Filed with the Securities and Exchange Commission on November 17, 1995.
File No. 2-91578
File No. 811-4048
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. 17
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
AARP Growth Trust
-----------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
_____ on _________________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
_____ on _________________ pursuant to paragraph (a)(i)
X 75 days after filing pursuant to paragraph (a)(ii)
-----
_____ on _________________ pursuant to paragraph (a)(ii) of Rule 485
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 November 16, 1995.
<PAGE>
AARP GROWTH TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-1A
PART A
<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
AN OVERVIEW OF THE AARP INVESTMENT
PROGRAM WHAT DOES THE AARP INVESTMENT
PROGRAM OFFER ME?
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE
4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and ADDITIONAL INFORMATION ABOUT
Other Securities DISTRIBUTIONS AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS
8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
9. Pending Legal NOT APPLICABLE
Proceedings
</TABLE>
Cross Reference - Page 1
<PAGE>
PART B
<TABLE>
<CAPTION>
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES
and Policies AND POLICIES
BROKERAGE AND PORTFOLIO TURNOVER
14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION
17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER
18. Capital Stock and TRUST ORGANIZATION
Other Securities
19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Pricing of Securities PURCHASES
Being Offered REDEMPTIONS
RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculations of DIVIDENDS AND YIELD
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference - Page 2
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS
February 1, 1996
There are nine pure no-load AARP Mutual Funds that have been developed to help
meet the investment needs of AARP members. The Funds are organized into four
Trusts (see page 40 for more information on the Trusts).
Trusts AARP Mutual Funds
------ -----------------
AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP 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 Capital Growth Fund
AARP Global Growth Fund
This combined Prospectus provides information about the AARP Investment
Program from Scudder that a prospective investor should know before investing.
Please keep it for future reference.
The U.S. Government does not and has never insured or guaranteed shares of
any mutual fund, including the AARP Mutual Funds. For limitations on insurance
relative to the AARP Insured Tax Free General Bond Fund, see page 24. 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, 1996, as amended from time to
time. The SAI is considered part of this Prospectus by reference to it. The SAI
is on file with the Securities and Exchange Commission (SEC).
You may get a copy of the SAI or a LARGER PRINT VERSION OF THIS PROSPECTUS
without charge. Call 1-800-253-2277, or write to Scudder Investor Services,
Inc., P.O. Box 2540, Boston, MA 02208-2540.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus 1
<PAGE>
FUND EXPENSES
The AARP Mutual Funds do not charge sales fees or commissions. 100% of your
investment goes to work for you.
* No fees to open your account
* No fees to open or maintain an AARP IRA or AARP Keogh Plan account
* No fees to buy shares
* No fees to exchange (move investments from one fund to another)
* No fees to sell (redeem) shares
* No marketing fees or distribution fees (12b-1 fees)
* No fees to reinvest dividends
There are Annual Fund Operating Expenses for each of the AARP Funds. You do not
pay these expenses directly. The AARP Funds pay these expenses before
distributing net investment income to you. These expenses include the management
fee paid to the Fund Manager as well as other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and fund
reports. The expenses are reflected in the AARP Funds' share prices or dividends
and are not directly charged to shareholder accounts.
The following tables present information on the projected costs and expenses of
investing in an AARP Fund. You may use these tables to compare the fees and
expenses of the AARP Funds with other mutual funds.
Annual Fund Operating Expenses are expressed as a percentage of each AARP Fund's
average daily net assets.
The chart shows the expenses for each of the Funds, other than the AARP Global
Growth Fund, for the fiscal year ended September 30, [1994]. For the AARP Global
Growth Fund, which was introduced on February 1, 1996, expenses have been
estimated for the coming year.
<TABLE>
<CAPTION>
Effective Total Fund
Management Other Operating
Fund Fee Rate** Expenses Expenses
---- ---------- -------- --------
<S> <C> <C> <C>
AARP High Quality Money Fund .40% .71% 1.11%
AARP High Quality Tax Free Money Fund# .40% .50% .90%#
AARP GNMA and U.S. Treasury Fund .42% .24% .66%
AARP High Quality Bond Fund .49% .46% .95%
AARP Insured Tax Free General Bond Fund .49% .20% .69%
AARP Balanced Stock and Bond Fund .49% .56% 1.05%
AARP Growth and Income Fund .49% .27% .76%
AARP Capital Growth Fund .62% .36% .98%
AARP Global Growth Fund* % % %
</TABLE>
Prospectus 2
<PAGE>
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH AARP FUND
Based on the level of assets as of September 30, [1994] (and projected September
30, 1996 assets for the AARP Global Growth Fund), we have calculated the
forecasted total expenses of a $1,000 investment in each AARP Fund over
specified periods. These examples assume 5% annual return. There are 3 other
assumptions: (1) redemption at the end of each period, (2) reinvestment of all
dividends and distributions, and (3) total fund operating expenses noted on page
2 remain the same each year.
For additional information, including reference to a $5.00 wire service fee that
is charged in some cases, please refer to page 41.
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund $11 $35 $61 $135
AARP High Quality Tax Free Money Fund 9 29 50 111
AARP GNMA and U.S. Treasury Fund 7 21 37 82
AARP High Quality Bond Fund 10 30 53 117
AARP Insured Tax Free General Bond Fund 7 22 38 86
AARP Balanced Stock and Bond Fund 11 33 58 128
AARP Growth and Income Fund 8 24 42 94
AARP Capital Growth Fund 10 31 54 120
AARP Global Growth Fund N/A N/A
</TABLE>
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.
* The AARP Global Growth Fund was introduced on February 1, 1996. Fund
expenses are projected given the asset forecast as of September 30, 1996.
Until _____, the Fund Manager has agreed to waive a portion of its
management fee for AARP Global Growth Fund to the extent necessary so that
the total annualized expenses of the Fund do not exceed ____% of average
daily net assets. If the Fund Manager had not agreed to waive a portion of
its fee, it is estimated that the total annualized expenses of the Fund
would be: investment management fee ___%, other expenses ___% and total
operating expenses ___% for the initial fiscal year. To the extent that
expenses fall below the current expense limitation, the Fund Manager
reserves the right to recoup, during the fiscal year incurred, amounts
waived during the period, but only to the extent that the Fund's expenses
do not exceed ___%.
** The AARP Funds' fee structure is designed to recognize the degree to which
the pooled resources of the Program provide economies in the management of
the AARP Funds. The fee consists of two elements: a "Base Fee" and an
"Individual Fund Fee." The combined Base Fee and Individual Fund Fee is
called the Effective Management Fee Rate. See page 41 for information on
how the Effective Management Fee Rate is calculated.
# Until ___________, the Fund Manager has agreed to waive a portion of its
management fee for AARP High Quality Tax Free Money Fund to the extent
necessary so that the total annualized expenses of the Fund do not exceed
___% of average daily net assets. If the Fund Manager had not agreed to
waive a portion of its fee, it is estimated that the total annualized
expenses of the Fund would have been: investment management fee ___%,
other expenses ___% and total operating expenses ___% for the fiscal year
ending September 30, 1995. To the extent that expenses fall below the
current expense limitation, the Fund Manager reserves the right to recoup,
during the fiscal year incurred, amounts waived during the period, but
only to the extent that the Fund's expenses do not exceed ___%.
Prospectus 3
<PAGE>
FINANCIAL HIGHLIGHTS
On the next six pages you will find a variety of information about the income
and the expenses of each AARP Fund, other than AARP Global Growth Fund which is
newly organized. You will also find the following: (1) the net gain or loss on
the investments, (2) the distributions, if any, of income and gain, and, (3) the
change in net asset value per share from the beginning to the end of the stated
periods. Price Waterhouse LLP, the AARP Funds' independent accountants, have
examined this information. The Annual Report to Shareholders includes their
report.
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Distributions
Value at Net & Unrealized Total from from Net from Net
For the Years Ended Beginning Investment Investment Investment Investment Realized
September 30 of Period Income (a) Gain (Loss) Operations Income Gains
------------ --------- ---------- ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AARP High Quality Money Fund
1994 $ 1.00 $ .028 -- $ .028 $(.028) --
1993 1.00 .021 -- .021 (.021) --
1992 1.00 .040 -- .040 (.040) (c) --
1991 1.00 .060 -- .060 (.060) --
1990 1.00 .073 -- .073 (.073) --
1989 1.00 .080 -- .080 (.080) --
1988 1.00 .060 -- .060 (.060) --
1987 1.00 .050 -- .050 (.050) --
1986 1.00 .064 -- .064 (.064) --
1985 (d) 1.00 .012 -- .012 (.012) --
AARP High Quality Tax Free Money Fund (h)
1994 $1.000 $ .017 -- $ .017 $(.017) --
1993 1.000 .016 -- .016 (.016) --
1992 1.000 .026 -- .026 (.026) --
1991 (h) .996 .055 $ .004 .059 (.055) --
1990 .998 .061 (.002) .059 (.061) --
1989 1.008 .059 (.010) .049 (.059) --
1988 .998 .055 .010 .065 (.055) --
1987 1.027 .049 (.026) .023 (.049) $(.003)
1986 .996 .048 .031 .079 (.048) --
1985 (e) .989 .031 .007 .038 (.031) --
AARP GNMA and U.S. Treasury Fund
1994 $15.96 $ .93 $(1.23) $(.30) $(.93) --
1993 16.19 1.15 (.23) .92 (1.15) --
1992 15.72 1.22 .47 1.69 (1.22) --
1991 14.95 1.26 .77 2.03 (1.26) --
1990 14.98 1.31 (.03) 1.28 (1.31) --
1989 15.11 1.31 (.13) 1.18 (1.31) --
1988 14.89 1.37 .22 1.59 (1.37) --
1987 15.99 1.35 (1.09) .26 (1.35) $(.01)
1986 15.52 1.54 .50 2.04 (1.54) (.03)
1985 (e) 15.00 1.17 .52 1.69 (1.17) --
<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Reflects fees not imposed by the Fund Manager of $.001 per share.
(c) Includes approximately $.005 per share of net realized short-term capital gains.
(d) Operations for the period of July 22, 1985 (commencement of operations) to September 30, 1985.
(e) Operations for the period of November 30, 1984 (commencement of operations) to September 30, 1985.
</FN>
</TABLE>
Prospectus 4
<PAGE>
For a copy of the Annual Report to Shareholders, please contact an AARP Mutual
Fund Representative at 1-800-253-2277.
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets % (a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ------------ -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(.028) $ 1.00 2.84 333 1.125 2.889 -- --
(.021) 1.00 2.13 254 1.312 2.123 -- --
(.040) 1.00 4.12 323 1.151 3.613 -- $ .000
(.060) 1.00 6.22 357 1.053 6.050 -- .001
(.073) 1.00 7.58 376 1.058 7.319 -- .001
(.080) 1.00 8.32 324 1.071 8.061 -- .001
(.060) 1.00 6.15 224 1.097 (b) 6.025 -- .001
(.050) 1.00 5.13 178 1.160 5.090 -- .004
(.064) 1.00 6.60 104 .712 6.310 -- .009
(.012) 1.00 1.34 (f) 45 .662 (g) 7.317 (g) -- --
$(.017) $1.000 1.76 129 .90 1.75 -- $ .000
(.016) 1.000 1.62 134 .93 1.60 -- .002
(.026) 1.000 2.58 127 .95 2.54 -- .002
(.055) 1.000 6.10 119 1.06 5.43 -- .001
(.061) .996 6.02 98 1.12 6.06 39.88 --
(.059) .998 4.98 90 1.17 5.85 21.28 --
(.055) 1.008 6.65 79 1.27 5.47 62.73 .005
(.052) .998 2.25 70 1.31 4.80 22.20 .006
(.048) 1.027 8.07 48 1.48 4.72 23.00 --
(.031) .996 3.90 30 1.50 (g) 4.51 (g) -- .015
$(.93) $14.73 (1.90) 5,585 .66 6.09 114.54 --
(1.15) 15.96 5.89 6,712 .70 7.15 105.49 --
(1.22) 16.19 11.19 5,232 .72 7.69 74.33 --
(1.26) 15.72 14.12 3,311 .74 8.23 86.64 --
(1.31) 14.95 8.86 2,583 .79 8.71 60.54 --
(1.31) 14.98 8.17 2,518 .79 8.76 48.35 --
(1.37) 15.11 11.07 2,837 .81 9.09 84.72 --
(1.36) 14.89 1.54 2,827 .88 8.76 50.68 --
(1.57) 15.99 13.62 1,963 .90 9.49 61.92 --
(1.17) 15.52 11.77 322 1.03 (g) 10.62 (g) 67.24 (g) --
<FN>
(f) Not Annualized.
(g) Annualized.
(h) On August 1, 1991 the Fund implemented a 15.17 to 1.00 stock split and
adopted its present name and investment objectives. Prior to that date, the
Fund was known as the AARP Insured Tax Free Short Term Fund. Financial
information prior to August 1, 1991 has been restated to reflect the stock
split and should not be considered representative of the present Fund.
</FN>
</TABLE>
Prospectus 5
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Distributions Distributions
Value at Net & Unrealized Total from from Net from Net in Excess of
For the Years Ended Beginning Investment Investment Investment Investment Realized Net Realized
September 30 of Period Income (a) Gain (Loss) Operations Income Gains Gains
------------ --------- ---------- ----------- ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
AARP High Quality Bond Fund
1994 $17.19 $ .85 $(1.76) $(.91) $(.85) -- $(.38)
1993 16.44 .93 .93 1.86 (.93) $(.18) --
1992 15.71 1.03 .73 1.76 (1.03) -- --
1991 14.63 1.10 1.08 2.18 (1.10) -- --
1990 15.04 1.17 (.41) .76 (1.17) -- --
1989 14.80 1.23 .24 1.47 (1.23) -- --
1988 14.45 1.27 .46 1.73 (1.27) (.11)(f) --
1987 15.87 1.22 (1.19) .03 (1.22) (.23) --
1986 15.31 1.41 .61 2.02 (1.41) (.05) --
1985 (b) 15.00 1.06 .31 1.37 (1.06) -- --
AARP Insured Tax Free General Bond Fund
1994 $19.00 $ .86 $(1.67) $(.81) $(.86) $(.34) $(.06)
1993 17.88 .90 1.55 2.45 (.90) (.43) --
1992 17.30 .93 .75 1.68 (.93) (.17) --
1991 16.12 1.00 1.18 2.18 (1.00) -- --
1990 16.61 1.04 (.24) .80 (1.04) (.25) --
1989 16.02 1.08 .59 1.67 (1.08) -- --
1988 15.00 1.08 1.02 2.10 (1.08) -- --
1987 16.69 1.07 (1.49) (.42) (1.07) (.20) --
1986 15.12 1.01 1.63 2.64 (1.01) (.06) --
1985 (b) 15.00 .64 .12 .76 (.64) -- --
AARP Balanced Stock and Bond Fund
1994 (e) $15.00 $ .25 $(.37) (g) $(.12) $(.24) -- --
AARP Growth and Income Fund
1994 $32.91 $ .94 $ 1.62 $ 2.56 $(1.13) $(.21) --
1993 28.67 .83 4.58 5.41 (.87) (.30) --
1992 26.97 .97 2.11 3.08 (.90) (.48) --
1991 22.30 1.11 4.78 5.89 (1.17) (.05) --
1990 26.11 1.11 (3.69) (2.58) (1.15) (.08) --
1989 20.94 1.01 5.20 6.21 (1.04) -- --
1988 25.54 1.04 (3.93) (2.89) (.94) (.77) --
1987 20.88 .67 5.51 6.18 (.64) (.88) --
1986 16.84 .73 4.10 4.83 (.70) (.09) --
1985 (b) 15.00 .39 1.64 2.03 (.19) -- --
<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Operations for the period of November 30, 1984 (commencement of operations) to September 30, 1985.
(c) Not Annualized.
(d) Annualized.
</FN>
</TABLE>
Prospectus 6
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets %(a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ----------- -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(1.23) $15.05 (5.55) 568 .95 5.31 63.75 --
(1.11) 17.19 11.88 604 1.01 5.64 100.98 --
(1.03) 16.44 11.56 384 1.13 6.40 63.00 --
(1.10) 15.71 15.44 201 1.17 7.26 90.43 --
(1.17) 14.63 5.21 151 1.14 7.86 47.39 $ .009
(1.23) 15.04 10.38 129 1.16 8.33 57.69 .007
(1.38) 14.80 12.38 123 1.17 8.55 23.57 .005
(1.45) 14.45 (.09) 108 1.18 7.81 192.80 .034
(1.46) 15.87 13.60 88 1.30 8.86 62.72 .011
(1.06) 15.31 9.40 (c) 45 1.50 (d) 9.86 (d) 53.87 (d) .003
$(1.26) $16.93 (4.48) 1,914 .68 4.80 38.39 --
(1.33) 19.00 14.31 2,087 .72 4.90 47.96 --
(1.10) 17.88 10.01 1,487 .74 5.31 62.45 --
(1.00) 17.30 13.85 1,068 .77 5.92 32.18 --
(1.29) 16.12 4.89 771 .80 6.29 48.24 --
(1.08) 16.61 10.66 527 .84 6.52 148.94 --
(1.08) 16.02 14.39 312 .92 6.95 163.51 --
(1.27) 15.00 (2.94) 238 1.00 6.58 135.32 --
(1.07) 16.69 17.96 129 1.13 6.40 35.99 --
(.64) 15.12 5.09 (c) 62 1.29 (d) 6.11 (d) 90.76 (d) --
$(.24) $14.64 (.78)(c) 175 1.31(d) 3.58(d) 49.32(d) --
$(1.34) $34.13 7.99 2,312 .76 3.00 31.82 --
(1.17) 32.91 19.38 1,560 .84 3.08 17.44 --
(1.38) 28.67 11.59 748 .91 3.84 36.40 --
(1.22) 26.97 27.19 392 .96 4.61 53.68 --
(1.23) 22.30 (10.19) 248 1.03 4.76 58.47 --
(1.04) 26.11 30.58 236 1.04 4.19 55.21 --
(1.71) 20.94 (10.75) 228 1.06 4.52 61.34 --
(1.52) 25.54 30.92 358 1.08 3.81 43.25 $ .007
(.79) 20.88 29.00 99 1.21 4.55 37.44 --
(.19) 16.84 13.53 (c) 27 1.50 (d) 5.62 (d) 12.75 (d) .020
<FN>
(e) Operations for the period of February 1, 1994 (commencement of operations) to September 30, 1994.
(f) Includes $0.06 of distributions from paid-in capital.
(g) The amount shown for a share outstanding throughout the period does not accord with the change in the
aggregate gains and losses in the portfolio securities during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating market values during the period.
</FN>
</TABLE>
Prospectus 7
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Distributions
Value at Net & Unrealized Total from from Net from Net
For the Years Ended Beginning Investment Investment Investment Investment Realized
September 30 of Period Income (a) Gain (Loss) Operations Income Gains
------------ --------- ---------- ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AARP Capital Growth Fund
1994 $36.20 $ .00 $(1.51) $(1.51) $(.05) $(2.90)
1993 30.30 .06 7.19 7.25 (.14) (1.21)
1992 30.23 .15 1.09 1.24 (.23) (.94)
1991 23.32 .24 9.05 9.29 (.59) (1.79)
1990 34.17 .54(d) (9.27) (8.73) (.19) (1.93)
1989 23.88 .21 10.17 10.38 (.09) --
1988 27.55 .10 (1.97) (1.87) (.15) (1.65)
1987 21.13 .11 7.40 7.51 (.19) (.90)
1986 16.95 .18 4.28 4.46 (.09) (.19)
1985 (b) 15.00 .12 1.83 1.95 -- --
<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Operations for the period of November 30, 1984 (commencement of operations) to September 30, 1985.
(c) Not Annualized.
(d) Annualized.
</FN>
</TABLE>
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
AARP is a nonprofit organization dedicated to addressing the needs and interests
of persons aged 50 and older. It seeks through education, advocacy, and service
to enhance the quality of life for all by promoting independence, dignity, and
purpose. In the early 1980s, research conducted by AARP indicated that many
members were not taking steps to invest adequately for their future. To
encourage members to plan for their retirement and beyond, AARP decided to make
available a family of mutual funds. The family of funds would provide members
with a limited number of distinct investment choices that were managed by an
experienced investment adviser. AARP sought an investment management firm to
develop and manage the funds. After interviewing a number of investment
managers, AARP selected Scudder, Stevens & Clark, Inc., who will be referred to
in this prospectus as Scudder or the Fund Manager.
Who is Scudder, Stevens & Clark?
Scudder, Stevens & Clark is America's oldest independent investment counsel
firm. Its founder, Theodore T. Scudder, established the profession of long-term,
fee-based investment counsel in 1919 at a time when investment firms were
focused on short-term, commission-based trading. In the more than 75 years that
have passed since then, Scudder has grown to be one of America's largest
independent investment managers. Today, Scudder manages more than $90 billion in
assets for clients around the world. Scudder manages corporate funds, pension
plans, and endowments for institutions, and provides an array of investment
products and services for individual clients and other investors. These include
the Scudder Funds, a family of no-load mutual funds; a no-load variable annuity;
401(k) Plans; and several closed-end funds.
Scudder brings decades of experience and innovation to mutual fund investing. In
1928, Scudder offered America's first no-load mutual fund. Scudder was the first
company to offer an international mutual fund to U.S. investors. In 1984,
Scudder was selected by AARP to develop and manage the AARP Mutual Funds.
Prospectus 8
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets %(a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ----------- -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(2.95) $31.74 (4.70) 683 .97 .02 79.65 --
(1.35) 36.20 24.53 607 1.05 .22 100.63 --
(1.17) 30.30 3.94 424 1.13 .61 89.20 --
(2.38) 30.23 42.81 242 1.17 .90 99.62 --
(2.12) 23.32 (26.94) 160 1.11 2.00 83.28 $ .009
(.09) 34.17 43.62 180 1.16 .89 63.51 --
(1.80) 23.88 (5.44) 91 1.23 .37 45.37 .044
(1.09) 27.55 37.02 116 1.24 .62 53.61 .025
(.28) 21.13 26.65 56 1.44 1.27 46.32 --
-- 16.95 12.93 (c) 21 1.50 (d) 1.95 (d) 41.95 (d) .031
</TABLE>
What are the roles of AARP and Scudder?
The AARP Investment Program from Scudder was established in accordance with
criteria set by AARP. Specifically, these criteria include providing members
with competitive investment performance, allowing easy access to investments,
offering easy-to-understand information concerning investing, and delivering
superior service. Fulfilling this mandate is the mission of AARP and Scudder.
Both organizations work closely to ensure these criteria are met. Scudder
provides investment management and administrative services for the AARP Funds
and brings to the Program more than 75 years of investment counseling and
management experience. AARP provides insight into the diversity and changing
character of AARP members. Association staff closely monitor Program services
and review all Program materials to ensure conformity to AARP's high standards.
Members of AARP leadership also serve as Trustees for the AARP Funds.
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?
The Program was created to address the investment concerns of AARP members and
to help you make informed investment decisions. It features several benefits
that may make investing advantageous and give you greater confidence that you've
made decisions appropriate for your needs:
* A Unique Family of Funds: The Program offers a range of mutual funds which
recognize the needs of AARP members. Each of the AARP Funds is
conservatively managed, seeking to moderate share price volatility, while
seeking competitive returns. This makes the AARP Funds distinct from other
mutual funds, which may seek higher returns but do not focus on reducing
share price volatility.
* No Sales Fees or Commissions: Unlike most other mutual funds, the AARP
Funds are pure no-loadt so you don't pay any sales fees or commissions to
purchase, exchange or sell (redeem) shares. In addition, the Funds do not
charge 12b-1 fees, which are a form of a sales charge that covers
marketing and distribution expenses.
Prospectus 9
<PAGE>
* No Fees to open and maintain an AARP IRA or AARP Keogh Plan account:
You'll pay no separate fees to open or maintain your retirement plan
account. All your money goes to work for your retirement.
* Low initial investment: Open an account for just $500 for each AARP Fund
($2,500 for the AARP High Quality Tax Free Money Fund) or $250 for each
AARP Fund in an AARP IRA or AARP Keogh Plan account. So it's easy to get
started. See page 38 of this prospectus for more information on minimum
investments.
* Professional investment management by Scudder, Stevens & Clark: Scudder
brings over 75 years of investment management experience to the AARP
Funds.
* Responsive Service from AARP Mutual Fund Representatives: Our
knowledgeable representatives are ready to answer your questions, initiate
transactions or help you select the AARP Fund which meets your needs--call
them toll-free. They are available Monday through Friday, from 8 a.m. to 8
p.m. Eastern time.
* Access to your investment when you need it. You'll be able to redeem your
investment at no charge by simply calling toll-free or writing--your
investment is not locked in. See page 41 of this prospectus for more
information.
You'll also benefit from:
* Informative Communications, such as newsletters and free educational
guides;
* Consolidated Monthly Statements or Quarterly AARP IRA or AARP Keogh Plan
Statements;
* Prompt transaction confirmations;
* Special Services designed to make investing simple and convenient;
* AARP's commitment to represent your interests; and
* Dedication to delivery of quality investor service.
WHAT DO THE AARP MUTUAL FUNDS OFFER?
The nine AARP Mutual Funds offer members a choice of conservatively managed
investments which vary in the potential returns and risk they offer. The Funds
address four major investment needs: stability of principal, income, tax-free
income and growth. Each of the AARP Mutual Funds is managed to offer you
competitive returns. In addition, each AARP Fund follows a conservative
investment approach which seeks to moderate share price volatility, so you can
feel confident when you invest. The AARP Funds are managed with the needs of
AARP investors always in mind. Other mutual funds not designed and managed for
AARP investors may have higher share price volatility and have higher returns.
Information on each AARP Fund is included in this Prospectus, focusing on how
the AARP Funds differ in their potential return and risk. Before investing, you
should determine your investment objectives and personal time horizons. This
will help you decide which Fund or combination of AARP Funds fits your
investment needs.
The following is a brief summary of the diversity of investment needs the AARP
Funds seek to meet. The differing nature of an investment in each Fund will
affect the length of time for which you should be planning to invest.
If you are investing for stability of principal and income:
Consider the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund. Each provides opportunities to meet short-term needs (1
year or less) while providing a modest level of income. Both seek to
provide investors with stability of principal through a constant $1.00
share price, although this may not always be achieved. Like other money
funds, the AARP Money Funds invest in short-term securities whose yields
Prospectus 10
<PAGE>
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 that the two
AARP Money Funds differ in that 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 monthly
income:
Consider the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond
Fund or the AARP Insured Tax Free General Bond Fund. When you choose one
of these conservatively managed funds, remember that both the value of
your 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 bond funds like these tends to fall. As interest rates
fall, the value of investments in these bond funds tends to rise.
Investing in these Funds offers the opportunity for gain through potential
appreciation in the value of your investment and from the monthly income
that the investment earns. While each of these Funds is managed to attempt
to moderate share price volatility, the value of your investment can
decline. That's why you should be prepared to tolerate some fluctuation in
the value of your investment and in the income you earn and to invest for
the longer term (at least 1 year or more).
If you are investing for the long term and you are interested in growth:
Consider the AARP Balanced Stock and Bond Fund, the AARP Growth and Income
Fund, the AARP Capital Growth Fund or the AARP Global Growth Fund. When
you invest in one of these Funds, remember that any investment in stocks
involves risk and that the value of your shares will fluctuate daily. The
share price of these AARP Funds will tend to rise when the stock market
rises and decline when the stock market declines. Investing in these Funds
offers the opportunity for gain through potential appreciation in the
value of your investment as well as from the income that the investment
earns. While each of these Funds is managed to attempt to moderate share
price volatility, the value of your investment can decline. That's why you
should consider your investment as one that you can afford to let work for
you over time--generally for a period 5 years or more.
How is my investment managed?
The AARP Mutual Funds are managed to seek both competitive returns and to
moderate share price volatility. Each of the AARP Mutual Funds is managed by a
team of investment professionals at Scudder. Professional portfolio managers
develop investment strategies and select securities for each AARP Fund's
portfolio. They are supported by Scudder's dedicated staff of economists,
research analysts, traders, and other investment specialists who work in offices
across the United States and abroad. At Scudder, there has always been a strong
partnership between research analysts and portfolio managers. Scudder's large
staff of independent research analysts helps the portfolio managers assess
economic and industry trends as they make their investment decisions. Because of
this emphasis on "fundamentals," the 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.
While the AARP Funds are conservatively managed, it is important to realize that
your principal is never insured or guaranteed, and the value of your investment
and your return will move up and down as market conditions change. The share
price of a mutual fund, other than a money market fund, typically moves up and
down on a day-to-day basis. Share price volatility reflects the level of
fluctuation in the value of a Fund's shares over relatively short time periods.
Prospectus 11
<PAGE>
A mutual fund that experiences large changes in its share price on a daily basis
would be considered to have high share price volatility. The AARP Funds will be
managed to seek to reduce share price volatility as compared to other mutual
funds or securities described in a Fund's investment objective and policies.
This does not mean a Fund's share price will not be affected by market forces.
Market forces may include downward and upward movements of the stock market or
interest rates. The result will be upward or downward movements in the Fund's
share price. For a more detailed discussion of each AARP Fund, please read the
"Investment Objectives and Policies" section.
INVESTMENT OBJECTIVES AND POLICIES
The following pages provide detail on the investment objectives and policies of
the nine AARP Mutual Funds. Included are each Fund's objectives, whom it is
designed for, what it offers investors, what it can invest in, the risks
involved, when distributions are paid and who at Scudder manages the Fund. As
with any investment, there is no guarantee that the AARP Funds will successfully
meet their investment objectives. Be sure to read the section titled "Other
Investment Policies and Risk Factors" on page 29.
Each Trust's Trustees can modify a Fund's objectives without the approval of a
majority of that Fund's shareholders. Shareholders will be informed in writing
of any changes in objectives. In that event, they should consider whether the
Fund is still an appropriate investment given their then current financial
position and needs.
AARP HIGH QUALITY MONEY FUND
Fund Objective:
From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and
safety of principal while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances
under which this goal cannot be achieved.
Whom is the Fund designed for?
The Fund may be appropriate for investors who have short-term needs or who
do not want the risk that accompanies investing in stocks or bonds. These
investors include:
* Investors creating a diversified portfolio who want a portion of
their assets in a conservative investment designed to offer safety
and stability.
* Investors seeking a short-term investment prior to making
longer-term investment choices.
* Investors seeking money market income to meet regular day-to-day
needs.
* Investors who need immediate access to their money through free
checkwriting services.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh 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 checkwriting.
What does the Fund invest in?
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
Prospectus 12
<PAGE>
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including
bankers' acceptances, certificates of deposit, deposit notes and time
deposits; obligations of savings and loan institutions; instruments whose
credit has been enhanced by: banks (letters of credit), insurance
companies (surety bonds), or other corporate entities (corporate
guarantees); corporate obligations, including commercial paper, notes,
bonds, loans and loan participations; securities with variable or floating
interest rates; asset-backed securities, including certificates,
participations and notes; municipal securities including notes, bonds and
participation interests, either taxable or tax-free, as described in more
detail for the AARP High Quality Tax Free Money Fund; securities with put
features; and repurchase agreements.
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 that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. Generally, the
Fund may purchase only securities rated, or issued by an entity with
comparable securities rated, within the two highest quality rating
categories of one or more rating agencies such as: Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), and Fitch Investors
Service, Inc. (Fitch). Securities rated by only one agency may be
purchased if the rating falls within the categories above. Unrated
securities may be purchased if the Fund Manager judges them to be
comparable in quality to securities described above. Generally, the Fund
will invest in securities rated in the highest quality rating by at least
two of these rating agencies.
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 is reduced below the Fund's standards, it will be sold unless
the Trustees determine that disposing of the security would not be in the
best interests of the Fund.
The Fund has certain nonfundamental policies designed to maintain
diversification. These policies may be changed without shareholder
approval. With limited exceptions, the Fund may not invest more than 5% of
its assets in the securities of a single issuer, except for U.S.
Government securities. Nor may it invest more than 10% of its total assets
in securities subject to unconditional puts by a single issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began 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 securities
in which money market funds are allowed to invest. See "Other Investment
Policies and Risk Factors."
When are distributions paid?
Dividends are declared daily and distributed monthly to investors.
Generally, net realized capital gain or loss is included in the daily
declaration of income. See page 33 for additional information on
distributions and taxes.
Prospectus 13
<PAGE>
Who at Scudder manages my investment?
Lead Portfolio Manager Stephen L. Akers assumed responsibility for setting
the Fund's investment strategy and for overseeing the Fund's day-to-day
management in February 1996. Mr. Akers has been a member of the AARP High
Quality Money Fund team since 1995 and has managed several other
fixed-income portfolios since joining Scudder in 1984. Robert T. Neff,
Portfolio Manager, focuses on securities selection and assists with the
creation and implementation of investment strategy for the Fund. Mr. Neff
joined Scudder in 1972 and has more than 20 years of experience managing
short-term fixed-income assets. 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 over 10 years of experience in the investment
industry.
AARP HIGH QUALITY TAX FREE MONEY FUND
Fund Objective:
From investments in high quality municipal securities, the Fund is
designed to provide current income free from federal income taxes. The
Fund also seeks to maintain stability and safety of principal, while
offering liquidity. The Fund seeks to maintain a constant net asset value
of $1.00 per share. There may be circumstances under which this goal
cannot be achieved.
Whom is the Fund designed for?
The Fund may be appropriate for investors in high tax brackets who have
short-term investment needs or who do not want the risk that accompanies
investing in stocks or bonds. These include:
* Investors creating a diversified portfolio who want a portion of
their assets in a conservative investment designed to offer safety
and stability.
* Investors seeking a short-term investment prior to making
longer-term investment choices.
* Investors seeking tax free money market income to meet regular
day-to-day expenses.
* Investors who need immediate access to their money through free
checkwriting services.
This Fund is not available for AARP IRA, AARP SEP-IRA or AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income free from federal income tax,
while providing you with 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).
Prospectus 14
<PAGE>
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 its portfolio securities will be
in federally tax-exempt securities.
As a fundamental policy, under normal circumstances, at least 80% of the
Fund's net assets will be invested in tax-exempt securities. Up to 20% of
the Fund's net assets may be invested in taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in taxable securities may exceed 20%.
All of the securities purchased are U.S. dollar-denominated. The
securities must meet credit standards applied by the Fund Manager,
following procedures established by the Trustees. If a security ceases to
be rated, or its rating is reduced below the Fund's standard, it will be
sold unless the Trustees determine that disposing of the security would
not be in the best interests of the Fund. As a matter of nonfundamental
policy, which may be changed without a shareholder vote, the Fund, with
respect to 75% of its total assets, may not invest more than 5% of its
total assets in securities subject to puts from any one issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began operating as a tax-free money fund in August 1991,
there may be situations under which this goal cannot be achieved. The
level of income you receive will be affected by movements up and down in
short-term interest rates. By investing generally in highest-quality
securities, the Fund may offer less income than a money market fund
investing in other high-quality securities in which money market funds are
allowed to invest. See "Other Investment Policies and Risk Factors."
Prospectus 15
<PAGE>
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. However, income may be subject to state and local income
taxes. Each year you will be provided with a breakdown of the Fund's
investments on a state by state basis 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. See page 33 for additional
information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager K. Sue Cote has been responsible for setting the
Fund's investment strategy and has overseen the Fund's day-to-day
management since 1991. Ms. Cote joined Scudder in 1983 and has over 10
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 more than 20 years' experience in tax-free investing and has
been at Scudder since 1983.
AARP GNMA AND U.S. TREASURY FUND
Fund Objective:
To produce a high level of current income and to keep the 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.
Whom is the Fund designed for?
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 and be
comfortable with fluctuation in the value of their principal.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh 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 available from fixed-price money market mutual funds,
government-insured bank accounts and fixed-rate, government-insured CDs.
By including short-term U.S. Treasury securities in its portfolio, the
Fund seeks to offer less share price volatility than long-term bonds or
many 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)
Prospectus 16
<PAGE>
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.
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 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 fluctuation, or price volatility to your
principal, by investing in a combination of short-, intermediate-, and
long-term securities. The Fund may also, on occasion, use portfolio
management techniques to reduce volatility. These techniques, which are
subject to applicable regulatory guidelines, may include limited
transactions in financial futures contracts and related option
transactions which are unrated (see "Other Investment Policies and Risk
Factors"). The Fund may purchase "when issued" securities and repurchase
agreements, and 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 under certain conditions
may reduce current income.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 33 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has been responsible for setting the
Fund's investment strategy and overseeing security selection for the
Fund's portfolio since its inception in 1985. Mr. Glen has 15 years'
Prospectus 17
<PAGE>
experience in finance and investing. Mark S. Boyadjian, Portfolio Manager,
focuses on securities selection and assists with the creation and
implementation of investment strategy for the Fund. Mr. Boyadjian joined
the Fund's team in 1995 and has been involved in investment management
since joining Scudder in 1989.
AARP HIGH QUALITY BOND FUND
Fund Objective:
Consistent with investments primarily in high quality securities, the Fund
seeks to provide a high level of income and to keep the value of its
shares more stable than that of a long-term bond.
Whom is the Fund designed for?
The Fund is suitable for investors who want high current income with
moderate risk from a high quality portfolio. Investors should be seeking
to invest for the longer term (at least 1 year or more) and be comfortable
with fluctuation in the value of their principal.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer a high level of current income from a
portfolio of high-quality securities. Normally the level of return should
be higher than that available from the AARP GNMA and U.S. Treasury Fund,
with greater fluctuation in the value of your principal.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many
long-term bond funds, although its yield may be lower.
What does the Fund invest in?
Under normal circumstances, at least 65% of the assets of the Fund are
invested in 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 the equivalent of those rated in the three highest rating categories of
Moody's (Aaa, Aa, and A) or S&P (AAA, AA, and A) and at least 65% of the
Fund's assets must be in securities rated in the two highest rating
categories by Moody's or S&P.
The Fund may invest 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 also purchase obligations of international agencies, U.S.
dollar-denominated foreign debt securities, and money market instruments
such as commercial paper, banker's acceptances, and certificates of
deposit issued by domestic and foreign branches of U.S. banks.
The Fund will invest in a broad range of short-, intermediate- and
long-term securities. The maturities and types of securities held by the
Fund will vary with current market conditions. The Fund may have a
substantial portion of its assets in securities of a particular maturity.
The non-governmental investments of the Fund will be spread among a
variety of companies and will not be concentrated in any one industry.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its
shares will fluctuate up and down with changes in interest rates and other
market conditions. Due to the greater market price risk of the securities
Prospectus 18
<PAGE>
in which it invests, the Fund may have a more variable share price than
the AARP GNMA and U.S. Treasury Fund. See "Other Investment Policies and
Risk Factors."
The level of income provided will be affected by movements up and down in
interest rates. Also, income from high-quality securities the Fund
purchases may be lower than income from lower-quality securities.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce fluctuation, or the price volatility of
your investment, by investing in securities with varying maturities. 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 purchase "when issued" securities and
repurchase agreements, and 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 under
certain conditions may reduce current income.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 33 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has set the Fund's overall investment
strategy and has overseen its day-to-day operations since 1995. Mr. Glen,
who started at Scudder in 1982 and has been a portfolio manager since
1985, has 15 years' experience in finance and investing. William M.
Hutchinson, Portfolio Manager, who is also responsible for implementing
the Fund's strategy, has been involved with the Fund since 1987. Mr.
Hutchinson joined Scudder in 1986 as a portfolio manager and has over 20
years of investment experience. Stephen A. Wohler, Portfolio Manager,
focuses on securities selection for the Fund. Mr. Wohler joined Scudder in
1979 as a portfolio manager and has over 15 years' experience managing
fixed-income investments.
AARP INSURED TAX FREE GENERAL BOND FUND
Fund Objective:
From a portfolio consisting primarily of municipal securities covered by
insurance, the Fund seeks to provide high income free from federal income
taxes and to keep the value of its shares more stable than that of a
long-term municipal bond.
Whom is the Fund designed for?
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 1 year or more) and be comfortable with fluctuation
in the value of their principal.
The Fund is not available for AARP IRA, AARP SEP-IRA, and AARP Keogh 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 from a taxable investment of comparable quality and risk. The
Prospectus 19
<PAGE>
Fund will typically pay higher income than the AARP High Quality Tax Free
Money Fund, although yield and principal value will fluctuate up and down
with market conditions. By including short- and medium-term bonds in its
portfolio, the Fund seeks to offer less share price volatility than
long-term municipal bonds or many long-term municipal bond funds, although
its yield may be lower.
The Fund is one of a distinct group of tax-free mutual funds with
insurance on the majority of its investments. Insurance on its securities
protects the Fund against loss from default by the municipal issuer.
However, it does not protect the investor from fluctuation in the 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.
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."
Prospectus 20
<PAGE>
How does the Fund seek to manage risk?
The Fund actively seeks to manage fluctuation, or the price volatility of
your investment, by investing in securities of varying maturities. The
Fund may also use approved portfolio management techniques.
Insurance on the securities held by the Fund protects the Fund as to
default by the municipal issuer. It does not protect an investor from
fluctuation in the Fund's yield or value per share, which change daily.
Insurance also involves a cost to the Fund which will reduce yield.
Historically, the yields on insured securities have been attractive in
comparison to the yields on uninsured securities of comparable quality.
There can be no assurance, however, that this relationship will continue.
Moreover, to the extent the Fund must purchase insurance on U.S.
Government securities, this will involve a cost to the Fund while not
increasing the quality rating since U.S. Government-guaranteed or backed
securities are already high quality. Although the financial condition of
each insurer of its securities is periodically reviewed by the Fund, there
can be no guarantee that insurers can honor their obligations under all
circumstances. See "Other Investment Policies and Risk Factors."
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. However, 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 on a
state by state basis so that you can determine your state and local income
tax liability. Your state or local Department of Revenue or tax advisor
can answer questions regarding the taxability of distributions.
In the event there is income from taxable securities, it would not be
exempt from federal income taxes. In addition, any capital gains earned by
the Fund are usually taxable.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 33 for additional
information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Donald C. Carleton has been responsible for setting
the Fund's investment strategy and has overseen the Fund's day-to-day
management since 1990. Mr. Carleton has over 20 years' experience in
tax-free investing. 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 17 years of investment experience.
Prospectus 21
<PAGE>
AARP BALANCED STOCK AND BOND FUND
Fund Objective:
To seek to provide long-term growth of capital and income while attempting
to keep the value of its shares more stable than other balanced mutual
funds. The Fund pursues these objectives by investing in a combination of
stocks, bonds, and cash reserves.
Whom is the Fund designed for?
This Fund is suitable for conservative investors who are seeking long-term
growth of their assets, but want less risk than an investment solely in
stocks. Investors should invest for the longer term (at least 3 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP
Keogh 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, over time, help reduce fluctuation in the Fund's
share price. Through a broadly diversified portfolio consisting primarily
of stocks with above average dividend yields and investment-grade bonds,
the Fund seeks to offer less share price volatility than many balanced
mutual funds. The Fund should typically have less risk and a lower return
than the AARP Growth and Income Fund, the AARP Capital Growth Fund and the
AARP Global Growth Fund.
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, anticipated growth of corporate
profits, and the financial climate worldwide.
What does the Fund invest in?
The Fund seeks to manage fluctuation by investing in a broadly diversified
mix of equity securities, bonds, and cash reserves. The Fund may invest up
to 70% of its assets in equity securities (stocks). At least 30% of the
Fund will be in investment-grade fixed-income securities and cash
reserves. For liquidity, defensive purposes, and when market conditions
dictate, the Fund may invest without limit in money market and short-term
instruments. These include commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S.
banks.
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.; it may invest, however, 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
Prospectus 22
<PAGE>
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, and preferred and convertible 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 also 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 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."
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 33 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman is responsible for managing the
stock portion of the Fund. Mr. Hoffman, who joined Scudder in 1990, has 10
years of experience in the investment industry. William M. Hutchinson,
Portfolio Manager, is responsible for the bond portion of the Fund.
Messrs. Hutchinson and Hoffman have been Portfolio Managers for the Fund
since it commenced operations on February 1, 1994. Kathleen T. Millard,
Portfolio Manager, focuses on stock strategy and stock selection. Ms.
Millard has worked in the investment industry since 1983 and at Scudder
since 1991.
Prospectus 23
<PAGE>
AARP GROWTH AND INCOME FUND
Fund Objective:
From investments primarily in common stocks and securities convertible
into common stocks, the Fund seeks to provide long-term capital growth and
income, and to keep the value of its shares more stable than other growth
and income mutual funds.
Whom is the Fund designed for?
The Fund is suitable for investors who are seeking long-term growth of
their assets to keep ahead of inflation. Investors should invest for the
longer-term (at least 5 years or more) and be comfortable with fluctuation
to their principal that is associated with investing in stocks.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal with
some income. This growth will come from possible appreciation in the value
of shares, as well as quarterly dividend distributions if they are
reinvested in additional shares of the Fund. Dividends can also produce
current income for investors. Through a broadly diversified portfolio
consisting primarily of stocks with above average dividend yields, the
Fund seeks to offer less share price volatility than many growth and
income funds. The Fund should offer a greater opportunity for share price
appreciation, over time, with less income and 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 stock. 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. It may
invest, however, 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 liquidity, temporary
defensive purposes, or when market conditions warrant, the Fund may invest
without limit in high quality money market securities. These include U.S.
Treasury Bills, commercial paper, certificates of deposit, bankers'
acceptances, and repurchase agreements.
What are the risks?
The risk to principal is consistent with an investment in stocks. The
stock market doesn't go up every year, and can rise and fall--sometimes
quite dramatically over a short period of time. Investors should focus on
the longer term (at least 5 years or more) and be comfortable with
fluctuation in the value of their principal. See "Other Investment
Policies and Risk Factors."
The level of income you receive will be affected by dividends paid on the
securities held by the Fund.
Prospectus 24
<PAGE>
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 33 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman has had responsibility for
setting the Fund's stock investment strategy and has overseen the Fund's
day-to-day management since 1991. Mr. Hoffman, who joined Scudder in 1990,
has 10 years of experience in the investment industry. 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. Benjamin W. Thorndike, Portfolio Manager, is
the Fund's chief analyst and strategist for convertible securities. Mr.
Thorndike, who has more than 15 years of investment experience, joined
Scudder and the Fund in 1986.
AARP CAPITAL GROWTH FUND
Fund Objective:
From investments primarily in common stocks and securities convertible
into common stocks, the Fund seeks to provide long-term capital growth,
and to keep the value of its shares more stable than other capital growth
mutual funds.
Whom is the Fund designed for?
The Fund is suitable for investors seeking high long-term growth of their
principal. Investors should invest for the longer term (at least 5 years
or more) and be comfortable with the value of their principal fluctuating
up and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and
AARP Keogh 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 greater
opportunity for appreciation and more volatility than the AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund and AARP Global Growth
Fund.
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.
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
Prospectus 25
<PAGE>
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. It may invest, however, 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 liquidity, temporary defensive purposes, or when market conditions
warrant, the Fund may invest without limit in high quality money market
securities, including repurchase agreements, and other debt securities,
such as U.S. Government obligations and corporate debt instruments.
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
than other AARP Funds. The stock market doesn't go up every year, and can
rise and fall--sometimes quite dramatically over a short period of time.
Some of the securities selected may have above-average stock market risk.
Investors should focus on the longer term (at least 5 years or more) and
be comfortable with fluctuation to the value of their principal. See
"Other Investment Policies and Risk Factors."
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30.
See page 33 for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager William F. Gadsden has set the Fund's overall
investment strategy since 1994 and has been part of the Fund's day-to-day
management since 1989. He has 14 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 15 years of investment industry
experience and joined Scudder in 1991.
AARP GLOBAL GROWTH FUND
Fund Objective:
From investments primarily in equity securities of U.S. and foreign
companies, the Fund seeks to offer long-term capital growth and global
diversification, and to keep the value of its shares more stable than
other global equity funds.
Whom is the Fund designed for?
This new Fund, which commenced operations on February 1, 1996, is suitable
for investors who want to add world-wide equity opportunities to their
portfolio. The Fund is designed for investors seeking long-term growth of
their principal. Investors should invest for the longer term (at least 5
years or more) and be comfortable with the value of their principal
fluctuating up and down. The Fund is also available for AARP IRA, AARP
SEP-IRA, and AARP Keogh Plan accounts.
Prospectus 26
<PAGE>
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 will be more diversified than one invested solely in
U.S. securities.
Investing directly in foreign securities is usually impractical for most
investors because it presents complications and extra costs. Investors
often find it difficult to arrange purchases and sales, to obtain current
information, to hold securities in safekeeping and to convert the value of
their investments from foreign currencies into dollars. The Fund manages
these problems for the investor. With a single investment, the investor
has a diversified worldwide investment portfolio which is managed actively
by experienced professionals. Scudder has had many years of experience
investing globally and dealing with trading, custody and currency
transactions around the world. Scudder has the benefit of information it
receives from worldwide research and believes the Fund affords investors
an efficient and cost-effective method of investing worldwide.
Through a broadly diversified portfolio consisting primarily of stocks of
established companies which are incorporated in the U.S. or in foreign
countries, and relatively low portfolio turnover, the Fund seeks to offer
less share price volatility than many global growth funds. However, in
pursuing long-term growth, the Fund will be riskier than the typical AARP
Fund. The Fund should offer greater opportunity for share price
appreciation, over time, with greater share price fluctuation than most
AARP Funds. 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. 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. For liquidity, temporary defensive purposes, or when market
conditions warrant, the Fund may invest without limit in high quality
money market securities, including repurchase agreements, and other debt
securities, such as U.S. Government obligations and corporate debt
instruments.
Prospectus 27
<PAGE>
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 stock. Also, fixed-income securities of governments, government
agencies, supranational agencies and companies may be used when Scudder
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."
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced Scudder International Fund, the
first mutual fund available in the U.S., investing internationally in
securities of issuers in several foreign countries. Today, Scudder manages
over $__ billion in assets invested in foreign markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through global investing. The Fund generally will have
greater share price fluctuation than other AARP Funds except for AARP
Capital Growth Fund. Global investing involves economic and political
considerations not typically found in 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 both the different stock and bond markets in
which it is invested and the currencies in which the investments are
denominated; the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance.
Investors should focus on the longer term (at least 5 years or more) and
be comfortable with fluctuation to the value of their principal. Because
of the Fund's global investment policies and the investment considerations
discussed above, investment in shares of the Fund should be considered as
part of a broadly diversified portfolio. See "Other Investment Policies
and Risk Factors."
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30.
See page 33 for additional information on distributions and taxes.
Prospectus 28
<PAGE>
Who at Scudder manages my investment?
William E. Holzer is the Lead Portfolio Manager for the Fund. Mr. Holzer
has day-to-day responsibility for setting the Fund's worldwide strategy
and investment themes. Mr. Holzer has over 20 years' experience in global
investing and joined Scudder in 1980. Nicholas Bratt, Portfolio Manager,
directs Scudder's overall global equity investment strategies. Mr. Bratt
joined Scudder in 1976. Alice Ho, Portfolio Manager is also responsible
for implementing the Fund's strategy. Ms. Ho, who joined Scudder in 1986
as a member of the institutional and private investment counsel area, has
worked as a portfolio manager since 1989.
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 Funds, except the AARP Growth and Income Fund and the AARP Capital
Growth 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 Funds may enter into repurchase agreements only with Federal
Reserve member banks or broker-dealers recognized as reporting government
securities dealers.
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 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.
Prospectus 29
<PAGE>
Foreign Securities
Each of the Funds in the AARP Growth Trust and the AARP High Quality Bond Fund
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.
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 Funds may invest.
Forward Foreign Currency Exchange Contracts
Each of the Funds in the AARP Growth Trust may enter into forward foreign
currency exchange contracts. These contracts, which involve costs, permit the
funds to purchase or sell a specific amount of a particular currency at a
specified price on a specified future date. They may be used by a Fund only to
hedge against possible variations in exchange rates of currencies in countries
in which it may invest.
A Fund will realize a benefit only to the extent that the relevant currencies
move as anticipated. If the currencies do not move as anticipated, the use of
these contracts may result in losses greater than if they had not been used.
Options Transactions
In an attempt to enhance investment returns, Funds in the AARP Growth Trust and
the AARP Income Trust may each write covered call options. These are agreements
to sell a particular security in the Fund's portfolio at a specified price on or
before the expiration date of the option. Covered call options may be written on
portfolio securities worth up to 25% of the Fund's net assets.
There are risks associated with writing covered options. These include the
possible inability to make closing transactions at favorable prices or because
an exercise notice has been received. The Funds also risk giving up appreciation
on the underlying security in excess of the exercise price.
Each of the Funds in the AARP Growth Trust may purchase and sell exchange-traded
options on stock indices. In addition, these Funds may engage in
over-the-counter options transactions with broker-dealers who make markets in
these options. Over-the-counter options may be more difficult to terminate than
exchange-traded options. They are frequently illiquid, and involve counterparty
credit risk. The Fund Manager will engage in such transactions to hedge against
unfavorable price movements which can adversely affect the value of the Fund's
securities or securities the Fund intends to buy. These transactions involve
Prospectus 30
<PAGE>
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 a transaction.
Futures Contracts and Related Options
To a limited extent, the Funds in the AARP Income Trusts and the AARP Insured
Tax Free General Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP
Global Growth Fund may enter into financial futures contracts including futures
contracts on securities indices, may purchase and write related put and call
options, and may engage in related closing transactions. These techniques are
used to attempt to protect against adverse effects of interest rates changes. A
particular index-based futures contract may be used when the Fund Manager
believes that correlation exists between price movements in an index-based
futures contract and securities in a Fund's portfolio. Such correlation is not
likely to be perfect. That is because a Fund's portfolio is not likely to
contain the same securities used in the index.
The margin deposits for futures contracts and premiums paid for related options
may not be more than 5% of a Fund's total assets. These transactions require a
Fund to segregate assets (such as liquid securities and cash) to cover contracts
that would require it to purchase securities. These transactions also result in
brokerage costs.
These techniques involve some risk. A Fund may be precluded from realizing a
benefit from favorable price movements and could lose the expected benefit of
the transactions if interest rates move in an unanticipated manner. To the
extent that the Fund Manager's view of market movements is incorrect, the use of
such instruments may result in losses greater than if they had not been used. In
addition, if the AARP Insured Tax Free General Bond Fund purchases futures
contracts on taxable securities or indices of such securities, their value may
not fluctuate in proportion to the value of the Fund's securities. This would
limit that Fund's ability to hedge effectively against interest rate risk.
Further, while a Fund buys a futures contract only if there appears to be a
liquid secondary market for such contracts, there can be no assurance that a
Fund will be able to close out any particular futures contract.
Segregated Accounts
Each Fund may be required to segregate assets (such as cash, U.S. Government
securities and other high grade debt obligations) or otherwise provide coverage
consistent with applicable regulatory policies. This would be in respect to the
Fund's permissible obligations under the call and put options it writes, the
forward foreign currency exchange contracts it enters into and the futures
contracts it enters into.
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.
Prospectus 31
<PAGE>
Demand Obligations
Each of the AARP Funds may purchase demand obligations. Demand obligations
permit the holder to demand payment of a specified amount prior to maturity. The
holder's right to payment depends upon the issuer's ability to pay principal and
interest on demand. A Fund will purchase demand notes only to enhance liquidity.
The Fund Manager will continuously monitor the creditworthiness of issuers of
such obligations.
Stand-by Commitments
The AARP Tax Free Funds may enter into stand-by commitments (also known as puts)
to facilitate liquidity. Stand-by commitments permit a Fund to resell municipal
securities to the original seller at a specified price and generally involve no
cost. Costs, in any event, are limited to .5% of a Fund's total assets. To
minimize the risk that the seller may not be able to repurchase the security,
the Fund Manager will monitor the creditworthiness of the seller.
"Put" Bonds
The AARP Tax Free Funds may also purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution. This
allows the Funds to tender (or "put") bonds to the institution at specified
intervals and receive the face value of them. For the AARP High Quality Tax Free
Money Fund, an interval can not exceed 397 calendar days. These third party puts
are available in several different forms. They may be custodial receipts or
trust certificates, and may be combined with other features such as interest
rate swaps.
Tax-exempt Participation Interests
The AARP Tax Free Funds may purchase tax-exempt participation interests from a
bank representing a fully-insured portion of the bank's holdings of municipal
securities. The Fund will obtain an irrevocable letter of credit or guarantee
from the bank and will have, under certain circumstances, the right to resell
the participation to the bank on 7 days' notice. To the extent any participation
interest is illiquid, it is subject to the Fund's limit on restricted and not
readily marketable securities.
Municipal Lease Obligations
The AARP Tax Free Funds may also invest in municipal lease obligations generally
as a participation interest in a municipal obligation from a bank or other
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. In
the case of AARP Global Growth Fund, it is anticipated, under normal investment
conditions, that the Fund's portfolio turnover rate will not exceed 75% for the
initial fiscal year. However, economic and market conditions may necessitate
more active trading, resulting in a higher portfolio turnover rate.
Prospectus 32
<PAGE>
INVESTMENT RESTRICTIONS
To help reduce investment risk, each of the AARP Funds has adopted certain
investment policies. Only the shareholders can approve changes to the following
policies:
* 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.
* A Fund may borrow money only for temporary or emergency purposes.
The following policies may be changed without shareholder approval if applicable
legal requirements change.
* Each AARP Fund may not invest more than 10% of its net assets in
restricted or not readily marketable securities. These "illiquid
securities" include repurchase agreements maturing in more than 7
days. Funds in the AARP Growth Trust may not invest more than 5% of
their net assets in restricted securities.
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 Funds to withhold 31% of taxable
dividends, capital gain distributions and redemption or exchange proceeds for
accounts without a certified social security or tax identification number, or
other certified information. To avoid this withholding, make sure you 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 Funds reserve the right to reject Enrollment Forms or close accounts
without a certified Social Security or tax identification number. In such cases,
Enrollment Forms received without this information will be returned to the
investor with a check for the amount invested.
What else should I know about distributions and taxes?
* You can receive your dividend and capital gain distributions in one
of three ways:
1. You can have a check sent to your address;
2. You can reinvest them in additional shares of an AARP Fund; or
3. You can invest them in shares of another AARP 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.
* Distributions are taxable in the same manner, whether received in
cash or reinvested.
Prospectus 33
<PAGE>
* Distributions of short-term capital gains by all the AARP Funds are
taxable as ordinary income.
* 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.
* You may be able to claim a credit or deduction on your income tax
returns for your pro rata portion of qualified taxes paid by your
AARP Fund to foreign countries.
* Each AARP 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 Fund and purchase shares in another AARP
Fund.
* The AARP Funds reserve the right to make extra distributions for tax
purposes.
FUND ORGANIZATION
The AARP Investment Program Trusts
The nine mutual funds described in this prospectus are organized as four
Massachusetts business trusts--AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and AARP Growth 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 other trusts 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.
General Management
The Trustees have overall responsibility for the management of their respective
Trusts under Massachusetts law. Under their direction, the Fund
Manager--Scudder, Stevens & Clark, Inc.--provides general investment management
of the AARP 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.
Prospectus 34
<PAGE>
Since the Trusts use a combined prospectus, it is possible that one Trust or
AARP Fund might become liable for a misstatement in this prospectus regarding
another Trust or AARP Fund. The Trustees of each Trust considered this risk when
approving the use of a combined prospectus.
The right of the Trusts and AARP 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 Funds continue to use the AARP name.
Management Fees
Each AARP Fund pays the Fund Manager a fee for management and administrative
services. Commencing February 1, 1994, the following fee arrangement was
instituted. 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 Funds. Each AARP Fund 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 Funds. The table below shows the annual Base Fee Rate
at specified levels of Program assets:
Annual Base Fee Rate Program Assets
--------------------------------------------------------------------
.350% First $2 billion
.330% Next $2 billion
.300% Next $2 billion
.280% Next $2 billion
.260% Next $3 billion
.250% Next $3 billion
.240% Thereafter
In addition to the Base Fee Rate, each AARP Fund 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 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
following table shows the Individual Fund Fee Rate for each of the AARP Funds:
Fund Individual Fee Rate
-----------------------------------------------------------------------
AARP High Quality Money Fund .10%
AARP High Quality Tax Free Money Fund .10%
AARP GNMA and U.S. Treasury Fund .12%
AARP High Quality Bond Fund .19%
AARP Insured Tax Free General Bond Fund .19%
AARP Balanced Stock and Bond Fund .19%
AARP Growth and Income Fund .19%
AARP Capital Growth Fund .32%
AARP Global Growth 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
Prospectus 35
<PAGE>
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, [1994], fees paid to the Fund Manager
totaled [.42 of 1% of the average daily net assets of the AARP High Quality
Money Fund, .43 of 1% of the AARP High Quality Tax Free Money Fund, .42 of 1% of
the AARP GNMA and U.S. Treasury Fund, .62 of 1% of the AARP Capital Growth Fund,
and .49 of 1% for each of the AARP High Quality Bond Fund, AARP Insured Tax Free
General Bond Fund, AARP Growth and Income Fund and AARP Balanced Stock and Bond
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.
UNDERSTANDING FUND PERFORMANCE
Performance of an AARP Fund may be included in advertisements, sales literature
or shareholder reports. Important components of performance are yield, total
return and cumulative total return. These components vary based on changes in
market conditions, the level of interest rates and the level of the Fund's
expenses. Yield, total return, and cumulative total return are based on
historical earnings and are not intended to indicate future performance.
What is Yield?
For the AARP High Quality Money Fund, the AARP Income Funds and the AARP Tax
Free Funds, yield is a measure of income. Yield refers to the net investment
income generated over a specific period of time. It is always calculated using a
standard industry formula so it is a useful way to compare the income produced
by different mutual funds. For non-money market funds, yield refers to the 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. For money market funds, yield refers to the net investment income
generated by the fund over a specified 7-day period. This income is then
annualized and expressed as a percentage. For the money market funds, effective
yield is expressed similarly but, when annualized, the income earned by an
investment in the fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
For GNMA securities, net investment income includes realized gains or losses
based on historic cost for principal repayments received. For other securities,
net investment income includes the amortization of market premium or market
discount.
What is Total Return?
The total return of a mutual fund refers to the average annual percentage change
in value of an investment in the fund assuming that the investment has been held
for the stated period. Total return quotations are expressed in terms of average
annual compound rates of return for all periods quoted and assume that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
Prospectus 36
<PAGE>
What is Cumulative Total Return?
Cumulative total return of a mutual fund represents the cumulative change in
value of an investment in a fund for various periods. It assumes that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is meant by Tax-Equivalent Yield and how is it calculated?
To determine if tax-free investing is right for you, it is helpful to convert a
yield from a tax-free mutual fund to its equivalent taxable yield. The
tax-equivalent yields of the AARP Tax Free Funds, which may be quoted from time
to time, let you determine the yield you would have to receive from a fully
taxable investment to produce an after-tax yield equivalent to a tax-free fund.
The calculation is as follows:
Tax-Free Yield = Tax-Equivalent Yield
--------------------
100% - your tax rate
Example: If a tax-free mutual fund has a 30-day average annualized yield of
5.30% and you are in the 31% tax bracket, the calculation would be:
5.30% = 7.68%
--------------------
100%-31%
You would need to earn 7.68% with a taxable investment to equal the 5.30% yield
of a tax-free fund. The tax-equivalent yield will vary depending upon your
income tax bracket.
UNDERSTANDING SHARE PRICE
How is a Fund's share price determined?
Share price is based on a Fund's net assets. It is calculated by dividing the
current market value (amortized cost in the case of the AARP High Quality Tax
Free Money Fund) of total fund assets, less all liabilities, by the total number
of shares outstanding. Scudder Fund Accounting Corporation, a wholly-owned
subsidiary of the Fund Manager, determines net asset value per share of each
Fund as of the close of regular trading on the New York Stock Exchange, normally
4:00 p.m. Eastern time on each day the Exchange is open for trading. 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 ACCOUNT
How do I get started?
Decide on the AARP Fund or Funds which meets your needs. Then fill out, sign and
return your Enrollment Form with your check in the postage paid envelope
provided. Once your Enrollment Form is received, an account number will be
assigned to you. Your check should only be drawn on a U.S. bank and be payable
to the AARP Investment Program.
If you don't want to send your check through the mail, you can send a bank wire.
Simply fill out and return your Enrollment Form in the mail. Then, before you
Prospectus 37
<PAGE>
send the wire, call an AARP Mutual Fund Representative. The Representative will
set up the account and contact you to provide you with your account number and
further wiring instructions. To complete the wire transfer, follow the special
wire transfer instructions below. Please note you cannot open AARP IRA or AARP
Keogh Plan accounts by wire.
What is the minimum investment?
The minimum is $500 for each AARP Fund, except for the AARP High Quality Tax
Free Money Fund, which has a minimum investment of $2,500. You can open an AARP
IRA with as little as $250 for each applicable AARP Fund.
What happens if my investment falls below its minimum balance?
The Funds reserve the right to redeem accounts below the minimum balance and
return the proceeds to you if you do not increase an account above the minimum
within 60 days after notice. However, if your account falls below the minimum
solely as a result of market activity, your account will not be closed.
What is the normal processing time of checks when purchasing shares?
If checks are drawn on a Federal Reserve System member bank, the Program will
normally execute checks (and wire transfers) received in good order on the same
business day that they are received.
When do I start earning income on this purchase?
For AARP Funds paying daily dividends (AARP Money Funds, AARP Income Funds and
the AARP Insured Tax Free General Bond Fund), income begins to accrue on the
business day following actual execution of the order.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
- --------------------------------------------------------------------------------
WIRE TRANSFER INSTRUCTIONS
* To open an account (mail Enrollment Form first and make sure to call
a Representative to obtain an account number--AARP IRA and AARP
Keogh Plan accounts cannot be opened by wire)
* To add to your account
Contact your bank with the following information:
1) the names(s) on your account;
2) your AARP Fund account number;
3) the name of the Fund(s) you want to invest in;
4) the name and address of the Fund's custodian bank: State Street Bank
and Trust Company, Boston MA 02101;
5) the routing numbers ABA Number 011000028 and AC-99035420.
- --------------------------------------------------------------------------------
Prospectus 38
<PAGE>
Can I add another AARP Fund to my account?
You can open another AARP Fund at any time. The new investment must meet the
minimum initial investment described above. Your new AARP Fund will have the
same account number and registration as your existing one(s). You can open a new
AARP Fund in a number of ways:
- --------------------------------------------------------------------------------
Mail your request Send a letter stating your request and naming the new
AARP Fund. Include a check made payable to the AARP
Investment Program.
- --------------------------------------------------------------------------------
Wire the money Have your account number ready and follow the wire
instructions above.
- --------------------------------------------------------------------------------
Exchange from See instructions on how to exchange--page 40.
an AARP Fund
- --------------------------------------------------------------------------------
Telephone Transactions
When you open an account you automatically become eligible to exchange shares by
telephone and to redeem by telephone up to $50,000 to your registered address.
You may also request by telephone that redemption proceeds be wired to a bank
account you select. When exchange or redemption requests are made over the
telephone, procedures are in place to give reasonable assurance that telephone
instructions are genuine, including recording telephone calls, testing a
caller's identity and sending written confirmation of such transactions. If an
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
ADDING TO YOUR INVESTMENT
How do I add to my investment?
After your account is opened, you can add to your AARP Fund investment in any
amount in the following ways:
- --------------------------------------------------------------------------------
Mail your request Send your check with a personalized investment slip
or with a letter naming your account number and AARP
Fund.
- --------------------------------------------------------------------------------
Call Toll-Free If you selected the Transact By Phone service, you'll
be able to call and have money transferred from your
checking account to cover the purchase. See page 43.
- --------------------------------------------------------------------------------
Wire the purchase Have your account number ready and follow the wire
instructions on page 38.
- --------------------------------------------------------------------------------
Exchange from an See Exchanging on page 40.
AARP Fund
- --------------------------------------------------------------------------------
Invest Automatically See page 44 for information on the Automatic
Investment Plan.
- --------------------------------------------------------------------------------
Prospectus 39
<PAGE>
EXCHANGING
What is an exchange?
You make an exchange when you sell shares in one AARP Fund to purchase shares in
another. This is technically two transactions, a sale and a purchase of shares.
If the value of the shares sold in the exchange was higher or lower than your
original purchase price, you may have a capital gain or loss. This is important
to note for tax planning purposes. You may exchange all or part of your shares
in one AARP Fund for shares in another AARP Fund. Exchanges between existing
AARP Funds can be for any amount. Exchanges that open a new AARP Fund must meet
the minimum balance.
How can I exchange shares?
There are several ways to exchange, including:
- --------------------------------------------------------------------------------
Mail or fax your request Tell us the AARP Fund from which to take the
money and the AARP Fund to exchange to.
Include your account number, registered
name(s) and address, and either the dollar
amount or number of shares you want to
exchange. Be sure to sign your name(s)
exactly as it appears on the account
statement.
- --------------------------------------------------------------------------------
Call Toll-Free Call us before 4:00 p.m. Eastern time to
exchange by close of business the same day.
If you purchased shares by check or by
phone, you may not use this option until 7
business days after the purchase date to
allow the check to clear. During this
period, you must send your exchange request
by mail or fax.
- --------------------------------------------------------------------------------
Call the You can exchange shares through this
Easy-Access Line automated toll-free line. It is available 24
hours a day, 7 days a week. Simply call
toll-free and follow the recorded voice
instructions.
- --------------------------------------------------------------------------------
Prospectus 40
<PAGE>
ACCESS TO YOUR INVESTMENT
How do I redeem?
You can sell (redeem) fund shares in a number of ways. The share price may be
more or less than your original purchase price. Therefore, you may have either a
taxable capital gain or loss. Keep in mind that you can redeem shares of your
AARP IRA or AARP Keogh Plan account only by sending your request in writing.
- --------------------------------------------------------------------------------
Mail or Fax your request Tell us the name of the AARP Fund and the
number of shares or dollar amount you wish
to sell. Make sure to give us your account
number, registered name(s) and where you
want the proceeds sent. If you want the
proceeds to go to an address other than your
registered address, to your bank, or to
someone else, please provide complete
details. Under certain circumstances, this
may require a special type of authorization
called a Signature Guarantee (see page 42).
Sign the letter exactly as it appears on
your account statement. If your request
requires a Signature Guarantee, you must
mail the request instead of faxing it.
- --------------------------------------------------------------------------------
Call Toll-Free Call before 4:00 p.m. Eastern time business
days and redeem up to $50,000 per AARP Fund.
The proceeds will be mailed to your
registered address or to your bank (unless
you declined the Telephone Redemption to
your Bank feature on your Enrollment Form).
The proceeds can also be wired to your bank
if it is a member of the Federal Reserve
System. A $5.00 fee will be charged for each
wire to your bank. Your bank may also charge
you for receiving a wire. In the event that
you are unable to reach us by telephone, you
should write to the AARP Investment Program;
see "Service Information" for the address.
If you elected the Transact by Phone option
on your Enrollment Form, you can have the
proceeds sent electronically to your
checking account. See page 43 for more
information on Transact By Phone.
- --------------------------------------------------------------------------------
Call the You can redeem shares through this automated
Easy-Access Line toll-free line. Initiate redemptions any
time--24 hours a day. Simply call toll-free
and follow the recorded voice instructions.
- --------------------------------------------------------------------------------
Sell Automatically See page 44 for information on the Automatic
Withdrawal Plan or Systematic Withdrawal
Plan for AARP IRA or AARP Keogh Plan
accounts.
- --------------------------------------------------------------------------------
When are redemptions processed?
Any redemption request received in good order prior to 4:00 p.m. Eastern time
during normal business operations will be processed on that day. The request
will be processed at that night's closing share price. Normally, requests
received in good order after 4:00 p.m. Eastern time will be processed on the
next business day.
Prospectus 41
<PAGE>
Shares redeemed from Funds in the AARP Income Trust, AARP Tax Free Income Trust
or the AARP High Quality Money Fund will earn a dividend on the day of
redemption.
Normally, proceeds of your redemption will be sent on the business day following
a redemption request in good order. In any event, the AARP Funds may take no
more than 7 calendar days to send your redemption proceeds.
When can I expect to receive my money?
We will mail your redemption proceeds promptly. If you purchase shares by check
or by telephone and then redeem them by letter within 7 business days of the
purchase, the redemption proceeds may be held until the purchase check has
cleared the banking system. When the check has cleared, we will mail your
redemption proceeds promptly.
We will not accept redemption requests by telephone or by checkwriting prior to
the expiration of the 7 business day period. You may avoid this delay by
purchasing shares by wire.
- --------------------------------------------------------------------------------
Short-Term Trading
You should make purchases and sales for long-term investment
purposes only. The AARP Funds do not permit a pattern of frequent
purchases and sales in response to short-term changes in share
price.
When such a pattern occurs, the AARP Funds and Scudder Investor
Services, Inc. reserve the right to restrict purchases or exchanges.
This restriction does not apply to the AARP money funds. This right
extends to individual purchasers or groups of related purchasers.
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEES
What is a "Signature Guarantee"?
A "Signature Guarantee" is a certification of your signature. We require this
for your protection and to prevent fraudulent redemptions. In effect, the
appropriate institution (see below) guarantees that you are authorized to make
certain requests.
When do I need one?
A "Signature Guarantee" from each person on the account registration is needed
for the following redemption requests:
1) Redemptions of more than $50,000;
2) When redemption proceeds are payable to someone other than the
registered shareholder(s);
3) When redemption proceeds are to be sent to an address other than the
registered address; or
4) If the account's registered address has changed during the last 30
days.
Transactions requiring signature guarantees cannot be faxed.
Where can I get one?
You can get your signature guaranteed through most banks, credit unions or
savings associations, or from broker-dealers, government securities
broker-dealers, national securities exchanges, registered securities
Prospectus 42
<PAGE>
associations, or clearing agencies deemed eligible by the Securities and
Exchange Commission. Signature Guarantees by notary publics are not acceptable.
INVESTOR SERVICES
To make investing simpler and more convenient there are many free investor
services available to you.
Easy-Access Line
* Exchange between AARP Funds CALL TOLL-FREE
1-800-631-4636
* Exchange to open a new AARP Fund 24 HOURS A DAY
7 DAYS A WEEK
* Redeem money to your registered address
* Get current performance information
* Get current account balance information
* Confirm your last transaction
With the Easy-Access Line you can get performance, and account information. If
you have a touch-tone phone, you can also exchange or redeem shares worth up to
$50,000. Simply call toll-free 1-800-631-4636 using a touch-tone phone and
follow the easy pre-recorded voice instructions.
Transact By Phone
- --------------------------------------------------------------------------------
* Add to an AARP Fund by transfer from CALL TOLL-FREE
your bank checking or NOW account 1-800-253-2277
* Redeem and send the proceeds to your
checking or NOW account
- --------------------------------------------------------------------------------
Transact By Phone allows you to call toll-free to purchase and redeem shares.
The money will be automatically transferred to or from your bank checking
account. Your bank must be a member of the Automated Clearing House for you to
take advantage of this service.
- --------------------------------------------------------------------------------
Buying Shares through Call us before 4:00 p.m. Eastern time, business days,
Transact By Phone: when you want to buy additional shares, and money
will be transferred from your bank account to your
AARP Fund account to cover the purchase. Purchases
must be for at least $250 but not more than $50,000.
Your purchase will generally be completed in 2
business days at the closing share price on the day
it takes place. Shares purchased in this manner will
not be redeemable for a period of up to 7 business
days.
- --------------------------------------------------------------------------------
Selling Shares through Call us before 4:00 p.m. Eastern time, business days,
Transact By Phone: when you want to sell shares. We'll sell your shares
and transfer the proceeds to your bank
account--generally within 2 business days from the
day of your request. You can redeem any amount
greater than $250. Shares will be sold at that
night's closing price on the day of your request.
Requests received after 4:00 p.m. will be sold at the
next business day's closing price.
- --------------------------------------------------------------------------------
Prospectus 43
<PAGE>
Free Checkwriting
Shareholders in the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund have free checkwriting privileges. There is no charge to
shareholders for this service, but the AARP Funds reserve the right to impose a
charge in the future. To enroll, you must fill out a signature card on the
Enrollment Form. If shares were purchase by your personal check, you may only
write checks against your purchase 7 business days from the day that the
purchase took place. Keep in mind that you cannot close your account by writing
a check. This service may be suspended or terminated at any time upon notice to
shareholders.
Distributions Direct
You may choose to have dividend and capital gain distributions automatically
deposited into your bank checking or NOW account. To enroll in this service,
your bank must be a member of the Automated Clearing House (ACH) network. Once
you enroll, your dividends and capital gains will be automatically deposited
into your personal bank account within 3 business days of the distribution date.
You'll receive a statement confirming the amount. There is no charge to
shareholders for the service.
Systematic Plans
Several other investor services are available. These include:
* Automatic Investment Plan: Arrange for regular investments into your
AARP Fund through automatic deductions from your bank checking
account.
* Direct Deposit: At your direction, your Social Security, U.S.
Government or any regular income checks (pension, dividend, interest
or payroll) will be automatically deposited into your AARP Fund.
* Automatic Withdrawal Plan: At your direction, we will automatically
send a monthly redemption of $50 or more directly to you when you
have at least $10,000 or more in an AARP Fund.
* Direct Payment of Fixed Bills: With $10,000 or more in an AARP Fund,
you can arrange for us to automatically pay regular bills of a fixed
amount. Pay your rent, mortgage or other payments of $50 or more.
* Systematic Retirement Withdrawal Plan: You can receive periodic
distributions from an AARP IRA or AARP Keogh Plan account.
STATEMENTS AND REPORTS
What kinds of statements do I receive?
You will receive a prompt confirmation statement for your transactions. You will
also receive a monthly Consolidated Statement. AARP IRA or AARP Keogh Plan
accounts will receive a quarterly Consolidated Statement.
The Consolidated Statement details the market value of all the AARP Funds in
your account. It also includes a listing of recent transactions. You should keep
these statements for your records.
What other reports do I get?
Each year, you will receive a current prospectus, mid year report and annual
report. To reduce the volume of mail, we will only send one copy of most reports
to a household (same surname, same address). Please contact us if you wish to
receive additional reports.
Prospectus 44
<PAGE>
SERVICE PROVIDERS OF THE AARP FUNDS
Legal Counsel
Dechert Price & Rhoads,
Washington, DC
Independent Accountants
Price Waterhouse LLP, Boston, MA
Underwriter
Scudder Investor Services, Inc., Two International Place, Boston, MA (a
wholly-owned subsidiary of Scudder) is principal underwriter of the AARP Funds.
Scudder Investor Services, Inc. offers for sale and confirms as agent all
purchases of shares of the AARP Funds.
Custodian
State Street Bank and Trust Company, Boston, MA
Fund Accounting Agent
Scudder Fund Accounting Corporation, Two International Place, Boston, MA (a
wholly-owned subsidiary of Scudder) is responsible for determining the daily net
asset value per share and maintaining the general accounting records of the AARP
Funds.
Transfer and Dividend-Disbursing Agent
Scudder Service Corporation, P.O. Box 2540, Boston, MA 02208-2540 (a
wholly-owned subsidiary of Scudder)
Investment Adviser
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York is
investment adviser for the AARP Funds.
TRUSTEES AND OFFICERS
CAROLE LEWIS ANDERSON, Trustee (1,2), Principal, Suburban Capital Markets, Inc.
(1995); President, MASDUN Capital Advisors; 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 (2,4), Consultant, Gerontology; Commissioner, County of
Nassau, New York, Department of Senior Citizen Affairs (1971-1991); Chairperson,
Federal Council on Aging (1981-1986).
CYRIL F. BRICKFIELD, Trustee (2,3,4), Honorary Trustee (1); Honorary President
and Special Counsel, American Association of Retired Persons.
ROBERT N. BUTLER, M.D., Trustee (2,4) Brookdale Professor of Geriatrics and
Adult Development, Mount Sinai School of Medicine; formerly Director, National
Institute on Aging, National Institute of Health.
LINDA C. COUGHLIN, President and Trustee (5), Managing Director, Scudder,
Stevens & Clark, Inc., Director, Scudder Investor Services, Inc.*
HORACE B. DEETS, Vice Chairman and Trustee (5), Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.
MARY JOHNSTON EVANS, Trustee (1,3,4), Corporate Director; Senior Member, The
Conference Board, Inc.
Prospectus 45
<PAGE>
EDGAR R. FIEDLER, Trustee (1,2,3), Vice President and Economic Counsellor, The
Conference Board, Inc.
CUYLER W. FINDLAY, Chairman and Trustee (5), Managing Director, Scudder, Stevens
& Clark, Inc., Senior Vice President and Director, Scudder Investor Services,
Inc.*
EUGENE P. FORRESTER, Trustee (2,3), Lt. General (Retired) U.S. Army;
International Trade Consultant; Corporate Director.
WAYNE F. HAEFER, Trustee (2,3,4), Director, Membership Division of AARP;
Secretary, Employee's Pension and Welfare Trusts of AARP and Retired Persons
Services, Inc.; Formerly Director, Administration and Data Management Division
of AARP.
WILLIAM B. MACOMBER, Trustee (3,4), formerly Teacher, History and Government,
Nantucket H.S., Nantucket, MA; formerly President, The Metropolitan Museum of
Art and U.S. Ambassador to Turkey and Jordan.
GEORGE L. MADDOX, JR., Trustee (2,3), Chairman, Duke University Council on Aging
and Human Development; Professor of Sociology, Departments of Sociology and
Psychiatry, Duke University.
ROBERT J. MYERS, Trustee (1,2,4), Actuarial Consultant; formerly Executive
Director, National Commission on Social Security Reform; formerly Chairman,
Commission on Railroad Retirement Reform.
JOSEPH S. PERKINS, Trustee (5), Director, American Association of Retired
Persons; Corporate Retirement Manager, Polaroid Corporation.
JAMES H. SCHULZ, Trustee (3,4), Professor of Economics and Kirstein Professor of
Aging Policy, Policy Center on Aging, Florence Heller School, Brandeis
University.
GORDON SHILLINGLAW, Trustee (1,3,4), Professor Emeritus of Accounting, Columbia
University Graduate School of Business.
EDWARD V. CREED*, Vice President (5)
THOMAS W. JOSEPH*, Vice President (5)
DAVID S. LEE*, Vice President and Assistant Treasurer (5)
DOUGLAS M. LOUDON*, Vice President (5)
THOMAS F. McDONOUGH*, Vice President and Assistant Secretary (5)
PAMELA A. McGRATH*, Vice President and Treasurer (5)
EDWARD J. O'CONNELL*, Vice President and Assistant Treasurer (5)
KATHRYN L. QUIRK*, Vice President and Secretary (5)
HOWARD SCHNEIDER*, Vice President (5)
CORNELIA M. SMALL*, Vice President (5)
*Scudder, Stevens & Clark, Inc.
(1) AARP Cash Investment Funds
(2) AARP Income Trust
(3) AARP Tax Free Income Trust
(4) AARP Growth Trust
(5) All Funds
Prospectus 46
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND
AARP Income Trust:
AARP GNMA and U.S. TREASURY FUND
AARP HIGH QUALITY BOND FUND
AARP 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 CAPITAL GROWTH FUND
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the combined Prospectus for all nine of the above
Funds, dated February 1, 1996, as amended from time to time, copies of which may
be obtained without charge by writing to the AARP INVESTMENT PROGRAM FROM
SCUDDER, P.O. Box 2540, Boston, Massachusetts 02208-2540 or by calling
1-800-253-2277.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
AARP INVESTMENT PROGRAM FROM SCUDDER..................................................................................1
Summary of Advantages and Benefits...........................................................................1
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................3
AARP Money Funds.............................................................................................3
AARP Income Funds............................................................................................6
AARP Insured Tax Free Income Fund............................................................................8
AARP Growth Funds...........................................................................................11
Special Investment Policies of the AARP Funds...............................................................13
General Investment Policies of the AARP Funds...............................................................25
Investment Restrictions.....................................................................................25
PURCHASES............................................................................................................30
General Information.........................................................................................30
Checks......................................................................................................30
Share Price.................................................................................................30
Share Certificates..........................................................................................30
Direct Deposit Program......................................................................................30
Wire Transfers..............................................................................................30
Holidays....................................................................................................31
Other Information...........................................................................................31
REDEMPTIONS..........................................................................................................31
General Information.........................................................................................31
Redemption by Telephone.....................................................................................31
Redemption by Mail or Fax...................................................................................33
Redemption by Checkwriting..................................................................................33
Redemption-in-Kind..........................................................................................33
Other Information...........................................................................................34
EXCHANGES............................................................................................................34
TRANSACT BY PHONE....................................................................................................35
Purchasing Shares by Transact by Phone......................................................................35
Redeeming Shares by Transact by Phone.......................................................................35
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................35
Automatic Dividend Reinvestment.............................................................................35
Distributions Direct........................................................................................36
Reports to Shareholders.....................................................................................36
Consolidated Statements.....................................................................................36
RETIREMENT PLANS.....................................................................................................36
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")...............................................37
AARP Keogh Plan.............................................................................................38
OTHER PLANS..........................................................................................................38
Automatic Investment........................................................................................38
Automatic Withdrawal Plan...................................................................................38
Direct Payment of Regular Fixed Bills.......................................................................39
DIVIDENDS AND YIELD..................................................................................................39
Performance Information: Computation of Yields and Total Return.............................................40
TRUST ORGANIZATION...................................................................................................46
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
MANAGEMENT OF THE FUNDS..............................................................................................47
TRUSTEES AND OFFICERS................................................................................................51
REMUNERATION.........................................................................................................55
DISTRIBUTOR..........................................................................................................56
TAXES................................................................................................................57
BROKERAGE AND PORTFOLIO TURNOVER.....................................................................................61
Brokerage Commissions.......................................................................................61
Portfolio Turnover..........................................................................................63
NET ASSET VALUE......................................................................................................63
AARP Money Funds............................................................................................63
AARP Non-Money Market Funds.................................................................................63
ADDITIONAL INFORMATION...............................................................................................64
Experts.....................................................................................................64
Shareholder Indemnification.................................................................................64
Ratings of Corporate Bonds..................................................................................65
Ratings of Commercial Paper.................................................................................65
Ratings of Municipal Bonds..................................................................................65
Other Information...........................................................................................66
Tax-Exempt Income vs. Taxable Income........................................................................67
FINANCIAL STATEMENTS.................................................................................................68
</TABLE>
ii
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Investment Program from Scudder (the "Program") was developed
by the American Association of Retired Persons ("AARP") to provide an array of
conservatively managed investment options for its members. Today's financial
markets present an enormous, ever-changing selection of investments suited for
investors with varying needs. AARP, a non-profit organization dedicated to
improving the quality of life, independence and dignity of older people, has
undertaken to help its members by designing an investment program which attempts
to satisfy the investment and retirement planning needs of most of its members,
whether they be experienced investors or savers who have never invested at all.
As with any program with the "AARP" name, the Program includes special benefits
as described in the combined prospectus for the four Trusts, dated February 1,
1996 (the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder, Stevens & Clark, Inc. ("the Fund Manager"), a firm with
over 75 years of investment counseling and management experience. Scudder,
Stevens & Clark, Inc. was selected after an extensive search among qualified
candidates, and provides the Program with continuous and conservative
professional investment management. (See "MANAGEMENT OF THE FUNDS.")
The Program consists of four Trusts - AARP Cash Investment Funds, AARP
Income Trust, AARP Tax Free Income Trust, and AARP Growth Trust (the "Trusts").
Each of the Trusts is an open-end, management investment company authorized to
issue its shares of beneficial interest in separate series ("the AARP Funds"). A
total of nine diversified Funds are currently offered by the four Trusts. The
differing investment objectives of the nine 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.
The Program includes functions performed by AARP Member Services; the
AARP Funds; Scudder Investor Services, Inc., the AARP Funds' "underwriter";
Scudder Service Corporation ("SSC"), the AARP Funds' "transfer agent"; and State
Street Bank and Trust Company, the AARP Funds' "custodian."
Summary of Advantages and Benefits
o Experienced Professional Management: Scudder, Stevens & Clark, Inc.,
investment counsel since 1919 and mutual Fund managers since 1928, provides
investment advice to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong ongoing representation of the members'
interests and to help ensure a high level of service.
o Wide Selection of Investment Objectives: you can emphasize money market
returns and liquidity, income, tax-free income, growth, or any combination.
o Diversification: you benefit from investing in one or more large portfolios
of carefully selected securities.
o $500 Minimum Starting Investment for Eight of the Funds ($2,500 Minimum
Starting Investment in AARP High Quality Tax Free Money Fund, $250 Minimum
Starting Investment for AARP IRA and Keogh Plan Accounts): you may make
additional investments in any amount at any time.
o No Sales Commissions: the AARP Funds are pure no-load(TM), so you pay no
sales charges to purchase, transfer or redeem shares nor do you pay Rule
12b-1 fees.
o Investment Flexibility and Exchange: you may exchange among the nine AARP
Funds in the Program at any time without charge.
<PAGE>
o Dividends: the AARP Money Funds, the AARP Income Funds, and the AARP
Insured Tax Free Income Fund all pay dividends monthly, the AARP Balanced
Stock and Bond Fund and the AARP Growth and Income Fund are expected to pay
dividends quarterly and the AARP Capital Growth Fund and the AARP Global
Growth Fund pay dividends, if any, annually.
o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.
o Readily Available Account, Price, Yield and Total Return Information: the
yield for the AARP Money Funds is quoted weekly and the net asset value of
each other Fund is quoted daily in the financial pages of leading
newspapers. You may also dial our automated Easy-Access Line, toll-free,
1-800-631-4636 for recorded account information, share price, yield and
total return information, 7 days a week.
o Convenience and Efficiency: simplified investment procedures save you time
and help your money work harder for you.
o Liquidity: on any business day (subject to a 7 day waiting period for
investment checks to clear), you may request redemption of your shares at
the next determined net asset value, and, in the case of the AARP Money
Funds, you may elect free Checkwriting and write checks for $100 or more on
your account to make payments to any person or business.
o Direct Deposit Program: you may have your Social Security or other checks
from the U.S. Government or any other regular income checks, such as
pension, dividend, interest, and even payroll checks automatically
deposited directly to your account.
o Automatic Withdrawal Plan: with a minimum qualifying balance of $10,000 in
one AARP Fund, you may arrange to receive monthly, quarterly or periodic
checks from your account for any designated amount of $50 or more.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying balance of
$10,000 in one AARP Fund, you may arrange to have your regular fixed bills
that are of fixed amounts, such as rent, mortgage, or other payments of $50
or more sent directly from your account at the end of the month.
o Personal Service and Information: professionally trained service
representatives help you whenever you have questions through our toll-free
number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation statement
of each transaction in your account, you receive, without extra charge, a
convenient monthly consolidated statement. (Retirement Plan statements are
mailed quarterly.) This statement contains the market value of all your
holdings and a complete listing of your transactions for the statement
period.
o Shareholder Handbook: the Shareholder Handbook was created to help answer
many of the questions you may have about investing in the Program.
o IRA Shareholder Handbook: The IRA Shareholder Handbook was created to help
answer many of the questions you may have about investing in the no-fee
AARP IRA.
o A Glossary of Investment Terms: the Glossary defines commonly used
financial and investment terms.
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.
2
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
AARP Money Funds
(See "AARP High Quality Money Fund," "AARP High Quality Tax Free Money
Fund," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND
RISK FACTORS" in the Prospectus.)
The AARP Funds offer a choice of a taxable and a tax free money fund
for small savers, big savers and people looking for a way to invest. People who
earn a relatively low interest rate in an insured bank savings account, who have
to make withdrawals or deposits in person or whose money isn't easily accessible
may find that the AARP Money Funds can help.
AARP High Quality Money Fund. The AARP High Quality Money Fund is a
separate series of AARP Cash Investment Funds and is the only Fund currently
offered by that Trust. Additional series of the Trust may be offered in the
future. From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and safety of
principal while offering liquidity. The Fund seeks to maintain a constant net
asset value of $1.00 per share. There may be circumstances under which this goal
cannot be achieved. The Fund invests in securities with remaining maturities of
397 calendar days or less, except in the case of U.S. Government securities
which may have maturities of up to 762 calendar days. The average
dollar-weighted maturity of its investments is 90 days or less. The investment
policies and restrictions of the Fund are described as follows:
To provide safety and liquidity, the investments of the AARP High
Quality Money Fund are limited to those that at the time of purchase are rated,
or judged by the Fund Manager to be the equivalent of those rated, within the
two highest credit ratings ("high quality instruments") by one or more rating
agencies such as: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
("S&P") or Fitch Investors Service ("Fitch"). In addition, the Fund Manager
seeks through its own credit analysis to limit investments to high-quality
instruments presenting minimal credit risks. If a security ceases to be rated or
is downgraded below the second highest quality rating indicated above, the Fund
will promptly dispose of the security, unless the Trustees determine that
continuing to hold such security is in the best interests of the Fund.
Generally, the Fund will invest in securities rated in the highest quality
rating by at least two of these rating agencies.
Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (1) 1% of its total assets, or (2) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
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;
3
<PAGE>
securities with put features; and repurchase agreements. The Fund may hold cash,
which does not earn interest, to facilitate stabilizing its net asset value per
share and for liquidity purposes.
Commercial paper at the time of purchase will be rated, or judged by
the Fund Manager under the supervision of the Trustees, to be the equivalent of
securities rated, A-1 or higher by S&P, Prime-1 or higher by Moody's or F-1 or
higher by Fitch. Investments in other corporate obligations, such as bonds or
notes, will be limited to securities rated, or judged by the Fund Manager to be
the equivalent of securities rated, AA or higher by S&P or Fitch or Aa or higher
by Moody's. Obligations which are the subject of repurchase agreements will be
limited to those of the type described above. Shares of this Fund are not
insured or guaranteed by the U.S. Government.
The Fund may invest in certificates of deposit and bankers' acceptances
of large domestic banks (i.e., banks which at the time of their most recent
annual financial statements show total assets in excess of $1 billion) and their
foreign branches and of smaller banks as described below. These as well as all
other investments of the Fund must be U.S. dollar denominated. The Fund will not
invest in certificates of deposit or bankers' acceptances of foreign banks
without additional consideration by and the approval of the Trustees of the
Trust. Although the Fund recognizes that the size of a bank is important, this
fact alone is not necessarily indicative of its creditworthiness.
Investment in certificates of deposit and bankers' acceptances issued
by foreign branches of domestic banks involves investment risks that are
different in some respects from those associated with investment in obligations
issued by domestic banks. Such investment risks include the possible imposition
of withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations, or other adverse political or economic
developments. In addition, it might be more difficult to obtain and enforce a
judgment against a foreign branch of a domestic bank.
The Fund may also invest in certificates of deposit issued by banks
which had, at the time of their most recent annual financial statements, total
assets of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's net assets (taken at current value) are invested in
certificates of deposit and bankers' acceptances of banks having total assets
not in excess of $1 billion.
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System whose creditworthiness has been determined by the Fund
Manager to be equal to that of issuers of commercial paper rated within the two
highest grades. See "Repurchase Agreements" under "Special Investment Policies
of the AARP Funds."
AARP High Quality Tax Free Money Fund. The AARP High Quality Tax Free
Money Fund is a separate series of AARP Tax Free Income Trust. From investments
in high quality municipal securities, the Fund is designed to provide current
income free from federal income taxes. The Fund also seeks to maintain stability
and safety of principal, while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances under
which this goal cannot be achieved. Such securities may mature no more than 397
calendar days or less from the date the purchase is expected to be settled by
the Fund, with a weighted average maturity of 90 days or less.
The Fund will invest in municipal securities which are rated at the
time of purchase within the two highest quality ratings of rating agencies such
as: Fitch--AAA and AA, F1 and F2, or Moody's--Aaa and Aa, or within Moody's
short-term municipal obligations top ratings of MIG 1 and MIG 2 and P1, or
S&P--AAA/AA and SP1+/SP1, A1+ and A1--all in such proportions as management will
determine. Securities must be so rated by at least two agencies or by at least
one, if only one has rated the security. Generally, the Fund will invest in
securities rated in the highest quality rating by at least two of these rating
agencies. In some cases, short-term municipal obligations are rated using the
same categories as are used for corporate obligations. In addition, unrated
municipal securities will be considered as being within the foregoing quality
ratings if other equal or junior municipal securities of the same issuer are
rated and their ratings are within the foregoing ratings of Fitch, Moody's or
S&P. The Fund may also invest in municipal securities which are unrated if, in
the opinion of the Fund Manager, such securities possess creditworthiness
comparable to those rated securities in which the Fund may invest. For a
description of ratings, please see "Additional Information." Shares of this Fund
are not insured or guaranteed by the U.S. Government.
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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.
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
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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 Income Funds
(See "AARP GNMA and U.S. Treasury Fund," "AARP High Quality Bond Fund,"
"INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK
FACTORS" in the Prospectus.) Each of the Funds seeks to earn a high level of
income consistent with its investment policies.
AARP GNMA and U.S. Treasury Fund. AARP GNMA and U.S. Treasury Fund is
designed for investors who are seeking high current income from high quality
securities and who wish to receive a degree of protection from bond market price
risk. The Fund's investment objective is to produce a high level of current
income and to keep the price of its shares more stable than that of a long-term
bond. The Fund pursues this objective by investing principally in U.S.
Government-guaranteed GNMA securities and U.S. Treasury obligations. The Fund
has been designed with the conservative, safety-conscious investor in mind. Of
the two funds in the AARP Income Trust, the AARP GNMA and U.S. Treasury Fund is
the more conservative choice. Although past performance is no guarantee of
future performance, historically, this Fund offers higher yields than such
short-term investments as insured savings accounts, insured six month
certificates of deposit and fixed-price money market funds.
The Fund invests in U.S. Treasury bills, notes and bonds; other
securities issued or backed by the full faith and credit of the U.S. Government,
including, but not limited to, Government National Mortgage Association ("GNMA")
mortgage-backed securities, Merchant Marine Bonds guaranteed by the Maritime
Administration and obligations of the Export-Import Bank; financial futures
contracts with respect to such securities; options on either such securities or
such financial futures contracts; and bank repurchase agreements. At least 65%
of the Fund's net assets will be directly invested in U.S. Treasury obligations,
including GNMA's. The Fund will make long-term investments but will also attempt
to dampen its price variability in comparison to that of a long-term bond by
including short-term U.S. Treasury securities in its portfolio. The Fund may
also utilize hedging techniques involving limited use of financial futures
contracts and the purchase and writing (selling) of put and call options on such
contracts. Under certain market conditions, these strategies may reduce current
income. At any time the Fund may have a substantial portion of its assets in
securities of a particular type or maturity. The Fund may also write covered
call options on portfolio securities and purchase "when-issued" securities.
GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans,
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool" or group of
such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, a Government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government. This is not, however, a guarantee
related to the Fund's yield or the value of your investment principal.
As mortgage-backed securities, GNMAs differ from bonds in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. GNMAs are called "pass-through" securities
because both interest and principal payments including prepayments are passed
through to the holder of the security (in this case, the Fund).
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
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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.
Some investors may view the Fund as an alternative to a bank
certificate of deposit (CD). While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the
Fund--unlike a CD--is not locked away for any period, may be redeemed at any
time without incurring early withdrawal penalties, and may provide a higher
yield.
AARP High Quality Bond Fund. Consistent with investments primarily in
high quality securities, the Fund seeks to provide a high level of income and to
keep the value of its shares more stable than that of a long-term bond. By
including short- and medium-term bonds in its portfolio, the Fund seeks to offer
less share price volatility than long-term bonds or many long-term bond funds,
although its yield may be lower. Due to the greater market price risk of its
securities, the Fund may have a more variable share price than the AARP GNMA and
U.S. Treasury Fund. It is also possible that the Fund may provide a higher level
of income than the AARP GNMA and U.S. Treasury Fund.
This Fund intends under normal circumstances to have at least 65% of
its total assets invested in bonds which include corporate notes and bonds
including high-yield issues convertible into common stock. It may also purchase
any investments eligible for the AARP GNMA and U.S. Treasury Fund as well as
obligations of federal agencies that are not backed by the full faith and credit
of the U.S. Government, such as obligations of Federal Home Loan Bank, Farm
Credit Banks and the Federal Home Loan Mortgage Corporation. In addition, it may
purchase obligations of international agencies such as the International Bank
for Reconstruction and Development, the Inter-American Development Bank and the
Asian Development Bank. Other eligible investments include U.S.
dollar-denominated foreign debt securities (such as U.S. dollar denominated debt
securities issued by the Dominion of Canada and its provinces), and money market
instruments such as commercial paper and bankers' acceptances and certificates
of deposit issued by domestic and foreign branches of U.S. banks. The Fund
invests in a broad range of short, intermediate, and long-term securities.
Proportions among maturities and types of securities may vary depending upon the
prospects for income related to the outlook for the economy and the securities
markets, the quality of available investments, the level of interest rates, and
other factors.
Except for limitations in the Fund's investment restrictions, there is
no limit as to the proportions of the Fund which may be invested in any of the
eligible investments. However, it is a policy of the Fund that its non-
governmental investments will be spread among a variety of companies and will
not be concentrated in any industry. (See "Investment Restrictions," herein.)
High Quality Portfolio. The policies of AARP High Quality Bond Fund are
designed to provide a portfolio that combines high quality securities with
investments that attempt to reduce its market price risk.
The portfolio of the AARP High Quality Bond Fund is high grade. In
fact, according to information provided by Morningstar, Inc., the Fund has one
of the highest quality standards of any general bond Fund currently available.
No purchase will be made if, as a result thereof, less than 65% of the Fund's
net assets would be invested in debt obligations, including money market
instruments, that (a) are issued or guaranteed by the U.S. Government, (b) are
rated at the time of purchase within the two highest grades assigned by any of
the nationally-recognized rating services including Moody's or S&P, or (c) if
not rated, are judged at the time of purchase by the Fund Manager, subject to
the Trustees' review, to be of a quality comparable to those in the two highest
ratings described in (b) above. All of the debt obligations in which the Fund
invests will, at the time of purchase, be rated within the three highest credit
ratings or, if not rated, will be judged to be of comparable quality by the Fund
Manager. (See "ADDITIONAL INFORMATION - Ratings of Corporate Bonds.")
Variations of Maturity. In an attempt to capitalize on the differences
in total return from securities of differing maturities, maturities may be
varied according to the structure and level of interest rates, and the Fund
Manager's expectations of changes therein.
Foreign Securities. The AARP High Quality Bond Fund may invest, without
limit, in U.S. dollar-denominated foreign debt securities (including U.S. dollar
denominated debt securities issued by the Dominion of Canada and its provinces
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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.
AARP Insured Tax Free Income Fund
(See "AARP Insured Tax Free General Bond Fund," "INVESTMENT OBJECTIVES
AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the
Prospectus.)
AARP Insured Tax Free General Bond Fund. The AARP Insured Tax Free
General Bond Fund is a separate series of AARP Tax Free Income Trust. From a
portfolio consisting primarily of municipal securities covered by insurance, the
Fund seeks to provide high income free from federal income taxes and to keep the
value of its shares more stable than that of a long-term municipal bond. The
Fund seeks to provide investors with the higher tax-free income that is often
available from municipal securities by investing, under normal circumstances, in
a high grade portfolio of bonds consisting primarily of municipal securities,
with no restrictions as to maturity. Securities comprising at least 65% of the
total assets held by the Fund are fully insured as to face value and interest by
private insurers. While longer-term securities such as those in which the Fund
may invest have in recent years had higher yields, they also experience greater
price fluctuation than shorter-term securities. By including short- and
medium-term bonds in its portfolio, the Fund seeks to offer less share price
volatility than long-term municipal bonds or many long-term municipal bond
funds, although its yield may be lower. Because the Fund may trade its
securities, it is also free to attempt to take advantage of opportunities in the
market to achieve higher current income. This opportunity is not available to
unit investment trusts, which hold fixed portfolios of municipal securities.
Under normal circumstances, at least 80% of the Fund's net assets are
invested in tax-exempt securities. For this purpose, private activity bonds, the
interest on which is treated as a preference item for purposes of calculating
alternative minimum tax liability, will not be treated as tax exempt securities.
The Fund does not intend to purchase any such private activity bonds. (See
"TAXES" herein.)
There can be no assurance that the objectives of the Fund will be
achieved or that all income to shareholders which is exempt from federal income
taxes will be exempt from state or local taxes. Shareholders may also be subject
to tax on long-term and short-term capital gains (see "TAXES" herein).
In addition, the market prices of municipal securities, like those of
taxable debt securities, go up and down when interest rates change. Thus, the
net asset value per share can be expected to fluctuate and shareholders may
receive more or less than their purchase price for shares they redeem. In
addition to investments in municipal obligations, as described below, the Fund
may invest in short-term taxable U.S. Government securities and repurchase
agreements backed by U.S. Government securities. The Fund also may invest in
demand notes and tax-exempt commercial paper, financial futures contracts, and
may invest in and write (sell) options related to such futures contracts. These
investments are not insured or guaranteed or backed by the U.S. Government.
Except for futures and options, which are not rated, the AARP Insured Tax Free
General Bond Fund will only purchase securities rated within the top three
ratings by Moody's and S&P, or the equivalent as determined by the Fund Manager,
or repurchase agreements on such securities. To qualify as "within the top three
ratings," a security must have such a rating due to the credit of the issuer or
due to specific insurance on the security, whether acquired at issuance or by
the Fund at the time of purchase. A security would not so qualify if its rating
was solely the result of coverage under the Fund's portfolio insurance.
Securities in which the Fund may invest may include: (a) a security
that carries at the time of issuance, whether because of the credit of the
issuer or because it is insured at issuance by an insurance company, a rating
within the top three ratings; and (b) a security not rated within the top three
ratings at the time of issuance but insured to maturity by the Fund at the time
of purchase if, upon issuance of such insurance, the Fund Manager is able to
determine that the security is now the equivalent of a security rated within the
top three ratings by a nationally recognized rating agent.
When, in the opinion of the Fund Manager, defensive considerations or
an unusual disparity between the after-tax income on taxable investments and
comparable municipal obligations make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term investments such
as U.S. Treasury notes, bills and bonds and repurchase agreements collateralized
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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 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
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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.
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
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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 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 Capital Growth Fund," "AARP Global Growth Fund," "INVESTMENT
OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in
the Prospectus.)
AARP Balanced Stock and Bond Fund. The AARP Balanced Stock and Bond
Fund's investment objective is to seek to provide long-term growth of capital
and income while attempting to keep the value of its shares more stable than
other balanced mutual funds. The Fund pursues these objectives by investing in a
combination of stocks, bonds, and cash reserves.
The Fund is intended to provide--through a single investment--access to
a wide variety of income-oriented stocks and investment-grade bond investments.
Common stocks and other equity investments provide long-term growth potential to
help offset the effect of inflation on an investor's purchasing power. Bonds and
other fixed-income investments provide current income and may, over time, help
reduce fluctuations in the Fund's share price.
In seeking a balance of growth and income, as well as long-term
preservation of capital, the Fund invests in a diversified portfolio of equity
and fixed-income securities. At least 30% of the Fund's assets will be in
fixed-income securities, with the remainder of its net assets in common stocks
and securities convertible into common stocks. For temporary defensive purposes,
the Fund may invest without limit in cash and in other money market and
short-term instruments.
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.
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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), mortgage-backed and other asset-backed securities,
municipal obligations, zero coupon securities, and restricted securities issued
in private placements.
For liquidity and defensive purposes, the Fund may invest in money
market securities such as commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund may also enter into repurchase agreements with respect to U.S.
Government securities.
All of the Fund's debt securities will be investment grade, that is,
rated Baa or above by Moody's or BBB by S&P. Moreover, at least 75% of these
securities will be high grade, that is, rated within the three highest quality
ratings of Moody's (Aaa, Aa and A) or S&P (AAA, AA and A), or, if unrated,
judged to be of equivalent quality as determined by the Fund Manager at the time
of purchase. Securities must also meet credit standards applied by the Fund
Manager. Moreover, the Fund does not purchase debt securities rated below Baa by
Moody's or BBB by S&P. Should the rating of a portfolio security be downgraded
the Fund Manager will determine whether it is in the best interest of the Fund
to retain or dispose of the security.
AARP Growth and Income Fund. From investments primarily in common
stocks and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth and income, and to keep the value of its shares more
stable than other growth and income mutual funds.
The Fund invests primarily in common stocks and securities convertible
into common stocks. It also may invest in rights to purchase common stocks of
companies offering the prospect for capital growth and growth of earnings while
paying current dividends. The Fund may also invest in preferred stocks
consistent with the Fund's objective. Over time, continued growth of earnings
tends to produce higher dividends and to enhance capital value. In addition,
since 1945, the overall performance of common stocks has exceeded the rate of
inflation. For temporary defensive purposes when market and economic conditions
warrant, 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.
AARP Capital Growth Fund. From investments primarily in common stocks
and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth, and to keep the value of its shares more stable than
other capital growth mutual funds. Through a broadly diversified portfolio
consisting primarily of high quality, medium- to large-sized companies with
strong competitive positions in their industries the Fund seeks to offer less
share price volatility than many growth funds. It may also invest in rights to
purchase common stocks, the growth prospects of which are greater than most
stocks but which may also have above-average market risk. The Fund may also
invest in preferred stocks consistent with the Fund's objective. The securities
in which the Fund may invest are described under "AARP Capital Growth Fund" in
the Prospectus.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly-traded equity securities.
Thus, the search for equity investments for the Fund may encompass any sector of
the market and companies of all sizes. In addition, since 1945, the overall
performance of common stocks has exceeded the rate of inflation. It is a
Fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares (see "Investment Restrictions",
herein, for majority voting requirements), that the Fund will not concentrate
its investments in any particular industry. However, the Fund reserves the right
to invest up to 25% of its total assets (taken at market value) in any one
industry.
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The Fund may regularly invest in repurchase agreements. 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
market and economic conditions warrant.
AARP Global Growth Fund. From investments primarily in equity
securities of U.S. and foreign companies, the Fund seeks to offer long-term
capital growth and global diversification, and to keep the value of its shares
more stable than other global equity funds. The Fund invests on a worldwide
basis in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It may also invest in the debt securities of U.S. and foreign
issuers. Income is an incidental consideration.
The management of the Fund believes that there is substantial
opportunity for long-term capital growth from a professionally managed portfolio
of securities selected from the U.S. and foreign equity markets. Global
investing takes advantage of the investment opportunities created by the growing
integration of economies around the world. The world has become highly
integrated in economic, industrial and financial terms. Companies increasingly
operate globally as they purchase raw materials, produce and sell their
products, and raise capital. As a result, international trends such as movements
in currency and trading relationships are becoming more important to many
industries than purely domestic influences. To understand a company's business,
it is frequently more important to understand how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global perspective in deciding where to operate, so
too may an investor benefit from looking globally in deciding which industries
are growing, which producers are efficient and which companies' shares are
undervalued. The Fund affords the investor access to opportunities wherever they
arise, without being constrained by the location of a company's headquarters or
the trading market for its shares.
The Fund invests in companies that the Fund Manager believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency,
or economic relationships. The Fund will normally invest at least 65% of its
total assets in securities of at least three different countries. Typically, it
is expected that the Fund will invest in a wide variety of regions and
countries, including both foreign and U.S. issues. The Fund may be invested 100%
in non-U.S. issues, and for temporary defensive purposes may be invested 100% in
U.S. issues, although under normal circumstances it is expected that both
foreign and U.S. investments will be represented in the Fund's portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.
Special Investment Policies of the AARP Funds
(See "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
U.S. Government Securities. U.S. Treasury securities, backed by the
full faith and credit of the U.S. Government, include a variety of securities
which differ in their interest rates, maturities and times of issuance. Treasury
bills have original maturities of one year or less. Treasury notes have original
maturities of one to ten years and Treasury bonds generally have original
maturities of greater than ten years.
U.S. Government agencies and instrumentalities which issue or guarantee
securities include, for example, the Export-Import Bank of the United States,
the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and the
Federal Farm Credit Bank. Obligations of some of these agencies and
instrumentalities, such as the Export-Import Bank, are supported by the full
faith and credit of the United States; others, such as the securities of the
Federal Home Loan Bank, by the ability of the issuer to borrow from the
Treasury; while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. No assurance can be given
that the U.S. Government would provide financial support to the latter group of
U.S. Government instrumentalities, as it is not obligated to do so.
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.
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Municipal Obligations. Municipal obligations held by AARP High Quality
Tax Free Money Fund and AARP Insured Tax Free General Bond Fund are issued by or
on behalf of states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on these
obligations is generally exempt from federal income tax in the hands of most
investors. The two principal classifications of municipal obligations are
"notes" and "bonds". Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the FHA under "Fannie Mae" (the Federal National Mortgage Association)
or GNMA. There are, of course, a number of other types of notes issued for
different purposes and secured differently than those described above.
Municipal bonds, which meet longer-term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully-insured, rent-subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt reserve fund.
Lease rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Some issues of municipal bonds are payable from United States Treasury
bonds and notes held in escrow by a Trustee, frequently a commercial bank. The
interest and principal on these U.S. Government securities are sufficient to pay
all interest and principal requirements of the municipal securities when due.
Some escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.
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
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by the holder ("demand obligations"). Demand obligations are considered for the
AARP Funds' purposes to mature at the demand date.
There are, in addition, a variety of hybrid and special types of
municipal obligations as well as numerous differences in the security of
municipal obligations both within and between the two principal classifications
(i.e., notes and bonds) discussed above.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as the AARP Funds. Thus, such an
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale unless an
exemption from such registration is available, municipal obligations which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for municipal obligations which have not been publicly offered initially.
Obligations purchased for a Fund are subject to the limitations on holdings of
securities which are not readily marketable based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its recorded
value. The AARP Funds believe that the quality standards applicable to their
investments enhance marketability. In addition, stand-by commitments,
participation interests and demand obligations also enhance marketability.
For the purpose of the AARP Funds' investment restrictions, the
identification of the "issuer" of municipal obligations which are not general
obligation bonds is made by the Fund Manager on the basis of the characteristics
of the obligation as described above, the most significant of which is the
source of funds for the payment of principal and interest on such obligations.
Municipal Lease Obligations and Participation Interests. Participation
interests represent undivided interests in municipal leases, installment
purchase contracts, conditional sales contracts or other instruments. These are
typically issued by a Trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or contracts.
Each AARP Tax Free Fund may purchase from banks participation interests
in all or part of specific holdings of municipal obligations, provided the
participation interest is fully insured. Each participation is backed by an
irrevocable letter of credit or guarantee of the selling bank that the AARP
Funds' investment adviser has determined meets the prescribed quality standards
of the Fund. Thus either the credit of the issuer of the municipal obligation or
the selling bank, or both, will meet the quality standards of the particular
Fund. Each Fund has the right to sell the participation back to the bank after
seven days' notice for the full principal amount of the Fund's interest in the
municipal obligation plus accrued interest, but only (1) as required to provide
liquidity to the Fund, (2) to maintain a high quality investment portfolio or
(3) upon a default under the terms of the municipal obligation. The selling bank
will receive a fee from the Fund in connection with the arrangement. Neither
Fund will purchase participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service satisfactory to the Trustees
that interest earned by that Fund on municipal obligations on which it holds
participation interests is exempt from Federal income tax.
A municipal lease obligation may take the form of a lease, installment
purchase contract or conditional sales contract which is issued by a state or
local government and authorities to acquire land, equipment and facilities.
Income from such obligations is generally exempt from state and local taxes in
the state of issuance. Municipal lease obligations frequently involve special
risks not normally associated with general obligations or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide
for title in the leased asset to pass eventually to the governmental issuer)
have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
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.
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Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of a Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by a Fund may be determined by the Fund Manager to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Fund Manager will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace trades. In
addition, the Fund Manager will consider factors unique to particular lease
obligations and participation interests affecting the marketability thereof.
These include the general creditworthiness of the issuer, the importance to the
issuer of the property covered by the lease and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by a Fund.
A Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide a Fund with the right to a pro rata undivided interest in
the underlying municipal lease obligations. In addition, such participations
generally provide a Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of such Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. Each Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Fund Manager,
the interest from such participations is exempt from regular federal income tax
and state income tax for each state specific fund.
Stand-by Commitments. Pursuant to an exemptive order from the SEC, each
AARP Tax Free Fund may acquire "stand-by commitments," which will enable the
Fund to improve its portfolio liquidity by making available same-day settlements
on sales of its securities. A stand-by commitment is a right acquired by a Fund,
when it purchases a municipal obligation from a broker, dealer or other
financial institution ("seller"), to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a specified price.
Stand-by commitments are also known as "puts". Each Fund's investment policies
permit the acquisition of stand-by commitments solely to facilitate portfolio
liquidity and not to protect against changes in the market price of the Fund's
portfolio securities. The exercise by a Fund of a stand-by commitment is subject
to the ability of the other party to fulfill its contractual commitment.
Stand-by commitments acquired by a Fund will have the following
features: (1) they will be in writing and will be physically held by the Fund's
custodian; (2) a Fund's right to exercise them will be unconditional and
unqualified; (3) they will be entered into only with sellers which in the Fund
Manager's opinion present a minimal risk of default; (4) although stand-by
commitments will not be transferable, municipal obligations purchased subject to
such commitments may be sold to a third party at any time, even though the
commitment is outstanding; and (5) their exercise price will be (i) the Fund's
acquisition cost (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized original
issue discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date.
Each Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund will pay for stand-by commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding stand-by commitments will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
any stand-by commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential
benefit of a stand-by commitment. Therefore, it is expected that the Trustees
will determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security will ordinarily be
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.
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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, a repurchase agreement is deemed to be a
loan to the seller of the Obligation and is therefore covered by each Fund's
investment restriction applicable to loans. Each repurchase agreement entered
into by a Fund requires that if the market value of the Obligation becomes less
than the repurchase price (including interest), a Fund will direct the seller of
the Obligation, on a daily basis to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal or
exceed the repurchase price. In the event that a Fund is unsuccessful in seeking
to enforce the contractual obligation to deliver additional securities, and the
seller defaults on its obligation to repurchase, the Fund bears the risk of any
drop in market value of the Obligation(s). In the event that bankruptcy or
insolvency proceedings were commenced with respect to a bank or broker-dealer
before its repurchase of the Obligation, a Fund may encounter delay and incur
costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. In the case of repurchase
agreements, it is not clear whether a court would consider a repurchase
agreement as being owned by the particular Fund or as being collateral for a
loan by the Fund. If a court were to characterize the transaction as a loan and
the Fund had not perfected a security interest in the Obligation, the Fund could
be required to return the Obligation to the bank's estate and be treated as an
unsecured creditor. As an unsecured creditor, the Fund would be at the risk of
losing some or all of the principal and income involved in that transaction. The
Fund Manager seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligations.
Securities subject to a repurchase agreement are held in a segregated
account, and the amount of such securities is adjusted so as to provide a market
value at least equal to the repurchase price on a daily basis.
Each of the AARP Income Funds has adopted a policy, which may be
changed without the vote of the shareholders of those funds, not to invest more
than 50% of its total assets in repurchase agreements. In addition, none of the
AARP Funds may invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days. (See "Investment Restrictions", herein,
regarding requirements for a majority vote.)
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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" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands 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 Fund intends 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 Fund is
"diversified" under the Investment Company Act of 1940.
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).
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.
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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, the AARP
Balanced Stock and Bond Fund and the AARP Global Growth Fund. When so offered,
the price, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase of U.S. Government obligations. During the
period between purchase and settlement, no payment is made on behalf of the Fund
and no interest accrues to the Fund. To the extent that assets of the Fund are
not invested prior to the settlement of a purchase of securities, the Fund will
earn no income; however, it is the intention of each Fund to be fully invested
to the extent practicable, subject to the policies stated above. While
securities purchased on a forward delivery or when-issued basis may be sold
prior to the settlement date, each of the above Funds intends to purchase such
securities with the purpose of actually acquiring them for its portfolio unless
a sale appears desirable for investment reasons. At the time the commitment to
purchase a debt security on a forward delivery or when-issued basis is made, the
transaction will be recorded and the value of the security will be reflected in
determining its net asset value. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price payable at
settlement date. The Funds do not believe that their net asset value or income
will be adversely affected by their purchase of debt securities on a when-issued
or forward delivery basis. Each Fund will establish with its custodian a
segregated account in which it will maintain cash, U.S. Government securities
and other high-quality debt obligations equal in value to commitments for
when-issued or forward delivery securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date.
Futures Contracts. The AARP Income Funds, the AARP Insured Tax-Free
General Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP Global
Growth Fund may each enter into financial futures contracts. Such contracts may
be either based on indices of particular groups or varieties of securities
("Index Futures Contracts") or be for the purchase or sale of debt obligations
("Debt Futures Contracts"). Such futures contracts are traded on exchanges
licensed and regulated by the Commodity Futures Trading Commission. Each Fund
enters into futures contracts to gain a degree of protection against anticipated
changes in interest rates that would otherwise have an adverse effect upon the
economic interests of the Fund. However, the costs of and possible losses from
futures transactions reduce the Funds' yield from interest on its holdings of
debt securities. Income from futures transactions constitutes taxable gain.
For each Fund, the custodian places cash, U.S. government securities
and other high grade debt obligations into a segregated account in an amount
equal to the value of the total assets committed to the consummation of futures
positions. If the value of the securities placed in the segregated account
declines, additional cash or securities are required to be placed in the account
on a daily basis so that the value of the account equals the amount of a Fund's
commitments with respect to such contracts. Alternatively, a Fund may cover such
positions by purchasing offsetting positions, or covering such positions partly
with cash, U.S. government securities and other high grade debt obligations, and
partly with offsetting positions.
An Index Futures Contract is a contract to buy or sell units of a
particular index of securities at a specified future date at a price agreed upon
when the contract is made. Index Futures Contracts typically specify that no
delivery of the actual securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based on the
difference between the contract price and the actual price on the termination
date of the units of the index.
A Debt Futures Contract is a binding contractual commitment which, if
held to maturity, requires a Fund to make or accept delivery, during a
particular month, of obligations having a standardized face value and rate of
return. By purchasing a Debt Futures Contract, a Fund legally obligates itself
to accept delivery of the underlying security and to pay the agreed price; by
selling a Debt Futures Contract it legally obligates itself to make delivery of
the security against payment of the agreed price. However, positions taken in
the futures markets are not normally held to maturity. Instead they are
liquidated 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.
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A clearing corporation, associated with the exchange on which futures
contracts are traded, assumes responsibility for close-outs of such contracts
and guarantees that the sale or purchase, if still open, is performed on the
settlement date.
By entering into futures contracts, a Fund seeks to establish more
certainly than would otherwise be possible the effective rate of return on its
portfolio securities. A Fund may, for example, take a "short" position in the
futures markets by selling a Debt Futures Contract for the future delivery of
securities held by the Fund in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of such securities. Or it
might sell an Index Futures Contract based on a group of securities whose price
trends show a significant correlation with those of securities held by the Fund.
When hedging of this character is successful, any depreciation in the value of
portfolio securities is substantially offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long" position by
purchasing futures contracts. This is done when the Fund is not fully invested
or expects to receive substantial proceeds from the sale of portfolio securities
or of Fund shares, and anticipates the future purchase of particular securities
but expects the rate of return then available in the securities markets to be
less favorable than rates that are currently available in the futures markets.
The Funds expect that, in the normal course, securities will be purchased upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.
Debt Futures Contracts, however, currently involve only taxable
obligations and do not encompass municipal securities. The value of Debt Futures
Contracts on taxable securities, as well as Index Futures Contracts, may not
vary in direct proportion with the value of a Fund's securities, limiting the
ability of the Fund to hedge effectively against interest rate risk.
Presently the only available index futures contract in which the AARP
Insured Tax Free General Bond Fund might invest is the Bond Buyer Municipal Bond
Index. The Fund might sell a contract based on this index in anticipation of an
increase in interest rates, to attempt to offset the decrease in market value of
its portfolio securities which could result. Or the Fund might purchase such a
contract in the anticipation of a significant decrease in interest rates to
offset the increased cost of securities it hopes to purchase in the future. No
index futures contracts have yet been developed which are suitable for
investment by the Funds in the AARP Income Trust.
The investment restriction concerning futures contracts does not
specify the types of index-based futures contracts into which the Funds may
enter because it is impossible to foresee what particular indices may be
developed and traded or may prove useful to the Funds in implementing their
overall risk management strategies. For example, price trends for a particular
index-based futures contract may show a significant correlation with price
trends in the securities held by the Funds, or either of them, even though the
securities comprising the index are not necessarily identical to those held by
such Fund or Funds. In any event, the Funds would not enter into a particular
index-based futures contract unless the Adviser 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 and the AARP Global Growth Fund may purchase and write (sell) put and
call options on futures contracts that are traded on a U.S. exchange or board of
trade and enter into related closing transactions. There can be no assurance
that such closing transactions will be available at all times. In return for the
premium paid, such an option gives the purchaser the right to assume a position
in a futures contract at any time during the option period for a specified
exercise price.
A Fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.
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.
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A Fund may write (sell) a call option on a futures contract in order to
hedge against a decline in the prices of the index or debt securities underlying
the futures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing (selling) of a put option on a futures contract is similar
to the purchase of the futures contracts, except that, if market price declines,
a Fund would pay more than the market price for the underlying securities or
index units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
Limitations on Futures Contracts and Options on Futures Contracts. A
Fund will not engage in transactions in futures contracts or related options for
speculation but only as a hedge against changes resulting from market conditions
in the values of debt securities held in its portfolio or which it intends to
purchase and where the transactions are appropriate to the reduction of the
Fund's risks. The Trustees have adopted policies (which are not Fundamental and
may be modified by the Trustees without a shareholder vote) that, immediately
after the purchase for a Fund of a futures contract or a related option, the
value of the aggregate initial margin deposits with respect to all futures
contracts (both for receipt and delivery), and premiums paid on related options,
entered into on behalf of the Fund will not exceed 5% of the fair market value
of the Fund's total assets. Additionally, the value of the aggregate premiums
paid for all put and call options held by a Fund will not exceed 20% of its net
assets. Futures contracts and put options written (sold) by a Fund will be
offset by assets of the Fund held in a segregated account in an amount
sufficient to satisfy obligations under such contracts and options.
Each Fund has received from the CFTC an interpretative letter
confirming its opinion that it is not a "commodity pool" as defined under the
Commodity Exchange Act. To ensure that its futures transactions meet this
definition, each Fund will enter into them for the purposes and with the hedging
intent specified in CFTC regulations. It will further determine that the price
fluctuations in the futures contracts used for hedging are substantially related
to price fluctuations in securities held by the Fund or which it expects to
purchase, though there can be no assurance this result will be achieved. The
Funds' futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold (or related put options
purchased) to protect against a decline in the price of securities that a Fund
owns, or futures contracts (or related call options) will be purchased to
protect the Fund against an increase in the price of securities it intends to
purchase. As evidence of this hedging intent, each Fund expects that
approximately 75% of its long futures positions (purchases of futures contracts
or call options on futures contracts) will be "completed"; that is, upon sale
(or other termination) of these long contracts, the Fund will have purchased, or
will be in the process of, purchasing, equivalent amounts of related securities
in the cash market. However, under unusual market conditions, a long futures
position may be terminated without the corresponding purchase of securities.
Covered Call Options. Each of the AARP Growth Funds and each of the
AARP Income Funds may write (sell) covered call options on their portfolio
securities in an attempt to enhance investment performance. The writing of
covered call options by each Fund is subject to limitations imposed by certain
state securities authorities. The Funds have been advised that, under the most
restrictive of such limitations currently in effect, no more than 25% of a
Fund's net assets may be subject to covered options. Further, such states advise
that, unless an exception is granted with respect to certain transactions in
debt securities and related options, such options and the securities underlying
the call must both be listed on national securities exchanges.
When a Fund writes (sells) a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") at any time during the option
period, generally ranging up to nine months. If the option expires unexercised,
the Fund will realize gain to the extent of the amount received for the option
(the "premium") less any commission paid. If the option is exercised, a decision
over which the Fund has no control, the Fund must sell the underlying security
to the option holder at the exercise price. By writing a covered option, the
Fund forgoes, in exchange for the premium less the commission ("net premium"),
the 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
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is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction (i.e., the Fund
terminates its obligation as the writer of the option by purchasing a call
option on the same security with the same exercise price and expiration date as
the option previously written), the Fund will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the net premium received when the
option was sold) and the deferred credit related to such option will be
eliminated. If an option is exercised, the Fund will realize a long-term or
short-term gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received.
The writing of covered options may be deemed to involve the pledge of the
securities against which the option is being written. Securities against which
options are written will be segregated on the books of the Fund's custodian.
Purchasing Options on Stock Indices. To protect the value of their
portfolios against declining stock prices, each of the AARP Growth Funds may
purchase put options on stock indices. To protect against an increase in the
value of securities that it wants to purchase, a Fund may purchase call options
on stock indices. A stock index (such as the Standard & Poor's 500) assigns
relative values to the common stocks included in the index and the index
fluctuates with the changes in the market values of the common stocks so
included. Options on stock indices are similar to options on stock except that,
rather than giving the purchaser the right to take delivery of stock at a
specified price, an option on a stock index gives the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Gain or loss with respect to options on stock indices depends on price movements
in the stock market generally rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of a stock index option depends upon movements in the
level of the stock index rather than the price of a particular stock, whether a
Fund will realize a gain or loss on the purchase of a put or call option on a
stock index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of both
put and call options on stock indices will be subject to the Fund Manager's
ability to accurately predict movements in the direction of the stock market
generally or of a particular industry. In cases where the Fund Manager's
prediction proves to be inaccurate, a Fund will lose the premium paid to
purchase the option and it will have failed to realize any gain.
In addition, a Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock indices (and therefore
the extent of its gain or loss on such transactions) depends on the degree to
which price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the securities being
hedged will not move in the same amount as the option. This risk will increase
as the composition of a Fund's portfolio diverges from the composition of the
index.
Over-the-counter options ("OTC options") are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. A Fund will only sell OTC options (other than OTC
currency options) that are subject to a buy-back provision permitting a Fund to
require the Counterparty to sell the option back to the Fund at a formula price
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
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payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Fund Manager must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers", or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing no
more than 10% of its assets in illiquid securities.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
Risks of Futures and Options Investments. A Fund will incur brokerage
fees in connection with its futures and options transactions, and it will be
required to segregate Funds for the benefit of brokers as margin to guarantee
performance of its futures and options contracts. In addition, while such
contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.
The AARP Growth Funds may engage in over-the-counter options
transactions with broker-dealers who make markets in these options. The Fund
Manager will consider risk factors such as their creditworthiness when
determining a broker-dealer with which to engage in options transactions. The
ability to terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The Fund Manager will monitor the creditworthiness of
dealers with whom the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.
Convertible Securities. Convertible securities include convertible
bonds, notes and debentures, convertible preferred stocks, and other securities
that give the holder the right to exchange the security for a specific number of
shares of common stock. Convertible securities entail less credit risk than the
issuer's common stock because they are considered to be "senior" to common
stock. Convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Bond Fund may invest
without limit in U.S. dollar denominated foreign securities. 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
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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 United States. It may be more difficult
for the Funds' agents to keep currently informed about corporate actions which
may affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks such as possible
currency blockages or transfer restrictions, and the difficulty of enforcing
rights in other countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, to the
extent investments in foreign securities involve currencies of foreign
countries, the Funds may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversion between currencies.
Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
The possibility of revolution and the dependence on foreign economic assistance
may be greater in these countries than in developed countries. The management of
each Fund seeks to mitigate the risks associated with these considerations
through diversification and active professional management.
Forward Foreign Currency Exchange Contracts. Each of the AARP Growth
Funds 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.
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General Investment Policies of the AARP Funds
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.
The AARP Funds have no present intention of acquiring restricted
securities, though they have limited authority to do so (see "Investment
Restrictions").
The AARP Funds cannot guarantee a gain or eliminate the risk of loss.
The net asset value of a non-money market Fund's shares will increase or
decrease with changes in the market prices of the Fund's investments and there
is no assurance that a Fund's objective(s) will be achieved.
Except where otherwise indicated, the objectives and policies stated
above may be changed by the Trustees without a vote of the shareholders.
Investment Restrictions
The following restrictions may not be changed with respect to a Fund
without the approval of a majority of the outstanding voting securities of such
Fund which, under the Investment Company Act of 1940 ("the 1940 Act") and the
rules thereunder and as used in this Statement of Additional Information, means
the lesser of (1) 67% of the shares of such Fund present at a meeting if the
holders of more than 50% of the outstanding shares of such Fund are present in
person or by proxy, or (2) more than 50% of the outstanding shares of such Fund.
(A) None of the Funds may:
(1) borrow money, except for temporary or emergency purposes and
not for investment purposes or except in connection with
reverse repurchase agreements; provided that a Fund maintains
asset coverage of 300% for all borrowings;
(2) underwrite any securities issued by other persons, except that
it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;
(3) purchase or sell real estate, but this shall not prevent a
Fund from investing in (i) securities of companies which deal
in real estate or mortgages, and (ii) securities secured by
real estate or interests therein, and that the Fund reserves
freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
(4) purchase or sell physical commodities, or contracts relating
to physical commodities;
(5) make loans to other persons, except (i) loans of portfolio
securities, and (ii) except to the extent that the entry into
repurchase agreements and the purchase of debt securities in
accordance with its investment objective and investment
policies may be deemed to be loans;
(6) issue senior securities except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Trust,
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, option or other
permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction;
(7) with respect to 75% of each Fund's total net assets, purchase
more than 10% of the voting securities of any one issuer or
invest more than 5% of the value of the total assets of the
Fund in the securities of any one issuer (except for
investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and except
securities of other investment companies);
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(B) Neither the AARP High Quality Money Fund, the AARP GNMA and U.S.
Treasury Fund, the AARP High Quality Bond Fund, the AARP Growth and
Income Fund, the AARP Capital Growth Fund, nor the AARP Global Growth
Fund may:
(1) purchase any securities which would cause more than 25% of the
market value of the total assets of the Fund at the time of
such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry (for this purpose, telephone companies are considered
to be a separate industry from gas and electric public
utilities, and wholly-owned finance companies are considered
to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents),
provided that there is no limitation in respect to investments
in the U.S. Government or its agencies or instrumentalities
or, in the case of AARP High Quality Money Fund, in
certificates of deposit or bankers' acceptances or, in the
case of the AARP Growth and Income Funds, to municipal
securities other than pollution control and industrial
development bonds.
(C) Neither the AARP High Quality Tax Free Money Fund nor the AARP Insured
Tax Free General Bond Fund may:
(1) purchase (i) private activity bonds or (ii) securities which
are neither municipal bonds nor securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry. For this
purpose, telephone companies are considered to be a separate
industry from gas and electric public utilities and
wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily
related to financing the activities of their parents provided
that, in the case of the AARP High Quality Tax Free Money
Fund, there is no limitation in respect to investments in the
U.S. Government or its agencies or instrumentalities, or in
certificates of deposit or bankers' acceptances.
(D) AARP High Quality Tax Free Money Fund may not:
(1) purchase securities which are not municipal obligations if
such purchase would cause more than 20% of the Fund's total
assets to be invested in such securities, except, for
temporary defensive purposes, that the Fund may invest more
than 20% of its total assets in such securities prior to the
time normal operating conditions have been achieved and during
other than normal market conditions.
The following restrictions are not fundamental and may be changed by a Fund
without shareholder approval, in compliance with applicable law, regulation or
regulatory policy. None of the Funds may:
(a) make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary
for the clearance of transactions; and, in the case of the
AARP Income Funds and AARP Insured Tax Free General Bond Fund
in connection with entering into futures contracts and related
options;
(b) purchase or retain for a Fund the securities of any issuer if
those officers and Trustees of a Trust, or partners and
officers of its investment adviser, who individually own more
than 1/2 of 1% of the outstanding securities of such issuer,
together own more than 5% of such outstanding securities;
(c) purchase from or sell to any of the officers and Trustees of a
Trust, its investment adviser, its principal underwriter or
the officers, directors, and partners of its investment
adviser or principal underwriter, portfolio securities of a
Fund;
(d) purchase restricted securities (for these purposes restricted
security means a security with a legal or contractual
restriction on resale in the principal market in which the
security is traded), including repurchase agreements maturing
in more than seven days and securities which are not readily
marketable if as a result more than 10% of the net assets
(valued at market at purchase) would be invested in such
securities;
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(e) purchase securities of any issuer with a record of less than
three years continuous operation, including predecessors, and
equity securities of issuers that are not readily marketable,
except obligations issued or guaranteed by the U.S. Government
or its agencies (or, in the case of the AARP Tax-Free Income
Funds, municipal securities rated by a recognized municipal
bond rating service), if such purchase would cause the
investments of that Fund in all such issuers to exceed 5% of
the value of the total assets of that Fund;
(f) invest its assets in securities of other open-end investment
companies, but may invest in closed-end investment companies
when such purchases are made in the open market where no
commission or profit to a sponsor or dealer result from such
purchase other than the customary broker's commission, if
after such purchase (a) a Fund would own no more than 3% of
the total outstanding voting stock of such investment company,
(b) no more than 5% of a Fund's total assets would be invested
in the securities of any single investment company, (c) no
more than 10% of a Fund's total assets would be invested in
the securities of investment companies in the aggregate, or
(d) all the investment companies advised by the Fund Manager
would own no more than 10% of the total outstanding voting
stock of any closed-end company; provided that this
restriction shall not preclude acquisition of investment
company securities by dividend, exchange offer or
reorganization. To the extent that a Fund invests in shares of
other investment companies, additional fees and expenses may
be deducted from such investments in addition to those
incurred by a Fund. Except in the case of the AARP Insured
Tax-Free Income Funds, for purposes of this limitation,
foreign banks or their agencies or subsidiaries are not
considered investment companies;
(g) invest in other companies for the purpose of exercising
control or management;
(h) purchase or sell real estate and real estate limited
partnership interests, but this shall not prevent a Fund from
investing in securities secured by real estate or interest
therein; and
(i) purchase or sell commodities, commodities contracts (except,
in the case of the AARP Income Funds, the AARP Insured Tax
Free General Bond Fund and the AARP Global Growth Fund,
contracts for the future delivery of debt obligations and
contracts based on debt indices) or oil, gas or other mineral
exploration or development programs or leases (although it may
invest in issuers which own or invest in such interests);
AARP High Quality Money Fund may not:
(j) purchase or sell any put or call options or any combination
thereof; or
(k) purchase warrants, unless attached to other securities in
which the Fund is permitted to invest.
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 of the AARP Income Funds may:
(m) purchase warrants of any issuer, except that AARP High Quality
Bond Fund can purchase warrants on a limited basis. As a
result of such purchases by the Fund, no more than 2% of the
value of the total assets of the Fund may be invested in
warrants which are not listed on the New York Stock Exchange
or the American Stock Exchange, and no more than 5% of the
value of the total assets of the Fund may be invested in
warrants whether or not so listed, such warrants in each case
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<PAGE>
to be valued at the lesser of cost or market, but assigning no
value to warrants acquired by the Fund in units with or
attached to debt securities;
(n) purchase or sell any put or call options or any combination
thereof, except that the Fund may write and sell national
exchange-listed covered call option contracts on national
exchange-listed securities and, to the extent permitted by
applicable state regulatory limits, on other debt securities
owned by the Fund up to, but not in excess of, 25% of the
value of the Fund's net assets at the time such option
contracts are written. The Fund may also purchase call options
for the purpose of terminating its outstanding obligations
with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase
transaction"). In connection with the writing of covered call
options, the Fund may pledge assets to an extent not greater
than 25% of the value of its net assets at the time such
options are written. The Fund also may purchase and write
options on futures contracts in the manner described under
"The Funds' Investment Objectives and Policies";
(o) pledge, mortgage or hypothecate its assets, (a) except to the
extent that the writing of covered call options may be deemed
to involve the pledge of securities against which the option
is being written, (b) except to the extent that margin
deposits on futures contracts and related options may be
deemed to involve a pledge of assets to guarantee the
performance of the futures obligations, and (c) except to
secure borrowings permitted by subparagraph (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 Bond Fund has adopted a non-fundamental policy that
it will not underwrite securities issued by entities regulated under Part II of
the Federal Power Act.
Neither AARP Insured Tax Free General Bond Fund nor AARP High Quality Tax Free
Money Fund may:
(p) purchase or sell any put or call options or combinations
thereof, except to the extent that the acquisition of Stand-by
Commitments or Participation Interests may be considered the
purchase or sale of a put option and except that the AARP
Insured Tax Free General Bond Fund may purchase and write
options on futures contracts in the manner and to the extent
described herein;
(q) underwrite securities issued by entities regulated under Part
II of the Federal Power Act, provided that, for this purpose
private activity bonds the interest on which is exempt from
tax under Section 103 of the Internal Revenue Code of 1986
will be treated as obligations of the municipal authority or
other governmental unit issuing the bonds.
AARP Insured Tax Free General Bond Fund may not:
(r) hold for a period of more than 30 days any municipal
securities maturing in 60 or more days from purchase by a Fund
which are not fully insured or guaranteed directly or
indirectly by the U.S. Treasury.
(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 (A) (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 Growth Funds may:
(t) purchase or sell any put or call options or any combination
thereof, except that the Funds may each purchase and sell
options on stock indices in accordance with the requirements
of applicable regulations. The Funds may write (sell) covered
call option contracts on securities owned by the Fund up to,
but not in excess of, 25% of the value of the Fund's net
assets at the time such option contracts are written. The
Funds may also purchase call options for the purpose of
terminating their outstanding obligations with respect to
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<PAGE>
securities upon which covered call option contracts have been
written (i.e., "closing purchase transactions"). In connection
with the writing of covered call options, the Funds may pledge
assets to an extent not greater than 25% of the value of its
net assets at the time such options are written;
(u) purchase securities if, as a result thereof, more than 5% of
the value of the net assets would be invested in restricted
securities (for these purposes restricted security means a
security with a legal or contractual restriction on resale in
the principal market in which the security is traded).
(v) purchase warrants of any issuer if, as a result more than 2%
of the value of the total assets of the Fund would be invested
in warrants which are not listed on the New York Stock
Exchange or the American Stock Exchange, or more than 5% of
the value of the total assets of the Fund would be invested in
warrants acquired by the Fund in units with or attached to
debt securities.
Neither the AARP Growth and Income Fund nor the AARP Capital Growth Fund may:
(w) pledge, mortgage or hypothecate its assets, except as provided
in subparagraph (t), above, and except that, to secure
borrowings permitted by subparagraph (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. (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-certified 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 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.
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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 custodian is 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.
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.
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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 $50,000 per Fund. Telephone Redemption to Address of Record
may be used as long as the account registration address has not changed within
the last 30 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 suspend or
terminate the telephone redemption privilege upon written notice to
shareholders. 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 the Corporation does not follow such procedures, it may be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
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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 $50,000. 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 30 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 $50,000 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 reserves the right to permit the AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, the AARP Capital Growth Fund
and the AARP Global Growth Fund, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The AARP Growth
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which each Fund of the Trust is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of such Fund at the
beginning of the period.
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<PAGE>
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 an
account established prior to September 1, 1989 in a particular Fund, the minimum
investment is $250. For accounts established on or after September 1, 1989 in a
particular Fund, the minimum investment is $500, except that in the case of the
AARP High Quality Tax Free Money Fund accounts opened on or after August 1, 1991
the minimum is $2,500. 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 $500 ($2,500 for AARP High
Quality Tax Free Money Fund); 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 $500 ($2,500 for AARP High Quality Tax Free
Money Fund) for non-retirement plan accounts. For IRA and Keogh Plan accounts
the amount must be $250. If the exchange is made into an existing account, there
is no minimum requirement.
Only exchange orders received between 8:00 a.m. and 4:00 p.m. Eastern
time on any business day will ordinarily be accomplished at respective net asset
values determined on that day. Exchange orders received after 4:00 p.m. are
processed on the next business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one AARP Fund to an
existing account in another AARP Fund through the AARP Funds' Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
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 suspend or terminate the privilege of the Automatic
Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange from any AARP Fund other than the AARP Money Funds is likely to
result in recognition of gain or loss to the shareholder.
Investors currently receive the exchange privilege automatically
without having to elect it. The Trusts and the AARP Funds' distributor, Scudder
Investor Services, Inc., reserve the right to suspend or terminate the exchange
privilege at any time. Telephone exchange may be initiated by anyone able to
identify the registration of an account, but the proceeds will only be invested
in another AARP Fund with the same registration. The AARP Funds employ
procedures to give reasonable assurance that telephone instructions are genuine,
including recording telephone calls, testing a caller's identity and sending
34
<PAGE>
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 $10,000 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.
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.
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. The redemption will be effected at
that night's closing price per share. 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.
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.
35
<PAGE>
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 nine 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 GNMA and U.S. Treasury
Fund, AARP High Quality Bond Fund, AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Capital Growth Fund and AARP Global Growth Fund
("Eligible Funds") may be purchased in connection with several types of
tax-deferred retirement plans. These plans were created for members of AARP.
Each plan is briefly described below. The plans provide convenient ways for AARP
members to make investments which may be tax-deductible for their retirement and
have taxes on any income from their investment deferred until their retirement,
when they may be in a lower tax bracket. Additional information on each plan may
be obtained by contacting the AARP Investment Program from Scudder, P.O. Box
2540, Boston, Massachusetts, 02208-2540, or by calling toll free,
1-800-253-2277. Investment professionals and retirement-benefits experts
estimate that prospective retirees will need 70% to 80% of their current
salaries during each year of their retirement, with adjustment for changes in
prices during retirement, to maintain their current life-style. Investment
professionals recommend diversifying investments among stock, bonds and
cash-equivalents when building retirement reserves. It is advisable for an
investor considering any of the plans described below to consult with an
attorney or tax advisor with respect to the terms, suitability requirements and
tax aspects of the plan.
36
<PAGE>
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")
Shares of the Eligible Funds may be purchased as the underlying
investment for an AARP No-Fee IRA which meets the requirements of Section 408(a)
of the Internal Revenue Code. Any AARP member with earned income or wages is
eligible to make annual contributions to the AARP No-Fee IRA before the year the
member attains age 70 1/2. An individual may establish an AARP No-Fee IRA
whether or not he or she is an active participant in another tax-qualified
retirement plan, including a tax-sheltered annuity or government plan.
AARP No-Fee IRA participants may generally contribute to an AARP No-Fee
IRA up to the lesser of $2,000 or 100% of their compensation or earned income.
If both a husband and wife work, each may set up an AARP No-Fee IRA before the
year they attain age 70 1/2, permitting a potential maximum contribution of
$4,000 per year for both persons. If one spouse has no earnings, each spouse may
have an AARP No-Fee IRA and the total maximum contributions will be $2,250 with
no more than $2,000 going to either AARP No-Fee IRA.
An individual will be allowed a full deduction for contributions to an
AARP No-Fee IRA only if (1) neither the individual, nor his or her spouse, if
they file a joint return, is an active participant in an employer-maintained
retirement plan, or (2) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a certain level ($25,050 for a single
individual, with a phase-out of the deduction for adjusted gross income between
$25,050 and $35,000; $40,050 for married individuals filing a joint return, with
a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000). However, an individual not permitted to make a deductible contribution
may nonetheless make a nondeductible contribution to an AARP No-Fee IRA.
Any AARP member who is entitled to receive a qualifying distribution
from a qualified retirement plan (including a tax-sheltered annuity plan) or
another IRA may make a rollover contribution of all or any portion of the
distribution to the AARP No-Fee IRA, either in a direct rollover or within 60
days after receipt of the distribution, whether or not the member has attained
age 70 1/2. If a qualified rollover contribution is made, the distribution will
not be subject to Federal income tax until distributed from the AARP No-Fee IRA;
however, distributions not directly rolled over might be subject to automatic
20% federal tax withholding.
AARP Mutual Fund Representatives are available to help you transfer
your IRA to the AARP No-Fee IRA. You pay no transfer fees for this service. An
AARP Mutual Fund Representative can help you with the paperwork, contact your
present IRA custodian, help to transfer your funds to the AARP No-Fee IRA, and
send you a confirmation when your transfer is complete.
Earnings on the AARP No-Fee IRA are not subject to current Federal
income tax until distributed; distributions are taxed as ordinary income.
Withdrawals attributable to nondeductible contributions are not taxable
(however, early withdrawals of such amounts are subject to penalty). The assets
in an AARP 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.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- --------------------------- ------------------------- ------------------------- --------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- --------------------------- ------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
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
</TABLE>
37
<PAGE>
AARP Keogh Plan
Shares of the Eligible Funds may be purchased for the AARP Keogh Plan.
The AARP Keogh Plan (the "Plan") is designed as a tax-qualified retirement plan
consisting of a profit sharing plan and a money purchase pension plan which can
be adopted by self-employed persons who are members of AARP and by corporations
whose principal shareholders are members of AARP. Self-employed persons may make
annual tax-deductible contributions to the Plan equal to the lesser of $30,000
or 20% of their earned income. An adopting corporation may contribute for each
employee the lesser of $30,000 or 25% of the employee's taxable compensation. No
more than $150,000 (as adjusted) of earned income or taxable compensation may be
taken into account, however. If the Plan is "top heavy," a minimum contribution
may be required for certain employees. Additional information on contributions
to the Plan is found in Your Guide to the AARP Keogh Plan.
---------------------------------
The Plan provides that contributions may continue to be made on behalf
of participants after they have reached the age of 70 1/2 if they are still
working.
Lump sum distributions from the Plan may be eligible to be taxed for
Federal income tax purposes according to a favorable 5-year averaging (or
10-year averaging for individuals who reached age 50 before 1986) method not
available to IRA distributions. If members eligible to join this Plan choose to
roll over pension and profit-sharing distributions from other tax-qualified
retirement plans, they will retain the right to use the averaging method for
such distributions.
The Plans are prototype plans approved by the Internal Revenue Service.
In general, distributions from all tax-qualified retirement programs,
including IRAs and tax-sheltered annuity programs, must begin by April 1st in
the year following the year in which the participant reaches age 70 1/2, whether
or not he or she continues to be employed. Excise taxes will apply to premature
distributions, and to taxpayers who are required, but fail, to receive a
distribution after reaching age 70 1/2. An additional excise tax may apply to
certain excess retirement accumulations. Special favorable tax treatment for
certain distributions is reduced or phased out, except where grandfathering
provisions apply.
Shares of the Eligible Funds may be purchased also as an investment for
an IRA or tax-qualified retirement plan (including a tax-sheltered annuity plan)
other than those described above, if permitted by the provisions of the relevant
plan.
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 $50. New shareholders who open a Gift to Minors Account pursuant to the
Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA)
and who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 10 month period. This feature is only available to Gifts to Minors
Account investors.
Automatic Withdrawal Plan
Shareholders who own or purchase $10,000 or more of shares of a AARP
Fund may establish an Automatic Withdrawal Plan with that Fund. The investor can
then receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. Payments are mailed at the end of each
month. The check amounts may be based on the redemption of a fixed dollar
amount, fixed share amount or percent of account value or declining balance. The
Automatic Withdrawal Plan provides for income dividends and capital gains
distributions, if any, to be reinvested in additional shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
38
<PAGE>
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "SIGNATURE GUARANTEES" in
the Prospectus. Any such request must be received by the AARP Fund's transfer
agent by the 15th of the month in which such change is to take effect. An
Automatic Withdrawal Plan may be terminated at any time by the shareholder, the
AARP Funds or their agents on written notice, and will be terminated when all
shares of the Funds under the Plan have been liquidated or upon receipt by the
Funds of notice of death of the shareholder. For more information concerning
this plan, write to the AARP Investment Program from Scudder, P.O. Box 2540,
Boston, MA 02208-2540 or call, toll-free, 1-800-253-2277.
Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
DIVIDENDS AND YIELD
(See "UNDERSTANDING FUND PERFORMANCE" in the Prospectus.)
Each AARP Fund intends to follow the practice of distributing
substantially all of its investment company taxable income (which includes, for
example, interest, dividends and any excess of net realized short-term capital
gains over net realized long-term capital losses, less deductible expenses), and
its net tax-exempt interest income, if any. Each AARP Fund also intends to
follow the practice of distributing any excess of net realized long-term capital
gains over net realized short-term capital losses after reduction for any
capital loss carryforwards. However, if it appears to be in the best interests
of a Fund and its shareholders, the Fund may retain all or part of such gain for
reinvestment.
AARP 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. The AARP
Capital Growth Fund and the AARP Global 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."
Both types of distributions will be made in shares of the respective
AARP Fund and confirmations will be mailed to each shareholder unless a
shareholder has elected to receive cash, in which case a check will be sent.
The net income of each AARP Money Fund, each of the AARP Income Funds
and the AARP Insured Tax Free General Bond Fund, is determined as of the close
of trading on the Exchange (usually 4:00 p.m. Eastern time) on each day on which
the Exchange is open for business. All of the net income so determined normally
will be declared as a dividend daily to shareholders of record as of 4:00 p.m.
on the preceding day, and distributed monthly. Dividends commence on the next
business day after purchase. Dividends which are not paid by check will be
reinvested in additional shares of the particular Fund at the net asset value
per share determined as of a day selected within five days of the last business
day of the month. Checks will be mailed to shareholders no later than the fourth
business day of the following month, and consolidated statements confirming the
month's dividends will be mailed to shareholders electing to invest dividends in
additional shares. Dividends will ordinarily be invested on the last business
day of each month at the net asset value per share determined as of the close of
regular trading on the Exchange.
Should the AARP Money Funds incur or anticipate any unusual or
unexpected significant expense, depreciation or loss which would affect
disproportionately the Fund's income for a particular period, the Trustees of
such Fund or the Executive Committee of the Trustees may at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances in order to ameliorate to the extent
possible the disproportionate effect of such expense or loss on then existing
shareholders. Such expenses may nevertheless result in a shareholder's receiving
39
<PAGE>
no dividends for the period during which the shares are held and in receiving
upon redemption a price per share lower than that which was paid.
Similarly, should the AARP High Quality Money Fund incur or anticipate
any unusual or unexpected significant income, appreciation or gain which would
affect disproportionately the Fund's income for a particular period, the
Trustees or the Executive Committee of the Trustees may consider whether to
adhere to the dividend policy described above or to revise it in the light of
the then prevailing circumstances in order to ameliorate to the extent possible
the disproportionate effect of such income, appreciation or gain on the dividend
received by existing shareholders. Such actions may reduce the amount of the
daily dividend received by existing shareholders.
Performance Information: Computation of Yields and Total Return
a) The AARP Money Funds
From time to time, quotations of an AARP Money Fund's yield may be
included in advertisements, sales literature or shareholder reports. These yield
figures are calculated in the following manner:
The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent. The current yield of the AARP High Quality
Money Fund and the AARP High Quality Tax Free Money Fund for the seven-day
period ended September 30, 1995 respectively, were 4.97% and 3.37%.
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,
1995 respectively, were 5.10% and 3.43%.
As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.
In connection with communicating its current yield and effective yield
to current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual Funds tracked by mutual Fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
b) The AARP Money Funds, AARP Income Funds, AARP Growth Funds and AARP
Insured Tax Free General Bond Fund
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
40
<PAGE>
capital gains distributions during the respective periods were reinvested in
Fund shares. Total return is calculated by finding the average annualized
compound rates of return of a hypothetical investment over such periods,
according to the following formula (total return is then expressed as a
percentage):
T = (ERV/P)^(1/n) - 1
Where:
T = average annualized compound total rate of return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
<TABLE>
<CAPTION>
Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/95 9/30/95 9/30/95(1)
<S> <C> <C> <C>
AARP High Quality Money Fund %
AARP High Quality Tax Free Money Fund * *
AARP GNMA and U.S. Treasury
AARP High Quality Bond
AARP Insured Tax Free General Bond
AARP Balanced Stock and Bond Fund n.a.
AARP Growth and Income
AARP Capital Growth
AARP Global Growth Fund n.a. n.a. n.a.
</TABLE>
(1) For the ten fiscal years ended September 30, 1995 for each of the above
listed Funds except for the period February 1, 1994 (commencement of
operations) to September 30, 1995 for the AARP Balanced Stock and Bond
Fund.
* Prior to August 1, 1991, the AARP High Quality Tax Free Money Fund
operated as the AARP Insured Tax Free Short Term Fund. The total return
figures for the five and ten years ended September 30, 1995 for the
AARP High Quality Tax Free Money Fund are representative of the Fund
prior to its conversion date except that the figures have been adjusted
to reflect its conversion to a money market Fund.
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.
41
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/95 9/30/95 9/30/95(1)
<S> <C> <C> <C>
AARP Balanced Stock and Bond Fund n.a. %
AARP Growth and Income % %
AARP Capital Growth
AARP Global Growth Fund n.a. n.a. n.a.
</TABLE>
(1) For the period February 1, 1994 (commencement of operations) to
September 30, 1995 for the AARP Balanced Stock and Bond Fund.
c) The AARP Income Funds and AARP Insured Tax Free General Bond Fund
From time to time, quotations of an AARP Fund's yield may be included
in advertisements, sales literature or shareholder reports. This yield is
calculated in the following manner.
The yield is the net annualized 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:
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, 1995
---- ------------------------
AARP GNMA and U.S. Treasury 6.61%
AARP High Quality Bond 5.94
AARP Insured Tax Free General Bond 4.76
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 ending September 30, 1995
--------------------------------
Fund Tax Bracket: 28% 31%
AARP High Quality Tax Free Money 4.68% 4.88%
AARP Insured Tax Free General Bond 6.61% 6.90%
42
<PAGE>
(e) General Performance Information
Quotations of an AARP Fund's performance are based on historical
earnings and are not intended to indicate future performance of the Fund. An
investor's shares when redeemed may be worth more or less than their original
cost. Performance of a Fund will vary based on changes in market conditions and
the level of the Fund's expenses. In periods of declining interest rates a
Fund's quoted yield and 30-day current yield will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates a Fund's
quoted yield and 30-day current yield will tend to be somewhat lower.
Comparison of non-standard performance data of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
From time to time, in marketing and other AARP Fund literature, these
AARP Funds' performances may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations, such as Lipper Analytical Services, Inc. ("Lipper"), Investment
Company Data, 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, Salomon Brothers World Government Bond Index.
The following graph illustrates the historical risks and returns of
selected unmanaged indices which track the performance of various combinations
of United States and international securities for the ten year period ended
December 31, 1994; results for other periods may vary. The graph uses ten year
annualized international returns represented by the Morgan Stanley Capital
International Europe, Australia and Far East (EAFE) Index and ten year
annualized United States returns represented by the S&P 500 Index. Risk is
measured by the standard deviation in overall portfolio performance within each
index. Performance of an index is historical, and does not represent the
performance of a Fund, and is not a guarantee of future results.
43
<PAGE>
(X-Y SCATTER CHART TITLE)
---------------------------------------------------------------
EFFICIENT FRONTIER
MSCI EAFE vs. S&P 500 (12/31/84-12/31/94)
---------------------------------------------------------------
[GRAPHIC OMITTED]
X-Y scatter chart placed here plotting total return versus standard deviation
for pairings of percentages of S&P 500 and MSCI EAFE. Data plotted from (100%
S&P , 0% MSCI EAFE) to (0% S&P, 100% MSCI EAFE) in 10% increments.
Source: Lipper Analytical Services, Inc. (Data as of 12/31/94)
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.
44
<PAGE>
Federal Reserve Bulletin, a monthly publication that reports domestic and
international financial statistics, including short-term certificate of deposit
interest rates.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
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/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue'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 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.
45
<PAGE>
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
TRUST ORGANIZATION
(See "FUND ORGANIZATION" in the Prospectus.)
Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP GNMA and U.S. Treasury Fund and AARP High Quality Bond Fund 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
Capital Growth Fund and AARP Global Growth 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. 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
46
<PAGE>
Trust except where allocations of direct expenses can otherwise be more fairly
made. The officers of each Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to all the
series in a Trust. Each Trust's Declaration of Trust provides that allocations
so made to each series shall be binding on all persons. While each Declaration
of Trust provides that liabilities of a series may be satisfied only out of the
assets of that series, it is possible that if a series were unable to meet its
obligations, a court might find that the assets of other series in the Trust
should satisfy such obligations. In the event of the dissolution or liquidation
of a Trust, the holders of the shares of each series are entitled to receive as
a class the underlying assets of that series available for distribution to
shareholders.
Shareholders are entitled to one vote per share. Separate votes are
taken by each series on all matters except where the 1940 Act requires that a
matter be decided by the vote of shareholders of all series of a Trust voting
together or where a matter affects only one of the series, in which case only
shareholders of that series shall vote thereon. For example, a change in
investment policy for a series would be voted upon only by shareholders of the
series involved. Additionally, approval of each Trust's investment advisory
agreement is a matter to be determined separately by each series in that Trust.
Approval of the agreement by the shareholders of one series in a Trust is
effective as to that series whether or not enough votes are received from the
shareholders of other series in the Trust to approve such agreement as to the
other series.
The Trustees of each Trust have the authority to establish additional
series and to designate the relative rights and preferences as between the
series. All shares issued and outstanding of each series that is offered by a
Trust will be fully paid and non-assessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.
Each Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against litigation in which they may be involved because of their
offices with the Trust except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in any of the Declarations of Trust protects or indemnifies a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
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 pursuant to Investment Management and Advisory Agreements
with each Trust ("Management Agreement") dated February 1, 1994.
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:
47
<PAGE>
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, 1995 were approximately $11
billion.
All AARP Funds pay a flat individual Fund fee based on the net assets
of that Fund.
The individual Fund fees are as follows:
AARP High Quality Money Fund, 10/1200 of 1% (or approximately .10 of
1% on an annualbasis);
AARP GNMA and U.S. Treasury Fund, 12/1200 of 1% (or approximately
.12 of 1% on an annual basis);
AARP High Quality Bond Fund, 19/1200 of 1% (or approximately .19 of
1% on an annual basis);
AARP High Quality Tax Free Money Fund, 10/1200 of 1% (or approximately
.10 of 1% on an annual basis);
AARP Insured Tax Free General Bond Fund, 19/1200 of 1% (or
approximately .19 of 1% on an annual basis);
AARP Balanced Stock and Bond Fund, 19/1200 of 1% (or approximately
.19 of 1% on an annual basis);
AARP Growth and Income Fund, 19/1200 of 1% (or approximately .19
of 1% on an annualbasis);
AARP Capital Growth Fund, 32/1200 of 1% (or approximately .32 of
1% on an annual basis);
AARP Global Growth Fund, 55/1200 of 1% (or approximately .55 of 1% on
an annual basis).
The advisory fees for the fiscal years ended September 30, 1993 and up
to January 31, 1994 under the previous Investment Management and Advisory
Agreements and under the present Investment Management Agreement from February
1, 1994 to September 30, 1994 and for the fiscal year ended September 30, 1995
were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund $ 1,358,702 $1,244,322 $
AARP GNMA and U.S. Treasury Fund 26,404,563 26,198,841
AARP High Quality Bond Fund 2,344,628 2,952,999
AARP High Quality Tax Free Money Fund 637,451 568,107
AARP Insured Tax Free General Bond Fund 8,631,469 9,944,429
AARP Balanced Stock and Bond Fund* * 365,435
AARP Growth and Income Fund 5,405,394 9,533,476
AARP Capital Growth Fund 3,176,921 4,184,43797
AARP Global Growth Fund ** ** **
</TABLE>
Each Management Agreement provides that the Fund Manager will reimburse
the AARP Funds or the Trust for annual expenses in excess of the lowest expense
limitation imposed by the states in which the Funds of the particular Trust are
at the time offering their shares for sale, although no payments are required to
be made by the Fund Manager pursuant to this reimbursement provision in excess
of the annual fee paid by the funds of a Trust to the Fund Manager. Management
has been advised that the lowest such limitation is currently 2 1/2% of the
first $30,000,000 of such net assets, 2% of the next $70,000,000 of such net
assets and 1 1/2% of such net assets in excess of $100,000,000. 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, 1993, 1994 and
1995 were as follows:
48
<PAGE>
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund 1.31% 1.13% %
AARP GNMA and U.S. Treasury Fund .70 .66
AARP High Quality Bond Fund 1.01 .95
AARP High Quality Tax Free Money Fund .93 .90
AARP Insured Tax Free General Bond Fund .72 .68
AARP Balanced Stock and Bond Fund* *. 1.31
AARP Growth and Income Fund .84 .76
AARP Capital Growth Fund 1.05 .97
AARP Global Growth Fund n.a. n.a. n.a.
</TABLE>
For the fiscal years ended September 30, 1993, 1994 and 1995, the
reimbursements by the Fund Manager based on the expense limitation then in
effect were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund -- -- $
AARP GNMA and U.S. Treasury Fund -- --
AARP High Quality Bond Fund -- --
AARP High Quality Tax Free Money Fund $278,471 $8,083
AARP Insured Tax Free General Bond Fund -- --
AARP Balanced Stock and Bond Fund* * --
AARP Growth and Income Fund -- --
AARP Capital Growth Fund -- --
AARP Global Growth Fund** n.a. n.a. n.a.
<FN>
*AARP Balanced Stock and Bond Fund commenced operations on February 1, 1994.
**AARP Global Growth Fund commenced operations on February 1, 1996.
</FN>
</TABLE>
If reimbursement is required, it will be made as promptly as
practicable after the end of each Trust's fiscal year. However, no fee payment
will be made to the Fund Manager during any fiscal year which will cause
year-to-date expenses to exceed the cumulative pro rata expense limitation at
the time of such payment. The amortization of organizational costs is described
herein under "ADDITIONAL INFORMATION - Other Information."
Under the Management Agreements, each Trust is responsible for all of
its other expenses including organizational expenses; clerical salaries; fees
and expenses incurred in connection with membership in investment company
organizations; brokers' commissions; any fees for portfolio pricing paid to a
pricing agent; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates, if any, and any other expenses including clerical expenses of
issue, redemption or repurchase of shares; the expenses and fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees of the
Trust who are not affiliated with the Fund Manager, Scudder, Stevens & Clark,
Inc., AARP Financial Services Corporation or AARP; the cost of preparing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. Each Trust may arrange to have third parties assume all or part
of the expenses of sale, underwriting and distribution of shares of the Trust.
Each Trust is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement for each Trust provides that the custodian shall compute the net asset
value for that Trust.
The Fund Manager has voluntarily agreed to waive management fees or
reimburse the AARP High Quality Tax Free Money Fund to the extent necessary so
that the total annualized expenses of the Fund do not exceed 0.90% of the
average daily net assets until [February 1, 1996]. The Fund Manager retains the
ability to be repaid by the Fund if expenses fall below the specified limit
prior to the end of the fiscal year. These expense limitation arrangements can
decrease the Fund's expenses and improve its performance. During the fiscal year
ended September 30, 1995, these agreements resulted in a reduction of management
fees paid by the Fund of $_______.
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
49
<PAGE>
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 Investment Company Act of 1940, as
amended ("Rule 12b-1 plan") providing for the Trust (or the Funds or some other
party) to assume some or all of such expenses, or (iii) such expenses are
required to be paid by Scudder, Stevens & Clark, Inc. To the extent such
expenses of distribution are not to be borne by a principal underwriter, or are
not permitted to be paid by the Trust (or a Fund or such other party) pursuant
to a Rule 12b-1 plan, they are to be assumed by the Fund Manager. (The adoption
of a Rule 12b-1 plan by a Trust would require the approval of the Trustees,
including a majority of those Trustees who are not interested persons of the
Trust, and of a majority of the outstanding voting securities of each Fund.)
The Management Agreements for all Funds will remain in effect until
August 31, 1996 (except AARP Global Growth Fund, which 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, Scudder, Stevens & Clark, Inc. or the particular Trust cast in
person at a meeting called for the purpose of voting on such approval and either
by vote of a majority of the Trustees or, with respect to each Fund, by a
majority of the outstanding voting securities of that Fund. In the event a
Management Agreement is approved by the shareholders of one of the Funds but not
by the shareholders of the other Fund, the Management Agreement will continue in
effect as to the former Fund but not the latter. The Management Agreements for
all Funds except AARP Global Growth Fund were last approved by the Trustees
(including a majority of the Trustees who are not "interested persons") on June
28, 1995 and by the shareholders on January 13, 1994. The Management Agreement
for AARP Global Growth Fund dated _______________ was approved by the Trustees
on __________________ and by the initial shareholder on ______________. Each
Agreement may be terminated at any time without payment of penalty by either
party on sixty days' written notice, and automatically terminates in the event
of its assignment.
Scudder, Stevens & Clark, Inc. is one of the most experienced
investment management firms in the United States. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual Fund to the public. In 1953, Scudder introduced Scudder International
Fund, the first Fund available in the U.S., investing internationally in
securities of issuers in several foreign countries. The principal source of the
Fund Manager's income is professional fees received from providing continuous
investment advice, and the firm derives no income from banking, brokerage or
underwriting of securities. Today, it provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder Portfolio Trust, Scudder
Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free Money Fund,
Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life
Investment Fund, Scudder World Income Opportunities Fund, Inc., The Argentina
Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund,
Inc., The Japan Fund, Inc., and The Latin America Dollar Income Fund, Inc. Some
of the foregoing companies or trusts have two or more series.
The Fund Manager maintains a large research department, which conducts
continuous studies of the factors that affect the condition of various
industries, companies and individual securities. In this work, the Fund Manager
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and for clients of the Fund Manager, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.
Certain investments may be appropriate for more than one Fund and also
for other clients advised by the Fund Manager. Investment decisions for each
Fund and for other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
Fund or client or in different amounts and at different times for more than one
but less than all Funds or other clients. Likewise, a particular security may be
bought for one or more Funds or clients when one or more other Funds or clients
are selling the security. In addition, purchases or sales of the same security
50
<PAGE>
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 Management Agreement provides that the Fund Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with matters to which the respective agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund Manager in the performance of its duties or from
reckless disregard by the Fund Manager of its obligations and duties under the
respective agreement.
In reviewing the terms of each Management Agreement and in discussions
with the Fund Manager concerning such agreements, the Trustees of each Trust who
are not "interested persons" of that Trust have been represented by independent
counsel at the Trust's expense. Dechert Price & Rhoads acts as general counsel
for the Trusts.
Pursuant to a Member Services Agreement with the Fund Manager, dated
February 1, 1994, AARP Financial Services Corp. ("AFSC") provides the Fund
Manager with nondistribution related service and advice primarily concerning
designing and tailoring the AARP Investment Program from Scudder and its Funds
to meet the needs of AARP's members on an ongoing basis. AARP Financial Services
Corp. receives, as compensation for its services, a Monthly Member Services fee.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
The Member Services Agreement will remain in effect until August 31,
1996 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 28, 1995 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 November 30, 1984
(February 18, 1985 in the case of AARP Cash Investment Funds), among the Trusts,
the Fund Manager and AARP, use of the AARP service marks by a Trust and its
Funds will be terminated, unless otherwise agreed to by AARP, upon termination
of that Trust's Management Agreement.
Officers and employees of the Fund Manager from time to time may have
transactions with various banks, including the AARP Funds' custodian bank. It is
the Fund Manager's opinion that the terms and conditions of those transactions
which have occurred were not influenced by existing or potential custodial or
other Fund relationships.
None of the officers or Trustees of a Trust may have dealings with that
Trust as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
Cuyler W. Findlay#* Chairman of the Managing Director of Scudder, Senior Vice President
Board and Trustee Stevens & Clark, Inc. and Director
51
<PAGE>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Horace B. Deets+* Vice Chairman and Executive Director, American -
Trustee Association of Retired Persons
Linda Coughlin#* President and Managing Director of Scudder, Director
Trustee Stevens & Clark, Inc.
Carole Lewis Anderson Trustee (1,2) Principal, Suburban Capital -
3616 Reservoir Road, N.W. Markets, Inc. (1995); President,
Washington, DC MASDUN Capital Advisors;
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 (2,4) Gerontology Consultant; Member, -
270-28N Grand Central Parkway New York City Department of
Floral Park, NY Aging Advisory Council -
Appointed by Mayor (1995); Board
Member, American Association on
International Aging (1981 to
present); formerly Commissioner,
County of Nassau, New York,
Dept. of Senior Citizen Affairs
(1971-1991); formerly
Chairperson, Federal Council on
Aging (1981-1986)
Cyril F. Brickfield+* Trustee (2,3,4), Honorary President and Special -
Honorary Trustee (1) Counsel, American Association of
Retired Persons
Robert N. Butler, M.D. Trustee (2,4) Brookdale Professor of -
211 Central Park West Geriatrics and Adult
Apt. 7F Development, Mount Sinai School
New York, NY of Medicine (1982 to present);
Director, National Institute on
Aging, National Institute of
Health (1976-1982)
Mary Johnston Evans Trustee (1,3,4) Corporate Director, Senior -
920 Fifth Ave. Member of The Conference Board,
New York, NY Inc.
Edgar R. Fiedler Trustee (1,2,3) Vice President and Economic -
845 Third Ave. Counsellor, The Conference
New York, NY Board, Inc.
52
<PAGE>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Lt. Gen. Eugene P. Forrester Trustee (2,3) International Trade Consultant -
1101 S. Arlington Ridge Rd. (1983 to present); Lt. General
Arlington, VA (Retired), U.S. Army; Corporate
Director
Wayne F. Haefer* Trustee (2,3,4) Director, Membership Division of -
AARP; Secretary, Employee's
Pension and Welfare Trusts of
AARP and Retired Persons
Services, Inc.
William B. Macomber Trustee (3,4) Formerly Teacher, History and -
27 Monomoy Rd. Government, Nantucket H.S.,
Nantucket, MA Nantucket, MA; formerly
President, The Metropolitan
Museum of Art and U.S.
Ambassador to Turkey and Jordan
George L. Maddox, Jr. Trustee (2,3) Chairman, Duke University -
P.O. Box 2920 Council on Aging and Human
Duke Univ. Medical Center Development; Professor of
Durham, NC Sociology, Departments of
Sociology and Psychiatry, Duke
University
Robert J. Myers Trustee (1,2,4) Actuarial Consultant (1983 - -
9610 Wire Ave. present); formerly Chairman,
Silver Spring, MD Commission on Railroad
Retirement Reform (1988-90);
Deputy Commissioner, U.S. 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 Fund, Inc.; Director:
NASL Series Trust, Inc. and
North American Funds, Inc.;
Member, U.S. Office of
Technology Assessment,
Prospective Payment Assessment
Commission.
Joseph S. Perkins+ Trustee Director, American Association -
of Retired Persons; Corporate
Retirement Manager, Polaroid
Company
53
<PAGE>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
James H. Schulz Trustee (3,4) Professor of Economics and -
163 Scruton Pond Road Kirstein Professor of Aging
Barrington, NH 03825 Policy, Policy Center on Aging,
Florence Heller School, Brandeis
University
Gordon Shillinglaw Trustee (1,3,4) Professor Emeritus of -
196 Villard Ave. Accounting, Columbia University
Hastings-on-Hudson, NY Graduate School of Business
Edward V. Creed## Vice President Principal of Scudder, Stevens & -
Clark, Inc.
Thomas W. Joseph## Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer and
Assistant Clerk
David S. Lee## Vice President and Managing Director of Scudder, President, Assistant
Assistant Treasurer Stevens & Clark, Inc. Treasurer and Director
Douglas M. Loudon# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.
Thomas F. McDonough## Vice President and Principal of Scudder, Stevens & Clerk
Assistant Secretary Clark, Inc.
Pamela A. McGrath## Vice President and Principal of Scudder, Stevens & -
Treasurer Clark, Inc.
Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Kathryn L. Quirk# Vice President and Managing Director of Scudder, Vice President
Secretary Stevens & Clark, Inc.
Howard Schneider# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.
Cornelia M. Small# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.
1) AARP Cash Investment Funds 3) AARP Tax Free Income Trust
2) AARP Income Trust 4) AARP Growth Trust
<FN>
* Messrs. Brickfield, Deets, Findlay, Haefer, Perkins 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 Investment
Company Act of 1940, as amended).
** 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
54
<PAGE>
## Address: Two International Place, Boston, Massachusetts
+ Address: 601 E Street, N.W., Washington, D.C.
</FN>
</TABLE>
As of December 31, 1995, 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, 1995 no other person owned
beneficially more than 5% of the outstanding shares of any of the Trusts except
that the American Association of Retired Persons held _________ shares in the
AARP High Quality Money Fund, ___% of the outstanding shares.
REMUNERATION
Several of the officers and Trustees of the Trusts may be officers or
employees of Scudder, Stevens & Clark, Inc., Scudder Service Corporation,
Scudder Investor Services, Inc., or Scudder Trust Company and will participate
in the fees received by such entities. No individual affiliated with AARP will
participate directly in any such fees. The Trusts pay no direct remuneration to
any officer of the Trusts. However, each of the Trustees who is not affiliated
with Scudder, Stevens & Clark, Inc. or AARP will be paid by the Trust(s) for
which he or she serves as Trustee. Each of these unaffiliated Trustees will
receive an annual fee of $2000 from each Fund for which he or she serves plus
$270 for each Trustees' meeting and $200 for each audit committee meeting or
meeting held for the purpose of considering arrangements between the Fund and
the Fund Manager or any of its affiliates attended. Each unaffiliated Trustee
also receives $100 per committee meeting, other than an audit committee meeting,
attended. If any such meetings are held jointly with meetings of one or more
mutual funds advised by the Fund Manager, a maximum fee of $800 for meetings of
the Board, meetings of the unaffiliated members of the Board for the purpose of
considering arrangements between the Fund and the Fund Manager or any of its
affiliates or the audit committees of such Funds, and $400 for all other
committee meetings or meetings of the unaffiliated members of the Board is paid,
to be divided equally among the Funds. For the year ended September 30, 1995,
the Trustees' fees and expenses for eight of the Funds were as follows:
AARP High Quality Money Fund $
AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP Capital Growth Fund
55
<PAGE>
The following Compensation Table provides, in tabular form, the following data:
<TABLE>
<CAPTION>
Column (1): all Trustees who receive compensation from the Trusts.
Column (2): aggregate compensation received by a Trustee from all the series of a Trust.
Columns (3) and (4): pension or retirement benefits accrued or proposed be paid by the Trusts.
The AARP Trusts do not pay their Trustees such benefits.
Column (5): total compensation received by a Trustee from the Trusts, plus
compensation received from all Funds that are advised by the Fund Manager (the
"Fund Complex") for which a Trustee serves. The total number of Funds from which
a Trustee receives such compensation is also provided.
Compensation Table
for the year ended December 31, 1995
===================== ==================================================================== =========== ============ =============
(1) (2) (3) (4) (5)
Aggregate Compensation from
(d)
AARP Growth
Trust
(b) (c) consisting of
AARP Income AARP Tax Free four Funds:
(a) Trust Income Trust AARP Balanced
AARP Cash consisting of consisting of Stock and Bond Pension Total
Investment two Funds: two Funds: AARP Fund, AARP or Compensation
Fund AARP GNMA and High Quality Tax Growth and Retirement Estimated from the
consisting of U.S. Treasury Free Money Fund Income Fund, Benefits Annual AARP Trusts
one Fund: Fund and AARP and AARP Insured AARP Capital Accrued Benefits and Fund
Name of Person, AARP High High Quality Tax Free General Growth Fund as Part Upon Complex
Position Quality Money Bond Fund Bond Fund and AARP of Fund Retirement Paid to
Fund Global Growth Expenses Trustee
Fund*
===================== =============== ================ ================== ================ =========== ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
Adelaide Attard, - - N/A N/A
Trustee (5 funds)
Robert N. Butler, - - N/A N/A
Trustee (5 funds)
Mary Johnston - N/A N/A
Evans, Trustee (7 funds)
Edgar R. Fiedler, - N/A N/A
Trustee (6 funds)
Eugene P. - - N/A N/A
Forrester, Trustee (4 funds)
William B. - - N/A N/A
Macomber, Trustee (5 funds)
George L. Maddox, - - N/A N/A
Jr., Trustee (4 funds)
Robert J. Myers, - N/A N/A
Trustee (6 funds)
James H. Schulz, - - N/A N/A
Trustee (5 funds)
Gordon Shillinglaw, - N/A N/A
Trustee (14 funds)
*AARP Global Growth Fund commenced operations on February 1, 1996.
</TABLE>
DISTRIBUTOR
Each of the Trusts has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is
wholly-owned by Scudder, Stevens & Clark, Inc., a Delaware corporation. The
underwriting agreements dated September 4, 1985 will remain in effect until
August 31, 1996 and from year to year thereafter only if their continuance is
56
<PAGE>
approved annually by a majority of the members of the Board of Trustees of each
Trust who are not parties to such agreement or interested persons of any such
party and either by vote of a majority of the Board of Trustees of each Trust or
a majority of the outstanding voting securities of each Trust.
Under each Trust's principal underwriting agreement, the Trust is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of its registration statement and prospectus
and any amendments and supplements thereto; the registration and qualification
of shares for sale in the various states, including registering the Trust as a
broker or dealer; the fees and expenses of preparing, printing and mailing
prospectuses (see below for expenses relating to prospectuses paid by the
Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of the Trust; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); and the cost of printing and postage of business reply envelopes.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of shares of the
Funds to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Trust.
Note: Although each Trust does not currently have a Rule 12b-1 Plan and
shareholder approval would be required in order to adopt one, the underwriting
agreements provide that the Trust will also pay those fees and expenses
permitted to be paid or assumed by that Trust pursuant to a Rule 12b-1 Plan, if
any, adopted by each Trust, notwithstanding any other provision to the contrary
in the underwriting agreement and each Trust or a third party will pay those
fees and expenses not specifically allocated to the Distributor in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Funds to
investors in all states. Each underwriting agreement provides that the
Distributor accepts orders for shares at net asset value because no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of any of the Funds.
TAXES
(See "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" in the Prospectus.)
Each AARP Fund has qualified and elected 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.
57
<PAGE>
The determination of the nature and amount of investment company
taxable income of a Fund will be based solely on the transactions in, and on the
income received and expenses incurred by or allocated to, the Fund. Each AARP
Fund intends to offset any realized net capital gains against any capital loss
carryforward before making capital gains distributions to shareholders.
Distributions of any investment company taxable income (which includes
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss, less expenses) are taxable to shareholders as ordinary
income.
Generally, each Fund will distribute any net capital gains (the excess
of its net realized long-term capital gain over its net realized short-term
capital loss). If a Fund retains its net capital gains for investment, requiring
Federal income tax to be paid thereon by the Fund, the Fund intends to elect to
treat such capital gains as having been distributed to its shareholders. As a
result, shareholders (a) will be required to include in income for Federal
income tax purposes, as long-term capital gains, their proportionate share of
such undistributed amounts and (b) will be entitled to credit their
proportionate share of the Federal income tax paid thereon by the Fund against
their Federal income tax liability. In the case of shareholders whose long-term
capital gains would be taxed at a lower rate, the amount of the credit for tax
paid by a Fund in excess of the shareholder's actual tax on capital gains may be
applied to reduce the net amount of tax otherwise payable by such shareholders
in respect of their other income or, if no tax is payable, the excess may be
refunded. For Federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal to the difference
between its pro rata share of such gains and its tax credit. If a Fund retains
net capital gains, it may not be treated as having met the excise tax
distribution requirement.
Distributions of net capital gains are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon the redemption of
shares held at the time of redemption for six months or less will be treated as
a long-term capital loss to the extent of any amounts treated as distributions
of long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains by a Fund will be taxable as described above, whether made in
shares or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of the Fund on the
reinvestment date.
Distributions by a Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution nevertheless would be taxable to the shareholder
as ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a return of capital upon
distribution which will nevertheless be taxable to them.
Shareholders who redeem, sell or exchange shares of a Fund may realize
gain or loss if the proceeds are more or less than the shareholder's purchase
price. Such gain or loss generally will be a capital gain or loss if the Fund
shares were capital assets in the hands of the shareholder, and generally will
be long- or short-term, depending on the length of time the Fund shares were
held. However, if a shareholder realizes a loss on the sale of a share held at
the time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. A gain realized on a redemption, sale
or exchange will not be affected by a reacquisition of shares. A loss realized
on a redemption, sale or exchange, however, will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend in the case of
a lapse or sale of the option on the Fund's holding period for the option and in
the case of an exercise of a put option on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
58
<PAGE>
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security of the Fund. If a
Fund writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option written by a Fund is
exercised, the character of the gain or loss depends on the holding period of
the underlying security. The exercise of a put option written by a Fund is not a
taxable transaction for the Fund.
Many futures contracts, certain foreign currency forward contracts and
all listed nonequity options (including options on debt securities, options on
futures contracts, options on securities indices and options on broad-based
stock indices) will constitute "section 1256 contracts." Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term capital gain or losses. Also, section 1256 contracts held by the
Funds at the end of each taxable year (and, for purposes of the 4% excise tax,
on October 31) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60% long-term and 40% short-term capital gain or loss. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options, and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Fund.
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
59
<PAGE>
and gain on dispositions as ordinary income which is not subject to a Fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by those countries.
Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount represents interest for Federal income tax purposes and can generally
be defined as the difference between the price at which a security was issued
and its stated redemption price at maturity. Although no cash income is actually
received by the Funds, original issue discount earned in a given year generally
is treated for Federal income tax purposes as income earned by the Funds, and
therefore is subject to the distribution requirements of the Code. The amount of
income earned by the Funds is determined on the basis of a constant yield to
maturity which takes into account at least semi-annual or annual compounding
(depending on the date of the security) of accrued interest.
In addition, some of the debt securities may be purchased by the Funds
at a discount which exceeds the original issue discount on such debt securities,
if any. This additional discount represents market discount for Federal income
tax purposes. The gain realized on the disposition of many debt securities,
including tax-exempt securities having market discount will be treated as
ordinary income to the extent it does not exceed the accrued market discount on
such debt security. Generally, market discount accrues on a daily basis for each
day the debt security is held by the Funds at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Funds, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest.
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
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into account by shareholders in determining whether their total incomes are
large enough to result in taxation of up to 85% of their Social Security
benefits. In addition, interest on certain municipal obligations (private
activity bonds) will be treated as a preference item for purposes of calculating
the alternative minimum tax for individuals and for corporations. Similarly,
income distributed by the Funds, including exempt-interest dividends, may
constitute an adjustment to alternative minimum taxable income of corporate
shareholders. The Funds do not intend to purchase any private activity bonds.
The Funds will inform shareholders annually as to the portion of the
distributions from the Funds which constituted "exempt-interest dividends."
To the extent that the Funds' dividends are derived from interest on
their temporary taxable investments or from an excess of net short-term capital
gain over net long-term capital loss, they are considered ordinary taxable
income for Federal income tax purposes. Distributions, if any, of net long-term
capital gains from the sale of securities are taxable at long-term capital gain
rates regardless of the length of time the shareholder has owned Fund shares.
However, if a shareholder realizes a loss on the sale of a share held at the
time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. Furthermore, a loss realized by a
shareholder on the sale of shares of the Funds with respect to which
exempt-interest dividends have been paid will be disallowed if such shares have
been held by the shareholder for six months or less (to the extent of
exempt-interest dividends paid).
Under the Code, a shareholder's interest expense deductions with
respect to indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as either of the AARP
Tax-Free Funds, may be limited. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed Funds are considered used for the
purposes of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed Funds even though the borrowed
Funds are not directly traceable to the purchase of shares.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuer. Neither AARP, the Fund Manager, nor Counsel to the Funds
makes any review of proceedings relating to the issuer of municipal securities
or the bases of such opinions.
The foregoing description regarding the AARP Tax-Free Funds relates
only to Federal income tax law. Investors should consult with their tax advisers
as to exemption from other state or local law. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
industrial development bonds should consult their tax advisers before purchasing
shares of the Funds.
BROKERAGE AND PORTFOLIO TURNOVER
Brokerage Commissions
To the maximum extent feasible the AARP Funds' investment adviser will
place orders for portfolio transactions through the Distributor, which in turn
will place orders on behalf of the AARP Funds with other brokers and dealers.
The Distributor receives no commission, fees or other remuneration from the
Funds for this service. Allocation of brokerage is supervised by the Fund
Manager.
Purchases and sales of fixed-income securities for the AARP Funds are
generally placed by the Fund Manager with primary market makers for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The primary objective of the Fund Manager in placing orders for the
purchase and sale of assets for the AARP Funds' portfolios is to obtain the most
favorable net results, taking into account such factors as price, commission
(which is negotiable in the case of national securities exchange transactions),
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Fund Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the AARP Funds to reported commissions paid by others. The
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<PAGE>
Fund Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
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 the custodian of the
AARP Funds for appraisal purposes, or who supply research, market and
statistical information to the Funds or the Fund Manager. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and concerning the performance
of accounts. The Fund Manager is not authorized, when placing portfolio
transactions for the AARP Funds, to pay a brokerage commission in excess of that
which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
The Fund Manager will not place orders with brokers or dealers on the basis that
the broker or dealer has or has not sold shares of the Funds. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with particular brokers or dealers or groups thereof. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.
Subject to obtaining the most favorable results, the Fund Manager may
place particular transactions through the Distributor, with the net commission
or fee being credited against the fee payable to the Fund Manager. The
Distributor, however, does not intend to engage in a general brokerage business.
Also subject to obtaining the most favorable net results, the Fund Manager may
place brokerage transactions with Bear, Stearns & Co. A credit against the
custodian fee due to State Street Bank and Trust Company equal to one-half of
the commission on any such transaction will be given on any such transaction.
The Fund did not enter into any such transactions during its fiscal year.
Although certain research, market and statistical information from
brokers and dealers can be useful to the AARP Funds and to the Fund Manager, it
is the opinion of the Fund Manager that such information is only supplementary
to its own research effort since the information must still be analyzed,
weighed, and reviewed by the Fund Manager's staff. Such information may be
useful to the Fund Manager in providing services to clients other than the AARP
Funds, and not all such information is used by the Fund Manager in connection
with the AARP Funds. Conversely, such information provided to the Fund Manager
by brokers and dealers through whom other clients of the Fund Manager effect
securities transactions may be useful to the Fund Manager in providing services
to the AARP Funds.
For the fiscal years ended September 30, 1993, 1994 and 1995 the AARP
Growth and Income Fund paid brokerage commissions of $1,369,243, $2,319,113 and
$_______ and the AARP Capital Growth Fund paid brokerage commissions of
$1,154,049, $1,156,320 and $_________, both respectively. For the fiscal year
ending September 30, 1995 and the period ending September 30, 1994, the AARP
Balanced Stock and Bond Fund paid brokerage commissions of $_______ and
$152,376, respectively. In the fiscal year ended September 30, 1995, $_______
(___%) 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, 1995, $_____ (___%) 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). 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.
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Portfolio Turnover
Fund securities may be sold to take advantage of investment
opportunities arising from changing market levels or yield relationships.
Although such transactions involve additional costs in the form of spreads or
commissions, they will be undertaken in an effort to improve the overall
investment return of a Fund, consistent with that Fund's objectives. The
portfolio turnover rate of a Fund is defined in a Rule of the SEC as the lesser
of the value of securities purchased or securities sold during the year,
excluding all securities whose maturities at the time of acquisition were one
year or less, divided by the average monthly value of such securities owned
during the year. The average annual portfolio turnover rates for the fiscal
years ended September 30, 1993, 1994, and 1995 for five of the non-money market
Funds were: AARP GNMA and U.S. Treasury Fund, 105.49%, 114.54% and _____; AARP
High Quality Bond Fund, 100.98%, 63.75% and _____; AARP Insured Tax Free General
Bond Fund, 47.96%, 38.39% and ____; AARP Growth and Income Fund, 17.44%, 31.82%
and ____; AARP Capital Growth Fund, 100.63%, 79.65% and _____, all respectively.
The average annual portfolio turnover rate for fiscal year ending September 30,
1995 and the period ending September 30, 1994 for the AARP Balanced Stock and
Bond Fund was _______, and 49.32%, respectively. Under normal investment
conditions, it is anticipated that the AARP Global Growth Fund's annual
portfolio turnover rate will not exceed 75% for the initial fiscal year.
NET ASSET VALUE
AARP Money Funds
The net asset value per share of the Fund is computed twice daily as of
twelve o'clock noon and the close of regular trading on the Exchange, normally 4
p.m. eastern time, on each day when the Exchange is open for trading. The
Exchange is normally closed on the following national holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. Net asset value is determined by dividing the total
assets of the Fund, less all of its liabilities, by the total number of shares
of the Fund outstanding. The Fund uses the 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.
AARP Non-Money Market Funds
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" 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.
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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 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.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial statements of the AARP Funds included in the Annual
Report to shareholders dated [September 30, 1994], 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
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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.
Ratings of Commercial Paper
The ratings Prime-1 and Prime-2 are the highest commercial paper
ratings assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; 6) trend of
earnings over a period of ten years; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.
Prime-2 ratings are assigned by Moody's to commercial paper issuers
which have a strong capacity for meeting their obligations in a timely fashion.
However, their financial, economic and managerial capacities will be less than
that of Prime-1 borrowers. Financial characteristics such as earnings, coverage
ratios and capitalization will be more affected by external economic factors
than Prime-1 borrowers. Liquidity is still believed to be ample.
The two highest ratings of S&P for commercial paper are A-1 and A-2.
Commercial paper rated A-1 or better by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; the reliability and quality of
management are unquestioned.
S&P will assign an A-2 rating to the commercial paper of companies
which have the capacity for timely payment on issues. However, the relative
degree of safety is less than for issuers rated A-1.
Ratings of Municipal Bonds
The three highest ratings of Moody's for municipal bonds are Aaa, Aa,
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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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.
Portfolio securities of the AARP Funds are held separately, pursuant to
a custodian agreements with each Trust, by State Street Bank and Trust Company
of Boston as Custodian.
Each Trust has shareholder servicing agreements with Scudder Service
Corporation ("SSC"), a wholly-owned 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, $________; AARP GNMA and U.S. Treasury Fund, $________; AARP
High Quality Bond Fund, $________; AARP High Quality Tax Free Money Fund,
$________; AARP Insured Tax Free General Bond Fund, $________; AARP Balanced
Fund, $________; AARP Growth and Income Fund, $________; and AARP Capital Growth
Fund, $________, for the fiscal year ended September 30, 1995. 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 wholly-owned 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 GNMA and
U.S. Treasury Fund and AARP High Quality Bond Fund 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
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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 and AARP Capital Growth 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 pays Scudder Fund
Accounting Corporation an annual fee equal to ______, 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.
Costs incurred in connection with subsequent registrations of shares
are being amortized on a pro-rata basis as the related shares are issued. If
other Funds are added to a Trust, the Trustees will determine whether such Funds
should bear any of such costs.
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 [1994]
calendar year.
<TABLE>
<CAPTION>
1994 Taxable Income To Equal Hypothetical Tax-Free Yields of 5%, 7%
Brackets and 9%, a Taxable Investment Would Have To Earn**
Individual Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
<S> <C> <C> <C> <C>
$0 - $22,750 15.0% 5.88% 8.24% 10.59%
$22,751 - $55,100 28.0% 6.94% 9.72% 12.50%
$55,101 - $115,000 31.0% 7.25% 10.14% 13.04%
$115,001 - $250,000 36.0% 7.81% 10.94% 14.06%
Over $250,000 39.6% 8.28% 11.59% 14.90%
Joint
Return
------
$0 - $38,000 15.0% 5.88% 8.24% 10.59%
$38,001 - $91,850 28.0% 6.94% 9.72% 12.50%
$91,851 - $140,000 31.0% 7.25% 10.14% 13.04%
$140,001 - $250,000 36.0% 7.81% 10.94% 14.06%
Over $250,000 39.6% 8.28% 11.59% 14.90%
<FN>
** 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
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exceeds $111,800 ($55,900 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 $111,800 (for single
individuals) or $167,700 (for married individuals filing jointly). The effective
federal tax rates and equivalent yields for such taxpayers would be higher than those
shown above.
</FN>
</TABLE>
Example:*
Based on [1994 federal tax rates, a married couple filing a joint
return with two exemptions and taxable income of $40,000 would have to earn a
tax-equivalent yield of 6.94% in order to match a tax-free yield of 5%.]
There is no guarantee that a Fund will achieve a specific yield. While
most of the income distributed to the shareholders of each Fund will be exempt
from federal income taxes, portions of such distributions may be subject to
federal income taxes. Distributions may also be subject to state and local
taxes.
* Net amount subject to federal income tax after deductions and
exemptions, exclusive of the alternative minimum tax.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of each
AARP Fund, together with the Report of Independent Accountants and Supplementary
Information are incorporated by reference.
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AARP GROWTH TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
<S> <C> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for AARP Growth and Income Fund, and AARP Capital Growth Fund for the five
fiscal years ended September 30, 1994.
Financial Highlights for AARP Balanced Stock and Bond Fund for the period February 1, 1994
(commencement of operations) to September 30, 1994.
Financial Highlights for AARP Growth and Income Fund, and AARP Capital Growth Fund for the ten
fiscal years ended September 30, 1995 to be filed by amendment.
Financial Highlights for AARP Balanced Stock and Bond Fund for the period February 1, 1994
(commencement of operations) to September 30, 1994 and for the fiscal year ended September 30,
1995 to be filed by amendment.
Financial Highlights for AARP Global Growth Fund to be filed by amendment.
Included in Part B of this Registration Statement:
For AARP Growth and Income Fund and AARP Capital Growth Fund:
List of Investments as of September 30, 1994
Statement of Assets and Liabilities as of September 30, 1994
Statement of Operations for the fiscal year ended September 30, 1994
Statements of Changes in Net Assets for the two fiscal years ended September 30,
1994
Financial Highlights for the five fiscal years ended September 30, 1994
Notes to Financial Statements
(Incorporated by reference to Post-Effective Amendment No. 16 to the Registration
Statement.)
For AARP Balanced Stock and Bond Fund:
List of Investments as of September 30, 1994
Statement of Assets and Liabilities as of September 30, 1994
Statement of Operations for the period February 1, 1994 (commencement of
operations) to September 30, 1994
Statements of Changes in Net Assets for the period ended September 30, 1994
Financial Highlights for the period February 1, 1994 (commencement of operations)
to September 30, 1994
Notes to Financial Statements
(Incorporated by reference to Post-Effective Amendment No. 16 to the Registration
Statement.)
Part C - Page 1
<PAGE>
For AARP Growth and Income Fund and AARP Capital Growth Fund:
List of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the fiscal year ended September 30, 1995
Statements of Changes in Net Assets for the two fiscal years ended September 30,
1995
Financial Highlights for the five fiscal years ended September 30, 1995
Notes to Financial Statements
(To be filed by amendment.)
For AARP Balanced Stock and Bond Fund:
List of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations, for the fiscal year ended September 30, 1995
Statements of Changes in Net Assets for the period February 1, 1994 (commencement of operations)
to September 30, 1994 and for the fiscal year ended September 30, 1995
Financial Highlights for the period February 1, 1994 (commencement of operations) to September
30, 1994 and for the fiscal year ended September 30, 1995
Notes to Financial Statements
(To be filed by amendment.)
For AARP Global Growth Fund:
Statement of Assets and Liabilities as of ________________________ and related notes
(to be filed by amendment).
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) Declaration of Trust dated June 8, 1984, as amended November 1, 1984.
(Previously filed as Exhibit 1(a) to Post-Effective Amendment No. 1
to the Registration Statement.)
(a)(2) Certificate of Amendment dated September 15, 1989 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(2) to Post-Effective Amendment No.
10 to the Registration Statement.)
(a)(3) Certificate of Amendment dated January 25, 1994 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(3) to Post-Effective Amendment No.
16 to the Registration Statement.)
(b)(1) Establishment of Series dated December 11, 1984.
(Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 4 to the
Registration Statement.)
Part C - Page 2
<PAGE>
(b)(2) Establishment and Designation of Series of Beneficial Interest dated
September 22, 1993.
(Previously filed as Exhibit 1(b)(2) to Post-Effective Amendment No.
14 to the Registration Statement.)
(b)(3) Form of Establishment and Designation of Series of Beneficial
Interest is filed herein.
2. (a)(1) By-Laws of the Registrant as amended June 17, 1992.
(Previously filed as Exhibit 2 to Post-Effective Amendment No. 13 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.
14 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest
having par value of $.01 per share.
(Previously filed as Exhibit 4 to Post-Effective Amendment No. 1 to
the Registration Statement.)
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. 5
to the Registration Statement.)
(a)(1) Investment Management Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. dated February 1, 1994. (Previously filed as
Exhibit 5(c) to Post-Effective Amendment No. 15 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. 5
to the Registration Statement.) Terminated February 1, 1994.
6. Underwriting Agreement between the Registrant and Scudder Fund
Distributors, Inc. dated September 4, 1985.
(Previously filed as Exhibit 6 to Post-Effective Amendment No. 4 to
the Registration Statement.)
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(1) to Post-Effective Amendment
No. 4 to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 8(a)(l).
(Previously filed as Exhibit 8(a)(2) to Post-Effective
Amendment No. 4 to the Registration Statement.)
Part C - Page 3
<PAGE>
(a)(3) Additional Provision to Custodian Agreement between the Registrant
and State Street Bank and Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(3) to Post-Effective
Amendment No. 4 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
November 30, 1984.
(Previously filed as Exhibit 8(a)(4) to Post-Effective Amendment No.
9 to the Registration Statement.)
(a)(5) Amendment dated September 15, 1988 to Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(5) to Post-Effective Amendment No.
9 to the Registration Statement.)
(a)(6) Revised fee schedule for Exhibit 8(a)(1) is filed herein.
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. 10 to the Registration Statement.)
(b) Member Services Agreement among AARP/Scudder Financial Management
Company, AARP Financial Services Corp. and the Registrant, dated
November 30, 1984.
(Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 5
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)(1) to Post-Effective Amendment No.
16 to the Registration Statement.)
(c) Service Mark License Agreement among Scudder, Stevens & Clark,
Inc., American Association of Retired Persons, the Registrant,
AARP Income Trust and AARP Insured Tax Free Income Trust dated
November 30, 1984.
(Previously filed as Exhibit 9(c) to Post-Effective Amendment No. 5 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. 9
to the Registration Statement.)
(e) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Balanced Stock and Bond Fund and Scudder Fund Accounting
Corporation dated October 20, 1995 is filed herein.
(f) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Capital Growth Fund and Scudder Fund Accounting
Corporation dated November 10, 1995 is filed herein.
Part C - Page 4
<PAGE>
(g) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Growth and Income Fund and Scudder Fund Accounting
Corporation dated September 5, 1995 is filed herein.
10. Inapplicable.
11. Consent of Independent Accountants.
12. Inapplicable.
13. Inapplicable.
14. (a) Individual Retirement Account (IRA).
(Previously filed as Exhibit 14(a) to Post-Effective Amendment No. 1
to the Registration Statement.)
(b) Harvest Plan for Self-Employed Persons and Corporations.
(Previously filed as Exhibit 14(b) to Post-Effective Amendment No. 1
to the Registration Statement.)
15. Inapplicable.
16. Schedule for Computation of Performance Data.
(Previously filed as Exhibit 16 to Post-Effective Amendment No. 10 to
the Registration Statement.)
17. Inapplicable.
18. Inapplicable.
Power of Attorney is incorporated by reference to the Signature Page of Post-Effective Amendment No. 8.
Item 25. Persons Controlled by or under Common Control with Registrant.
None
Item 26. Number of Holders of Securities (as of September 30, 1995).
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial interest
with par value of $.01
AARP Balanced Stock and Bond Fund 35,807
AARP Growth and Income Fund 221,118
AARP Capital Growth Fund 76,792
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.
Part C - Page 5
<PAGE>
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
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
Part C - Page 6
<PAGE>
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.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
Stephen R. Beckwith Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Part C - Page 7
<PAGE>
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown,
Grand Cayman, Cayman Islands
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY
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. (Director only on Scudder Global Fund,
a series of Scudder Global Fund, Inc.) (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
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Investor Services, Inc. (broker/dealer)**
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (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)*
Part C - Page 8
<PAGE>
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)++
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Douglas M. Loudon Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Securities Trust (investment company)*
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Chairman, World Capital Fund (investment company) Luxembourg ##
Managing Director, Kankaku - Scudder Capital Asset Management Corporation (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan,
Inc. (investment adviser)### President, The Japan
Fund, Inc. (investment company)** Trustee, Scudder,
Stevens & Clark Supplemental Retirement Income Plan
Trustee, Scudder, Stevens & Clark Profit Sharing Plan
** Chairman & Director, The World Capital Fund
(investment company) Luxembourg Chairman & Director,
Scudder, Stevens & Clark (Luxembourg), S.A.,
Luxembourg# Chairman, Canadian High Income Fund
(investment company) # Chairman, Hot Growth Companies
Fund (investment company) # Vice President &
Director, Scudder Precious Metals, Inc. xxx Director,
Berkshire Farm & Services for Youth Board of
Governors & President, Investment Counsel Association
of America
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Part C - Page 9
<PAGE>
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Juris Padegs Secretary & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Trustee, Scudder Funds Trust (investment company)*
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Trustee, Scudder Securities Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)**
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Chairman & Supervisory Director, Sovereign High Yield Investment Company N.V.
(investment company) +
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia
Daniel Pierce Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
Part C - Page 10
<PAGE>
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman, Assistant Treasurer & Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities
Funds (investment company) Luxembourg Chairman,
Scudder, Stevens & Clark, Ltd. (investment adviser)
London, England Director, Scudder Fund Accounting
Corporation (in-house fund accounting agent)*
Director, Scudder Realty Holdings Corporation (a real
estate holding company)* Director, Scudder Latin
America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust
company)+++ Director, Fiduciary Trust Company
(banking & trust company) Boston, MA Director,
Fiduciary Company Incorporated (banking & trust
company) Boston, MA Trustee, New England Aquarium,
Boston, MA
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)*
Vice President, AARP Growth Trust (investment company)*
Vice President, AARP Income Trust (investment company)*
Vice President, AARP Tax Free Income Trust (investment company)*
Edmond D. Villani President & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Trustee, Scudder Securities Trust (investment company)*
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Part C - Page 11
<PAGE>
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Manager S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
* 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
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ 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
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 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
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
Part C - Page 12
<PAGE>
(b)
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
E. Michael Brown Assistant Treasurer --
Two International Place
Boston, MA 02110
Mark S. Casady Vice President and Director --
Two International Place
Boston, MA 02110
Linda Coughlin Director President and Trustee
345 Park Avenue
New York, NY 10154
Richard W. Desmond Vice President --
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk --
Two International Place
Boston, MA 02110
Paul J. Elmlinger Vice President --
345 Park Avenue
New York, NY 10154
Cuyler W. Findlay Senior Vice President Chairman of the Board and
345 Park Avenue Trustee
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer --
Two International Place
Boston, MA 02110
Thomas W. Joseph Vice President, Director, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Senior Vice President and --
Two International Place Director
Boston, MA 02110
David S. Lee President, Assistant Vice President and
Two International Place Treasurer and Director Assistant Treasurer
Boston, MA 02110
Douglas M. Loudon Senior Vice President Vice President
345 Park Avenue
New York, NY 10154
Part C - Page 13
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer --
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Juris Padegs Vice President and Director --
345 Park Avenue
New York, NY 10154
Daniel Pierce Vice President, Director --
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Vice President Vice President and
345 Park Avenue Secretary
New York, NY 10154
Edmund J. Thimme Vice President and Director --
345 Park Avenue
New York, NY 10154
David B. Watts Assistant Treasurer --
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President --
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)
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage
Underwriter Commissions and Repurchases Commissions Other Compensation
----------- ----------- --------------- ----------- ------------------
Scudder Investor None None None None
Services, Inc.
Part C - Page 14
<PAGE>
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act
and the Rules promulgated thereunder are maintained by Scudder, Stevens & Clark, Inc., Two
International 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.
The Registrant hereby undertakes to file a post-effective amendment, using reasonably current
financial statements of AARP Global Growth Fund, within four to six months from the effective date of
the Registrant's Registration Statement under the 1933 Act.
The Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy
of such Fund's latest annual report to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of shareholders for the purpose of voting on the
question of removal of a Trustee or Trustees when requested to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such meeting to comply with the provisions
of Section 16(c) of the Investment Company Act of 1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in connection with the
securities being registered, the registrant will unless in the opinion of its counsel the matter has
been settled by controlling precedent, submits to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Part C - Page 15
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 16th day of November, 1995.
AARP GROWTH TRUST
By /s/ Thomas F. McDonough
Thomas F. McDonough,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/Cuyler W. Findlay
- --------------------------------------
Cuyler W. Findlay* Chairman and Trustee November 16, 1995
/s/Adelaide Attard
- --------------------------------------
Adelaide Attard* Trustee November 16, 1995
/s/Cyril F. Brickfield
- --------------------------------------
Cyril F. Brickfield* Trustee November 16, 1995
/s/Robert N. Butler
- --------------------------------------
Robert N. Butler* Trustee November 16, 1995
- --------------------------------------
Linda C. Coughlin President and Trustee November 16, 1995
- --------------------------------------
Horace Deets Vice Chairman and Trustee November 16, 1995
/s/Mary Johnston Evans
- --------------------------------------
Mary Johnston Evans Trustee November 16, 1995
- --------------------------------------
Wayne F. Haefer Trustee November 16, 1995
/s/William B. Macomber
- --------------------------------------
William B. Macomber Trustee November 16, 1995
/s/Robert J. Myers
- --------------------------------------
Robert J. Myers Trustee November 16, 1995
- --------------------------------------
Joseph S. Perkins Trustee November 16, 1995
/s/James H. Schulz
- --------------------------------------
James H. Schulz Trustee November 16, 1995
<PAGE>
DATE
/s/Gordon Shillinglaw
- --------------------------------------
Gordon Shillinglaw Trustee November 16, 1995
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Vice President and Treasurer November 16, 1995
(Principal Financial and Accounting
Officer)
</TABLE>
By /s/ Thomas F. McDonough
-----------------------
Thomas F. McDonough
Attorney-in-fact pursuant to
a power of attorney contained
in the signature page of
Post-Effective Amendment No. 8
to the Registration Statement
filed December 4, 1987.
2
<PAGE>
File No. 2-91578
File No. 811-4048
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 17
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 19
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP GROWTH TRUST
<PAGE>
AARP GROWTH TRUST
EXHIBIT INDEX
Exhibit 1(b)(3)
Exhibit 8(a)(6)
Exhibit 9(e)
Exhibit 9(f)
Exhibit 9(g)
Exhibit 11
AARP GROWTH TRUST
Exhibit 1(b)(3)
Establishment and Designation of Series
of Beneficial Interest, $.01 Par Value
The undersigned, being a majority of the duly elected and qualified
Trustees of AARP Growth Trust, a Massachusetts business trust, acting pursuant
to Section 5.11 of the Amended and Restated Declaration of Trust of the Trust
dated November 1, 1984 as amended (the "Declaration of Trust"), hereby divide
the shares of beneficial interest of the Trust into four separate series (each
individually a "Fund" or collectively the "Funds"), each Fund to have the
following special and relative rights:
1. The Funds shall be designated as follows:
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
2. Each Fund shall be authorized to hold cash and invest in securities and
instruments and use investment techniques as described in the Trust's
registration statement under the Securities Act of 1933, as amended from time to
time. Each share of beneficial interest of each Fund ("share") shall be
redeemable as provided in the Declaration of Trust, shall be entitled to one
vote (or fraction thereof in respect of a fractional share) on matters on which
shares of that Fund shall be entitled to vote and shall represent a pro rata
beneficial interest in the assets allocated to that Fund. The proceeds of sales
of shares of a Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to that Fund, unless
otherwise required by law. Each share of a Fund shall be entitled to receive its
pro rata share of net assets of that Fund upon liquidation of that Fund.
3. Shareholders of each Fund shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to that Fund as provided in Rule 18f-2 under
the Investment Company Act of 1940, as amended, from time to time in effect, or
any successor rule.
4. The shares of beneficial interest of the Trust outstanding on the date
hereof shall be deemed to be shares of AARP Balanced Stock and Bond Fund, AARP
Capital Growth Fund, and AARP Growth and Income Fund, respectively.
5. The assets and liabilities of the Trust existing on the date hereof
shall, except as provided below, be allocated among AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, and AARP Growth and Income Fund and, hereafter,
<PAGE>
the assets and liabilities of the Trust shall be allocated among the Funds as
set forth in Section 5.11 of the Declaration of Trust, except as provided below.
(a) Costs incurred in connection with the organization and
registration of shares of AARP Global Growth Fund shall be
amortized by such Fund over the five-year period beginning with
the month the Fund commences operations.
(b) The liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any
particular Fund shall be allocated among the Funds on the basis of
their relative average daily net assets.
(c) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Funds.
6. The Trustees (including any successor Trustees) shall have the right at
any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created, or to otherwise change the
special and relative rights of any such Fund provided that such change shall not
adversely affect the rights of shareholders of a Fund.
The foregoing shall be effective upon execution.
______________________________
Adelaide Attard, as Trustee
______________________________
Cyril F. Brickfield, as Trustee
______________________________
Robert N. Butler, as Trustee
______________________________
Linda C. Coughlin, as Trustee
______________________________
Horace Deets, as Trustee
______________________________
Mary Johnston Evans, as Trustee
2
<PAGE>
______________________________
Cuyler W. Findlay, as Trustee
______________________________
Wayne F. Haefer, as Trustee
______________________________
William B. Macomber, as Trustee
______________________________
Robert J. Myers, as Trustee
______________________________
Joseph S. Perkins, as Trustee
______________________________
James H. Schulz, as Trustee
______________________________
Gordon Shillinglaw, as Trustee
Dated: November ___, 1995
3
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
SCUDDER COMPLEX OF FUNDS
(As listed in Schedule A)
I. ADMINISTRATION
--------------
CUSTODY SERVICE
---------------
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions in local and base currency.
Withhold foreign taxes. File foreign tax reclaims. Monitor corporate
actions. Report portfolio positions.
A. DOMESTIC ASSETS
---------------
First $10 Billion .60 Basis Points
Second $10 Billion .55 Basis Points
Third $10 Billion .50 Basis Points
Fourth $10 Billion .40 Basis Points
Over $40 Billion .30 Basis Points
A minimum charge of $6,000 annually will be applied to new funds which do
not reach $100mm within one year from inception. This minimum charge would
begin in the 13th month.
B. GLOBAL ASSETS
-------------
<TABLE>
<CAPTION>
Country Grouping
- ----------------
Group A Group B Group C Group D Group E Group F Group G
- ------- ------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
Euroclear Austria Australia Denmark Portugal Indonesia Argentina
Japan Canada Belgium Finland Spain Malaysia Bangladesh
Germany Hong Kong France Philippines Brazil
Netherlands Ireland South Korea Chile
New Zealand Italy Sri Lanka China
Singapore Luxembourg Sweden Columbia
Switzerland Mexico Taiwan Cypress
Norway Greece
Thailand Hungary
U.K. India
Israel
Pakistan
Peru
Turkey
Uruguay
Venezuela
</TABLE>
Holding Charges in Basis Points (Annual Fee)
- --------------------------------------------
Group A Group B Group C Group D Group E Group F Group G
- ------- ------- ------- ------- ------- ------- -------
3.5 5.0 6.0 8.0 20.0 25.0 40.0
<PAGE>
II. PORTFOLIO TRADES - FOR EACH LINE ITEM PROCESSED
-----------------------------------------------
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $l2.00
New York Physical Settlements $25.00
PTC Purchase, Sale Deposit or Withdrawal $16.00
Global Trades
Group A & B Group C Group D Group E & F Group G
----------- ------- ------- ------------ -------
$25 $40 $50 $70 $150
III. OPTIONS
-------
Option charge for each option written or $25.00
closing contract, per issue, per broker
Option expiration charge, per issue, per $15.00
broker
Option exercised charge, per issue, per $15.00
broker
IV. SPECIAL SERVICES
----------------
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation. Fees for tax
accounting/recordkeeping for options, financial futures, and other special
items will be negotiated separately.
V. EARNINGS CREDIT
---------------
A balance credit equal to 75% of the 90 day CD rate in effect the last
business day of each month will be applied to the Custodian Demand Deposit
Account balance of each fund, net of check redemption service overdrafts,
on a pro-rated basis against the fund's custodian fee, excluding
out-of-pocket expenses. The balance credit will be cumulative and carried
forward each month. Any excess credit remaining at year-end (December 31)
will not be carried forward.
<PAGE>
VI. OUT-OF-POCKET EXPENSES
----------------------
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Telephone Transfer Fees
Wire Charges ($5.00 per wire in and Sub-custodian Charges
$5.25 out) Price Waterhouse Audit Letter
Postage and Insurance Federal Reserve Fee for Return
Courier Service Check items over $2,500
Duplicating --$4.25 each
Legal Fees GNMA Transfer--$15.00 each
Supplies Related to Fund Records Stamp Duties
Rush Transfer--$8.00 each Registration Fees
SCUDDER COMPLEX OF FUNDS
(as listed in Achedule A) STATE STREET BANK & TRUST COMPANY
By: /s/ Pamela A. McGrath By: /s/Michael L. Williams
Title: Treasurer and Vice President Title: Vice President
Date: August 1, 1994 Date: July 27, 1994
<PAGE>
Scudder Complex of Funds
Schedule A
Estimated
Fund Effective Date
---- --------------
Scudder California Tax Free 8/1/94
Scudder Cash Investment Trust 8/1/94
Scudder U.S. Treasury Money 8/1/94
Scudder Limited Term Tax Free 8/1/94
Scudder Mass Limited Term Tax Free 8/1/94
SFI Managed Cash 8/1/94
SFI Managed Federal Securities 8/1/94
SFI Managed Government Securities 8/1/94
SIFI Cash 8/1/94
SIFI Federal 8/1/94
SIFI Government 8/1/94
Scudder Variable Life Balanced 8/1/94
Scudder Variable Life Growth & Income 8/1/94
Scudder Variable Life Capital Growth 8/1/94
Scudder Variable Life International 8/1/94
Scudder Variable Life Bond 8/1/94
Scudder Variable Life Money Market 8/1/94
SFI Managed Tax Free 8/15/94
SIFI Tax Free 8/15/94
Scudder California Tax Free Money 9/15/94
Scudder Growth & Income 9/15/94
SFI Managed Intermediate Government 9/15/94
Scudder Tax Free Money Fund 9/15/94
Scudder New York Tax Free Money 9/15/94
Scudder Ohio Tax Free 10/1/94
Scudder Pennsylvania Tax Free 10/1/94
Scudder GNMA 10/1/94
Scudder Massachusetts Tax Free 10/1/94
Scudder New York Tax Free 10/1/94
Scudder Capital Growth 10/1/94
Scudder Value 10/1/94
Scudder Quality Growth 10/1/94
Scudder Medium Term Tax Free 10/1/94
Scudder Zero Coupon 2000 10/1/94
Scudder High Yield Tax Free 10/15/94
Scudder Managed Municipal Bond 10/15/94
Scudder Balanced 11/1/94
Scudder Income 11/1/94
Scudder Global Fund 1/1/95
Scudder Gold 1/1/95
Short Term Bond 1/1/95
AARP Balanced Stock & Bond 3/1/95
AARP Capital Growth 3/1/95
AARP GNMA 3/1/95
AARP Growth & Income 3/1/95
AARP High Quality Bond 3/1/95
AARP High Quality Money 3/1/95
AARP HQ Tax Free Money 3/1/95
AARP Ins TF General Bond 3/1/95
First Iberian 4/1/95
Exhibit 9(e)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 20th day of October, 1995 between AARP Growth
Trust (the "Fund"), on behalf of AARP Balanced Stock and Bond Fund (hereinafter
called the "Portfolio"), a registered open-end management investment company
with its principal place of business in Boston, Massachusetts and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
1
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
3
<PAGE>
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated June 8,
1984 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
4
<PAGE>
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP Balanced Stock and Bond Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP Balanced Stock and Bond Fund
By:/s/Linda C. Coughlin
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela A. McGrath
Vice President
6
Exhibit 9(f)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 10th day of November, 1995 between AARP Growth
Trust (the "Fund"), on behalf of AARP Capital Growth Fund (hereinafter called
the "Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
1
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
3
<PAGE>
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated June 8,
1984 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
4
<PAGE>
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP Capital Growth Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP Capital Growth Fund
By:/s/Linda C. Coughlin
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela A. McGrath
Vice President
6
EXHIBIT 9(g)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 5th day of September, 1995 between AARP Growth
Trust (the "Fund"), on behalf of AARP Growth and Income Fund (hereinafter called
the "Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
1
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
2
<PAGE>
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
3
<PAGE>
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated June 8,
1984 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
4
<PAGE>
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP Growth and Income Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP Growth and Income Fund
By:/s/Linda C. Coughlin
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela A. McGrath
Vice President
6
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post Effective Amendment No. 17
to the Registration Statement of AARP Growth Trust on Form N-1 of our report
dated November 8, 1994 relating to the financial statements and financial
highlights of AARP Growth Trust which is comprised of AARP Balanced Stock and
Bond Fund, AARP Growth and Income Fund and AARP Capital Growth Fund, AARP Cash
Investment Funds which is comprised of AARP High Quality Money Fund, AARP Income
Trust which is comprised of AARP GNMA and U.S. Treasury Fund and AARP High
Quality Bond Fund and AARP Tax Free Income Trust which is comprised of AARP High
Quality Tax Free Money Fund and AARP Insured Tax Free General Bond Fund which
appear in the Annual Report to Shareholders for the year ended September 30,
1994, which is incorporated by reference in such Statement of Additional
Information. We further consent to the references to us under the headings
"Experts" in the Statement of Additional Information and "Financial Information"
in the Prospectus constituting part of this Post Effective Amendment No. 17.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
November 15, 1995
