Filed with the Securities and Exchange Commission on December 3, 1997.
File No. 2-81427
File No. 811-3650
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 25
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
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AARP Cash Investment Funds
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
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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)
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on February 1, 1997 pursuant to paragraph (b)
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X 60 days after filing pursuant to paragraph (a)(i)
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on pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on pursuant to paragraph (a)(ii) of Rule 485
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The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant has filed the notice required by Rule 24f-2 for its most
recent fiscal year on or before December 10, 1997.
<PAGE>
AARP CASH INVESTMENT FUNDS
CROSS-REFERENCE SHEET
PART A Items Required by Form N-1A
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis SUMMARY PROSPECTUS
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 HIGHLIGHTS
Financial UNDERSTANDING FUND PERFORMANCE
Information
4. General AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of FUND EXPENSES
the 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. NOT APPLICABLE
6. Capital Stock ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS
and Other AND TAXES
Securities FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of OPENING AN ACCOUNT
Securities ADDING TO YOUR INVESTMENT
Being Offered 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
Cross Reference - Page 1
<PAGE>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
- --------------------- ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Objectives and BROKERAGE AND PORTFOLIO TURNOVER
Policies
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 PURCHASES
Securities REDEMPTIONS
Being Offered 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
Cross Reference - Page 2
<PAGE>
SCUDDER - AARP 1998 Combined Prospectus 1st copy draft 10/16/97
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS
February 1, 1998
The family of 15 AARP Mutual Funds offers a choice of no-load(TM) mutual funds
generally, each of whose goal is to seek to provide competitive returns but with
less risk of loss to its portfolio than similar mutual funds in its asset
category, as measured by the frequency and amount by which total return
fluctuates downward. Risk of loss, as described in this Prospectus, may also be
referred to as "downside risk."
Trusts AARP Mutual Funds
AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP High Quality Short Term Bond Fund
AARP GNMA and U.S. Treasury 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 Growth and Income Fund
AARP Small Company Stock Fund
AARP Managed Investment AARP Diversified Income With Growth Portfolio
Portfolios Trust AARP Diversified Growth Portfolio
This combined Prospectus provides information about the AARP Investment Program
from Scudder that as a prospective investor you should be familiar with before
investing. Please keep this document 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. 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, 1998, 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) and is available
along with other related materials on the SEC's Internet Web Site
(http://www.sec.gov).
You may get a copy of the SAI or a LARGE PRINT version of this
Prospectus without charge by calling 1-800-253-2277, or by writing 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
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INFORMATION CONTAINED IN THE PROSPECTUS
AND WHERE TO FIND IT
Page
A GLANCE AT THE AARP MUTUAL FUNDS FROM SCUDDER
FUND EXPENSES
FINANCIAL HIGHLIGHTS
AARP INVESTMENT PROGRAM OVERVIEW
SPECIAL FEATURES OF THE AARP INVESTMENT PROGRAM
WHAT MAKES THE AARP MUTUAL FUNDS SO DIFFERENT?
INVESTMENT OBJECTIVES AND POLICIES
AARP HIGH QUALITY MONEY FUND
AARP HIGH QUALITY TAX FREE MONEY FUND
AARP HIGH QUALITY SHORT TERM BOND FUND
AARP GNMA AND U.S. TREASURY FUND
AARP INSURED TAX FREE GENERAL BOND FUND
AARP BOND FUND FOR INCOME
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND
AARP U.S. STOCK INDEX FUND
AARP CAPITAL GROWTH FUND
AARP SMALL COMPANY STOCK FUND
AARP GLOBAL GROWTH FUND
AARP INTERNATIONAL GROWTH AND INCOME FUND
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
OTHER INVESTMENT POLICIES AND RISK FACTORS
INVESTMENT RESTRICTIONS
ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES
FUND ORGANIZATION
UNDERSTANDING FUND PERFORMANCE
UNDERSTANDING SHARE PRICE
OPENING AN ACCOUNT
WIRE TRANSFER INSTRUCTIONS
ADDING TO YOUR INVESTMENT
EXCHANGING
ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
STATEMENTS AND REPORTS
SERVICE PROVIDERS OF THE AARP FUNDS
TRUSTEES AND OFFICERS
3
<PAGE>
A GLANCE AT THE AARP
- --------------------------------------------------------------------------------
AARP INVESTMENT
MUTUAL FUNDS OBJECTIVE*
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
AARP High Quality Money Fund Current income and stability of
principal
- --------------------------------------------------------------------------------
AARP High Quality Tax Free Money Fund Current income free from federal
income taxes and stability of principal
- --------------------------------------------------------------------------------
INCOME FUNDS
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AARP High Quality Short Term Bond High current income
Fund
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AARP GNMA and U.S. Treasury Fund High current income
- --------------------------------------------------------------------------------
AARP Insured Tax Free General Bond High current income free from Fund
federal income taxes
- --------------------------------------------------------------------------------
AARP Bond Fund for Income High current income
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
AARP Balanced Stock and Bond Fund Long-term capital growth and
income
- --------------------------------------------------------------------------------
AARP Growth and Income Fund Long-term capital growth and
income
- --------------------------------------------------------------------------------
AARP U.S. Stock Index Fund Long-term capital growth and
income
- --------------------------------------------------------------------------------
GROWTH FUNDS
- --------------------------------------------------------------------------------
AARP Capital Growth Fund Long-term capital growth
- --------------------------------------------------------------------------------
AARP Small Company Stock Fund Long-term capital growth
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUNDS
- --------------------------------------------------------------------------------
AARP Global Growth Fund Long-term capital growth
- --------------------------------------------------------------------------------
AARP International Growth and Income Long-term capital growth and
Fund income
- --------------------------------------------------------------------------------
MANAGED INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
AARP Diversified Income with Growth Current income with modest
Portfolio long-term appreciation
- --------------------------------------------------------------------------------
*Each Fund's objective is described in more detail in the section called
"Investment Objectives and Policies." (See the Table of Contents for page
number.)
4
<PAGE>
- --------------------------------------------------------------------------------
AARP Diversified Growth Portfolio Long-term capital growth
- --------------------------------------------------------------------------------
5
<PAGE>
MUTUAL FUNDS FROM SCUDDER
- ------------------------------------------------------------------------
YOUR EXPECTED INVESTS SEE
TIME HORIZON PRIMARILY IN PAGE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
1 year + Money market securities xx
- ------------------------------------------------------------------------
1 year + Federally tax-exempt municipal securities xx
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
3 years + High quality short-term U.S. Government and xx
corporate securities
- ------------------------------------------------------------------------
3 years + High-quality GNMA securities and U.S. Treasury xx
bills, notes and bonds
- ------------------------------------------------------------------------
3 years + Federally tax-exempt municipal securities xx
- ------------------------------------------------------------------------
3 years + Short-, medium-, and long-term investment grade xx
securities
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
3-5 years + Mix of dividend-paying stocks, high-quality xx
bonds and cash reserves
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5 years + Dividend-paying stocks xx
- ------------------------------------------------------------------------
5 years + Stocks of S&P 500 companies xx
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
5 years + Common stocks and convertible securities xx
- ------------------------------------------------------------------------
5 years + Stocks of established small U.S. companies xx
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
5 years + Stocks of companies in the U.S. and established xx
international markets
- ------------------------------------------------------------------------
5 years + Common stocks of established companies in xx
developed foreign markets (not including the
U.S.).
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
3-5 years + AARP Stock and Bond Mutual Funds with an xx
emphasis on bond funds
- ------------------------------------------------------------------------
6
<PAGE>
- ------------------------------------------------------------------------
5 years + AARP Stock and Bond Mutual Funds with an xx
emphasis on stock funds
- ------------------------------------------------------------------------
Note that all of the AARP Mutual Funds from Scudder are tobacco-free.
7
<PAGE>
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 , but 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 and 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. 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 following table shows the expenses for each AARP Fund for the fiscal year
ended September 30, 19967.
TO BE Total Fund
UPDATED Other Operating
Fund Effective Expenses Expenses
Management
Fee Rate*
AARP High Quality Money Fund
AARP High Quality Tax Free
Money Fund
AARP High Quality Short Term
Bond Fund
AARP GNMA and U.S. Treasury
Fund
AARP Insured Tax Free
General Bond Fund
AARP Bond Fund for Income
AARP Balanced Stock and Bond
Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Capital Growth Fund
AARP Small Company Stock Fund
AARP Global Growth Fund
AARP International
Growth and Income Fund
Effective Total Fund
Management Other Operating
Managed Investment Portfolios Fee Rate* Expenses Expenses@
AARP Diversified Income With 0% 0% 0%
Growth Portfolio
AARP Diversified Growth 0% 0% 0%
Portfolio
* 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.
7
<PAGE>
@The AARP Managed Investment 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 the previous page shows the expense ratios of each underlying AARP Mutual
Fund after fee waiver or reimbursement where applicable. Based on this
information, the range for the average weighted expense ratio borne by the AARP
Diversified Income With Growth Portfolio is expected to be .10% to 1.26%, and
.30% to 1.58% 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 is included in the chart below.
EXAMPLES OF WHAT THE EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH AARP FUND:
Based on the level of assets as of September 30, 1996 we have calculated the
forecasted total expenses of a $1,000 investment in each AARP Fund over
specified periods. These examples assume a 5% annual return. It has also been
assumed redemptions at the end of each period, reinvestment of all dividends and
distributions, and total fund operating expenses 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 _____________.
Fund TO BE 3 Years 5 Years 10 Years
UPDATED
1 Year
- ---------------------------------------------------------------------
AARP High Quality Money Fund
AARP High Quality Tax Free
Money Fund
AARP High Quality Short Term
Bond Fund
AARP GNMA and U.S. Treasury
Fund
AARP Insured Tax Free
General Bond Fund
AARP Bond Fund for Income
AARP Balanced Stock and Bond
Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Capital Growth Fund
AARP Small Company Stock Fund
AARP Global Growth Fund
AARP International
Growth and Income Fund
AARP Diversified Income With
Growth Portfolio
AARP Diversified Growth
Portfolio
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.
FINANCIAL HIGHLIGHTS
On the next nine pages, you will find information about the income and expenses
of each AARP Fund . 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,
has examined this information. The Annual Report to Shareholders includes their
report.
To request a free copy of the Annual Report to Shareholders dated September 30,
1997 which includes more detailed information concerning the Funds' performance,
complete portfolio listings and audited financial statements, call us at
1-800-253-2277.
8
<PAGE>
AARP High Quality Money Fund For the Years Ended September 30
AARP High Quality Tax Free Money Fund For the Years Ended September 30
AARP GNMA and U.S. Treasury Fund For the Years Ended September 30
AARP High Quality Short Term Bond Fund For the Years Ended September 30
AARP Insured Tax Free General Bond Fund For the Years Ended September 30
AARP Balanced Stock and Bond Fund For the Years Ended September 30
AARP Growth and Income Fund For the Years Ended September 30
AARP Global Growth Fund For the Years Ended September 30
AARP Capital Growth Fund For the Years Ended September 30
AARP Bond Fund for Income For the Year Ended September 30
AARP U.S. Stock Index Fund For the Year Ended September 30
AARP International Growth and Income Fund For the Year Ended September 30
AARP Small Company Stock Fund For the Year Ended September 30
AARP Diversified Income with Growth Portfolio For the Year Ended September 30
AARP Diversified Growth Portfolio For the Year Ended September 30
10
<PAGE>
AARP INVESTMENT PROGRAM OVERVIEW
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 specially designed to provide members with
distinct investment choices and to be managed by an experienced investment
adviser. After interviewing a number of investment management firms to develop
and manage the Funds, AARP selected Scudder, Stevens & Clark, Inc. (now Scudder
Kemper Investments, Inc., referred to throughout this Prospectus as "Scudder" or
"the Fund Manager.")
Who is Scudder Kemper Investments, Inc.?
Scudder Kemper Investments, Inc. is one of the largest and most experienced
worldwide investment management organizations. The firm manages more than $210
billion in assets globally for mutual fund investors, retirement and pension
plans, institutional and corporate clients, insurance companies, and private
family and individual accounts. It is one of the largest mutual fund sponsors in
the U.S., offering no-load funds directly to investors and load funds through
various types of intermediaries.
Scudder Kemper Investments, Inc. has a rich heritage of innovation, integrity
and client-focused service, combining two long-established and accomplished
investment firms: Scudder, Stevens & Clark, Inc., founded in 1919 as one of the
nation's first investment counsel organizations, and Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience.
Headquartered in the U.S., Scudder Kemper Investments offers a full range of
investment counsel and asset management capabilities, based on a combination of
proprietary research and disciplined, long-term investment strategies. With its
global investment resources and perspective, the firm seeks opportunities in
markets throughout the world to meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm which was
formed in 1997, represents one of the four core businesses of the Zurich Group.
The Zurich Group is an internationally recognized leader in financial services,
including property/casualty and life insurance, reinsurance, and asset
management.
What impact does this alliance have on the AARP Investment Program from Scudder?
The Program's longstanding commitment to risk managed investment performance
offered through our no-load mutual funds remains. In fact, we expect that this
new alliance will offer benefits to investors over time, resulting from the
Program's access to increased resources -- human and capital.
The roles of AARP and Scudder
The AARP Investment Program from Scudder is made available to investors in
accordance with specific criteria agreed to by AARP and Scudder. These criteria
include the following:
o The offer of a specifically-designed choice of no-load funds, generally
each of whose goal is to seek to provide competitive returns, but with less
risk of loss to its portfolio than similar mutual funds, measured by the
frequency and amount by which total return fluctuates downward;
o Easy access to the Program for all AARP Funds' shareholders;
o The commitment to the highest quality of service in keeping with AARP's
standards; and
o The availability of a comprehensive selection of easy-to-understand
publications on the "how-to"s of investing, and planning for retirement and
other important life events that affect the financial affairs of aging
Americans.
Scudder and its affiliates provide investment management and other services for
the AARP Funds, bringing more than 75 years of investment management experience
to the Program. AARP provides significant expertise and information about the
needs of aging Americans which drives the development of new products, services
and features of the Program. Association staff monitor investment performance,
service quality and Program communications in keeping with its rigorous
standards that are applied to the delivery of all of its member services.
Members of AARP's leadership also serve as Trustees for the AARP Mutual Funds.
SPECIAL FEATURES OF THE AARP INVESTMENT PROGRAM:
The AARP Investment Program from Scudder was developed by Scudder and AARP to
help meet the investment needs of individual AARP members as they plan for and
live into their retirement years. A choice of 15 mutual funds are offered to
investors. An investor in the Program benefits from the following features:
o No Sales Fees or Commissions: All AARP Funds are pure no-load, meaning that
you won't pay any sales fees or commissions to purchase, exchange or sell
(redeem) shares. In addition, none of these Funds charges a 12b-1 fee (a
form of a sales charge that covers marketing and distribution expenses).
The net result is that 100% of your investment goes to work for you.
o No Fees to Open and Maintain an AARP IRA or AARP Keogh Plan Account: There
are no separate fees to open or maintain a retirement plan account. This
way, all of your money goes to work for your retirement.
10
<PAGE>
o Low Initial Investment: You can open an account with just $500 for AARP
GNMA and U.S. Treasury Fund, AARP Balanced Stock and Bond Fund and AARP
Growth and Income Fund; and with $2,000 for all other AARP Mutual Funds.
You can open an AARP IRA or AARP UGMA/UTMA with an initial investment of
just $250 per fund account.
o Professional Investment Management by Scudder: Scudder brings over 75 years
of investment management experience to the AARP Funds .
o Risk-Oriented Investment Management: The Program offers a choice of 15 AARP
Mutual Funds, generally each of whose goal is to seek to provide
competitive returns but with less risk of loss to its portfolio than
similar mutual funds, as measured by the frequency and amount by which
total return fluctuates downward. Designed specially to meet the needs of
aging Americans, we know of no other family of funds that includes a
risk-oriented management mandate for all of its funds.
o High Quality, Personal Service from AARP Mutual Fund Representatives:
Helpful and knowledgeable service representatives are ready to answer your
questions, facilitate your transactions, or assist you in selecting the
most appropriate AARP Fund. To reach an AARP Mutual Fund Representative,
call 1-800-253-2277 toll-free, Monday through Friday, from 8 a.m. to 8 p.m.
Eastern time.
o Convenient Access to Your Investment : You can access your investment
easily and for no charge by calling toll-free , or in writing. Your AARP
Mutual Fund investment is not "locked in".
o Informative Communications: The Program helps keep shareholders abreast of
important topics that can affect their financial situation. Newsletters are
included with statements to shareholders to provide information about
recent developments in the markets, important tax changes and other
Program-specific information. Upon request, educational guides are
available on a variety of topics, such as planning for retirement, living
in retirement, understanding IRA distributions, and more.
o Help and Guidance at Important Times in Your Life: We are here to help
investors when they need to make important financial decisions as it
relates to their savings and investments. For example, by taking advantage
of the AARP Lump Sum Service, you can work with a trained representative
who can help you understand tax implications and your investment options.
Our trained representatives can also assist you in working through the "red
tape" that is sometimes involved with a lump sum distribution. Or you can
simply call us for our free Guide on Receiving a Lump Sum Distribution.
You will also benefit from:
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.
Why do we emphasize risk-managed performance?
Individuals planning for and living into retirement have told us that while they
are interested in investments that provide competitive returns, they are
interested in funds that will offer the potential of at least somewhat lower
risk -- even if they are funds in higher risk categories -- such as
international funds and small company funds.
We have therefore designed and manage all of the AARP Mutual Funds with share
price fluctuation -- including those in higher risk categories, such as the AARP
International Growth and Income Fund and the AARP Small Company Stock Fund,
with the potential for less risk of loss than similar funds in their asset
categories.
Why do we focus on risk of loss to a fund's portfolio instead of the volatility
- -- up and down -- of total return?
Most investors view risk as related to the chance of a loss and the likely size
of that loss. We have therefore chosen to measure each AARP Fund's portfolio
management team's management of risk by evaluating the frequency and amount by
which each fund's total return fluctuates downward -- compared to similar funds
in the appropriate asset category. We may also refer to this risk of loss as
"downside risk."
The Program uses a performance measurement system by which the portfolio
managers and investors can evaluate the investment performance of the AARP
Mutual Funds, not just as it relates to total return but to the management of
risk.
A Cautionary Note
While the AARP Mutual Funds are actively managed to reduce the potential for
less risk of loss to their portfolios, it is important to remember that your
principal can never be insured or guaranteed, and that the value of your
investment and your return will move up and down as market conditions change.
For more complete details, read the "Investment Objectives and Policies"
section.
Selecting your mutual funds:
Information about each AARP Fund is included in this Prospectus and focuses on
how the AARP Funds differ from each other as it relates to their potential
return and to their level of risk. Before investing, you should determine your
investment objectives and time horizons. This will help you decide which AARP
Fund is right for you.
The following is a brief summary of the investment needs the AARP Funds seek to
meet. Your investment time horizon will have a bearing on which funds are
appropriate for you.
11
<PAGE>
If you are investing for stability of principal and income:
Consider the AARP High Quality Money Fund or AARP High Quality Tax Free Money
Fund. Each provides opportunities to meet short-term needs (one 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. Both 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.
If you are investing for the longer term and are interested in current income:
Consider the AARP High Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury
Fund, AARP Bond Fund for Income, AARP Insured Tax Free General Bond Fund or AARP
Diversified Income With Growth Portfolio. When you choose one of these 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 current income that the
Funds seek to provide, and also by possible growth in the value of shares. The
AARP Diversified Income With Growth Portfolio provides income on a quarterly
basis; all of the other funds listed above provide monthly income. While each of
these Funds is managed to seek competitive returns with less risk compared to
similar funds, 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 (three to five years or more
for the AARP Diversified Income With Growth Portfolio, which normally invests in
both AARP Stock and Bond Funds, and three years or more for the other Funds
listed above).
If you are investing for the long term and you are interested in growth:
Consider the 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 Growth and Income Fund, AARP Small Company Stock Fund, or
AARP Diversified Growth Portfolio. When you invest in one of these Funds,
remember that investments in stocks involve 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 seek competitive
returns with less risk of loss to its portfolio compared to similar mutual
funds, 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 three to five years or more for the AARP
Balanced Stock and Bond Fund and five years or more for the other equity funds
listed above.
How will my investment be managed?
AARP Mutual Funds are managed to seek competitive returns with less downside
risk than comparable mutual funds. Each AARP Mutual Fund is managed by a team of
Scudder investment professionals (Bankers Trust acts as subadviser to the
Scudder U.S. Stock Index Fund). Seasoned portfolio managers develop investment
strategies and select securities for each AARP Fund's portfolio. Keep in mind
that none of the AARP Funds invest in securities issued by tobacco-producing
companies. The Scudder portfolio managers are supported by a highly experienced
staff of economists, research analysts, traders, and other investment
specialists who work in offices across the United States and abroad. Scudder
also maintains a large staff of independent researchers to assist portfolio
managers in assessing economic and industry trends and security valuations as
they make investment decisions. Generally speaking, Scudder portfolio managers
do not take a short-term approach to investing. Instead, they 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 potential for risk,
how the Fund seeks to manage risk, when distributions are paid, and who at
Scudder manages the fund. As with any investment, there can be no guarantee that
any of the AARP Funds will successfully meet their investment objectives. Be
sure to read the section entitled "Other Investment Policies and Risk Factors."
The 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.
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AARP HIGH QUALITY MONEY FUND
Fund Objective:
To provide current income. In doing so, the Fund seeks to maintain stability of
principal and a constant net asset value of $1.00 per share while offering
liquidity. There may be circumstances under which this goal cannot be achieved.
The Fund seeks to maintain stability of principal by investing primarily in
high-quality, short-term securities.
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 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.
The money market securities in which the Fund may invest include 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 Investor Service, Inc. (Moody's), Standard & Poor's Corporation
(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 non-fundamental 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 of
$1.00 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 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."
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.
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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 nine years of investment industry experience and
joined Scudder in 1996. 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 14 years of
experience in the investment industry.
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AARP HIGH QUALITY TAX FREE MONEY FUND
Fund Objective:
To provide current income free from federal income taxes. In doing so, the Fund
seeks to maintain stability of principal and a constant net asset value of $1.00
per share while offering liquidity. The Fund seeks to maintain stability of
principal by investing primarily in high-quality, short-term federally
tax-exempt municipal securities.
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.
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 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 rits 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 of
$1.00 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."
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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 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. 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.
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 14 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.
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AARP HIGH QUALITY SHORT TERM BOND FUND
Fund Objective:
To produce a high level of current income but with less risk of loss to its
portfolio than comparable short-term bond mutual funds, measured by the
frequency and amount by which total return fluctuates downward. The Fund pursues
these objectives by investing primarily in high-quality, short-term U.S.
Government, corporate and other fixed-income securities.
For whom is the Fund designed?
The Fund is suitable for investors who want high current income with more price
stability than investments in intermediate and long-term bonds. Investors should
be seeking to invest for the intermediate term (at least three3 years ) and be
comfortable with some 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 short-term debt securities. The Fund should
typically provide a higher and more stable level of income than available from
the AARP High Quality Money Fund, yet the Fund's share price is expected to
fluctuate moderately. Consistent with the Program's conservative orientation,
the Fund seeks to offer less share price volatility than other short-term bond
funds.
What does the Fund invest in?
Under normal circumstances, the Fund will invest substantially all, and no less
than 65%, of its assets in high quality short-term U.S. Government, corporate
and other fixed-income securities. All the Fund's securities will be rated or
judged by the Fund Manager to be equivalent to 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. 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.
Subject to the Fund's duration policy, 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, trust preferred
securities, mortgage-backed and other asset-backed securities, and money market
instruments such as commercial paper, bankers' acceptances, privately placed
obligations, 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.
The types of securities held by the Fund will vary with current market
conditions. The weighted average effective duration of the Fund's portfolio may
not exceed three years. Within this limitation, the Fund may purchase individual
securities with remaining stated durations greater than three years. The
non-governmental investments of the Fund will be spread among a variety of
companies and will not be concentrated in any one industry. See "Other
Investment Policies" section.
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. By focusing on shorter-term debt securities, the Fund will normally
have less share price volatility than the AARP GNMA and U.S. Treasury Fund and
AARP Bond Fund for Income, but also will offer less monthly income and less
long-term return potential than these two other AARP Bond Funds.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce the risk of loss to its portfolio by
emphasizing high-quality investments, diversifying widely among bond issuers and
market sectors, and limiting average portfolio duration through active portfolio
management.
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.
Who at Scudder manages my investment?
- -- William M. Hutchinson, Lead Portfolio Manager, is responsible for
implementing the Fund's strategy and 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. Portfolio Manager David H. Glen, who joined
Scudder in 1982 and the Fund in 1995, has been a portfolio manager since 1985
and has
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over 15 years' experience in finance and investing. Scott E. Dolan, Portfolio
Manager, joined the team in 1997 and is responsible for security selection and
sector analysis. Mr. Dolan, who joined Scudder in 1989, has experience in
compliance analysis and account administration and has worked as a portfolio
manager since 1993.
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AARP GNMA AND U.S. TREASURY FUND
Fund Objective:
To produce a high level of current income but with less risk of loss to its
portfolio than other GNMA mutual funds, measured by the frequency and amount by
which total return fluctuates downward. The Fund pursues these objectives by
investing primarily in high-quality Government National Mortgage Association
(GNMA) securities and U.S. Treasury bills, notes and bonds issued or backed by
the full faith and credit of the U.S. Government.
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 (three 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 risk of loss to the
Fund's portfolio than 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. 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."
How does the Fund seek to manage risk?
The Fund actively seeks to reduce the risk of loss to the Fund's portfolio, 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 risk. 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"). 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.
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.
Who at Scudder manages my investment?
Thomas M. Poor, Lead Portfolio Manager, joined the Fund in 1997 and Scudder in
1970. Mr. Poor is responsible for investment strategy and overseeing security
selection. Portfolio Manager David H. Glen, who joined Scudder in 1982 and the
Fund in 1985, has been a portfolio manager since 1985 and has over 15 years'
experience in finance and investing. Mark S. Boyadjian, Portfolio Manager,
focuses on security selection and assists with investment strategy for the Fund.
Mr. Boyadjian joined the Fund's team in
also
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1995 and has been involved in investment management since joining Scudder in
1989. Scott E. Dolan, Portfolio Manager, joined the team in 1997 and is
responsible for security selection. Mr. Dolan, who joined Scudder in 1989, has
experience in compliance analysis and account administration and has worked as a
portfolio manager since 1993.
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AARP INSURED TAX FREE GENERAL BOND FUND
Fund Objective:
To produce a high level of current income free from federal income taxes but
with less risk of loss to its portfolio than other insured tax-free bond mutual
funds, measured by the frequency and amount by which total return fluctuates
downward. The Fund pursues these objectives by investing primarily in
high-quality, federally tax-exempt municipal securities that are insured to
protect against default by the municipality.
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 three 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 reduce the risk of loss to the Fund's portfolio compared to other
- -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. It is impossible to predict for how
long this alternate strategy might be utilized.
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."
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."
How does the Fund seek to manage risk?
The Fund actively seeks to reduce the risk of loss to its portfolio 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 in case of
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
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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."
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 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.
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 19 years of
investment experience.
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AARP BOND FUND FOR INCOME
Fund Objective:
To produce a high level of current income but with less risk of loss to its
portfolio than other long-term bond mutual funds, measured by the frequency and
amount by which total return fluctuates downward. The Fund pursues these
objectives by investing primarily in short-, medium- and long-term
investment-grade debt securities.
For whom is the Fund designed?
This 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 longer term (at least three 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 reduce the size and frequency of loss to its portfolio compared to
other long-term bond mutual 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."
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 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 Short Term Bond Fund. See "Other Investment Policies and
Risk Factors."
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 actively seeks to reduce the risk of loss to the Fund's portfolio
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"). 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.
23
<PAGE>
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.
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 16 years of experience in fixed-income
investing including ten years of high yield 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 16 years of
experience in finance and investing. Mr. Glen joined Scudder in 1982.
24
<PAGE>
AARP BALANCED STOCK AND BOND FUND
Fund Objective:
To provide long-term capital growth and income but with less risk of loss to its
portfolio than other balanced mutual funds, measured by the frequency and amount
by which total return fluctuates downward. The Fund pursues these objectives by
investing primarily in a diversified mix of stocks with above-average dividend
yields, high-quality bonds, and cash reserves.
For whom is the Fund designed?
This Fund is suitable for 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 three to five 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 risk of loss to the Fund's portfolio. Through a broadly
diversified portfolio consisting primarily of stocks with above average dividend
yields and investment-grade bonds, the Fund seeks to offer less risk of loss to
its portfolio than other 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 risk of loss to its portfolio 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 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."
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How does the Fund seek to manage risk?
The Fund actively seeks to reduce the risk of loss to its portfolio through
active portfolio management and diversification of both its equity and bond
components. The Fund seeks to manage risk in the equity portion of the portfolio
by investing in a diverse selection of relatively high dividend-paying stocks.
Stocks with above-market yields tend to sell at attractive market valuations,
and the higher dividends offered by these stocks often provide a "cushion" to
returns in periods of increased market volatility. In order to manage the risk
associated with investing in bonds, the Fund invests in a broad array of debt
securities with varying maturities, quality and industry representation.
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.
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.
26
<PAGE>
AARP GROWTH AND INCOME FUND
Fund Objective:
To provide long-term capital growth and income but with less risk of loss of
portfolio than other growth and income mutual funds, measured by the frequency
and amount by which total return fluctuates downward. The Fund pursues these
objectives by investing primarily in common stocks with above-average dividend
yields and fixed-income securities convertible into common stocks.
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 five 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 risk of loss to its
portfolio than other 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.
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."
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 five years or more) and be comfortable with fluctuation in the
value of their principal. See "Other Investment Policies and Risk Factors." The
level of income you receive will be affected by dividends paid on the securities
held by the Fund.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce the risk of loss to its portfolio by investing
in a diverse selection of relatively high dividend-paying stocks. Stocks with
above-average dividend yields tend to trade at attractive market valuations
(e.g., price-to-earnings and price-to-book ratios), which can help lessen risk.
In addition, the higher dividends offered by these stocks may provide a
"cushion" when the stock market is volatile.
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.
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 12 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 16 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, Portfolio Manager, joined the Fund in 1997 and Scudder in
1996. Ms. Chaplin has six years of investment experience as a securities analyst
and institutional investment portfolio manager.
27
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28
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AARP U.S. STOCK INDEX FUND
Fund Objective:
To provide long-term capital growth and income but with less risk of loss to its
portfolio than an S&P 500 Index mutual fund, measured by the frequency and
amount by which total return fluctuates downward. The Fund pursues these
objectives by emphasizing common stocks with above-average dividend yields,
while maintaining investment characteristics otherwise similar to the S&P 500
Index.
For whom is the Fund designed?
This 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 five 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 risk of loss to its portfolio 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 computer 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 generally track the S&P 500 within 1%,
before expenses, on an annualized basis. 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 expects to come close to the capitalization weights of the
S&P 500. Nonetheless, to enhance the yield and liquidity characteristics of the
Fund and reduce transaction costs, the Fund will not exactly replicate the
portfolio weights of the S&P 500 and will not hold all 500 stocks within that
Index. 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 may also invest in Standard
& Poor's Depository 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." Like most 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 the Index, before expenses,
within an annualized 1% total return of the S&P 500 for an extended period, the
Fund Manager will consider alternative approaches.
The Fund is neither sponsored by nor affiliated with Standard & Poor's.
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 five years or more) and be comfortable with fluctuation in
the value of their principal. See "Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
The Fund is designed to track the overall U.S. stock market as characterized by
the S&P 500 Index, and therefore will be subject to market risk. However, to a
certain extent the Fund will attempt to manage this risk and provide somewhat
higher dividend income. The Fund's Subadviser uses a proprietary computer model
to select 400 or more stocks in the S&P Index that are expected to, on average,
pay higher dividends than S&P 500 companies overall. This investment approach
may result in performance that is somewhat less volatile than that of the S&P
500 Index over time.
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.
29
<PAGE>
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.
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. 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.
The Fund Manager 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
dating back to 1977 and is currently one of the largest managers of passive
investments in the U.S.
30
<PAGE>
AARP CAPITAL GROWTH FUND
Fund Objective:
To provide long-term capital growth but with less risk of loss to its portfolio
than other growth funds, measured by the frequency and amount by which total
return fluctuates downward. The Fund pursues these objectives by investing
primarily in a diversified mix of common stocks and fixed-income securities
convertible into common stocks of established medium- and large-sized companies.
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 five 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 Income
Fund, AARP U.S. Stock Index Fund and AARP Global Growth Fund, but less share
price fluctuation than AARP International Growth and Income 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 risk of loss to its portfolio than other 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."
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 five years or more) and be comfortable with fluctuation to the value
of their principal. See "Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
While the Fund involves above-average stock market risk, it does attempt to
manage the risk of loss to its portfolio by focusing on high quality
medium-to-large sized companies with reasonable stock market valuations. The
Fund Manager invests in established companies with promising characteristics: a
history of consistent earnings growth, competitive strength and the potential
for continued growth. The Fund is broadly diversified among industries and
companies.
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.
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 16 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 17 years of investment industry experience and joined Scudder in
1991.
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AARP SMALL COMPANY STOCK FUND
Fund Objective:
To provide long-term capital growth but with less risk of loss than to its
portfolio than other small company stock mutual funds, measured by the frequency
and magnitude with which total return fluctuates downward. The Fund pursues
these objectives by investing primarily in a broadly diversified portfolio of
common stocks of small U.S. companies.
For whom is the Fund designed?
This 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 five 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 and seeks to maintain 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 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 obtain and analyze
complete, up-to-date financial information on numerous small companies, 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 capital growth, 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 capitalizations generally below $1
billion that, as a group, have a dividend yield higher than the average of those
in the Russell 2000 Index(R) and that the Fund Manager believes are undervalued
relative to the stocks in the Russell 2000 Index(R). The Russell 2000 Index(R)
is a widely used measure of small stock performance. 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, typically
holding 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."
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 capital growth through investing in small company stocks. Investors
should focus on the longer term (at least five 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."
How does the Fund seek to manage risk?
While the Fund involves above-average stock market risk, the Fund is actively
managed to reduce the risk of loss to its portfolio relative to other small
company stock funds. It does this by using a highly systematic value-oriented
investment style that focuses on small capitalization issues which, grouped
together, normally provide higher-than-average dividend income. These stocks
typically have lower risk. Risk is further managed by diversifying among a large
number of stocks, and by using specialized portfolio management techniques to
monitor the Fund's risk exposure.
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 gain
typically will be distributed annually after September 30.
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 11 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.
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AARP GLOBAL GROWTH FUND
Fund Objective:
To provide long-term capital growth but with less risk of loss to its portfolio
than other global growth mutual funds, measured by the frequency and amount by
which total return fluctuates downward. The Fund pursues these objectives by
investing primarily in common stocks of established corporations in a wide
variety of developed countries, including the U.S.
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 five 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. 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 provides more diversification
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 risk of loss to its portfolio than other 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 Growth and Income 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 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."
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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 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 five
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."
How does the Fund seek to manage risk?
While the Fund involves above-average equity risk, it is designed to actively
reduce risk of loss as compared to other global stock mutual 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.
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 21 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.
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AARP INTERNATIONAL GROWTH AND INCOME FUND
Fund Objective:
To provide long-term capital growth and income but with less risk of loss to its
portfolio than other international mutual funds, measured by the frequency and
amount by which total return fluctuates downward. The Fund pursues these
objectives by investing primarily in a diversified portfolio of foreign common
stocks with above-average dividend yields and foreign fixed-income securities
convertible into common stocks.
For whom is the Fund designed?
This 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 five 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 Growth and Income 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.
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 the basis of 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.
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."
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term capital 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
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and more volatile than comparable domestic securities, and there is generally
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 five 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."
How does the Fund seek to manage risk?
While the Fund involves above-average equity risk, it is designed to actively
reduce the risk of loss to the Fund's portfolio relative to other international
stock funds. It normally 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.
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 11 years of investment industry
experience. Portfolio Manager Irene Cheng joined Scudder in 1993. In addition to
her 14 years of investment experience, Ms. Cheng has worked on Scudder's
institutional international equity accounts. Portfolio Manager Marc Joseph
managed international portfolios prior to joining Scudder in 1997 and is a
member of Scudder's Global Equity Group where he focuses on managing
international equity portfolios. Mr. Joseph has over ten years of industry
experience.
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AARP MANAGED INVESTMENT PORTFOLIOS:
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP 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 AARP Mutual Funds ("underlying AARP Mutual Funds"). Each
portfolio is designed to serve as a complete investment program or as a core
part of a larger portfolio, producing competitive returns but with less risk of
loss than a comparable mix of stock and bond funds, measured by the amount and
frequency by which total return fluctuates downward.
Portfolio Objectives:
o The Diversified Income With Growth Portfolio seeks current income with
modest long-term appreciation. This objective is pursued by diversifying
among a mix of AARP Bond Mutual Funds, and to a lesser degree in AARP Stock
Mutual Funds. Each AARP Mutual Fund is managed to reduce the risk of loss
to its portfolio compared to similar mutual funds.
o The Diversified Growth Portfolio seeks to provide long-term growth of
capital. This objective is pursued by diversifying among a mix of AARP
Stock Mutual Funds, and to a lesser degree in AARP Bond Mutual Funds. The
AARP Mutual Funds are managed to reduce the risk of loss to its portfolio
compared to similar 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 With Growth Portfolio may be appropriate for
conservative investors nearing retirement or investors enjoying retirement,
who are looking for quarterly income with some appreciation potential.
Investors should be prepared to invest for three to five 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 five 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 With Growth 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
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 With Growth 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 cash 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.
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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 AARP Money Market Funds, 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 represented by 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
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."
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 to reduce the risk of loss to the Fund's
portfolio compared to similar Funds.
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 With Growth Portfolio will be distributed
quarterly in March, June, September and December 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.
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 six 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
six 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.
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
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The Portfolios may invest in the following AARP Mutual Funds which are designed
to provide current income:
AARP High Quality Short Term Bond Fund
AARP GNMA and U.S. Treasury Fund
AARP Bond Fund for Income
The Portfolios may invest in the following AARP Mutual Funds designed to provide
long-term growth of capital:
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 Growth and Income Fund
AARP Small Company Stock Fund
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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 Growth and Income Fund, and the AARP Small Company Stock
Fund, may purchase securities on a when-issued or forward delivery basis. That
means 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 Short Term 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 Short Term Bond Fund, the
AARP Balanced Stock and Bond Fund and the AARP Bond Fund for Income 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 Short Term 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
credit card receivables. In some cases, principal and interest payments are
partially guaranteed by a letter of credit from a financial institution.
Dollar Roll Transactions
Each of the Funds in the AARP Income Trust, namely AARP GNMA and U.S. Treasury
Fund, AARP High Quality Short Term Bond Fund, and AARP Bond Fund for Income, may
enter into dollar roll transactions with selected banks and broker/dealers.
Dollar roll transactions are treated as reverse repurchase agreements for
purposes of the Funds' borrowing restrictions and consist of the sale by the
Funds of mortgage-backed securities, together with a commitment to purchase
similar, but not identical, securities at a future date at the same price. In
addition, the Funds are paid a fee as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed after cash settlement and
initially involve only a firm commitment agreement by the Funds to buy a
security.
If the broker/dealer to whom the Fund sells the securities underlying a dollar
roll transaction becomes insolvent, the Fund's right to purchase or repurchase
the securities may be restricted; the value of the securities may change
adversely over the term of the dollar roll; the securities that the Fund is
required to repurchase may be worth less than the securities that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
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.
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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 Funds' 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 Short Term
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
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.
Real Estate Investment Trusts
Each of the Funds in the AARP Growth Trust, and the AARP High Quality Short Term
Bond Fund and the AARP Bond Fund for Income may purchase real estate investment
trusts (REITs), which pool investors' funds for investment primarily in
income-producing real estate or real estate-related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs or hybrid REITs.
Equity REITs, which invest the majority of their assets directly in real
property, derive their income primarily from rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments on real estate
mortgages in which they are invested. Hybrid REITs combine the characteristics
of both equity REITs and mortgage REITs.
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 Short Term
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
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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 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 an option.
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 and the AARP
GrowthTrust 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 may be
used to attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Fund's portfolio resulting from
securities markets or currency exchange rate fluctuations, to protect the Fund's
unrealized gains in the value of its portfolio securities, to manage the
effective maturity or duration of fixed-income securities in a Fund's portfolio,
or to establish a position in the derivatives market as a temporary substitute
for purchasing or selling particular securities. The Funds will not use these
techniques for speculative purposes.
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 securities
markets, interest rates or currency changes 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. 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. 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.
Segregated Accounts
Each Fund may be required to segregate assets (such as cash and other liquid
securities) or otherwise provide coverage consistent with applicable regulatory
policies. This would be in respect of 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.
Convertible Securities
Each Fund in the AARP Growth Trust, AARP High Quality Short Term 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,
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under certain circumstances, the right to resell the participation to the bank
on seven 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
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 Short
Term 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.
INVESTMENT RESTRICTIONS
To help reduce investment risk, each of the AARP Mutual Funds has adopted
certain fundamental 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 not borrow money, except as permitted under the 1940 Act.
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 correct certified Social Security or tax
identification number, or other certified information. To avoid this
withholding, make sure you 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 correct 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?
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.
If your investment is in the form of an AARP IRA, AARP SEP-IRA or AARP Keogh
Plan account, all distributions are automatically reinvested.
If you reinvest your dividends and capital gains, you will be purchasing shares
at the current share price.
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.
Capital gains distributions are also currently taxable, whether received in cash
or reinvested.
Distributions of short-term capital gains by all the AARP Mutual Funds are
taxable as ordinary income.
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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.
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.
If you are a shareholder in the AARP Global Growth Fund or the AARP
International Growth and Income 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.
Each AARP Mutual Fund annually sends you detailed tax information about the
amount and type of its distributions.
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.
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 Kemper
Investments, 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.
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
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In addition to the Base Fee Rate, each AARP Mutual Fund, except for the AARP
U.S. Stock Index Fund and 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 Short
Term Bond Fund .19%
AARP Bond Fund for Income .28%
AARP Insured Tax Free
General Bond Fund .19%
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
Growth and Income 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
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, 1997, fees paid to the Fund Manager totaled
___ of 1% of the average daily net assets of the AARP High Quality Money Fund,
___ of 1% of the AARP High Quality Tax Free Money Fund, ___ of 1% of the AARP
GNMA and U.S. Treasury Fund, ___ of 1% of the AARP Capital Growth Fund, ___ of
1% of the AARP High Quality Short Term Bond Fund, ___ of 1% of the AARP Insured
Tax Free General Bond Fund and AARP Growth and Income Fund, ___ of 1% of the
AARP Balanced Stock and Bond Fund, ___ of 1% of the AARP Global Growth Fund, ___
of 1% of the AARP Bond Fund for Income, ___of 1% of the AARP U.S. Stock Index
Fund, ___ of 1% of the AARP International Growth and Income Fund, and ___ of 1%
of the AARP Small Company Stock 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. The fee paid to the Subadviser is calculated on a quarterly basis
and depends on the level of total assets in the AARP U.S. Stock Index Fund. The
fee rate decreases as the level of total assets for the Fund increases. The fee
rate for each level of assets is: .07% of the first $100 million of average
daily net assets, .03% of the next $100 million, and .01% of such assets in
excess of $200 million, with a minimum annual fee of $75,000. For the first 12
months of management, the Subadviser has agreed to waive a portion of its fee.
After the first year, the full fee will be charged.
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 (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
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elimination of separate shareholder accounts which either currently are or have
potential to be invested in the underlying AARP Mutual Funds. The estimated
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
You are likely to see performance figures for AARP Mutual Funds in
advertisements, sales literature or shareholder reports. The important factors
you want to look at are Yield, Total Return and Cumulative Total Return. These
measurements are based on historical earnings, are not an indication of future
performance, and will vary based on changes in market conditions, interest rates
and the level of the individual fund's expenses. You can also use these
measurements to compare the performance of similar types of mutual funds using
standard industry formulas.
What is Yield?
Yield refers to the net investment income generated over a specific period of
time. Since yield is always calculated using a standard industry formula, it is
a useful way for you to compare the income produced by different mutual funds.
For the AARP High Quality Money Fund, the AARP Income Funds, AARP Tax Free Funds
and AARP Diversified Income With Growth Portfolio, yield is a measure of income.
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 seven-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.
What is a Dividend?
A dividend represents a distribution of a portion of net income and short-term
capital gains from a mutual fund, and is distributed on a regular basis as
declared by the Trustees of a mutual fund. For example, many bond funds
distribute dividends on a monthly basis, while stock funds tend to distribute
any net income and short-term capital gains (dividends) at the end of the year -
at the same time the fund distributes any long-term capital gains. Other funds
may distribute dividends on a semi-annual or quarterly basis, depending on the
objectives of the specific fund.
What is a Capital Gain?
A capital gain, as it applies to a mutual fund shareholder, is a payment
representing a portion of the net realized gains when securities in the fund's
portfolio are sold. A "net realized gain" is determined by subtracting any
losses from the profits made on the sale of securities.
The term "capital gain" is also used to describe the gain or loss calculated
when a shareholder sells mutual fund shares. This gain or loss is the difference
between the purchase price of a mutual fund's shares and the price at which the
shares are sold. When the difference is positive, meaning that the shares have
gained value, the investor has realized a capital gain.
What is Total Return?
Total return measures dividends, capital gains distributions and changes up and
down in the share price of a particular fund. Total Return assumes that shares
were bought on the first day of the period shown, and redeemed (sold) on the
last day. It also assumes that all earnings were reinvested back into the fund.
It follows that if you bought or redeemed shares on different days or took some
of your earnings as cash, your actual return would be different from the figures
that are shown.
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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 Tax-Equivalent Yield?
To determine if tax-free investing is right for you, a good indicator is to
convert a yield from a tax-exempt mutual fund to its equivalent taxable yield.
The tax-equivalent yields of the AARP Tax Free Funds let you determine the yield
you would have to receive from a fully taxable investment to produce an aftertax
yield equivalent to that of 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?
A share is a unit of ownership in a mutual fund. The 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 (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.
OPENING AN AARP MUTUAL FUND ACCOUNT
The minimum initial investment for the AARP GNMA and U.S. Treasury, Balanced
Stock and Bond Fund, and Growth and Income Fund is $500. All other AARP Mutual
Funds have a minimum initial investment of $2,000. (The minimum initial
investment for a retirement account is just $250.)
1. Before you invest or send money, please read the enclosed Prospectus
carefully.
2. Detach and complete the enclosed application.
3. Return your completed application along with a check in the postage-paid
envelope provided.
4. To open an AARP IRA or Keogh account, please call 1-800-253-2277 for a
special information kit containing the appropriate application.
5. If you have questions or need assistance, call an AARP Mutual Fund
Representative at 1-800-253-2277.(TDD Service: 1-800-634-09454)
What will happen next?
Your application and check will be processed and an account number will be
assigned to you. You will also receive a confirmation that your application and
check have been received--along with instructions on how to add to your AARP
Mutual Fund investment.
WIRE TRANSFERS
To open an account, mail your completed Enrollment Form and then call an AARP
Mutual Fund Representative to obtain your account number. (Please note, AARP IRA
and AARP Keogh Plan accounts cannot be opened by wire.)
To add to your account, simply contact your bank with the following information:
o the name(s) on your account;
o your AARP Fund account number;
o the name of the AARP Fund(s) you want to invest in;
o the following name and address: State Street Bank and Trust Company,
Boston, MA 02101;
o the routing numbers ABA Number 011000028 and AC-99035420.
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ADDING TO YOUR INVESTMENT
There are five ways you can make additions to your existing AARP Mutual Fund
investment:
o Call toll-free -- 1-800-631-4636 -- 24 hours a day, days a week to exchange
from an existing fund
o Mail in your instructions--Send your check with personalized investment
slip, or a short instructional note that includes your account number and
the name of your AARP Fund(s). INCLUDE MAILING ADDRESS HERE?
o Wire your purchase -- (Please see the "Wire Transfers" instructions above.)
o Exchanging from one AARP Fund to another -- (Please see "Exchanges and
Redemptions" instructions below.)
o Invest automatically -- (Please see page 00 for complete information.)
EXCHANGES AND REDEMPTIONS
You may exchange all or part of your shares in one AARP Mutual Fund for shares
in another -- by mail, by fax, or by phone. You can also redeem (sell) fund
shares the same way. (AARP IRA redemptions can be done by phone; Keogh shares
can only be redeemed in writing.)
o By mail -- Send your instructions to P.O. Box 2540, Boston, MA, 02208-2540
o By fax -- Send your instructions to: 1-800-821-6234
o By phone -- Call 1-800-631-4636 -- 24 hours a day, seven days a week
o Sell automatically -- (Please see page 00 for complete information.)
SIGNATURE GUARANTEES
A signature guarantee is simply a certification of your signature, which is
required for your protection and to guard against fraudulent redemptions. It
guarantees that you, and you alone, are authorized to make certain requests
regarding your AARP Mutual Fund investment. A signature guarantee is required
for redemptions of more than $100,000 to the address of record.
Or when redemption proceeds are to be paid to someone other than yourself, or
when they are to be sent to an address other than yours, or if your account
address has changed during the last 15 days. If bank information is provided on
the Enrollment Form, any amount can be sent to the bank without a signature
guarantee.
STATEMENTS AND REPORTS
You will always receive a prompt confirmation statement for every transaction.
You will also receive a consolidated monthly statement that details your current
account status and notes any and all transactions. (AARP IRA and Keogh customers
receive consolidated statements on a quarterly basis.) You will also receive a
mid-year report and an annual report.
OTHER MAILINGS
Each year you will receive a current Prospectus.
INVESTOR SERVICES
There are two important toll-free phone numbers to remember:
1-800-631-4636 -- the number to call if
o you want to make an exchange between AARP Funds
o you want to open a new AARP Mutual Fund by exchange from an existing fund
o you want to redeem money to your registered address
o you want to get current performance information
o you want to get current account balance information
o you want to confirm your last transaction.
1-800-253-2277 -- the number to call if
o you want to add to an AARP Mutual Fund by transfer from your bank checking
or NOW account.
o you want to redeem and send proceeds to your checking or NOW account.
Free Checkwriting
Free checkwriting privileges are available to shareholders in the AARP High
Quality Money and High Quality Tax Free Money Funds.
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Distributions Direct
You may elect to have dividend and capital gains distributions automatically
deposited into your bank checking or NOW account. For information on this
service, please call 1-800-253-2277.
Systematic Plans
o Automatic Investment Plan will make regular investments into your AARP
Mutual Fund through scheduled, automatic deductions from your bank checking
account.
o Payroll Deduction or Direct Deposit allows you to have all or a portion of
your Social Security, U.S. Government or any regular income check (pension,
dividend, interest or payroll) deposited automatically into your AARP
Mutual Fund account.
o Automatic Withdrawal Plan will automatically send a monthly redemption of
$50 or more directly to you, provided that you have at least $10,000 or
more in an AARP Mutual Fund.
o Direct Payment of Fixed Bills lets you arrange to have all of your regular,
fixed-amount bills paid automatically (provided that you maintain a minimum
$10,000 balance in your AARP Mutual Fund account).
o Systematic Retirement Withdrawal Plan lets you receive periodic
distributions from your AARP IRA or Keogh plan account.
SOME COMMONLY ASKED QUESTIONS
What if my investment falls below the minimum balance?
If you do not increase your account balance above the minimum within 60 days of
notification, the Fund reserves the right to redeem and return the proceeds to
you. However, if your account falls below the minimum balance due to market
activity, your account will not be closed.
When purchasing shares, what is the normal check processing time?
Checks received in the mail (and wire transfers) are normally processed on the
same business day as they are received.
How soon will I start earning income on my purchase?
For AARP Funds paying daily dividends, income begins to accrue on the business
day following the actual execution of the order. For AARP Money Funds, purchases
made by wire and received before noon on any business day are executed at noon
and begin earning income the same day.
What about third-party transactions?
Purchases and redemptions made through a member of the National Association of
Securities Dealers, Inc. at the investor's request may incur a fee for services
rendered.
Can I add another AARP Mutual Fund to my existing account?
Yes, you may open another AARP Mutual Fund at any time. Your new fund will have
the same account number and registration as your existing fund(s).
When are redemptions processed?
Redemption requests received before the regular close of trading on the Exchange
(normally 4:00 p.m. Eastern time) will be processed on the same day at that
night's closing share price.
When can I expect to receive my money?
If you purchase shares by check or by phone and then redeem them by letter
within seven business days of the purchase, the redemption proceeds may be held
until the purchase check has cleared, but then your redemption proceeds will be
mailed to you promptly.
Are there any purchase restrictions?
AARP Mutual Funds do not permit a pattern of frequent purchase and sales in
response to short-term changes in share price. (This restriction does not apply
to AARP Money Funds. AARP Mutual Funds and Scudder Kemper Investments, Inc.
reserves the right to reject purchases or exchanges for any reason.)
SERVICE PROVIDERS OF THE AARP FUNDS
Legal Counsel
Dechert Price & Rhoads,
Washington, D.C.
Independent Accountants
Price Waterhouse LLP, Boston, MA
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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 Kemper Investments, Inc., Two International Place, Boston, MA 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.
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).
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). (Serves on each Trust's
Board except AARP Income Trust.)
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. (AARP Cash Investment Funds,
AARP Growth Trust and AARP Tax Free Income Trust only.)
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.
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.
JAMES H. SCHULZ, Trustee; Professor of Economics and Kirstein Professor of Aging
Policy, Policy Center on Aging, Florence Heller School, Brandeis University.
GORDON SHILLINGLAW, Trustee; Professor Emeritus of Accounting, Columbia
University Graduate School of Business.
JEAN GLEASON STROMBERG, Trustee; Consultant; Director, Financial Institutions
Issues, U.S. General Accounting Office (11/96 - 9/97); Partner, Fulbright &
Jaworski - law firm (1978 - 1996).
THOMAS W. JOSEPH*, Vice President
DAVID S. LEE*, Vice President and Assistant Treasurer
THOMAS F. McDONOUGH*, Vice President and Assistant Secretary
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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 Kemper Investments, Inc.
Notes
Notes
Notes
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AARP INVESTMENT PROGRAM FROM SCUDDER
AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND
AARP Income Trust:
AARP HIGH QUALITY SHORT TERM BOND FUND
AARP GNMA and U.S. TREASURY 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 FUN
AARP INTERNATIONAL GROWTH AND INCOME FUND
AARP SMALL COMPANY STOCK FUND
AARP Managed Investment Portfolios Trust:
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998
- --------------------------------------------------------------------------------
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, 1998, 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.
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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 Fund .............................................3
AARP Income Funds ...........................................5
AARP Tax Free Income Funds ..................................8
AARP Growth Funds ..........................................12
AARP Managed Investment Porfolios ..........................17
Special Investment Policies of the AARP Funds ..............17
General Investment Policies of the AARP Funds ..............33
Investment Restrictions ....................................34
PURCHASES .......................................................39
General Information ........................................39
Checks .....................................................39
Share Price ................................................39
Share Certificates .........................................39
Direct Deposit Program .....................................39
Wire Transfers .............................................39
Holidays ...................................................40
Other Information ..........................................40
REDEMPTIONS .....................................................40
General Information ........................................40
Redemption by Telephone ....................................41
Redemption by Mail or Fax ..................................42
Redemption by Checkwriting .................................42
Redemption-in-Kind .........................................42
Other Information ..........................................43
EXCHANGES .......................................................43
TRANSACT BY PHONE ...............................................44
Purchasing Shares by Transact by Phone .....................44
Redeeming Shares by Transact by Phone ......................44
FEATURES AND SERVICES OFFERED BY THE FUNDS ......................45
Automatic Dividend Reinvestment ............................45
Distributions Direct .......................................45
Reports to Shareholders ....................................45
Consolidated Statements ....................................45
RETIREMENT PLANS ................................................45
AARP No-Fee Individual Retirement Account
("AARP No-Fee IRA") ........................................46
AARP Keogh Plan ............................................47
OTHER PLANS .....................................................47
Automatic Investment .......................................47
Automatic Withdrawal Plan ..................................48
Direct Payment of Regular Fixed Bills ......................48
DIVIDENDS AND YIELD .............................................48
Performance Information: Computation of Yields and Total
Return .....................................................50
Taking a Global Approach ...................................56
TRUST ORGANIZATION ..............................................57
MANAGEMENT OF THE FUNDS .........................................58
Personal Investments by Employees of Scudder ...............64
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TABLE OF CONTENTS (continued)
TRUSTEES AND OFFICERS ...........................................64
REMUNERATION ....................................................67
DISTRIBUTOR .....................................................69
TAXES ...........................................................70
BROKERAGE AND PORTFOLIO TURNOVER ................................74
Brokerage Commissions ......................................74
Portfolio Turnover .........................................75
NET ASSET VALUE .................................................76
AARP Money Funds ...........................................76
AARP Non-Money Market Funds ................................77
ADDITIONAL INFORMATION ..........................................78
Experts ....................................................78
Shareholder Indemnification ................................78
Ratings of Corporate Bonds .................................78
Ratings of Commercial Paper ................................78
Ratings of Municipal Bonds .................................79
Other Information ..........................................79
Tax-Exempt Income vs. Taxable Income .......................81
FINANCIAL STATEMENTS ............................................82
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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 are 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,
1998 (the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder, Stevens & Clark, Inc., now Scudder Kemper Investments,
Inc., ("the Fund Manager" or "Scudder"), a firm with over 75 years of investment
counseling and management experience. Scudder 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 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 and 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.
Master/feeder structure. Each Trust's Board of Trustees approved a proposal
which gives the respective Board of Trustees the discretion to retain the
current distribution arrangement for the Funds while investing in a master fund
in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Summary of Advantages and Benefits
o Experienced Professional Management: Scudder Kemper Investments, Inc.,
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.
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o Diversification: you may 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 (i.e., distribution) fees.
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 With Growth 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 Growth and Income 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.
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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.
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 Fund is designed to provide current
income. In doing so, the Fund seeks to provide competitive returns with less
risk while maintaining stability of principal. The Fund seeks to maintain
stability of principal by investing primarily in high quality short-term
securities. There may be circumstances under which this goal cannot be achieved.
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 Investor Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("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
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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
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."
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AARP Income Funds
("AARP High Quality Short Term Bond Fund," See "AARP GNMA and U.S. Treasury
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 High Quality Short Term Bond Fund. The Fund is designed to produce a
high level of current income consistent with a high degree of principal
stability and to reduce the size and frequency of loss to the Fund's portfolio
compared to other short-term bond mutual funds. The Fund pursues these
objectives by investing primarily in high quality short-term U.S. Government,
corporate and other fixed income securities. 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 high quality U.S. government, corporate
and other fixed-income securities. It may purchase any investments eligible for
the AARP GNMA and U.S. Treasury Fund corporate notes and bonds, and 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, trust preferred 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.
Except for limitations in the Fund's investment restrictions, there is 20%
limit on foreign currency-denominated investments, 5% foreign currency 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 Short Term 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., (but under former
fund name) 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
- ----------------------
* [TO BE UPDATED] Morningstar proprietary rankings reflect historical
risk-adjusted performance and are calculated as of 3/31/97. 1919, 1076 and 601
Equity Funds, 1172, 630 and 258 Taxable Bond Funds and 1237, 601 and 267
Municipal Bond Funds were rated for the 3-, 5-, and 10-year periods,
respectively. The ratings are subject to change each month. Morningstar ratings
are calculated from the Funds' 3-, 5-, and 10-year average annualized total
returns in excess of 90-day T-Bill returns, with appropriate adjustments and a
risk factor that reflects fund performance below 90-day T-Bill returns. The
Funds' 3-,5-, and 10-year ratings are 5, 5, and 4 stars, respectively. Those
funds receiving 5 Stars are in the top 10% of their investment category, while
the top 22.5% of funds that Morningstar evaluates receive 4 Stars. Past
performance is not a guarantee of future results.
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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 Short Term 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 GNMA and U.S. Treasury Fund. The Fund is designed to produce a high level
of current income and to reduce the size and frequency of loss to the Fund's
portfolio compared to other short-term bond mutual funds. The fund pursues these
objectives by investing in high quality short-term U.S. Government, corporate
and other fixed-income securities.
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 most conservative choice. Although
past performance is no guarantee of 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.
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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 tend to 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 Bond Fund for Income. The Fund is designed to produce a high level of
current income and to reduce the size and frequency of loss to the Fund's
portfolio compared to other long-term bond mutual funds. The Fund pursues these
objectives by investing primarily in short, medium-term and long-term
investment-grade debt securities.
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
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, 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 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.
7
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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 Fund is designed to provide
current income free from federal income taxes. In doing so, the Fund is actively
managed for competitive returns with less risk. The Fund seeks to maintain
stability of principal by primarily investing in high quality, short-term,
federally tax-exempt municipal securities. There may be circumstances under
which this goal cannot be achieved. 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.
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.
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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.
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 Fund is designed to produce a
high level of current income free from federal income taxes and to reduce the
size and frequency of loss to the Fund's portfolio compared to other long-term
municipal bond mutual funds. The Fund pursues these objectives by investing
primarily in high quality, federally tax-exempt municipal securities that are
insured to protect against default by the municipality. The AARP Insured Tax
Free General Bond Fund is a separate series of AARP Tax Free Income Trust.
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.)
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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.
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
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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
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.
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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
distributions to shareholders, they will not give rise to taxable capital gains
or losses. However, a capital gain or taxable ordinary income 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 Growth and Income 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 Fund is designed to provide
long-term capital growth and income and to reduce the size and frequency of loss
to the Fund's portfolio compared to other balanced mutual funds. The Fund
pursues these objectives by investing primarily in a diversified mix of stocks
with above average dividend yields, high quality 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
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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.
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), trust preferred securities, 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.
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AARP Growth and Income Fund. The Fund is designed to provide long-term
capital growth and income and to reduce the size and frequency of loss to the
Fund's portfolio compared to other growth and income mutual funds. The Fund
pursues these objectives by investing primarily in common stocks with above
average dividend yields and fixed income securities which are convertible into
common stocks.
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. The Fund is designed to provide long-term
capital growth and income and to reduce the size and frequency of loss to the
Fund's portfolio compared to an S&P 500 Index mutual fund. The Fund pursues
these objectives by emphasizing common stocks with above average dividend
yields, 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 computer 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 generally track the S&P 500 within 1%
on an annualized basis. 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 the common stocks of between 400 to 470 of the S&P 500
companies. The Fund expects to come close to the capitalization weights of the
S&P 500. Nonetheless, to enhance the yield and liquidity characteristics of the
Fund and reduce transaction costs, the Fund will not exactly replicate the
portfolio weights of the S&P 500 and will not hold all 500 stocks within that
Index. 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 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. There can be no assurance that this can be accomplished as it
may not be possible for the trust to replicate and maintain exactly the
composition and relative weightings of the S&P 500 Index securities. SPDRs are
subject to the risks of an investment in a broadly based portfolio of common
stocks, including the risk that the general level of stock prices may decline,
thereby adversely affecting the value of such investment. SPDRs are also subject
to risks other than those associated with an investment in a broadly based
portfolio of common stocks in that the selection of the stocks included in the
trust may affect trading in SPDRs, as compared with trading in a broadly based
portfolio of common stocks. 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 an annualized 1% total return of the S&P 500 for an extended period, the
Fund Manager will consider alternative approaches.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
AARP Global Growth Fund. The Fund is designed to provide long-term capital
growth and to reduce the size and frequency of loss to the Fund's portfolio
compared to other global equity mutual funds. The Fund pursues these objectives
by investing primarily in common stocks of established corporations in a wide
variety of developed
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countries, including the U.S. 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. The Fund is designed to provide long-term capital
growth and to reduce the size and frequency of loss to the Fund's portfolio
compared to other growth mutual finds. The Fund pursues these objectives by
investing primarily in a diversified mix of common stocks and fixed income
securities convertible into common stocks of established medium- and large-
sized companies. 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.
AARP International Growth and Income Fund. The Fund is designed to provide
long-term capital growth and income and to reduce the size and frequency of loss
to the Fund's portfolio compared to other international mutual funds. The Fund
pursues these objectives by investing primarily in a diversified portfolio of
foreign common stocks with above average dividend yields and foreign fixed
income securities convertible into common stocks. The
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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. The Fund is designed to provide long-term
capital growth and to reduce the size and frequency of loss to the Fund's
portfolio compared to other small company stock mutual funds. The Fund pursues
these objectives by investing primarily in a broadly diversified portfolio of
common stocks of small U.S. companies.
In pursuing its objective of long-term capital growth, 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 Russell 2000 Indexr. The Russell 2000 Indexr is a
widely used measure of small stock performance. 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 Indexr. 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 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,
such as U.S. government obligations
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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 With Growth Portfolio. The Diversified Income with
Growth Portfolio seeks to provide quarterly income with modest long-term
appreciation. This objective is pursued by diversifying among a mix of AARP bond
mutual, and to a lesser degree in AARP stock mutual funds. The AARP Mutual Funds
are managed to reduce the risk of loss compared to similar mutual funds.
AARP Diversified Growth Portfolio. The Diversified Growth Portfolio seeks
to provide long-term growth of capital. This objective is pursued by
diversifying among a mix of AARP stock mutual funds, and to a lesser degree in
AARP bond mutual funds. The AARP Mutual Funds are managed to reduce the risk of
loss compared to similar 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 With Growth 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 cash 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 0-20% of total assets in cash or cash 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 AARP money market funds, 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.)
TO BE UPDATED
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Dollar Roll Transactions. Each of the Funds in the AARP Income Trust, namely
AARP GNMA and U.S. Treasury Fund, AARP High Quality Short Term Bond Fund and
AARP Bond Fund for Income may enter into "dollar roll" transactions, which
consist of the sale by the Funds to a bank or broker/dealers (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. The Funds receive a fee from the counterparty
as consideration for entering into the commitment to purchase. Dollar rolls may
be renewed over a period of several months with a different purchase and
repurchase price
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fixed and a cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm commitment
agreement pursuant to which the Funds agree to buy a security on a future date.
The Funds will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. Government securities or other high grade
debt obligations in an amount sufficient to meet their purchase obligations
under the transactions. Each Fund will also maintain asset coverage of at least
300% for all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls are treated for purposes of the 1940 Act as borrowings of the
Funds because they involve the sale of a security coupled with an agreement to
repurchase. Like all borrowings, a dollar roll involves costs to the Funds. For
example, while the Funds receive a fee as consideration for agreeing to
repurchase the security, the Funds forgo the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Funds, thereby effectively
charging the Funds interest on their borrowing. Further, although the Funds can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of each Fund's borrowing.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Funds' right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Funds are able to purchase them.
Similarly, the Funds may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Funds, the security that the Funds
are required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Funds' use of the cash
that they receive from a dollar roll will provide a return that exceeds
borrowing costs.
The Trustees of the Funds have adopted guidelines to ensure that those
securities received are substantially identical to those sold. To reduce the
risk of default, the Funds will engage in such transactions only with
counterparties selected pursuant to such guidelines.
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.
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.
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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.
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
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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.
Trust Preferred Securities. AARP Balanced Stock and Bond Fund, AARP High
Quality Short Term Bond Fund and AARP Bond Fund for Income may invest in Trust
Preferred Securities, which are hybrid instruments issued by a special purpose
trust (the "Special Trust"), the entire equity interest of which is owned by a
single issuer. The proceeds of the issuance to the Funds of Trust Preferred
Securities are typically used to purchase a junior subordinated debenture, and
distributions from the Special Trust are funded by the payments of principal and
interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by the
Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Funds, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Funds receive any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Funds, to sell their holdings.
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.
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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
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
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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
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
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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.
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.
Real Estate Investment Trusts. Each of the Funds in the AARP Growth Trust,
the AARP High Quality Short Term Bond Fund and the AARP Bond Fund for Income may
inves in REITS. REITs are sometimes informally characterized as equity REITs,
mortgage REITs and hybrid REITs. Investment in REITs may subject the Fund to
risks associated with the direct ownership of real estate, such as decreases in
real estate values, overbuilding, increased competition and other risks related
to local or general economic conditions, increases in operating costs and
property taxes, changes in zoning laws, casualty or condemnation losses,
possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund's investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold
mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend
to increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended and to maintain exemption from the 1940 Act. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs. In addition, REITs depend generally on their ability to
generate cash flow to make distributions to shareholders.
Mortgage-Backed Securities and Mortgage Pass-Through Securities. The AARP
High Quality Short Term Bond Fund, the AARP Bond Fund for Income, the AARP
Balanced Stock and Bond Fund and the AARP Growth and Income 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 Short
Term 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 tend to 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
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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.
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 Short Term
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
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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 Short Term 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.
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.
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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.
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" (TIGRST) and Certificate of Accrual on Treasuries
(CATST). 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).
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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, rated lower than Baa by Moody's or lower than BBB by S&P
(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
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 securities. 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 Growth and Income 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
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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
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
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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 Growth and
Income 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. The AARP U.S. Stock Index Fund invests its assets in
futures contracts in order to invest uncommitted cash balances, to maintain
liquidity or to minimize trading costs.
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.
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.
AARP Income Trust and AARP Tax Free Income Trust have 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
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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 with the exception of
the AARP U.S. Stock Index Fund 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 AARP U.S. Stock Index Fund invests its
assets in covered call options in order to invest uncommitted cash balances, to
maintain liquidity or to minimize trading costs. 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
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 with
the exception of the AARP U.S. Stock Index Fund may purchase put options on
stock indices. The AARP U.S. Stock Index Fund invests its assets in options on
stock indices in order to invest uncommitted cash balances, to maintain
liquidity or to minimize trading costs. 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
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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
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
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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. Each Fund in the AARP Growth Trust, AARP High
Quality Short Term 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.
Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Short Term 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
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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 Short Term 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.
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 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.
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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.
Each Fund has elected to be classified as a diversified series of an
open-end investment company.
In addition, the AARP High Quality Money Fund, AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, AARP U.S. Stock Index Fund, AARP Global Growth
Fund, AARP Growth and Income Fund, AARP International Stock Fund, AARP Small
Company Stock Fund, AARP Bond Fund for Income, 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 Diversified Income with Growth Portfolio and
AARP Diversified Growth Portfolio may not:
(A)
(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(3) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(4) concentrate its investments in investment companies, as the term
"concentrate" is used in the Investment Company Act of 1940, as
amended and interpreted by regulatory authority having jurisdiction
from time to time; except that the Fund may concentrate in an
underlying fund. However, each underlying fund in which each Portfolio
will invest may concentrate its investments in a particular industry;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except 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;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans to other persons, except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in
accordance with the Fund's investment objective and policies may be
deemed to be loans.
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(B) In addition, as a matter of fundamental policy, each of AARP High Quality
Tax Free Money Fund and AARP Insured Tax Free General Bond Fund will:
(1) have at least 80% of its net assets invested in securities that are
exempt from Federal income tax during periods of 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.
None of the Funds may:
(a) 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. Notwithstanding the foregoing,
the AARP Managed Investment Portfolios may each invest in shares of
other AARP Funds to the extent described in the current prospectus; or
None of the AARP High Quality Money Fund, the AARP High Quality Short Term Bond
Fund, the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Tax Free
Money Fund, the AARP Insured Tax Free General Bond Fund, the AARP Balanced Stock
and Bond Fund, the AARP Growth and Income Fund, the AARP Global Growth Fund and
the AARP Capital Growth Fund may:
(b) invest in other companies for the purpose of exercising control or
management.
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(c) 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 High Quality Short Term
Bond Fund, the AARP GNMA and U.S. Treasury Fund, the AARP Insured Tax
Free General Bond Fund and the AARP Global Growth Fund in connection
with entering into futures contracts and related options;
(d) 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;
(e) 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;
(f) 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;
(g) 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;
(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 interests therein; and
(i) purchase or sell commodities, commodities contracts (except, in the
case of the AARP High Quality Short Term Bond Fund, the AARP GNMA and
U.S. Treasury Fund, 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.
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 (A)(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 High Quality Short Term Bond Fund nor the AARP GNMA and U.S.
Treasury Fund may:
(m) purchase warrants of any issuer, except that AARP High Quality Short
Term 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
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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"; or
(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 (A)(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 Short Term 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; or
(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; or
(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 (B)(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.
None of the AARP Balanced Stock and Bond Fund, the AARP Growth and Income Fund,
the AARP Capital Growth Fund and the AARP Global 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
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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;
or
(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 (A)(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
(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.
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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.
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
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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.
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.
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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
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
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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.
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 Growth and Income Fund, AARP Small Company Fund, AARP U.S. Stock
Index Fund, AARP Diversified Income With Growth 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
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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. An account may be opened in any AARP Mutual Fund for $500
if an Automatic Investment Plan of $100 per month is established. 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 ($500 for AARP
Balanced Stock & Bond Fund, AARP Growth and Income Fund and AARP GNMA and U.S.
Treasury Fund). For IRA, Keogh Plan and UGMA/UTMA 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
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.
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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
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
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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.
RETIREMENT PLANS
Shares of AARP High Quality Money Fund, AARP High Quality Short Term Bond
Fund, AARP GNMA and U.S. Treasury 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
Growth and Income Fund and AARP Small Company Stock Fund ("Eligible Funds") may
be purchased
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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. Alternatively, if your compensation during the
taxable year exceeds your spouse's and you file a joint income tax return, you
may contribute up to the lesser of $4,000 or 100% of your aggregate income to
separate IRAs for yourself and your spouse, but no more than $2,000 to either
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
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.)
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Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- --------------------------------------------------------------------------------
Starting
Age of Annual Rate of Return
----------------------------------------------------
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. Five-year averaging has been eliminated for
taxable years beginning after December 31, 1999. 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 tax-qualified plans, such as the AARP Keogh
Plan, must begin by April 1st in the year following the year in which the
participant reaches age 70 1/2, or following the year in which the participant
retires, if later, unless the participant is a 5% owner, 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.
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
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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. Investors may also invest in
any AARP mutual fund for $500 a month if they establish a plan with a minimum
automatic investment of at least $100 per month. 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. Shareholders may designate which day they
want the automatic withdrawal to be processed. 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 10 days prior to the date of the
first automatic withdrawal. 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.)
AARP Income Funds, AARP Growth Funds, AARP Tax Free General Bond Fund and AARP
Managed Investment Portfolios
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
fiscal year end. AARP Small Company Stock Fund, AARP International Growth and
Income 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. See "TAXES."
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<PAGE>
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 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.
AARP Money Funds
The net investment income of the AARP Money Funds is determined as of the
close of regular trading on the Exchange, usually 4 p.m., eastern time, on each
day the Exchange is open for trading.
All the investment income of the AARP Money Funds so determined normally
will be declared as a dividend to shareholders of record as of determination of
the net asset value at twelve o'clock noon after the purchase and redemption of
shares. Shares purchased as of the determination of net asset value made as of
the close of the Exchange will not participate in that day's dividend; in such
cases dividends commence on the next business day. Checks will be mailed to
shareholders electing to take dividends in cash, and confirmations will be
mailed to shareholders electing to invest dividends in additional shares for the
month's dividends on the fourth business day of the next month. Dividends will
be invested at the net asset value per share, normally $1.00, determined as of 4
p.m. on the first business day of each month.
Dividends are declared daily on each day on which the Exchange is open for
business. The dividends for a business day immediately preceding a weekend or
holiday will normally include an amount equal to the net income for the
subsequent days on which dividends are not declared. However, no daily dividend
will include any amount of net income in respect of a subsequent semi-annual
accounting period.
Because the net investment income of the AARP Money Funds is declared as a
dividend each time the net income of the Fund is determined, the net asset value
per share of the Fund (i.e., the fair value of the net assets of the Fund
divided by the number of shares of the Fund outstanding) will remain at $1.00
per share immediately after each such determination and dividend declaration,
unless (i) there are unusual or extended fluctuations in short-term interest
rates or other factors, such as unfavorable changes in the creditworthiness of
issuers affecting the value of securities in the Fund's portfolio, or (ii) net
investment income is a negative amount.
Net investment income (from the time of the immediately preceding
determination thereof) consists of (i) all interest income accrued on the
portfolio assets of the Fund less (ii) all actual and accrued expenses. Interest
income included in the daily computation of net income is comprised of original
issue discount earned on discount paper accrued ratably to the date of maturity
as well as accrued interest. Expenses of the AARP Money Funds, including the
management fee payable to the Adviser, are accrued each day.
Normally the AARP Money Funds will have a positive net investment income at
the time of each determination thereof. Net investment income may be negative if
an unexpected liability must be accrued or a loss realized. If the net
investment income of the AARP Money Funds determined at any time is a negative
amount, the net asset value per share will be reduced below $l.00 unless one or
more of the following steps are taken: the Trustees have the authority (l) to
reduce the number of shares in each shareholder's account, (2) to offset each
shareholder's pro rata portion of negative net investment income from the
shareholder's accrued dividend account or from future dividends, or (3) to
combine these methods in order to seek to maintain the net asset value per share
at $l.00. The AARP Money Funds may endeavor to restore the net asset value per
share to $l.00 by not declaring dividends from net investment
49
<PAGE>
income on subsequent days until restoration, with the result that the net asset
value per share will increase to the extent of positive net investment income
which is not declared as a dividend.
Distributions of realized capital gains, if any, are paid in November or
December of the AARP Money Funds' taxable year although the Fund may make an
additional distribution within three months of the Fund's fiscal year end of
September 30. The AARP Money Funds expect to follow the practice of distributing
all net realized capital gains to shareholders and expect to distribute realized
capital gains at least annually. However, if any realized capital gains are
retained by the AARP Money Funds for reinvestment and federal income taxes are
paid thereon by the Fund, the Fund will elect to treat such capital gains as
having been distributed to shareholders; as a result, shareholders would be able
to claim their share of the taxes paid by the Fund on such gains as a credit
against their individual federal income tax liability.
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 the Funds 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.
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, 1997 respectively, were _____% and _____%.
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:
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, 1997
respectively, were ____% and ____%.
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.
50
<PAGE>
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.
Total Return
----------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/97 9/30/97 9/30/97(1)
------- ------- ----------
AARP High Quality Money Fund
AARP High Quality Tax Free
Money Fund*
AARP High Quality Short
Term Bond
AARP GNMA and U.S.
Treasury
AARP Bond Fund for
Income+
AARP Insured Tax Free General
Bond 5.88% 6.99% 7.48%
AARP Insured Tax Free
General Bond
AARP Balanced Stock and
Bond Fund [TO BE
AARP Growth and Income UPDATED]
AARP U.S. Stock Index
Fund+
AARP Global Growth
Fund
AARP Capital Growth
AARP International
Growth and Income Fund+
AARP Small Company Stock
Fund+
AARP Diversified
Income With Growth
Portfolio+
AARP Diversified Income n.a. n.a. n.a.
AARP
DiversifiedPortfolio+
AARP Diversified Growth
Portfolio+ n.a. n.a. n.a.
AARP Diversified Growth
Portfolio+
AARP Diversified Growth
Portfolio+ n.a. n.a. n.a.
(1) For the ten fiscal years ended September 30, 1997 for each of the above
listed Funds except for the period February 1, 1994 (commencement of
operations) to September 30, 1997 for the AARP Balanced Stock and Bond
Fund and for the period February 1, 1996 (commencement of operations) to
September 30, 1996 for the AARP Global Growth 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, 1997 for the
51
<PAGE>
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
Growth and Income Fund, AARP Small Company Stock Fund, AARP Diversified
Income With Growth 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.
Total Return
----------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/97 9/30/97 9/30/97(1)
------- ------- ----------
AARP Balanaced Stock and
Bond Fund
AARP Growth and
Income
AARP U.S. Stock Index
Fund+
AARP Global Growth
Fund [TO BE
AARP Capital Growth UPDATED]
AARP International
Growth and Income Fund+
AARP Small Company Stock
Fund+
AARP Diversified
Growth Portfolio+
(1) For the period February 1, 1994 (commencement of operations) to September
30, 1997 for the AARP Balanced Stock and Bond Fund and for the period
February 1, 1996 (commencement of operations) to September 30, 1997 for the
AARP Global Growth Fund.
+ AARP U.S. Stock Index Fund, AARP International Growth and Income Fund, AARP
Small Company Stock Fund and AARP Diversified Growth Portfolio commenced
operations on February 1, 1997.
c) The AARP Income Funds, AARP Insured Tax Free General Bond Fund and AARP
Diversified Income With Growth Portfolio
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:
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<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, 1997
---- ---------------------------
AARP High Quality Short Term Bond
AARP GNMA and U.S. Treasury
AARP Bond Fund for Income+ [TO BE UPDATED]
AARP Insured Tax Free General ---------------
AARP Diversified Income
With Growth Portfolio+
+ AARP Bond Fund for Income and AARP Diversified Income With Growth Portfolio
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.
Equivalent Taxable Yields
period ended September 30, 1997
-------------------------------
Fund Tax Bracket 28% 31%
----
AARP High Quality Tax [TO BE
Free Money UPDATED]
AARP Insured Tax Free
General Bond
AARP High Quality Tax
Free Money 4.18% 4.36%
(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.
53
<PAGE>
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,
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.
54
<PAGE>
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.
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.
55
<PAGE>
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.
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 issued 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.
56
<PAGE>
TRUST ORGANIZATION
(See "FUND ORGANIZATION" in the Prospectus.)
Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP High Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury
Fund, and the AARP Bond Fund for Income are series of AARP Income Trust. AARP
High Quality Tax 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 Growth and Income 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 With
Growth 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 the Trusts, 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 the Trusts 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
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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.
Scudder, the investment manager for the Fund, has entered into an agreement
with Zurich Insurance Company ("Zurich"), an international insurance and
financial services organization, pursuant to which Scudder will form a new
global investment organization by combining with Zurich's subsidiary, Zurich
Kemper Investments, Inc., and change its name to Scudder Kemper Investments,
Inc. After the transaction is completed, Zurich will own approximately 70% of
the new organization with the balance owned by the new organization's officers
and employees.
MANAGEMENT OF THE FUNDS
(See "FUND ORGANIZATION" in the Prospectus.)
Each Trust has retained Scudder, Stevens & Clark, Inc., a Delaware
corporation (the "Fund Manager"), to perform management and investment advisory
services for the Funds. Each Trust, except AARP Managed Investment Portfolios
Trust, has retained the Fund Manager pursuant to an Investment Management
Agreement with each Trust ("Management Agreement") dated ______________. AARP
Managed Investment Portfolios Trust has retained the Fund Manager to perform
management and investment advisory services for the Portfolios pursuant to an
Investment Management Agreement dated ________________.
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, 1997 were over $___ 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 High Quality Short Term Bond Fund, 19/1200 of 1% (or approximately .19
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 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);
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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 Growth and Income 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 With Growth Portfolio, n/a;
AARP Diversified Growth Portfolio, n/a.
The advisory fees from the Management Agreement for the three fiscal years
ended September 30, 1995, 1996 and 1997 were as follows:
1995 1996 1997
---- ---- ----
AARP High Quality Money Fund $1,492,545 $1,522,929
AARP High Quality Money Fund $1,244,322 $1,492,545 $1,522,929
AARP High Quality Short Term
Bond Fund 2,600,629 2,550,245
AARP GNMA and U.S. Treasury
Fund 22,095,173 21,113,592
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.
AARP High Quality Tax Free
Money Fund 493,693 453,559
AARP Insured Tax Free General
Bond Fund 8,813,051 8,665,253
AARP Insured Tax Free General
Bond Fund 9,944,429 8,813,051 8,665,253
AARP Balanced Stock and Bond
Fund@ 960,412 1,560,129
AARP Growth and Income Fund 12,406,325 17,423,770
AARP Growth and Income Fund 9,533,476 12,406,325 17,423,770
AARP U.S. Stock Index Fund** n.a. n.a.
AARP Global Growth Fund* n.a. 266,155
AARP Capital Growth Fund 3,988,023 4,626,894
AARP Capital Growth Fund 4,184,437 3,988,023 4,626,894
AARP International Growth
and Income Fund** n.a. n.a.
AARP Small Company Stock
Fund** n.a. n.a.
AARP Diversified Income
With Growth Portfolio** n.a. n.a.
AARP Diversified Growth
Portfolio** n.a. n.a.
@ 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
Growth and Income Fund, AARP Small Company Stock Fund, AARP Diversified
Income With Growth Portfolio and AARP Diversified Growth Portfolio commenced
operations on February 1, 1997.
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, 1995, 1996
and 1997 were as follows:
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1995 1996 1997
---- ---- ----
AARP High Quality Money Fund .98% .96%
AARP High Quality Short Term .95 .91
Bond Fund
AARP GNMA and U.S. Treasury .67 .64
Fund
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free
Money Fund .87 .85
AARP Insured Tax Free General
Bond Fund .69 .66
AARP Balanced Stock and Bond
Fund@ 1.01 .88
AARP Growth and Income Fund .72 .69
AARP U.S. Stock Index Fund** n.a. n.a.
AARP Global Growth Fund* n.a. 1.75+
AARP Capital Growth Fund .95 .90
AARP International Growth
and Income Fund** n.a. n.a.
AARP Small Company Stock
Fund** n.a. n.a.
AARP Diversified Income
With Growth Portfolio** n.a. n.a.
AARP Diversified Growth
Portfolio** n.a. n.a.
@ 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
Growth and Income Fund, AARP Small Company Stock Fund, AARP Diversified
Income With Growth Portfolio and AARP Diversified Growth Portfolio commenced
operations on February 1, 1997.
For the fiscal year ended September 30, 1994, the reimbursement by the Fund
Manager based on the expense limitation then in effect was $8,083 to AARP High
Quality Tax Free Money Fund. For the fiscal year ended September 30, 1996, the
reimbursement by the Fund Manager based on the expense limitation in effect was
$175,025 to AARP Global Growth Fund. [TO BE UPDATED]
If reimbursement is required, it will be made as promptly as practicable
after the end of each Fund'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 the Fund
Manager. 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
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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.)
[SECTION TO BE UPDATED] The Investment Management Agreements for all Funds
except AARP Global Growth Fund, AARP Bond Fund for Income, AARP U.S. Stock Index
Fund, AARP International Growth and Income Fund, and AARP Small Company Stock
Fund will remain in effect until _____________ 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 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
_____________ 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 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
Growth and Income Fund, and AARP Small Company Stock Fund and the Investment
Management Agreement for the AARP Diversified Income With Growth Portfolio and
AARP Diversified Growth Portfolio will remain in effect until _____________ 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 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
_____________ and by the shareholders on _____________. 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 Growth and Income 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 January 30, 1997. 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.
Pursuant to a Subadvisory Agreement entered into between the Fund Manager
and Bankers Trust Company on February 1, 1997, Bankers Trust Company (the
"Subadviser") provides subadvisory services relating to the management of the
AARP U.S. Stock Index Fund. The fee paid to the Subadviser is calculated on a
quarterly basis and depends on the level of total assets in the AARP U.S. Stock
Index Fund. The fee rate decreases as the level of total assets for the Fund
increases. The fee rate for each level of assets is: 0.07% of the first $100
million of average daily net assets, 0.03% of such assets in excess of $100
million, and 0.01% of such assets in excess of $200 million with a minimum
annual fee of $75,000. For the first twelve months of management, the Subadviser
has agreed to waive a portion of its fee. After the first year, the full fee
will be charged.
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
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<PAGE>
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 Managed Investment Portfolios 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.
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.
[TO BE UPDATED]
Scudder 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., Scudder Spain and Portugal 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.
Pursuant to an Agreement between Scudder and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
Scudder has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by Scudder with respect to assets invested by AMA members in Scudder
funds in connection with the AMA InvestmentLink(SM) Program. Scudder will also
pay AMA Solutions, Inc. a general monthly fee, currently in the amount of $833.
The AMA and AMA Solutions,
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Inc. are not engaged in the business of providing investment advice and neither
is registered as an investment adviser or broker/dealer under federal securities
laws. Any person who participates in the AMA InvestmentLinkSM Program will be a
customer of Scudder (or of a subsidiary thereof) and not the AMA or AMA
Solutions, Inc. AMA InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
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.
Each Investment 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 Investment 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.
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 0.07 of 1%
for the first $6 billion, 0.06 of 1% for the next $10 billion and 0.05 of 1%
thereafter.
The Member Services Agreement will remain in effect until ____________
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
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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.
TRUSTEES AND OFFICERS
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Linda Coughlin##* Chairman of Managing Director Director and
(45) the Board of Scudder, Senior Vice
and Trustee Stevens & Clark, Inc. President
Horace B. Deets+* Vice Executive --
(58)9)(AARP Income Chairman Director, American
Trust only) and Trustee Association of
Retired Persons
Carole Lewis Trustee President, MASDUN --
Anderson (53) 3616 Capital Advisors;
Reservoir Road, Formerly Principal,
N.W. 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
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Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Adelaide Attard Trustee Gerontology --
(67) 270-28N Grand Consultant;
Central Parkway Member, New York
Floral Park, NY City Department of
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)
Robert N. Butler, Trustee Director, --
M.D. (71) 211 International
Central Park Longevity Center
WestApt. 7FNew and Professor of
York, NY Geriatrics and
Adult 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)
Esther Canja+* Trustee Vice President, --
(69)70)(Each Trust American
except AARP Income Association of
Trust) 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 Trustee Senior Fellow and --
(68) 845 Third Economic Counselor
Ave.New York, NY
Lt. Gen. Eugene Trustee Lt. General --
P. Forrester (Retired), U.S.
(71)1101 S. Army;
Arlington Ridge International
Rd. Arlington, VA Trade Counselor
(1983 to present);
Consultant
65
<PAGE>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
George L. Maddox, Trustee Professor Emeritus --
Jr. (72) P.O. Box and Director, Long
2920 Duke Univ. Term Care
Medical Center Resources Program,
Durham, NC Duke University
Medical Center;
Professor Emeritus
of Sociology,
Departments of
Sociology and
Psychiatry, Duke
University
Robert J. Myers Trustee Actuarial --
(85) 9610 Wire Consultant (1983-
Ave. Silver Spring, present); Formerly
MD Chairman,
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.
James H. Schulz Trustee Professor of --
(61)158 Scruton Economics and
Pond Road, Kirstein Professor
Barrington, NH of Aging Policy,
Policy Center on
Aging, Florence
Heller School,
Brandeis
University
Gordon Shillinglaw Trustee Professor Emeritus --
(72)196 Villard of Accounting,
Ave. Hastings-on- Columbia
Hudson, NY University
Graduate School of
Business
Jean Gleason Trustee Consultant,
Stromberg (54) Director,
Financial
Institutions
Issues, U.S.
General Accounting
Office (11/96-
9/97); Partner,
Fulbright &
Jaworski Law Firm
(1978-1996)
Thomas W. Joseph## Vice Principal of Vice
(58) President Scudder, Stevens & President,
Clark, Inc. Director,
Treasurer and
Assistant
Clerk
David S. Lee## Vice Managing Director President,
(64) President of Scudder, Assistant
and Stevens & Clark, Treasurer and
Assistant Inc. Director
Treasurer
66
<PAGE>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Thomas F. Vice Principal of Assistant
McDonough## (51) President Scudder, Stevens & Clerk
and Clark, Inc.
Assistant
Secretary
Pamela A. McGrath## Vice Managing Director --
(44) President of Scudder,
and Stevens & Clark,
Treasurer Inc.
Edward J. Vice Principal of Assistant
O'Connell# (52) President Scudder, Stevens & Treasurer
and Clark, Inc.
Assistant
Treasurer
James W. Pasman## Vice Principal of --
(45) President Scudder, Stevens &
Clark, Inc.
Kathryn L. Quirk# Vice Managing Director Senior Vice
(45) President of Scudder, President and
and Stevens & Clark, Clerk
Secretary Inc.
Howard Schneider## Vice Managing Director --
(40) President of Scudder,
Stevens & Clark,
Inc.
Cornelia M. Small# President Managing Director --
(53) of Scudder,
Stevens & Clark,
Inc.
* Mr. Deets, 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.
As of December 31, 1997, 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, 1997 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, 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 or AARP will be paid by the Trust(s) for which he
or she serves as Trustee. Until September 30, 1997, each of these unaffiliated
Trustees received an annual retainer of $10,000 from each Fund for which he
or she serves plus $175 for each Trustees' meeting and $150 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 nominating committee meeting, other
than an audit committee meeting, and $125 for each additional 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
67
<PAGE>
the Funds. For the year ended September 30, 1997, the Trustees' fees and
expenses for thirteen of the Funds were as follows:
Fund Expense
---- -------
AARP High Quality Money Fund $26,370
AARP High Quality Short Term Bond Fund 27,329
AARP GNMA and U.S. Treasury Fund 27,352
AARP High Quality Tax Free Money Fund 26,792
AARP Insured Tax Free General Bond Fund 26,678
AARP Balanced Stock and Bond Fund 26,346
AARP Growth and Income Fund 26,366
AARP Bond Fund for Income 16,790
AARP U.S. Stock Index Fund 16,790
AARP International Growth and Income Fund 16,790
AARP Small Company Stock Fund 18,680
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, 1997.
<TABLE>
<CAPTION>
AARP AARP Managed All AARP Trusts
AARP Cash AARP Tax Free AARP Investment and Scudder
Name Investment Fund+++ Income Trust Income Trust Growth Trust Portfolios Trust+ Fund Complex
- ---- ---------------- ------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
TO BE UPDATED
</TABLE>
+++ AARP Cash Investment Fund consists of one Fund: AARP High Quality Money
Fund.
68
<PAGE>
@ AARP Income Trust consists of three Funds: AARP High Quality Short Term
Bond Fund, AARP GNMA and U.S. Treasury 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 Growth and
Income Fund,* and AARP Small Company Stock Fund.*
+ AARP Diversified Income With Growth Portfolio and AARP Diversified Growth
Portfolio, series of AARP Managed Investment Portfolios Trust, commenced
operations on February 1, 1997.
* AARP Global Growth Fund commenced operations on February 1, 1996. AARP Bond
Fund for Income, AARP U.S. Stock Index Fund, AARP International Growth
and Income 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, 1997, 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, a Delaware corporation. The underwriting agreements for
all of the Trusts except AARP Managed Investment Portfolios Trust dated
September 4, 1985 will remain in effect until _____________ 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. The underwriting agreement for AARP Managed
Investment Portfolios Trust is dated February 1, 1997 and will remain in effect
until August 31, 1998 and from year to year thereafter.
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
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.
69
<PAGE>
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. If a portion of a Fund's income consists of dividends paid by U.S.
corporations, a portion of the dividends paid by the Fund may be eligible for
the corporate dividends-received deduction.
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 that a Fund designates as capital gains
dividends 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
and are not eligible for the corporate dividends - received deduction. Any loss
realized upon the redemption of shares held 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 on such shares.
70
<PAGE>
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 security and at least one
option or other position with respect to the 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.
71
<PAGE>
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. If a Fund invests
in certain high yield original issue discount obligations issued by
corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.
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
72
<PAGE>
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.
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
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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.
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.
Special Information Regarding the AARP Managed Investment Portfolios:
Distribution of an underlying AARP Mutual Fund's investment company taxable
income are taxable as ordinary income to an AARP Managed Investment Portfolio
which invests in the Fund. Distribution of the excess of an underlying AARP
Mutual Fund's net long-term capital gain over its net short-term capital loss,
which are properly designated as "capital gain dividends, " are taxable as
long-term capital gain to an AARP Managed Investment Portfolio which invests in
the Fund, regardless of how long the Portfolio held the Fund's shares, and are
not eligible for the corporate dividends-received deduction. Upon the sale or
other disposition by an AARP Managed Investment Portfolio of shares of an
underlying AARP Mutual Fund, the Portfolio generally will realize a capital gain
or loss which will be long-term or short-term, generally depending upon the
Portfolio's holding period for the shares. The AARP Managed Investment
Portfolios will not be eligible to elect to "pass through" to their shareholders
the ability to claim a deduction or credit with respect to foreign income and
similar taxes paid by an underlying AARP Mutual Fund.
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 commissions.
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
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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 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.
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.
[TO BE UPDATED]
For the fiscal years ended September 30, 1995, 1996 and 1997 the AARP
Growth and Income Fund paid brokerage commissions of $2,319,113, $1,690,604 and
$3,453,660 and the AARP Capital Growth Fund paid brokerage commissions of
$1,156,320, $2,636,662, and $1,011,500, both respectively. For the fiscal period
ended September 30, 1995, and for the fiscal years ended September 30, 1996 and
1997, the AARP Balanced Stock and Bond Fund paid brokerage commissions of
$152,376, $149,816, and $201,070, respectively. For the fiscal period February
1, 1996 (commencement of operations) until September 30, 1997, the AARP Global
Growth Fund paid brokerage commissions of $209,773. In the fiscal year ended
September 30, 1997, $_________ (___% 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, 1997, $________ (___%) 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, 1997, $________ (___%) 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 amount of such transactions aggregated $__________ for AARP Global Growth
Fund (___% of all brokerage transactions). 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
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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, 1995, 1996, and 1997 for five of the non-money market Funds were:
AARP High Quality Short Term Bond Fund, 201.07%, 169.96% and 83.26%; AARP GNMA
and U.S. Treasury Fund, 70.35%, 83.44% and 94.24%; AARP Insured Tax Free General
Bond Fund, 17.45%, 18.69% and 7.82%; AARP Growth and Income Fund, 31.26%, 25.02%
and 33.4%; AARP Capital Growth Fund, 98.44%, 64.84% and _____%, all
respectively. The portfolio turnover rate for the period ended September 30,
1995 and for the fiscal years ended September 30, 1996 and 1997 for the AARP
Balanced Stock and Bond Fund was 63.77%, 35.22% and 26.79%, 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%; for the
fiscal year ended September 30, 1997 the portfolio rate was 31.34%. The
portfolio turnover rate for the fiscal year ended September 30, 1997 for AARP
Bond Fund for Income was 13.69%, AARP U.S. Stock Index Fund was _____%, AARP
International Growth and Income Fund was 50.73%, AARP Small Company Stock Fund
was 6.93%, AARP Diversified Income With Growth Portfolio and AARP Diversified
Growth Portfolio were _____% and _____%, respectively.
NET ASSET VALUE
AARP Money Funds
The net asset value per share of the Funds are 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 AARP High Quality Money Fund uses the
penny-rounding 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.
The valuation of AARP High Quality Tax Free Money Fund's portfolio
securities is based upon their amortized cost which does not take into account
unrealized securities gains or losses. This method involves initially valuing an
instrument at its cost and thereafter amortizing to maturity any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price AARP High Quality Tax Free Money Fund would
receive if it sold the instrument. During periods of declining interest rates,
the quoted yield on shares of AARP High Quality Tax Free Money Fund may tend to
be higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by AARP High Quality Tax Free Money Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the Fund would be able to
obtain a somewhat higher yield if he purchased shares of the Fund on that day,
than would result from investment in a fund utilizing solely market values, and
existing investors in the Fund would receive less investment income. The
converse would apply in a period of rising interest rates. Other securities and
assets for which market quotations are not readily available are valued in good
faith at fair value using methods determined by the Trustees and applied on a
consistent basis. 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. The Trustees review the valuation of AARP High Quality Tax Free Money
Fund's securities through receipt of regular reports from the Adviser at each
regular Trustees' meeting. Determinations of net asset value made other than as
of the close of the Exchange may employ adjustments for changes in interest
rates and other market factors.
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AARP Non-Money Market Funds
The net asset value of shares of the Funds are 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.
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.
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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
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.
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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
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 Short Term Bond 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.
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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 Growth and Income Fund is 00036J-60-1.
The CUSIP for AARP Small Company Stock is 00036J-70-0.
The CUSIP for AARP Diversified Income With Growth 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, $1,505,677; AARP High Quality Short Term Bond Fund, $1,455,652; AARP GNMA
and U.S. Treasury Fund, $6,732,169; AARP High Quality Tax Free Money Fund,
$265,965; AARP Insured Tax Free General Bond Fund, $1,741,482; AARP Balanced
Fund, $1,357,972; AARP Growth and Income Fund, $6,853,761; AARP Capital Growth
Fund, $1,889,072; AARP Small Company Stock Fund, $93,591; AARP Global Growth
Fund, $558,504; AARP Diversified Income With Growth Portfolio, $61,888; and AARP
Diversified Growth Portfolio, $82,424 for the fiscal year ended September 30,
1997. SCC did not impose any or a portion of its fee for the AARP Bond Fund For
Income, AARP U.S. Stock Index Fund, AARP Small Company Stock Fund, AARP
International Growth and Income Fund amounting to $40,906, $60,094, $25,198,
$54,419, respectively. 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
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 High Quality Short
Term Bond Fund, AARP GNMA and U.S. Treasury 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 Growth and Income 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.
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.
80
<PAGE>
Costs of $13,000 incurred by AARP Bond Fund for Income in conjunction with
its organization are amortized over the five year period beginning February 1,
1997.
Costs of $16,000 incurred by AARP U.S. Stock Index Fund in conjunction with
its organization are amortized over the five year period beginning February 1,
1997.
Costs of $13,000 incurred by AARP International Growth and Income Fund in
conjunction with its organization are amortized over the five year period
beginning February 1, 1997.
Costs of $13,000 incurred by AARP Small Company Stock Fund in conjunction
with its organization are amortized over the five year period beginning February
1, 1997.
Costs of $23,000 incurred by AARP Diversified Income With Growth Portfolio
in conjunction with its organization are amortized over the five year period
beginning February 1, 1997.
Costs of $23,000 incurred by AARP Diversified Growth Portfolio in
conjunction with its organization are amortized over the five year period
beginning February 1, 1997.
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
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 1997
calendar year.
[TO BE UPDATED]
81
<PAGE>
1997 Taxable To Equal Hypothetical Tax-Free Yields of
Income Brackets 5%, 7% and 9%, a Taxable Investment Would
Have To Earn**
Individual Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $24,650 15.0% 5.88% 8.24% 10.59%
$24,651 - $59,750 28.0% 6.94% 9.72% 12.50%
$59,751 - $124,650 31.0% 7.25% 10.14% 13.04%
$124,651 - $271,050 36.0% 7.81% 10.94% 14.06%
Over $271,050 39.6% 8.28% 11.59% 14.90%
Joint Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $41,200 15.0% 5.88% 8.24% 10.59%
$41,201 - $99,600 28.0% 6.94% 9.72% 12.50%
$99,601 - $99,600 31.0% 7.25% 10.14% 13.04%
$151,751 - $271,050 36.0% 7.81% 10.94% 14.06%
Over $271,050 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
$121,200 ($60,600 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 $121,200 (for
single individuals) or $181,800 (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 1997 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $50,000 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.
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 herein.
82
<PAGE>
AARP CASH INVESTMENT FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for AARP High Quality Money Fund for the
ten fiscal years ended September 30, 1997 to be filed by
amendment
Included in Part B of this Registration Statement:
For AARP High Quality Money Fund
List of investments as of September 30, 1997 to be filed
by amendment
Statement of Assets and Liabilities September 30, 1997
to be filed by amendment
Statement of Operations for the six month period ended
September 30, 1997 to be filed by amendment
Statements of Changes in Net Assets for the fiscal year
ended September 30, 1997 to be filed by amendment
Financial Highlights for the five fiscal years ended
September 30, 1997 to be filed by amendment
Notes to Financial Statements
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)(1) Amended and Restated Declaration of Trust dated
February 8, 1985.
(Previously filed as Exhibit 1(a)(1) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(a)(2) Certificate of Amendment dated May 24, 1985 to
Amended and Restated Declaration of Trust.
(Previously filed as Exhibit 1(a)(2) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(a)(3) Certificate of Amendment dated September 15, 1989
to Amended and Restated Declaration of Trust.
(Previously filed as Exhibit 1(a)(3) to
Post-Effective Amendment No. 14 to the
Registration Statement.)
(a)(4) Certificate of Amendment dated January 25, 1994
to Declaration of Trust.
(Previously filed as Exhibit 1(a)(4) to
Post-Effective Amendment No. 20 to the
Registration Statement.)
(a)(5) Amended and Restated Declaration of Trust dated
September 13, 1996.
(Previously filed as Exhibit (a)(5) to
Post-Effective Amendment No. 23 to the
Registration Statement.)
Part C - Page 1
<PAGE>
(b)(1) Establishment and Designation of Additional
Series of Shares dated December 11, 1985 and
Amendments thereto.
(Previously filed as Exhibit 1(b) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(b)(2) Amendment to Establishment of Additional Shares
dated December 20, 1990.
(Previously filed as Exhibit 1(b)(2) to
Post-Effective Amendment No. 16 to the
Registration Statement.)
2. (a)(1) By-Laws of the Registrant as amended June 17,
1992.
(Previously filed as Exhibit 2 to Post-Effective
Amendment No. 17 to the Registration Statement.)
(a)(2) By-Laws of the Registrant as amended March 17,
1993.
(Previously filed as Exhibit 2(a)(2) to
Post-Effective Amendment No. 18 to the
Registration Statement.)
(a)(3) Certificate as to Resolution of Board Members
dated June 24, 1996. (Previously filed as Exhibit
(a)(3) to Post-Effective Amendment No. 23 to the
Registration Statement.)
3. Inapplicable.
4. Inapplicable.
5. (a) Investment Management and Advisory Agreement
between the Registrant and AARP/Scudder Financial
Management Company dated December 16, 1985.
(Previously filed as Exhibit 5(a) to
Post-Effective Amendment No. 9 to the
Registration Statement.) Terminated February 1,
1994.
(a)(1) Investment Management Agreement between the
Registrant and Scudder, Stevens & Clark, Inc.
dated February 1, 1994.
(Previously filed as Exhibit 5(a)(1) to
Post-Effective Amendment No. 20 to the
Registration Statement.)
(b) Subadvisory Agreement among AARP/Scudder
Financial Management Company, Scudder, Stevens &
Clark, Inc., and the Registrant dated December
16, 1985.
(Previously filed as Exhibit 5(b) to
Post-Effective Amendment No. 9 to the
Registration Statement.) Terminated February 1,
1994.
6. Underwriting Agreement between the Registrant and
Scudder Fund Distributors, Inc. dated June 18,
1986.
(Previously filed as Exhibit 6 to Post-Effective
Amendment No. 12 to the Registration Statement.)
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and
State Street Bank and Trust Company dated
February 18, 1985.
(Previously filed as Exhibit 8(a)(1) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
Part C - Page 2
<PAGE>
(a)(2) Fee schedule for Exhibit 8(a)(l).
(Previously filed as Exhibit 8(a)(2) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(a)(3) Additional Provision to Custodian Agreement
between the Registrant and State Street Bank and
Trust Company dated February 18, 1985.
(Previously filed as Exhibit 8(a)(3) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(a)(4) Amendment dated September 23, 1987 to Custodian
Agreement between the Registrant and State Street
Bank and Trust Company dated February 18, 1985.
(Previously filed as Exhibit 8(a)(4) to
Post-Effective Amendment No. 13 to this
Registration Statement.)
(a)(5) Amendment dated September 15, 1988 to Custodian
Agreement between the Registrant and State Street
Bank and Trust Company dated February 18, 1985.
(Previously filed as Exhibit 8(a)(5) to
Post-Effective Amendment No. 13 to this
Registration Statement.)
(a)(6) Form of revised Fee Schedule for Exhibit 8(a)(1).
(Previously filed as Exhibit 8(a)(6) to
Post-Effective Amendment No. 21 to this
Registration Statement.)
9. (a) Transfer Agency and Service Agreement between the
Registrant and Scudder Service Corporation dated
October 2, 1989.
(Previously filed as Exhibit 9(a) to the
Post-Effective Amendment No. 14 to the
Registration Statement.)
(b) Member Services Agreement among AARP/Scudder
Financial Management Company, AARP Financial
Services Corp. and the Registrant, dated February
18, 1985, as amended May 24, 1985.
(Previously filed as Exhibit 9(b) to
Post-Effective Amendment No. 9 to the
Registration Statement.) Terminated February 1,
1994.
(b)(1) Member Services Agreement between AARP Financial
Services Corp. and Scudder, Stevens & Clark, Inc.
dated February 1, 1994.
(Previously filed as Exhibit 9(b)(i) to
Post-Effective Amendment No. 20 to the
Registration Statement.)
(c) Service Mark License Agreement among Scudder,
Stevens & Clark, Inc., American Association of
Retired Persons and the Registrant.
(Previously filed as Exhibit 9(c) to
Post-Effective Amendment No. 2 to the
Registration Statement.)
(c)(1) Service Mark License Agreement among Scudder,
Stevens & Clark, Inc., American Association of
Retired Persons and the Registrant dated March
20, 1996.
(Previously filed as Exhibit (c)(1) to
Post-Effective Amendment No. 23 to the
Registration Statement.)
(d) Shareholder Service Agreement between the
Registrant and Scudder Service Corporation dated
June 1, 1988.
(Previously filed as Exhibit 9(d) to
Post-Effective Amendment No. 13 to the
Registration Statement.)
Part C - Page 3
<PAGE>
(e) Fund Accounting Services Agreement between the
Registrant and Scudder Fund Accounting
Corporation dated October 6, 1995.
(Previously filed as Exhibit 9(e) to
Post-Effective Amendment No. 21 to the
Registration Statement.)
10. Inapplicable.
11. Consent of Independent Auditors to be filed by
amendment.
12. Inapplicable.
13. Inapplicable.
14. (a) Individual Retirement Account (IRA).
(Previously filed as Exhibit 14(a) to
Post-Effective Amendment No. 2 to the
Registration Statement.)
(b) Harvest Plan for Self-Employed Persons and
Corporations.
(Previously filed as Exhibit 14(b) to
Post-Effective Amendment No. 2 to the
Registration Statement.)
15. Inapplicable.
16. Schedule for computation of Performance Data.
(Previously filed as Exhibit 16 to Post-Effective
Amendment No. 14 to the Registration Statement.)
17. Financial Data Schedule to be filed by amendment.
18. Inapplicable.
Power of Attorney for Edgar R. Fiedler, Robert J. Myers and Gordon Shillinglaw
is incorporated by reference to the Signature Page of Post-Effective Amendment
No. 12.
Power of Attorney for Carole Lewis Anderson, Linda C. Coughlin and Horace Deets
is incorporated by reference to the Signature Page of Post-Effective Amendment
No. 21.
Power of Attorney for Adelaide Attard, Robert N. Butler, Esther Canja, Eugene P.
Forrester, George L. Maddox and James H. Schulz is incorporated by reference to
the Signature Page of Post-Effective Amendment No. 23.
Power of Attorney for Jean Gleason Stromberg is filed herein.
Item 25. Persons Controlled by or under Common Control with Registrant.
None
Item 26. Number of Holders of Securities (as of November 14, 1997.)
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial interest
with par value of $.01
AARP High Quality Money Fund 47,671
Part C - Page 4
<PAGE>
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;
(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
Part C - Page 5
<PAGE>
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 6
<PAGE>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
Stephen R. Director, Vice President, Treasurer, Chief Operating
Beckwith Officer & Chief Financial Officer, Scudder, Stevens &
Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President & Director, The Latin America Dollar Income Fund,
Inc. (investment company)**
President & Director, Scudder World Income Opportunities
Fund, Inc. (investment company)**
President, The Japan Fund, Inc. (investment company)**
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, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company
(investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A.
(investment manager) #
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, Chief Administrative Officer, Scudder, Stevens &
Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (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)*
Part C - Page 7
<PAGE>
Director & Vice President, Scudder Service Corporation
(in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment
company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment
company)**
Chairman & Trustee, AARP Managed Investment Portfolios
Trust (investment company)**
Director & Senior Vice President, Scudder Investor
Services, Inc. (broker/dealer)*
Director, SFA, Inc. (advertising agency)*
Margaret D. Director, Scudder, Stevens & Clark, Inc. (investment
Hadzima 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)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President, Montgomery Street Income Securities, Inc.
(investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment
adviser) x
Part C - Page 8
<PAGE>
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund,
Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc.
(investment company)**
Chairman & Director, The First Iberian Fund, Inc.
(investment company)**
Chairman & Director, Scudder International Fund, Inc.
(investment company)**
Chairman & Director, Scudder New Asia Fund, Inc.
(investment company)**
President & Trustee, Scudder Equity Trust (investment
company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment
company)*
President & Trustee, Scudder Funds Trust (investment
company)**
President & Trustee, Scudder Securities Trust (investment
company)*
President & Trustee, Scudder Investment Trust (investment
company)*
President & Director, Scudder Institutional Fund, Inc.
(investment company)**
President & Director, Scudder Fund, Inc. (investment
company)**
President & Director, Scudder Mutual Funds, Inc.
(investment company)**
Vice President & Trustee, Scudder Municipal Trust
(investment company)*
Vice President & Trustee, Scudder Variable Life Investment
Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series
(investment company)*
Trustee, Scudder California Tax Free Trust (investment
company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc.
(investment company)o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd.
(Canadian investment adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds
(investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment
adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder
Realty Holdings Corporation (a real estate holding
company)*
Vice President, Director & Assistant Treasurer, Scudder
Investor Services, Inc. (broker/dealer)*
Director, Scudder Latin America Investment Trust PLC
(investment 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
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and
Secretary, Scudder, Stevens & Clark, Inc. (investment
adviser)**
Director, Vice President & Assistant Secretary, The
Argentina Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder
International Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder New
Asia Fund (investment company)**
Director, Vice President & Assistant Secretary, Scudder
Global Fund, Inc. (investment company)**
Trustee, Vice President & Assistant Secretary, Scudder
Equity Trust (investment company)**
Trustee, Vice President & Assistant Secretary, Scudder
Securities Trust (investment company)*
Trustee, Vice President & Assistant Secretary, Scudder
Funds Trust (investment company)**
Part C - Page 9
<PAGE>
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Cash Investment Trust
(investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund
(investment company)*
Vice President & Trustee, Scudder Tax Free Trust
(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 &
Secretary, The Japan 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 Brazil 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, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc.
(investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor
Services, Inc. (broker/dealer)*
Director, Vice President & Secretary, Scudder Fund
Accounting Corporation (in-house fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty
Holdings Corporation (a real estate holding company)*
Director & Clerk, Scudder Service Corporation (in-house
transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder
Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)** President,
AARP Income Trust (investment company)** President, AARP Tax
Free Income Trust (investment company)** President, AARP
Managed Investment Portfolio Trust
(investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder,
Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment
company)**
Chairman & Director, The Latin America Dollar Income Fund,
Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities
Fund, Inc. (investment company)**
Part C - Page 10
<PAGE>
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 Japan, Inc. (investment
adviser)###
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, Scudder Realty Advisors, Inc. (realty investment
adviser) x
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
* 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.
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
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
Part C - Page 11
<PAGE>
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Scudder Investor Offices with
Business Address Services, Inc. Registrant
------------------ ---------------------- ---------------
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
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 Chairman and
Two International Place President Trustee
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and None
345 Park Avenue Assistant Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant
Boston, MA 02110 Clerk
David S. Lee Director, President and Vice President
Two International Place Assistant Treasurer and Assistant
Boston, MA 02110 Treasurer
Thomas F. McDonough Clerk Vice President
Two International Place and Assistant
Boston, MA 02110 Secretary
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Part C - Page 12
<PAGE>
Position and Offices Positions and
Name and Principal with Scudder Investor Offices with
Business Address Services, Inc. Registrant
------------------ ---------------------- ---------------
Edward J. O'Connell Assistant Treasurer Vice President
345 Park Avenue and Assistant
New York, NY 10154 Treasurer
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice Vice President
345 Park Avenue President and Assistant and Secretary
New York, NY 10154 Clerk
Robert A. Rudell Vice President None
Two International Place
Boston, MA 02110
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker 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
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
Part C - Page 13
<PAGE>
International Place, Boston, MA 02110. Records relating to the
duties of the Registrant's custodian are maintained by State Street
Bank and Trust Company, Heritage Drive, North Quincy, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
Inapplicable.
Part C - Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 ____ day of November, 1997.
AARP CASH INVESTMENT FUNDS
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 November ___, 1997
/s/ Carole Lewis Anderson
- ---------------------------
Carole Lewis Anderson* Trustee November ___, 1997
/s/ Adelaide Attard
- ---------------------------
Adelaide Attard* Trustee November ___, 1997
/s/ Robert N. Butler
- ---------------------------
Robert N. Butler* Trustee November ___, 1997
/s/ Esther Canja
- ---------------------------
Esther Canja* Trustee November ___, 1997
/s/ Edgar R. Fiedler
- ---------------------------
Edgar R. Fiedler* Trustee November ___, 1997
/s/ Eugene P. Forrester
- ---------------------------
Eugene P. Forrester* Trustee November ___, 1997
/s/ George L. Maddox, Jr.
- ---------------------------
George L. Maddox, Jr.* Trustee November ___, 1997
/s/ Robert J. Myers
- ---------------------------
Robert J. Myers* Trustee November ___, 1997
/s/ James H. Schulz
- ---------------------------
James H. Schulz* Trustee November ___, 1997
/s/ Gordon Shillinglaw
- ---------------------------
Gordon Shillinglaw* Trustee November ___, 1997
/s/ Jean Gleason Stromberg
- ---------------------------
Jean Gleason Stromberg* Trustee November ___, 1997
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Pamela A. McGrath
- ---------------------------
Pamela A. McGrath Treasurer (Principal November , 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 Post-Effective
Amendment No. 12 to the Registration
Statement filed December 4, 1987,
Post-Effective Amendment No. 21 to
the Registration Statement filed
January 19, 1996, Post-Effective
Amendment No. 23 to the Registration
Statement filed February 1, 1997 and
Post-Effective Amendment No. 26 to the
Registration Statement filed December 3, 1997.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in her
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, her true
and lawful attorney and agent to execute in her name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jean Gleason Stromberg
- --------------------------
Jean Gleason Stromberg Trustee November 18, 1997
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Cyril F. Brickfield
- --------------------------
Cyril F. Brickfield Trustee November , 1997
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of January, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert N. Butler
- --------------------------
Robert N. Butler Trustee November , 1997
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in her
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, her true
and lawful attorney and agent to execute in her name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Esther Canja
- --------------------------
Esther Canja Trustee November , 1997
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Eugene P. Forrester
- --------------------------
Eugene P. Forrester Trustee January , 1997
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Wayne F. Haefer
- --------------------------
Wayne F. Haefer Trustee November , 1997
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ George L. Maddox, Jr.
- --------------------------
George L. Maddox, Jr. Trustee January , 1997
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert J. Myers
- --------------------------
Robert J. Myers Trustee November , 1997
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 day of November, 1997.
AARP CASH INVESTMENT FUNDS
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. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ James H. Schulz
- --------------------------
James H. Schulz Trustee November , 1997
11
<PAGE>
File No. 2-81427
File No. 811-3650
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 25
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 26
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP CASH INVESTMENT FUNDS
<PAGE>
AARP CASH INVESTMENT FUNDS
EXHIBIT INDEX
