities and who wish to receive a degree of protection from bond market price
risk. The Fund's investment objective is to produce a high level of current
income and to keep the price of its shares more stable than that of a long-term
bond. The Fund pursues this objective by investing principally in U.S.
Government-guaranteed GNMA securities and U.S. Treasury obligations. The Fund
has been designed with the conservative, safety-conscious investor in mind. Of
the three funds in the AARP Income Trust, the AARP GNMA and U.S. Treasury Fund
is the more conservative choice. Although past performance is no guarantee of
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future performance, historically, this Fund offers higher yields than such
short-term investments as insured savings accounts, insured six month
certificates of deposit and fixed-price money market funds.
The Fund invests in U.S. Treasury bills, notes and bonds; other securities
issued or backed by the full faith and credit of the U.S. Government, including,
but not limited to, Government National Mortgage Association ("GNMA")
mortgage-backed securities, Merchant Marine Bonds guaranteed by the Maritime
Administration and obligations of the Export-Import Bank; financial futures
contracts with respect to such securities; options on either such securities or
such financial futures contracts; and bank repurchase agreements. At least 65%
of the Fund's net assets will be directly invested in U.S. Treasury obligations,
including GNMA's. The Fund will make long-term investments but will also attempt
to dampen its price variability in comparison to that of a long-term bond by
including short-term U.S. Treasury securities in its portfolio. The Fund may
also utilize hedging techniques involving limited use of financial futures
contracts and the purchase and writing (selling) of put and call options on such
contracts. Under certain market conditions, these strategies may reduce current
income. At any time the Fund may have a substantial portion of its assets in
securities of a particular type or maturity. The Fund may also write covered
call options on portfolio securities and purchase "when-issued" securities.
GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans,
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool" or group of
such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, a Government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government. This is not, however, a guarantee
related to the Fund's yield or the value of your investment principal.
As mortgage-backed securities, GNMAs differ from bonds in that principal is
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. GNMAs are called "pass-through" securities because both
interest and principal payments including prepayments are passed through to the
holder of the security (in this case, the Fund).
The payment of principal on the underlying mortgages may exceed the minimum
required by the schedule of payments for the mortgages. Such prepayments are
made at the option of the mortgagors for a wide variety of reasons reflecting
their individual circumstances and may involve capital losses if the mortgages
were purchased at a premium. For example, mortgagors may speed up the rate at
which they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. The Fund, when such prepayments are passed through to it,
may be able to reinvest them only at a lower rate of interest. The Fund Manager,
in determining the attractiveness of GNMAs relative to alternative fixed-income
securities, and in choosing specific GNMA issues, will have made assumptions as
to the likely speed of prepayment. Actual experience may vary from this
assumption resulting in a higher or lower investment return than anticipated.
When interest rates rise, mortgage prepayment rates decline, thus lengthening
the life of a mortgage-related security and increasing the price volatility of
that security, affecting the price volatility of the Fund's shares.
Some investors may view the Fund as an alternative to a bank certificate of
deposit (CD). While an investment in the Fund is not federally insured, and
there is no guarantee of price stability, an investment in the Fund--unlike a
CD--is not locked away for any period, may be redeemed at any time without
incurring early withdrawal penalties, and may provide a higher yield.
AARP High Quality Bond Fund. Consistent with investments primarily in high
quality securities, the Fund seeks to provide a high level of income and to keep
the value of its shares more stable than that of a long-term bond. By including
short- and medium-term bonds in its portfolio, the Fund seeks to offer less
share price volatility than long-term bonds or many long-term bond funds,
although its yield may be lower. Due to the greater market price risk of its
securities, the Fund may have a more variable share price than the AARP GNMA and
U.S. Treasury Fund. It is also possible that the Fund may provide a higher level
of income than the AARP GNMA and U.S. Treasury Fund.
Under normal circumstances the Fund will invest substantially all, and no
less than 65%, of its assets invested in U.S. government, corporate and other
fixed-income securities. It may also purchase any investments eligible for the
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AARP GNMA and U.S. Treasury Fund as well as obligations of federal agencies that
are not backed by the full faith and credit of the U.S. Government, such as
obligations of Federal Home Loan Bank, Farm Credit Banks and the Federal Home
Loan Mortgage Corporation. In addition, it may purchase obligations of
international agencies such as the International Bank for Reconstruction and
Development, the Inter-American Development Bank and the Asian Development Bank.
Other eligible investments include U.S. dollar-denominated foreign debt
securities (such as U.S. dollar denominated debt securities issued by the
Dominion of Canada and its provinces), foreign government bonds denominated in
foreign currencies, mortgage-backed and other asset-backed securities, and money
market instruments such as commercial paper, bankers' acceptances and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund invests in a broad range of short-, intermediate-, and long-term
securities. Proportions among maturities and types of securities may vary
depending upon the prospects for income related to the outlook for the economy
and the securities markets, the quality of available investments, the level of
interest rates, and other factors.
Except for limitations in the Fund's investment restrictions, there is no
limit as to the proportions of the Fund which may be invested in any of the
eligible investments. However, it is a policy of the Fund that its
non-governmental investments will be spread among a variety of companies and
will not be concentrated in any industry. (See "Investment Restrictions,"
herein.)
Portfolio Quality. The policies of AARP High Quality Bond Fund are designed
to provide a portfolio that combines primarily high quality securities with
investments that attempt to reduce its market price risk. In fact, according to
information provided by Morningstar, Inc., the Fund has one of the highest
quality standards of any general bond Fund currently available. No purchase will
be made if, as a result thereof, less than 65% of the Fund's net assets would be
invested in debt obligations, including money market instruments, that (a) are
issued or guaranteed by the U.S. Government, (b) are rated at the time of
purchase within the two highest grades assigned by any of the
nationally-recognized rating services including Moody's or S&P, or (c) if not
rated, are judged at the time of purchase by the Fund Manager, subject to the
Trustees' review, to be of a quality comparable to those in the two highest
ratings described in (b) above. All of the debt obligations in which the Fund
invests will, at the time of purchase, be rated investment-grade or higher by
Moody's (Aaa, Aa, A, and Baa) or S&P (AAA, AA, A, and BBB) or, if not rated,
will be judged to be of comparable quality by the Fund Manager. At least 65% of
the Fund's assets must be in securities rated in the two highest rating
categories by Moody's or S&P. The Fund may invest up to 20% of its assets in
bonds rated Baa by Moody's or rated BBB by S&P. Securities rated Baa by Moody's
or BBB by S&P are neither highly protected nor poorly secured. These securities
normally pay higher yields and are regarded as having adequate capacity to repay
principal and pay interest but involve potentially greater price variability
than higher-quality securities. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics. The Fund does
not purchase securities rated below investment-grade, commonly known as "junk"
bonds. (See "ADDITIONAL INFORMATION--Ratings of Corporate Bonds.")
Variations of Maturity. In an attempt to capitalize on the differences in
total return from securities of differing maturities, maturities may be varied
according to the structure and level of interest rates, and the Fund Manager's
expectations of changes therein.
Foreign Securities. The AARP High Quality Bond Fund may invest, without
limit, in U.S. dollar-denominated foreign debt securities (including U.S.
dollar-denominated debt securities issued by the Dominion of Canada and its
provinces and other debt securities which meet the Fund's criteria applicable to
its domestic investments), and in certificates of deposit issued by foreign
branches of United States banks, to any extent deemed appropriate by the Fund
Manager. The Fund may invest up to 20% of total assets in foreign debt
securities denominated in currencies other than the U.S. dollar, but no more
than 5% of the Fund's total assets will be represented by a given foreign
currency.
AARP Bond Fund for Income. The Fund seeks to provide a high level of
current income consistent with investments primarily in investment-grade debt
securities, and to keep the price of its shares more stable than that of a
long-term bond.
In pursuit of its investment objectives, under normal market conditions,
the Fund invests at least 65% of its assets in investment-grade debt securities.
Investment-grade securities are rated Aaa, Aa, A, or Baa by Moody's or AAA, AA,
A, or BBB by S&P, or, if unrated, are of equivalent quality as determined by the
Fund Manager. The Fund may invest up to 35% of its assets in securities rated Ba
or B by Moody's or BB or B by S&P, but no more than 10% of the Fund's assets may
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be invested in securities rated B by Moody's or S&P. These two grades of
securities are considered to be below investment grade. Below investment-grade
securities are considered predominantly speculative with respect to their
capacity to pay interest and repay principal. They generally involve a greater
risk of default and have more price volatility than securities in higher rating
categories.
The Fund may invest in U.S. Treasury and Agency securities, corporate bonds
and notes, mortgage-backed and other asset-backed securities, dollar-denominated
debt of international agencies or investment-grade foreign institutions, and
money market instruments such as commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund may invest up to 20% of total assets in foreign debt securities
denominated in currencies other than the U.S. dollar, but no more than 5% of the
fund's total assets will be represented by a given foreign currency. The Fund
may also purchase "when-issued" securities and invest in repurchase agreements.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments or invest all or a substantial portion
of its assets in high quality domestic debt securities when the Fund Manager
deems such a position advisable in light of economic or market conditions.
Risks. The Fund can invest a limited portion of assets in below
investment-grade securities, sometimes referred to as "junk" bonds. Investing in
high yielding, lower-quality bonds involves various types of risks including the
risk that issuers of bonds held in the portfolio will not make timely payment of
either interest or principal or may default entirely. This risk of default can
increase with changes in the financial condition of a company or with changes in
the U.S. economy, such as a recession. Compared to investing in higher quality
issues, high yield bond investors may be rewarded for the additional risk of
high yield bonds through higher interest payments and the opportunity for
greater capital appreciation.
AARP Tax Free Income Funds
(See "AARP High Quality Tax Free Money Fund," "AARP Insured Tax Free
General Bond Fund," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT
POLICIES AND RISK FACTORS" in the Prospectus.)
AARP High Quality Tax Free Money Fund. The AARP High Quality Tax Free Money
Fund is a separate series of AARP Tax Free Income Trust. From investments in
high quality municipal securities, the Fund is designed to provide current
income free from federal income taxes. The Fund also seeks to maintain stability
and safety of principal, while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances under
which this goal cannot be achieved. Such securities may mature no more than 397
calendar days or less from the date the purchase is expected to be settled by
the Fund, with a weighted average maturity of 90 days or less.
The Fund will invest in municipal securities which are rated at the time of
purchase within the two highest quality ratings of rating agencies such as:
Fitch -- AAA and AA, F1 and F2, or Moody's -- Aaa and Aa, or within Moody's
short-term municipal obligations top ratings of MIG 1 and MIG 2 and P1, or S&P
- -- AAA/AA and SP1+/SP1, A1+ and A1 -- all in such proportions as management will
determine. Securities must be so rated by at least two agencies or by at least
one, if only one has rated the security. Generally, the Fund will invest in
securities rated in the highest quality rating by at least two of these rating
agencies. In some cases, short-term municipal obligations are rated using the
same categories as are used for corporate obligations. In addition, unrated
municipal securities will be considered as being within the foregoing quality
ratings if other equal or junior municipal securities of the same issuer are
rated and their ratings are within the foregoing ratings of Fitch, Moody's or
S&P. The Fund may also invest in municipal securities which are unrated if, in
the opinion of the Fund Manager, such securities possess creditworthiness
comparable to those rated securities in which the Fund may invest. For a
description of ratings, please see "Additional Information." Shares of this Fund
are not insured or guaranteed by the U.S. Government.
Subsequent to its purchase by the AARP High Quality Tax Free Money Fund, an
issue of municipal securities may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. The Fund will dispose of
any such security unless the Board of Trustees of the Fund determines that such
disposal would not be in the best interests of the Fund.
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As a fundamental policy, under normal circumstances, at least 80% of the
net assets of AARP High Quality Tax Free Money Fund will be invested in
tax-exempt securities. Although the Fund normally intends to ensure that all
income to shareholders will be exempt from federal income tax, there can be no
assurance that this goal will be achieved or that income to shareholders which
is federally tax exempt will be exempt from state and local taxes.
From time to time on a temporary basis or for defensive purposes, the Fund
may, subject to its investment restrictions, hold cash and invest in taxable
investments consisting of: (1) other obligations issued by or on behalf of
municipal or corporate issuers; (2) U.S. Treasury notes, bills and bonds; (3)
obligations of agencies and instrumentalities of the U.S. Government; (4) money
market instruments, such as domestic bank certificates of deposit, finance
company and corporate commercial paper, and banker's acceptances; and (5)
repurchase agreements (agreements under which the seller agrees at the time of
sale to repurchase the security at an agreed time and price) with respect to any
of the obligations which the Fund is permitted to purchase. The Fund will not
invest in instruments issued by banks or savings and loan associations unless at
the time of investment such issuers have total assets in excess of $1 billion
(as of the date of their most recently published financial statements).
Commercial paper investments will be limited to commercial paper rated A1+ and
A1 by S&P, Prime-1 by Moody's or F-1 by Fitch. The Fund may hold cash or invest
temporarily in taxable investments due, for example, to market conditions or
pending investment of proceeds of subscriptions for shares of the Fund or
proceeds from the sale of portfolio securities or in anticipation of
redemptions. However, the Fund expects to invest such proceeds in municipal
securities as soon as practicable. Interest income from temporary investments
may be taxable to shareholders as ordinary income.
Maintenance of Constant Net Asset Value Per Share. The Trustees of AARP
High Quality Money Fund and AARP High Quality Tax Free Money Fund have
determined that it is in the best interests of the Funds and their shareholders
to maintain the net asset value of the Funds' shares at a constant $1.00 per
share. In order to facilitate the maintenance of a constant $1.00 net asset
value per share, the AARP High Quality Money Fund and the AARP High Quality Tax
Free Money Fund operate in accordance with a rule of the Securities and Exchange
Commission (the "SEC"). In accordance with that rule, the assets of the Funds
consist entirely of cash, cash items, and high quality U.S. dollar-denominated
investments which have minimal credit risks and which have a remaining maturity
date of not more than 397 days from date of purchase (except that the AARP High
Quality Money Fund may invest in U.S. Government securities having maturities of
up to 762 days). The average dollar-weighted maturity of each Fund is varied
according to money market conditions, but may not exceed 90 days. The maturity
of a portfolio security shall be the period remaining until the date stated in
the security for payment of principal or such earlier date as it is called for
redemption, except that a shorter period shall be used for Variable and Floating
Rate Instruments in accordance with and subject to the conditions contained in
the Rule.
The Trustees have established procedures reasonably designed to stabilize
the price per share of the Funds at $1.00, as computed for the purposes of
sales, repurchases and redemptions, taking into account current market
conditions and each Fund's investment objectives. Such procedures, which the
Trustees review annually, include specific requirements designed to assure that
issuers of the Funds' securities continue to meet high standards of
creditworthiness. The procedures also establish certain requirements concerning
the quality and maturity of the Fund's investments. Finally, the procedures
require the determination, at such intervals as the Trustees deem appropriate
and reasonable, of the extent, if any, to which a Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share.
Market quotations and market equivalents used in making such determinations may
be obtained from an independent pricing service approved by the Trustees. Such
determinations will be reviewed periodically by the Trustees.
If at any time it is determined that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders
of a Fund, certain corrective actions may be taken, including selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding part or all of dividends or payment of
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations or
equivalents. In addition, in order to stabilize the net asset value per share at
$1.00 the Trustees have the authority (1) to reduce the number of outstanding
shares of a Fund on a pro rata basis, and (2) to offset each shareholder's pro
rata portion of the deviation between the net asset value per share and $1.00
from the shareholder's accrued dividend account or from future dividends. The
Funds may hold cash for the purpose of stabilizing their net asset value per
share. Holdings of cash, on which no return is earned, would tend to lower the
yield on the shares of the Funds.
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The net income of the Funds is declared as dividends to shareholders daily
and distributed monthly in shares of the Funds unless payment is requested in
cash.
AARP Insured Tax Free General Bond Fund. The AARP Insured Tax Free General
Bond Fund is a separate series of AARP Tax Free Income Trust. From a portfolio
consisting primarily of municipal securities covered by insurance, the Fund
seeks to provide high income free from federal income taxes and to keep the
value of its shares more stable than that of a long-term municipal bond. The
Fund seeks to provide investors with the higher tax-free income that is often
available from municipal securities by investing, under normal circumstances, in
a high grade portfolio of bonds consisting primarily of municipal securities,
with no restrictions as to maturity. Securities comprising at least 65% of the
total assets held by the Fund are fully insured as to face value and interest by
private insurers. While longer-term securities such as those in which the Fund
may invest have in recent years had higher yields, they also experience greater
price fluctuation than shorter-term securities. By including short- and
medium-term bonds in its portfolio, the Fund seeks to offer less share price
volatility than long-term municipal bonds or many long-term municipal bond
funds, although its yield may be lower. Because the Fund may trade its
securities, it is also free to attempt to take advantage of opportunities in the
market to achieve higher current income. This opportunity is not available to
unit investment trusts, which hold fixed portfolios of municipal securities.
Under normal circumstances, at least 80% of the Fund's net assets are
invested in tax-exempt securities. For this purpose, private activity bonds, the
interest on which is treated as a preference item for purposes of calculating
alternative minimum tax liability, will not be treated as tax exempt securities.
The Fund does not intend to purchase any such private activity bonds. (See
"TAXES" herein.)
There can be no assurance that the objectives of the Fund will be achieved
or that all income to shareholders which is exempt from federal income taxes
will be exempt from state or local taxes. Shareholders may also be subject to
tax on long-term and short-term capital gains (see "TAXES" herein).
In addition, the market prices of municipal securities, like those of
taxable debt securities, go up and down when interest rates change. Thus, the
net asset value per share can be expected to fluctuate and shareholders may
receive more or less than their purchase price for shares they redeem. In
addition to investments in municipal obligations, as described below, the Fund
may invest in short-term taxable U.S. Government securities and repurchase
agreements backed by U.S. Government securities. The Fund also may invest in
demand notes and tax-exempt commercial paper, financial futures contracts, and
may invest in and write (sell) options related to such futures contracts. These
investments are not insured or guaranteed or backed by the U.S. Government.
Except for futures and options, which are not rated, the AARP Insured Tax Free
General Bond Fund will only purchase securities rated within the top three
ratings by Moody's and S&P, or the equivalent as determined by the Fund Manager,
or repurchase agreements on such securities. To qualify as "within the top three
ratings," a security must have such a rating due to the credit of the issuer or
due to specific insurance on the security, whether acquired at issuance or by
the Fund at the time of purchase. A security would not so qualify if its rating
was solely the result of coverage under the Fund's portfolio insurance.
Securities in which the Fund may invest may include: (a) a security that
carries at the time of issuance, whether because of the credit of the issuer or
because it is insured at issuance by an insurance company, a rating within the
top three ratings; and (b) a security not rated within the top three ratings at
the time of issuance but insured to maturity by the Fund at the time of purchase
if, upon issuance of such insurance, the Fund Manager is able to determine that
the security is now the equivalent of a security rated within the top three
ratings by a nationally recognized rating agent.
When, in the opinion of the Fund Manager, defensive considerations or an
unusual disparity between the after-tax income on taxable investments and
comparable municipal obligations make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term investments such
as U.S. Treasury notes, bills and bonds and repurchase agreements collateralized
by U.S. Government securities, the interest income from which may be subject to
federal income tax. Notwithstanding the foregoing, the Fund may invest more than
20% of its net assets in such taxable U.S. Treasury securities and repurchase
agreements for temporary defensive purposes.
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Insurance. Insurance on at least 65% of the AARP Insured Tax Free
General Bond Fund's total assets will be obtained from nationally recognized
private insurers, including the following: Financial Guaranty Insurance Company
("FGIC") is owned by FGIC Corporation, which in turn is owned by General
Electric Credit Corporation; AMBAC Indemnity Corporation; and Municipal Bond
Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated,
the principal shareholders of which are: The Aetna Life & Casualty Company,
Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and
affiliates of the Continental Insurance Company.
The Fund currently has portfolio insurance provided by FGIC pursuant to
which it may insure securities mutually agreed to between the Fund and FGIC so
long as the security remains in the Fund's portfolio. Pursuant to an irrevocable
commitment, FGIC also provides the Fund with the option to obtain insurance for
any security covered by the FGIC portfolio insurance, which insurance can
continue if the security were to be sold by the Fund. The Fund may procure
portfolio insurance from other insurers.
At least 65% of the Fund's assets are fully insured by private insurers as
to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by the
U.S. Government are purchased and expected to be held for 60 days or more,
insurance will be obtained within 30 days to ensure that 65% of the Fund's
assets are insured by the issuer or arranged for by the Fund. If at least 65% of
its assets are not insured securities, the Fund will obtain insurance for a
portion of its U.S. Government guaranteed or backed securities so that the 65%
standard is achieved.
The Fund requires that insurance with respect to its securities provide for
the unconditional payment of scheduled principal and interest when due. In the
event of a default by the issuer, the insurer will, within 30 days of notice of
such default, provide to its agent or Trustee funds needed to make any such
payments. Such agent or Trustee will bear the responsibility of seeing that such
funds are used to make such payments to the appropriate parties. Such insurance
will not guarantee the market value of a security. Insurance on the Fund's
securities will in some cases continue in the event the securities are sold by
the Fund, while in other cases it may not.
To the extent the Fund's insured municipal securities do not equal 65% of
its total assets, the Fund will obtain insurance on such amount of its U.S.
Government guaranteed or backed securities as is necessary to have 65% of the
Fund's total assets insured at all times. This type of insurance will terminate
when the security is sold and will involve an added cost to the Fund while not
increasing the quality rating of the security.
Insurance on individual securities, whether obtained by the issuer or the
Fund, is non-cancelable and runs for the life of the security. Securities
covered under the Fund's portfolio insurance are insured only so long as they
are held by the Fund, though the Fund has the option to procure individual
secondary market insurance which would continue to cover any such security after
its sale by the Fund. Such guaranteed renewable insurance continues so long as
premiums are paid by the Fund and, in the judgment of the Fund Manager, coverage
should be continued. Non-payment of premiums on the portfolio insurance will,
under certain circumstances result in the cancellation of such insurance and
will also permit FGIC to take action against the Fund to recover premiums due
it. In the case of securities which are individually insured, default by the
issuer is not expected to affect the market value of the security relative to
other insured securities of the same maturity value and coupon and covered by
the same insurer. In the case of a security covered by the Fund's portfolio
insurance, the market value of such a security in the event of such default
might be less unless the Fund elected to purchase secondary market insurance for
it. It is the intention of the Fund Manager either to procure individual
secondary market insurance for, or retain in the Fund's portfolio, securities
which are insured by the Fund under portfolio insurance and which are in default
or significant risk of default in the payment of principal or interest. Any such
securities retained by the Fund would be held until the default has been cured
or the principal and interest have been paid by the issuer or the insurer.
Premiums for individual insurance may be payable in advance or may be paid
periodically over the term of the security by the party then owning the
security, and the costs will be reflected in the price of the security. The cost
of insurance for longer-term securities, expressed in terms of income on the
security, is likely to reduce such income by from 10 to 60 basis points. Thus, a
security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact
of the cost of the Fund's portfolio insurance on the Fund's net yield is
somewhat less. The cost of insurance for shorter-term securities, which are
generally lower-yielding, is expected to be less. It should be noted that
insurance raises the rating of a municipal security. Lower rated securities
generally pay a higher rate of interest than higher rated securities. Thus,
while there is no assurance that this will always be the case, the Fund may
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purchase lower rated securities which, when insured, will bear a higher rating,
and may pay a higher net rate of interest than other equivalently rated
securities which are not insured.
Insurers have certain eligibility standards as to municipal securities they
will insure. Such standards may be more or less strict than standards which
would be applied for purchase of a security for the Fund. To the extent the
insurers apply stricter standards, the Fund will be restricted by such standards
in the purchase and retention of municipal securities.
The Internal Revenue Service has issued revenue rulings indicating that (a)
the fact that municipal obligations are insured will not affect their tax-exempt
status and (b) insurance proceeds representing maturing interest on defaulted
municipal obligations paid to certain municipal bond funds will be excludable
from federal gross income under Section 103(a) of the Internal Revenue Code.
While operation of the Fund and the terms of the insurance policies on the
Fund's securities may differ somewhat from those addressed by the revenue
rulings, the Fund does not anticipate that any differences will be material or
change the result with respect to the Fund.
Insurers of the Fund's municipal securities are subject to regulation by
the department of insurance in each state in which they are qualified to do
business. Such regulation, however, is no guarantee that an insurer will be able
to perform on its contract of insurance in the event a claim should be made
thereunder at some time in the future. The Fund Manager reviews the financial
condition of each insurer of their securities at least annually, and in the
event of any material development, with respect to its continuing ability to
meet its commitments to any contract of bond or portfolio insurance.
Management Strategies. In pursuit of its investment objectives the Fund
purchases securities that it believes are attractive and competitive values in
terms of quality, and relationship of current price to market value. However,
recognizing the dynamics of municipal bond prices in response to changes in
general economic conditions, fiscal and monetary policies, interest levels and
market forces such as supply and demand for various bond issues, the Fund
Manager manages the Fund continuously, attempting to achieve a high level of
tax-free income. The primary strategies employed in the management of the Fund
are:
Variations of Maturity. In an attempt to capitalize on the differences in
total return from municipal securities of differing maturities, maturities may
be varied according to the structure and level of interest rates, and the Fund
Manager's expectations of changes therein.
Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal securities of the same
or generally similar maturity tend to change constantly in reaction to broad
swings in interest rates and factors affecting relative supply and demand. These
temporary disparities in normal yield relationships may afford opportunities to
invest in more attractive market sectors or specific issues by trading
securities currently held by the Fund.
Market Trading Opportunities. In addition to the above, the Fund may engage
in short-term trading (selling securities held for brief periods of time,
usually less than 3 months) if the Fund believes that such transactions, net of
costs, would further the attainment of that Fund's objectives. The needs of
different classes of lenders and borrowers and their changing preferences and
circumstances have in the past caused market dislocations unrelated to
Fundamental creditworthiness and trends in interest rates which have presented
market trading opportunities. There can be no assurance that such dislocations
will occur in the future or that the Funds will be able to take advantage of
them. The Fund will limit its voluntary short-term trading to the extent
necessary to qualify as a "regulated investment company" under the Internal
Revenue Code.
Special Considerations: Income Level and Credit Risk. To the extent that
AARP Insured Tax Free General Bond Fund holds insured municipal obligations, the
income earned on its shares will tend to be less than for an uninsured portfolio
of the same securities. The fund will amortize as income, over the life of the
respective security issues, any original issue discount on debt obligations
(even where these are acquired in the after-market), and market discount on
short-term U.S. Government securities. The Fund will elect to amortize the
premium paid on acquisition of any premium coupon obligations. Since such
discounts and premiums will be recognized in the Fund's accounts over the life
of the respective security issues and included in the regular monthly income
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distributions to shareholders, they will not give rise to taxable capital gains
or losses. However, a capital gain may be realized upon the sale or maturity and
payment of certain obligations purchased at a market discount.
AARP Growth Funds
(See "AARP Balanced Stock and Bond Fund," "AARP Growth and Income Fund,"
"AARP U.S. Stock Index Fund," "AARP Global Growth Fund," "AARP Capital Growth
Fund," "AARP International Stock Fund," "AARP Small Company Stock Fund,"
"INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK
FACTORS" in the Prospectus.)
AARP Balanced Stock and Bond Fund. The AARP Balanced Stock and Bond Fund's
investment objective is to seek to provide long-term growth of capital and
income while attempting to keep the value of its shares more stable than other
balanced mutual funds. The Fund pursues these objectives by investing in a
combination of stocks, bonds, and cash reserves.
The Fund is intended to provide--through a single investment--access to a
wide variety of income-oriented stocks and investment-grade bond investments.
Common stocks and other equity investments provide long-term growth potential to
help offset the effect of inflation on an investor's purchasing power. Bonds and
other fixed-income investments provide current income and may, over time, help
reduce fluctuations in the Fund's share price.
In seeking a balance of growth and income, as well as long-term
preservation of capital, the Fund invests in a diversified portfolio of equity
and fixed-income securities. At least 30% of the Fund's assets will be in
fixed-income securities, with the remainder of its net assets in common stocks
and securities convertible into common stocks. For temporary defensive purposes,
the Fund may invest without limit in cash and in other money market and
short-term instruments when the Fund Manager deems such a position advisable in
light of economic or market conditions.
The Fund will, on occasion, adjust its mix of investments among equity
securities, bonds, and cash reserves. In reallocating investments, the Fund
Manager weighs the relative values of different asset classes and expectations
for future returns. In doing so, the Fund Manager analyzes, on a global basis,
the level and direction of interest rates, capital flows, inflation
expectations, anticipated growth of corporate profits, monetary and fiscal
policies around the world, and other related factors.
The Fund does not take extreme investment positions as part of an effort to
"time the market." Shifts between stocks and fixed-income investments are
expected to occur in generally small increments within the guidelines adopted in
the prospectus and this Statement of Additional Information. The Fund is
designed as a conservative long-term investment.
While the Fund emphasizes U.S. equity and debt securities, it may invest
without limit in foreign securities, including depositary receipts. The Fund's
foreign holdings will meet the criteria applicable to its domestic investments.
Foreign securities are intended to increase diversification, thus reducing risk,
while providing the opportunity for higher returns.
In addition, the Fund may invest in securities on a when-issued or forward
delivery basis and may write (sell) covered call options on the equity
securities it holds to enhance investment return and may purchase and sell
options on stock indices for hedging purposes. Subject to applicable regulatory
guidelines and solely to protect against adverse effects of changes in interest
rates, the Fund may make limited use of financial futures contracts.
Equity investments. The Fund can invest up to 70% of its net assets in
equity securities. The Fund's equity investments consist of common stocks,
preferred stocks and securities convertible into common stocks, of companies
that, in the Fund Manager's judgment, will offer the opportunity for capital
growth and growth of earnings while providing dividends. The Fund pursues these
objectives by investing primarily in common stocks and securities convertible
into common stocks. Over time, a stock which produces continued earnings growth
tends to produce higher dividends and stock values.
The Fund invests in a variety of industries and companies. Changes in the
Fund's portfolio securities are made on the basis of investment considerations
and not for trading purposes.
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Fixed-income investments. To enhance income and stability, the Fund will
have at least 30% of its net assets invested in fixed-income securities. The
Fund can invest in a broad range of corporate bonds and notes, convertible
bonds, and preferred and convertible preferred securities. It may also purchase
U.S. Government securities and obligations of federal agencies and
instrumentalities that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Banks, Farm Credit
Banks, and the Federal Home Loan Mortgage Corporation. The Fund may also invest
in obligations of international agencies, foreign debt securities (both U.S. and
non-U.S. dollar denominated), mortgage-backed and other asset-backed securities,
municipal obligations, zero coupon securities, and restricted securities issued
in private placements.
For liquidity and defensive purposes, the Fund may invest in money market
securities such as commercial paper, bankers' acceptances, and certificates of
deposit issued by domestic and foreign branches of U.S. banks. The Fund may also
enter into repurchase agreements with respect to U.S. Government securities.
All of the Fund's debt securities will be investment grade, that is, rated
Baa or above by Moody's or BBB by S&P. Moreover, at least 75% of these
securities will be high grade, that is, rated within the three highest quality
ratings of Moody's (Aaa, Aa and A) or S&P (AAA, AA and A), or, if unrated,
judged to be of equivalent quality as determined by the Fund Manager at the time
of purchase. Securities must also meet credit standards applied by the Fund
Manager. Moreover, the Fund does not purchase debt securities rated below Baa by
Moody's or BBB by S&P. Should the rating of a portfolio security be downgraded
the Fund Manager will determine whether it is in the best interest of the Fund
to retain or dispose of the security.
AARP Growth and Income Fund. From investments primarily in common stocks
and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth and income, and to keep the value of its shares more
stable than other growth and income mutual funds.
The Fund invests primarily in common stocks and securities convertible into
common stocks. It also may invest in rights to purchase common stocks of
companies offering the prospect for capital growth and growth of earnings while
paying current dividends. The Fund may also invest in preferred stocks
consistent with the Fund's objective. Over time, continued growth of earnings
tends to produce higher dividends and to enhance capital value. In addition,
since 1945, the overall performance of common stocks has exceeded the rate of
inflation. For temporary defensive purposes, the Fund may also purchase
high-quality money market securities (such as U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances) and repurchase
agreements when the Fund Manager deems such a position advisable in light of
economic or market conditions.
AARP U.S. Stock Index Fund. Taking an indexing approach to investing in
common stocks, the Fund seeks to provide long-term capital growth and income,
and to keep the value of its shares more stable than a S&P 500 Index fund. The
Fund seeks these dual objectives by emphasizing higher dividend stocks while
maintaining investment characteristics otherwise similar to the S&P 500 Index.
The Fund attempts to remain fully invested in common stocks of S&P 500
companies. Under normal circumstances, the Fund will invest at least 95% of its
assets in common stocks, futures contracts and options, primarily on the S&P 500
Index. The Fund, using a proprietary model, selects common stocks of S&P 500
companies that are expected to, on average, pay higher dividends than S&P 500
companies in the aggregate. After the Fund's start-up phase, the portfolio will
typically consist of the common stocks of between 400 to 470 of the S&P 500
companies. The investment approach is "passive" in that after the dividend
screening described above, there is no additional financial analysis regarding
the securities held in the Fund. Under normal circumstances, the Fund may invest
up to 5% of its assets in certain short-term fixed income securities including
high quality money market securities such as U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks and bankers' acceptances, although cash or cash
equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may invest up to 20% of its assets in stock futures contracts
and options in order to invest uncommitted cash balances, to maintain liquidity
to meet shareholder redemptions, or to minimize trading costs. The Fund will not
invest in cash reserves, futures contracts or options as part of a temporary
defensive strategy, such as lowering the Fund's investment in common stocks to
protect against potential stock market declines.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
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AARP Global Growth Fund. From investments primarily in equity securities of
corporations worldwide, the Fund seeks to offer long-term capital growth in a
globally diversified portfolio, and to keep the value of its shares more stable
than other global equity funds. The Fund invests on a worldwide basis in equity
securities of companies which are incorporated in the U.S. or in foreign
countries. It may also invest in the debt securities of U.S. and foreign
issuers. Income is an incidental consideration.
The management of the Fund believes that there is substantial opportunity
for long-term capital growth from a professionally managed portfolio of
securities selected from the U.S. and foreign equity markets. Global investing
takes advantage of the investment opportunities created by the growing
integration of economies around the world. The world has become highly
integrated in economic, industrial and financial terms. Companies increasingly
operate globally as they purchase raw materials, produce and sell their
products, and raise capital. As a result, international trends such as movements
in currency and trading relationships are becoming more important to many
industries than purely domestic influences. To understand a company's business,
it is frequently more important to understand how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global perspective in deciding where to operate, so
too may an investor benefit from looking globally in deciding which industries
are growing, which producers are efficient and which companies' shares are
undervalued. The Fund affords the investor access to opportunities wherever they
arise, without being constrained by the location of a company's headquarters or
the trading market for its shares.
The Fund invests in companies that the Fund Manager believes will benefit
from global economic trends, promising technologies or products and specific
country opportunities resulting from changing geopolitical, currency, or
economic relationships. The Fund will normally invest at least 65% of its total
assets in securities of at least three different countries. Typically, it is
expected that the Fund will invest in a wide variety of regions and countries,
including both foreign and U.S. issues. The Fund may be invested 100% in
non-U.S. issues, and for temporary defensive purposes may be invested 100% in
U.S. issues, although under normal circumstances it is expected that both
foreign and U.S. investments will be represented in the Fund's portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
AARP Capital Growth Fund. From investments primarily in common stocks and
securities convertible into common stocks, the Fund seeks to provide long-term
capital growth, and to keep the value of its shares more stable than other
capital growth mutual funds. Through a broadly diversified portfolio consisting
primarily of high quality, medium- to large-sized companies with strong
competitive positions in their industries the Fund seeks to offer less share
price volatility than many growth funds. It may also invest in rights to
purchase common stocks, the growth prospects of which are greater than most
stocks but which may also have above-average market risk. The Fund may also
invest in preferred stocks consistent with the Fund's objective. The securities
in which the Fund may invest are described under "AARP Capital Growth Fund" in
the Prospectus.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly-traded equity securities.
Thus, the search for equity investments for the Fund may encompass any sector of
the market and companies of all sizes. In addition, since 1945, the overall
performance of common stocks has exceeded the rate of inflation. It is a
fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares (see "Investment Restrictions",
herein, for majority voting requirements), that the Fund will not concentrate
its investments in any particular industry. However, the Fund reserves the right
to invest up to 25% of its total assets (taken at market value) in any one
industry.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
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AARP International Stock Fund. The Fund seeks to offer long-term capital
growth from a diversified portfolio of foreign equity securities, and to keep
the value of its shares more stable than other international equity funds.
The Fund generally invests in equity securities of established
dividend-paying companies listed on foreign exchanges within developed foreign
markets. The Fund does not invest in emerging markets, but instead focuses its
investments on the 21 developed foreign countries included in the Morgan Stanley
Capital International World ex USA Index. The Fund will normally invest at least
65% of its total assets in securities of at least three different countries.
When the Fund Manager believes that it is appropriate, the Fund may invest
up to 20% of its total assets in investment-grade foreign debt securities. Such
debt securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). Debt investments will be selected on yield, credit quality,
and the outlooks for currency and interest rates trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged by the Fund Manager to be of equivalent quality. Securities
rated Baa by Moody's or BBB by S&P are neither highly protected nor poorly
secured. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as Canadian or U.S. government obligations or currencies, corporate debt
instruments, and securities of companies incorporated in and having their
principal activities in Canada or the U.S. when the Fund Manager deems such a
position advisable in light of economic or market conditions.
The Fund may make limited use of financial futures contracts and related
options and may also invest in foreign currency exchange contracts. The Fund may
write (sell) covered call options to enhance investment return, and may purchase
and sell options on stock indices for hedging purposes.
AARP Small Company Stock Fund. From investments primarily in the stocks of
small U.S. companies, the Fund seeks to provide long-term capital growth, and to
keep the value of its shares more stable than other small company stock funds.
In pursuing its objective of long-term growth of principal, the Fund
normally remains substantially invested in the common stocks of small U.S.
companies. Using a quantitative investment approach developed by the Fund
Manager, the Fund focuses on equity securities of companies with market
capitalization below $1 billion that, as a group, have dividend yields higher
than the average of those in the Russell 2000(R) Index and that the Fund Manager
believes are undervalued relative to the stocks in that Index. The Fund will
sell securities of companies that have grown in market capitalization above this
level as necessary to keep the Fund focused on small companies.
The Fund takes a diversified approach to investing in small capitalization
stocks which overall have dividend yields above the average yield of the Russell
2000(R) Index. It will not be unusual for the Fund to hold stocks of more than
one hundred small companies, representing a variety of U.S. industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either convertible
or nonconvertible), rights and warrants. Securities may be listed on national
exchanges or traded over-the-counter. The Fund may invest up to 20% of its
assets in U.S. Treasury, agency and instrumentality obligations, may enter into
repurchase agreements and may make use of financial futures contracts and
related options. The Fund may purchase and sell options or futures on stock
indices for hedging purposes as a temporary investment to accommodate cash
flows.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
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such as U.S. government obligations and corporate debt instruments when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
AARP Managed Investment Portfolios
AARP Diversified Income Portfolio. AARP Diversified Income Portfolio seeks
to provide current income with modest long-term appreciation potential by
investing primarily in underlying AARP bond mutual funds.
AARP Diversified Growth Portfolio. The Portfolio seeks long-term growth of
capital by investing primarily in underlying AARP stock mutual funds.
Each Portfolio may invest in any of the AARP Mutual Funds, except for those
designed to provide tax-free income.
Under normal market conditions, each of the AARP Investment Portfolios will
invest within the investment ranges as described below:
o The Diversified Income Portfolio will normally invest 60-80% of total
assets in AARP bond mutual funds; and 20-40% of total assets in AARP
stock mutual funds; and 0-20% of total assets in cash or equivalents.
o The Diversified Growth Portfolio will normally invest 60-80% of total
assets in AARP stock mutual funds; and 20-40% of total assets in AARP
bond mutual funds and/or cash equivalents; and 0-20% of total assets
in cash or equivalents.
If, as a result of appreciation or depreciation, the percentage of each
Portfolio's assets invested in the above categories exceeds or is less than the
applicable range, the Fund Manager will consider, in its discretion, whether to
reallocate the assets of each Portfolio to comply with the stated ranges.
Each Portfolio will purchase or sell shares of underlying AARP mutual funds
to: (a) accommodate purchases and sales of each Portfolio's shares, (b) change
the percentages of each Portfolio's assets invested in each of the underlying
AARP mutual funds in response to changing market conditions, and (c) maintain or
modify the allocation of each Portfolio's assets in accordance with the
investment mix described above. To provide for redemptions or for temporary
defensive purposes, each Portfolio may invest without limit in cash or cash
equivalents, including repurchase agreements, commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks.
For information about the investment objectives of each of the underlying
AARP mutual funds, please refer to the description of each underlying AARP
mutual fund contained in the sections preceding this section.
Special Investment Policies of the AARP Funds
(See "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
U.S. Government Securities. U.S. Treasury securities, backed by the full
faith and credit of the U.S. Government, include a variety of securities which
differ in their interest rates, maturities and times of issuance. Treasury bills
have original maturities of one year or less. Treasury notes have original
maturities of one to ten years and Treasury bonds generally have original
maturities of greater than ten years.
U.S. Government agencies and instrumentalities which issue or guarantee
securities include, for example, the Export-Import Bank of the United States,
the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and the
Federal Farm Credit Bank. Obligations of some of these agencies and
instrumentalities, such as the Export-Import Bank, are supported by the full
faith and credit of the United States; others, such as the securities of the
Federal Home Loan Bank, by the ability of the issuer to borrow from the
Treasury; while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. No assurance can be given
that the U.S. Government would provide financial support to the latter group of
U.S. Government instrumentalities, as it is not obligated to do so.
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Interest rates on U.S. Government obligations which the AARP Funds may
purchase may be fixed or variable. Interest rates on variable rate obligations
are adjusted at regular intervals, at least annually, according to a formula
reflecting then current specified standard rates, such as 91-day U.S. Treasury
bill rates. These adjustments tend to reduce fluctuations in the market value of
the securities.
Municipal Obligations. Municipal obligations held by AARP High Quality Tax
Free Money Fund and AARP Insured Tax Free General Bond Fund are issued by or on
behalf of states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on these
obligations is generally exempt from federal income tax in the hands of most
investors. The two principal classifications of municipal obligations are
"notes" and "bonds." Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the FHA under "Fannie Mae" (the Federal National Mortgage Association)
or GNMA. There are, of course, a number of other types of notes issued for
different purposes and secured differently than those described above.
Municipal bonds, which meet longer-term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully-insured, rent-subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt reserve fund.
Lease rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Some issues of municipal bonds are payable from United States Treasury
bonds and notes held in escrow by a Trustee, frequently a commercial bank. The
interest and principal on these U.S. Government securities are sufficient to pay
all interest and principal requirements of the municipal securities when due.
Some escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.
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Private activity bonds, although nominally issued by municipal authorities,
are generally not secured by the taxing power of the municipality but are
secured by the revenues of the authority derived from payments by an industrial
or other non-governmental user.
Securities purchased for either Fund may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for the
AARP Funds' purposes to mature at the demand date.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal
obligations both within and between the two principal classifications (i.e.,
notes and bonds) discussed above.
An entire issue of municipal obligations may be purchased by one or a small
number of institutional investors such as the AARP Funds. Thus, such an issue
may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale unless an
exemption from such registration is available, municipal obligations which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for municipal obligations which have not been publicly offered initially.
Obligations purchased for a Fund are subject to the limitations on holdings of
securities which are not readily marketable based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its recorded
value. The AARP Funds believe that the quality standards applicable to their
investments enhance marketability. In addition, stand-by commitments,
participation interests and demand obligations also enhance marketability.
For the purpose of the AARP Funds' investment restrictions, the
identification of the "issuer" of municipal obligations which are not general
obligation bonds is made by the Fund Manager on the basis of the characteristics
of the obligation as described above, the most significant of which is the
source of funds for the payment of principal and interest on such obligations.
Municipal Lease Obligations and Participation Interests. Participation
interests represent undivided interests in municipal leases, installment
purchase contracts, conditional sales contracts or other instruments. These are
typically issued by a Trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or contracts.
Each AARP Tax Free Fund may purchase from banks participation interests in
all or part of specific holdings of municipal obligations, provided the
participation interest is fully insured. Each participation is backed by an
irrevocable letter of credit or guarantee of the selling bank that the AARP
Funds' investment adviser has determined meets the prescribed quality standards
of the Fund. Thus either the credit of the issuer of the municipal obligation or
the selling bank, or both, will meet the quality standards of the particular
Fund. Each Fund has the right to sell the participation back to the bank after
seven days' notice for the full principal amount of the Fund's interest in the
municipal obligation plus accrued interest, but only (1) as required to provide
liquidity to the Fund, (2) to maintain a high quality investment portfolio or
(3) upon a default under the terms of the municipal obligation. The selling bank
will receive a fee from the Fund in connection with the arrangement. Neither
Fund will purchase participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service satisfactory to the Trustees
that interest earned by that Fund on municipal obligations on which it holds
participation interests is exempt from Federal income tax.
A municipal lease obligation may take the form of a lease, installment
purchase contract or conditional sales contract which is issued by a state or
local government and authorities to acquire land, equipment and facilities.
Income from such obligations is generally exempt from state and local taxes in
the state of issuance. Municipal lease obligations frequently involve special
risks not normally associated with general obligations or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide
for title in the leased asset to pass eventually to the governmental issuer)
have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
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payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis.
In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the
property in the event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in a delay in recovery or the failure to
fully recover a Fund's original investment.
Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of a Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by a Fund may be determined by the Fund Manager to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Fund Manager will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace trades. In
addition, the Fund Manager will consider factors unique to particular lease
obligations and participation interests affecting the marketability thereof.
These include the general creditworthiness of the issuer, the importance to the
issuer of the property covered by the lease and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by a Fund.
A Fund may purchase participation interests in municipal lease obligations
held by a commercial bank or other financial institution. Such participations
provide a Fund with the right to a pro rata undivided interest in the underlying
municipal lease obligations. In addition, such participations generally provide
a Fund with the right to demand payment, on not more than seven days' notice, of
all or any part of such Fund's participation interest in the underlying
municipal lease obligation, plus accrued interest. Each Fund will only invest in
such participations if, in the opinion of bond counsel, counsel for the issuers
of such participations or counsel selected by the Fund Manager, the interest
from such participations is exempt from regular federal income tax and state
income tax for each state specific fund.
Stand-by Commitments. Pursuant to an exemptive order from the SEC, each
AARP Tax Free Fund may acquire "stand-by commitments," which will enable the
Fund to improve its portfolio liquidity by making available same-day settlements
on sales of its securities. A stand-by commitment is a right acquired by a Fund,
when it purchases a municipal obligation from a broker, dealer or other
financial institution ("seller"), to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a specified price.
Stand-by commitments are also known as "puts." Each Fund's investment policies
permit the acquisition of stand-by commitments solely to facilitate portfolio
liquidity and not to protect against changes in the market price of the Fund's
portfolio securities. The exercise by a Fund of a stand-by commitment is subject
to the ability of the other party to fulfill its contractual commitment.
Stand-by commitments acquired by a Fund will have the following features:
(1) they will be in writing and will be physically held by the Fund's custodian;
(2) a Fund's right to exercise them will be unconditional and unqualified; (3)
they will be entered into only with sellers which in the Fund Manager's opinion
present a minimal risk of default; (4) although stand-by commitments will not be
transferable, municipal obligations purchased subject to such commitments may be
sold to a third party at any time, even though the commitment is outstanding;
and (5) their exercise price will be (i) the Fund's acquisition cost (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date.
Each Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund will pay for stand-by commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding stand-by commitments will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
any stand-by commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential benefit
of a stand-by commitment. Therefore, it is expected that the Trustees will
determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security will ordinarily be
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valued at such exercise price. Where a Fund has paid for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held.
There is no assurance that stand-by commitments will be available to a Fund
nor does either Fund assume that such commitments would continue to be available
under all market conditions.
Third Party Puts. The AARP Tax Free Funds may also purchase long-term fixed
rate bonds that have been coupled with an option granted by a third party
financial institution allowing a Fund at specified intervals (not exceeding 397
calendar days in the case of AARP High Quality Tax Free Money Fund) to tender
(or "put") the bonds to the institution and receive the face value thereof (plus
accrued interest). These third party puts are available in several different
forms, may be represented by custodial receipts or Trust certificates and may be
combined with other features such as interest rate swaps. The Fund receives a
short-term rate of interest (which is periodically reset), and the interest rate
differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the weighted average maturity of the Fund's portfolio would be
adversely affected.
These bonds coupled with puts may present the same tax issues as are
associated with Stand-By Commitments discussed above. As with any Stand-By
Commitments acquired by the Funds, each Fund intends to take the position that
it is the owner of any municipal obligation acquired subject to a third-party
put, and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the
Internal Revenue Service will agree with such position in any particular case.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the treatment of tender fees and swap payments, in
relation to various regulated investment company tax provisions is unclear.
However, the Fund Manager intends to manage the Funds' portfolios in a manner
designed to minimize any adverse impact from these investments.
Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with any member bank of the Federal Reserve System and any
broker-dealers which are recognized as a reporting government securities dealer,
whose creditworthiness has been determined by the Fund Manager to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by any of the nationally-recognized rating services including Moody's
and S&P, two of the most widely recognized rating services for the types of
securities in which a Fund invests. A repurchase agreement, which provides a
means for a Fund to earn income on monies for periods as short as overnight, is
an arrangement under which the purchaser (i.e., the Fund) acquires a security
("Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. The repurchase price may be higher
than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Fund at the time of repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. For purposes of
the Investment Company Act of 1940, as amended, ("1940 Act") a repurchase
agreement is deemed to be a loan to the seller of the Obligation and is
therefore covered by each Fund's investment restriction applicable to loans.
Each repurchase agreement entered into by a Fund requires that if the market
value of the Obligation becomes less than the repurchase price (including
interest), a Fund will direct the seller of the Obligation, on a daily basis to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. In the
event that a Fund is unsuccessful in seeking to enforce the contractual
obligation to deliver additional securities, and the seller defaults on its
obligation to repurchase, the Fund bears the risk of any drop in market value of
the Obligation(s). In the event that bankruptcy or insolvency proceedings were
commenced with respect to a bank or broker-dealer before its repurchase of the
Obligation, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. In the case of repurchase agreements, it is not clear whether a
court would consider a repurchase agreement as being owned by the particular
Fund or as being collateral for a loan by the Fund. If a court were to
characterize the transaction as a loan and the Fund had not perfected a security
interest in the Obligation, the Fund could be required to return the Obligation
to the bank's estate and be treated as an unsecured creditor. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in that transaction. The Fund Manager seeks to minimize the
risk of loss through repurchase agreements by analyzing the creditworthiness of
the obligor, in this case the seller of the Obligations.
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Securities subject to a repurchase agreement are held in a segregated
account, and the amount of such securities is adjusted so as to provide a market
value at least equal to the repurchase price on a daily basis.
Each of the AARP Income Funds has adopted a policy, which may be changed
without the vote of the shareholders of those funds, not to invest more than 50%
of its total assets in repurchase agreements. In addition, none of the AARP
Funds may invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days. (See "Investment Restrictions", herein,
regarding requirements for a majority vote.)
Mortgage-Backed Securities and Mortgage Pass-Through Securities. The AARP High
Quality Bond Fund, the AARP Bond Fund for Income, and the AARP Balanced Stock
and Bond Fund may invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. The AARP GNMA and
U.S. Treasury Fund invests in mortgage-backed securities guaranteed primarily by
the Government National Mortgage Association. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
AARP High Quality Bond Fund, the AARP Bond Fund for Income, and the AARP
Balanced Stock and Bond Fund may also invest in debt securities which are
secured with collateral consisting of mortgage-backed securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.
When interest rates rise, mortgage prepayment rates decline, thus
lengthening the life of a mortgage-related security and increasing the price
volatility of that security, affecting the price volatility of the Fund's
shares.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however, do not apply to the market value or yield
of mortgage-backed securities or to the value of Fund shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
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FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Fund Manager determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMO"s). The AARP High Quality Bond Fund,
the AARP Bond Fund for Income, and the AARP Balanced Stock and Bond Fund may
invest in CMOs which are hybrids between mortgage-backed bonds and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series, (e.g.,
A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the AARP High Quality Bond Fund's, the AARP Bond Fund
for Income's, and the AARP Balanced Stock and Bond Fund's investment objectives
and policies, the Funds may invest in these and other types of asset-backed
securities that may be developed in the future. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments with interest rate
fluctuations.
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Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile ReceivablesSM ("CARSSM"). CARSSM
represent undivided fractional interests in a trust ("Trust") whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the Trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.
The Funds may also invest in residual interests in asset-backed securities.
In the case of asset-backed securities issued in a pass-through structure, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 (the "1933 Act") may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.
The availability of asset-backed securities may be affected by legislative
or regulatory developments. It is possible that such developments may require
the Funds to dispose of any then existing holdings of such securities.
Zero Coupon Securities. The AARP Balanced Stock and Bond Fund and the AARP
Global Growth Fund may invest in zero coupon securities which pay no cash income
and are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest (cash). Zero coupon securities which are convertible
into common stock offer the opportunity for capital appreciation as increases
(or decreases) in market value of such securities closely follow the movements
in the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks, as they usually are issued with maturities of 15 years or less and are
issued with options and/or redemption features exercisable by the holder of the
obligation entitling the holder to redeem the obligation and receive a defined
cash payment.
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Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Funds, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Funds understand that the staff of the SEC no longer considers
such privately stripped obligations to be U.S. Government securities, as defined
in the Investment Company Act of 1940; therefore, the Funds intend to adhere to
this staff position and will not treat such privately stripped obligations to be
U.S. Government securities for the purpose of determining if the Funds are
"diversified" under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES" herein).
High Yield/High Risk Securities. AARP Bond Fund for Income may invest a
limited amount of assets in debt securities which are rated below
investment-grade (hereinafter referred to as "lower rated securities") or which
are unrated, but deemed equivalent to those rated below investment-grade by the
Fund Manager. The lower the ratings of such debt securities, the greater their
risks. These debt instruments generally offer a higher current yield than that
available from higher grade issues, but typically involve greater risk. The
yields on high yield/high risk bonds will fluctuate over time. In general,
prices of all bonds rise when interest rates fall and fall when interest rates
rise. While less sensitive to changing interest rates than investment-grade
debt, lower-rated securities are especially subject to adverse changes in
general economic conditions and to changes in the financial condition of their
issuers. During periods of economic downturn or rising interest rates, issuers
of these instruments may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of these
securities especially in a market characterized by only a small amount of
trading and with relatively few participants. These factors can also limit the
Fund's ability to obtain accurate market quotations for these securities, making
it more difficult to determine the Fund's NAV.
In cases where market quotations are not available, lower rated securities
are valued using guidelines established by the Fund's Board of Trustees.
Perceived credit quality in this market can change suddenly and unexpectedly,
and may not fully reflect the actual risk posed by a particular lower rated or
unrated security.
Loans of Portfolio Securities. Each Fund may lend its portfolio securities
provided: (1) the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or cash equivalents adjusted daily to have a
market value at least equal to the current market value of the securities
loaned; (2) the Fund may at any time call the loan and regain the securities
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loaned; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one-third of the total assets of the Fund. In addition, it is
anticipated that the Fund may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium for
the loan. In determining whether to lend securities, the Fund's investment
adviser considers all relevant factors and circumstances including the
creditworthiness of the borrower. The AARP Funds have no current intention of
lending their portfolio securities.
Securities Purchased on a "Forward Delivery" or "When-Issued" Basis. Debt
securities, including municipal obligations when originally issued, are
frequently offered on a "forward delivery" or "when-issued" basis and may be
purchased on this basis by the AARP Money, Income and Tax Free Funds, and the
AARP Balanced Stock and Bond Fund. When so offered, the price, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase of U.S. Government obligations. During the period between purchase and
settlement, no payment is made on behalf of the Fund and no interest accrues to
the Fund. To the extent that assets of the Fund are not invested prior to the
settlement of a purchase of securities, the Fund will earn no income; however,
it is the intention of each Fund to be fully invested to the extent practicable,
subject to the policies stated above. While securities purchased on a forward
delivery or when-issued basis may be sold prior to the settlement date, each of
the above Funds intends to purchase such securities with the purpose of actually
acquiring them for its portfolio unless a sale appears desirable for investment
reasons. At the time the commitment to purchase a debt security on a forward
delivery or when-issued basis is made, the transaction will be recorded and the
value of the security will be reflected in determining its net asset value. The
market value of the when-issued or forward delivery securities may be more or
less than the purchase price payable at settlement date. The Funds do not
believe that their net asset value or income will be adversely affected by their
purchase of debt securities on a when-issued or forward delivery basis. Each
Fund will establish with its custodian a segregated account in which it will
maintain cash, U.S. Government securities and other high-quality debt
obligations equal in value to commitments for when-issued or forward delivery
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date.
Futures Contracts. The AARP Income Funds, the AARP Insured Tax Free General
Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP Global Growth Fund,
the AARP International Stock Fund, the AARP U.S. Stock Index Fund and the AARP
Small Company Stock Fund may each enter into financial futures contracts. Such
contracts may be either based on indices of particular groups or varieties of
securities ("Index Futures Contracts") or be for the purchase or sale of debt
obligations ("Debt Futures Contracts"). Such futures contracts are traded on
exchanges licensed and regulated by the Commodity Futures Trading Commission.
Each Fund enters into futures contracts to gain a degree of protection against
anticipated changes in interest rates that would otherwise have an adverse
effect upon the economic interests of the Fund. However, the costs of and
possible losses from futures transactions reduce the Funds' yield from interest
on its holdings of debt securities. Income from futures transactions constitutes
taxable gain.
For each Fund, the custodian places cash, U.S. government securities and
other high grade debt obligations into a segregated account in an amount equal
to the value of the total assets committed to the consummation of futures
positions. If the value of the securities placed in the segregated account
declines, additional cash or securities are required to be placed in the account
on a daily basis so that the value of the account equals the amount of a Fund's
commitments with respect to such contracts. Alternatively, a Fund may cover such
positions by purchasing offsetting positions, or covering such positions partly
with cash, U.S. government securities and other high grade debt obligations, and
partly with offsetting positions.
An Index Futures Contract is a contract to buy or sell units of a
particular index of securities at a specified future date at a price agreed upon
when the contract is made. Index Futures Contracts typically specify that no
delivery of the actual securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based on the
difference between the contract price and the actual price on the termination
date of the units of the index.
A Debt Futures Contract is a binding contractual commitment which, if held
to maturity, requires a Fund to make or accept delivery, during a particular
month, of obligations having a standardized face value and rate of return. By
purchasing a Debt Futures Contract, a Fund legally obligates itself to accept
delivery of the underlying security and to pay the agreed price; by selling a
Debt Futures Contract it legally obligates itself to make delivery of the
security against payment of the agreed price. However, positions taken in the
futures markets are not normally held to maturity. Instead they are liquidated
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through offsetting transactions which may result in a profit or loss. While Debt
Futures Contract positions taken by a Fund are usually liquidated in this
manner, a Fund may instead make or take delivery of the underlying securities
whenever it appears economically advantageous.
A clearing corporation, associated with the exchange on which futures
contracts are traded, assumes responsibility for close-outs of such contracts
and guarantees that the sale or purchase, if still open, is performed on the
settlement date.
By entering into futures contracts, a Fund seeks to establish more
certainly than would otherwise be possible the effective rate of return on its
portfolio securities. A Fund may, for example, take a "short" position in the
futures markets by selling a Debt Futures Contract for the future delivery of
securities held by the Fund in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of such securities. Or it
might sell an Index Futures Contract based on a group of securities whose price
trends show a significant correlation with those of securities held by the Fund.
When hedging of this character is successful, any depreciation in the value of
portfolio securities is substantially offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long" position by
purchasing futures contracts. This is done when the Fund is not fully invested
or expects to receive substantial proceeds from the sale of portfolio securities
or of Fund shares, and anticipates the future purchase of particular securities
but expects the rate of return then available in the securities markets to be
less favorable than rates that are currently available in the futures markets.
The Funds expect that, in the normal course, securities will be purchased upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.
Debt Futures Contracts, however, currently involve only taxable obligations
and do not encompass municipal securities. The value of Debt Futures Contracts
on taxable securities, as well as Index Futures Contracts, may not vary in
direct proportion with the value of a Fund's securities, limiting the ability of
the Fund to hedge effectively against interest rate risk.
Presently the only available index futures contract in which the AARP
Insured Tax Free General Bond Fund might invest is the Bond Buyer Municipal Bond
Index. The Fund might sell a contract based on this index in anticipation of an
increase in interest rates, to attempt to offset the decrease in market value of
its portfolio securities which could result. Or the Fund might purchase such a
contract in the anticipation of a significant decrease in interest rates to
offset the increased cost of securities it hopes to purchase in the future. No
index futures contracts have yet been developed which are suitable for
investment by the Funds in the AARP Income Trust.
The investment restriction concerning futures contracts does not specify
the types of index-based futures contracts into which the Funds may enter
because it is impossible to foresee what particular indices may be developed and
traded or may prove useful to the Funds in implementing their overall risk
management strategies. For example, price trends for a particular index-based
futures contract may show a significant correlation with price trends in the
securities held by the Funds, or either of them, even though the securities
comprising the index are not necessarily identical to those held by such Fund or
Funds. In any event, the Funds would not enter into a particular index-based
futures contract unless the Fund Manager determined that such a correlation
existed.
Index Futures Contracts and Debt Futures Contracts currently are actively
traded on the Chicago Board of Trade and the International Monetary Market at
the Chicago Mercantile Exchange.
Options on Futures Contracts. To attempt to gain additional protection
against the effects of interest rate fluctuations, each of the AARP Income
Funds, the AARP Insured Tax Free General Bond Fund, the AARP Balanced Stock and
Bond Fund, the AARP Global Growth Fund, the AARP International Stock Fund, the
AARP U.S. Stock Index Fund and the AARP Small Company Stock Fund may purchase
and write (sell) put and call options on futures contracts that are traded on a
U.S. exchange or board of trade and enter into related closing transactions.
There can be no assurance that such closing transactions will be available at
all times. In return for the premium paid, such an option gives the purchaser
the right to assume a position in a futures contract at any time during the
option period for a specified exercise price.
A Fund may purchase put options on futures contracts in lieu of, and for
the same purpose as, sale of a futures contract. It also may purchase such put
options in order to hedge a long position in the underlying futures contract.
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The purchase of call options on futures contracts is intended to serve the
same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.
A Fund may write (sell) a call option on a futures contract in order to
hedge against a decline in the prices of the index or debt securities underlying
the futures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing (selling) of a put option on a futures contract is similar to
the purchase of the futures contracts, except that, if market price declines, a
Fund would pay more than the market price for the underlying securities or index
units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
Limitations on Futures Contracts and Options on Futures Contracts. A Fund
will not engage in transactions in futures contracts or related options for
speculation but only as a hedge against changes resulting from market conditions
in the values of debt securities held in its portfolio or which it intends to
purchase and where the transactions are appropriate to the reduction of the
Fund's risks. The Trustees have adopted policies (which are not fundamental and
may be modified by the Trustees without a shareholder vote) that, immediately
after the purchase for a Fund of a futures contract or a related option, the
value of the aggregate initial margin deposits with respect to all futures
contracts (both for receipt and delivery), and premiums paid on related options,
entered into on behalf of the Fund will not exceed 5% of the fair market value
of the Fund's total assets. Additionally, the value of the aggregate premiums
paid for all put and call options held by a Fund will not exceed 20% of its net
assets. Futures contracts and put options written (sold) by a Fund will be
offset by assets of the Fund held in a segregated account in an amount
sufficient to satisfy obligations under such contracts and options.
Each Fund has received from the CFTC an interpretative letter confirming
its opinion that it is not a "commodity pool" as defined under the Commodity
Exchange Act. To ensure that its futures transactions meet this definition, each
Fund will enter into them for the purposes and with the hedging intent specified
in CFTC regulations. It will further determine that the price fluctuations in
the futures contracts used for hedging are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase,
though there can be no assurance this result will be achieved. The Funds'
futures transactions will be entered into for traditional hedging purposes--
that is, futures contracts will be sold (or related put options purchased) to
protect against a decline in the price of securities that a Fund owns, or
futures contracts (or related call options) will be purchased to protect the
Fund against an increase in the price of securities it intends to purchase. As
evidence of this hedging intent, each Fund expects that approximately 75% of its
long futures positions (purchases of futures contracts or call options on
futures contracts) will be "completed"; that is, upon sale (or other
termination) of these long contracts, the Fund will have purchased, or will be
in the process of, purchasing, equivalent amounts of related securities in the
cash market. However, under unusual market conditions, a long futures position
may be terminated without the corresponding purchase of securities.
Covered Call Options. Each of the AARP Growth Funds and each of the AARP
Income Funds may write (sell) covered call options on their portfolio securities
in an attempt to enhance investment performance. The writing of covered call
options by each Fund is subject to limitations imposed by certain state
securities authorities. The Funds have been advised that, under the most
restrictive of such limitations currently in effect, no more than 25% of a
Fund's net assets may be subject to covered options. Further, such states advise
that, unless an exception is granted with respect to certain transactions in
debt securities and related options, such options and the securities underlying
the call must both be listed on national securities exchanges.
When a Fund writes (sells) a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") at any time during the option period,
generally ranging up to nine months. If the option expires unexercised, the Fund
will realize gain to the extent of the amount received for the option (the
"premium") less any commission paid. If the option is exercised, a decision over
which the Fund has no control, the Fund must sell the underlying security to the
option holder at the exercise price. By writing a covered option, the Fund
forgoes, in exchange for the premium less the commission ("net premium"), the
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opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.
When a Fund sells an option, an amount equal to the net premium received by
the Fund is included in the liability section of the Fund's Statement of Assets
and Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked-to-market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction (i.e., the Fund terminates its obligation as the
writer of the option by purchasing a call option on the same security with the
same exercise price and expiration date as the option previously written), the
Fund will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option was sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund will realize a long-term or short-term gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the net
premium originally received. The writing of covered options may be deemed to
involve the pledge of the securities against which the option is being written.
Securities against which options are written will be segregated on the books of
the Fund's custodian.
Purchasing Options on Stock Indices. To protect the value of their
portfolios against declining stock prices, each of the AARP Growth Funds may
purchase put options on stock indices. To protect against an increase in the
value of securities that it wants to purchase, a Fund may purchase call options
on stock indices. A stock index (such as the Standard & Poor's 500) assigns
relative values to the common stocks included in the index and the index
fluctuates with the changes in the market values of the common stocks so
included. Options on stock indices are similar to options on stock except that,
rather than giving the purchaser the right to take delivery of stock at a
specified price, an option on a stock index gives the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Gain or loss with respect to options on stock indices depends on price movements
in the stock market generally rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of a stock index option depends upon movements in the
level of the stock index rather than the price of a particular stock, whether a
Fund will realize a gain or loss on the purchase of a put or call option on a
stock index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of both
put and call options on stock indices will be subject to the Fund Manager's
ability to accurately predict movements in the direction of the stock market
generally or of a particular industry. In cases where the Fund Manager's
prediction proves to be inaccurate, a Fund will lose the premium paid to
purchase the option and it will have failed to realize any gain.
In addition, a Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices (and therefore the
extent of its gain or loss on such transactions) depends on the degree to which
price movements in the underlying index correlate with price movements in the
Fund's securities. Inasmuch as such securities will not duplicate the components
of an index, the correlation probably will not be perfect. Consequently, a Fund
will bear the risk that the prices of the securities being hedged will not move
in the same amount as the option. This risk will increase as the composition of
a Fund's portfolio diverges from the composition of the index.
Over-the-counter options ("OTC options") are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. A Fund will only sell OTC options (other than OTC
currency options) that are subject to a buy-back provision permitting a Fund to
require the Counterparty to sell the option back to the Fund at a formula price
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within seven days. A Fund expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Fund Manager must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers", or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing no
more than 10% of its assets in illiquid securities.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
Risks of Futures and Options Investments. A Fund will incur brokerage fees
in connection with its futures and options transactions, and it will be required
to segregate Funds for the benefit of brokers as margin to guarantee performance
of its futures and options contracts. In addition, while such contracts will be
entered into to reduce certain risks, trading in these contracts entails certain
other risks. Thus, while a Fund may benefit from the use of futures contracts
and related options, unanticipated changes in interest rates may result in a
poorer overall performance for that Fund than if it had not entered into any
such contracts. Additionally, the skills required to invest successfully in
futures and options may differ from skills required for managing other assets in
the Fund's portfolio.
The AARP Growth Funds may engage in over-the-counter options transactions
with broker-dealers who make markets in these options. The Fund Manager will
consider risk factors such as their creditworthiness when determining a
broker-dealer with which to engage in options transactions. The ability to
terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The Fund Manager will monitor the creditworthiness of
dealers with whom the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.
Convertible Securities. Convertible securities include convertible bonds,
notes and debentures, convertible preferred stocks, and other securities that
give the holder the right to exchange the security for a specific number of
shares of common stock. Convertible securities entail less credit risk than the
issuer's common stock because they are considered to be "senior" to common
stock. Convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
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Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Bond Fund may invest
without limit in U.S. dollar denominated foreign securities and may invest up to
20% of its assets in foreign bonds denominated in foreign currencies although no
more than 5% of the Fund's total assets will be represented by a given foreign
currency. The AARP Bond Fund for Income may invest without limit in U.S. dollar
denominated investment-grade foreign securities and may invest up to 20% of its
assets in foreign bonds denominated in foreign currencies. The AARP Money Funds
may currently invest in U.S. dollar-denominated certificates of deposit and
bankers' acceptances of foreign branches of large U.S. banks.
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in United States securities and which may
favorably or unfavorably affect the Funds' performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed commissions
on some foreign securities exchanges and bid to asked spreads in foreign bond
markets are generally higher than commissions on bid to asked spreads on U.S.
markets, although the Funds will endeavor to achieve the most favorable net
results on their portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed companies
than in the U.S. It may be more difficult for the Funds' agents to keep
currently informed about corporate actions which may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities without delivery
may be required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Investments in
foreign securities may also entail certain risks such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Further, to the extent
investments in foreign securities involve currencies of foreign countries, the
Funds may be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations and may incur costs in connection with
conversion between currencies.
Investments in companies domiciled in developing countries may be subject
to potentially greater risks than investments in developed countries. The
possibility of revolution and the dependence on foreign economic assistance may
be greater in these countries than in developed countries. The management of
each Fund seeks to mitigate the risks associated with these considerations
through diversification and active professional management.
Forward Foreign Currency Exchange Contracts. Each of the AARP Growth Funds
and the AARP High Quality Bond Fund and the AARP Bond Fund for Income may enter
into forward foreign currency exchange contracts in connection with its
investments in foreign securities. A forward foreign currency exchange contract
("forward contract") involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any amount
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between banks or currency dealers so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract.
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The Funds may enter into foreign currency futures contracts in several
circumstances. First, when the Funds enter into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Funds
anticipates the receipt in a foreign currency of interest and dividend payments
on such a security which it holds, the Funds may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such interest and
dividend payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying transactions, the Funds will attempt
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend payment is declared, and the date on which such
payments are made or received.
The Funds' activities involving forward contracts may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.
General Investment Policies of the AARP Funds
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.
The AARP Funds have no present intention of acquiring restricted
securities, though they have limited authority to do so (see "Investment
Restrictions").
The AARP Funds cannot guarantee a gain or eliminate the risk of loss. The
net asset value of a non-money market Fund's shares will increase or decrease
with changes in the market prices of the Fund's investments and there is no
assurance that a Fund's objective(s) will be achieved.
Except where otherwise indicated, the objectives and policies stated above
may be changed by the Trustees without a vote of the shareholders.
Investment Restrictions
The following restrictions may not be changed with respect to a Fund
without the approval of a majority of the outstanding voting securities of such
Fund which, under the 1940 Act and the rules thereunder and as used in this
Statement of Additional Information, means the lesser of (1) 67% of the shares
of such Fund present at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (2) more
than 50% of the outstanding shares of such Fund.
(A) Neither AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Stock Fund nor AARP Small Company Stock Fund may:
(1) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that a Fund maintains asset coverage of 300% for
all borrowings;
(2) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of a Fund;
(3) make loans to other persons, except to the extent that the entry into
repurchase agreements in accordance with its investment objectives and
investment policies may be deemed to be loans;
(4) purchase or sell real estate (except that a Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and
(ii) securities secured by real estate or interests therein, and that
a Fund reserves freedom of action to hold and to sell real estate
acquired as a result of a Fund's ownership of securities); and
(5) purchase or sell physical commodities or contracts relating to
physical commodities.
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(B) Neither AARP Diversified Income Portfolio nor AARP Diversified Growth
Portfolio may:
(1) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that a Portfolio maintains asset coverage of 300%
for all borrowings;
(2) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of a Portfolio;
(3) make loans to other persons, except to the extent that the entry into
repurchase agreements in accordance with its investment objectives and
investment policies may be deemed to be loans;
(4) purchase or sell real estate (except that an Underlying Scudder Fund
may invest in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or interests
therein, and that an Underlying Scudder Fund reserves freedom of
action to hold and to sell real estate acquired as a result of an
Underlying Scudder Fund's ownership of securities); and
(5) purchase or sell physical commodities or contracts relating to
physical commodities.
(C) Neither AARP High Quality Money Fund, AARP GNMA and U.S. Treasury Fund,
AARP High Quality Bond Fund, AARP High Quality Tax Free Money Fund, AARP
Insured Tax Free General Bond Fund, AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Global Growth Fund nor AARP Capital Growth
Fund may:
(1) borrow money, except for temporary or emergency purposes and not for
investment purposes or except in connection with reverse repurchase
agreements; provided that a Fund maintains asset coverage of 300% for
all borrowings;
(2) underwrite any securities issued by other persons, except that it may
be deemed an underwriter in connection with the disposition of
portfolio securities of the Fund;
(3) purchase or sell real estate, but this shall not prevent a Fund from
investing in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or interests
therein, and that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership of
securities;
(4) purchase or sell physical commodities, or contracts relating to
physical commodities;
(5) make loans to other persons, except (i) loans of portfolio securities,
and (ii) except to the extent that the entry into repurchase
agreements and the purchase of debt securities in accordance with its
investment objective and investment policies may be deemed to be
loans;
(6) issue senior securities except as appropriate to evidence indebtedness
which it is permitted to incur and except for shares of the separate
classes or series of the Trusts, provided that collateral arrangements
with respect to currency-related contracts, futures contracts, option
or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior
securities for purposes of this restriction; and
(7) with respect to 75% of each Fund's total assets, purchase more than
10% of the voting securities of any one issuer or invest more than 5%
of the value of the total assets of the Fund in the securities of any
one issuer (except for investments in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, cash and
cash equivalents and securities of other investment companies),
provided that the amount of the total assets of each of the AARP High
Quality Money Fund and AARP High Quality Tax Free Money Fund, that may
be invested in the securities of any one issuer will, instead, be
limited in accordance with federal law, regulation and regulatory
interpretation applicable to money market funds, as amended from time
to time.
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(D) Neither the AARP High Quality Money Fund, the AARP GNMA and U.S. Treasury
Fund, the AARP High Quality Bond Fund, the AARP Bond Fund for Income, the
AARP Growth and Income Fund, the AARP Global Growth Fund nor the AARP
Capital Growth Fund may:
(1) purchase any securities which would cause more than 25% of the market
value of the total assets of the Fund at the time of such purchase to
be invested in the securities of one or more issuers having their
principal business activities in the same industry (for this purpose,
telephone companies are considered to be a separate industry from gas
and electric public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their activities
are primarily related to financing the activities of the parents),
provided that there is no limitation in respect to investments in the
U.S. Government or its agencies or instrumentalities or, in the case
of AARP High Quality Money Fund, in certificates of deposit or
bankers' acceptances or, in the case of the AARP Growth and Income
Funds, to municipal securities other than pollution control and
industrial development bonds.
(E) Neither the AARP High Quality Tax Free Money Fund nor the AARP Insured Tax
Free General Bond Fund may:
(1) purchase (i) private activity bonds or (ii) securities which are
neither municipal bonds nor securities of the U.S. Government, its
agencies or instrumentalities, if in either case the purchase would
cause more than 25% of the market value of its total assets at the
time of such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry. For this purpose, telephone companies are considered to be a
separate industry from gas and electric public utilities and
wholly-owned finance companies are considered to be in the industry of
their parents if their activities are primarily related to financing
the activities of their parents provided that, in the case of the AARP
High Quality Tax Free Money Fund, there is no limitation in respect to
investments in the U.S. Government or its agencies or
instrumentalities, or in certificates of deposit or bankers'
acceptances.
(F) AARP High Quality Tax Free Money Fund may not:
(1) purchase securities which are not municipal obligations if such
purchase would cause more than 20% of the Fund's total assets to be
invested in such securities, except, for temporary defensive purposes,
that the Fund may invest more than 20% of its total assets in such
securities prior to the time normal operating conditions have been
achieved and during other than normal market conditions.
The following restrictions are not fundamental and may be changed by a Fund
without shareholder approval, in compliance with applicable law, regulation or
regulatory policy.
Neither AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund, AARP Diversified
Income Portfolio nor AARP Diversified Growth Portfolio may:
(a) invest in companies for the purpose of exercising management or
control; and
(b) borrow money in excess of 5% of total assets (taken at market value)
except for temporary or emergency purposes or borrow other than from
banks.
Neither AARP High Quality Money Fund, AARP GNMA and U.S. Treasury Fund, AARP
High Quality Bond Fund, AARP High Quality Tax Free Money Fund, AARP Insured Tax
Free General Bond Fund, AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP Global Growth Fund nor AARP Capital Growth Fund may:
(a) make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance
of transactions; and, in the case of the AARP Income Funds and AARP
Insured Tax Free General Bond Fund in connection with entering into
futures contracts and related options;
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(b) purchase or retain for a Fund the securities of any issuer if those
officers and Trustees of a Trust, or partners and officers of its
investment adviser, who individually own more than 1/2 of 1% of the
outstanding securities of such issuer, together own more than 5% of
such outstanding securities;
(c) purchase from or sell to any of the officers and Trustees of a Trust,
its investment adviser, its principal underwriter or the officers,
directors, and partners of its investment adviser or principal
underwriter, portfolio securities of a Fund;
(d) purchase restricted securities (for these purposes restricted security
means a security with a legal or contractual restriction on resale in
the principal market in which the security is traded), including
repurchase agreements maturing in more than seven days and securities
which are not readily marketable if as a result more than 10% of the
net assets (valued at market at purchase) would be invested in such
securities;
(e) purchase securities of any issuer with a record of less than three
years continuous operation, including predecessors, and equity
securities of issuers that are not readily marketable, except
obligations issued or guaranteed by the U.S. Government or its
agencies (or, in the case of the AARP Tax-Free Income Funds, municipal
securities rated by a recognized municipal bond rating service), if
such purchase would cause the investments of that Fund in all such
issuers to exceed 5% of the value of the total assets of that Fund;
(f) invest its assets in securities of other open-end investment
companies, but may invest in closed-end investment companies when such
purchases are made in the open market where no commission or profit to
a sponsor or dealer result from such purchase other than the customary
broker's commission, if after such purchase (a) a Fund would own no
more than 3% of the total outstanding voting stock of such investment
company, (b) no more than 5% of a Fund's total assets would be
invested in the securities of any single investment company, (c) no
more than 10% of a Fund's total assets would be invested in the
securities of investment companies in the aggregate, or (d) all the
investment companies advised by the Fund Manager would own no more
than 10% of the total outstanding voting stock of any closed-end
company; provided that this restriction shall not preclude acquisition
of investment company securities by dividend, exchange offer or
reorganization. To the extent that a Fund invests in shares of other
investment companies, additional fees and expenses may be deducted
from such investments in addition to those incurred by a Fund. Except
in the case of the AARP Insured Tax Free Income Funds, for purposes of
this limitation, foreign banks or their agencies or subsidiaries are
not considered investment companies;
(g) invest in other companies for the purpose of exercising control or
management;
(h) purchase or sell real estate and real estate limited partnership
interests, but this shall not prevent a Fund from investing in
securities secured by real estate or interest therein; and
(i) purchase or sell commodities, commodities contracts (except, in the
case of the AARP Income Funds, the AARP Insured Tax Free General Bond
Fund and the AARP Global Growth Fund, contracts for the future
delivery of debt obligations and contracts based on debt indices) or
oil, gas or other mineral exploration or development programs or
leases (although it may invest in issuers which own or invest in such
interests).
AARP High Quality Money Fund may not:
(j) purchase or sell any put or call options or any combination thereof;
or
(k) purchase warrants, unless attached to other securities in which the
Fund is permitted to invest.
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Neither the AARP High Quality Money Fund nor the AARP High Quality Tax Free
Money Fund may:
(l) pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (C) (1) above, it may pledge
securities having a value at the time of pledge not exceeding 15% of
the cost of the Fund's total assets.
Neither the AARP GNMA and U.S. Treasury Fund nor the AARP High Quality Bond Fund
may:
(m) purchase warrants of any issuer, except that AARP High Quality Bond
Fund can purchase warrants on a limited basis. As a result of such
purchases by the Fund, no more than 2% of the value of the total
assets of the Fund may be invested in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange, and no
more than 5% of the value of the total assets of the Fund may be
invested in warrants whether or not so listed, such warrants in each
case to be valued at the lesser of cost or market, but assigning no
value to warrants acquired by the Fund in units with or attached to
debt securities;
(n) purchase or sell any put or call options or any combination thereof,
except that the Fund may write and sell national exchange-listed
covered call option contracts on national exchange-listed securities
and, to the extent permitted by applicable state regulatory limits, on
other debt securities owned by the Fund up to, but not in excess of,
25% of the value of the Fund's net assets at the time such option
contracts are written. The Fund may also purchase call options for the
purpose of terminating its outstanding obligations with respect to
securities upon which covered call option contracts have been written
(i.e., "closing purchase transaction"). In connection with the ----
writing of covered call options, the Fund may pledge assets to an
extent not greater than 25% of the value of its net assets at the time
such options are written. The Fund also may purchase and write options
on futures contracts in the manner described under "The Funds'
Investment Objectives and Policies";
(o) pledge, mortgage or hypothecate its assets, (a) except to the extent
that the writing of covered call options may be deemed to involve the
pledge of securities against which the option is being written, (b)
except to the extent that margin deposits on futures contracts and
related options may be deemed to involve a pledge of assets to
guarantee the performance of the futures obligations, and (c) except
to secure borrowings permitted by subparagraph (C) (1) above, it may
pledge securities having a value at the time of pledge not exceeding
15% of the cost of the Fund's total assets.
AARP High Quality Bond Fund has adopted a non-fundamental policy that it
will not underwrite securities issued by entities regulated under Part II of the
Federal Power Act.
Neither AARP Insured Tax Free General Bond Fund nor AARP High Quality Tax Free
Money Fund may:
(p) purchase or sell any put or call options or combinations thereof,
except to the extent that the acquisition of Stand-by Commitments or
Participation Interests may be considered the purchase or sale of a
put option and except that the AARP Insured Tax Free General Bond Fund
may purchase and write options on futures contracts in the manner and
to the extent described herein;
(q) underwrite securities issued by entities regulated under Part II of
the Federal Power Act, provided that, for this purpose private
activity bonds the interest on which is exempt from tax under Section
103 of the Internal Revenue Code of 1986 will be treated as
obligations of the municipal authority or other governmental unit
issuing the bonds.
AARP Insured Tax Free General Bond Fund may not:
(r) hold for a period of more than 30 days any municipal securities
maturing in 60 or more days from purchase by a Fund which are not
fully insured or guaranteed directly or indirectly by the U.S.
Treasury.
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(s) pledge, mortgage or hypothecate its assets, except to the extent that
margin deposits on futures contracts and related options may be deemed
to be a pledge of assets to guarantee performance of such obligations,
and except that, to secure borrowings permitted by subparagraph (C)
(1) above, it may pledge securities having a value at the time of the
pledge not exceeding 15% of the cost of the Fund's total assets;
Neither AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
Global Growth Fund nor AARP Capital Growth Fund may:
(t) purchase or sell any put or call options or any combination thereof,
except that the Funds may each purchase and sell options on stock
indices in accordance with the requirements of applicable regulations.
The Funds may write (sell) covered call option contracts on securities
owned by the Fund up to, but not in excess of, 25% of the value of the
Fund's net assets at the time such option contracts are written. The
Funds may also purchase call options for the purpose of terminating
their outstanding obligations with respect to securities upon which
covered call option contracts have been written (i.e., "closing
purchase transactions"). In connection with the ---- writing of
covered call options, the Funds may pledge assets to an extent not
greater than 25% of the value of its net assets at the time such
options are written;
(u) purchase securities if, as a result thereof, more than 5% of the value
of the net assets would be invested in restricted securities (for
these purposes restricted security means a security with a legal or
contractual restriction on resale in the principal market in which the
security is traded).
(v) purchase warrants of any issuer if, as a result more than 2% of the
value of the total assets of the Fund would be invested in warrants
which are not listed on the New York Stock Exchange or the American
Stock Exchange, or more than 5% of the value of the total assets of
the Fund would be invested in warrants acquired by the Fund in units
with or attached to debt securities.
Neither the AARP Growth and Income Fund nor the AARP Capital Growth Fund may:
(w) pledge, mortgage or hypothecate its assets, except as provided in
subparagraph (t), above, and except that, to secure borrowings
permitted by subparagraph (C) (1) above, it may pledge an amount not
exceeding 15% of the Fund's total assets taken at cost;
AARP Global Growth Fund may not:
(x) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;
(y) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at any
time do not exceed 20% of its net assets; or sell put options on
securities if, as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of the Fund's net assets;
(z) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to all futures contracts entered into on behalf of
the Fund and the premiums paid for options on futures contracts does
not exceed 5% of the Fund's total assets, provided that in the case of
an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
(aa) make securities loans if the value of such securities loaned exceeds
30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized
and marked to market daily. The Fund has no current intention of
making loans of portfolio securities that would amount to greater than
5% of the Fund's total assets; or
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(bb) borrow money, including reverse repurchase agreements, in excess of 5%
of its total assets (taken at market value) except for temporary or
emergency purposes, or borrow other than from banks.
"Value" for the purposes of the above fundamental and non-fundamental
investment policies shall mean the value used in determining a Fund's net asset
value.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, the restricted
activity or, in the case of AARP High Quality Money Fund and the AARP Income
Funds, an acquisition or encumbrance of securities or assets of, or borrowings
by, the Fund.
PURCHASES
(See "OPENING AN ACCOUNT" and "ADDING TO YOUR INVESTMENT" in the Prospectus.)
General Information
Confirmations of each transaction will be sent following the transaction by
Scudder Investor Services, Inc., as the AARP Funds' agent. By retaining
year-to-date confirmations, an investor will have an historical record of the
account activity.
Checks
A certified check is not necessary, but checks are accepted subject to
collection at full face value in United States Funds and must be drawn on a
United States financial institution.
If shares are purchased by a check which proves to be uncollectible, the
Trusts reserve the right to cancel the purchase immediately and the purchaser
will be responsible for any loss incurred by the Fund or the principal
underwriter by reason of such cancellation. Each Trust has the authority, as
agent of the shareholder, to redeem shares in the account to reimburse the Fund
or the principal underwriter for any loss incurred. Investors whose orders have
been canceled may be prohibited from or restricted in placing future orders in
any of the Funds in the Program or in other Funds advised by the AARP Funds'
investment adviser or an affiliate.
Share Price
Accepted purchases for shares in all the AARP Funds will be filled at the
net asset value next computed after receipt of payment by check or other means.
Each Fund's net asset value per share is currently determined once daily, as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(usually 4:00 p.m. Eastern time), on each day the Exchange is open for trading.
For AARP High Quality Money Fund and AARP High Quality Tax Free Money Fund,
Scudder Fund Accounting Corporation also determines net asset value per share as
of noon Eastern time on each day the Exchange is open for trading. (See "NET
ASSET VALUE," herein for additional information on how the Fund's net asset
value is calculated.) Orders received after the close of regular trading will be
filled at the next day's net asset value per share for the relevant Fund.
There is no sales charge in connection with purchase of shares of any of
the AARP Funds.
Share Certificates
In order to afford ease of redemption, ownership in the AARP Funds is on a
non-certificated basis. Share certificates now in a shareholder's possession may
be sent to the AARP Funds' transfer agent for cancellation and credit to such
shareholder's account. Shareholders who prefer may hold the certificates now in
their possession until they wish to exchange or redeem such shares. See
"EXCHANGING" and "ACCESS TO YOUR INVESTMENT" in the Funds' Prospectus.
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Direct Deposit Program
Investors can have Social Security or other checks from the U.S. Government
or any other regular income checks such as pension, dividends, and even payroll
checks automatically deposited directly to their accounts. Investors may
allocate a minimum of 25% of their income checks into any AARP Fund. Information
may be obtained by contacting the AARP Investment Program from Scudder, P.O. Box
2540, Boston, Massachusetts 02208-2540, or by calling toll free, 1-800-253-2277.
Wire Transfers
In the case of wire purchases, failure to receive timely and complete
account information will delay investment and subsequent accrual of dividends
and will result in the federal funds being returned to the sender on the day
following receipt by State Street Bank and Trust Company (the "custodian").
Unlike shareholders subscribing by check, purchasers who wire funds will be able
to redeem shares so purchased by any method without any limitation as to the
period of time such shares have been on a Fund's books.
The bank sending federal funds by bank wire may charge for the service.
Presently, Scudder Investor Services, Inc. or the AARP Funds pay a fee for
receipt by the custodian of "wired funds," but the right to charge investors for
this service is reserved.
Holidays
Boston banks are closed on certain holidays although the Exchange may be
open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the custodians are not open to receive such federal funds on
behalf of a Fund.
Other Information
All purchase payments will be invested in full and fractional shares.
The Trusts and Scudder Investor Services, Inc., the AARP Funds' principal
underwriter, each have the right to limit the amount of shares purchased of a
Fund, to reject any purchase and to refuse to sell shares to any person.
It should be noted that if purchases are made through a member of the
National Association of Securities Dealers other than Scudder Investor Services,
Inc., that member may, in its discretion, charge a fee for this service. It is
the responsibility of the broker, not the AARP Funds, to place the purchase
order by the time as of which the net asset value of the Funds is next
determined.
The Trusts may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of, the assets of any investment
company or personal holding company, subject to the requirements of the 1940
Act.
REDEMPTIONS
(See "ACCESS TO YOUR INVESTMENT" in the Prospectus.)
General Information
If a shareholder redeems all shares in an account, the shareholder will
receive, in addition to the net asset value thereof, all declared but unpaid
dividends thereon. The AARP Funds do not impose a redemption charge.
The proceeds of redemption transactions are normally available to be mailed
or wired to the designated bank account within one business day, and in any
event will be available within seven calendar days, following receipt of a
redemption request in good order.
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A shareholder's right to redeem shares of a Fund and to receive payment
therefore may be suspended at times (a) when the Exchange is closed, other than
customary weekend and holiday closings, (b) when trading on the Exchange is
restricted for any reason, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (d) when the SEC permits a suspension of the right of
redemption; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.
The Trustees may suspend or terminate the offering of shares of a Fund at
any time.
Redemption by Telephone
Redemption by telephone is not available for shares for which share
certificates have been issued. Redemptions of such shares must be requested by
mail as explained in the section entitled "Redemption by Mail" below.
For other investors, the following procedures are available.
TO ADDRESS OF RECORD: New investors automatically receive the option,
without having to elect it, to redeem by telephone to their address of record
for any amount up to $100,000 per Fund. Telephone Redemption to Address of
Record may be used as long as the account registration address has not changed
within the last 15 days. In order to decline this feature, the shareholder must
notify the Program in writing. Any shareholder who refuses Telephone Redemption
to Address of Record can later establish the feature with a signature guaranteed
written request. This request must be done prior to utilizing this service for
the first time.
TO YOUR BANK--BY MAIL OR BY WIRE: In order to request redemptions by
telephone to their bank, shareholders must have completed the telephone
redemption authorization included in the enrollment form and have sent the
authorization to the Program. This authorization requires designation of a bank
account to which the redemption payment is to be sent. The proceeds will be
mailed or wired only to the designated bank account.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section on
the enrollment form, and send it to the Program.
(b) EXISTING SHAREHOLDERS who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption payments should either
enter the new information on the "Telephone Option Form" which may be
obtained by calling the Program, or send a signature guaranteed letter
identifying the account and specifying the exact information to be
changed. In each case, the letter must be signed exactly as the
shareholder's name(s) appears on the account. All requests for
telephone redemption should be accompanied by a voided check from the
designated bank account. All signatures will require a guarantee,
which can be obtained from most banks, credit unions or savings
associations, or from broker/dealers, government securities
broker/dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the SEC. An
original signature and an original signature guarantee are required
for each person in whose name the account is registered. Signature
guarantees by notaries public are not acceptable.
In addition, if shares to be redeemed were purchased by check, mailing of
the redemption proceeds may be delayed long enough to assure that the purchase
check has cleared.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve wire to the bank account
designated on the application form unless a request is made that the redemption
be mailed to the designated bank account. For each wire redemption, the program
charges a $5.00 fee which is deducted from the proceeds of the redemption.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
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commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Trusts and their agents each reserve the right to modify, interrupt,
suspend or terminate the telephone redemption privilege at any time, without
notice. A shareholder may cancel the telephone redemption authorization upon
written notice. Each Trust employs procedures including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Trust does not follow such procedures, it may be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption by Mail or Fax
Any shareholder may redeem his or her shares by writing to the Program. All
written requests must be signed by at least one person on the account's
registration exactly as registered. In addition, for the protection of the
shareholder and to prevent fraudulent redemptions, a signature guarantee is
required on all written redemption requests for over $100,000. A signature
guarantee is also required on written redemption requests for any amount if the
check is made payable to someone other than the registered shareholder, if the
proceeds are to be forwarded to an address other than the address of record, or
if the address of record has changed in the last 15 days. In order to ensure
proper authorization before redeeming shares, the Program may request additional
documents such as, but not restricted to, stock powers, Trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority and waivers of tax required in some states when settling estates.
Redemption to Address of Record for up to $100,000 without a signature
guarantee is an automatic feature of any AARP Fund account unless it has been
declined by the shareholder in writing. Any shareholder who refuses this feature
can later establish it with a written request containing a signature guarantee.
This request must be made prior to utilizing the feature for the first time.
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with the signature(s) guaranteed as explained
above. It is suggested that the shareholders holding certificated shares or
shares registered in other than individual names contact the Program prior to
requesting a redemption to ensure that all necessary documents accompany the
request. When shares are held in the name of a corporation, trust, fiduciary or
partnership, the transfer agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to help ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within seven (7) days after receipt of a request
for redemption that complies with the above requirements. Delays of more than
seven (7) days for payment for shares tendered for repurchase or redemption may
result but only until the purchase check has cleared.
Redemption by Checkwriting
All new investors in the AARP Money Funds and existing shareholders of
these Funds who apply to State Street Bank and Trust Company for checks may use
them to pay any person, provided that each check is for at least $100 and not
more than $1,000,000. By using one of these checks, the shareholder will receive
daily dividend credit on his or her shares in either Fund until the check has
cleared the banking system. Investors who purchased shares by check may write
checks against those shares only after they have been on the Fund's books for 7
days. Shareholders who use this service may also use other redemption
procedures. Both Funds pay the bank charges for this service. However, each Fund
will review the cost of operation periodically and it reserves the right to
determine if direct charges to the persons who avail themselves of this service
would be appropriate. An account cannot be closed using the "free Checkwriting"
privilege. The Trusts, the transfer agent and the custodian each reserve the
right at any time to suspend or terminate the "free Checkwriting" procedure.
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Redemption-in-Kind
The AARP Growth Trust and AARP Managed Investment Portfolios Trust reserve
the right to permit the AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, the AARP Global Growth Fund, AARP Capital Growth Fund, AARP
International Stock Fund, AARP Small Company Fund, AARP U.S. Stock Index Fund,
AARP Diversified Income Portfolio and AARP Diversified Growth Portfolio, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
computing the Fund's net asset value (a redemption-in-kind). If payment is made
in securities, a shareholder may incur transaction expenses in converting these
securities into cash. The AARP Growth Trust has elected, however, to be governed
by Rule 18f-1 under the 1940 Act as a result of which each Fund of the Trust is
obligated to redeem shares, with respect to any one shareholder during any 90
day period, solely in cash up to the lesser of $250,000 or 1% of the net asset
value of such Fund at the beginning of the period.
Other Information
The value of shares redeemed or repurchased may be more or less than the
shareholder's cost depending on the net asset value at the time of redemption or
repurchase. The Funds do not impose a redemption or repurchase charge.
Redemptions of shares, including redemptions undertaken to effect an exchange
for shares of another Fund in the Program, may result in tax consequences (gain
or loss) to the shareholder and the proceeds of such redemptions may be subject
to backup withholding (see "TAXES").
Shareholders who wish to redeem shares from Retirement Plans (see
"RETIREMENT PLANS," below) should contact the Trustee or custodian of the Plan
for information on proper procedures.
The Trustees have established certain amount size requirements. For AARP
Balanced Stock and Bond Fund, AARP Growth and Income Fund and AARP GNMA and U.S.
Treasury Fund, the minimum investment is $500. For all other AARP Mutual Funds,
the minimum is $2,000. Each Trust reserves the right to adopt a policy that if
transactions at any time reduce a shareholder's account in a Fund to below the
applicable minimum, the shareholder will be notified that, unless the account is
brought up to at least the applicable minimum the Fund will redeem all shares
and close the account by making payment to the shareholder. The shareholder has
sixty days to bring the account up to the applicable minimum before any action
will be taken by the Fund. Reductions in value that result solely from market
activity will not trigger an involuntary redemption. No transfer from an
existing to a new account may be for less than the minimums set forth above;
otherwise the new account may be redeemed as described above. (This policy
applies to accounts of new shareholders in a particular Fund, but does not apply
to Retirement Plan Accounts.) The Trustees have the authority to increase the
minimum account size.
EXCHANGES
The procedure for exchanging shares from one AARP Fund to another AARP Fund
in the Program, when the account in the new AARP Fund is established with the
same registration, telephone option, dividend option and address as the present
account, is set forth under "EXCHANGING" in the Prospectus. If the registration
data for the account receiving the proceeds of the exchange is to be different
in any respect from the account from which shares are to be exchanged, the
exchange request must be in writing and must contain a signature guarantee as
described under "SIGNATURE GUARANTEES" in the Prospectus. If an exchange
involves an initial investment in the Fund being acquired, the amount to be
exchanged must be at least $2000 for non-retirement plan accounts. For IRA and
Keogh Plan accounts the amount must be $250. If the exchange is made into an
existing account, there is no minimum requirement.
Only exchange orders received between 8:00 a.m. and 4:00 p.m. Eastern time
on any business day will ordinarily be accomplished at respective net asset
values determined on that day. Exchange orders received after 4:00 p.m. are
processed on the next business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one AARP Fund to an
existing account in another AARP Fund through the AARP Funds' Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
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feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trusts and the Transfer Agent
each reserve the right to modify, interrupt, suspend or terminate the privilege
of the Automatic Exchange Program at any time, without notice.
There is no charge to the shareholder for any exchange described above. An
exchange from any AARP Fund other than the AARP Money Funds is likely to result
in recognition of gain or loss to the shareholder.
Investors currently receive the exchange privilege automatically without
having to elect it. The Trusts and the AARP Funds' distributor, Scudder Investor
Services, Inc., reserve the right to suspend or terminate the exchange privilege
at any time. Telephone exchange may be initiated by anyone able to identify the
registration of an account, but the proceeds will only be invested in another
AARP Fund with the same registration. The AARP Funds employ procedures to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of such transactions. If an AARP Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
All the AARP Funds in the Program into which investors may make an exchange
are described in the combined Prospectus and in this Statement of Additional
Information. Before making an exchange, shareholders should read the information
in the Prospectus regarding the Fund into which the exchange is being
contemplated.
TRANSACT BY PHONE
(See "INVESTOR SERVICES--TRANSACT BY PHONE" in the Prospectus.)
Shareholders, whose bank of record is a member of the Automated Clearing
House Network (ACH) and who have enrolled in the "Transact by Phone" option, may
purchase or redeem shares by telephone. Shareholders may purchase shares valued
at up to $250,000 but not less than $250. Shareholders may redeem shares in an
amount not less than $250.
In order to utilize the Transact by Phone service, shareholders must have
completed the Transact by Phone authorization. This authorization requires
designation of a bank account from which the purchase payment will be debited or
to which the redemption payment will be credited. New investors wishing to
establish the Transact by Phone service can do so by completing the appropriate
section on the enrollment form. Existing shareholders who wish to establish
Transact by Phone will need to complete a Transact by Phone Enrollment Form. If
a shareholder has previously elected the "Telephone Redemption to Bank of
Record" and/or the "Automatic Investment Plan" services, the banking information
must be identical for all of these services for each of the shareholder's Funds.
After sending in their enrollment forms, shareholders should allow 15 days for
the service to be activated. The Trusts and their agents each reserve the right
to modify, interrupt, suspend or terminate the Transact by Phone service at any
time, without notice.
Purchasing Shares by Transact by Phone
To purchase shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time. Shares will be purchased at that
night's closing share price. The shareholder's bank account will be debited on
the first business day following the purchase request. Requests received after
4:00 p.m. will be purchased at the next business day's closing price.
Redeeming Shares by Transact by Phone
To redeem shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time to receive that night's closing
share price. Requests received after 4:00 p.m. will be sold at the next business
day's closing price. The shareholder's bank account will be credited with
redemption proceeds on the second or third business day following the redemption
request.
The AARP Funds employ procedures to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of such transactions. If an
42
<PAGE>
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "STATEMENTS AND REPORTS," "EXCHANGING"
and "INVESTOR SERVICES" in the Prospectus.)
Automatic Dividend Reinvestment
Investors may elect on their enrollment form whether they wish to receive
any dividends from net investment income or any distributions from realized
capital gains in cash or to reinvest such dividends and distributions in
additional shares of the Fund paying the dividend or distribution. They may also
elect to have these payments invested in shares of any other AARP Fund in the
Program in which they have an account. If no election is made, dividends and
distributions will be reinvested in additional shares. A change of instructions
for the method of payment may be given to the Program at any time prior to a
record date.
Each distribution, whether by check or reinvested in a Fund, will include a
brief explanation of the source of the distribution.
Distributions Direct
Investors may also have dividends and distributions automatically deposited
to their predesignated bank account through the AARP Funds' DistributionsDirect
Program. Shareholders who elect to participate in the DistributionsDirect
Program, and whose predesignated checking account of record is with a member
bank of the Automated Clearing House Network (ACH) can have income and capital
gain distributions automatically deposited to their personal bank account
usually within three business days after the Fund pays its distribution. A
DistributionsDirect request form can be obtained by calling 1-800-253-2277.
Confirmation statements will be mailed to shareholders as notification that
distributions have been deposited.
Reports to Shareholders
The AARP Funds send to shareholders at least semiannually financial
statements, which are examined at least annually by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets, and financial highlights.
Investors receive a brochure entitled Your Guide to Simplified Investment
Decisions when they order an investment kit for the 15 AARP Funds which also
contains a prospectus. The Shareholder's Handbook is sent to all new
shareholders to help answer any questions they may have about investing. An IRA
Handbook is sent to all new IRA shareholders. Every month, shareholders will be
sent the newsletter, Financial Focus. Retirement plan shareholders will be sent
a special edition of Financial Focus on a quarterly basis. The newsletters are
designed to help you keep up to date on economic and investment developments,
and any new financial services and features of the Program.
Consolidated Statements
Shareholders with investments in two or more AARP Funds will receive,
without charge, a convenient monthly Consolidated Statement. IRA and Keogh Plan
accounts receive Consolidated Statements quarterly. This statement contains the
market value of all holdings, a complete listing of transactions for the
statement period and a summary of the shareholder's investment program for the
statement period and for the year to date. Information may be obtained by
contacting the AARP Investment Program from Scudder, P.O. Box 2540, Boston,
Massachusetts 02208-2540, or by calling toll free, 1-800-253-2277.
43
<PAGE>
RETIREMENT PLANS
Shares of AARP High Quality Money Fund, AARP GNMA and U.S. Treasury Fund,
AARP High Quality Bond Fund, AARP Bond Fund for Income, AARP Balanced Stock and
Bond Fund, AARP Growth and Income Fund, AARP Global Growth Fund, AARP Capital
Growth Fund, AARP U.S. Stock Index Fund, AARP International Stock Fund and AARP
Small Company Stock Fund ("Eligible Funds") may be purchased in connection with
several types of tax-deferred retirement plans. These plans were created for
members of AARP. Each plan is briefly described below. The plans provide
convenient ways for AARP members to make investments which may be tax-deductible
for their retirement and have taxes on any income from their investment deferred
until their retirement, when they may be in a lower tax bracket. Additional
information on each plan may be obtained by contacting the AARP Investment
Program from Scudder, P.O. Box 2540, Boston, Massachusetts, 02208-2540, or by
calling toll free, 1-800-253-2277. Investment professionals and
retirement-benefits experts estimate that prospective retirees will need 70% to
80% of their current salaries during each year of their retirement, with
adjustment for changes in prices during retirement, to maintain their current
life-style. Investment professionals recommend diversifying investments among
stock, bonds and cash-equivalents when building retirement reserves. It is
advisable for an investor considering any of the plans described below to
consult with an attorney or tax advisor with respect to the terms, suitability
requirements and tax aspects of the plan.
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")
Shares of the Eligible Funds may be purchased as the underlying investment
for an AARP No-Fee IRA which meets the requirements of Section 408(a) of the
Internal Revenue Code. Any AARP member with earned income or wages is eligible
to make annual contributions to the AARP No-Fee IRA before the year the member
attains age 70 1/2. An individual may establish an AARP No-Fee IRA whether or
not he or she is an active participant in another tax-qualified retirement plan,
including a tax-sheltered annuity or government plan.
AARP No-Fee IRA participants may generally contribute to an AARP No-Fee IRA
up to the lesser of $2,000 or 100% of their compensation or earned income. If
both a husband and wife work, each may set up an AARP No-Fee IRA before the year
they attain age 70 1/2, permitting a potential maximum contribution of $4,000
per year for both persons. If one spouse has no earnings, each spouse may have
an AARP No-Fee IRA and the total maximum contributions will be $4,000 with no
more than $2,000 going to either AARP No-Fee IRA.
An individual will be allowed a full deduction for contributions to an AARP
No-Fee IRA only if (1) neither the individual, nor his or her spouse, if they
file a joint return, is an active participant in an employer-maintained
retirement plan, or (2) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a certain level ($25,050 for a single
individual, with a phase-out of the deduction for adjusted gross income between
$25,050 and $35,000; $40,050 for married individuals filing a joint return, with
a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000). However, an individual not permitted to make a deductible contribution
may nonetheless make a nondeductible contribution to an AARP No-Fee IRA.
Any AARP member who is entitled to receive a qualifying distribution from a
qualified retirement plan (including a tax-sheltered annuity plan) or another
IRA may make a rollover contribution of all or any portion of the distribution
to the AARP No-Fee IRA, either in a direct rollover or within 60 days after
receipt of the distribution, whether or not the member has attained age 70 1/2.
If a qualified rollover contribution is made, the distribution will not be
subject to Federal income tax until distributed from the AARP No-Fee IRA;
however, distributions not directly rolled over might be subject to automatic
20% federal tax withholding.
AARP Mutual Fund Representatives are available to help you transfer your
IRA to the AARP No-Fee IRA. You pay no transfer fees for this service. An AARP
Mutual Fund Representative can help you with the paperwork, contact your present
IRA custodian, help to transfer your funds to the AARP No-Fee IRA, and send you
a confirmation when your transfer is complete.
Earnings on the AARP No-Fee IRA are not subject to current Federal income
tax until distributed; distributions are taxed as ordinary income. Withdrawals
attributable to nondeductible contributions are not taxable (however, early
withdrawals of such amounts are subject to penalty). The assets in an AARP
44
<PAGE>
No-Fee IRA may be withdrawn without penalty after the participant reaches age 59
1/2 or becomes disabled, and must begin to be withdrawn by April 1st following
the taxable year in which the participant reaches age 70 1/2.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- --------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of -------------------------------------------------------
Contributions 5% 10% 15%
- --------------------------------------------------------------------------------
25 $ 253,680 $ 973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
AARP Keogh Plan
Shares of the Eligible Funds may be purchased for the AARP Keogh Plan. The
AARP Keogh Plan (the "Plan") is designed as a tax-qualified retirement plan
consisting of a profit sharing plan and a money purchase pension plan which can
be adopted by self-employed persons who are members of AARP and by corporations
whose principal shareholders are members of AARP. Self-employed persons may make
annual tax-deductible contributions to the Plan equal to the lesser of $30,000
or 20% of their earned income. An adopting corporation may contribute for each
employee the lesser of $30,000 or 25% of the employee's taxable compensation. No
more than $150,000 (as adjusted) of earned income or taxable compensation may be
taken into account, however. If the Plan is "top heavy," a minimum contribution
may be required for certain employees. Additional information on contributions
to the Plan is found in Your Guide to the AARP Keogh Plan.
The Plan provides that contributions may continue to be made on behalf of
participants after they have reached the age of 70 1/2 if they are still
working.
Lump sum distributions from the Plan may be eligible to be taxed for
Federal income tax purposes according to a favorable 5-year averaging (or
10-year averaging for individuals who reached age 50 before 1986) method not
available to IRA distributions. If members eligible to join this Plan choose to
roll over pension and profit-sharing distributions from other tax-qualified
retirement plans, they will retain the right to use the averaging method for
such distributions.
The Plans are prototype plans approved by the Internal Revenue Service.
In general, distributions from all tax-qualified retirement programs,
including IRAs and tax-sheltered annuity programs, must begin by April 1st in
the year following the year in which the participant reaches age 70 1/2, whether
or not he or she continues to be employed. Excise taxes will apply to premature
distributions, and to taxpayers who are required, but fail, to receive a
distribution after reaching age 70 1/2. An additional excise tax may apply to
certain excess retirement accumulations. Special favorable tax treatment for
certain distributions is reduced or phased out, except where grandfathering
provisions apply.
Shares of the Eligible Funds may be purchased also as an investment for an
IRA or tax-qualified retirement plan (including a tax-sheltered annuity plan)
other than those described above, if permitted by the provisions of the relevant
plan.
45
<PAGE>
OTHER PLANS
(See "INVESTOR SERVICES" in the Prospectus.)
Automatic Investment
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts. The minimum pre-authorized investment amount
is $500. New shareholders who open a Gift to Minors Account pursuant to the
Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA)
and who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 10 month period. This feature is only available to Gifts to Minors
Account investors. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is not paid,
or by written notice to the shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.
Automatic Withdrawal Plan
Shareholders who own or purchase $10,000 or more of shares of a AARP Fund
may establish an Automatic Withdrawal Plan with that Fund. The investor can then
receive monthly, quarterly or periodic redemptions from his or her account for
any designated amount of $50 or more. Payments are mailed at the end of each
month. The check amounts may be based on the redemption of a fixed dollar
amount, fixed share amount or percent of account value or declining balance. The
Automatic Withdrawal Plan provides for income dividends and capital gains
distributions, if any, to be reinvested in additional shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "SIGNATURE GUARANTEES" in
the Prospectus. Any such request must be received by the AARP Fund's transfer
agent by the 15th of the month in which such change is to take effect. An
Automatic Withdrawal Plan may be terminated at any time by the shareholder, the
AARP Funds or their agents on written notice, and will be terminated when all
shares of the Funds under the Plan have been liquidated or upon receipt by the
Funds of notice of death of the shareholder. For more information concerning
this plan, write to the AARP Investment Program from Scudder, P.O. Box 2540,
Boston, MA 02208-2540 or call, toll-free, 1-800-253-2277.
Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP Fund
may arrange to have regular fixed bills such as rent, mortgage or other payments
of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
DIVIDENDS AND YIELD
(See "UNDERSTANDING FUND PERFORMANCE" in the Prospectus.)
Each AARP Fund intends to follow the practice of distributing substantially
all of its investment company taxable income (which includes, for example,
interest, dividends and any excess of net realized short-term capital gains over
net realized long-term capital losses, less deductible expenses), and its net
tax-exempt interest income, if any. Each AARP Fund also intends to follow the
practice of distributing any excess of net realized long-term capital gains over
net realized short-term capital losses after reduction for any capital loss
carryforwards. However, if it appears to be in the best interests of a Fund and
its shareholders, the Fund may retain all or part of such gain for reinvestment.
AARP U.S. Stock Index Fund, AARP Balanced Stock and Bond Fund and AARP
Growth and Income Fund intend to pay dividends in March, June, September and
December of each year and any net realized capital gains after the September 30
46
<PAGE>
fiscal year end. AARP Small Company Stock Fund, AARP International Stock Fund,
AARP Global Growth Fund and AARP Capital Growth Fund intend to pay dividends and
any realized capital gains over net realized short-term capital losses after
reduction for any capital loss carryforwards in December after the September 30
fiscal year end. AARP Bond Fund for Income intends to pay dividends monthly and
any net realized capital gains after the September 30 fiscal year end. See
"TAXES."
Both types of distributions will be made in shares of the respective AARP
Fund and confirmations will be mailed to each shareholder unless a shareholder
has elected to receive cash, in which case a check will be sent.
The net income of each AARP Money Fund, each of the AARP Income Funds and
the AARP Insured Tax Free General Bond Fund, is determined as of the close of
trading on the Exchange (usually 4:00 p.m. Eastern time) on each day on which
the Exchange is open for business. All of the net income so determined normally
will be declared as a dividend daily to shareholders of record as of 4:00 p.m.
on the preceding day, and distributed monthly. Dividends commence on the next
business day after purchase. Dividends which are not paid by check will be
reinvested in additional shares of the particular Fund at the net asset value
per share determined as of a day selected within five days of the last business
day of the month. Checks will be mailed to shareholders no later than the fourth
business day of the following month, and consolidated statements confirming the
month's dividends will be mailed to shareholders electing to invest dividends in
additional shares. Dividends will ordinarily be invested on the last business
day of each month at the net asset value per share determined as of the close of
regular trading on the Exchange.
Should the AARP Money Funds incur or anticipate any unusual or unexpected
significant expense, depreciation or loss which would affect disproportionately
the Fund's income for a particular period, the Trustees of such Fund or the
Executive Committee of the Trustees may at that time consider whether to adhere
to the dividend policy described above or to revise it in the light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses may nevertheless result in a shareholder's receiving no dividends
for the period during which the shares are held and in receiving upon redemption
a price per share lower than that which was paid.
Similarly, should the AARP High Quality Money Fund incur or anticipate any
unusual or unexpected significant income, appreciation or gain which would
affect disproportionately the Fund's income for a particular period, the
Trustees or the Executive Committee of the Trustees may consider whether to
adhere to the dividend policy described above or to revise it in the light of
the then prevailing circumstances in order to ameliorate to the extent possible
the disproportionate effect of such income, appreciation or gain on the dividend
received by existing shareholders. Such actions may reduce the amount of the
daily dividend received by existing shareholders.
Performance Information: Computation of Yields and Total Return
a) The AARP Money Funds
From time to time, quotations of an AARP Money Fund's yield may be included
in advertisements, sales literature or shareholder reports. These yield figures
are calculated in the following manner:
The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent. The current yield of the AARP High Quality
Money Fund and the AARP High Quality Tax Free Money Fund for the seven-day
period ended September 30, 1996 respectively, were 4.67% and 3.01%.
The effective yield is the net annualized yield for a specified 7
calendar-days assuming a reinvestment in Fund shares of all dividends during the
period, i.e., compounding. Effective yield is calculated by using the same
base-period return used in the calculation of current yield except that the
base-period return is compounded by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
47
<PAGE>
Effective Yield = [(Base Period Return + 1)^(365/7)] - 1.
The effective yield of the AARP High Quality Money Fund and the AARP High
Quality Tax Free Money Fund for the seven-day period ended September 30, 1996
respectively, were 4.78% and 3.06%.
As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.
In connection with communicating its current yield and effective yield to
current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual Funds tracked by mutual Fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
b) The AARP Money Funds, AARP Income Funds, AARP Growth Funds, AARP Insured
Tax Free General Bond Fund and AARP Managed Investment Portfolios
From time to time, quotations of a Fund's total return may be included in
advertisements, sales literature or shareholder reports. This total return
figure is calculated in the following manner:
The total return is the average annualized compound rate of return for,
where applicable, the periods of one year, five years and ten years, all ended
on the last day of a recent calendar quarter. Total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Total return is calculated by finding the average annualized
compound rates of return of a hypothetical investment over such periods,
according to the following formula (total return is then expressed as a
percentage):
T = (ERV/P)^(1/n) - 1
Where:
T = average annualized compound total rate of return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
<TABLE>
<CAPTION>
Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/96 9/30/96 9/30/96(1)
------- ------- ----------
<S> <C> <C> <C>
AARP High Quality Money Fund 4.62% 3.74% 5.19%
AARP High Quality Tax Free Money Fund 2.80% 2.35% 3.76%
AARP GNMA and U.S. Treasury 4.79% 5.95% 7.30%
AARP High Quality Bond 4.59% 6.86% 7.69%
AARP Bond Fund for Income+ n.a. n.a. n.a.
AARP Insured Tax Free General Bond 5.88% 6.99% 7.48%
AARP Balanced Stock and Bond Fund n.a. n.a. 13.08%
AARP Growth and Income 20.20% 15.80% 13.74%
AARP U.S. Stock Index Fund+ n.a. n.a. n.a.
AARP Global Growth Fund n.a. n.a. 3.27%
AARP Capital Growth 15.97% 12.05% 13.10%
AARP International Stock Fund+ n.a. n.a. n.a.
AARP Small Company Stock Fund+ n.a. n.a. n.a.
AARP Diversified Income Portfolio+ n.a. n.a. n.a.
AARP Diversified Growth Portfolio+ n.a. n.a. n.a.
</TABLE>
48
<PAGE>
(1) For the ten fiscal years ended September 30, 1996 for each of the above
listed Funds except for the period February 1, 1994 (commencement of
operations) to September 30, 1996 for the AARP Balanced Stock and Bond
Fund.
* Prior to August 1, 1991, the AARP High Quality Tax Free Money Fund operated
as the AARP Insured Tax Free Short Term Fund. The total return figures for
the five and ten years ended September 30, 1996 for the AARP High Quality
Tax Free Money Fund are representative of the Fund prior to its conversion
date except that the figures have been adjusted to reflect its conversion
to a money market fund.
+ AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP International
Stock Fund, AARP Small Company Stock Fund, AARP Diversified Income
Portfolio and AARP Diversified Growth Portfolio commenced operations on
February 1, 1997.
In addition to total return described above, the Funds may quote
nonstandard "cumulative total return."
The cumulative total return is the rate of return on a hypothetical initial
investment of $1,000 for a specified period. Cumulative total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in Fund
shares. Cumulative total return is calculated by finding the rates of return of
a hypothetical investment over such periods, according to the following formula.
(Cumulative total return is then expressed as a percentage):
C = (ERV/P) -1
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/96 9/30/96 9/30/96(1)
------- ------- ----------
<S> <C> <C>
AARP Balanced Stock and Bond Fund 13.08% n.a. 31.04%
AARP Growth and Income 20.20% 108.24% 262.51%
AARP U.S. Stock Index Fund+ n.a. n.a. n.a.
AARP Global Growth Fund+ n.a. n.a. n.a.
AARP Capital Growth 15.97% 76.63% 242.55%
AARP International Stock Fund+ n.a. n.a. n.a.
AARP Small Company Stock Fund+ n.a. n.a. n.a.
</TABLE>
(1) For the period February 1, 1994 (commencement of operations) to September
30, 1996 for the AARP Balanced Stock and Bond Fund.
+ AARP U.S. Stock Index Fund, AARP Global Growth Fund, AARP International
Stock Fund and AARP Small Company Stock Fund commenced operations on
February 1, 1997.
c) The AARP Income Funds and AARP Insured Tax Free General Bond Fund
From time to time, quotations of an AARP Fund's yield may be included in
advertisements, sales literature or shareholder reports. This yield is
calculated in the following manner.
The yield is the net annualized SEC yield based on a specified 30-day (or
one month) period assuming semiannual compounding of income. Yield is calculated
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
49
<PAGE>
YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the period, including
(except for mortgage or receivable-backed obligations) the
amortization of market premium or accretion of market
discount. For mortgage or receivables-backed obligations,
this amount includes realized gains or losses based on
historic cost for principal repayments received.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yield for the 30-day period
Fund ended September 30, 1996
---- ------------------------
AARP GNMA and U.S. Treasury 6.54%
AARP High Quality Bond 5.96
AARP Bond Fund for Income+ n.a.
AARP Insured Tax Free General Bond 4.72
+ AARP Bond Fund for Income commenced operations on February 1, 1997.
d) AARP Insured Tax Free General Bond and AARP High Quality Tax Free Money
Fund
The tax equivalent yield is the net annualized after-tax yield based on a
specified seven day period for money market funds or on a specified 30-day (one
month) period for non-money market funds assuming a reinvestment of all
dividends paid during the period, i.e., compounding. Tax equivalent yield is
calculated by dividing that portion of the Fund's yield (as computed in the
yield description above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
<TABLE>
<CAPTION>
Equivalent Taxable Yields
period ended September 30, 1996
-------------------------------
Fund Tax Bracket: 28% 31%
----
<S> <C> <C>
AARP High Quality Tax Free Money 4.18% 4.36%
AARP Insured Tax Free General Bond 6.56% 6.84%
</TABLE>
(e) General Performance Information
Quotations of an AARP Fund's performance are based on historical earnings
and are not intended to indicate future performance of the Fund. An investor's
shares when redeemed may be worth more or less than their original cost.
Performance of a Fund will vary based on changes in market conditions and the
level of the Fund's expenses. In periods of declining interest rates a Fund's
quoted yield and 30-day current yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates a Fund's quoted
yield and 30-day current yield will tend to be somewhat lower.
Comparison of non-standard performance data of various investments is valid
only if performance is calculated in the same manner. Since there are different
methods of calculating performance, investors should consider the effect of the
methods used to calculate performance when comparing performance of a Fund with
performance quoted with respect to other investment companies or types of
investments.
From time to time, in marketing and other AARP Fund literature, these AARP
Funds' performances may be compared to the performance of broad groups of mutual
funds with similar investment goals, as tracked by independent organizations,
such as Lipper Analytical Services, Inc. ("Lipper"), Investment Company Data,
50
<PAGE>
Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA"), Value Line Mutual Fund
Survey, Morningstar, Inc. and other independent organizations. For instance,
AARP Growth Funds will be compared to funds in the growth fund category; and so
on. In similar fashion, the performance of the AARP GNMA and U.S. Treasury Fund
will be compared to that of certificates of deposit. Evaluations of AARP Fund
performance made by independent sources or independent experts may also be used
in advertisements concerning the AARP Funds, including reprints of, or
selections from, editorials or articles about these Funds.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to unmanaged indices which
may assume reinvestment of dividends or interest but generally do not reflect
deductions for administrative and management costs. Indices with which the Fund
may be compared include but are not limited to, the following: Standard & Poor's
500 Stock Index (S&P 500), The Europe/Australia/Far East (EAFE) Index, Morgan
Stanley Capital International World Index, J.P. Morgan Global Traded Bond Index,
and Salomon Brothers World Government Bond Index.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Evaluation of Fund performance made by independent sources may also be used
in advertisements concerning the Funds, including reprints of, or selections
from, editorials or articles about these Funds. Sources for AARP Fund
performance information and articles about the AARP Funds may include, but are
not limited to, the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by MasterFund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Federal Reserve Bulletin, a monthly publication that reports domestic and
international financial statistics, including short-term certificate of deposit
interest rates.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
51
<PAGE>
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity, and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter published by Sheldon Jacobs that
includes mutual fund performance data and recommendations for the mutual Fund
investor.
No-Load Fund X, a monthly newsletter published by DAL Investment Company, Inc.
that reports on mutual fund performance, rates funds, and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
52
<PAGE>
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because they
assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity, due
partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global stock
markets do not move in lock step. When the valuations in one market rise, there
are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
TRUST ORGANIZATION
(See "FUND ORGANIZATION" in the Prospectus.)
Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP GNMA and U.S. Treasury Fund, AARP High Quality Bond Fund, and the
AARP Bond Fund for Income are series of AARP Income Trust. AARP High Quality Tax
53
<PAGE>
Free Money Fund and AARP Insured Tax Free General Bond Fund are series of AARP
Tax Free Income Trust which changed its name from AARP Insured Tax Free Income
Trust on August 1, 1991. AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP U.S. Stock Index Fund, AARP Global Growth Fund, AARP Capital
Growth Fund, AARP International Stock Fund and AARP Small Company Stock Fund are
series of AARP Growth Trust. Each of the above Trusts was established under a
separate Declaration of Trust dated June 8, 1984. AARP High Quality Money Fund
is a separate series of the AARP Cash Investment Funds, which was established
under a Declaration of Trust dated January 20, 1983. The original name of AARP
Cash Investment Funds was Master Investment Services Fund. That name was changed
to AARP Money Fund Trust on February 6, 1985, and to its present name on May 24,
1985. AARP Diversified Income Portfolio and AARP Diversified Growth Portfolio
are series of AARP Managed Investment Portfolios Trust which was established
under a Declaration of Trust on October 21, 1996. Each Trust's shares of
beneficial interest of $.01 (AARP High Quality Tax Free Money Fund $.001) par
value per share are issued in separate series. AARP Cash Investment Funds has
three series in addition to AARP High Quality Money Fund that are not currently
offered. None of the other Trusts has an existing series which is not currently
being offered. Other series may be established and/or offered by the Trusts in
the future. Each share of a series represents an interest in that series which
is equal to each other share of that series.
The assets received for the issue or sale of the shares of each series and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are specifically allocated to that series and constitute the
underlying assets of that series. The underlying assets of each series are
segregated on the books of account of the Trust, and are to be charged with the
liabilities of that series. The Trustees have determined that expenses with
respect to all series in a Trust are to be allocated in proportion to the net
asset value, or such other reasonable basis, of the respective series in that
Trust except where allocations of direct expenses can otherwise be more fairly
made. The officers of each Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to all the
series in a Trust. Each Trust's Declaration of Trust provides that allocations
so made to each series shall be binding on all persons. While each Declaration
of Trust provides that liabilities of a series may be satisfied only out of the
assets of that series, it is possible that if a series were unable to meet its
obligations, a court might find that the assets of other series in the Trust
should satisfy such obligations. In the event of the dissolution or liquidation
of a Trust, the holders of the shares of each series are entitled to receive as
a class the underlying assets of that series available for distribution to
shareholders.
Shareholders are entitled to one vote per share. Separate votes are taken
by each series on all matters except where the 1940 Act requires that a matter
be decided by the vote of shareholders of all series of a Trust voting together
or where a matter affects only one of the series, in which case only
shareholders of that series shall vote thereon. For example, a change in
investment policy for a series would be voted upon only by shareholders of the
series involved. Additionally, approval of each Trust's investment advisory
agreement is a matter to be determined separately by each series in that Trust.
Approval of the agreement by the shareholders of one series in a Trust is
effective as to that series whether or not enough votes are received from the
shareholders of other series in the Trust to approve such agreement as to the
other series.
The Trustees of each Trust have the authority to establish additional
series and to designate the relative rights and preferences as between the
series. All shares issued and outstanding of each series that is offered by a
Trust will be fully paid and non-assessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.
Each Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against litigation in which they may be involved because of their
offices with the Trust except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in any of the Declarations of Trust protects or indemnifies a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
54
<PAGE>
MANAGEMENT OF THE FUNDS
(See "FUND ORGANIZATION" in the Prospectus.)
Each Trust, except AARP Managed Investment Portfolios Trust, has retained
Scudder, Stevens & Clark, Inc., a Delaware corporation (the "Fund Manager"), to
perform management and investment advisory services for the Funds pursuant to
Investment Management and Advisory Agreements with each Trust ("Management
Agreement") dated February 1, 1994. AARP Managed Investment Portfolios Trust has
retained the Fund Manager to perform management and investment advisory services
for the Portfolios pursuant to a Special Servicing Agreement dated February 1,
1997.
Each Management Agreement provides that the Fund Manager will regularly
provide, or cause to be provided, to the AARP Funds investment research, advice
and supervision and furnish continuously an investment program for the AARP
Funds consistent with each Fund's investment objective and policies.
The Fund Manager assumes responsibility for the compensation and expenses
of all officers and executive employees of each Trust and makes available or
causes to be made available, without expense to the Trusts, the services of such
of its partners, directors, officers and employees as may duly be elected
officers or Trustees of a Trust, subject to their individual consent to serve
and to any limitations imposed by law, and pays the Trusts' office rent and
provides, or causes to be provided, investment advisory, research and
statistical facilities and related clerical services. For these services the
AARP Funds pay the Fund Manager a monthly fee consisting of a base fee and an
individual Fund fee. The base fee is based on average daily net assets of all
Funds in the AARP Investment Program, as follows:
Program Assets Annual Rate at Each
(Billions) Asset Level
---------- -----------
First $2 0.35%
Next $2 0.33
Next $2 0.30
Next $2 0.28
Next $3 0.26
Next $3 0.25
Over $14 0.24
Total program assets as of September 30, 1996 were over $13 billion.
All AARP Funds pay a flat individual Fund fee monthly based on the net
assets of that Fund, except AARP Diversified Investment Income Portfolio and
AARP Diversified Investment Growth Portfolio.
The individual Fund fees are as follows:
AARP High Quality Money Fund, 10/1200 of 1% (or approximately .10 of 1% on
an annual basis);
AARP GNMA and U.S. Treasury Fund, 12/1200 of 1% (or approximately .12 of 1%
on an annual basis);
AARP High Quality Bond Fund, 19/1200 of 1% (or approximately .19 of 1% on
an annual basis);
AARP Bond Fund for Income, 28/1200 of 1% (or approximately .28 of 1% on an
annual basis);
AARP High Quality Tax Free Money Fund, 10/1200 of 1% (or approximately .10
of 1% on an annual basis);
AARP Insured Tax Free General Bond Fund, 19/1200 of 1% (or approximately
.19 of 1% on an annual basis);
AARP Balanced Stock and Bond Fund, 19/1200 of 1% (or approximately .19 of
1% on an annual basis);
AARP Growth and Income Fund, 19/1200 of 1% (or approximately .19 of 1% on
an annual basis);
AARP U.S. Stock Index Fund, 0/1200 of 1% (0 of 1% on an annual basis);
AARP Global Growth Fund, 55/1200 of 1% (or approximately .55 of 1% on an
annual basis);
AARP Capital Growth Fund, 32/1200 of 1% (or approximately .32 of 1% on an
annual basis);
AARP International Stock Fund, 60/1200 of 1% (or approximately .60 of 1% on
an annual basis);
AARP Small Company Stock Fund, 55/1200 of 1% (or approximately .55 of 1% on
an annual basis);
AARP Diversified Income Portfolio, n/a;
AARP Diversified Growth Portfolio, n/a.
55
<PAGE>
The advisory fees from October 1, 1993 to January 31, 1994 under the
previous Investment Management and Advisory Agreements and under the present
Investment Management Agreement from February 1, 1994 to September 30, 1994 and
for the two fiscal years ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund $ 1,244,322 $ 1,492,545 $ 1,522,929
AARP GNMA and U.S. Treasury Fund 26,198,841 22,095,173 21,113,592
AARP High Quality Bond Fund 2,952,999 2,600,629 2,550,245
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund 568,107 493,693 453,559
AARP Insured Tax Free General Bond Fund 9,944,429 8,813,051 8,665,253
AARP Balanced Stock and Bond Fund@ 365,435 960,412 1,560,129
AARP Growth and Income Fund 9,533,476 12,406,325 17,423,770
AARP U.S. Stock Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a. 266,155
AARP Capital Growth Fund 4,184,437 3,988,023 4,626,894
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
Each Management Agreement provides that the Fund Manager will reimburse the
AARP Funds or the Trust for annual expenses in excess of the lowest expense
limitation imposed by the states in which the Funds of the particular Trust are
at the time offering their shares for sale, although no payments are required to
be made by the Fund Manager pursuant to this reimbursement provision in excess
of the annual fee paid by the funds of a Trust to the Fund Manager. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitation. The Fund Manager has agreed that its
obligation to reimburse the Funds will not be restricted to the amounts of the
management fees. Such agreement may be modified or withdrawn without shareholder
approval.
The expense ratios, net of voluntary and statutory fee waivers and
reimbursements of expenses, for the periods ended September 30, 1994, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund 1.13% .98% .96%
AARP GNMA and U.S. Treasury Fund .66 .67 .64
AARP High Quality Bond Fund .95 .95 .91
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund .90 .87 .85
AARP Insured Tax Free General Bond Fund .68 .69 .66
AARP Balanced Stock and Bond Fund@ 1.31 1.01 .88
AARP Growth and Income Fund .76 .72 .69
AARP U.S. Stock Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a. 1.75
AARP Capital Growth Fund .97 .95 .90
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
56
<PAGE>
For the fiscal years ended September 30, 1994, 1995 and 1996, the
reimbursements by the Fund Manager based on the expense limitation then in
effect were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund -- -- --
AARP GNMA and U.S. Treasury Fund -- -- --
AARP High Quality Bond Fund -- -- --
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund $ 8,083 -- --
AARP Insured Tax Free General Bond Fund -- -- --
AARP Balanced Stock and Bond Fund@ -- -- --
AARP Growth and Income Fund -- -- --
AARP U.S. Stock Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a. 175,025
AARP Capital Growth Fund -- -- --
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a.. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
@ AARP Balanced Stock and Bond Fund commenced operations on February 1, 1994.
* AARP Global Growth Fund commenced operations on February 1, 1996.
** AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP International
Stock Fund, AARP Small Company Stock Fund, AARP Diversified Income
Portfolio and AARP Diversified Growth Portfolio commenced operations on
February 1, 1997.
If reimbursement is required, it will be made as promptly as practicable
after the end of each Trust's fiscal year. However, no fee payment will be made
to the Fund Manager during any fiscal year which will cause year-to-date
expenses to exceed the cumulative pro rata expense limitation at the time of
such payment. The amortization of organizational costs is described herein under
"ADDITIONAL INFORMATION-- Other Information."
Under the Management Agreements, each Trust is responsible for all of its
other expenses including organizational expenses; clerical salaries; fees and
expenses incurred in connection with membership in investment company
organizations; brokers' commissions; any fees for portfolio pricing paid to a
pricing agent; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates, if any, and any other expenses including clerical expenses of
issue, redemption or repurchase of shares; the expenses and fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees of the
Trust who are not affiliated with the Fund Manager, Scudder, Stevens & Clark,
Inc., AARP Financial Services Corporation or AARP; the cost of preparing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. Each Trust may arrange to have third parties assume all or part
of the expenses of sale, underwriting and distribution of shares of the Trust.
Each Trust is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement for each Trust provides that the custodian shall compute the net asset
value for that Trust.
Each Management Agreement provides that the Fund Manager shall not be
required to pay expenses of distribution of the Funds' shares to the extent that
(i) such distribution expenses are, pursuant to a written contract, to be borne
by a principal underwriter of the Trust ("Scudder Investor Services, Inc." is
principal underwriter for the AARP Trusts), (ii) the Trust shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act ("Rule 12b-1 plan")
providing for the Trust (or the Funds or some other party) to assume some or all
of such expenses, or (iii) such expenses are required to be paid by Scudder,
Stevens & Clark, Inc. To the extent such expenses of distribution are not to be
borne by a principal underwriter, or are not permitted to be paid by the Trust
(or a Fund or such other party) pursuant to a Rule 12b-1 plan, they are to be
assumed by the Fund Manager. (The adoption of a Rule 12b-1 plan by a Trust would
require the approval of the Trustees, including a majority of those Trustees who
are not interested persons of the Trust, and of a majority of the outstanding
voting securities of each Fund.)
57
<PAGE>
The Management Agreements for all Funds except AARP Global Growth Fund,
AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP International Stock
Fund, and AARP Small Company Stock Fund will remain in effect until August 31,
1997 and from year to year thereafter only if their continuance is specifically
approved at least annually by the vote of a majority of those Trustees who are
not parties to such Agreements or "interested persons" of the Fund Manager,
Scudder, Stevens & Clark, Inc. or the particular Trust cast in person at a
meeting called for the purpose of voting on such approval and either by vote of
a majority of the Trustees or, with respect to each Fund, by a majority of the
outstanding voting securities of that Fund. The Supplement to Investment
Management Agreement for the AARP Global Growth Fund will remain in effect until
August 31, 1997 and from year to year thereafter only if its continuance is
specifically approved at least annually by the vote of a majority of those
Trustees who are not parties to such Agreement or "interested persons" of the
Fund Manager, Scudder, Stevens & Clark, Inc. or the particular Trust cast in
person at a meeting called for the purpose of voting on such approval and either
by vote of a majority of the Trustees or, by a majority of the outstanding
voting securities of the AARP Global Growth Fund. The Supplement to Investment
Management Agreement for the AARP Bond Fund for Income, AARP U.S. Stock Index
Fund, AARP International Stock Fund, and AARP Small Company Stock Fund will
remain in effect until August 31, 1998 and from year to year thereafter only if
its continuance is specifically approved at least annually by the vote of a
majority of those Trustees who are not parties to such Agreement or "interested
persons" of the Fund Manager, Scudder, Stevens & Clark, Inc. or the particular
Trust cast in person at a meeting called for the purpose of voting on such
approval and either by vote of a majority of the Trustees or, by a majority of
the outstanding voting securities of the particular AARP Fund. In the event a
Management Agreement is approved by the shareholders of one of the Funds but not
by the shareholders of the other Fund, the Management Agreement will continue in
effect as to the former Fund but not the latter. The Management Agreements for
all Funds except AARP Global Growth Fund were last approved by the Trustees
(including a majority of the Trustees who are not "interested persons") on June
18, 1996 and by the shareholders on January 13, 1994. The Supplement to
Investment Management Agreement for AARP Global Growth Fund dated February 1,
1996 was approved by the Trustees on December 13, 1995 and by the initial
shareholder on January 24, 1996. The Supplement to Investment Management
Agreement for the AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund, dated February 1,
1997 was approved by the Trustees on December 16, 1996 and by the initial
shareholder of each Fund on ____________. Each Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice, and automatically terminates in the event of its assignment.
A Special Servicing Agreement (the "Service Agreement") has been entered
into among the Fund Manager, the Underlying AARP Mutual Funds, Scudder Service
Corporation, Scudder Fund Accounting Corporation, Scudder Investor Services,
Inc. and the AARP Managed Investment Portfolios Trust on February 1, 1997. Under
the Service Agreement, the Fund Manager will arrange for all services pertaining
to the operation of the Trust including the services of Scudder Service
Corporation and Scudder Fund Accounting Corporation to act as Shareholder
Servicing Agent and Fund Accounting Agent, respectively, for each Portfolio. In
addition, the Service Agreement will provide that, if the officers of any
Underlying AARP Mutual Fund, at the direction of the Board of Trustees,
determine that the aggregate expenses of a Portfolio are less than the estimated
savings to the Underlying AARP Mutual Fund from the operation of that Portfolio,
the Underlying AARP Mutual Fund will bear those expenses in proportion to the
average daily value of its shares owned by that Portfolio. No Underlying AARP
Mutual Fund will bear such expenses in excess of the estimated savings to it.
Such savings are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been invested directly in
the Underlying AARP Mutual Funds and the resulting reduction in shareholder
servicing costs. In this regard, the shareholder servicing costs to any
Underlying AARP Mutual Fund for servicing one account registered to the Trust
would be significantly less than the cost to that same Underlying AARP Mutual
Fund of servicing the same pool of assets contributed in the typical fashion by
a large group of individual shareholders owning small accounts in each
Underlying AARP Mutual Fund.
Based on actual expense data from the Underlying AARP Mutual Funds and
certain very conservative assumptions with respect to the Trust, the Fund
Manager, the Underlying AARP Mutual Funds, Scudder Service Corporation, Scudder
Investor Services, Inc., Scudder Fund Accounting Corporation, Scudder Trust
Company and the Series anticipate that the aggregate financial benefits to the
Underlying AARP Mutual Funds from these arrangements will exceed the costs of
operating the Portfolios. If such turns out to be the case, there will be no
charge to the Trust for the services under the Service Agreement. Rather, in
accordance with the Service Agreement, such expenses will be passed through to
the Underlying AARP Mutual Funds in proportion to the value of each Underlying
AARP Mutual Fund's shares held by each Portfolio.
58
<PAGE>
In the event that the aggregate financial benefits to the Underlying AARP
Mutual Funds do not exceed the costs of a Portfolio, the Fund Manager will pay,
on behalf of that Portfolio, that portion of costs, as set forth herein,
determined to be greater than the benefits. The determination of whether and the
extent to which the benefits to the Underlying AARP Mutual Funds from the
organization of the Trust will exceed the costs to such funds will be made based
upon the analysis criteria set forth in the Order. This cost-benefit analysis
was initially reviewed by the Trustees of the Underlying AARP Mutual Funds
before participating in the Service Agreement. For future years, there will be
an annual review of the Service Agreement to determine its continued
appropriateness for each Underlying AARP Mutual Fund.
Certain non-recurring and extraordinary expenses will not be paid in
accordance with the Service Agreement including: the fees and costs of actions,
suits or proceedings and any penalties or damages in connection therewith, to
which a Portfolio may incur directly, or may incur as a result of its legal
obligation to provide indemnification to its officers, trustees and agents; the
fees and costs of any governmental investigation and any fines or penalties in
connection therewith; and any federal, state or local tax, or related interest
penalties or additions to tax, incurred, for example, as a result of the
Portfolios' failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file any
required tax returns or other filings. Under unusual circumstances, the parties
to the Service Agreement may agree to exclude certain other expenses.
Scudder, Stevens & Clark, Inc. is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual Fund to
the public. In 1953, Scudder introduced Scudder International Fund, the first
Fund available in the U.S. investing internationally in securities of issuers in
several foreign countries. The principal source of the Fund Manager's income is
professional fees received from providing continuous investment advice, and the
firm derives no income from banking, brokerage or underwriting of securities.
Today, it provides investment counsel for many individuals and institutions,
including insurance companies, colleges, industrial corporations, and financial
and banking organizations. In addition, it manages Montgomery Street Income
Securities, Inc., Scudder California Tax Free Trust, Scudder Cash Investment
Trust, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder
Global Fund, Inc., Scudder GNMA Fund, Scudder Institutional Fund, Inc., Scudder
International Fund, Inc., Scudder Investment Trust, Scudder Municipal Trust,
Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc., Scudder New Europe
Fund, Inc., Scudder Pathway Series, Scudder Portfolio Trust, Scudder Securities
Trust, Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax
Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment
Fund, Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc.,
The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The
Japan Fund, Inc., and The Latin America Dollar Income Fund, Inc. Some of the
foregoing companies or trusts have two or more series.
The Fund Manager maintains a large research department, which conducts
continuous studies of the factors that affect the condition of various
industries, companies and individual securities. In this work, the Fund Manager
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and for clients of the Fund Manager, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.
Certain investments may be appropriate for more than one Fund and also for
other clients advised by the Fund Manager. Investment decisions for each Fund
and for other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
Fund or client or in different amounts and at different times for more than one
but less than all Funds or other clients. Likewise, a particular security may be
bought for one or more Funds or clients when one or more other Funds or clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more Funds or clients on the same date. In such event
such transactions will be allocated among the Funds and/or clients in a manner
believed by the Fund Manager to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined
with those of other Funds or clients of the Fund Manager in the interest of most
favorable net results to the particular Fund.
59
<PAGE>
Each Management Agreement provides that the Fund Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with matters to which the respective agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund Manager in the performance of its duties or from
reckless disregard by the Fund Manager of its obligations and duties under the
respective agreement.
In reviewing the terms of each Management Agreement and in discussions with
the Fund Manager concerning such agreements, the Trustees of each Trust who are
not "interested persons" of that Trust have been represented by independent
counsel at the Trust's expense. Dechert Price & Rhoads acts as general counsel
for the Trusts.
Pursuant to a Member Services Agreement with the Fund Manager, dated
February 1, 1994, AARP Financial Services Corp. ("AFSC") provides the Fund
Manager with nondistribution related service and advice primarily concerning
designing and tailoring the AARP Investment Program from Scudder and its Funds
to meet the needs of AARP's members on an ongoing basis. AARP Financial Services
Corp. receives, as compensation for its services, a Monthly Member Services fee.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
The Member Services Agreement will remain in effect until August 31, 1997
and from year to year thereafter only if its continuance is specifically
approved at least annually by the vote of a majority of those Trustees who are
not "interested persons" of the Fund Manager, AFSC, or the Funds cast in person
at a meeting called for the purpose of voting on such approval and either by
vote of a majority of the Trustees or, with respect to each Fund, by a majority
of the outstanding voting securities of that Fund. The continuance of the Member
Services Agreement was last approved by the Trustees (including a majority of
the Trustees who are not such "interested persons") on June 18, 1996 and by
shareholders on January 13, 1994. The Member Services Agreement may be
terminated at any time without payment of penalty by the Funds on sixty days'
written notice, or by AFSC upon six months' notice to the Funds and to the Fund
Manager, and automatically terminates in the event of its assignment or the
assignment of the Management Agreement.
Pursuant to a Service Mark License Agreement, dated March 20, 1996 among
the Trusts, except for AARP Managed Investment Portfolios Trust, the Fund
Manager and AARP, use of the AARP service marks by a Trust and its Funds will be
terminated, unless otherwise agreed to by AARP, upon termination of that Trust's
Management Agreement.
Officers and employees of the Fund Manager from time to time may have
transactions with various banks, including the AARP Funds' custodian bank. It is
the Fund Manager's opinion that the terms and conditions of those transactions
which have occurred were not influenced by existing or potential custodial or
other Fund relationships.
None of the officers or Trustees of a Trust may have dealings with that
Trust as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.
Personal Investments by Employees of Scudder
Employees of Scudder are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in Scudder's
Code of Ethics. The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between personal
investment activities and the interests of investment advisory clients such as
the Funds. Among other things, the Code of Ethics, which generally complies with
standards recommended by the Investment Company Institute's Advisory Group on
Personal Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions may not be
made in certain securities, and requires the submission of duplicate broker
confirmations and monthly reporting of securities transactions. Additional
restrictions apply to portfolio managers, traders, research analysts and others
involved in the investment advisory process. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate personnel.
60
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
Linda Coughlin#* (45) Chairman of the Managing Director of Scudder, Director and Senior
Board and Trustee Stevens & Clark, Inc. Vice President
Horace B. Deets+* (58) Vice Chairman and Executive Director, American --
Trustee Association of Retired Persons
Carole Lewis Anderson (52) Trustee President, MASDUN Capital --
3616 Reservoir Road, N.W. Advisors; Formerly Principal,
Washington, DC Suburban Capital Markets, Inc.;
Director, VICORP Restaurants,
Inc.; Member of the Board,
Association for Corporate Growth
of Washington, D.C.; Trustee,
Hasbro Children's Foundation and
Mary Baldwin College
Adelaide Attard (66) Trustee Gerontology Consultant; Member, --
270-28N Grand Central Parkway New York City Department of
Floral Park, NY Aging Advisory Council--
Appointed by Mayor (1995); Board
Member, American Association on
International Aging (1981 to
present); Commissioner, County
of Nassau, New York, Dept. of
Senior Citizen Affairs
(1971-1991); Chairperson,
Federal Council on Aging
(1981-1986)
Cyril F. Brickfield+* (78) Trustee Honorary President and Special --
Counsel, American Association of
Retired Persons
Robert N. Butler, M.D. (70) Trustee Director, International --
211 Central Park West Longevity Center and Professor
Apt. 7F of Geriatrics and Adult
New York, NY Development; Chairman, Henry L.
Schwartz Department of
Geriatrics and Adult
Development, Mount Sinai Medical
Center (1982 to present);
Formerly Director, National
Institute on Aging, National
Institute of Health (1976-1982)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
Esther Canja+* (69) Trustee Vice President, American --
Association of Retired Persons;
Trustee and Chair, AARP Group
Health Insurance Plan; Board
Liaison, National Volunteer
Leadership Network Advisory
Committee; Chair, Board
Operations Committee; AARP State
Director of Florida (1990-1992)
Edgar R. Fiedler (67) Trustee Senior Fellow and Economic --
845 Third Ave. Counselor
New York, NY
Lt. Gen. Eugene P. Forrester (70) Trustee Lt. General (Retired), U.S. --
1101 S. Arlington Ridge Rd. Army; International Trade
Arlington, VA Counselor (1983 to present);
Consultant
Wayne F. Haefer+* (60) Trustee Director, Membership Division of --
AARP; Formerly Secretary,
Employee's Pension and Welfare
Trusts of AARP and Retired
Persons Services, Inc.
George L. Maddox, Jr. (71) Trustee Professor Emeritus and Director, --
P.O. Box 2920 Long Term Care Resources
Duke Univ. Medical Center Program, Duke University Medical
Durham, NC Center; Professor Emeritus of
Sociology, Departments of
Sociology and Psychiatry, Duke
University
Robert J. Myers (84) Trustee Actuarial Consultant (1983- --
9610 Wire Ave. present); Formerly Chairman,
Silver Spring, MD Commission on Railroad
Retirement Reform (1988-90);
Deputy Commissioner, Social
Security Administration
(1981-1982); Member, National
Commission on Social Security
(1978-1981); Formerly Executive
Director, National Commission on
Social Security Reform
(1982-1983); Director: NASL
Series Trust, Inc. and North
American Funds, Inc.; Member,
Prospective Payment Assessment
Commission.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
James H. Schulz (60) Trustee Professor of Economics and --
158 Scruton Pond Road Kirstein Professor of Aging
Barrington, NH Policy, Policy Center on Aging,
Florence Heller School, Brandeis
University
Gordon Shillinglaw (71) Trustee Professor Emeritus of --
196 Villard Ave. Accounting, Columbia University
Hastings-on-Hudson, NY Graduate School of Business
Thomas W. Joseph## (57) Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer and
Assistant Clerk
David S. Lee## (63) Vice President and Managing Director of Scudder, President, Assistant
Assistant Treasurer Stevens & Clark, Inc. Treasurer and Director
Thomas F. McDonough## (50) Vice President and Principal of Scudder, Stevens & Clerk
Assistant Secretary Clark, Inc.
Pamela A. McGrath## (43) Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell# (51) Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
James W. Pasman## (44) Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Kathryn L. Quirk# (44) Vice President and Managing Director of Scudder, Senior Vice President
Secretary Stevens & Clark, Inc.
Howard Schneider## (39) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Cornelia M. Small# (52) President Managing Director of Scudder, --
Stevens & Clark, Inc.
</TABLE>
* Messrs. Brickfield, Deets, Findlay, Haefer and Ms. Canja and Ms. Coughlin
are Trustees of each of the Trusts and are considered by the Trusts and
their counsel to be persons who are "interested persons" of the Trusts
(within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
# Address: 345 Park Avenue, New York, New York
## Address: Two International Place, Boston, Massachusetts
+ Address: 601 E Street, N.W., Washington, D.C.
63
<PAGE>
As of December 31, 1996, all Trustees and officers of the Funds as a group
owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the outstanding shares of each Fund. To
the best of the Trusts' knowledge as of December 31, 1996 no person owned
beneficially more than 5% of the outstanding shares of any of the Trusts.
REMUNERATION
Several of the officers and Trustees of the Trusts may be officers or
employees of Scudder, Stevens & Clark, Inc., Scudder Service Corporation,
Scudder Investor Services, Inc., Scudder Fund Accounting Corp., or Scudder Trust
Company and will participate in the fees received by such entities. No
individual affiliated with AARP will participate directly in any such fees. The
Trusts pay no direct remuneration to any officer of the Trusts. However, each of
the Trustees who is not affiliated with Scudder, Stevens & Clark, Inc. or AARP
will be paid by the Trust(s) for which he or she serves as Trustee. Until
September 30, 1996, each of these unaffiliated Trustees received an annual fee
of $2000 from each Fund for which he or she serves plus $270 for each Trustees'
meeting and $200 for each audit committee meeting or meeting held for the
purpose of considering arrangements between the Fund and the Fund Manager or any
of its affiliates attended. Each unaffiliated Trustee also received $100 per
committee meeting, other than an audit committee meeting, attended. If any such
meetings are held jointly with meetings of one or more mutual funds advised by
the Fund Manager, a maximum fee of $800 for meetings of the Board, meetings of
the unaffiliated members of the Board for the purpose of considering
arrangements between the Fund and the Fund Manager or any of its affiliates or
the audit committees of such Funds, and $400 for all other committee meetings or
meetings of the unaffiliated members of the Board is paid, to be divided equally
among the Funds. Effective October 1, 1996, each unaffiliated Trustee will
receive an annual retainer of $10,000 for serving as a Trustee of the AARP
Investment Program. In addition, each Trustee will receive from each Fund, a fee
of $175 for attending each Trustees' meeting; $150 for attending each audit and
contract committee meeting; $100 for attending each nominating committee
meeting; and $125 for attending each additional committee meeting. For the year
ended September 30, 1996, the Trustees' fees and expenses for nine of the Funds
were as follows:
Fund Expense
---- -------
AARP High Quality Money Fund $19,028
AARP GNMA and U.S. Treasury Fund 29,609
AARP High Quality Bond Fund 29,612
AARP High Quality Tax Free Money Fund 25,712
AARP Insured Tax Free General Bond Fund 25,715
AARP Balanced Stock and Bond Fund 24,005
AARP Growth and Income Fund 24,002
AARP Global Growth Fund 15,157
AARP Capital Growth Fund 24,009
The following table shows the aggregate compensation received by each
unaffiliated Trustee from each Trust and from all AARP Trusts and Scudder Fund
complex for the year ended December 31, 1996.
<TABLE>
<CAPTION>
AARP Cash AARP AARP Tax All AARP Trusts
Investment Income Free Income AARP and Scudder
Name Fund Trust Trust Growth Trust Fund Complex
- ---- ---- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Carole L. Anderson (__ funds)
Adelaide Attard (__ funds)
Robert N. Butler (__ funds)
Mary Johnston Evans (__ funds)
Edgar R. Fiedler (__ funds)
Eugene P. Forrester (__ funds)
William B. Macomber (__ funds)
George L. Maddox, Jr. (__ funds)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
AARP Cash AARP AARP Tax All AARP Trusts
Investment Income Free Income AARP and Scudder
Name Fund Trust Trust Growth Trust Fund Complex
- ---- ---- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert J. Myers (__ funds)
James H. Schulz (__ funds)
Gordon Shillinglaw (__ funds)
</TABLE>
+ AARP Diversified Investment Income Portfolio and AARP Diversified
Investment Growth Portfolio, series of AARP Investment Portfolio Trust,
commenced operations on February 1, 1997.
AARP Cash Investment Fund consists of one Fund: AARP High Quality Money
Fund.
AARP Income Trust consists of three Funds: AARP GNMA and U.S. Treasury
Fund, AARP High Quality Bond Fund, and AARP Bond Fund for Income.*
AARP Tax Free Income Trust consists of two Funds: AARP High Quality Tax
Free Money Fund and AARP Insured Tax Free General Bond Fund.
AARP Growth Trust consists of seven Funds: AARP Balanced Stock and Bond
Fund, AARP U.S. Stock Index Fund,* AARP Growth and Income Fund, AARP Global
Growth Fund,* AARP Capital Growth Fund, AARP International Stock Fund,* and
AARP Small Company Stock Fund.*
* AARP Global Growth Fund commenced operations on February 1, 1996. AARP Bond
Fund for Income, AARP U.S. Stock Index Fund, AARP International Stock Fund,
and AARP Small Company Stock Fund commenced operations on February 1, 1997.
** Mr. Fiedler received $______ through a deferred compensation program. As of
December 31, 1996, Mr. Fiedler had a total of $______ accrued in a deferred
compensation program for serving on the Board of Directors of Scudder
Institutional Fund, Inc. and Scudder Fund, Inc.
DISTRIBUTOR
Each of the Trusts has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
subsidiary of Scudder, Stevens & Clark, Inc., a Delaware corporation. The
underwriting agreements dated September 4, 1985 will remain in effect until
August 31, 1997 and from year to year thereafter only if their continuance is
approved annually by a majority of the members of the Board of Trustees of each
Trust who are not parties to such agreement or interested persons of any such
party and either by vote of a majority of the Board of Trustees of each Trust or
a majority of the outstanding voting securities of each Trust.
Under each Trust's principal underwriting agreement, the Trust is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of its registration statement and prospectus
and any amendments and supplements thereto; the registration and qualification
of shares for sale in the various states, including registering the Trust as a
broker or dealer; the fees and expenses of preparing, printing and mailing
prospectuses (see below for expenses relating to prospectuses paid by the
Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of the Trust; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); and the cost of printing and postage of business reply envelopes.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of shares of the
Funds to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Trust.
Note: Although each Trust does not currently have a Rule 12b-1 Plan and
shareholder approval would be required in order to adopt one, the underwriting
agreements provide that the Trust will also pay those fees and expenses
permitted to be paid or assumed by that Trust pursuant to a Rule 12b-1 Plan, if
65
<PAGE>
any, adopted by each Trust, notwithstanding any other provision to the contrary
in the underwriting agreement and each Trust or a third party will pay those
fees and expenses not specifically allocated to the Distributor in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Funds to investors
in all states. Each underwriting agreement provides that the Distributor accepts
orders for shares at net asset value because no sales commission or load is
charged the investor. The Distributor has made no firm commitment to acquire
shares of any of the Funds.
TAXES
(See "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" in the Prospectus.)
Each AARP Fund has qualified and intends to elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code (the "Code"), as amended, since its inception and intends to
continue to so qualify. (Such qualification does not involve supervision of
management or investment practices or policies by a government agency.) In any
year in which a Fund so qualifies and distributes at least 90% of its investment
company taxable income, and at least 90% of its net tax-exempt income, if any,
the Fund generally is not subject to Federal income tax to the extent that it
distributes to shareholders its investment company taxable income and net
realized capital gains in the manner required under the Code.
Each AARP Fund must distribute its taxable income according to a prescribed
formula and will be subject to a 4% nondeductible excise tax on amounts not so
distributed. The formula requires a Fund to distribute each calendar year at
least 98% of its ordinary income (excluding tax-exempt income) for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 of such year, and any ordinary income and capital gains for
prior years that was not previously distributed.
To qualify under Subchapter M, gains from the sale of stock, securities and
certain options, futures and forward contracts held for less than three months
must be limited to less than 30% of each Fund's annual gross income. Moreover,
short-term gains (i.e., gains from the sale of securities held for one year or
less) are taxed as ordinary income when distributed to shareholders. Options,
futures and forward activities of the AARP Funds may increase the amount of the
short-term gains and gains that are subject to the 30% limitation.
The determination of the nature and amount of investment company taxable
income of a Fund will be based solely on the transactions in, and on the income
received and expenses incurred by or allocated to, the Fund. Each AARP Fund
intends to offset any realized net capital gains against any capital loss
carryforward before making capital gains distributions to shareholders.
Distributions of any investment company taxable income (which includes
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss, less expenses) are taxable to shareholders as ordinary
income.
Generally, each Fund will distribute any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss). If a Fund retains its net capital gains for investment, requiring Federal
income tax to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to its shareholders. As a result,
shareholders (a) will be required to include in income for Federal income tax
purposes, as long-term capital gains, their proportionate share of such
undistributed amounts and (b) will be entitled to credit their proportionate
share of the Federal income tax paid thereon by the Fund against their Federal
income tax liability. In the case of shareholders whose long-term capital gains
would be taxed at a lower rate, the amount of the credit for tax paid by a Fund
in excess of the shareholder's actual tax on capital gains may be applied to
reduce the net amount of tax otherwise payable by such shareholders in respect
of their other income or, if no tax is payable, the excess may be refunded. For
Federal income tax purposes, the tax basis of shares owned by a shareholder of a
Fund will be increased by an amount equal to the difference between its pro rata
share of such gains and its tax credit. If a Fund retains net capital gains, it
may not be treated as having met the excise tax distribution requirement.
Distributions of net capital gains are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the Fund have been
held by such shareholders. Any loss realized upon the redemption of shares held
66
<PAGE>
at the time of redemption for six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains by a Fund will be taxable as described above, whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share
received equal to the net asset value of a share of the Fund on the reinvestment
date.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a return of capital upon
distribution which will nevertheless be taxable to them.
Shareholders who redeem, sell or exchange shares of a Fund may realize gain
or loss if the proceeds are more or less than the shareholder's purchase price.
Such gain or loss generally will be a capital gain or loss if the Fund shares
were capital assets in the hands of the shareholder, and generally will be long-
or short-term, depending on the length of time the Fund shares were held.
However, if a shareholder realizes a loss on the sale of a share held at the
time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. A gain realized on a redemption, sale
or exchange will not be affected by a reacquisition of shares. A loss realized
on a redemption, sale or exchange, however, will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend in the case of
a lapse or sale of the option on the Fund's holding period for the option and in
the case of an exercise of a put option on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security of the Fund. If a
Fund writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option written by a Fund is
exercised, the character of the gain or loss depends on the holding period of
the underlying security. The exercise of a put option written by a Fund is not a
taxable transaction for the Fund.
Many futures contracts, certain foreign currency forward contracts and all
listed nonequity options (including options on debt securities, options on
futures contracts, options on securities indices and options on broad-based
stock indices) will constitute "section 1256 contracts." Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term capital gain or losses. Also, section 1256 contracts held by the
Funds at the end of each taxable year (and, for purposes of the 4% excise tax,
on October 31) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60% long-term and 40% short-term capital gain or loss. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options, and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income.
Positions of a Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Fund.
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Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures contract, foreign currency forward
contract or nonequity option governed by Section 1256 which substantially
diminishes the Fund's risk of loss with respect to such other position will be
treated as a "mixed straddle." Although mixed straddles are subject to the
straddle rules of Section 1092 of the Code, certain tax elections exist for them
which reduce or eliminate the operation of these rules. Each Fund will monitor
its transactions in options and futures and may make certain tax elections in
connection with these investments.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which may allow the Fund to make an
election to mark to market its shares of these foreign investment companies in
lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
and gain on dispositions as ordinary income which is not subject to a Fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by those countries.
Certain of the debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue discount
represents interest for Federal income tax purposes and can generally be defined
as the difference between the price at which a security was issued and its
stated redemption price at maturity. Although no cash income is actually
received by the Funds, original issue discount earned in a given year generally
is treated for Federal income tax purposes as income earned by the Funds, and
therefore is subject to the distribution requirements of the Code. The amount of
income earned by the Funds is determined on the basis of a constant yield to
maturity which takes into account at least semi-annual or annual compounding
(depending on the date of the security) of accrued interest.
In addition, some of the debt securities may be purchased by the Funds at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for Federal income tax
purposes. The gain realized on the disposition of many debt securities,
including tax-exempt securities having market discount will be treated as
ordinary income to the extent it does not exceed the accrued market discount on
such debt security. Generally, market discount accrues on a daily basis for each
day the debt security is held by the Funds at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Funds, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest.
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The Funds will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. All such distributions and proceeds may be subject to withholding
of Federal income tax at the rate of 31% in the case of non-exempt shareholders
who fail to furnish the Funds with their taxpayer identification numbers and
with required certifications regarding their status under Federal income tax
laws. Withholding may also be required if a Fund is notified by the IRS or a
broker that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions or proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld. Investors may
wish to consult their tax advisers about the applicability of the backup
withholding provisions.
In addition to Federal taxes, shareholders of the Funds may be subject to
state and local taxes on distributions from the Funds. Under the laws of certain
states, distributions of investment company taxable income are taxable to
shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by the resident of such state, would be exempt from such
state's income tax. Shareholders should consult their own tax advisers with
respect to the tax status of distributions from the Funds in their own state and
localities.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, Trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
31% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her.
Special Information Regarding AARP High Quality Tax Free Money Fund and
AARP Insured Tax Free General Bond Fund: Each of the AARP Tax Free Income Funds
intends to qualify to pay "exempt-interest dividends" to its shareholders. Each
Fund will be so qualified if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of securities of states,
U.S. possessions, their political subdivisions, and the District of Columbia,
the interest on which is exempt from Federal tax. To the extent that the Funds'
dividends distributed to shareholders are derived from earnings on interest
income exempt from Federal tax and are designated as "exempt-interest dividends"
by the Funds, they will be excludable from a shareholder's gross income for
Federal income tax purposes. "Exempt-interest dividends," however, must be taken
into account by shareholders in determining whether their total incomes are
large enough to result in taxation of up to 85% of their Social Security
benefits. In addition, interest on certain municipal obligations (private
activity bonds) will be treated as a preference item for purposes of calculating
the alternative minimum tax for individuals and for corporations. Similarly,
income distributed by the Funds, including exempt-interest dividends, may
constitute an adjustment to alternative minimum taxable income of corporate
shareholders. The Funds do not intend to purchase any private activity bonds.
The Funds will inform shareholders annually as to the portion of the
distributions from the Funds which constituted "exempt-interest dividends."
To the extent that the Funds' dividends are derived from interest on their
temporary taxable investments or from an excess of net short-term capital gain
over net long-term capital loss, they are considered ordinary taxable income for
Federal income tax purposes. Distributions, if any, of net long-term capital
gains from the sale of securities are taxable at long-term capital gain rates
regardless of the length of time the shareholder has owned Fund shares. However,
if a shareholder realizes a loss on the sale of a share held at the time of sale
for six months or less, such loss will be treated as long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period. Furthermore, a loss realized by a shareholder on
the sale of shares of the Funds with respect to which exempt-interest dividends
have been paid will be disallowed if such shares have been held by the
shareholder for six months or less (to the extent of exempt-interest dividends
paid).
Under the Code, a shareholder's interest expense deductions with respect to
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends, such as either of the AARP Tax-Free
Funds, may be limited. In addition, under rules issued by the Internal Revenue
Service for determining when borrowed Funds are considered used for the purposes
of purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed Funds even though the borrowed Funds
are not directly traceable to the purchase of shares.
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Opinions relating to the validity of municipal securities and the exemption
of interest thereon from Federal income tax are rendered by bond counsel to the
issuer. Neither AARP, the Fund Manager, nor Counsel to the Funds makes any
review of proceedings relating to the issuer of municipal securities or the
bases of such opinions.
The foregoing description regarding the AARP Tax-Free Funds relates only to
Federal income tax law. Investors should consult with their tax advisers as to
exemption from other state or local law. Persons who may be "substantial users"
(or "related persons" of substantial users) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
the Funds.
BROKERAGE AND PORTFOLIO TURNOVER
Brokerage Commissions
To the maximum extent feasible the AARP Funds' investment adviser will
place orders for portfolio transactions through the Distributor, which in turn
will place orders on behalf of the AARP Funds with other brokers and dealers.
The Distributor receives no commission, fees or other remuneration from the
Funds for this service. Allocation of brokerage is supervised by the Fund
Manager.
Purchases and sales of fixed-income securities for the AARP Funds are
generally placed by the Fund Manager with primary market makers for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The primary objective of the Fund Manager in placing orders for the
purchase and sale of assets for the AARP Funds' portfolios is to obtain the most
favorable net results, taking into account such factors as price, commission
(which is negotiable in the case of national securities exchange transactions),
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Fund Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the AARP Funds to reported commissions paid by others. The
Fund Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
AARP Diversified Portfolio Investments are made directly in Underlying AARP
Funds with no commission.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Fund Manager's practice to place such orders
with brokers and dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Funds or the Fund Manager. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and concerning the performance
of accounts. The Fund Manager is not authorized, when placing portfolio
transactions for the AARP Funds, except for the AARP Growth Funds, to pay a
brokerage commission in excess of that which another broker might have charged
for executing the same transaction solely on account of the receipt of research,
market or statistical information. The Fund Manager will not place orders with
brokers or dealers on the basis that the broker or dealer has or has not sold
shares of the Funds. Except for implementing the policy stated above, there is
no intention to place portfolio transactions with particular brokers or dealers
or groups thereof. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Subject to obtaining the most favorable results, the Fund Manager may place
particular transactions through the Distributor, with the net commission or fee
being credited against the fee payable to the Fund Manager. The Distributor,
however, does not intend to engage in a general brokerage business. Also subject
to obtaining the most favorable net results, the Fund Manager may place
brokerage transactions with Bear, Stearns & Co.
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Although certain research, market and statistical information from brokers
and dealers can be useful to the AARP Funds and to the Fund Manager, it is the
opinion of the Fund Manager that such information is only supplementary to its
own research effort since the information must still be analyzed, weighed, and
reviewed by the Fund Manager's staff. Such information may be useful to the Fund
Manager in providing services to clients other than the AARP Funds, and not all
such information is used by the Fund Manager in connection with the AARP Funds.
Conversely, such information provided to the Fund Manager by brokers and dealers
through whom other clients of the Fund Manager effect securities transactions
may be useful to the Fund Manager in providing services to the AARP Funds.
For the fiscal years ended September 30, 1994, 1995 and 1996 the AARP
Growth and Income Fund paid brokerage commissions of $2,319,113, $1,690,604 and
$___________ and the AARP Capital Growth Fund paid brokerage commissions of
$1,156,320, $2,636,662, and $___________, both respectively. For the fiscal
period ended September 30, 1994, and for the fiscal years ended September 30,
1995 and 1996, the AARP Balanced Stock and Bond Fund paid brokerage commissions
of $152,376, $149,816, and $__________, respectively. For the fiscal period
February 1, 1996 (commencement of operations) until September 30, 1996, the AARP
Global Growth Fund paid brokerage commissions of $__________. In the fiscal year
ended September 30, 1996, $__________ (___%) of the total brokerage commissions
paid by AARP Growth and Income Fund and $____________ (___%) by AARP Capital
Growth Fund resulted from orders placed, consistent with the policy of obtaining
the most favorable net results, with brokers and dealers who provided
supplementary research information to the Funds or the Fund Manager. The amount
of such transactions aggregated $_____________ for the AARP Capital Growth Fund,
(___% of all brokerage transactions) and $____________ (___%) of all brokerage
transactions) for the AARP Growth and Income Fund. The balance of such brokerage
was not allocated to any particular broker or dealer or with regard to the
above-mentioned or other special factors. For the fiscal year ended September
30, 1996, $________ (___%) of the total brokerage commissions paid by AARP
Balanced Stock and Bond Fund resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research information to the Funds or the Fund Manager.
The amount of such transactions aggregated $_____________ for AARP Balanced
Stock and Bond Fund, (___% of all brokerage transactions). For the fiscal period
ended September 30, 1996, $________ (___%) of the total brokerage commissions
paid by AARP Global Growth Fund resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research information to the Funds or the Fund Manager.
The balance of such brokerage was not allocated to any particular broker or
dealer or with regard to the above-mentioned or other special factors.
The Trustees review from time to time whether the recapture for the benefit
of the Funds of some portion of the brokerage commissions or similar fees paid
by the Funds on portfolio transactions is legally permissible and advisable. To
date, no recapture has been effected.
Portfolio Turnover
Fund securities may be sold to take advantage of investment opportunities
arising from changing market levels or yield relationships. Although such
transactions involve additional costs in the form of spreads or commissions,
they will be undertaken in an effort to improve the overall investment return of
a Fund, consistent with that Fund's objectives. The portfolio turnover rate of a
Fund is defined in a Rule of the SEC as the lesser of the value of securities
purchased or securities sold during the year, excluding all securities whose
maturities at the time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. The portfolio
turnover rates for the fiscal years ended September 30, 1994, 1995, and 1996 for
five of the non-money market Funds were: AARP GNMA and U.S. Treasury Fund,
114.54%, 70.35%, and 83.44%; AARP High Quality Bond Fund, 63.75%, 201.07%, and
169.96%; AARP Insured Tax Free General Bond Fund, 38.39%, 17.45%, and 18.69%;
AARP Growth and Income Fund, 31.82%, 31.26%, and 25.02%; AARP Capital Growth
Fund, 79.65%, 98.44%, and 64.84%, all respectively. The portfolio turnover rate
for the period ended September 30, 1994 and for the fiscal years ended September
30, 1995 and 1996 for the AARP Balanced Stock and Bond Fund was 49.32%, 63.77%,
and 35.22%, respectively. The portfolio turnover rate for AARP Global Growth
Fund for the period February 1, 1996 (commencement of operations) to September
30, 1996 was 12.56%. Under normal investment conditions, it is anticipated that
the AARP Bond Fund for Income's, the AARP U.S. Stock Index Fund's, the AARP
International Stock Fund's or the AARP Small Company Stock Fund's annual
portfolio turnover rate will not exceed 75% for the initial fiscal year. It is
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also anticipated that the annual portfolio turnover rate for AARP Diversified
Growth Portfolio and AARP Diversified Income Portfolio will not exceed 50% for
the initial fiscal year.
NET ASSET VALUE
AARP Money Funds
The net asset value per share of the Fund is computed twice daily as of
twelve o'clock noon and the close of regular trading on the Exchange, normally 4
p.m. eastern time, on each day when the Exchange is open for trading. The
Exchange is normally closed on the following national holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. Net asset value is determined by dividing the total
assets of the Fund, less all of its liabilities, by the total number of shares
of the Fund outstanding. The Fund uses the amortized cost method of security
valuation as permitted under Rule 2a-7 under the 1940 Act. Under this method,
portfolio securities for which market quotations are readily available and which
have remaining maturities of more than 60 days from the date of valuation are
valued at the mean between the over-the-counter bid and asked prices. Securities
which have remaining maturities of 60 days or less are valued by the amortized
cost method; if acquired with remaining maturities of 61 days or more, the cost
thereof for purposes of valuation is deemed to be the value on the 61st day
prior to maturity. Other securities are appraised at fair value as determined in
good faith by or on behalf of the Trustees of the Fund. For example, securities
with remaining maturities of more than 60 days for which market quotations are
not readily available are valued on the basis of market quotations for
securities of comparable maturity, quality and type. Determinations of net asset
value per share for the Fund made other than as of the close of the Exchange may
employ adjustments for changes in interest rates and other market factors.
AARP Non-Money Market Funds
The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system is valued at its most
recent sale price. Lacking any sales, the security is valued at the most recent
bid quotation. The value of an equity security not quoted on the NASDAQ System,
but traded in another over-the-counter market, is its most recent sale price.
Lacking any sales, the security is valued at the Calculated Mean. Lacking a
Calculated Mean, the security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
purchased with remaining maturities of sixty days or less are valued by the
amortized cost method, which the Board believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
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If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
Trading in securities on foreign securities exchanges is normally completed
before the close of regular trading on the Exchange. Trading on these foreign
exchanges may not take place on all days on which there is regular trading on
the Exchange, or may take place on days on which there is no regular trading on
the Exchange. If events materially affecting the value of a Fund's portfolio
securities occur between the time when these foreign exchanges close and the
time when the Fund's net asset value is calculated, such securities will be
valued at fair value as determined by each Trust's Board of Directors. Shares of
AARP Underlying Funds in which the AARP Diversified Portfolios invest in next
determine net asset value after the order is placed.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial statements of the AARP Funds included in the Annual Report to
shareholders dated September 30, 1996, have been examined by Price Waterhouse
LLP, independent accountants, and are incorporated by reference into this
Statement of Additional Information in reliance upon the accompanying report of
said firm, which report is given upon their authority as experts in accounting
and auditing.
Shareholder Indemnification
Each of the Trusts is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. Each Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. Each Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Trust itself would be unable to meet its
obligations. No series of one Trust is liable for the obligations of another
series in the AARP Complex.
Ratings of Corporate Bonds
The three highest ratings of Moody's for corporate bonds are Aaa, Aa and A.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds rated Aa
are judged to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds. Moody's states that
Aa bonds are rated lower than the best bonds because margins of protection or
other elements make long-term risks appear somewhat larger than for Aaa
securities. Bonds rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Although factors giving
security to principal and interest on bonds rated A are adequate, other elements
may be present which suggest a susceptibility to impairment sometime in the
future.
The three highest ratings of S&P for corporate bonds are AAA (Prime), AA
(High-grade) and A. Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
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strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rating issues only in small degree. Bonds
rated A have a strong capacity to pay principal and interest, although they are
more susceptible to the adverse effects of changes in circumstances and economic
conditions. Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Ratings of Commercial Paper
The ratings Prime-1 and Prime-2 are the highest commercial paper ratings
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; 6) trend of earnings over a
period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Prime-2 ratings are assigned by Moody's to commercial paper issuers which
have a strong capacity for meeting their obligations in a timely fashion.
However, their financial, economic and managerial capacities will be less than
that of Prime-1 borrowers. Financial characteristics such as earnings, coverage
ratios and capitalization will be more affected by external economic factors
than Prime-1 borrowers. Liquidity is still believed to be ample.
The two highest ratings of S&P for commercial paper are A-1 and A-2.
Commercial paper rated A-1 or better by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; the reliability and quality of
management are unquestioned.
S&P will assign an A-2 rating to the commercial paper of companies which
have the capacity for timely payment on issues. However, the relative degree of
safety is less than for issuers rated A-1.
Ratings of Municipal Bonds
The three highest ratings of Moody's for municipal bonds are Aaa, Aa, and
A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds rated
Aa are judged to be of high quality by all standards. Together with the Aaa
group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
The three highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High-grade), and A (Good grade). Bonds rated AAA have the highest rating
assigned by S&P to a municipal obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of Funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
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designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.
S&P's top ratings for municipal notes are SP-1 and SP-2. The designation
SP-1 indicates a very strong capacity to pay principal and interest. A "+" is
added for those issues determined to possess overwhelming safety
characteristics. An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.
The ratings F-1+ and F-1 are the two highest ratings assigned by Fitch.
Among the factors considered by Fitch in assigning these rating are: (1) the
issuer's liquidity; (2) its standing in the industry; (3) the size of its debt;
(4) its ability to service its debt; (5) its profitability; (6) its return on
equity; (7) its alternative sources of financing; and (8) its ability to access
the capital markets. Analysis of the relative strength or weakness of these
factors and others determines whether an issuer's commercial paper is within
these two ratings.
Other Information
Each AARP Fund has a fiscal year ending on September 30.
The CUSIP for AARP High Quality Money Fund is 000036E-10-7
The CUSIP for AARP GNMA & U.S. Treasury Fund is 00036M-10-9.
The CUSIP for AARP High Quality Bond Fund Fund is 00036M-20-8.
The CUSIP for AARP Bond Fund for Income Fund is 00036M-30-7.
The CUSIP for AARP Tax Free Money Fund is 00036Q-10-0.
The CUSIP for AARP Insured Tax Free General Bond Fund is 00036Q-20-9.
The CUSIP for AARP Balanced Stock & Bond is 00036J-30-4.
The CUSIP for AARP Growth & Income Fund is 00036J-10-6.
The CUSIP for AARP Capital Growth Fund is 00036J-20-5.
The CUSIP for AARP Global Growth Fund is 00036J-40-3.
The CUSIP for AARP U.S. Stock Index Fund is 00036J-50-2.
The CUSIP for AARP International Stock Fund is 00036J-60-1.
The CUSIP for AARP Small Company Stock is 00036J-70-0.
The CUSIP for AARP Diversified Income Portfolio is 00036W-10-7.
The CUSIP for AARP Diversified Growth Portfolio is 00036W-20-6.
Portfolio securities of the AARP Funds except AARP Global Growth Fund are
held separately, pursuant to a custodian agreements with each Trust, by State
Street Bank and Trust Company of Boston as Custodian.
Portfolio securities of AARP Global Growth Fund are held separately,
pursuant to a custodian agreement with AARP Growth Trust on behalf of AARP
Global Growth Fund, by Brown Brothers Harriman & Co. of Boston as Custodian.
Each Trust has shareholder servicing agreements with Scudder Service
Corporation ("SSC"), a subsidiary of Scudder, Stevens & Clark, Inc. SSC is the
transfer agent, dividend disbursing and shareholder service agent for each Fund.
Shareholder service expenses charged by SSC were for AARP High Quality Money
Fund, $1,526,580; AARP GNMA and U.S. Treasury Fund, $7,340,012; AARP High
Quality Bond Fund, $1,586,232; AARP High Quality Tax Free Money Fund, $304,924;
AARP Insured Tax Free General Bond Fund, $1,925,762; AARP Balanced Fund,
$724,796; AARP Growth and Income Fund, $3,850,612; and AARP Capital Growth Fund,
$1,176,990, for the fiscal year ended September 30, 1996. Shareholder service
expenses charged by SSC for AARP Global Growth Fund were $178,759 for the period
February 1, 1996 (commencement of operations) to September 30, 1996. Not all of
these fees were paid in full at the fiscal year end.
The firm of Dechert Price & Rhoads of Washington, D.C. is counsel for the
Trusts.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of Scudder, Stevens & Clark, Inc.,
computes net asset value for each Fund. AARP High Quality Money Fund and AARP
High Quality Tax Free Money Fund each pay Scudder Fund Accounting an annual fee
equal to 0.020% on the first $150 million of average daily net assets, 0.0060%
of such assets in excess of $150 million, up to and including $1 billion and
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0.0035% of such assets in excess of $1 billion, plus holding and transaction
charges for this service. AARP Insured Tax Free General Bond Fund pays Scudder
Fund Accounting an annual fee equal to 0.024% on the first $150 million of
average daily net assets, 0.0070% on such assets in excess of $150 million up to
and including $1 billion, and 0.0040% of such assets in excess of $1 billion,
plus holding and transaction charges for this service. AARP GNMA and U.S.
Treasury Fund, AARP High Quality Bond Fund and AARP Bond Fund for Income each
pay Scudder Fund Accounting an annual fee equal to 0.025% of the first $150
million of average daily net assets, 0.0075% of such assets in excess of $150
million up to and including $1 billion, and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges for this service. AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, AARP U.S. Stock Index Fund,
AARP Capital Growth Fund and AARP Small Company Stock Fund each pay Scudder Fund
Accounting an annual fee equal to 0.025% on the first $150 million of average
daily net assets, 0.0075% of such assets in excess of $150 million up to and
including $1 billion, and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges. AARP Global Growth Fund and Scudder
International Stock Fund each pay Scudder Fund Accounting Corporation an annual
fee equal to 0.065% on the first $150 million of average daily net assets,
0.0400% of such assets in excess of $150 million up to and including $1 billion,
and 0.0200% of such assets in excess of $1 billion, plus holding and transaction
charges for this service.
Scudder Investor Services, Inc. is the Distributor for each Fund. For the
fiscal years ended September 30, 1996, 1995 and 1994, the Distributor was paid
$___________, $___________ and $___________ , respectively by AARP High Quality
Money Fund, $___________, $___________ and $___________ , respectively by AARP
GNMA and U.S. Treasury Fund, $___________, $___________ and $___________ ,
respectively by AARP High Quality Bond Fund, $___________, $___________ and
$___________ , respectively by AARP High Quality Tax Free Money Fund,
$___________, $___________ and $___________ , respectively by AARP Insured Tax
Free General Bond Fund, $___________ by AARP Balanced Stock and Bond Fund,
$___________, $___________ and $___________ , respectively by AARP Growth and
Income Fund, $___________, $___________ and $___________ , respectively by AARP
Global Growth Fund and $___________, $___________ and $___________ ,
respectively by AARP Capital Growth Fund.
Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders. These transactions will reflect investment decisions
made by the Fund Manager in light of the objectives and policies of the Funds,
and such factors as its other portfolio holdings and tax considerations, and
should not be construed as recommendations for similar action by other
investors.
Costs of $__________ incurred by AARP Bond Fund for Income in conjunction
with its organization are amortized over the five year period beginning
____________.
Costs of $__________ incurred by AARP U.S. Stock Index Fund in conjunction
with its organization are amortized over the five year period beginning
____________.
Costs of $__________ incurred by AARP International Stock Fund in
conjunction with its organization are amortized over the five year period
beginning ____________.
Costs of $__________ incurred by AARP Small Company Stock Fund in
conjunction with its organization are amortized over the five year period
beginning ____________.
Costs of $__________ incurred by AARP Diversified Income Portfolio in
conjunction with its organization are amortized over the five year period
beginning ____________.
Costs of $__________ incurred by AARP Diversified Growth Portfolio in
conjunction with its organization are amortized over the five year period
beginning ____________.
Each Trust is located at Two International Place, Boston, Massachusetts
02110-4103 (telephone: 1-800-253-2277). Each has filed with the Securities and
Exchange Commission, Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933, as amended, with respect to the shares of the Funds
offered by the Prospectus. The Prospectus and this Statement of Additional
Information do not contain all of the information set forth in the Registration
Statements, certain parts of which are omitted in accordance with Rules and
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Regulations of the SEC. The Registration Statements may be inspected at the
principal office of the SEC at 450 Fifth Street, N.W., Washington, D.C. and
copies thereof may be obtained from the SEC at prescribed rates.
The following chart demonstrates that tax-free yields are equivalent to
higher taxable yields due to their tax-exempt status. For example, tax-free
interest of 5% is the equivalent of 6.94% taxable in a 28% tax bracket. Please
refer to the chart for more examples.
Tax-Exempt Income vs. Taxable Income
The following table illustrates comparative yields from taxable and
tax-exempt obligations under federal income tax rates in effect for the 1996
calendar year.
1996 Taxable Income To Equal Hypothetical Tax-Free Yields of 5%,
Brackets 7% and 9%, a Taxable Investment Would
Have To Earn**
Individual Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $23,350 15.0% 5.88% 8.24% 10.59%
$23,351 - $56,550 28.0% 6.94% 9.72% 12.50%
$56,551 - $117,950 31.0% 7.25% 10.14% 13.04%
$117,951 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%
Joint Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $39,000 15.0% 5.88% 8.24% 10.59%
$39,001 - $94,250 28.0% 6.94% 9.72% 12.50%
$94,251 - $143,600 31.0% 7.25% 10.14% 13.04%
$143,601 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%
** These illustrations assume the Federal alternative minimum tax is not
applicable, that an individual is not a "head of household" and claims one
exemption and that taxpayers filing a joint return claim two exemptions.
Note also that these federal income tax brackets and rates do not take into
account the effects of (i) a reduction in the deductibility of itemized
deductions for taxpayers whose federal adjusted gross income exceeds
$114,700 ($57,350 in the case of a married individual filing a separate
return), or of (ii) the gradual phaseout of the personal exemption amount
for taxpayers whose federal adjusted gross income exceeds $114,700 (for
single individuals) or $172,050 (for married individuals filing jointly).
The effective federal tax rates and equivalent yields for such taxpayers
would be higher than those shown above.
Example:*
Based on 1996 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $40,000 would have to earn a
tax-equivalent yield of 6.94% in order to match a tax-free yield of 5%.
There is no guarantee that a Fund will achieve a specific yield. While most
of the income distributed to the shareholders of each Fund will be exempt from
federal income taxes, portions of such distributions may be subject to federal
income taxes. Distributions may also be subject to state and local taxes.
* Net amount subject to federal income tax after deductions and exemptions,
exclusive of the alternative minimum tax.
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FINANCIAL STATEMENTS
The financial statements and notes, including the investment portfolio, of
each AARP Fund, together with the Report of Independent Accountants and
Supplementary Information are incorporated by reference.
78
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AARP MANAGED INVESTMENT PORTFOLIOS TRUST
PART C. OTHER INFORMATION
<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for AARP Diversified Income Portfolio and AARP
Diversified Growth Portfolio to be filed by amendment.
Included in Part B of this Registration Statement:
Statements, schedules and historical information other than those listed
above have been omitted since they are either not applicable or are not
required.
b. Exhibits:
1. (a) Declaration of Trust is filed herein.
2. (a) By-Laws of the Registrant are filed herein.
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest
having par value of $.01 per share to be filed by amendment.
5. (a) Form of Investment Management Agreement between the Registrant and
AARP/Scudder Financial Management Company dated February 1, 1997 is
filed herein.
6. Form of Underwriting Agreement between the Registrant and Scudder
Fund Distributors, Inc. dated February 1, 1997 is filed herein.
7. Inapplicable.
8. (a)(1) Form of Custodian Agreement between the Registrant and State Street
Bank and Trust Company dated ____________ to be filed by amendment.
(a)(2) Fee schedule for Exhibit 8(a)(l) to be filed by amendment.
9. (a) Form of Transfer Agency and Service Agreement between the Registrant
and Scudder Service Corporation dated February 1, 1997 is filed
herein.
(b) Form of Member Services Agreement among AARP/Scudder Financial
Management Company, AARP Financial Services Corp. and the Registrant
dated February 1, 1997 is filed herein.
(b)(1) Member Services Agreement between AARP Financial Services Corp. and
Scudder, Stevens & Clark, Inc. to be filed by amendment.
</TABLE>
Part C - Page 1
<PAGE>
<TABLE>
<S> <C>
(c) Form of Service Mark License Agreement among Scudder, Stevens &
Clark, Inc., American Association of Retired Persons, the Registrant
and AARP Managed Investment Portfolios Trust dated February 1, 1997
is filed herein.
(d) Shareholder Service Agreement between the Registrant and Scudder
Service Corporation to be filed by amendment.
(e) Form of Fund Accounting Services Agreement between the Registrant on
behalf of AARP Diversified Growth Portfolio and Scudder Fund
Accounting Corporation dated February 1, 1997 is filed herein.
(f) Form of Special Service Agreement among AARP Managed Investment
Portfolios Trust, the Underlying AARP Funds, AARP Financial Services
Company, Scudder, Stevens & Clark, Inc., Scudder Service Corporation,
Scudder Fund Accounting Corporation, Scudder Trust Company and
Scudder Investor Services, Inc. dated February 1, 1997 is filed
herein.
(g) Form of COMPASS and TRAK 2000 Service Agreement between Scudder Trust
Company and the Registrant dated February 1, 1997 is filed herein.
10. Inapplicable.
11. Inapplicable.
12. Inapplicable.
13. Inapplicable.
14. (a) Individual Retirement Account (IRA) to be filed by amendment.
(b) Harvest Plan for Self-Employed Persons and Corporations to be filed
by amendment.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
Power of Attorney for Carole Lewis Anderson, Adelaide Attard, Cyril F. Brickfield, Robert N. Butler, Esther Canja,
Linda C. Coughlin, Horace Deets, Edgar R. Fiedler, Eugene P. Forrester, Wayne F. Haefer, George L. Maddox, Jr.,
Robert J. Myers, James H. Schulz and Gordon Shillinglaw is incorporated by reference to the Trust's initial
registration statement.
Item 25. Persons Controlled by or under Common Control with Registrant.
None
</TABLE>
Part C - Page 2
<PAGE>
Item 26. Number of Holders of Securities (as of December 31, 1996).
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial interest
with par value of $.01
AARP Diversified Income Portfolio 0
AARP Diversified Growth Portfolio 0
Item 27. Indemnification.
A policy of insurance covering Scudder, Stevens & Clark, Inc., its
affiliates, including Scudder Investor Services, Inc., and all of the
registered investment companies advised by Scudder, Stevens & Clark,
Inc. insures the Registrant's Trustees and officers and others against
liability arising by reason of an alleged breach of duty caused by any
negligent act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of Trust
provide as follows:
Section 4.1 No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations
or affairs of the Trust. No Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever to any
Person, other than to the Trust or its Shareholders, in connection
with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Trust Property for satisfaction
of claims of any nature arising in connection with the affairs of the
Trust. If any Shareholder, Trustee, officer, employee, or agent, as
such, of the Trust, is made a party to any suit or proceeding to
enforce any such liability of the Trust, he shall not, on account
thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by reason of
his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by
him in connection with any such claim or liability, provided that any
such expenses shall be paid solely out of the funds and property of
the series of the Trust with respect to which such Shareholders Shares
are issued. The rights accruing to a Shareholder under this Section
4.1 shall not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the
right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 4.2 Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, agent
or service provider thereof for any action or failure to act by him
(or her) or any other such Trustee, officer, employee, agent or
service provider (including without limitation the failure to compel
in any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct
of his office. The term "service provider" as used in this Section
4.2, shall include any investment adviser, principal underwriter or
other person with whom the Trust has an agreement for provision of
services.
Section 4.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
Part C - Page 3
<PAGE>
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee
or officer:
(i) against any liability to the Trust or the Shareholders
by reason of a final adjudication by the court or other body before
which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
resulting in a payment by a Trustee or officer, unless there has been
a determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(A) by the court or other body approving the settlement
or other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the
heirs, executors, administrators and assigns of such a person. Nothing
contained herein shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4.3 shall be advanced by the Trust prior
to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this
Section 4.3 provided that either:
(i) such undertaking is secured by a surety bond or some
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances: or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who
is not (i) an "Interested Person" of the Trust (including anyone who
has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item
28.
Part C - Page 4
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
President, The Japan Fund, Inc. (investment company)**
Director, Sovereign High Yield Investment Company (investment company)+
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Part C - Page 5
<PAGE>
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
President & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
Director, Scudder Mutual Fund, Inc. (investment company)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Part C - Page 6
<PAGE>
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment
company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Vice President & Assistant Secretary, Scudder Realty Holdings Corporation (a
real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Part C - Page 7
<PAGE>
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder International Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Equity Trust (investment company)**
Vice President & Assistant Secretary, Scudder Securities Trust (investment company)*
Vice President & Assistant Secretary, Scudder Funds Trust (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Part C - Page 8
<PAGE>
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
<FN>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon, U.K.
</FN>
</TABLE>
Item 29. Principal Underwriters.
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Part C - Page 9
<PAGE>
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President President and Trustee
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President None
345 Park Avenue
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer Vice President
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Vice President and
Two International Place Treasurer Assistant Treasurer
Boston, MA 02110
</TABLE>
Part C - Page 10
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Senior Vice President Vice President and
345 Park Avenue Secretary
New York, NY 10154
Edmund J. Thimme Director and Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules promulgated thereunder
are maintained by Scudder, Stevens & Clark, Inc., Two International
Part C - Page 11
<PAGE>
Place, Boston, Massachusetts 02110-4103. Records relating to the
duties of the custodian of AARP Diversified Income Portfolio and AARP
Diversified Growth Portfolio are maintained by
_______________________________________________. Records relating to
the duties of the Registrant's transfer agent are maintained by
Scudder Service Corporation, Two International Place, Boston,
Massachusetts 02110-4103.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Registrant hereby undertakes to file post-effective amendments,
using reasonably current financial statements of AARP Diversified
Income Portfolio and AARP Diversified Growth Portfolio, within four to
six months from the effectiveness date of the Registrant's
Registration Statement under the 1933 Act.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of a Fund's latest annual report
to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting on the question of removal of a Trustee or
Trustees when requested to do so by the holders of at least 10% of the
Registrant's outstanding shares and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
the registrant will submit unless in the opinion of its counsel the
matter has been settled by controlling precedent, to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Part C - Page 12
<PAGE>
File No. 333-16315
File No. 811-07933
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
PRE-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 1
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP MANAGED INVESTMENT PORTFOLIO TRUST
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
EXHIBIT INDEX
Exhibit 1(a)
Exhibit 2(a)
Exhibit 5(a)
Exhibit 6
Exhibit 9(a)
Exhibit 9(b)
Exhibit 9(c)
Exhibit 9(e)
Exhibit 9(f)
Exhibit 9(g)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and the Commonwealth of Massachusetts on the 24th day of January,
1997.
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
By /s/Thomas F. McDonough
---------------------------------------
Thomas F. McDonough, Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Linda C. Coughlin
- --------------------
Linda C. Coughlin* Chairman and Trustee January 24, 1997
/s/Carole Lewis Anderson
- ------------------------
Carole Lewis Anderson* Trustee January 24, 1997
/s/Adelaide Attard
- ------------------------
Adelaide Attard* Trustee January 24, 1997
/s/Cyril F. Brickfield
- ------------------------
Cyril F. Brickfield* Trustee January 24, 1997
/s/Robert N. Butler
- ------------------------
Robert N. Butler* Trustee January 24, 1997
/s/Esther Canja
- ------------------------
Esther Canja* Trustee January 24, 1997
/s/Horace Deets
- ------------------------
Horace Deets* Vice Chairman and January 24, 1997
Trustee
/s/Edgar R. Fiedler
- ------------------------
Edgar R. Fiedler* Trustee January 24, 1997
/s/Eugene P. Forrester
- ------------------------
Eugene P. Forrester* Trustee January 24, 1997
/s/Wayne F. Haefer
- ------------------------
Wayne F. Haefer* Trustee January 24, 1997
/s/George L. Maddox
- ------------------------
George L. Maddox, Trustee January 24, 1997
/s/Robert J. Myers
- ------------------------
Robert J. Myers* Trustee January 24, 1997
<PAGE>
/s/James H. Schulz
- ------------------------
James H. Schulz* Trustee January 24, 1997
/s/Gordon Shillinglaw
- ------------------------
Gordon Shillinglaw* Trustee January 24, 1997
/s/Pamela A. McGrath
- ------------------------
Pamela A. McGrath Treasurer (Principal January 24, 1997
Financial and
Accounting Officer)
*By/s/Thomas F. McDonough
--------------------
Thomas F. McDonough
Attorney-in-fact pursuant to a
power of attorney contained in
the signature pages of the
Trust's Initial Registration
Statement filed November 15,
1996.
2
OCT 23 1996
OFFICE OF THE CLERK
601 CITY HALL
BOSTON, MA 02201
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
DECLARATION OF TRUST
DATED October 21, 1996
RECEIVED
OCT 23 1996
SECRETARY OF THE COMMONWEALTH
CORPORATION DIVISION
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - NAME AND DEFINITIONS ..................................... 1
Section 1.1. Name ............................................. 1
Section 1.2. Definitions ...................................... 1
ARTICLE II - TRUSTEES 3
Section 2.1. General Powers ................................... 3
Section 2.2. Investments ...................................... 4
Section 2.3. Legal Title ...................................... 5
Section 2.4. Issuance and Repurchase of Shares ................ 6
Section 2.5. Delegation; Committees ........................... 6
Section 2.6. Collection and Payment ........................... 6
Section 2.7. Expenses ......................................... 6
Section 2.8. Manner of Acting; By-laws ........................ 6
Section 2.9. Miscellaneous Powers ............................. 7
Section 2.10. Principal Transactions ........................... 7
Section 2.11. Number of Trustees ............................... 8
Section 2.12. Election and Term ................................ 8
Section 2.13. Resignation and Removal .......................... 8
Section 2.14. Vacancies ........................................ 9
Section 2.15. Delegation of Power to Other Trustees ............ 9
ARTICLE III - CONTRACTS .............................................. 9
Section 3.1. Distribution Contract ............................ 9
Section 3.2. Advisory or Management Contract .................. 10
Section 3.3. Affiliations of Trustees or Officers, Etc. ....... 10
Section 3.4. Compliance with 1940 Act ......................... 11
ARTICLE IV - LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS ..................................... 11
Section 4.1. No Personal Liability of Shareholders,
Trustees, Etc. ................................... 11
Section 4.2. Non-Liability of Trustees, Etc. .................. 12
Section 4.3. Mandatory Indemnification ........................ 12
Section 4.4. No Bond Required of Trustees ..................... 14
Section 4.5. No Duty of Investigation; Notice in
Trust Instruments, Etc. .......................... 14
Section 4.6. Reliance on Experts, Etc. ........................ 14
ARTICLE V - SHARES OF BENEFICIAL INTEREST ............................ 15
Section 5.1. Beneficial Interest .............................. 15
Section 5.2. Rights of Shareholders ........................... 15
Section 5.3. Trust Only ....................................... 15
Section 5.4. Issuance of Shares ............................... 15
Section 5.5. Register of Shares ............................... 16
Section 5.6. Transfer of Shares ............................... 16
Section 5.7. Notices, Reports ................................. 16
Section 5.8. Treasury Shares .................................. 17
Section 5.9. Voting Powers .................................... 17
<PAGE>
Section 5.10. Meetings of Shareholders ......................... 18
Section 5.11. Series Designation ............................... 18
Section 5.12. Assent to Declaration of Trust ................... 20
Section 5.13. Class Designation ................................ 20
ARTICLE VI - REDEMPTION AND REPURCHASE OF SHARES ..................... 22
Section 6.1. Redemption of Shares ............................. 22
Section 6.2. Price ............................................ 22
Section 6.3. Payment .......................................... 22
Section 6.4. Effect of Suspension of Determination of
Net Asset Value .................................. 22
Section 6.5. Repurchase by Agreement .......................... 23
Section 6.6. Redemption of Shareholder's Interest ............. 23
Section 6.7. Redemption of Shares in Order to Qualify
as Regulated Investment Company;
Disclosure of Holding ............................ 23
Section 6.8. Reductions in Number of Outstanding
Shares Pursuant to Net Asset Value
Formula .......................................... 24
Section 6.9. Suspension of Right of Redemption ................ 24
ARTICLE VII - DETERMINATION OF NET ASSET VALUE, NET INCOME
AND DISTRIBUTIONS ...................................... 24
Section 7.1. Net Asset Value .................................. 24
Section 7.2. Distributions to Shareholders .................... 25
Section 7.3. Determination of Net Income; Constant
Net Asset Value; Reduction of
Outstanding Shares ............................... 26
Section 7.4. Allocation Between Principal and Income .......... 27
Section 7.5. Power to Modify Foregoing Procedures ............. 27
ARTICLE VIII - DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC. 27
Section 8.1. Duration ......................................... 27
Section 8.2. Termination of Trust ............................. 27
Section 8.3. Amendment Procedure .............................. 28
Section 8.4. Merger, Consolidation and Sale of
Assets ........................................... 29
Section 8.5. Incorporation .................................... 29
ARTICLE IX - REPORTS TO SHAREHOLDERS ................................. 30
ARTICLE X - MISCELLANEOUS ............................................ 30
Section 10.1. Filing ........................................... 30
Section 10.2. Governing Law .................................... 30
Section 10.3. Counterparts ..................................... 30
Section 10.4. Reliance by Third Parties ........................ 31
Section 10.5. Provisions in Conflict with Law or
Regulations ...................................... 31
<PAGE>
DECLARATION OF TRUST
OF
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
DATED October 21, 1996
DECLARATION OF TRUST made October 21, 1996, by the undersigned Trustee
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees");
WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided.
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the Trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the Trust created hereby is the "AARP
Managed Investment Portfolios Trust".
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as from
time to time amended.
(b) "Class" means the two or more Classes as may be established and
designated from time to time by the Trustees pursuant to Section 5.13 hereof.
(c) The term "Commission" has the meaning given it in the 1940 Act. The
term "Interested Person" has the meaning given it in the 1940 Act, as modified
by any applicable order or orders of the Commission. Except as otherwise defined
by the Trustees in conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares outstanding and entitled to vote"
shall have the same meaning as the term "vote of a majority of the outstanding
voting securities" given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of
<PAGE>
the 1940 Act, but does not include a system for the central handling of
securities described in said Section 17(f).
(e) "Declaration" means this Declaration of Trust as further amended from
time to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(f) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as the masculine
genders.
(h) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on behalf of states,
territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(k) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(1) "Series" individually or collectively means the two or more Series as
may be established and designated from time to time by the Trustees pursuant to
Section 5.11 hereof. Unless the context otherwise requires, the term "Series"
shall include Classes into which shares of the Trust, or of a Series, may be
divided from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series and Classes which may be established by the
Trustees and includes fractions of Shares as well as whole Shares. "Outstanding
Shares" means those shares shown from time to time on the books of the Trust or
its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the Treasury of the Trust.
-2-
<PAGE>
(o) "Transfer Agent" means any one or more Persons other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(p) The "Trust" means the AARP Managed Investment Portfolios Trust.
(q) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or have signed this
Declaration, so long as he or they shall continue in office in accordance with
the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
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Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities,
including shares of open-end investment companies; common and preferred stocks;
warrants; bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political subdivision
thereof, or any governmental or quasi-governmental agency or instrumentality;
and money market instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds of repurchase
agreements, of any corporation, company, trust, association, firm or other
business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend, and to pledge any such securities and to enter
into repurchase agreements and forward foreign currency exchange contracts, to
purchase and sell futures contracts on securities, securities indices and
foreign currencies, to purchase or sell options on such contracts, foreign
currency contracts, and foreign currencies and to engage in all types of hedging
and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities, repurchase agreements, futures contracts and options and
other assets included in the Trust Property, including the right to vote thereon
and otherwise act with respect thereto and to do all acts for the preservation,
protection, improvement and enhancement in value of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
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(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest, and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements whereby
the Trust may finance directly or indirectly any activity which is primarily
intended to result in the sale of Shares.
(i) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property, including
the property of any Series of the Trust, shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to
any Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee, on
such terms as the Trustees may determine, provided that the interest of the
Trust therein is deemed appropriately protected. The right, title and interest
of the Trustees in the Trust Property and the property of each Series of the
Trust shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property or the property of any Series of the
Trust, and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees.
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Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the
provisions set forth in Articles VI and VII and Section 5.11 hereof, to apply to
any such repurchase, redemption, retirement, cancellation or acquisition of
Shares any funds or property of the particular series of the Trust with respect
to which such Shares are issued, whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided herein
or in the By-laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum being
present) including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
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Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. Subject to Section 5.11 hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the
Trust; (b) enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not permitted
by the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as principal, or
have any such dealings with the Investment Adviser, Distributor or transfer
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agent or with any Interested Person or such Person; and the Trust may employ any
such Person, or firm or company in which such Person is an Interested Person, as
broker, legal counsel, registrar, transfer agent, dividend disbursing agent or
Custodian upon customary terms.
Section 2.11. Number of Trustees. The number of Trustees shall initially be
one (1), and thereafter shall be such number as shall be fixed from time to time
by a written instrument signed by a majority of the Trustees.
Section 2.12. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at a meeting of Shareholders. Such a meeting shall be held on a date fixed by
the Trustees. Except in the event of resignation or removals pursuant to Section
2.13 hereof, each Trustee shall hold office until such time as less than a
majority of the Trustees holding office have been elected by Shareholders. In
such event the Trustees then in office will call a Shareholders' meeting for the
election of Trustees. Except for the foregoing circumstances, the Trustees shall
continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees. Any Trustee may be removed
at any meeting of Shareholders by vote of two-thirds of the Outstanding Shares.
The Trustees shall promptly call a meeting of the shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees when
requested in writing so to do by the holders of not less than ten percent of the
Outstanding Shares and, in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property or property of any series of the Trust held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
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Section 2.14. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of the Shares at a price based on the net
asset value of a Share, whereby the Trustees may either agree to sell the Shares
to the other party to the contract or appoint such other party their sales agent
for the Shares, and in either case on such terms and conditions, if any, as may
be prescribed in the By-laws, and such further terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
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provisions of this Article III or of the By-laws; and such contract may also
provide for the repurchase of the Shares by such other party as agent of the
Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract or separate advisory contracts with respect to one or more Series
whereby the other party to such contract shall undertake to furnish to the Trust
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions as the Trustees may in their discretion determine, including the
grant of authority to such other party to determine what securities shall be
purchased or sold by the Trust and what portion of its assets shall be
uninvested, which authority shall include the power to make changes in the
investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character describe in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made, or that any such organization, or any parent or affiliate thereof, is
a Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1 or 3.2 above or for services as Custodian, Transfer Agent or disbursing
agent or for related services may have been or may hereafter be made also
has any one or more of such contracts with one or more other partnerships,
corporations, trusts, associations or other organizations, or has other
business or interests,
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shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same or create any liability or accountability to the Trust or its
Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the 1940 Act (including any amendment thereof or other
applicable act of Congress hereafter enacted), as modified by any applicable
order or orders of the Commission, with respect to its continuance in effect,
its termination and the method of authorization and approval of such contract or
renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders. Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a part to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
for his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
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Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting
in a payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance,
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bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
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Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
Section 4.5. No Duty of Investigation: Notice in Trust Instruments, Etc. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or of
said officer, employee or agent Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee and officer or employee
of the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest, all
of one class, except as provided in Section 5.11 and Section 5.13 hereof, par
value $.0l per share. The number of Shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property
and the property of each Series of the Trust of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights
specifically set forth in this Declaration. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights,
except as the Trustees may determine with respect to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may, from
time to time without vote of the Shareholders, issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and, type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine
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the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths
of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
hereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Except as otherwise provided by the
Trustees, shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor any transfer
agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
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Section 5.7. Notices, Reports. Any and all notices to which any Shareholder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the register of the Trust. A notice of a
meeting, an annual report and any other communication to Shareholders need not
be sent to a Shareholder (i) if an annual report and a proxy statement for two
consecutive shareholder meetings have been mailed to such Shareholder's address
and have been returned as undeliverable, (ii) if all, and at least two, checks
(if sent by first class mail) in payment of dividends on Shares during a
twelve-month period have been mailed to such Shareholder's address and have been
returned as undeliverable or (iii) in any other case in which a proxy statement
concerning a meeting of security holders is not required to be given pursuant to
the Commission's proxy rules as from time to time in effect under the Securities
Exchange Act of 1934. However, delivery of such proxy statements, annual reports
and other communications shall resume if and when such Shareholder delivers or
causes to be delivered to the Trust written notice setting forth such
Shareholder's then current address.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.12; (ii) for the
removal of Trustees as provided in Section 2.13; (iii) with respect to any
investment advisory or management contract entered into pursuant to Section 3.2;
(iv) with respect to termination of the Trust as provided in Section 8.2; (v)
with respect to any amendment of this Declaration to the extent and as provided
in Section 8.3; (vi) with respect to any merger, consolidation or sale of assets
as provided in Section 8.4; (vii) with respect to incorporation of the Trust, or
any Series to the extent and as provided in Section 8.5; (viii) to the same
extent as the stockholders of Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class thereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); (ix) with respect to
any plan adopted pursuant to Rule 12b-l (or any successor rule) under the 1940
Act; and (x) with respect to such additional matters relating to the Trust as
may be required by this Declaration, the By-laws or any registration
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of the trust as an investment company under the 1940 Act with the Commission (or
any successor agency) or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that the Trustees may, in conjunction with the
establishment of any Series or Class of Shares, establish or reserve the right
to establish conditions under which the several Series or Classes shall have
separate voting rights or, if a Series or Class would not, in the sole judgment
of the Trustees, be materially affected by a proposal, no voting rights. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders' votes
and meetings and related matters.
Section 5.10. Meetings of Shareholders. Meetings of Shareholders may be
called at any time by the President, and shall be called by the President and
Secretary at the request in writing or by resolution, of a majority of Trustees,
or at the written request of the holder or holders of ten percent (10%) or more
of the total number of Shares then issued and outstanding of the Trust entitled
to vote at such meeting. Any such request shall state the purpose of the
proposed meeting.
Section 5.11. Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more Series, and the different
Series shall be established and a designated, and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different Series as
to investment objective, purchase price, allocation of expenses, right of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Series as the context may require.
Without limiting the authority of the Trustees to establish and designate
any additional Series of Shares (or Classes of Shares under Section 5.13
herein), there shall be established two initial series to be known,
respectively, as:
(1) Diversified Income Portfolio
(2) Diversified Growth Portfolio
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(a) All provisions herein relating to the Trust shall apply equally to each
Series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each Series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series reacquired by the Trust at their discretion
from time to time.
(c) All consideration received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors of such Series and except
as may otherwise be required by applicable laws, and shall be so recorded upon
the books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series, the Trustees
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(d) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The assets of
a particular Series of the Trust
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shall, under no circumstances, be charged with liabilities attributable to any
other Series of the Trust. All persons extending credit to, or contracting with
or having any claim against a particular Series of the Trust shall look only to
the assets of that particular Series for payment of such credit, contract or
claim. No Shareholder or former Shareholder of any Series shall have any claim
on or right to any assets allocated or belonging to any other Series.
(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such Series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being or having been a
Shareholder of a Series, such Shareholder shall be paid solely out of the funds
and property of such Series of the Trust. Upon liquidation or termination of a
Series of the Trust, Shareholders of such Series shall be entitled to receive a
pro rata share of the net assets of such Series. A Shareholder of a particular
Series of the Trust shall not be entitled to participate in a derivative or
class action on behalf of any other Series or the Shareholders of any other
Series of the Trust.
(f) The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each class and
Series of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust. Every Shareholder, by virtue
of having become a shareholder, shall be held to have expressly assented and
agreed to the terms hereof and to have become a party hereto.
Section 5.13. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other
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Shares of the Trust or the same Series, as the case may be, except that there
may be variations between different classes as to allocation of expenses, right
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust or any Series into two or
more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of any Series
of the Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares of the
Trust or any Series or any Shares previously issued and reacquired of any Class
of the Trust or of any Series into one or more Classes that may be established
and designated from time to time. The Trustees may hold as treasury Shares (of
the same or some other Class) , reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Class required by the Trust
at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be
effective upon the execution of a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such instrument. The
Trustees may, by an instrument executed by a majority of their number, abolish
any Class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
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ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to time
specify additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's the effective registration statement under
the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement under the Securities Act of 1933,
subject to the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value, the rights of Shareholders (including those
who shall have applied for redemption pursuant to Section 6.1 hereof but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
the period of such suspension, by appropriate written notice of revocation at
the office or agency where application was made, revoke any application for
redemption not honored and withdraw any certificates on deposit. The redemption
price of Shares for which redemption applications have not been revoked shall be
the net asset value of such Shares next determined as set forth in Section 7.1
after the termination of such suspension, and payment
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shall be made within seven (7) days after the date upon which the application
was made plus the period after such application during which the determination
of net asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per Share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have the
right at any time without prior notice to the Shareholder to redeem Shares of
any Shareholder for their then current net asset value per Share if at such time
the Shareholder owns Shares having an aggregate net asset value of less than an
amount set from time to time by the Trustees subject to such terms and
conditions as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail itself of such
right, either by publication in the Trust's registration statement, if any, or
by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify any Series of the Trust as a regulated
investment company under the Internal Revenue Code, then the Trustees shall have
the power by lot or other means deemed equitable by them (i) to call for
redemption by any such Person a number, or principal amount, of Shares or other
securities of the Trust sufficient to maintain or bring the direct or indirect
ownership of Shares or other securities of the trust into conformity with the
requirements for such qualification and (ii) to refuse to transfer or issue
Shares or other securities of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
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Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of Outstanding Shares
pursuant to the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
Shareholders of the Trust by order permit suspension of the right of redemption
or postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of the Trust or any
Series of the Trust shall be determined by appraisal of the securities of the
Trust or allocated to such Series, such appraisal to be on the basis of such
method as shall be deemed to reflect the fair value thereof, determined in good
faith by or under the direction of the Trustees. From the total value of said
assets, there shall be deducted all indebtedness, interest, taxes, payable or
accrued, including estimated taxes on unrealized book profits, expenses and
management charges accrued to the appraisal date, net income determined and
declared as a distribution and all other items in the nature of liabilities
attributable to the Trust or such Series or Class thereof which
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shall be deemed appropriate. The net asset value of a Share shall be determined
by dividing the net asset value of the Class, or, if no Class has been
established, of the Series, or, if no Series has been established, of the Trust,
by the number of Shares of that Class, or Series, or of the Trust, as
applicable, outstanding. The net asset value of Shares of the Trust or any Class
or Series of the Trust shall be determined pursuant to the procedure and methods
prescribed or approved by the Trustees in their discretion and as set forth in
the most recent Registration Statement of the Trust as filed with the Securities
and Exchange Commission pursuant to the requirements of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and the Rules
thereunder. The net asset value of the Shares shall be determined at least once
on each business day, as of the close of trading on the New York Stock Exchange
or as of such other time or times as the Trustees shall determine. The power and
duty to make the daily calculations may be delegated by the Trustees to the
Investment Adviser, the Custodian, the Transfer Agent or such other Person as
the Trustees may determine by resolution or by approving a contract which
delegates such duty to another Person. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from time to
time distribute ratably among the Shareholders of the Trust or a Series such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets of the Trust or such Series held by the Trustees as they may deem proper.
Such distributions may be made in cash or property (including without limitation
any type of obligations of the Trust or such Series or any assets thereof) , and
the Trustees may distribute ratably among the Shareholders additional Shares of
the Trust or such Series issuable hereunder in such manner, at such times, and
on such terms as the Trustees may deem proper. Such distributions may be among
the Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such other date or time or dates or times as the
Trustees shall determine. The Trustees may in their discretion determine that,
solely for the purposes of such distributions, Outstanding Shares shall exclude
Shares for which orders have been placed subsequent to a specified time on the
date the distribution is declared or on the next preceding day if the
distribution is declared as of a day on which Boston banks are not open for
business, all as described in the registration statement under the Securities
Act of 1933. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or the Series
or to meet obligations of the Trust or the Series, or as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business. The Trustees may adopt and offer to Shareholders
such dividend
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reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value:
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Trust or any Series shall be determined in such manner as the Trustees
shall provide by resolution. Expenses of the Trust or a Series, including the
advisory or management fee, shall be accrued each day. Such net income may be
determined by or under the direction of the Trustees as of the close of trading
on the New York Stock Exchange on each day on which such Exchange is open or as
of such other time or times as the Trustees shall determine, and, except as
provided herein, all the net income of the Trust or any Series, as so
determined, may be declared as a dividend on the Outstanding Shares of the Trust
or such Series. If, for any reason, the net income of the Trust or any Series,
determined at any time is a negative amount, the Trustees shall have the power
with respect to the Trust or such Series (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, or (ii) to reduce the number of Outstanding Shares of the Trust or
such Series by reducing the number of Shares in the account of such Shareholder
by that number of full and fractional Shares which represents the amount of such
excess negative net income, or (iii) to cause to be recorded on the books of the
Trust or such Series an asset account in the amount of such negative net income,
which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust or such Series with respect to the
Trust or such Series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the Outstanding Shares of the Trust or such Series on
the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per Share
of the Trust or such Series to remain at a constant amount per Outstanding Share
immediately after each such determination and declaration. The Trustees shall
also have the power to fail to declare a dividend out of net income for the
purpose of causing the net asset value per Share to be increased to a constant
amount. The Trustees shall not be required to adopt, but may at any time adopt,
discontinue
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or amend the practice of maintaining the net asset value per Share of the Trust
or a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income. The Trustees shall
have full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal amount, and their determination made in
good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much if any of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the Per
Share net asset value or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII.
Section 8.2. Termination of Trust. (a) The Trust or any Series of the Trust
may be terminated by an instrument in writing signed by a majority of the
Trustees, or by the affirmative vote of the holders of a majority of the Shares
of the Trust or Series outstanding and entitled to vote, at any meeting of
Shareholders. Upon the termination of the Trust or any Series,
(i) the Trust or any Series shall carry on no business except for the
purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust or
Series and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust or Series shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust or
Series, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property or
property of the Series to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its
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liabilities, and do all other acts appropriate to liquidate its business;
and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or property of the Series, in cash
or in kind or partly each, among the Shareholders of the Trust or Series
according to their respective rights.
(b) After termination of the Trust or any Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders of the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by a
vote of the holders of a majority of the Shares outstanding and entitled to
vote. Amendments shall be effective upon the taking of action as provided in
this section or at such later time as shall be specified in the applicable vote
or instrument. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary to conform this Declaration to
the requirements of applicable federal or state laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code (including those provisions of such Code relating to the retention
of the exemption from federal income tax with respect to dividends paid by the
Trust out of interest income received on Municipal Bonds), but the Trustees
shall not be liable for failing so to do. The Trustees may also amend this
Declaration without the vote or consent of Shareholders if they deem it
necessary or desirable to change the name of the Trust or to make any other
changes in the Declaration which do not materially adversely affect the rights
of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust or Series by reducing the amount
payable thereon upon liquidation of the Trust or Series or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of the Trust or Series
outstanding and entitled to vote. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
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(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property or the property of any Series, including its good
Will, upon such terms and conditions and for such consideration when and as
authorized at any meeting of Shareholders of the Trust or Series called for the
purpose by the affirmative vote of the holders of a majority of the Shares of
the Trust or Series.
Section 8.5. Incorporation. With the approval of the holders of a majority
of the Shares of the Trust or any Series outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or the
property of any Series or to carry on any business in which the Trust or the
Series shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property or the property of any Series to any such
corporation, trust, association or organization in exchange for the Shares or
securities thereof or otherwise, and to lend money to, subscribe for the Shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust or the Series holds or is
about to acquire shares or any other interest. The trustees may also cause a
merger or consolidation between the Trust or any Series or any successor thereto
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
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<PAGE>
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
internal laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the internal laws of said State without regard to the choice of law
rules thereof.
Section 10.3. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the
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Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 21st
day of October, 1996
/s/ Linda C. Coughlin
-----------------------------------
Linda C. Coughlin, as Trustee and
not Individually
Two International Place
Boston, MA 02110
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk October 21, 1996
Then personally appeared the above-named Linda C. Coughlin, who
acknowledged the foregoing instrument to be her free act and deed.
Before me,
/s/ Joan E. Shaughnessy
-----------------------------------
Notary Public
My commission expires:_____________
JOAN E. SHAUGHNESSY
Notary Public
My Commission Expires April 8, 1999
Amended and Restated
BY-LAWS
OF
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
October 21, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings and Other
Purposes 2
Section 4. Proxies 3
Section 5. Action Without Meeting 4
ARTICLE IV - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 5
ARTICLE IV.A - HONORARY TRUSTEES 6
Section 1. Number; Qualification; Term: 6
Section 2. Duties; Remuneration: 6
ARTICLE V - COMMITTEES 7
Section 1. Executive and Other Committees 7
Section 2. Meetings, Quorum and Manner of Acting 8
ARTICLE VI - OFFICERS 8
Section 1. General Provisions 8
Section 2. Term of Office and Qualifications 9
Section 3. Removal 9
Section 4. Chairperson of the Board 10
Section 5. Vice-Chairperson of the Board 10
Section 6. Powers and Duties of the President 10
Section 7. Powers and Duties of Executive Vice
Presidents and Vice Presidents 11
Section 8. Powers and Duties of the Treasurer 11
Section 9. Powers and Duties of the Secretary 12
Section 10. Powers and Duties of Assistant Treasurers 12
Section 11. Powers and Duties of Assistant
Secretaries 13
Section 12. Compensation of Officers and Trustees and
Members of the Advisory Board 13
i
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TABLE OF CONTENTS (continued)
Page
----
ARTICLE VII - FISCAL YEAR 13
ARTICLE VIII - SEAL 14
ARTICLE IX - WAIVERS OF NOTICE 14
ARTICLE X - CUSTODY OF SECURITIES 15
Section 1. Employment of a Custodian 15
Section 2. Action Upon Termination of Custodian
Agreement 15
Section 3. Provisions of Custodian Agreement 15
Section 4. Central Certificate System 17
Section 5. Acceptance of Receipts in Lieu of
Certificates 17
ARTICLE XI - AMENDMENTS 18
ARTICLE XII - INSPECTION OF BOOKS 18
ARTICLE XIII - MISCELLANEOUS 19
ii
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BY-LAWS
OF
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Amended and Restated Declaration of Trust of AARP Managed
Investment Portfolios Trust dated February 8, 1985, as amended from time to
time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees from time to time may
determine.
<PAGE>
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as provided
in the Declaration of Trust at such place within or without the Commonwealth of
Massachusetts as the Trustees shall designate. The holders of a majority of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his/her address as recorded on the
register of the Trust mailed at least ten (10) days and not more than ninety
(90) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his/her current address or if a
written waiver of notice, executed before or after the meeting by the
Shareholder or his/her attorney thereunto authorized, is filed with the records
of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
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<PAGE>
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
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of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he/she may vote by his/her guardian or such other
person appointed or having such control, and such vote may be given in person or
by proxy.
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairperson, or by any
one of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
4
<PAGE>
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or sent by facsimile or other
communication leaving a visual record to each Trustee at his/her business
address, or personally delivered to him/her at least one day before the meeting.
Such notice may, however, be waived by any Trustee. Notice of a meeting need not
be given to any Trustee if a written waiver of notice, executed by him/her
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him/her. A notice or waiver of notice need
not specify the purpose of any meeting. Meetings can be held in conjunction with
investment companies having the same investment adviser or an affiliated
investment adviser. The Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all persons
participating in the meeting shall be deemed to have been present at a place
designated by the Trustees at the meeting. Any action required or permitted to
be taken at any meeting of the Trustees may be taken by the Trustees without a
meeting if all the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
5
<PAGE>
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE IV.A
HONORARY TRUSTEES
Section 1. Number; Qualification; Term: The Trustees may from time to time
designate and appoint one or more qualified persons to the position of "honorary
trustee." Each honorary trustee shall serve for such term as shall be specified
in the resolution of the Trustees appointing him or her until his or her earlier
resignation or removal. An honorary trustee may be removed from such position
with or without cause by the vote of a majority of the Trustees given at any
regular meeting or special meeting of the Board.
Section 2. Duties; Remuneration: An honorary trustee shall be invited to
attend all meetings of the Trustees but shall not be present at any portion of a
meeting from which the honorary trustee shall have been excluded by vote of the
Trustees. An honorary trustee shall not be a "Trustee" or "officer" within the
meaning of the Trust's Declaration of Trust or of these By-Laws, shall not be
deemed to be a member of an "advisory board" within the meaning of the
Investment Company Act of 1940, as amended from time to time, shall not hold
6
<PAGE>
himself or herself out as any of the foregoing, and shall not be liable to any
person for any act of the Trust. Notice of special meetings may be given to an
honorary trustee but the failure to give such notice shall not affect the
validity of any meeting or the action taken thereat. An honorary trustee shall
not have the powers of a Trustee, may not vote at meetings of the Trustees and
shall not take part in the operation or governance of the Trust. An honorary
trustee shall not receive any compensation but may, in the discretion of the
Trustees, be reimbursed for expenses incurred in attending meetings of the
Trustees or otherwise.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
7
<PAGE>
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a Chairperson of any such Committee. In the
absence of such designation, the Committee may elect its own Chairperson.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
8
<PAGE>
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents. The Trustees by vote of a
majority of all the Trustees may elect, but shall not be required to elect, from
their own number a Chairperson and Vice-Chairperson of the Trustees.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall each hold office until his/her successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. An
Executive Vice President or Vice President and the Treasurer or Assistant
Treasurer or an Executive Vice President or a Vice President and the Secretary
or Assistant Secretary may be the same person, but the offices of Executive Vice
President or Vice President and Secretary and Treasurer shall not be held by the
same person. The President shall hold no other office. Except as above provided,
any two offices may be held by the same person. Any officer may be, but none
need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office. Any officer or agent appointed by an officer or
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<PAGE>
Committee may be removed with or without cause by such appointing officer or
Committee.
Section 4. Chairperson of the Board. The Chairperson of the Board, if there
be such an officer, shall be the senior officer of the Trust, preside at all
shareholders' meetings and at all meetings of the Board of Trustees, and shall
be ex officio a member of all committees of the Board of Trustees. The
Chairperson of the Board shall also call meetings of the Trustees and of any
committee thereof when he/she deems it necessary. He/She shall have such other
powers and perform such other duties as may be assigned to him/her from time to
time by the Board of Trustees.
Section 5. Vice-Chairperson of the Board. The Vice-Chairperson of the
Board, if there be such an officer, shall, in the absence of the Chairperson,
preside at all shareholders' meetings and at all meetings of the Board of
Trustees and shall have such powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Trustees.
Section 6. Powers and Duties of the President. The President, in the
absence of the Chairperson and Vice Chairperson, if any, may call meetings of
the Trustees and of any Committee thereof when he/she deems it necessary and, in
the absence of the Chairperson and Vice-Chairperson, if any, may preside at all
meetings of the Shareholders and at all meetings of the Trustees. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he/she shall at
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<PAGE>
all times exercise a general supervision and direction over the affairs of the
Trust. He/She shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as he/she
may find necessary to transact the business of the Trust. He/She shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him/her by the
Trustees.
Section 7. Powers and Duties of Executive Vice Presidents and Vice
Presidents. In the absence or disability of the President, the Executive Vice
President or, if there be more than one Executive Vice President, any Executive
Vice President designated by the Trustees shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. In the event no Executive Vice President is able so to serve, the Vice
President or, if there be more than one Vice President, any Vice President
designated by the Trustees shall perform all the duties and may exercise any of
the powers of the President, subject to the control of the Trustees. Each
Executive Vice President and Vice President shall perform such duties as may be
assigned to him/her from time to time by the Trustees and the President.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He/She shall deliver
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all funds of the Trust which may come into his/her hands to such Custodian as
the Trustees may employ pursuant to Article X of these By-Laws. He/She shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and he/she shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him/her by the Trustees. The Treasurer shall give a bond
for the faithful discharge of his/her duties, if required so to do by the
Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he/she shall have custody of the seal of the Trust;
he/she shall have charge of the Share transfer books, lists and records unless
the same are in the charge of the Transfer Agent. He/She shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these By-Laws and as required by law; and subject to these By-Laws, he/she
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him/her by the Trustees.
Section 10. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
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Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him/her by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his/her duties, if required so
to do by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him/her by the Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he/she is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of October in
each year and shall end on the thirtieth day of September in each year,
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provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by facsimile or other communication leaving a
visual record for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or facsimile or other such communications
company with instructions that it be telegraphed, cabled or sent by facsimile or
other communication leaving a visual record.
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ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $2,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trusts shall function
without a custodian or shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding voting securities, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.
Section 3. Provisions of Custodian Agreement. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled,
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and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio
securities to another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve or to a
successor Custodian; and the Trustees shall cause all funds included in the
Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as
collateral for loans of portfolio securities, or in payment of expenses,
including management compensation, and liabilities of the Trust, including
distributions to shareholders, or to a successor Custodian. Notwithstanding
anything to the contrary in these By-Laws, upon receipt of proper
instructions, which may be standing instructions, the custodian may deliver
funds in the following cases. In connection with repurchase agreements, the
Custodian shall transmit, prior to receipt on behalf of the Trust of any
securities or other property, funds from the Trust's custodian account to a
special custodian approved by the Trustees of the Trust, which funds shall
be used to pay for securities to be purchased by the Trust subject to the
Trust's obligation to sell and the seller's obligation to repurchase such
securities. In such case, the securities shall be held in the custody of
the special custodian. In connection with the Trust's purchase or sale of
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financial futures contracts, the Custodian shall transmit, prior to receipt
on behalf of the Trust of any securities or other property, funds from the
Trust's custodian account in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of commodities
exchanges and brokers.
Section 4. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its Custodian.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
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Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted by (a) vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no By-Law may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what time and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the Shareholders; and no Shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by laws or
authorized by the Trustees or by resolution of the Shareholders.
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ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust and
no partner, officer, director or shareholder of the Investment Adviser of the
Trust (as that term is defined in the Investment Company Act of 1940) or of the
underwriter of the Trust, and no Investment Adviser or underwriter of the Trust,
shall take long or short positions in the securities issued by the Trust.
(1) The foregoing provisions shall not prevent the underwriter from
purchasing Shares from the Trust if such purchased are limited (except for
reasonable allowances for clerical errors, delays and errors of
transmission and cancellation of orders) to purchase for the purpose of
filling orders for such Shares received by the underwriter, and provided
that orders to purchase from the Trust are entered with the Trust or the
Custodian promptly upon receipt by the underwriter of purchase orders for
such Shares, unless the underwriter is otherwise instructed by its
customer.
(2) The foregoing provision shall not prevent the underwriter from
purchasing Shares of the Trust as agent for the account of the Trust.
(3) The foregoing provisions shall not prevent the purchase from the
Trust or from the underwriter of Shares issued by the Trust, by any
officer, or Trustee of the Trust or by any partner, officer, director or
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shareholder of the Investment Adviser of the Trust or of the underwriter of
the Trust at the price available to the public generally at the moment of
such purchase, or as described in the then currently effective Prospectus
of the Trust.
(4) The foregoing shall not prevent the Investment Adviser, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the Shares
under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the Investment Adviser of the Trust, or the
underwriter of the Trust, or to the Investment Adviser of the Trust or to the
underwriter of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Declaration, but this requirement
shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the Investment Adviser or underwriter of the
Trust to deal for or on behalf of the Trust with himself/herself as principal or
agent, or with any partnership, association or corporation in which he/she has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or partners, officers or directors of the
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Investment Adviser or underwriter of the Trust from buying, holding or selling
shares in the Trust, or from being partners, officers or directors or otherwise
financially interested in the Investment Adviser or underwriter of the Trust;
(b) purchases or sales of securities or other property by the Trust from or to
an affiliated person or to the Investment Advisers or underwriters of the Trust
if such transaction is exempt from the applicable provisions of the 1940 Act;
(c) purchases of investments for the portfolio of the Trust or sales of
investments owned by the Trust through a security dealer who is, or one or more
of whose partners, shareholders, officers or directors is, an officer or Trustee
of the Trust, or a partner, officer or director of the Investment Adviser or
underwriter of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser or underwriter of the Trust, if
only customary fees are charged for services to the Trust; (e) sharing
statistical research, legal and management expenses and office hire and expenses
with any other investment company in which an officer or Trustee of the Trust,
or a partner, officer or director of the Investment Adviser or underwriter of
the Trust, is an officer or director or otherwise financially interested.
21
AARP Managed Investment Portfolios Trust
345 Park Avenue
New York, New York 10154
February 1, 1997
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Ladies and Gentlemen:
AARP Managed Investment Portfolios Trust (the "Trust") has been
established as a Massachusetts business trust to engage in the business of an
investment company. The Trust's Declaration of Trust provides that the Trust's
Trustees may, from time to time, determine that the shares of beneficial
interests of the Trust ("Shares") shall be issued in separate series of the
Trust ("Series"). There are currently two Series. Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Trustees. The Trust has selected you to act as the sole investment manager, for
each of the two Series of the Trust and for each Series that may subsequently be
authorized by the Trustees (unless otherwise provided at the time and subject to
such conditions and amendments to this Agreement as shall mutually be agreed
upon), and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Trust in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus ("Prospectus") and Statement of Additional Information
("SAI") included in the Trust's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement") filed by the Trust under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to you by the Trust. The Trust has also furnished
you with copies properly certified or authenticated of each of the following
additional documents related to the Trust:
(a) Declaration of Trust dated October 21, 1996, as amended to
date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees and the initial shareholder
selecting you as investment manager and approving the form of this Agreement.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Trust,
you shall provide to each Series of the Trust continuing investment management
of its assets in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable provisions of
the 1940 Act and the Internal Revenue Code of 1986, as amended (the "Code"),
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Series so that each Series will qualify as a regulated
investment company under Subchapter M of the Code and regulations issued
thereunder. Each Series shall have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Series in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
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act upon the advice of counsel to the Trust or counsel to you. You shall also
make available to the Trust promptly upon request all of the Series' investment
records and ledgers as are necessary to assist the Trust to comply with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by each Series and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
each Series' policies as expressed in the Registration Statement. You shall
determine what portion of each Series' portfolio shall be invested in securities
and other assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of each Series and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of each Series such office space and facilities as each Series may require
for its reasonable needs, and you (or one or more of your affiliates designated
by you) shall render to the Trust administrative services on behalf of each
Series necessary for operating as an investment company and not provided by
persons not parties to this Agreement including, but not limited to, preparing
reports to and meeting materials for the Trust's Board of Trustees and reports
and notices to Series shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Trust
or Series operations; preparing and making filings with the Securities and
Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by each Series' transfer agent; assisting
in the preparation and filing of each Series' federal, state and local tax
returns; preparing and filing each Series' federal excise tax return pursuant to
Section 4982 of the Code; providing assistance with investor and public
relations matters; monitoring the valuation of portfolio securities, the
calculation of net asset value; monitoring the registration, qualification, or
other requirements regarding the offering of Shares of each Series under
applicable federal and state securities laws; maintaining or causing to be
maintained for each Series all books, records and reports and any other
information required under the 1940 Act, to the extent that such books, records
and reports and other information are not maintained by each Series' custodian
or other agents of each Series; assisting in establishing the accounting
policies of each Series; assisting in the resolution of accounting issues that
may arise with respect to each Series' operations and consulting with each
Series' independent accountants, legal counsel and each Series' other agents as
necessary in connection therewith; establishing and monitoring each Series'
operating expense budgets; reviewing each Series' bills; processing the payment
of bills that have been approved by an authorized person; assisting each Series
in determining the amount of dividends and distributions available to be paid by
each Series to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent and the custodian with such information as is required for such parties to
effect the payment of dividends and distributions; and otherwise assisting the
Trust as it may reasonably request in the conduct of each Series' business,
subject to the direction and control of the Trust's Board of Trustees. Nothing
in this Agreement shall be deemed to shift to you or to diminish the obligations
of any agent of the Series or any other person not a party to this Agreement
which is obligated to provide services to each Series.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including each Series'
share of payroll taxes) who are affiliated persons of you, and you shall make
available or cause to be made available, without expense to the Trust, the
services of such of your directors, officers and employees as may duly be
elected officers of the Trust, subject to their individual consent to serve and
to any limitations imposed by law. You shall provide, or cause to be provided,
at your expense the portfolio management services described in section 2 hereof
and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Trust or a Series
other than those specifically allocated to you in this section 4 and under the
terms of the Special Servicing Agreement dated February 1, 1997 ("Special
Servicing Agreement") among you, the Trust, AARP Financial Services Company,
Scudder Fund Accounting Corporation, Scudder Service Corporation, Scudder Trust
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Company, Scudder Investor Services, Inc. and the various funds in which the
Portfolios may invest (the "Underlying Funds"). In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Trust's Trustees and
officers as are directors, officers or employees of you or of your partners
whose services may be involved, for the following expenses of the Trust or its
Series: organization expenses of the Series (including out-of-pocket expenses,
but not including your overhead or employee costs); fees payable to you and to
any other Series advisers or consultants; legal expenses; auditing and
accounting expenses; maintenance of books and records which are required to be
maintained by each Series' custodian or other agents of the Trust; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by each Series in connection
with membership in investment company trade organizations; fees and expenses of
each Series' custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Series; expenses relating
to investor and public relations; expenses and fees of registering, qualifying
or complying with requirements to permit the offering of Shares of each Series
for sale; interest charges, bond premiums and other insurance expense; freight,
insurance and other charges in connection with the shipment of the Series'
portfolio securities; the compensation and all expenses (specifically including
travel expenses relating to Trust business) of Trustees, officers and employees
of the Trust who are not affiliated persons of you; brokerage commissions or
other costs of acquiring or disposing of any portfolio securities of the Series;
expenses of printing and distributing reports, notices and dividends to
shareholders; expenses of printing and mailing Prospectuses and SAIs of the
Series and supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; costs of shareholders'
and other meetings; and travel expenses (or an appropriate portion thereof) of
Trustees and officers of the Trust who are directors, officers or employees of
you to the extent that such expenses relate to attendance at meetings of the
Board of Trustees of the Trust or any committees thereof or advisors thereto
held outside of Boston, Massachusetts or New York, New York.
Except as provided in the Special Servicing Agreement, you shall not be
required to pay expenses of any activity which is primarily intended to result
in sales of Shares of each Series if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of each Series' Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Series shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Series (or some other party)
shall assume some or all of such expenses, or (iii) such expenses are required
to be borne by Scudder pursuant to section 4 of the Investment Company Services
Agreement, dated as of October 9, 1984, among American Association of Retired
Persons, AARP/Scudder Financial Management Company, and us. You shall be
required to pay such of the foregoing sales expenses as are not required to be
paid by the principal underwriter pursuant to the underwriting agreement or are
not permitted to be paid by the Series (or some other party) pursuant to such a
plan.
5. Management Fee and Payment of Certain Expenses. As you expect to
receive additional compensation under the investment management agreements
currently between you and the Underlying Funds due to growth in the assets of
the Underlying Funds resulting from investments in the Underlying Funds by the
Portfolios, you shall not be paid a fee for services described in sections 3 & 4
hereof.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Series, neither you nor any of your partners, directors,
officers or employees will act as a principal or agent or receive any
commission. You or your agent shall arrange for the placing of all orders for
the purchase and sale of portfolio securities and other investments for a
Series' account with brokers or dealers selected by you in accordance with Trust
or Series policies as expressed in the Registration Statement. If any occasion
should arise in which you give any advice to clients of yours concerning the
Shares of a Series, you will act solely as investment counsel for such clients
and not in any way on behalf of a Series.
Your services to the Trust and each Series pursuant to this Agreement
are not to be deemed to be exclusive and it is understood that you may render
investment advice, management and other services to others. In acting under this
Agreement, you shall be an independent contractor and not an agent of the Trust
or a Series.
7. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable for any error of judgment or mistake of law or for any
loss suffered by the Trust or its Series in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Trust, each
Series or its shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties or by reason of your reckless disregard of your obligations and duties
hereunder. Any person, even though also employed by you, who may be or become an
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employee of and paid by the Trust or a Series shall be deemed, when acting
within the scope of his or her employment by the Trust or Series, to be acting
in such employment solely for the Trust or Series and not as your employee or
agent.
8. Duration and Termination of this Agreement. This Agreement shall
remain in force until August 31, 1998, and with respect to each Series, from
year to year thereafter, but only so long as such continuance is specifically
approved at least annually (i) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval and (ii) by the Trustees of the Trust, or, with respect to each Series,
by vote of a majority of the outstanding voting securities of such Series of the
Trust. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may, on 60 days' written notice, be terminated at any
time without the payment of any penalty, by the Trustees, by vote of a majority
of the outstanding voting securities of each Series (or of a Series, with
respect only to that Series), or by you. This Agreement shall automatically
terminate in the event of its assignment, provided that an assignment to a
corporate successor to all or substantially all of your business or to a
wholly-owned subsidiary of such corporate successor which does not result in a
change of actual control or management of your business shall not be deemed to
be an assignment for the purposes of this Agreement.
9. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to any Series until approved by the vote of a majority of
the outstanding securities of that Series and by the Trustees, including a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
10. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "AARP
Managed Investment Portfolios Trust" refers to the Trustees under the
Declaration collectively as Trustees and not as individuals or personally, and
that no shareholder of any Series of the Trust, or Trustee, officer, employee or
agent of the Trust, shall be subject to claims against or obligations of the
Trust or of any Series of the Trust to any extent whatsoever, but that the Trust
estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of any Series of the Trust pursuant to this Agreement shall be
limited in all cases to the Series and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
any Series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of a Series, under the
Declaration are separate and distinct from those of any and all other Series.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their constriction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definition
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"interested person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with and governed by the
laws of New York.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
AARP MANAGED INVESTMENT PORTFOLIOS
TRUST
By: ________________________________
President
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The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER, STEVENS & CLARK, INC.
By: ________________________________
Managing Director
5
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
Two International Place
Boston, MA 02110
February 1, 1997
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Underwriting Agreement
Dear Ladies and Gentlemen:
AARP Managed Investment Portfolios Trust (hereinafter called the "Trust")
is a business trust organized under the laws of Massachusetts and is engaged in
the business of an investment company. The authorized capital of the Trust
consists of shares of beneficial interest, with par value of $0.01 per share
("Shares"), currently divided into two portfolios ("Portfolio"); however, shares
may be divided into additional Portfolios of the Trust and the Portfolios may be
terminated from time to time. The Trust has selected you to act as principal
underwriter (as such term is defined in Section 2(a)(29) of the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Shares and you are
willing to act as such principal underwriter and to perform the duties and
functions of underwriter in the manner and on the terms and conditions
hereinafter set forth. Accordingly, the Trust hereby agrees with you as follows:
1. Delivery of Documents. The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, dated October 21, 1996, as amended
to date.
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Board of Trustees of the Trust selecting you as
principal underwriter and approving this form of Agreement.
<PAGE>
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
The Trust will furnish you promptly with properly certified or
authenticated copies of any registration statement filed by it with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
(the "1933 Act") or the 1940 Act, together with any financial statements and
exhibits included therein, and all amendments or supplements thereto hereafter
filed.
2. Registration and Sale of Additional Shares. The Trust will from time
to time use its best efforts to register under the 1933 Act such number of
Shares not already so registered as you may reasonably be expected to sell on
behalf of the Trust. You and the Trust will cooperate in taking such action as
may be necessary from time to time to comply with requirements applicable to the
sale of Shares by you or the Trust in any states mutually agreeable to you and
the Trust, and to maintain such compliance. This Agreement relates to the issue
and sale of Shares that are duly authorized and registered under the 1933 Act
and available for sale by the Trust, including redeemed or repurchased Shares if
and to the extent that they may be legally sold and if, but only if, the Trust
sees fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7 hereof
and to such minimum purchase requirements as may from time to time be currently
indicated in the Trust's prospectus or statement of additional information, you
are authorized to sell as agent on behalf of the Trust Shares authorized for
issue and registered under the 1933 Act. You may also purchase as principal
Shares for resale to the public. Such sales will be made by you on behalf of the
Trust by accepting unconditional orders to purchase Shares placed with you by
investors and such purchases will be made by you only after acceptance by you of
such orders. The sales price to the public of Shares shall be the public
offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by the Trust and registered under the
1933 Act, provided that you may in your discretion refuse to accept orders for
Shares from any particular applicant.
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5. Sale of Shares by the Trust. Unless you are otherwise notified by the
Trust, any right granted to you to accept orders for Shares or to make sales on
behalf of the Trust or to purchase Shares for resale will not apply to (i)
Shares issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or otherwise,
of all or substantially all of the assets of any investment company or
substantially all the outstanding shares of any such company, and (ii) to Shares
that may be offered by the Trust to shareholders of the Trust by virtue of their
being such shareholders.
6. Public Offering Price. All Shares sold to investors by you will be
sold at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined, in the manner
provided in the Trust's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Trust reserves the
right to suspend sales and your authority to accept orders for Shares on behalf
of the Trust if, in the judgment of a majority of the Board of Trustees or a
majority of the Executive Committee of such Board, if such body exists, it is in
the best interests of the Trust to do so, such suspension to continue for such
period as may be determined by such majority; and in that event, no Shares will
be sold by you on behalf of the Trust while such suspension remains in effect
except for Shares necessary to cover unconditional orders accepted by you before
you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the
Trust may be bought or sold by or through you and you may participate directly
or indirectly in brokerage commissions or "spread" in respect to transactions in
portfolio securities of any Portfolio of the Trust; provided, however, that all
sums of money received by you as a result of such purchases and sales or as a
result of such participation must, after reimbursement of your actual expenses
in connection with such activity, be paid over by you to or for the benefit of
the Trust.
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9. Expenses. (a) The Trust will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of any
registration statement (including a prospectus and statement of
additional information) under the 1933 Act or the 1940 Act, or both,
and any amendments or supplements thereto that may be made from time
to time;
(2) in connection with the registration and qualification of Shares for
sale, or compliance with other conditions applicable to the sale of
Shares in the various jurisdictions in which the Trust shall determine
it advisable to sell such Shares (including registering the Trust as a
broker or dealer or any officer of the Trust or other person as agent
or salesman of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy
statement, report, prospectus or other communication to shareholders
of the Trust in their capacity as such;
(4) of preparing, setting in type, printing and mailing prospectuses
annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares resulting from the
acceptance by you of orders to purchase Shares placed with you by
investors, including the expenses of printing and mailing
confirmations of such purchase orders and the expenses of printing and
mailing a prospectus included with the confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in satisfaction of
redemption or repurchase requests, unless such expenses are paid for
by the investor or shareholder who initiates the transaction;
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(9) of the cost of printing and postage of business reply envelopes sent
to Trust shareholders;
(10) of one or more CRT terminals connected with the computer facilities of
the transfer agent other than the portion allocated to you in this
paragraph 9;
(11) permitted to be paid or assumed by the Trust pursuant to a plan
("12b-1 Plan"), if any, adopted by the Trust in conformity with the
requirements of Rule 12b-1 under the 1940 Act ("Rule 12b-1") or any
successor rule, notwithstanding any other provision to the contrary
herein;
(12) of the expense of setting in type, printing and postage of the
periodic newsletter to shareholders other than the portion allocated
to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you as shareholder
representatives other than the portion allocated to you in this
paragraph 9.
b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports prepared for
your use in connection with the offering of Shares to the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of Shares to
the public;
(3) of advertising in connection with the offering of Shares to the
public;
(4) incurred in connection with your registration as a broker or dealer or
the registration or qualification of your officers, trustees, agents
or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines, allocated to
you on the basis of use by investors (but not shareholders) who
request information or prospectuses;
(6) of that portion of the expenses of setting in type, printing and
postage of the periodic newsletter to shareholders attributable to
promotional material included in such newsletter at your request
concerning investment companies other than the Trust or concerning the
Trust to the extent you are required to assume the expense thereof
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<PAGE>
pursuant to paragraph 9(b)(8), except such material which is limited
to information, such as listings of other investment companies and
their investment objectives, given in connection with the exchange
privilege as from time to time described in the Trust's prospectus;
(7) of that portion of the salaries and overhead of persons employed by
you as shareholder representatives attributable to the time spent by
such persons in responding to requests from prospective investors and
shareholders for information about the Trust;
(8) of any activity which is primarily intended to result in the sale of
Shares, unless a 12b-1 Plan shall be in effect which provides that the
Trust shall bear some or all of such expenses, in which case the Trust
shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the
computer facilities of the transfer agent attributable to your use of
such terminal(s) to gain access to such of the transfer agent's
records as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Trust in the performance of your duties hereunder. You shall be responsible
for your own conduct and the employment, control and conduct of your agents and
employees and for injury to such agents or employees or to others through your
agents or employees. You assume full responsibility for your agents and
employees under applicable statutes and agree to pay all employee taxes
thereunder.
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12. Indemnification. You agree to indemnify and hold harmless the Trust
and each of its trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which the Trust or such trustees, officers, or controlling person
may become subject under such Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by you or any of your employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement
(including a prospectus or statement of additional information) covering Shares
or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such statement or
omission was made in reliance upon information furnished to the Trust by you, or
(iii) may be incurred or arise by reason of your acting as the Trust's agent
instead of purchasing and reselling Shares as principal in distributing the
Shares to the public, provided, however, that in no case (i) is your indemnity
in favor of a trustee or officer or any other person deemed to protect such
trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) are
you to be liable under your indemnity agreement contained in this paragraph with
respect to any claim made against the Trust or any person indemnified unless the
Trust or such person, as the case may be, shall have notified you in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Trust or
upon such person (or after the Trust or such person shall have received notice
of such service on any designated agent), but failure to notify you of any such
claim shall not relieve you from any liability which you may have to the Trust
or any person against whom such action is brought otherwise than on account of
your indemnity agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so elect, to assume
the defense of any suit brought to enforce any such liability, but if you elect
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<PAGE>
to assume the defense, such defense shall be conducted by counsel chosen by you
and satisfactory to the Trust, to its officers and trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the event
that you elect to assume the defense of any such suit and retain such counsel,
the Trust, such officers and trustees or controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but, in case you do not elect to assume the
defense of any such suit, you will reimburse the Trust, such officers and
trustees or controlling person or persons, defendant or defendants in such suit
for the reasonable fees and expenses of any counsel retained by them. You agree
promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
The Trust agrees to indemnify and hold harmless you and each of your
trustees and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such trustees, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Trust or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement (including a prospectus or statement
of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to you by the Trust; provided, however, that in no case
(i) is the Trust's indemnity in favor of you, a trustee or officer or any other
person deemed to protect you, such trustee or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claims made against you or any
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<PAGE>
such trustee, officer or controlling person unless you or such trustee, officer
or controlling person, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon you or
upon such trustee, officer or controlling person (or after you or such trustee,
officer or controlling person shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Trust will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if the Trust elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to you,
your trustees, officers, or controlling person or persons, defendant or
defendants in the suit. In the event that the Trust elects to assume the defense
of any such suit and retain such counsel, you, your trustees, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, it will
reimburse you or such trustees, officers or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Trust agrees promptly to notify you of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any Shares.
13. Authorized Representations. The Trust is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained in a registration statement (including
a prospectus or statement of additional information) covering Shares, as such
registration statement and prospectus may be amended or supplemented from time
to time.
You are not authorized to give any information or to make any
representations on behalf of the Trust or in connection with the sale of Shares
other than the information and representations contained in a registration
statement (including a prospectus or statement of additional information)
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<PAGE>
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
underwriter (as such term is defined in the 1940 Act) for the Trust.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon the date first written above and will remain in effect
until August 31, 1998 and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the trustees who are not interested persons of you or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval, and by
vote of the Board of Trustees or of a majority of the outstanding voting
securities of the Trust. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty, by the Board of
Trustees of the Trust, by a vote of a majority of the outstanding voting
securities of the Trust, or by you. This Agreement will automatically terminate
in the event of its assignment. In interpreting the provisions of this paragraph
14, the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person", "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Trust should at any time deem it
necessary or advisable in the best interests of the Trust that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Trust may terminate this
Agreement forthwith. If you should at any time request that a change be made in
the Trust's Declaration of Trust or By-laws or in its methods of doing business,
in order to comply with any requirements of federal law or regulations of the
Securities and Exchange Commission or of a national securities association of
which you are or may be a member relating to the sale of shares of the Trust,
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<PAGE>
and the Trust should not make such necessary change within a reasonable time,
you may terminate this Agreement forthwith.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Very truly yours,
AARP MANAGED INVESTMENT PORTFOLIOS
TRUST
By: _____________________________
Linda C. Coughlin
President
The foregoing agreement is hereby accepted as of the foregoing date
thereof.
SCUDDER INVESTOR SERVICES, INC.
By: ____________________________
David S. Lee
President
11
TRANSFER AGENCY AND SERVICE AGREEMENT
between
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
and
SCUDDER SERVICE CORPORATION
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of February 1, 1997, by and between AARP MANAGED
INVESTMENT PORTFOLIOS TRUST, a Massachusetts business trust, having its
principal office and place of business at Two International Place, Boston,
Massachusetts 02110 (the "Trust") and SCUDDER SERVICE CORPORATION, a
Massachusetts corporation, having its principal office and place of business at
Two International Place, Boston, Massachusetts 02110 (the "Agent").
WHEREAS, the Trust desires to appoint the Agent as a transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and the Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment: Duties of the Agent.
1.01. Subject to the terms and conditions set forth in this Agreement, the
Trust hereby employs and appoints the Agent to act as, and the Agent agrees to
act as, transfer agent for the Trust's authorized and issued shares of
beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Trust ("Shareholders") and set out in a currently effective
prospectus ("Prospectus") or currently effective statement of additional
information ("Statement of Additional Information") of the Trust, including
without limitation any periodic investment plan or periodic withdrawal program.
The term "Trust" shall be deemed to apply to each series of Shares, unless the
context otherwise requires.
1.02. The Agent agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Trust and the Agent, the Agent shall:
(i) Receive for acceptance orders for the purchase of Shares and
promptly deliver payment and appropriate documentation
thereof to the duly authorized custodian of the Trust (the
"Custodian").
(ii) Pursuant to orders for the purchase of Shares, record the
purchase of the appropriate number of Shares in the
Shareholder's account and, if requested by the Shareholder,
and if the Trustees of the Trust have authorized the
issuance of stock certificates, issue a certificate for the
appropriate number of Shares;
(iii) Pursuant to instructions provided by Shareholders, reinvest
income dividends and capital gain distributions;
(iv) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(v) Provide an appropriate response to Shareholders with respect
to all correspondence and rejected trades;
(vi) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vii) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
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(viii) Prepare and transmit payments for dividends and
distributions declared by the Trust;
(ix) Report abandoned property to the various states as
authorized by the Trust in accordance with policies and
principles agreed upon by the Trust and Agent;
(x) Maintain records of account for and advise the Trust and its
Shareholders as to the foregoing;
(xi) Record the issuance of Shares of the Trust and maintain an
accurate control book with respect to Shares pursuant to SEC
Rule 17Ad-10(e) under the Securities Exchange Act of 1934.
The Agent shall also provide the Trust on a regular basis
with the total number of Shares which are issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Trust;
(xii) Respond to all telephone inquiries from Shareholders or
their authorized representatives regarding the status of
Shareholder accounts;
(xiii) Respond to correspondence from Shareholders or their
authorized representatives regarding the status of
Shareholder accounts or information related to Shareholder
accounts; and
(xiv) Perform all Shareholder account maintenance updates.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Agent shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program). The detailed definition, frequency, limitations and
associated costs (if any) set out in the attached fee schedule, include but are
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxy statements and proxies, receiving and tabulating
proxies, mailing shareholder reports and prospectuses to current Shareholders,
and withholding all applicable taxes (including but limited to all withholding
taxes imposed under the U.S. Internal Revenue Code and Treasury regulations
promulgated thereunder, and applicable state and local laws to the extent
consistent with good industry practice), preparing and filing U.S. Treasury
Department Forms 1099, Form 941 when applicable and other appropriate forms
required with respect to dividends, distributions and taxes withheld on
Shareholder accounts by federal authorities for all registered Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information, (ii) provide
daily and monthly a written report and access to information which will enable
the Trust to monitor the total number of Shares sold and the aggregate public
offering price thereof in each State by the Trust, added by sales in each State
of the registered Shareholder or dealer branch office, as defined by the Trust,
and (iii) if directed by the Trust, (A) each confirmation of the purchase which
establishes a new account will be accompanied by a Prospectus and any amendment
or supplement thereto, and (B) a Prospectus, and any amendment or supplement
thereto, will be mailed to each Shareholder at the time a confirmation of the
first purchase by such Shareholder, subsequent to the effective date of a
Prospectus or any amendment or supplement thereto, is mailed to such
Shareholders.
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(c) In addition, the Trust shall (i) identify to the Agent in writing
those transactions and assets to be treated as exempt from blue sky reporting to
the Trust for each state and (ii) approve those transactions to be included for
each state on the blue sky program prior to activation and thereafter monitor
the daily activity for each state. The responsibility of the Agent for the
Trust's blue sky State registration and compliance status is solely limited to
the initial establishment of transactions subject to blue sky compliance by the
Trust and the reporting of such transactions as provided above.
(d) The Agent shall utilize a system to identify all share transactions
which involve purchase and redemption orders that are processed at a time other
than the time of the computation of net asset value per share next computed
after receipt of such orders, and shall compute the net effect upon the company
of such transactions so identified on a daily and cumulative basis.
(e) The Agent shall supply to the Trust from time to time, as mutually
agreed upon, reports summarizing the transactions identified pursuant to
paragraph (d) above, and the daily and cumulative net effects of such
transactions, and shall advise the Trust at the end of each month of the net
cumulative effect at such time. The Agent shall promptly advise the Trust if at
any time the cumulative net effect exceeds a dollar amount equivalent to 1/2 of
1 cent per outstanding Share.
(f) The Agent shall make appropriate arrangements with banking
institutions in connection with effecting timely redemptions of shares by the
Write-a-Check redemption feature described in the Trust's Prospectus and
Statement of Additional Information, if applicable.
1.03. The Agent's offices, personnel and computer and other equipment shall
be adequate to perform the services contemplated by this Agreement for the Trust
and for other investment companies advised by Scudder, Stevens & Clark, Inc. and
its affiliates. The Agent shall notify the Trust in the event that it proposes
to provide such services for any investment companies or other entities other
than those managed by Scudder, Stevens & Clark, Inc. and its affiliates.
Article 2. Fees and Expenses
2.01. For the performance by the Agent pursuant to this Agreement, the
Agent shall be paid an annual maintenance fee for each Shareholder account as
set out in a fee schedule agreed to by both parties in writing. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Trust
and the Agent, as approved by a majority of the Trustees who are not "interested
persons" (as defined in the Investment Trust Act of 1940) of the Trust.
2.02. In addition to the fee paid under Section 2.01 above, the Agent shall
be reimbursed for out-of-pocket expenses or advances incurred by the Agent for
the items set out in the fee schedule agreed to by both parties in writing. In
addition, any other expenses incurred by the Agent at the request or with the
consent of the Trust will be reimbursed.
2.03. All reimbursable expenses shall be paid promptly, the terms, method
and procedures for which are detailed on the fee schedule agreed to by both
parties in writing. Postage for mailing of dividends, proxy statements, Trust
reports and other mailings to all Shareholder accounts shall be advanced to the
Agent at least two (2) days prior to the mailing date of such materials.
2.04. The Trust may engage accounting firms or other consultants to
evaluate the fees paid to, and quality of services rendered by, the Agent
hereunder, and such firms or other consultants shall be provided access by the
Agent to such information as may be reasonably required in connection with such
engagement. The Agent will give due consideration and regard to the
recommendations to the Trust in connection with such engagement, but shall not
be bound thereby.
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2.05 The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement dated February 1, 1997, among the
Trust, the Agent, AARP Financial Services Company, Scudder, Stevens & Clark,
Inc., Scudder Fund Accounting Corporation, Scudder Investor Services, Inc.,
Scudder Trust Company and the various funds in which the Portfolios of the Trust
may invest (the "Special Servicing Agreement").
3. Representations and Warranties of the Agent.
The Agent represents and warrants to the Trust that:
3.01. It is a corporation duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.02. It has the legal power and authority to carry on its business in The
Commonwealth of Massachusetts.
3.03. It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04. All requisite proceedings have been taken to authorize it to enter
into and perform this Agreement.
3.05. It is duly registered as a transfer agent under Section 17A of the
Securities Exchange Act of 1934, as amended.
3.06. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4. Representations and Warranties of the Trust.
The Trust represents and warrants to the Agent that:
4.01. It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02. It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4.03. All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.04. It is an investment company registered under the Investment Company
Act of 1940, as amended.
4.05. A registration statement under the Securities Act of 1933 is
currently effective (or will be effective prior to commencement by the Agent of
performance of services hereunder) and will remain effective, and appropriate
state securities law filings have been made and/or will continue to be made,
with respect to all Shares of the Trust being offered for sale.
Article 5. Indemnification
5.01. To the extent that the Agent acts in good faith and without
negligence or willful misconduct, the Agent shall not be responsible for, and
the Trust shall indemnify and hold the Agent harmless from and against, any and
all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of the Agent or its agents or subcontractors required to
be taken and correctly executed pursuant to this Agreement.
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<PAGE>
(b) The Trust's lack of good faith, negligence or willful misconduct or
which arise out of the breach of any representation or warranty of the
Trust hereunder.
(c) The reasonable reliance on or use by the Agent or its agents or
subcontractors of information, records and documents or services which
are received or relied upon by the Agent or its agents or
subcontractors and furnished to it or performed by or on behalf of the
Trust.
(d) The reasonable reliance on, or the carrying out by the Agent or its
agents or subcontractors of, any written instructions or requests of
the Trust.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such state,
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state, unless such violation is the result of the
Agent's negligent or willful failure to comply with the provisions of
Section 1.02(b) of this Agreement.
5.02. The Agent shall indemnify and hold the Trust harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to the Agent's refusal
or failure to comply with the terms of this Agreement (whether as a result of
the acts or omissions of the Agent or of its agents or subcontractors) or
arising out of the lack of good faith, negligence or willful misconduct of the
Agent, or its agents or subcontractors, or arising out of the breach of any
representation or warranty of the Agent hereunder.
5.03. At any time the Agent may apply to any officer of the Trust for
instructions, and may consult with outside legal counsel with respect to any
matter arising in connection with the services to be performed by the Agent
under this Agreement, and the Agent and its agents or subcontractors shall not
be liable and shall be indemnified by the Trust for any action reasonably taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Agent, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Trust, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to the Agent or its agents or subcontractors by
machine-readable input, telex, CRT data entry or other similar means authorized
by the Trust, and shall not be held to have notice of any change of authority of
any person, until receipt by the Agent of written notice thereof from the Trust.
The Agent, its agents and subcontractors shall also be protected and indemnified
in recognizing stock certificates which are reasonably believed to bear the
proper manual or facsimile signatures of the officers of the Trust, and the
proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04. In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable to the other for
any damages resulting from such failure to perform or otherwise from such
causes.
5.05. Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement, but each shall
be liable for general damages resulting from breach of this Agreement. For the
purposes of this Agreement, the term "general damages" shall include but shall
not be limited to:
(a) All costs of correcting errors made by the Agent or its agents or
subcontractors in Trust shareholder accounts, including the expense of
computer time, computer programming and personnel;
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(b) Amounts which the Trust is liable to pay to a person (or his
representative) who has purchased or redeemed, or caused to be
repurchased, Shares at a price which is higher, in the case of a
purchase, or lower, in the case of a redemption or repurchase, than
correct net asset value per Share, but only to the extent that the
price at which such Shares were purchased, redeemed or repurchased was
incorrect as a result of either (i) one or more errors caused by the
Agent or its agents or subcontractors in processing shareholder
accounts of the Trust or (ii) the posting by the Agent of the
purchase, redemption or repurchase of Shares subsequent to the time
such purchase, redemption or repurchase should have been posted
pursuant to laws and regulations applicable to open-end investment
companies, if the delay is caused by the Agent, its agents or
subcontractors;
(c) The value of dividends and distributions which were not credited on
Shares because of the failure of the Agent or its agents or
subcontractors to timely post the purchase of such Shares;
(d) The value of dividends and distributions which were incorrectly
credited on Shares because of the failure of the Agent or its agents
or subcontractors to timely post the redemption or repurchase of such
Shares;
(e) The value of dividends and distributions, some portion of which was
incorrectly credited, or was not credited, on Shares because of the
application by the Agent or its agents or subcontractor of an
incorrect dividend or distribution factor or otherwise;
(f) Penalties and interest which the Trust is required to pay because of
the failure of the Agent or its agents or subcontractors to comply
with the information reporting and withholding (including backup
withholding) requirements of the Internal Revenue Code of 1986, as
amended, and applicable Treasury regulations thereunder, applicable to
Trust Shareholder accounts: and
(g) Interest in accordance with the laws of The Commonwealth of
Massachusetts on any damages from the date of the breach of this
Agreement.
5.06. In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim or loss for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion or loss, and shall keep
the other party advised with respect to all developments concerning such claim.
The party who may be required to indemnify shall have the option to participate
at its expense with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
5.07. Losses incurred by the Trust arising from the Agent effecting a share
transaction at a trade (pricing) date prior to the processing date shall be
governed by a separate agreement between the Agent and the Trust.
The obligations of the parties hereto under this Article 5 shall survive
the termination of this Agreement.
Article 6. Covenants of the Trust and the Agent.
6.01. The Trust shall promptly furnish to the Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Trust authorizing the appointment of the Agent and the execution and
delivery of this Agreement.
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(b) A copy of the Declaration of Trust and By-Laws of the Trust and all
amendments thereto.
6.02. The Agent hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account, of such certificates,
forms and devices.
6.03. The Agent shall at all times maintain insurance coverage which is
reasonable and customary in light of its duties hereunder and its other
obligations and activities.
6.04. The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, (the
"Act") and the Rules thereunder, the Agent agrees that all such records prepared
or maintained by the Agent relating to the services to be performed by the Agent
hereunder and those records that the Trust and the Agent agree from time to time
to be the records of the Trust are the property of the Trust and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Trust on and in accordance with
its request. Records surrendered hereunder shall be in machine readable form,
except to the extent that the Agent has maintained such a record only in paper
form.
6.05. The Agent and the Trust agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.06. In case of any requests or demands for the inspection of the
Shareholders records of the Trust, the Agent will endeavor to notify the Trust
and to secure instructions from an authorized officer of the Trust as to such
inspection. The Agent reserves the right, however, to exhibit the Shareholders
records to any person whenever it is reasonably advised by its counsel that it
may be held liable for the failure to exhibit the Shareholders records to such
person.
6.07. The Agent agrees to maintain or provide for redundant facilities or a
compatible configuration and to maintain or provide for backup of the Trust's
master and input files and to store such files in a secure off-premises location
so that in the event of a power failure or other interruption of whatever cause
at the location of such files the Trust's records are maintained intact and
transactions can be processed at another location.
6.08. The Agent acknowledges that the Trust, as a registered investment
company under the Act, is subject to the provisions of the Act and the rules and
regulations thereunder, and that the offer and sale of the Trust's Shares are
subject to the provisions of federal and state laws and regulations applicable
to the offer and sale of securities. The Trust acknowledges that the Agent is
not responsible for the Trust's compliance with such laws and regulations. If
the Trust advises the Agent that a procedure of the Agent related to the
discharge of its obligations hereunder has or may have the effect of causing the
Trust to violate any of such laws or regulations, the Agent shall use its best
efforts to develop a mutually agreeable alternative procedure which does not
have such effect.
Article 7. Termination of Agreement.
7.01. This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02. Should the Trust exercise its right to terminate, all reasonable
out-of-pocket expenses of the Agent associated with the movement of records and
materials required by this Agreement will be borne by the Trust. Additionally,
the Agent reserves the right to charge for any other reasonable expenses
associated with such termination.
8
<PAGE>
Article 8. Additional Series.
8.01. In the event that the Trust establishes one or more series of Shares
with respect to which it desires to have the Agent render services as transfer
agent under the terms hereof, it shall so notify the Agent in writing, and
unless the Agent objects in writing to providing such services, the term "Trust"
hereunder, unless the context otherwise requires, shall be deemed to include
each such series of Shares. All recordkeeping and reporting shall be done
separately for each series. Unless the Trust and the Agent agree to an amended
fee schedule, the fee schedule attached hereto shall apply to each series
separately.
Article 9. Assignment.
9.01. Except as provided in Section 9.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party. The parties agree that the Special Servicing
Agreement does not constitute an assignment for purposes of this Section.
9.02. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
9.03. The Agent may, with notice to and consent on the part of the Trust,
which consent shall not be unreasonably withheld, subcontract for the
performance of certain services under this Agreement to qualified service
providers, which shall be registered as transfer agents under Section 17A of the
Securities Exchange Act of 1934 if such registration is required; provided,
however, that the Agent shall be as fully responsible to the Trust for the acts
and omissions of any subcontractor as it is for its own acts and omissions.
Article 10. Amendment.
10.01. This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors or Trustees of each party.
Article 11. Massachusetts Law to Apply.
11.01. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 12. Form N-SAR.
12.01. The Agent shall maintain such records as shall enable the Trust to
fulfill the requirements of Form N-SAR or any successor report which must be
filed with the Securities and Exchange Commission.
Article 13. Merger of Agreement.
13.01. This Agreement and the Special Servicing Agreement constitute the
entire agreement between the parties hereto and supersede any prior agreement
with respect to the subject hereof or thereof whether oral or written.
Article 14. Counterparts.
14.01. This Agreement may be executed by the parties hereto in any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
Article 15. Limitation of Liability of the Trustees and the Shareholders.
It is understood and expressly stipulated that none of the Trustees, officers,
agents, or shareholders of the Trust shall be personally liable hereunder. The
name of the Trust is the designation of the Trustees for the time being under
9
<PAGE>
the Trust's Declaration of Trust, as the same is now stated or may hereafter be
amended, and all persons dealing with the trust must look solely to the property
of the trust for the enforcement of any claims against the trust as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the trust. No series of the Trust, if any,
shall be liable for the obligations of any other series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
[SEAL] AARP MANAGED INVESTMENT PORTFOLIOS
TRUST
By:_____________________________________
President
[SEAL] SCUDDER SERVICE CORPORATION
By:_____________________________________
President
10
<PAGE>
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
AARP Investment Program
Annual service charge for each account
- --------------------------------------
1/12th of the annual service charge shall be charged and payable each month. It
will be charged for any account which at any time during the month had a share
balance in the fund. The minimum monthly charge to any portfolio is $1,500.00
per relationship for an omnibus account, or $10.00 per subaccount, whichever is
greater.
Regular Accounts Retirement Accounts
---------------- -------------------
Money Market Funds $ 25.00 $ 28.00
Non-Money Market Funds 20.50 23.50
Other fees
Closed Account 4.00 5.00
New Account Setup Charge 7.50 7.50**
Maintenance Charge 5.00 5.00**
National Securities Clearing Corporation
(NSCC) Charge per Transaction 1.00 1.00
Information Access:
VRU Access Charge per Call 0.20 0.20
Internet To be determined To be determined
** = Applies to retail retirement accounts
Out of pocket expenses shall be reimbursed by the fund to Scudder Service
Corporation or paid directly by the fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the fund
Bank check clearing and processing charges
This schedule covers representative assisted services offered from Monday
through Friday, 8:00 a.m. to 8:00 p.m. EST.
<PAGE>
Payment
- -------
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
On behalf of the Funds listed on
Attachment A: Scudder Service Company
By:_________________________ By:______________________________
Daniel Pierce
President President
Date: Date:
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<PAGE>
ATTACHMENT A
TRANSFER AGENCY AND SERVICE AGREEMENT
MONEY MARKET FUND SERVICE ACCOUNT
Money Market Accounts
AARP High Quality Money Fund
AARP High Quality Tax Free Money Fund
NON-MONEY MARKET FUND SERVICE ACCOUNT
Monthly Income Funds
AARP Diversified Income Portfolio
AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Bond Fund for Income
AARP Insured Tax Free General Bond Fund
Quarterly Distribution Funds
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
Annual Distribution Funds
AARP Blue Chip Index Fund
AARP Diversified Growth Portfolio
AARP Global Growth Fund
AARP Capital Growth Fund
AARP International Stock Fund
AARP Small Company Stock Fund
dated as of February 1, 1997
3
SCUDDER, STEVENS & CLARK, INC.
345 Park Avenue
New York, New York 10154
February 1, 1997
AARP Financial Services Corp.
c/o American Association of Retired Persons
601 E Street, N.W.
Washington, DC 20049
Member Services Agreement
Ladies and Gentlemen:
Reference is made to the Omnibus Agreement, dated as of October 9, 1984,
between American Association of Retired Persons ("AARP") and us; the Partnership
Agreement, dated as of October 9, 1984, between you and us; and the Investment
Company Service Agreement (the "ICS Agreement"), dated as of October 9, 1984,
among AARP, AARP/Scudder Financial Management Company (the "Partnership") and
us. Capitalized terms used herein without definition shall have the meanings
assigned thereto in the ICS Agreement.
This Agreement constitutes the agreement required to be entered into by you
and us pursuant to Section 5 of the ICS Agreement and referred to as the "Member
Services Agreement" therein.
We hereby agree with you as follows:
1. You agree to provide us with such advice and services relating to
investment by members of AARP in the AARP Managed Investment Portfolios Trust
established as a Massachusetts business trust to engage in the business of an
investment management company (the "Fund"), and any separate portfolios of the
Fund, created from time to time by action of the Trustees (each a "Portfolio"
and, collectively, the "Portfolios"), as we shall from time to time reasonably
request, including advice and services as to product design of the Fund and
Portfolios, the development of new products and services for the Fund and
Portfolios and such other information as will assist us in tailoring the Fund
and Portfolios best to meet the investment objectives and needs of the AARP
membership, based upon your analysis thereof. You agree to contribute or cause
to be contributed certain resources to the Fund and Portfolios to assist in the
organization and operation of the Fund and Portfolios, including "seed money"
for the Fund and assistance in monitoring our activities and the services
provided by Scudder and other agents of the Fund and Portfolios. You agree to
make available certain of your directors, officers and staff to assist in the
operation of the Fund and Portfolios, and, subject to their individual consent,
to serve as directors and officers of the Fund. You also agree to facilitate
communications with and the provision of services to the AARP membership by
analyzing the needs of AARP members and recommending the appropriate services
and methods of communication for the purpose of disseminating information and
providing services relating to the Account and the Services. For this purpose,
you will arrange that there be made available to us, in accordance with AARP's
policies and practices, membership lists of AARP and of AARP's publications and
access to advertising space in AARP publications. Further, AARP and we have
agreed to grant to the Partnership the right and license to do business under
the name "AARP/Scudder Financial Management Company," and each of AARP and we
have agreed to grant to the Fund a license to use certain of our respective
service marks.
2. As you expect to receive additional compensation under the Member
Services Agreement currently between you and the Underlying Funds, you shall not
be paid a fee for services described in Section 1 hereof.
3. Nothing herein shall be construed as constituting you as an agent of us
or of the Fund.
4. This Agreement shall become effective as of the date hereof and shall
remain in effect, with respect to each Portfolio of the Fund, until August 31,
1998 and shall continue in effect thereafter with respect to each Portfolio so
long as such continuance is specifically approved at least annually by the
affirmative vote of (i) a majority of the members of the Trustees of the Fund
who are not interested persons of the Fund, you or us, cast in person at a
meeting called for the purpose of voting on such approval; and (ii) the Trustees
of the Fund or, with respect to each Portfolio of the Fund, the holders of a
<PAGE>
majority of the outstanding voting securities of such Portfolio. In the event
that the Trustees or security holders of fewer than all of the Portfolios of a
Fund, fail to approve this Agreement in the manner described in the preceding
sentence, this Agreement shall remain in effect only with respect to such
Portfolio as do so approve this Agreement. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any penalty by
us, or by the Trustees to the Fund or by vote of holders of a majority of the
outstanding voting securities of each Portfolio, as to a Fund, or the Portfolio,
as to that Portfolio, or by you.
5. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by either party hereto. It may be amended as to any
Portfolio by mutual agreement, but only after authorization of such amendment by
the affirmative vote of (i) the holders of a majority of the outstanding voting
securities of such Portfolio; and (ii) the Trustees of the Fund, including a
majority of the Trustees of the Fund who are not interested persons of the Fund,
the Partnership, you or us, cast in person at a meeting called for the purpose
of voting on such approval.
6. This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the Investment Company Act of 1940, as amended. As used
herein the terms "interested persons," "assignments" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act of 1940, as amended.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart hereof and return the same to us.
Very truly yours,
SCUDDER, STEVENS & CLARK, INC.
By: ___________________________
Managing Director
The foregoing Agreement is hereby accepted as of the date first written above.
AARP FINANCIAL SERVICES CORP.
By: ________________________________
Title:
Accepted:
AARP MANAGED INVESTMENT
PORTFOLIOS TRUST
By: ________________________________
Title: President
Service Mark License Agreement
SERVICE MARK LICENSE AGREEMENT, dated as of February 1, 1997 among each of
Scudder, Stevens & Clark, Inc. ("Scudder"), American Association of Retired
Persons ("AARP"), on the one hand, and AARP Managed Investment Portfolios Trust
(the "Trust"), on the other hand.
W I T N E S S E T H :
WHEREAS, Scudder and AARP Financial Services Corp., a wholly-owned
subsidiary corporation of AARP, are general partners of AARP/Scudder Financial
Services Company (the "Partnership"), pursuant to a partnership agreement, dated
as of October 9, 1984 (the "Partnership Agreement");
WHEREAS, Scudder, AARP and the Partnership have entered into an investment
company service agreement, dated as of October 9, 1984 (the "Investment Company
Service Agreement");
WHEREAS, Scudder and the Trust have entered into an Investment Management
Agreement dated as of February 1, 1997 (the "Management Agreement");
WHEREAS, Scudder has assigned all of its right, title and interest in the
"Scudder" and "Scudder, Stevens & Clark" names and marks (hereinafter being
referred to both individually and collectively as the "Scudder Marks"), to
Scudder Trust Company ("STC"), a subsidiary of Scudder, which are now being used
in connection with a wide variety of investment management and advisory services
performed by Scudder and with investment company activities conducted by
investment companies advised and managed by Scudder;
WHEREAS, STC has granted an exclusive license to Scudder to use and
sublicense the Scudder Marks;
<PAGE>
WHEREAS, AARP is the owner of various service marks including but not
limited to "The American Association of Retired Persons" and "AARP" (hereinafter
being referred to both individually and collectively as the "AARP Marks"), which
are now being used in connection with a wide variety of services sponsored by
AARP and offered by AARP to its membership;
WHEREAS, the Trust wishes to use the Scudder Marks and AARP Marks in
connection with its business as an investment company in connection with various
financial services and financial products (the "Business") throughout the United
States of America (the "Territory"), and is willing to comply with Scudder's and
AARP's quality standards and other conditions hereinafter set forth;
WHEREAS, Scudder and AARP are respectively willing to grant to the Trust
the non-exclusive right to use the Scudder Marks and AARP Marks upon the terms
and conditions hereinafter set forth; and
WHEREAS, Scudder, AARP, AARP Cash Investment Funds, AARP Growth Trust, AARP
Income Trust and AARP Tax Free Income Trust have entered into a similar Service
Mark License Agreement dated as of March 20, 1996.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions contained herein, it is agreed as follows:
ARTICLE I
Subject to the conditions herein set forth, each of Scudder and AARP hereby
grants to the Trust a royalty-free, non-exclusive and non-transferable license
to use, respectively, the Scudder Marks and AARP Marks as service marks in
connection with the Business in the Territory. In the case of the Scudder Marks,
the license granted herein is a sublicense as permitted by STC. The licenses
granted hereby do not include the right to sub-license.
2
<PAGE>
ARTICLE II
The Trust acknowledges the exclusive right of Scudder as exclusive
licensee, and the exclusive ownership by STC and AARP, of the Scudder Marks and
AARP Marks, respectively, and the validity of the Scudder Marks and AARP Marks
and of any registrations obtained respectively by Scudder or AARP therefor. The
Trust agrees that it will never contest, either directly or indirectly, the
exclusive rights of Scudder as exclusive licensee, and exclusive ownership by
STC and AARP, of the Scudder Marks or AARP Marks. To the extent, if any, that
any rights to the Scudder Marks or AARP Marks might otherwise be deemed to
accrue to the Trust by operation of law by virtue of the Trust's use of the
Scudder Marks or AARP Marks while this license shall be in effect (or for any
other reason), it is hereby agreed that all such rights will revert respectively
to STC and AARP on termination of this Agreement. The Trust agrees that it will
not use or encourage its representatives, agents or shareholders to use any word
or symbol confusingly similar to the Scudder Marks or AARP Marks or make use of
the Scudder Marks or AARP Marks other than in accordance with the provisions of
this Agreement. The Trust acknowledges that it has no rights in the Scudder
Marks or AARP Marks or any goodwill associated therewith, other than those set
forth herein. All uses to be made by the Trust of the Scudder Marks and AARP
Marks in the Territory shall inure to the benefit of STC and AARP, respectively.
ARTICLE III
All rights granted to the Trust under this Agreement are subject to the
condition that each of Scudder and AARP be reasonably satisfied at all times
that the Trust is conforming to high standards of ethics, prudence and integrity
in the operation of its business as an investment company and to such other
reasonable standards and specifications as may be set by Scudder and AARP, with
respect to the Scudder Marks and AARP Marks, respectively, and communicated to
the Trust from time to time.
3
<PAGE>
ARTICLE IV
The Trust shall use the Scudder Marks and AARP Marks only in accordance
with recognized good service mark and trademark practice and shall not use them
in such a manner as to affect adversely the validity of the registrations or
applications for registration of the Scudder Marks or AARP Marks, as the case
may be, or the exclusive rights of Scudder as exclusive licensee, or exclusive
ownership by STC and AARP thereof or so as to depreciate the goodwill attached
thereto. The Trust agrees that it shall at its expense include notices of the
rights of STC and AARP, respectively, to the Scudder Marks or AARP Marks or any
other information or notices that may be required by law or by Scudder or AARP
on any document or other item bearing any of the Scudder Marks or AARP Marks
over which the Trust has control. The Trust agrees at its expense to take all
measures which Scudder or AARP may require to avoid any confusion of the Scudder
Marks or AARP Marks with any other trademarks or service marks owned or used by
the Trust.
The Trust shall submit to Scudder and AARP, respectively, upon their
written request, free of charge, and in the manner specified by them,
representative samples of any agreements, stationery, forms, advertisements,
brochures, documents or any other items of any nature whatsoever which bear any
of the Scudder Marks or AARP Marks and which are used by the Trust.
ARTICLE V
The Trust shall promptly notify Scudder or AARP, as the case may be, of any
charge of service or trademark infringement, unfair trade competition or service
or trademark dilution made against the Trust or its representatives as the
result of the use respectively of the Scudder Marks or AARP Marks licensed
herein, and Scudder or AARP, as the case may be, will assume the defense and
expense of proceedings pursuant to any such charge. The Trust agrees to
4
<PAGE>
cooperate with Scudder and AARP in any such proceedings, including without
limitation, allowing Scudder or AARP, as the case may be, to carry on litigation
in the Trust's name on behalf of Scudder or AARP, as the case may be.
ARTICLE VI
Each of Scudder and AARP may assign its respective rights and obligations
under this Agreement with respect to any or all of the Scudder Marks or AARP
Marks to any party to which it assigns, respectively, any of its rights in the
Scudder Marks or AARP Marks. The Trust shall not assign any of its respective
rights or obligations under this Agreement, and any attempt to assign shall be
void.
ARTICLE VII
This Agreement shall terminate upon the termination of any of the
Management Agreements, the Partnership Agreement or the Investment Company
Service Agreement, or if STC terminates Scudder's license to the Scudder Marks.
The Trust, within 60 days after receipt of notice of any such termination,
unless otherwise agreed to by Scudder as to the Scudder Marks or by AARP as to
the AARP Marks, shall cease making any further use of any of the Scudder Marks
or AARP Marks or any mark confusingly similar thereto and shall, at its expense,
delete the Scudder Marks and AARP Marks from all media, including forms,
advertisements, stationery, brochures and documents, in which they appear,
within such 60 day period.
ARTICLE VIII
Neither of Scudder or AARP makes any warranties in connection with the
Scudder Marks or AARP Marks. Each of Scudder and AARP in its sole discretion may
cease its use of, and terminate its rights to, one or more of, respectively, the
5
<PAGE>
Scudder Marks or AARP Marks without penalty, and each of Scudder and AARP agree
to promptly notify the Trust of its respective intention to do so. Each of
Scudder and AARP in its sole discretion may adopt new service marks.
ARTICLE IX
This Agreement shall be governed by the laws of the State of New York. The
parties hereto agree that all matters of dispute that are to be settled by
litigation, negotiation or arbitration at any time by reason of the terms of
this Agreement shall be negotiated, tried, litigated, conducted and/or
arbitrated, as the case may be, in New York, New York.
ARTICLE X
This instrument shall constitute the entire agreement between the parties
with respect to the use of the Scudder Marks and AARP Marks. Modifications of
this Agreement may be effected only by a written instrument signed by all
parties.
IN WITNESS WHEREOF, Scudder, AARP and the Trust have caused this Agreement
to be executed by their duly authorized officers or representatives.
SCUDDER, STEVENS & CLARK, INC.
By______________________________
Title: Managing Director
AMERICAN ASSOCIATION OF RETIRED PERSONS
By______________________________
Title: Horace B. Deets
Executive Director
6
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS
TRUST
By____________________________
Title: President
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 1st day of February, 1997 between AARP Managed
Investment Portfolios Trust (the "Fund"), on behalf of AARP Diversified Growth
Portfolio (hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in Boston, Massachusetts
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement as
the Portfolio's fund accounting agent, and as such FUND ACCOUNTING shall:
a. Maintain and preserve all accounts, books, financial records and other
documents as are required of the Fund under Section 31 of the
Investment Company Act of 1940 (the "1940 Act") and Rules 31a-1, 31a-2
and 31a-3 thereunder, applicable federal and state laws and any other
law or administrative rules or procedures which may be applicable to
the Fund on behalf of the Portfolio, other than those accounts, books
and financial records required to be maintained by the Fund's
custodian or transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its business
as a registered open-end management investment company. All such books
and records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and shall be
surrendered promptly upon request of, duly authorized officers of the
Fund. All such books and records shall at all times during regular
business hours be open for inspection, upon request of duly authorized
officers of the Fund, by employees or agents of the Fund and employees
and agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund
or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's net asset value per share, and, if applicable,
its public offering price and/or its daily dividend rates and money
market yields, in accordance with Section 3 of the Agreement and
<PAGE>
notify the Fund and such other persons as the Fund may reasonably
request of the net asset value per share, the public offering price
and/or its daily dividend rates and money market yields.
Section 2. Calculation of Fees for Other Service Providers
Pursuant to the Special Servicing Agreement dated February 1, 1997, among
the Fund, AARP Financial Services Company, Scudder Service Corporation,
Scudder, Stevens & Clark, Inc., FUND ACCOUNTING, Scudder Trust Company,
Scudder Investor Services, Inc. and the various funds in which the Fund may
invest (the "Underlying Funds") (the "Special Servicing Agreement"), FUND
ACCOUNTING shall calculate the amount of the Fund's fees and expenses due
to the Fund's custodian, underwriter, accounting agent, transfer and
dividend disbursing agent pursuant to agreements in place between the Fund
and each respective service provider, as well as any other amounts due
persons as a result of the Fund's operations under any other agreement or
otherwise ("Expenses"), excluding, however, non-recurring and extraordinary
expenses (such non-recurring and extraordinary expenses include: the fees
and costs of actions, suits or proceedings and any penalties or damages in
connection therewith, to which the Fund and/or Portfolio may incur
directly, or may incur as a result of its legal obligation to provide
indemnification to its officers, directors and agents; the fees and costs
of any governmental investigation and any fines or penalties in connection
therewith; and any federal, state or local tax, or related interest
penalties or additions to tax, incurred, for example, as a result of the
Fund's failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file any
required tax returns or other filings). FUND ACCOUNTING shall also
calculate the estimated savings to the Underlying Funds as a result of the
Fund's operation ("Savings") and determine the level of excess savings with
respect to each Underlying Fund ("Savings less Expenses"). FUND ACCOUNTING
shall then deliver proper instructions to each of the Underlying Funds
and/or Scudder, Stevens & Clark, Inc. as to the amount of payments to be
made to the Fund's service providers or other persons pursuant to the
Special Servicing Agreement.
Section 3. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's Registration
Statement, as amended or supplemented from time to time (hereinafter
referred to as the "Registration Statement"); (b) the resolutions of the
Board of Trustees of the Fund at the time in force and applicable, as they
may from time to time be delivered to FUND ACCOUNTING, and (c) Proper
Instructions from such officers of the Fund or other persons as are from
time to time authorized by the Board of Trustees of the Fund to give
instructions with respect to computation and determination of the net asset
value. FUND ACCOUNTING may use one or more external pricing services,
including broker-dealers, provided that an appropriate officer of the Fund
shall have approved such use in advance.
Section 4. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
<PAGE>
FUND ACCOUNTING shall compute the Portfolio's net asset value, including
net income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time or
times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in the
Registration Statement.
Section 5. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions, including
but not limited to:
a. The manner and amount of accrual of expenses to be recorded on the
books of the Portfolio;
b. The source of quotations to be used for such securities as may not be
available through FUND ACCOUNTING's normal pricing services;
c. The value to be assigned to any asset for which no price quotations
are readily available;
d. If applicable, the manner of computation of the public offering price
and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to rely
upon, as conclusive proof of any fact or matter required to be ascertained
by it hereunder, a certificate, letter or other instrument signed by an
authorized officer of the Fund or any other person authorized by the Fund's
Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of Counsel
(which may be Counsel for the Fund) at the reasonable expense of the
Portfolio and shall be without liability for any action taken or thing done
in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 6. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or other
instrument or telephone call reasonably believed by FUND ACCOUNTING to be
genuine and to have been properly made or signed by any authorized officer
of the Fund or person certified to FUND ACCOUNTING as being authorized by
the Board of Trustees. The Fund, on behalf of the Portfolio, shall cause
oral instructions to be confirmed in writing. Proper Instructions may
include communications effected directly between electro-mechanical or
<PAGE>
electronic devices as from time to time agreed to by an authorized officer
of the Fund and FUND ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the appropriate
person(s) within FUND ACCOUNTING a copy of the Registration Statement as in
effect from time to time. FUND ACCOUNTING may conclusively rely on the
Fund's most recently delivered Registration Statement for all purposes
under this Agreement and shall not be liable to the Portfolio or the Fund
in acting in reliance thereon.
Section 7. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND ACCOUNTING
shall not be liable under this Agreement for any error of judgment or
mistake of law made in good faith and consistent with the foregoing
standard of care, provided that nothing in this Agreement shall be deemed
to protect or purport to protect FUND ACCOUNTING against any liability to
the Fund, the Portfolio or its shareholders to which FUND ACCOUNTING would
otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold harmless
FUND ACCOUNTING and its employees, agents and nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including
reasonable attorneys' fees) incurred or assessed against them in connection
with the performance of this Agreement, except such as may arise from their
own negligent action, negligent failure to act or willful misconduct. The
foregoing notwithstanding, FUND ACCOUNTING will in no event be liable for
any loss resulting from the acts, omissions, lack of financial
responsibility, or failure to perform the obligations of any person or
organization designated by the Fund to be the authorized agent of the
Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military power,
war, insurrection or nuclear fission, fusion or radioactivity shall be
limited to the use of FUND ACCOUNTING's best efforts to recover the
Portfolio's records determined to be lost, missing or destroyed.
Section 8. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing by the two parties. FUND ACCOUNTING shall be entitled to recover
its reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
<PAGE>
The payment of amounts due and payable hereunder shall be subject to the
terms of the Special Servicing Agreement.
Section 9. Amendment and Termination
This Agreement shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by an instrument in writing delivered
or mailed to the other party. Such termination shall take effect not sooner
than ninety (90) days after the date of delivery or mailing of such notice
of termination. Any termination date is to be no earlier than four months
from the effective date hereof. Upon termination, FUND ACCOUNTING will turn
over to the Fund or its designee and cease to retain in FUND ACCOUNTING
files, records of the calculations of net asset value and all other records
pertaining to its services hereunder; provided, however, FUND ACCOUNTING in
its discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 10. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be deemed
to be exclusive, and it is understood that FUND ACCOUNTING may perform fund
accounting services for others. In acting under this Agreement, FUND
ACCOUNTING shall be an independent contractor and not an agent of the Fund
or the Portfolio.
Section 11. Limitation of Liability for Claims
The Fund's Declaration of Trust, dated October 21, 1996 as amended to date
(the "Declaration"), a copy of which, together with any amendments thereto,
is on file in the Office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the name "AARP Managed Investment Portfolios
Trust" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder of
the Fund or the Portfolio, or Trustee, officer, employee or agent of the
Fund shall be subject to claims against or obligations of the Trust or of
the Portfolio to any extent whatsoever, but that the Trust estate only
shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of liability
as set forth in the Declaration and FUND ACCOUNTING agrees that the
obligations assumed by the Fund and/or the Portfolio under this Agreement
shall be limited in all cases to the Portfolio and its assets, and FUND
ACCOUNTING shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Fund or the Portfolio or any other
series of the Fund, or from any Trustee, officer, employee or agent of the
Fund. FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of any
and all other series of the Fund.
<PAGE>
Section 12. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such other
person or at such other address as such party may from time to time specify
in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Managed Investment Portfolios Trust -
AARP Diversified Growth Portfolio
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 13. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the consent
of the Fund as authorized or approved by resolution of its Board of
Trustees. The parties agree that the Special Servicing Agreement does not
constitute an assignment for purposes of this section.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive of
or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both parties and
annexed hereto, but no such provisions shall be deemed to be an amendment
of this Agreement.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP MANAGED INVESTMENT PORTFOLIOS TRUST, on
behalf of
AARP Diversified Growth Portfolio
By:_____________________________
President
SCUDDER FUND ACCOUNTING CORPORATION
By:_____________________________
Vice President
7
SPECIAL SERVICING AGREEMENT
THIS SPECIAL SERVICING AGREEMENT ("Agreement"), made as of this 1st day of
February, 1997, by and among AARP Managed Investment Portfolios Trust
("Managed"), each fund which is listed on Appendix A (as such Appendix may be
amended from time to time) and which evidences its agreement to be bound hereby
by executing a copy of this Agreement (such funds hereinafter called the
"Underlying Funds"), AARP Financial Services Company, Scudder, Stevens & Clark,
Inc. ("SSC"), Scudder Service Corporation ("Scudder Service"), Scudder Fund
Accounting Corporation ("SFAC"), Scudder Trust Company ("STC") and Scudder
Investor Services, Inc. ("SIS").
W I T N E S S E T H:
WHEREAS, Managed and each of the Underlying Funds are registered as
open-end, diversified or non-diversified management investment companies under
the Investment Company Act of 1940, as amended;
WHEREAS, SSC has entered into a Member Services Agreement with AARP
Financial Services Company for the provision of advice and services to SSC
relating to investment by members of the American Association of Retired Persons
in Managed and the Underlying Funds;
<PAGE>
WHEREAS, Managed and the Underlying Funds have each entered into agreements
with Scudder Service ("Service Agreements") under which Scudder Service provides
Managed and the Underlying Funds transfer agent services and various participant
account, participant employer record keeping and shareholder services in return
for such compensation as is set forth therein;
WHEREAS, Managed has entered into an agreement with SFAC, and each of the
Underlying Funds has either entered into an agreement, or intends to enter into
an agreement, with SFAC ("Sub-Accounting Agreements") for the provision of
sub-accounting and other services in return for such compensation as is set
forth therein;
WHEREAS, Managed has entered into an agreement with STC, ("Record-Keeping
Agreements") for the provision of record-keeping and other services in
connection with certain retirement and employee benefit plans in return for such
compensation as is set forth therein;
WHEREAS, Managed has entered into an underwriting agreement with SIS
("Underwriting Agreements") for the provision of distribution services in
connection with Managed's shares;
2
<PAGE>
WHEREAS, Managed has entered into an Investment Management Agreement with
SSC ("IMA") dated February 1, 1997 for the provision of investment management
services. Under the IMA, SSC will be responsible for the payment of various
Managed expenses, pursuant to this agreement.
WHEREAS, Managed has entered into an agreement with State Street Bank and
Trust Company ("State Street"), and each of the Underlying Funds has entered
into an agreement with either State Street or Brown Brothers Harriman & Co.
(together referred to as "Custodian Agreements") under which the Custodian is to
furnish Managed and the Underlying Funds various custodial services in return
for such compensation as is set forth in the Custodian Agreements;
WHEREAS, Managed is expected to provide a means by which the Underlying
Funds can eliminate shareholder accounts which are or would be invested directly
in the Underlying Funds;
WHEREAS, such shareholder account reduction can reduce the fees of the
Underlying Funds due Scudder Service under the Service Agreements and various
other fees and expenses that would otherwise be incurred by the Underlying Funds
(such expenses are further defined below as Variable Expenses, and such
reduction in Variable Expenses is hereinafter referred to as "Savings");
3
<PAGE>
WHEREAS, Managed will invest its assets exclusively in the Underlying
Funds, except for temporary defensive purposes and cash or cash items necessary
to meet current redemptions; and
WHEREAS, the Board of Trustees of each Underlying Fund has determined that
it is reasonable to expect the aggregate expenses as described below of Managed
to be less than the estimated Savings to each of the Underlying Funds from the
operation of Managed; and such determination by the Board of Trustees is based
on some or all of the following factors, among others as they apply to each
Underlying Fund:
a. The amount of Managed expenses to be absorbed by each Underlying Fund;
b. The amount of assets invested in each Underlying Fund by Managed;
c. The average and median account sizes for the Underlying Funds and
Managed;
d. The rate at which Variable Expenses (i.e., expenses for shareholder
servicing, marketing to increase or maintain account size, account
management, transfer and dividend disbursing agency services, and
prospectuses, shareholder reports, proxies and similar communications)
and Fixed Expenses (i.e., expenses for accounting, custodial, auditing
and legal services, state qualification, filing, and directors fees
4
<PAGE>
and organization and various miscellaneous expenses) are incurred by
Managed and the Underlying Funds; and
e. The relationship between Variable and Fixed Expenses in the Underlying
Funds and Managed.
NOW, THEREFORE, in consideration of the promises and mutual covenants made
herein, it is agreed between and among the parties hereto as follows:
1. MANAGED EXPENSES
SFAC will calculate the separate amounts of fees and expenses
allocable to Managed due under the Custodian, Service,
Sub-Accounting, Record-Keeping and Underwriting Agreements
referred to above and agreements or arrangements with
third-parties for record-keeping and other administrative
services, as well as any other amounts due persons as a result of
Managed operations under any other agreement or otherwise
("Expenses"), excluding non-recurring and extraordinary expenses.
Such non-recurring and extraordinary expenses include: the fees
and costs of actions, suits or proceedings, and any penalties,
damages or payments in settlement in connection therewith, for
which the Managed and/or a portfolio or series thereof ("Managed
Portfolio") may be liable directly, or which it may incur as a
5
<PAGE>
result of its legal obligation to provide indemnification to its
officers, directors and agents; the fees and costs of any
governmental investigation and any fines or penalties in
connection therewith; and any federal, state or local tax, or
related interest, penalties or additions to tax for which Managed
or any Managed Portfolio may be liable. Under unusual
circumstances, the parties may agree to exclude certain other
amounts from Expenses. In addition, SFAC will calculate the
estimated Savings to each Underlying Fund.
2. UNDERLYING FUNDS' PAYMENT OF EXPENSES
Subject to Paragraph 3, each of the Underlying Funds agrees to
pay its pro rata share of the Expenses based on the proportion
which the average daily value of its shares owned by all Managed
Portfolios in the aggregate bears to the average daily value of
all shares of Underlying Funds owned by all Managed Portfolios in
the aggregate, provided that no Underlying Fund will pay such
Expenses in excess of the estimated Savings to it ("Excess
Expense"). The Underlying Funds shall pay such expenses in
accordance with instructions from SFAC.
6
<PAGE>
3. PAYMENT BY SSC
SSC agrees that, at all times, it will bear any Excess Expense
described in Paragraph 2 and shall pay such Excess Expenses in
accordance with instructions from SFAC.
4. OPINION OF COUNSEL
At any time any of the parties hereto may consult legal counsel
in respect of any matter arising in connection with this
Agreement, and no such party shall be liable for any action taken
or omitted by it in good faith in accordance with such
instructions or with the advice or opinion of such legal counsel.
5. LIABILITIES
No party hereto shall be liable to any other party hereto for any
action taken or thing done by it or its agents or contractors in
carrying out the terms and provisions of this Agreement provided
such party has acted in good faith and without negligence or
willful misconduct and selected its agents and contractors with
reasonable care.
7
<PAGE>
6. TERM OF AGREEMENT: AMENDMENT; RENEWAL
The term of this Agreement shall begin on February 1, 1997, and
unless sooner terminated as herein provided, the Agreement shall
remain in effect through August 31, 1998. Thereafter, this
Agreement shall continue from year to year if such continuation
is specifically approved at least annually by the Board of
Trustees of each Underlying Fund and Managed, including a
majority of the independent Trustees of each such Fund. In
determining whether to renew this Agreement, the Trustees of the
Underlying Funds may request, and SSC will furnish, such
information relevant to determining the past and expected future
relationship between the Savings and Expenses. The Agreement may
be modified or amended from time to time by mutual written
agreement between the parties hereto. Upon termination hereof,
outstanding obligations hereunder shall survive. This Agreement
may be amended in the future to include as additional parties to
the Agreement other investment companies for which SSC serves as
investment adviser.
7. ASSIGNMENT
This Agreement shall not be assigned or transferred, either
voluntarily or involuntarily, by operation of law or otherwise,
without the prior written consent of SSC, the Underlying Funds
8
<PAGE>
and Managed. The Agreement shall automatically and immediately
terminate in the event of its assignment without the prior
written consent of such Funds.
8. NOTICE
Any notice under this Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the other party at such address as such other party
may designate for the receipt of such notices. Until further
notice to the other parties, it is agreed that for this purpose
the address of all parties to this Agreement is Two International
Place, Boston, MA 02109, Attention: Thomas F. McDonough.
9. INTERPRETIVE PROVISIONS
In connection with the operation of this Agreement, the parties
may agree from time to time on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions are to
be signed by all parties and annexed hereto, but no such
provisions shall contravene any applicable Federal or State Law
9
<PAGE>
or regulation. Also, no existing provision of this Agreement, or
interpretive or additional provision described above, shall be
effective if, as a result, any Managed Portfolio or any
Underlying Fund would lose its status as a regulated investment
company under Subchapter M of the Internal Revenue Code.
10. STATE LAW
This Agreement shall be construed and enforced in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
11. CAPTIONS
The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
With respect to a party which is organized as a Massachusetts business
trust, references in this Agreement to the party mean and refer to the Trustees
from time to time serving under its Declaration of Trust on file with the
Secretary of the Commonwealth of Massachusetts, as the same may be amended from
time to time, pursuant to which the party conducts its business. The obligations
10
<PAGE>
of the party hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the party personally,
but bind only the trust property of the party, as provided in said Declaration
of Trust.
With respect to a party which is organized as either a Massachusetts
business trust or a Maryland corporation, if the party has more than one series,
no series of the party other than the series on whose behalf an obligation shall
have been undertaken shall be responsible for the obligations of the series, and
third parties shall look only to the assets of that series to satisfy those
obligations.
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed as
of the day and year first above written.
AARP Cash Investment Funds
on behalf of
AARP High Quality Money Fund
AARP Growth Trust
on behalf of
AARP Balanced Stock and Bond Fund
AARP Blue Chip Index Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
11
<PAGE>
AARP International Stock Fund
AARP Small Company Stock Fund
AARP Income Trust
on behalf of
AARP Bond Fund for Income
AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Managed Investment Portfolios Trust
on behalf of
AARP Diversified Income Portfolio
AARP Diversified Growth Portfolio
AARP Tax Free Income Trust
on behalf of
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
By:__________________________________________
Cornelia M. Small, President
AARP Financial Services Company
By:__________________________________________
Horace B. Deets
12
<PAGE>
Scudder, Stevens & Clark, Inc.
By:__________________________________________
David S. Lee, Managing Director
Scudder Service Corporation
By:__________________________________________
David S. Lee, Vice President
Scudder Investor Services, Inc.
By:__________________________________________
David S. Lee, President
Scudder Trust Company
By:__________________________________________
Dennis Cronin, ______________
Scudder Fund Accounting Corporation
By:__________________________________________
David S. Lee, President
Dated: February 1, 1997
13
<PAGE>
APPENDIX A
The following Funds are parties to this Agreement, and have so indicated
their intention to be bound by such Agreement by executing the Agreement on the
dates indicated thereon:
AARP Cash Investment Funds
on behalf of
AARP High Quality Money Fund
AARP Growth Trust
on behalf of
AARP Balanced Stock and Bond Fund
AARP Blue Chip Index Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Stock Fund
AARP Small Company Stock Fund
AARP Income Trust
on behalf of
AARP Bond Fund for Income
AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Managed Investment Portfolios Trust
on behalf of
AARP Diversified Income Portfolio
AARP Diversified Growth Portfolio
14
<PAGE>
AARP Tax Free Income Trust
on behalf of
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
15
DRAFT
COMPASS AND TRAK 2000 SERVICE AGREEMENT
THIS AGREEMENT is made as of this 1st day of February, 1997, by and between
SCUDDER TRUST COMPANY, a New Hampshire banking corporation ("Trust Company") and
AARP MANAGED INVESTMENT PORTFOLIOS TRUST, a Massachusetts business trust (the
"Trust").
WITNESSETH:
WHEREAS, Trust Company is engaged in the business of providing certain
recordkeeping and other services in connection with the COMPASS and TRAK 2000
systems and is willing to provide certain order processing services as agent for
the Trust for certain omnibus accounts maintained with the Trust; and
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Terms of Appointment; Performance of Duties.
1.1. Appointment. Subject to the terms and conditions set forth in this
Agreement, the Trust hereby employs and appoints Trust Company (i) to act as,
and Trust Company agrees to act as, recordkeeping agent with respect to the
authorized and issued shares of beneficial interest of the Trust ("Shares") or
units representing such Shares ("Units"), and (ii) to act as an agent of the
Trust for the purpose of receiving requests for the purchase and redemption of
Shares or Units (collectively, "Shares") and communicating such requests to the
Trust's transfer agent ("Transfer Agent"), in connection with certain retirement
and employee benefit plans established under the Internal Revenue Code of 1986
including but not limited to defined contribution plans, Section 403(b) plans,
individual retirement accounts and deferred compensation plans (each a "Plan" or
collectively the "Plans"), utilizing the Comprehensive Participant Accounting
Services ("COMPASS") or TRAK 2000 system, and established by plan
administrators, employers, trustees, custodians and other persons (each
individually an "Administrator" or collectively the "Administrators") on behalf
of employers (each individually an "Employer" or collectively the "Employers")
and individuals for certain participants in such Plans (each individually a
"Participant" or collectively the "Participants").
1.2. Recordkeeping. Trust Company agrees that it will perform the following
recordkeeping services in connection with the COMPASS and TRAK 2000 systems in
accordance with procedures established from time to time by agreement between
the Trust and Trust Company. Subject to instructions from the Administrators,
Trust Company shall:
(i) receive from Administrators instructions for the purchase of
Shares of the Trust, confirm compliance with such instructions and, as agent of
the respective Administrators, deliver within a reasonable time such
instructions and any appropriate documentation therefor to the Transfer Agent of
the Trust duly appointed by the Trustees of the Trust (the "Transfer Agent");
<PAGE>
(ii) record the purchase by Plans of the appropriate number of Shares
or Units and within a reasonable time allocate such Shares or Units among the
Participants' accounts;
(iii) record dividends and capital gains distributions on behalf of
Participants;
(iv) receive from Administrators instructions for redemption and
repurchase requests and directions, confirm compliance with such instructions
and as agent of the respective Administrators deliver within a reasonable time
such instructions and any appropriate documentation therefor to the Transfer
Agent;
(v) record the redemption or repurchase by Plans of the appropriate
number of Shares or Units and within a reasonable time make the appropriate
adjustments among the Participants' accounts;
(vi) certify to the Trust no less frequently than annually the number
of Participants accounts for which records are maintained hereunder;
(vii) maintain records of account for and advise the Trust and
Administrators and Participants, when appropriate, as to the foregoing;
(viii) maintain all Plan and Participant accounts other than accounts
maintained by the Transfer Agent; and
(ix) maintain and mail administrative reports and Participant
statements.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Trust and Trust Company.
1.3. Order Processing.
(a) In addition to the recordkeeping to be performed in accordance
with Section 1.02 above, the Trust hereby appoints Trust Company, and Trust
Company agrees to act, as the Trust's agent for the purpose of receiving
requests for the purchase and redemption of Shares or Units and communicating
such requests to the Trust's Transfer Agent, subject to and in accordance with
the terms of this Agreement, and as follows:
(i) Trust Company shall receive from the Plans, Plan
participants, Plan sponsors, authorized Plan committees or Plan trustees,
according to Trust Company's agreement with each Plan, by the close of regular
trading on the New York Stock Exchange (the "Close of Trading") each business
day that the New York Stock Exchange is open for business ("Business Day")
instructions for the purchase and redemption of Shares (together,
"Instructions"). Instructions received by Trust Company after the Close of
Trading on any Business Day shall be treated as received on the next Business
Day.
(ii) In connection with the COMPASS system, Trust Company shall
compute net purchase requests or net redemption requests for Shares of the Trust
for each Plan based on Instructions received each Business Day.
(iii) Trust Company shall communicate purchase and redemption
requests for Shares of the Trust, netted in accordance with (ii) above in the
case of COMPASS ("Orders"), to the Transfer Agent, for acceptance by the Trust
or its agents, in the manner specified herein, and promptly deliver, or instruct
2
<PAGE>
the Plans (or the Plans' trustees as the case may be) to deliver, appropriate
documentation and, in the case of purchase requests, payment therefor to the
Transfer Agent. Orders shall be based solely on Instructions received by Trust
Company from the Plans, Plan participants, Plan sponsors, authorized Plan
committees or Plan trustees.
(b) Trust Company shall maintain adequate records related to, and
advise the Transfer Agent as to, the foregoing, as instructed by the Trust, or
by the Transfer Agent or other person designated to act on the Trust's behalf.
To the extent required under the 1940 Act and rules thereunder, Trust Company
agrees that such records maintained by it hereunder will be preserved,
maintained and made available in accordance with the provisions of the 1940 Act
and rules thereunder, and copies or, if required, originals will be surrendered
promptly to the Trust, Transfer Agent or other person designated to act on the
Trust's behalf, on and in accordance with its request. Records surrendered
hereunder shall be in machine readable form, except to the extent that Trust
Company has maintained such records only in paper form. This provision shall
survive the termination of this Agreement.
(c) Trust Company shall perform its duties hereunder subject to the
terms and conditions of the Trust's current prospectus; the Trust and the Trust
Company may establish such additional procedures for order processing not
inconsistent with the terms of this Agreement as they reasonably determine to be
necessary or advisable from time to time.
(d) Trust Company acknowledges that it is not authorized by the Trust
to register the transfer of the Trust's Shares or to transfer record ownership
of the Trust's Shares, and that only the Transfer Agent is authorized to perform
such activities.
1.4. Agents of Trust Company. Trust Company may engage one or more
individuals, corporations, partnerships, trusts or other entities (including
affiliates of Trust Company) to act as its subcontractor(s) or agent(s)
("Agents") in providing the services contemplated hereunder. Any such Agent
shall be required to comply with the terms of this Agreement applicable to the
performance of such services it is performing as though it were the Trust
Company. Further, the Trust Company shall be solely responsible for, and assumes
all liability for, the actions and inactions of such Agents in connection with
their performance of such services.
2. Fees and Expenses.
2.1. For performance by Trust Company of services pursuant to this
Agreement, Trust Company will receive an annual maintenance fee for each
participant account as set out in the fee schedule, as amended from time to
time. Such fee schedule and out-of-pocket expenses and advances identified under
Section 2.2 below may be changed from time to time by mutual agreement between
the Trust and Trust Company.
2.2. In addition to the fee paid under Section 2.1 above, Trust Company
will be reimbursed for out-of-pocket expenses or advances incurred by Trust
Company for the items set out in the fee schedule. In addition, any other
expenses incurred by Trust Company, at the request or with the consent of the
Trust, will be reimbursed.
2.3. All fees and reimbursable expenses will be paid promptly. Postage and
the cost of materials for mailing of administrative reports, Participant
statements and other mailings to all Employer accounts or Participants shall be
advanced to Trust Company at least two (2) days prior to the mailing date of
such materials or paid within two (2) days of the receipt of a bill therefor.
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2.4. The payment of amounts due and payable hereunder shall be subject to
the terms of the Special Servicing Agreement dated February 1, 1997, among the
Trust, AARP Financial Services Company, Scudder Service Corporation, Scudder,
Stevens & Clark, Inc., Scudder Fund Accounting Corporation, Scudder Trust
Company, Scudder Investor Services, Inc. and the various funds in which the
Funds of the Trust may invest (the "Special Servicing Agreement").
3. Representations and Warranties of Trust Company.
Trust Company represents and warrants to the Trust that:
(i) It is a banking corporation duly organized and existing and in good
standing under the laws of The State of New Hampshire.
(ii) It has the legal power and authority to carry on its business in any
jurisdiction where it does business.
(iii) It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
(v) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Trust.
The Trust represents and warrants to Trust Company that:
(i) It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
(ii) It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
(iii) All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
(iv) It is an investment company registered under the Investment Company
Act of 1940, as amended (the "Act").
(v) It makes available its Shares in connection with certain Plans.
(vi) A majority of the Trustees of the Trust who are not interested persons
have made findings to the effect that:
(a) the Agreement is in the best interest of the Trust and its
shareholders;
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(b) the services to be performed pursuant to the Agreement are
services required for the operation of the Trust;
(c) Trust Company can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and
(d) the fees charged by Trust Company for such services are fair and
reasonable in the light of the usual and customary charges made by others for
services of the same nature and quality.
(vii) A registration statement under the Securities Act of 1933, as
amended, has been filed and has become effective, and appropriate state
securities law filings have been made with respect to all Shares of the Trust
being offered for sale. The Trust shall notify Trust Company (i) if such
registration statement or any state securities registration or qualification has
been terminated or a stop order has been entered with respect to the Shares or
(ii) if such registration statement shall have been amended to cover Shares of
any additional Series (as hereinafter defined in Section 8.1).
5. Indemnification.
5.1. By Trust. Trust Company shall not be responsible for, and the Trust
shall indemnify and hold Trust Company harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of Trust Company or its agents required to be taken
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust hereunder.
(c) The reliance on or use by Trust Company or its agents of
information, records and documents which (i) are received by Trust Company or
its agents and furnished to it by or on behalf of the Trust, and (ii) have been
prepared and/or maintained by the Trust or any other person or firm (except
Trust Company) on behalf of the Trust.
(d) The reliance on or the carrying out by Trust Company or its agents
of any written instructions or requests of the Trust or any person acting on
behalf of the Trust.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such state, or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.2. By Trust Company. Trust Company shall indemnify and hold the Trust
harmless from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable to Trust
Company's refusal or failure to comply with the terms of this Agreement, or
which arise out of Trust Company's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
Trust Company hereunder.
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5.3. Reliance. At any time Trust Company may apply to any officer of the
Trust for instructions, and may consult with legal counsel (which may also be
legal counsel for the Trust) with respect to any matter arising in connection
with the services to be performed by Trust Company under this Agreement, and
Trust Company shall not be liable and shall be indemnified by the Trust for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. Trust Company and its agents shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Trust, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided Trust Company or its agents by telephone, in person,
machine-readable input, telex, CRT data entry or other similar means authorized
by the Trust, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Trust.
5.4. Acts of God. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.5. Procedures. In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. Covenants of the Trust and Trust Company.
6.1. Adequate Facilities. Trust Company hereby agrees to establish and
maintain facilities, personnel, and computer and other facilities and procedures
reasonably acceptable to the Trust for safekeeping of records, for the
preparation or use, and for keeping account of, such records, and for order
processing.
6.2. Insurance. Trust Company shall at all times maintain insurance
coverage which is reasonable and customary in light of its duties hereunder and
its other obligations and activities, and shall notify the Trust of any changes
in its insurance coverage unless the Trust is covered by the same policy and
such change is also applicable to the Trust.
6.3. Records. Trust Company shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable.
6.4. Confidentiality. Trust Company and the Trust agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.5. Inspection. In case of any requests or demands for the inspection of
the records relating to Plan accounts and Participant accounts with the Trust,
Trust Company will endeavor to notify the Trust and to secure instructions from
an authorized officer of the Trust as to such inspection. Trust Company reserves
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the right, however, to exhibit such records to any person whenever it is
reasonably advised by counsel to the Trust that it may be held liable for the
failure to exhibit such records to such person.
6.6. Laws Applicable to Trust. Trust Company acknowledges that the Trust,
as a registered investment company under the Act, is subject to the provisions
of the Act and the rules and regulations thereunder, and that the offer and sale
of the Trust's Shares are subject to the provisions of federal and state laws
and regulations applicable to the offer and sale of securities. The Trust
acknowledges that Trust Company is not responsible for the Trust's compliance
with such laws, rules and regulations. If the Trust advises Trust Company that a
procedure of Trust Company related to the discharge of its obligations hereunder
has or may have the effect of causing the Trust to violate any of such laws or
regulations, Trust Company shall use its best efforts to develop an alternative
procedure which does not have such effect.
6.7. Relationship to Plans. Trust Company acknowledges to the Trust that,
as the offeror of COMPASS and TRAK 2000, Trust Company does not act as a plan
administrator or as a fiduciary under the Employee Retirement Income Security
Act of 1974, as amended from time to time, with respect to any Plan. Trust
Company shall not be responsible for determining whether the terms of a
particular Plan or the Shares of the Trust are appropriate for the Plan or
Participant and does not guarantee the performance of the Trust.
7. Termination of Agreement.
This Agreement may be terminated by either party on the last day of the
month next commencing after thirty (30) days written notice to the other party.
Upon termination of this Agreement, the Trust shall pay to Trust Company such
fees and expenses as may be due as of the date of such termination. Should the
Trust exercise its right to terminate this Agreement, Trust Company reserves the
right to charge for any other reasonable expenses associated with such
termination.
8. Additional Funds of the Trust.
8.1. Establishment of Series. Shares of the Trust are of a single class;
however, Shares may be divided into additional series ("Series") that may be
established from time to time by action of the Trustees of the Trust. If the
context requires and unless otherwise specifically provided herein, the term
"Trust" as used in this Agreement shall mean in addition each separate Fund
currently existing or subsequently created, and the term "Shares" shall mean all
shares of beneficial interest of the Trust, whether of a single class or divided
into separate Fund of the Trust currently existing or hereinafter created.
8.2. Notice to Trust Company. In the event that the Trust establishes one
or more or additional Series of Shares in addition to the original Series with
respect to which it desires to have Trust Company render services as
recordkeeping agent under the terms hereof, it shall so notify Trust Company in
writing, and upon the effectiveness of a registration statement under the
Securities Act of 1933, as amended, relating to such Series of Shares and unless
Trust Company objects in writing to providing such services, such Series shall
be subject to this Agreement.
8.3. Suspension. In the event that the Trust suspends the offering of
Shares of any one or more Series, it shall so notify Trust Company in writing to
such effect.
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9. Assignment.
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
10. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
12. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto.
13. Correspondence.
Trust Company will answer correspondence from Administrators relating to
Plan and Plan participant accounts and such other correspondence as may from
time to time be mutually agreed upon and notify the Trust of any correspondence
which may require an answer from the Trust.
14. Further Actions.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
15. Interpretive Provisions.
In connection with the operation of this Agreement, Trust Company and the
Trust may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by the parties and annexed hereto, but no
such provisions shall contravene any applicable federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
16. Miscellaneous.
The name AARP Investment Management Portfolios Trust is the designation of
the Trustees for the time being under a Declaration of Trust dated October 21,
1996, as amended, and all persons dealing with the Trust must look solely to the
Trust property for the enforcement of any claims against the Trust as neither
the Trustees, officers, agents nor shareholders assume any personal liability
for obligations entered into on behalf of the Trust. No Fund of the Trust shall
be liable for any claims against any other Fund of the Trust.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
SCUDDER TRUST COMPANY
By:_____________________________________
Title:__________________________________
AARP INVESTMENT MANAGEMENT
PORTFOLIOS TRUST
By:_____________________________________
Title:__________________________________
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