Filed with the Securities and Exchange Commission on November 15, 1996.
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. 20
--
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22
--
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)
-------
75 days after filing pursuant to paragraph (a)(ii)
-------
X on February 1, 1997 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>
<TABLE>
<CAPTION>
AARP GROWTH TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE
4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and ADDITIONAL INFORMATION ABOUT
Other Securities DISTRIBUTIONS AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS
8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference-Page 1
<PAGE>
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES
and Policies AND POLICIES
BROKERAGE AND PORTFOLIO TURNOVER
14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION
17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER
18. Capital Stock and TRUST ORGANIZATION
Other Securities
19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Pricing of Securities PURCHASES
Being Offered REDEMPTIONS
RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculations of DIVIDENDS AND YIELD
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS
February 1, 1997
There are 15 pure no-load AARP Mutual Fund Portfolios that have been developed
to help meet the investment needs of AARP members. The Funds are organized into
five Trusts (see page 55 for more information on the Trusts).
Trusts AARP Mutual Funds
------ -----------------
AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Bond Fund for Income
AARP Tax Free Income Trust AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Growth Trust AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP Blue Chip Index Fund
AARP Global Growth Fund
AARP Capital Growth Fund
AARP International Stock Fund
AARP Small Company Stock Fund
AARP Managed Investment AARP Diversified Income Portfolio
Portfolios Trust AARP Diversified Growth Portfolio
This combined Prospectus provides information about the AARP Investment
Program from Scudder that a prospective investor should know before investing.
Please keep it for future reference.
The U.S. Government does not and has never insured or guaranteed shares of
any mutual fund, including the AARP Mutual Funds. For limitations on insurance
relative to the AARP Insured Tax Free General Bond Fund, see page 29. The AARP
High Quality Money Fund and the AARP High Quality Tax Free Money Fund each seek
to maintain a constant net asset value of $1.00 per share. The Fund Manager
cannot assure investors that these funds will be able to maintain a stable $1.00
per share or constant net asset value.
You may get more detailed information in the combined Statement of
Additional Information (SAI) dated February 1, 1997, as amended from time to
time. The SAI is considered part of this Prospectus by reference to it. The SAI
is on file with the Securities and Exchange Commission (SEC).
You may get a copy of the SAI or a LARGER PRINT VERSION OF THIS PROSPECTUS
without charge. Call 1-800-253-2277, or write to Scudder Investor Services,
Inc., P.O. Box 2540, Boston, MA 02208-2540.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
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.
o No fees to open your account
o No fees to open or maintain an AARP IRA or AARP Keogh Plan account
o No fees to buy shares
o No fees to exchange (move investments from one fund to another)
o No fees to sell (redeem) shares
o No marketing fees or distribution fees (12b-1 fees)
o No fees to reinvest dividends
There are Annual Fund Operating Expenses for each of the AARP Funds. You do not
pay these expenses directly. The AARP Funds pay these expenses before
distributing net investment income to you. These expenses include the management
fee paid to the Fund Manager as well as other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and fund
reports. The expenses are reflected in the AARP Funds' share prices or dividends
and are not directly charged to shareholder accounts.
The following tables present information on the projected costs and expenses of
investing in an AARP Fund. You may use these tables to compare the fees and
expenses of the AARP Funds with other mutual funds.
Annual Fund Operating Expenses are expressed as a percentage of each AARP Fund's
average daily net assets.
The chart shows the expenses for each of the Funds, except for the AARP Bond
Fund for Income, the AARP Blue Chip Index Fund, the AARP International Stock
Fund, and the AARP Small Company Stock Fund for the fiscal year ended September
30, 1996. For these four Funds, which were introduced on February 1, 1997,
expenses have been estimated for the coming year.
Effective Total Fund
Management Other Operating
Fund Fee Rate** Expenses Expenses
---- ---------- -------- --------
AARP High Quality Money Fund .40% .58% .98%
AARP High Quality Tax Free Money Fund .39% .48% .87%
AARP GNMA and U.S. Treasury Fund .42% .25% .67%
AARP High Quality Bond Fund .49% .46% .95%
AARP Bond Fund for Income
AARP Insured Tax Free General Bond Fund .49% .20% .69%
AARP Balanced Stock and Bond Fund .49% .52% 1.01%
AARP Growth and Income Fund .49% .23% .72%
AARP Blue Chip Index Fund
AARP Global Growth Fund .40%* 1.35% 1.75%*
AARP Capital Growth Fund .62% .33% .95%
AARP International Stock Fund
AARP Small Company Stock Fund
PROSPECTUS
2
<PAGE>
* 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 1.75% of
average daily net assets. If the Fund Manager had not agreed to waive a
portion of its fee, it is estimated that the total annualized expenses of
the Fund would be: investment management fee ____%, other expenses ____%
and total operating expenses 2.20% 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 1.75%.
** The AARP Funds' fee structure is designed to recognize the degree to which
the pooled resources of the Program provide economies in the management of
the AARP Funds. The fee consists of two elements: a "Base Fee" and an
"Individual Fund Fee." The combined Base Fee and Individual Fund Fee is
called the Effective Management Fee Rate. See page 56 for information on
how the Effective Management Fee Rate is calculated.
AARP Diversified Income Portfolio@ 0 0 0
AARP Diversified Growth Portfolio@ 0 0 0
@ The Diversified Portfolios are expected to operate at a zero expense level.
However, each Portfolio's shareholders will indirectly bear that
Portfolio's pro rata share of fees and expenses incurred by the Underlying
AARP Mutual Funds in which that Portfolio is invested. The investment
returns of each Portfolio, therefore, will be net of that Portfolio's share
of the expenses of the Underlying AARP Mutual Funds in which that Portfolio
is invested. The chart on pages 2 and 3 shows the expense ratios of each
Underlying AARP Mutual Fund after fee waiver or reimbursement where
applicable, as of September 30, 1996. Based on this information, the range
for the average weighted expense ratio borne by the AARP Diversified Income
Portfolio is expected to be ___% to ___%, and ___% to ___% for the AARP
Diversified Growth Portfolio. A range is provided since the average assets
of each Portfolio invested in each of the Underlying AARP Funds will
fluctuate. Using the midpoint of the ratios set forth above, an example of
the expenses of each Portfolio are included in the chart below.
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
Based on the level of assets as of September 30, 1996 (and projected September
30, 1997 assets for the AARP Bond Fund for Income, the AARP Blue Chip Index
Fund, the AARP International Stock Fund and the AARP Small Company Stock Fund),
we have calculated the forecasted total expenses of a $1,000 investment in each
AARP Fund over specified periods. These examples assume 5% annual return. There
are 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 63.
Fund 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------
AARP High Quality Money Fund $10 $31 $54 $120
AARP High Quality Tax Free Money Fund 9 28 48 107
AARP GNMA and U.S. Treasury Fund 7 21 37 83
AARP High Quality Bond Fund 10 30 53 117
AARP Bond Fund for Income N/A N/A
AARP Insured Tax Free General Bond Fund 7 22 38 86
AARP Balanced Stock and Bond Fund 10 32 56 124
AARP Growth and Income Fund 7 23 40 89
PROSPECTUS
3
<PAGE>
AARP Blue Chip Index Fund N/A N/A
AARP Global Growth Fund 18 55 95 206
AARP Capital Growth Fund 10 30 53 117
AARP International Stock Fund N/A N/A
AARP Small Company Stock Fund N/A N/A
AARP Diversified Income Portfolio N/A N/A
AARP Diversified Growth Portfolio N/A N/A
You should not consider these examples as representations of past or future
expenses or returns. Actual fund expenses may be higher or lower in the future.
FINANCIAL HIGHLIGHTS
On the next nine pages you will find a variety of information about the income
and the expenses of each AARP Fund, except for AARP Bond Fund for Income, AARP
Blue Chip Index Fund, AARP International Stock Fund, AARP Small Company Stock
Fund, AARP Diversified Income Portfolio, and AARP Diversified Growth Portfolio,
which are newly organized. You will also find the following: (1) the net gain or
loss on the investments, (2) the distributions, if any, of income and gain, and,
(3) the change in net asset value per share from the beginning to the end of the
stated periods. Price Waterhouse LLP, the AARP Funds' independent accountants,
have examined this information. The Annual Report to Shareholders includes their
report.
For a copy of the Annual Report to Shareholders which includes more detailed
information concerning the Funds' performance, complete portfolio listings and
audited financial statements, please contact an AARP Mutual Fund Representative
at 1-800-253-2277.
PROSPECTUS
4
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Money Fund
----------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Value at
Beginning of
Period
Net .049 .028 .021 .040 .060 .073 .080 .060 .050
Investment
Income (a)
Net Realized -- -- -- -- -- -- -- -- -- --
& Unrealized
Investment
Gain (Loss)
Total from .049 .028 .021 .040 .060 .073 .080 .060 .050
Investment
Operations
Dividends (.049) (.028) (.021) (.040)(b)(.060)(.073) (.080)(.060) (.050)
from Net
Investment
Income
Distributions -- -- -- -- -- -- -- -- -- --
from Net
Realized
Gains
Distributions -- -- -- -- -- -- -- -- -- --
from Tax
Return of
Capital
Total (.049) (.028) (.021) (.040) (.060)(.073) (.080)(.060) (.050)
Distributions
Net Asset 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Value at End
of Period
Total Return % 4.99 2.84 2.13 4.12 6.22 7.58 8.32 6.15 5.13
Net Assets 384 333 254 323 357 376 324 224 178
End of
Period ($
millions)
Ratio of .978 1.125 1.312 1.151 1.053 1.058 1.071 1.097(c) 1.160
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 4.887 2.889 2.123 3.613 6.050 7.319 8.061 6.025 5.090
Investment
Income to
Average Net
Assets %
Portfolio -- -- -- -- -- -- -- -- --
Turnover
Rate %
Per Share -- -- -- .000 .001 .001 .001 .001 .004
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
(b) Includes approximately $.005 per share of net realized short-term capital gains.
(c) Reflects fees not imposed by Fund Manager of $.001 per share.
</TABLE>
PROSPECTUS
5
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Tax Free Money Fund
-------------------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991(b) 1990 1989 1988 1987
---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $1.000 $1.000 $1.000 $1.000 $1.000 $.996 $.998 $1.008 $.998 $1.027
Value at
Beginning of
Period
Net .029 .017 .016 .026 .055 .061 .059 .055 .049
Investment
Income (a)
Net Realized -- -- -- -- -- .004 (.002) (.010) .010 (.026)
& Unrealized
Investment
Gain (Loss)
Total from .029 .017 .016 .026 .059 .059 .049 .065 .023
Investment
Operations
Dividends (.029) (.017) (.016) (.026) (.055) (.061) (.059) (.055) (.049)
from Net
Investment
Income
Distributions -- -- -- -- -- -- -- -- -- (.003)
from Net
Realized
Gains
Distributions -- -- -- -- -- -- -- -- -- --
from Tax
Return of
Capital
Total (.029) (.017) (.016) (.026) (.055) (.061) (.059) (.055) (.052)
Distributions
Net Asset 1.000 1.000 1.000 1.000 1.0000 .996 .998 1.008 .998
Value at End
of Period
Total Return % 2.99 1.76 1.62 2.58 6.10 6.02 4.98 6.65 2.25
Net Assets 120 129 134 127 119 98 90 79 70
End of
Period ($
millions)
Ratio of .87 .90 .93 .95 1.06 1.12 1.17 1.27 1.31
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 2.94 1.75 1.60 2.54 5.43 6.06 5.85 5.47 4.80
Investment
Income to
Average Net
Assets %
Portfolio -- -- -- -- -- 39.88 21.28 62.73 22.20
Turnover
Rate %
Per Share -- .000 .002 .002 .001 -- -- .005 .006
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
(b) 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.
</TABLE>
PROSPECTUS
6
<PAGE>
<TABLE>
<CAPTION>
AARP GNMA and U.S. Treasury Fund
--------------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ $14.73 $15.96 $16.19 $15.72 $14.95$14.98 $15.11 $14.89 $15.99
Value at
Beginning of
Period
Net 1.01 .93 1.15 1.22 1.26 1.31 1.31 1.37 1.35
Investment
Income (a)
Net Realized -- .46 (1.23) (.23) .47 .77 (.03) (.13) .22 (1.09)
& Unrealized
Investment
Gain (Loss)
Total from 1.47 (.30) .92 1.69 2.03 1.28 1.18 1.59 .26
Investment
Operations
Dividends (.98) (.93) (1.15) (1.22) (1.26)(1.31) (1.31) (1.37) (1.35)
from Net
Investment
Income
Distributions -- -- -- -- -- -- -- -- -- (.01)
from Net
Realized
Gains
Distributions -- (.03) -- -- -- -- -- -- -- --
from Tax
Return of
Capital
Total (1.01) (.93) (1.15) (1.22) (1.26)(1.31) (1.31) (1.37) (1.36)
Distributions
Net Asset 15.19 14.73 15.96 16.19 15.72 14.95 14.98 15.11 14.89
Value at End
of Period
Total Return % 10.31 (1.90) 5.89 11.19 14.12 8.86 8.17 11.07 1.54
Net Assets 5,252 5,585 6,712 5,232 3,311 2,583 2,518 2,837 2,827
End of
Period ($
millions)
Ratio of .67 .66 .70 .72 .74 .79 .79 .81 .88
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 6.77 6.09 7.15 7.69 8.23 8.71 8.76 9.09 8.76
Investment
Income to
Average Net
Assets %
Portfolio 70.35 114.54 105.49 74.33 86.64 60.54 48.35 84.72 50.68
Turnover
Rate %
Per Share -- -- -- -- -- -- -- -- --
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
</TABLE>
PROSPECTUS
7
<PAGE>
<TABLE>
<CAPTION>
AARP High Quality Bond Fund
---------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ $15.05 $17.19 $16.44 $15.71 $14.63$15.04 $14.80 $14.45 $15.87
Value at
Beginning of
Period
Net .94 .85 .93 1.03 1.10 1.17 1.23 1.27 1.22
Investment
Income (a)
Net Realized -- .95 (1.76) .93 .73 1.08 (.41) .24 .46 (1.19)
& Unrealized
Investment
Gain (Loss)
Total from 1.89 (.91) 1.86 1.76 2.18 .76 1.47 1.73 .03
Investment
Operations
Dividends (.93) (.85) (.93) (1.03) (1.10)(1.17) (1.23) (1.27) (1.22)
from Net
Investment
Income
Distributions -- -- -- (.18) -- -- -- -- (.11)(b) (.23)
from Net
Realized
Gains
Distributions -- -- (.38) -- -- -- -- -- -- --
in Excess of
Net Realized
Gains
Total (.93) (1.23) (1.11) (1.03) (1.10)(1.17) (1.23) (1.38) (1.45)
Distributions
Net Asset 16.01 15.05 17.19 16.44 15.71 14.63 15.04 14.80 14.45
Value at End
of Period
Total Return % 12.98 (5.55) 11.88 11.56 15.44 5.21 10.38 12.38 (.09)
Net Assets 533 568 604 384 201 151 129 123 108
End of
Period ($
millions)
Ratio of .95 .95 1.01 1.13 1.17 1.14 1.16 1.17 1.18
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 6.13 5.31 5.64 6.40 7.26 7.86 8.33 8.55 7.81
Investment
Income to
Average Net
Assets %
Portfolio 201.07 63.75 100.98 63.00 90.43 47.39 57.69 23.57 192.80
Turnover
Rate %
Per Share -- -- -- -- -- .009 .007 .005 .034
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
(b) Includes $0.06 of distributions from paid-in capital.
</TABLE>
PROSPECTUS
8
<PAGE>
<TABLE>
<CAPTION>
AARP Insured Tax Free General Bond Fund
---------------------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ $16.93 $19.00 $17.88 $17.30 $16.12$16.61 $16.02 $15.00 $16.69
Value at
Beginning of
Period
Net .87 .86 .90 .93 1.00 1.04 1.08 1.08 1.07
Investment
Income (a)
Net Realized -- .81 (1.67) 1.55 .75 1.18 (.24) .59 1.02 (1.49)
& Unrealized
Investment
Gain (Loss)
Total from 1.68 (.81) 2.45 1.68 2.18 .80 1.67 2.10 (.42)
Investment
Operations
Dividends (.87) (.86) (.90) (.93) (1.00)(1.04) (1.08) (1.08) (1.07)
from Net
Investment
Income
Distributions -- -- (.34) (.43) (.17) -- (.25) -- -- (.20)
in Excess of
Net Realized
Gains
Distributions -- -- (.06) -- -- -- -- -- -- --
from Tax
Return of
Capital
Total (.87) (1.26) (1.33) (1.10) (1.00)(1.29) (1.08) (1.08) (1.27)
Distributions
Net Asset 17.74 16.93 19.00 17.88 17.30 16.12 16.61 16.02 15.00
Value at End
of Period
Total Return % 10.21 (4.48) 14.31 10.01 13.85 4.89 10.66 14.39 (2.94)
Net Assets 1,807 1,914 2,087 1,487 1,068 771 527 312 238
End of
Period ($
millions)
Ratio of .69 .68 .72 .74 .77 .80 .84 .92 1.00
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 5.06 4.80 4.90 5.31 5.92 6.29 6.52 6.95 6.58
Investment
Income to
Average Net
Assets %
Portfolio 17.45 38.39 47.96 62.45 32.18 48.24 148.94 163.51 135.32
Turnover
Rate %
Per Share -- -- -- -- -- -- -- -- --
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
</TABLE>
PROSPECTUS
9
<PAGE>
AARP Balanced Stock and Bond Fund
---------------------------------
<TABLE>
<CAPTION>
For the Years Ended
September 30
------------
1996 1995 1994(d)
---- ---- -------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period...................... $ $14.64 $15.00
Net Investment Income (a)................................... .61 .25
Net Realized & Unrealized Investment Gain (Loss)........... -- 1.79 (.37)(d)
Total from Investment Operations............................ 2.40 (.12)
Dividends from Net Investment Income........................ (.60) (.24)
Distributions from Net Realized Gains....................... -- (.04) --
Distributions in Excessof Net Realized Gains.............. -- -- --
Total Distributions........................................ -- (.64) (.24)
Net Asset Value at End of Period............................ 16.40 14.64
Total Return % ............................................. 16.80 (.78)(b)
Net Assets End of Period ($ millions)....................... 247 175
Ratio of Operating Expenses to Average Net Assets % (a)..... 1.01 1.31(c)
Ratio of Net Investment Income to Average Net Assets % ..... 4.12 3.58(c)
Portfolio Turnover Rate % .................................. 63.77 49.32(c)
Average Commission Rate Paid (e)
Per Share Reimbursement of Expenses (a):.................... -- --
(a) Reflects a per share reimbursement of expenses during the period by the
Fund Manager. See last row.
(b) Not Annualized.
(c) Annualized.
(d) 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.
(e) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995
</TABLE>
PROSPECTUS
10
<PAGE>
<TABLE>
<CAPTION>
AARP Growth and Income Fund
---------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ $34.13 $32.91 $28.67 $26.97 $22.30$26.11 $20.94 $25.54 $20.88
Value at
Beginning of
Period
Net 1.11 .94 .83 .97 1.11 1.11 1.01 1.04 .67
Investment
Income (a)
Net Realized -- 5.44 1.62 4.58 2.11 4.78 (3.69) 5.20 (3.93) 5.51
& Unrealized
Investment
Gain (Loss)
Total from 6.55 2.56 5.41 3.08 5.89 (2.58) 6.21 (2.89) 6.18
Investment
Operations
Dividends (1.09) (1.13) (.87) (.90) (1.17)(1.15) (1.04) (.94) (.64)
from Net
Investment
Income
Distributions (1.23) (.21) (.30) (.48) (.05) (.08) -- (.77) (.88)
from Net
Realized
Gains
Distributions -- -- -- -- -- -- -- -- --
in Excess of
Net Realized
Gains
Total (2.32) (1.34) (1.17) (1.38) (1.22)(1.23) (1.04) (1.71) (1.52)
Distributions
Net Asset 38.36 34.13 32.91 28.67 26.97 22.30 26.11 20.94 25.54
Value at End
of Period
Total Return % 20.43 7.99 19.38 11.59 27.19 (10.19)30.58 (10.75) 30.92
Net Assets 3,007 2,312 1,560 748 392 248 236 228 358
End of
Period ($
millions)
Ratio of .72 .76 .84 .91 .96 1.03 1.04 1.06 1.08
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 3.28 3.00 3.08 3.84 4.61 4.76 4.19 4.52 3.81
Investment
Income to
Average Net
Assets %
Portfolio 31.26 31.82 17.44 36.40 53.68 58.47 55.21 61.34 43.25
Turnover
Rate %
Average
Commission
Rate Paid (b)
Per Share -- -- -- -- -- -- -- -- .007
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
(b) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
</TABLE>
PROSPECTUS
11
<PAGE>
<TABLE>
<CAPTION>
AARP Global Growth Fund
-----------------------
For the Year Ended
September 30
------------
1996(a)
-------
<S> <C>
Net Asset Value at Beginning of Period .................... $
Net Investment Income (a)..................................
Net Realized & Unrealized Investment Gain (Loss)...........
Total from Investment Operations ........................
Dividends from Net Investment Income ......................
Distributions from Net Realized Gains .....................
Total Distributions ......................................
Net Asset Value at End of Period ..........................
Total Return %.............................................
Net Assets End of Period ($ millions).....................
Ratio of Operating Expenses to Average Net Assets % (b) .
Ratio of Net Investment Income to Average Net Assets % .
Portfolio Turnover Rate % ................................
Average Commission Rate Paid (e).........................
Per Share Reimbursement of Expenses (b)..................
(a) Operations for the period of February 1, 1996 (commencement of operations) to September 30, 1996.
(b) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last row.
(c) Not Annualized.
(d) Annualized.
(e) Average commission rate paid per share is calculated for fiscal year beginning on or after
September 1, 1995.
</TABLE>
PROSPECTUS
12
<PAGE>
<TABLE>
<CAPTION>
AARP Capital Growth Fund
------------------------
For the Years Ended September 30
--------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset $ $31.74 $36.20 $30.30 $30.23 $23.32$34.17 $23.88 $27.55 $21.13
Value at
Beginning of
Period
Net .36 .00 .06 .15 .24 .54(b) .21 .10 .11
Investment
Income (a)
Net Realized 6.91 (1.51) 7.19 1.09 9.05 (9.27) 10.17 (1.97) 7.40
& Unrealized
Investment
Gain (Loss)
Total from 7.27 (1.51) 7.25 1.24 9.29 (8.73) 10.38 (1.87) 7.51
Investment
Operations
Dividends (.01) (.05) (.14) (.23) (.59) (.19) (.09) (.15) (.19)
from Net
Investment
Income
Distributions (.64) (2.90) (1.21) (.94) (1.79)(1.93) -- (1.65) (.90)
from Net
Realized
Gains
Total (.65) (2.95) (1.35) (1.17) (2.38)(2.12) (.09) (1.80) (1.09)
Distributions
Net Asset 38.36 31.74 36.20 30.30 30.23 23.32 34.17 23.88 27.55
Value at End
of Period
Total Return % 23.47 (4.70) 24.53 3.94 42.81 (26.94) 43.62 (5.44) 37.02
Net Assets 692 683 607 424 242 160 180 91 116
End of
Period ($
millions)
Ratio of .95 .97 1.05 1.13 1.17 1.11 1.16 1.23 1.24
Operating
Expenses to
Average Net
Assets % (a)
Ratio of Net 1.00 .02 .22 .61 .90 2.00 .89 .37 .62
Investment
Income to
Average Net
Assets %
Portfolio 98.44 79.65 100.63 89.20 99.62 83.28 63.51 45.37 53.61
Turnover
Rate %
Average -- -- -- -- -- -- -- -- --
Commission
Rate Paid (c)
Per Share -- -- -- -- -- .009 -- .044 .025
Reimbursement
of Expenses
(a):
(a) Reflects a per share reimbursement of expenses during the period by the Fund
Manager. See last row.
(b) Net investment income per share includes non-recurring dividend income
amounting to $.18 per share.
(c) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
</TABLE>
PROSPECTUS
13
<PAGE>
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
AARP is a nonprofit organization dedicated to addressing the needs and interests
of persons aged 50 and older. It seeks through education, advocacy, and service
to enhance the quality of life for all by promoting independence, dignity, and
purpose. In the early 1980s, research conducted by AARP indicated that many
members were not taking steps to invest adequately for their future. To
encourage members to plan for their retirement and beyond, AARP decided to make
available a family of mutual funds. The family of funds would provide members
with a limited number of distinct investment choices that were managed by an
experienced investment adviser. AARP sought an investment management firm to
develop and manage the funds. After interviewing a number of investment
managers, AARP selected Scudder, Stevens & Clark, Inc., who will be referred to
in this prospectus as Scudder or the Fund Manager.
Who is Scudder, Stevens & Clark?
Scudder, Stevens & Clark is America's oldest independent investment counsel
firm. Its founder, Theodore T. Scudder, established the profession of long-term,
fee-based investment counsel in 1919 at a time when investment firms were
focused on short-term, commission-based trading. In the more than 75 years that
have passed since then, Scudder has grown to be one of America's largest
independent investment managers. Today, Scudder manages more than $100 billion
in assets for clients around the world. Scudder manages corporate funds, pension
plans, and endowments for institutions, and provides an array of investment
products and services for individual clients and other investors. These include
the Scudder Funds, a family of no-load mutual funds; a no-load variable annuity;
401(k) Plans; and several closed-end funds.
Scudder brings decades of experience and innovation to mutual fund investing. In
1928, Scudder offered America's first no-load mutual fund. Scudder was the first
company to offer an international mutual fund to U.S. investors. In 1984,
Scudder was selected by AARP to develop and manage the AARP Mutual Funds.
What are the roles of AARP and Scudder?
The AARP Investment Program from Scudder was established in accordance with
criteria set by AARP. Specifically, these criteria include providing members
with competitive investment performance, allowing easy access to investments,
offering easy-to-understand information concerning investing, and delivering
superior service. Fulfilling this mandate is the mission of AARP and Scudder.
Both organizations work closely to ensure these criteria are met. Scudder
provides investment management and administrative services for the AARP Funds
and brings to the Program more than 75 years of investment counseling and
management experience. AARP provides insight into the diversity and changing
character of AARP members. Association staff closely monitor Program services
and review all Program materials to ensure conformity to AARP's high standards.
Members of AARP leadership also serve as Trustees for the AARP Funds.
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER?
The Program was created to address the investment concerns of AARP members and
to help you make informed investment decisions. It features several benefits
PROSPECTUS
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<PAGE>
that may make investing advantageous and give you greater confidence that you've
made decisions appropriate for your needs:
o A Unique Family of Funds: The Program offers a range of mutual funds which
recognize the needs of AARP members. Each of the AARP Funds is
conservatively managed, seeking to moderate share price volatility, while
seeking competitive returns. This makes the AARP Funds distinct from other
mutual funds, which may seek higher returns but do not focus on reducing
share price volatility.
o No Sales Fees or Commissions: Unlike most other mutual funds, the AARP
Funds are pure no-loadt so you don't pay any sales fees or commissions to
purchase, exchange or sell (redeem) shares. In addition, the Funds do not
charge 12b-1 fees, which are a form of a sales charge that covers marketing
and distribution expenses.
o No Fees to open and maintain an AARP IRA or AARP Keogh Plan account: You'll
pay no separate fees to open or maintain your retirement plan account. All
your money goes to work for your retirement.
o Low initial investment: Open an account for just $500 for 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 59 of this prospectus for more information on minimum
investments.
o Professional investment management by Scudder, Stevens & Clark: Scudder
brings over 75 years of investment management experience to the AARP Funds.
o Responsive Service from AARP Mutual Fund Representatives: Our knowledgeable
representatives are ready to answer your questions, initiate transactions
or help you select the AARP Fund which meets your needs--call them
toll-free Monday through Friday, from 8 a.m. to 8 p.m. Eastern time.
o Access to your investment when you need it. You'll be able to redeem your
investment at no charge by simply calling toll-free or writing--your
investment is not locked in. See page 62 of this prospectus for more
information.
You'll also benefit from:
o Informative Communications, such as newsletters and free guides;
o Consolidated Monthly Statements or Quarterly AARP IRA or AARP Keogh Plan
Statements;
o Prompt transaction confirmations;
o Special Services designed to make investing simple and convenient; and
o AARP's commitment to represent your interests.
WHAT DO THE AARP MUTUAL FUNDS OFFER?
The 15 AARP Mutual Funds offer members a choice of conservatively managed
investments which vary in the potential returns and risk they offer. The Funds
address four major investment needs: stability of principal, income, tax-free
income and growth. Each of the AARP Mutual Funds is managed to offer you returns
competitive with comparable funds or securities. In addition, each AARP Fund
follows a conservative investment approach which seeks to moderate share price
volatility relative to funds investing in these same markets or asset classes,
so you can feel confident when you invest. The AARP Funds are managed with the
needs of AARP investors always in mind. Other mutual funds not designed and
PROSPECTUS
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<PAGE>
managed for AARP investors may have higher share price volatility and have
higher returns. None of the AARP Funds invest in securities issued by tobacco
companies.
While the AARP Funds are conservatively managed, it is important to realize that
your principal is never insured or guaranteed, and the value of your investment
and your return will move up and down as market conditions change. The share
price of a mutual fund, other than a money market fund, typically moves up and
down on a day-to-day basis. Share price volatility reflects the level of
fluctuation in the value of a Fund's shares over relatively short time periods.
A mutual fund that experiences large changes in its share price on a daily basis
would be considered to have high share price volatility. The AARP Funds will be
managed to seek to reduce share price volatility as compared to other mutual
funds or securities described in a Fund's investment objective and policies.
This does not mean a Fund's share price will not be affected by market forces,
such as shifts in the stock market or interest rates. The result will be upward
or downward movements in the Fund's share price. For more details on each AARP
Fund, please read the "Investment Objectives and Policies" section.
Information on each AARP Fund is included in this Prospectus, focusing on how
the AARP Funds differ in their potential return and risk. Before investing, you
should determine your investment objectives and time horizons. This will help
you decide which of the AARP Funds fits your needs.
The following is a brief summary of the investment needs the AARP Funds seek to
meet. The nature of each Fund will affect the length of time you should plan to
invest.
If you are investing for stability of principal and income:
Consider the AARP High Quality Money Fund or the AARP High Quality Tax Free
Money Fund. Each provides opportunities to meet short-term needs (1 year or
less) while providing a modest level of income. Both seek to provide
stability of principal through a constant $1.00 share price, although this
may not always be achieved. The AARP Money Funds invest in short-term
securities whose yields tend to follow changes in short-term interest
rates. If short-term interest rates rise or fall dramatically, so could the
yields of the AARP Money Funds in relatively short periods of time. Keep in
mind the income paid by the AARP High Quality Money Fund is taxable,
whereas the income paid by the AARP High Quality Tax Free Money Fund is
normally free from federal income taxes.
If you are investing for the longer term and are interested in monthly
income:
Consider the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond
Fund, the AARP Bond Fund for Income, the AARP Insured Tax Free General Bond
Fund or the AARP Diversified Income Portfolio. When you choose one of these
conservatively managed funds, remember that both the value of shares and
the yield will change daily, generally in reaction to shifting interest
rates. In most cases, as interest rates rise, the value of investments in
these Funds tends to fall. As interest rates fall, the value of investments
in these Funds tends to rise. Investing in these Funds offers the
opportunity for gain through the monthly income that the Funds seek to
provide, and also by possible growth in the value of shares. While each of
these Funds is managed to moderate share price volatility, the value of
your investment can decline. That's why you should be prepared to tolerate
PROSPECTUS
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<PAGE>
fluctuation in both the value of your investment and the income you earn
and to invest for the longer term (3 years or more).
If you are investing for the long term and you are interested in growth:
Consider the AARP Balanced Stock and Bond Fund, the AARP Growth and Income
Fund, the AARP Blue Chip Index Fund, the AARP Global Growth Fund, the AARP
Capital Growth Fund, the AARP International Stock Fund, the AARP Small
Company Stock Fund or the AARP Diversified Growth Portfolio. When you
invest in one of these Funds, remember that any investment in stocks
involves risk and that the value of your shares will fluctuate daily. The
share price of these AARP Funds will tend to rise when the stock market
rises and decline when the stock market declines. Investing in these Funds
offers the opportunity for gain through potential appreciation in the value
of your investment as well as from any income that the investment earns.
While each of these Funds is managed to moderate share price volatility,
the value of your investment can decline. That's why you should consider
your investment as one that you can afford to let work for you over
time--generally for a period of 3 to 5 years or more for the AARP Balanced
Stock and Bond Fund and AARP Diversified Growth Portfolio, and 5 years or
more for the other equity funds listed above.
How is my investment managed?
The AARP Mutual Funds are managed to seek competitive returns and to moderate
share price volatility. Each of the AARP Mutual Funds is managed by a team of
investment professionals at Scudder. Professional portfolio managers develop
investment strategies and select securities for each AARP Fund's portfolio. They
are supported by Scudder's dedicated staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. At Scudder, there has always been a strong partnership
between research analysts and portfolio managers. Scudder's large staff of
independent researchers help the portfolio managers assess economic and industry
trends and security valuations as they make investment decisions. Generally, the
portfolio managers do not take a short-term approach to investing. Instead, they
seek to add value over the long term, carefully selecting investments they
believe have superior potential for achieving each Fund's objectives.
INVESTMENT OBJECTIVES AND POLICIES
The following pages provide detail on the investment objectives and policies of
the AARP Mutual Funds. Included are each Fund's objectives, whom it is designed
for, what it offers investors, what it can invest in, the risks involved, when
distributions are paid and who at Scudder manages the Fund. As with any
investment, there is no guarantee that the AARP Funds will successfully meet
their investment objectives. Be sure to read the section titled "Other
Investment Policies and Risk Factors" on page 47.
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 for their situation.
PROSPECTUS
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<PAGE>
AARP HIGH QUALITY MONEY FUND
Fund Objective:
From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and
safety of principal while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances
under which this goal cannot be achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors with short-term needs or who do
not want the risk of investing in stocks or bonds. These include:
o Investors creating a diversified portfolio who want a portion of their
assets in an investment designed to offer safety and stability.
o Investors seeking a short-term investment prior to making longer-term
investment choices.
o Investors seeking money market income to meet regular needs.
o Investors who need immediate access to their money through free
checkwriting.
The Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income, while maintaining stability
and safety of principal. In addition, it provides a convenient way to
easily access your money through free checkwriting.
What does the Fund invest in?
The Fund invests in high quality short-term securities. These securities
will have remaining maturities of 397 calendar days or less, except for
U.S. Government securities, which may have maturities up to 762 calendar
days. The average dollar-weighted maturity of the Fund's investments is 90
days or less. All of the securities purchased are U.S. dollar-denominated.
Amendments have been proposed to the federal rules regulating quality,
maturity and diversification requirements of money market funds, like the
Fund. If the amendments are adopted the Fund intends to comply with such
new requirements.
These money market securities consist of obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; obligations of
supranational organizations such as the International Bank for
Reconstruction and Development (the World Bank); obligations of domestic
banks and their foreign branches, including bankers' acceptances,
certificates of deposit, deposit notes and time deposits; obligations of
savings and loan institutions; instruments whose credit has been enhanced
by: banks (letters of credit), insurance companies (surety bonds), or other
corporate entities (corporate guarantees); corporate obligations, including
commercial paper, notes, bonds, loans and loan participations; securities
with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities
including notes, bonds and participation interests, either taxable or
PROSPECTUS
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<PAGE>
tax-free, as described in more detail for the AARP High Quality Tax Free
Money Fund; securities with put features; and repurchase agreements.
All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. Generally, the
Fund may purchase only securities rated, or issued by an entity with
comparable securities rated, within the two highest quality rating
categories of one or more rating agencies such as: Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), and Fitch Investors
Service, Inc. (Fitch). Securities rated by only one agency may be purchased
if the rating falls within the categories above. Unrated securities may be
purchased if the Fund Manager judges them to be comparable in quality to
securities described above. Generally, the Fund will invest in securities
rated in the highest quality rating by at least two of these rating
agencies. If a security ceases to be rated or is reduced below the Fund's
standards, it will be sold unless the Trustees determine that disposing of
the security would not be in the best interests of the Fund.
The Fund has certain nonfundamental policies designed to maintain
diversification. These policies may be changed without shareholder
approval. The amount of total assets of the Fund that may be invested in
the securities of a single issuer is limited in accordance with federal
law.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began in June 1985, there may be situations under which this
goal cannot be achieved. The level of income you receive will be affected
by movements up and down in short-term interest rates. By investing
generally in highest-quality securities, the Fund may offer less income
than a money market fund investing in other high-quality money market
securities. See "Other Investment Policies and Risk Factors."
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 53 for additional information on
distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David Wines assumed responsibility for setting the
Fund's investment strategy and for overseeing the Fund's day-to-day
management in February 1997. Mr. Wines has eight years of investment
industry experience. Stephen L. Akers, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Akers has been a member of the AARP
High Quality Money Fund team since 1995 and has managed several other
fixed-income portfolios since joining Scudder in 1984. Debra A. Hanson,
Portfolio Manager, assists with the development and execution of investment
strategy and has been with Scudder since 1983. K. Sue Cote, Portfolio
Manager, joined Scudder in 1983 and has 13 years of experience in the
investment industry.
PROSPECTUS
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<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
Fund Objective:
From investments in high quality municipal securities, the Fund is designed
to provide current income free from federal income taxes. The Fund also
seeks to maintain stability and safety of principal, while offering
liquidity. The Fund seeks to maintain a constant net asset value of $1.00
per share. There may be circumstances under which this goal cannot be
achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors in high tax brackets who have
short-term investment needs or who do not want the risk of investing in
stocks or bonds. These include:
o Investors creating a diversified portfolio who want a portion of their
assets in an investment designed to offer safety and stability.
o Investors seeking a short-term investment prior to making longer-term
investment choices.
o Investors seeking tax free money market income to meet regular
day-to-day expenses.
o Investors who need immediate access to their money through free
checkwriting.
This Fund is not available for AARP IRA or other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income free from federal income tax,
while providing stability and safety of principal. Depending on your tax
bracket, the after-tax income from the Fund may be higher than from a
taxable investment of comparable quality and risk. In addition, it provides
a convenient way to easily access your money through checkwriting.
What does the Fund invest in?
The Fund invests in high-quality, short-term municipal securities. These
securities will have remaining maturities of 397 calendar days or less. The
average dollar-weighted maturity of its investments is 90 days or less.
These municipal securities may include obligations issued by or on behalf
of states, territories and possessions of the United States and the
District of Columbia. Interest from these securities is, in the opinion of
the issuer's bond counsel, exempt from federal income taxes. The Fund has
no current intention to invest in securities whose income is subject to
federal income tax, including the individual alternative minimum tax (AMT).
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
PROSPECTUS
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<PAGE>
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% when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
All of the securities purchased are U.S. dollar-denominated. The securities
must meet credit standards applied by the Fund Manager, following
procedures established by the Trustees. If a security ceases to be rated,
or its rating is reduced below the Fund's standard, it will be sold unless
the Trustees determine that disposing of the security would not be in the
best interests of the Fund. As a matter of nonfundamental policy, which may
be changed without a shareholder vote, the Fund, with respect to 75% of its
total assets, may not invest more than 5% of its total assets in securities
subject to puts from any one issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began operating as a tax-free money fund in August 1991,
there may be situations under which this goal cannot be achieved. The level
of income you receive will be affected by movements up and down in
short-term interest rates. By investing generally in highest-quality
securities, the Fund may offer less income than a money market fund
investing in other high-quality money market securities. See "Other
Investment Policies and Risk Factors."
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. Income may be subject to state and local income taxes. Each
year you will be provided with a breakdown of the Fund's investments by
PROSPECTUS
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<PAGE>
state so that you can determine your state and local income tax liability.
Your state or local Department of Revenue or tax advisor can answer
questions regarding taxability of distributions. Should there be any income
from taxable securities, it would not be exempt from federal income taxes.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 53 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager K. Sue Cote has been responsible for setting
investment strategy and overseeing the Fund's day-to-day management since
1991. Ms. Cote joined Scudder in 1983 and has 13 years of experience in the
investment industry. Donald C. Carleton, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Carleton has over 20 years'
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.
For whom is the Fund designed?
The Fund is suitable for conservative investors who want high current
income but want a degree of protection from bond market price risk.
Investors should be seeking to invest for the longer term (3 years or more)
and be comfortable with fluctuation in the value of their principal. The
Fund is also available for AARP IRA or other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income from a portfolio of
high-quality securities. The level of income should generally be higher
than that available from fixed-price money market mutual funds,
government-insured bank accounts and fixed-rate, government-insured CDs. By
including short-term U.S. Treasury securities in its portfolio, the Fund
seeks to offer less share price volatility than long-term bonds or many
other GNMA mutual funds, although its yield may be lower.
What does the Fund invest in?
The Fund invests principally in U.S. Treasury bills, notes, and bonds, and
other securities issued or backed by the full faith and credit of the U.S.
Government. These include Government National Mortgage Association (GNMA)
securities. GNMA securities represent part ownership of a pool of U.S.
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
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mortgagors actually make their payments). This guarantee by GNMA represents
the full faith and credit of the U.S. Government. However, this guarantee
is not related to the Fund's yield or the value of shareholders'
investments, which will fluctuate daily.
The maturities and types of securities held by the Fund may vary with
current market conditions. At any time, the Fund may invest a substantial
portion of its assets in securities of a particular maturity. With GNMA
securities, principal is paid back to the Fund over the life of the bond,
rather than at maturity. The Fund will receive monthly scheduled payments
of principal and interest and may receive unscheduled principal payments
resulting from prepayments of the underlying mortgages. The Fund may
realize a gain or loss upon receiving principal payments. The Fund
typically reinvests all payments and prepayments of principal in additional
GNMA securities or other U.S. Government-guaranteed securities. The Fund
may also purchase "when-issued" securities and invest in repurchase
agreements.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. The level of income you receive will also be affected by
movements up or down in interest rates. Like bonds, the value of
mortgage-backed securities decreases when interest rates rise. However,
when interest rates fall their value may not rise as much as does the value
of bonds because of the anticipation of prepayment of the underlying
mortgages. This prepayment may expose the Fund to a lower rate of return
upon reinvestment. Thus, the prepayment rate may also tend to limit any
increase in net asset value. See "Other Investment Policies and Risk
Factors."
How does the Fund seek to manage risk?
The Fund actively seeks to reduce share price volatility, by investing in a
combination of short-, intermediate-, and long-term securities. The Fund
may also, on occasion, use portfolio management techniques to seek to
reduce volatility. These techniques, which are subject to applicable
regulatory guidelines, may include limited transactions in financial
futures contracts and related option transactions which are unrated (see
"Other Investment Policies and Risk Factors"). The Fund may write (sell)
covered call options to enhance investment returns. These techniques will
be entered into to reduce risk, but such techniques involve risks
themselves and could reduce current income.
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 53 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has been responsible for investment
strategy and overseeing security selection since the Fund's inception in
1985. Mr. Glen has over 15 years' experience in finance and investing. Mark
S. Boyadjian, Portfolio Manager, focuses on securities selection and
assists with investment strategy for the Fund. Mr. Boyadjian joined the
Fund's team in 1995 and has been involved in investment management since
joining Scudder in 1989.
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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 fund.
For whom is the Fund designed?
The Fund is suitable for investors who want high current income with
moderate risk from a high quality portfolio. Investors should be seeking to
invest for the intermediate term or longer (at least 3 years or more) and
be comfortable with fluctuation in the value of their principal. The Fund
is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer a high level of current income from a
portfolio comprised primarily of high-quality securities. The level of
total investment return (i.e., income plus any capital appreciation) should
typically be higher than available from the AARP GNMA and U.S. Treasury
Fund, with greater fluctuation in the value of your principal.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many long-term
bond funds, although its yield 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 investment-grade or higher by Moody's (Aaa,
Aa, A, and Baa) or S&P (AAA, AA, A and BBB), and at least 65% of the Fund's
assets must be in securities rated in the two highest rating categories by
Moody's or S&P. The Fund may invest up to 20% of its assets in bonds rated
Baa by Moody's or rated BBB by S&P. Securities rated Baa by Moody's or BBB
by S&P are neither highly protected nor poorly secured. These securities
normally pay higher yields and are regarded as having adequate capacity to
repay principal and pay interest but involve potentially greater price
variability than higher-quality securities. Moody's considers bonds it
rates Baa to have speculative elements as well as investment-grade
characteristics. The Fund does not purchase securities rated below
investment-grade, commonly known as "junk" bonds.
The Fund may invest in any investment eligible for the AARP GNMA and U.S.
Treasury Fund. It may also purchase corporate notes and bonds, including
convertible issues, and obligations of federal agencies that are not backed
by the full faith and credit of the U.S. Government. Additionally, the Fund
may purchase obligations of international agencies, U.S. dollar-denominated
foreign debt securities, mortgage-backed and other asset-backed securities,
and money market instruments such as commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign
branches of U.S. banks. The Fund may invest up to 20% of total assets in
foreign debt securities denominated in currencies other than the U.S.
dollar, but no more than 5% of the Fund's total assets will be represented
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by a given foreign currency. The Fund may also purchase "when-issued"
securities and invest in repurchase agreements.
The Fund will invest in a broad range of short-, intermediate- and
long-term securities. The maturities and types of securities held by the
Fund will vary with current market conditions. The Fund may have a
substantial portion of its assets in securities of a particular maturity.
The non-governmental investments of the Fund will be spread among a variety
of companies and will not be concentrated in any one industry.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. Due to the greater market price risk of the securities in which
it invests, the Fund will usually have more share price volatility than the
AARP GNMA and U.S. Treasury Fund. See "Other Investment Policies and Risk
Factors."
The level of income provided will be affected by movements up and down in
interest rates. Also, income from the high-quality and other
investment-grade securities the Fund purchases may be lower than income
from lower-quality securities.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce share price volatility by investing in
securities with varying maturities, including short- and medium-term bonds.
Also, the Fund may use approved portfolio management techniques, if
appropriate, such as limited transactions in financial futures contracts
and related option transactions which are unrated (see "Other Investment
Policies and Risk Factors"). The Fund may write (sell) covered call options
to enhance investment returns. These techniques will be entered into to
reduce risk, but such techniques involve risks themselves and could reduce
current income.
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 53 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has set the Fund's investment strategy
and overseen its day-to-day operations since 1995. Mr. Glen, who started at
Scudder in 1982 and has been a portfolio manager since 1985, has over 15
years' experience in finance and investing. William M. Hutchinson,
Portfolio Manager, who is also responsible for implementing the Fund's
strategy, has been involved with the Fund since 1987. Mr. Hutchinson joined
Scudder in 1986 as a portfolio manager and has over 20 years of investment
experience. Stephen A. Wohler, Portfolio Manager, focuses on securities
selection for the Fund. Mr. Wohler, who joined Scudder in 1979, is in
charge of Scudder's Global Bond Group and has over 15 years' experience
managing fixed-income investments.
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AARP BOND FUND FOR INCOME
Fund Objective:
The Fund seeks to provide a high level of current income consistent with
investments primarily in investment-grade debt securities, and to keep the
price of its shares more stable than that of a long-term bond fund.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors who want high current income, but are willing to accept
interest rate, credit, and other risks associated with a portfolio of
investment-grade and, to a lesser extent, below investment-grade bonds.
Investors should be seeking to invest for the longer term (at least 3 years
or more) and be comfortable with fluctuation in the value of their
principal. The Fund is also available for AARP IRA and other retirement
plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer investors a convenient way to enjoy high
monthly income through a professionally managed diversified portfolio of
largely investment-grade bonds. The Fund should offer higher income than
any other AARP income fund, although its share price volatility will
normally be higher. The Fund also can help add balance to a portfolio
holding stocks or stock mutual funds.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many long-term
bond funds, although its yield may be lower.
What does the Fund invest in?
In pursuit of its investment objectives, under normal market conditions,
the Fund invests at least 65% of its assets in investment-grade debt
securities. Investment-grade securities are rated Aaa,Aa,A, or Baa by
Moody's or AAA, AA, A, or BBB by S&P, or, if unrated, are of equivalent
quality as determined by the Fund Manager. In addition, the Fund may invest
up to 35% of its assets in securities rated Ba or B by Moody's or BB or B
by S&P. No more than 10% of the Fund's assets may be invested in securities
rated B by Moody's or S&P. These two grades of securities are considered to
be below investment grade. Below investment-grade securities are considered
predominantly speculative with respect to their capacity to pay interest
and repay principal. They generally involve a greater risk of default and
have more price volatility than higher rated securities. See "Other
Investment Policies and Risk Factors."
The Fund may invest in U.S. Treasury and Agency securities, corporate bonds
and notes, mortgage-backed and other asset-backed securities,
dollar-denominated debt of international agencies or investment-grade
foreign institutions, and money market instruments such as commercial
paper, bankers' acceptances, and certificates of deposit issued by domestic
and foreign branches of U.S. banks. The Fund may invest up to 20% of total
assets in foreign debt securities denominated in currencies other than the
U.S. dollar, but no more than 5% of the Fund's total assets will be
represented by a given foreign currency. The Fund may also invest in
"when-issued" securities and repurchase agreements.
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For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments or invest all or a substantial
portion of its assets in high quality domestic debt securities when the
Fund Manager deems such a position advisable in light of economic or market
conditions.
What are the risks?
While the Fund is designed to provide monthly income, it is not a fixed
price money market fund. The value of its shares and the level of income
provided will fluctuate up and down with changes in interest rates and
other market conditions. Due to the greater overall interest rate and
credit risk of the securities in which it invests, the Fund should offer
higher income but have a more variable share price over time than the AARP
GNMA and U.S. Treasury Fund or the AARP High Quality Bond Fund. See "Other
Investment Policies and Risk Factors."
The Fund can invest a limited portion of its assets in below
investment-grade securities, sometimes referred to as "junk" bonds.
Investing in high yielding, lower-quality bonds involves various types of
risks including the risk that issuers of bonds held in the portfolio will
not make timely payment of either interest or principal, or may default
entirely. This risk of default can increase with changes in the financial
condition of a company or with changes in the U.S. economy, such as a
recession. Compared to investing in higher quality issues, investors may be
rewarded for the additional risk of high yield bonds through higher
interest payments and the opportunity for greater capital appreciation.
How does the Fund seek to manage risk?
The Fund seeks to reduce share price volatility through active portfolio
management and diversification. The Fund Manager will invest in a broad
number of securities with varying maturities, quality and industry
representation. Also, the Fund may use approved portfolio management
techniques, if appropriate, such as limited transactions in financial
futures contracts and related option transactions which are unrated (see
"Other Investment Policies and Risk Factors"). The Fund may write (sell)
covered call options to enhance investment returns. These techniques will
be entered into to reduce risk, but such techniques involve risks
themselves and may reduce current income.
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 53 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
William M. Hutchinson, Lead Portfolio Manager, has over 20 years of
investment experience. Kelly D. Babson, Portfolio Manager, is a portfolio
manager in Scudder's Global Bond Group, with 15 years of experience in
fixed-income investing including ten years of high yield portfolio
management prior to joining Scudder. Portfolio Manager David H. Glen has
over 15 years of experience in finance and investing.
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AARP INSURED TAX FREE GENERAL BOND FUND
Fund Objective:
From a portfolio consisting primarily of municipal securities covered by
insurance, the Fund seeks to provide high income free from federal income
taxes and to keep the value of its shares more stable than that of a
long-term municipal bond.
For whom is the Fund designed?
The Fund is suitable for investors in higher tax brackets who want high
income free from federal income taxes. Investors should invest for the
longer term (at least 3 years or more) and be comfortable with fluctuation
in the value of their principal. The Fund is not available for AARP IRA or
other retirement plan accounts.
What does the Fund offer to investors?
The Fund is designed to offer high income free from federal tax. Depending
on an investor's tax bracket, the after-tax income from the Fund may be
higher than that from a taxable investment of comparable quality and risk.
The Fund will typically pay higher income than the AARP High Quality Tax
Free Money Fund, although yield and principal value will fluctuate up and
down with market conditions. By including short- and medium-term bonds in
its portfolio, the Fund seeks to offer less share price volatility than
long-term municipal bonds or many long-term municipal bond funds, although
its yield may be lower.
The Fund is one of a distinct group of tax-free mutual funds with insurance
on the majority of its investments. Insurance on its securities protects
the Fund against loss from default by the municipal issuer. However, it
does not protect the investor from fluctuation in yield or share price.
What does the Fund invest in?
The Fund invests primarily in a mix of short-, intermediate-, and long-term
municipal securities that are insured against default by private insurers.
The municipal securities purchased by the Fund will be only high-grade
securities or repurchase agreements on such securities. These may include
obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia to raise money for public
purposes. Interest from these securities is, in the opinion of the issuer's
bond counsel, exempt from federal income taxes. The Fund has no current
intention of investing in securities whose income is subject to federal
income tax, including the individual alternative minimum tax (AMT).
However, under unusual circumstances, the Fund may invest in taxable
securities for defensive purposes or to benefit from disparities in the
financial markets.
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
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into stand-by commitments in which securities may be sold back to the
seller at the Fund's option. Also, the Fund may use approved portfolio
techniques, if appropriate, such as limited use of financial futures
contracts and related options transactions. See "Other Investment Policies
and Risk Factors."
What portion of the securities is insured?
At least 65% of the Fund's assets are fully insured by private insurers as
to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by
the U.S. Government are purchased and expected to be held for 60 days or
more, insurance will be obtained within 30 days to ensure that 65% of the
Fund's assets are insured by the issuer or arranged for by the Fund. If at
least 65% of its assets are not insured securities, the Fund will obtain
insurance for a portion of its U.S. Government guaranteed or backed
securities so that the 65% standard is achieved.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will move up and down as interest rates and other market conditions change.
The level of income you receive will be affected by movements up and down
in interest rates. Income from the high-quality securities which the Fund
purchases may be lower than the income from lower-quality securities. See
"Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
The Fund actively seeks to manage share price volatility by investing in
securities of varying maturities. The Fund may also use approved portfolio
management techniques.
Insurance on the securities held by the Fund protects the Fund as to
default by the municipal issuer. It does not protect an investor from
fluctuation in the Fund's yield or value per share, which change daily.
Insurance also involves a cost to the Fund which will reduce yield.
Historically, the yields on insured securities have been attractive in
comparison to the yields on uninsured securities of comparable quality.
There can be no assurance, however, that this relationship will continue.
Moreover, to the extent the Fund must purchase insurance on U.S. Government
securities, this will involve a cost to the Fund while not increasing the
quality rating since U.S. Government-guaranteed or backed securities are
already high quality. Although the financial condition of each insurer of
its securities is periodically reviewed by the Fund, there can be no
guarantee that insurers can honor their obligations under all
circumstances. See "Other Investment Policies and Risk Factors."
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. Income may be subject to state and local income taxes.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
in federally tax-exempt securities. As a fundamental policy, under normal
circumstances, at least 80% of the Fund's net assets will be invested in
federally tax-exempt securities. Up to 20% of the Fund's net assets may be
invested in federally taxable securities. For defensive purposes, or if
unusual circumstances make it advisable, the Fund may purchase U.S.
Government securities and repurchase agreements collateralized by such
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securities. For temporary defensive purposes, the Fund's investment in
federally taxable securities may exceed 20%. Each year you will be provided
with a breakdown of the Fund's investments by state so that you can
determine your state and local income tax liability. Your state or local
Department of Revenue or tax advisor can answer questions regarding the
taxability of distributions.
In the event there is income from taxable securities, it would not be
exempt from federal income taxes. In addition, any capital gains earned by
the Fund are usually taxable.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 53 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Donald C. Carleton has been responsible for
investment strategy and overseeing the Fund's day-to-day management since
1990. Mr. Carleton has over 20 years' experience in tax-free investing.
Philip G. Condon, Portfolio Manager, focuses on securities selection and
assists with the creation and implementation of investment strategy for the
Fund. Mr. Condon has been with Scudder since 1983 and has more than 18
years of investment experience.
AARP BALANCED STOCK AND BOND FUND
Fund Objective:
To seek to provide long-term growth of capital and income while attempting
to keep the value of its shares more stable than other balanced mutual
funds. The Fund pursues these objectives by investing in a combination of
stocks, bonds, and cash reserves.
For whom is the Fund designed?
This Fund is suitable for conservative investors who are seeking long-term
growth of their assets, but want less risk than an investment solely in
stocks. Investors should invest for the longer term (at least 3 to 5 years
or more) and be comfortable with the value of their principal fluctuating
up and down. The Fund is also available for AARP IRA and other retirement
plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal through a
single investment combining stocks, bonds, and cash reserves. Growth will
come from possible appreciation in the value of common stocks and other
equity investments. Bonds and other fixed-income investments provide
current income and may help reduce fluctuation in the Fund's share price.
Through a broadly diversified portfolio consisting primarily of stocks with
above average dividend yields and investment-grade bonds, the Fund seeks to
offer less share price volatility than many balanced mutual funds. The Fund
should typically have less risk and a lower return than the other AARP
growth funds.
The Fund does not take extreme investment positions as part of an effort to
"time the market." Shifts between stocks and fixed-income investments are
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expected to occur in generally small increments. On occasion, the Fund will
adjust its investment mix. The Fund Manager will do so after analyzing
factors such as the level and direction of interest rates, capital flows,
inflationary expectations, and the financial climate worldwide.
What does the Fund invest in?
The Fund seeks to manage fluctuation by investing in a broadly diversified
mix of equity securities, bonds, and cash reserves. The Fund may invest up
to 70% of its assets in equity securities (stocks). At least 30% of the
Fund will be in investment-grade fixed-income securities and cash reserves.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments when the Fund Manager deems such a
position advisable in light of economic or market conditions. These include
commercial paper, bankers' acceptances, certificates of deposit issued by
domestic and foreign branches of U.S. banks, and repurchase agreements.
Equity securities consist of common stocks, securities convertible into
common stocks, and preferred stocks. A research-oriented approach to
investing is used by the Fund, taking advantage of Scudder's large research
department. The Fund emphasizes securities of companies that offer the
opportunity for capital growth and growth of earnings while providing
dividends. The Fund will generally invest in companies domiciled in the
U.S., but may invest in foreign securities without limit.
All of the Fund's debt securities will be investment-grade, i.e., rated at
the time of purchase, Baa or higher by Moody's or BBB or higher by S&P, or
deemed of comparable quality by the Fund's Manager. At least 75% of these
will be securities rated within the three highest quality ratings of
Moody's (Aaa, Aa and A) or S&P (AAA, AA, and A) or those the Fund Manager
judges are of equivalent quality (high-grade). Securities rated BBB by S&P
or Baa by Moody's are neither highly protected nor poorly secured. These
securities normally pay higher yields but involve potentially greater price
variability than higher-quality securities and are regarded as having
adequate capacity to repay principal and pay interest. Moody's considers
bonds it rates Baa to have speculative elements as well as investment-grade
characteristics. If the rating agencies downgrade a security, the Fund
Manager will determine whether to keep it or eliminate it based on the best
interests of the Fund. The Fund does not purchase securities rated below
investment-grade, commonly known as "junk" bonds.
The Fund can invest in a broad range of corporate bonds and notes,
convertible bonds, 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 invest in obligations of international agencies, U.S. and
non-U.S. dollar denominated foreign debt securities, mortgage-backed and
other asset-backed securities, municipal obligations, zero-coupon
securities, and restricted securities issued in private placements.
The Fund may make limited use of financial futures contracts and related
options and may also invest in forward foreign currency exchange contracts.
The Fund may write (sell) covered call options to enhance investment
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returns and may purchase and sell options on stock indices for hedging
purposes. It may also invest in securities on a "when-issued" or forward
delivery basis.
What are the risks?
The risk to principal is consistent with an investment primarily in stocks
and bonds. The value of shares will fluctuate up and down with changes in
interest rates and other market conditions. Investors should focus on the
longer-term and be comfortable with fluctuation in the value of their
principal.
The level of income will be affected by movements up and down in interest
rates and by dividends paid on the stocks held by the Fund. See "Other
Investment Policies and Risk Factors."
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 53 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman is responsible for managing the
stock portion of the Fund. Mr. Hoffman, who joined Scudder in 1990, has 11
years of experience in the investment industry. William M. Hutchinson,
Portfolio Manager, is responsible for the bond portion of the Fund. Messrs.
Hutchinson and Hoffman have been Portfolio Managers for the Fund since it
commenced operations on February 1, 1994. Benjamin W. Thorndike, Portfolio
Manager, focuses on asset allocation strategy and stock selection. Mr.
Thorndike has more than 15 years of investment experience and joined
Scudder in 1986.
AARP GROWTH AND INCOME FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth and
income, and to keep the value of its shares more stable than other growth
and income mutual funds.
For whom is the Fund designed?
The Fund is suitable for investors who are seeking long-term growth of
their assets to keep ahead of inflation. Investors should invest for the
longer-term (at least 5 years or more) and be comfortable with fluctuation
to their principal that is associated with investing in stocks. The Fund is
also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal with some
income. This growth will come from possible appreciation in the value of
shares, as well as quarterly dividend distributions if they are reinvested
in additional shares of the Fund. Dividends can also produce current income
for investors. Through a broadly diversified portfolio consisting primarily
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of stocks with above average dividend yields, the Fund seeks to offer less
share price volatility than many growth and income funds. The Fund should
offer a greater opportunity for share price appreciation, with greater
share price fluctuation than the AARP Balanced Stock and Bond Fund.
What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stocks. The Fund
emphasizes securities of companies that offer the opportunity for capital
growth and growth of earnings while providing dividends. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department.
The Fund will invest in a variety of industries and companies. Generally,
the Fund will invest in companies domiciled in the United States, but it
may invest in foreign securities without limit. Also, the Fund may write
(sell) covered call options to enhance investment return, and may purchase
and sell options on stock indices for hedging purposes. See "Other
Investment Policies and Risk Factors."
The Fund's policy is to remain substantially invested in stocks and
securities convertible into stocks. However, for temporary defensive
purposes, the Fund may invest without limit in high quality money market
securities when the Fund Manager deems such a position advisable in light
of economic or market conditions. These securities include U.S. Treasury
bills, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and repurchase
agreements.
What are the risks?
The risk to principal is consistent with an investment in stocks. The stock
market doesn't go up every year, and can rise and fall--sometimes quite
dramatically over a short period of time. Investors should focus on the
longer term (at least 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.
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 53 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting
investment strategy and overseeing the Fund's day-to-day management since
1991. Mr. Hoffman, who joined Scudder in 1990, has 11 years of experience
in the investment industry. Benjamin W. Thorndike, Portfolio Manager, is
the Fund's chief analyst and strategist for convertible securities. Mr.
Thorndike, who has more than 15 years of investment experience, joined
Scudder and the Fund in 1986. Kathleen T. Millard, Portfolio Manager,
focuses on stock investing strategy and stock selection. Ms. Millard has
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worked in the investment industry since 1983 and at Scudder since 1991.
Lori Ensinger, Portfolio Manager, joined the Fund in 1996 and focuses on
stock selection and investment strategy. Ms. Ensinger has worked in the
investment industry since 1983 and at Scudder since 1993.
AARP BLUE CHIP INDEX FUND
Fund Objective:
Taking an indexing approach to investing in common stocks, the Fund seeks
to provide long-term capital growth and income, and to keep the value of
its shares more stable than a S&P 500 Index fund. The Fund seeks these dual
objectives by emphasizing higher dividend stocks while maintaining
investment characteristics otherwise similar to the S&P 500 Index.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors seeking a "passive" investment approach to stock market
investing. The Fund may be appropriate for more conservative investors who
are seeking higher dividend income and somewhat lower average volatility
than a S&P 500 Index fund. Investors should invest for the longer term (at
least 5 years or more) and be comfortable with the value of their principal
fluctuating up and down with changing U.S. stock market conditions. The
Fund is also available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the potential for long-term growth of principal and current
income. Through a broadly-diversified portfolio consisting of S&P 500
companies ("blue chip" companies), the Fund's performance is expected to
track the overall performance of the U.S. stock market, as characterized by
the S&P 500 Composite Stock Price Index. The Fund, however, is designed to
have less share price volatility due to its focus on companies in the S&P
500 Index that pay higher dividends.
What does the Fund invest in?
The Fund attempts to remain fully invested in common stocks of S&P 500
companies. Under normal circumstances, the Fund will invest at least 95% of
its assets in common stocks and futures contracts and options, primarily on
the S&P 500 Index. The Fund, using a proprietary model, selects common
stocks of S&P 500 companies that are expected to, on average, pay higher
dividends than S&P 500 companies in the aggregate. After the Fund's
start-up phase, the portfolio will typically consist of common stocks of
between 400 and 470 of the S&P 500 companies. The investment approach is
"passive" in that after the dividend screening described above, there is no
additional financial analysis regarding the securities held in the Fund.
Under normal circumstances, the Fund may invest up to 5% of its assets in
certain short-term fixed income securities including high quality money
market securities such as U.S. Treasury bills, repurchase agreements,
commercial paper, certificates of deposit issued by domestic and foreign
branches of U.S. banks and bankers' acceptances, although cash or cash
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equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may invest up to 20% of its assets in stock futures
contracts and options in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or to minimize trading
costs. See "Other Investment Policies and Risk Factors." The Fund will not
invest in cash reserves, futures contracts or options as part of a
temporary defensive strategy, such as lowering the Fund's investment in
common stocks to protect against potential stock market declines.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
What are the risks?
The risk to principal is consistent with the Fund's objective of tracking
the U.S. stock market as measured by the S&P 500 Index. The stock market
doesn't go up every year, and can rise and fall--sometimes quite
dramatically--over a short period of time. The U.S. stock market tends to
be cyclical, with periods when stock prices generally rise and periods when
prices generally decline. Investors should focus on the longer term (at
least 5 years or more) and be comfortable with fluctuation in the value of
their principal. See "Other Investment Policies and Risk Factors."
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 53 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
To Be Determined.
AARP GLOBAL GROWTH FUND
Fund Objective:
From investments primarily in equity securities of corporations worldwide,
the Fund seeks to offer long-term capital growth in a globally diversified
portfolio, and to keep the value of its shares more stable than other
global equity funds.
For whom is the Fund designed?
This Fund is suitable for investors who want to add both U.S. and foreign
equity opportunities to their portfolio through a single investment. The
Fund is designed for investors seeking long-term growth of their principal.
Investors should invest for the longer term (at least 5 years or more) and
be comfortable with the value of their principal fluctuating up and down.
The Fund is also available for AARP IRA and other retirement plan accounts.
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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 applying a strategy of relatively low portfolio turnover,
the Fund seeks to offer less share price volatility than many global growth
funds. However, in pursuing long-term growth, the Fund typically will have
more share price fluctuation than other AARP Funds, except the AARP Capital
Growth Fund, the AARP International Stock Fund and the AARP Small Company
Stock Fund. See "What are the risks?" below. Growth will come primarily
from possible appreciation in the value of shares. The Fund is not expected
to provide regular income.
What does the Fund invest in?
The Fund will invest in securities of companies that the Fund Manager
believes will benefit from global economic trends, promising technologies
or products and changing geopolitical, currency or economic relationships.
The Fund will normally invest at least 65% of its total assets in
securities of at least three different countries. Typically it is expected
that the Fund will invest in a wide variety of regions and countries,
including both foreign and U.S. issues. However, the Fund may be invested
100% in non-U.S. issues, and for temporary defensive purposes may be
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invested 100% in U.S. issues. For temporary defensive purposes, the Fund
may invest without limit in high quality money market securities, including
U.S. Treasury bills, repurchase agreements, commercial paper, certificates
of deposit issued by domestic and foreign branches of U.S. banks, bankers'
acceptances and other debt securities, such as U.S. Government obligations
and corporate debt instruments when the Fund Manager deems such a position
advisable in light of economic or market conditions.
The Fund generally invests in equity securities of established companies
listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible
preferred stocks. Fixed-income securities of governments, government
agencies, supranational agencies and companies may also be used when the
Fund Manager believes the potential for appreciation for these investments
will equal or exceed that available from investments in equity securities.
These debt and fixed-income securities will be exclusively investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P or those of equivalent quality as determined by Scudder.
Securities rated BBB by S&P or Baa by Moody's are neither highly protected
nor poorly secured. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics.
The Fund may invest in zero coupon securities and closed-end investment
companies holding foreign securities. The Fund may make limited use of
financial futures contracts and related options and may also invest in
forward foreign currency exchange contracts. The Fund may write (sell)
covered call options to enhance investment return, and may purchase and
sell options on stock indices for hedging purposes. See "Other Investment
Policies and Risk Factors."
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced the first mutual fund available in
the U.S. investing internationally in securities of issuers in several
foreign countries, and in 1987, introduced the first no-load global equity
fund. Today, Scudder manages over $__ billion in assets invested in foreign
markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through global investing. Global investing involves
economic and political considerations not typically found in investments
restricted solely to U.S. markets.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in both U.S. and
foreign securities markets, changes in the Fund's share price may have a
low correlation with movements in the U.S. markets. The Fund's share price
will reflect the movements of the different markets in which it is invested
and the currencies in which the investments are denominated. The strength
or weakness of the U.S. dollar against foreign currencies may account for
part of the Fund's investment performance. Investors should focus on the
longer term (at least 5 years or more) and be comfortable with fluctuation
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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 53 for additional information on distributions and taxes.
Who at Scudder manages my investment?
William E. Holzer is the Lead Portfolio Manager for the Fund. Mr. Holzer
has day-to-day responsibility for setting the Fund's worldwide strategy and
investment themes. Mr. Holzer has over 20 years' experience in global
investing and joined Scudder in 1980. Nicholas Bratt, Portfolio Manager,
directs Scudder's overall global equity investment strategies. Mr. Bratt
joined Scudder in 1976. Alice Ho, Portfolio Manager, is also responsible
for implementing the Fund's strategy. Ms. Ho, who joined Scudder in 1986 as
a member of the institutional and private investment counsel area, has
worked as a portfolio manager since 1989.
AARP CAPITAL GROWTH FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth, and to
keep the value of its shares more stable than other capital growth funds.
For whom is the Fund designed?
The Fund is suitable for investors seeking high long-term growth of their
principal. Investors should invest for the longer term (at least 5 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA and other retirement plan
accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal. This
growth will come primarily from possible appreciation in the value of
shares. The Fund is not expected to provide regular income.
In pursuing long-term growth, the Fund will typically have more share price
fluctuation than the AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP Blue Chip Index Fund and AARP Global Growth Fund, but
less share price fluctuation than AARP International Stock Fund and AARP
Small Company Stock Fund.
By diversifying among securities of high quality, medium- to large-sized
companies with strong competitive positions in their industries, the Fund
seeks to have less share price volatility than many growth funds.
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What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stocks. The Fund's
policy is to remain substantially invested in these securities.
In seeking capital growth, the Fund will invest in stocks which will offer
above-average potential for long-term growth of market value as represented
by the Standard & Poor's 500 Composite Stock Price Index. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department. The Fund will invest in a
variety of industries and companies. Generally, the Fund will invest in
companies domiciled in the U.S., but it may invest in foreign securities
without limit. Also, the Fund may write (sell) covered call options to
enhance investment return, and may purchase and sell options on stock
indices for hedging purposes. See "Other Investment Policies and Risk
Factors."
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as U.S. Government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth. The Fund generally has greater share price fluctuation
and potential for return than the AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Blue Chip Index Fund, and AARP Global Growth
Fund. The stock market doesn't go up every year, and can rise and
fall--sometimes quite dramatically--over a short period of time. Some of
the securities selected may have above-average stock market risk. Investors
should focus on the longer term (at least 5 years or more) and be
comfortable with fluctuation to the value of their principal. See "Other
Investment Policies and Risk Factors."
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 53 for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager William F. Gadsden has set the Fund's overall
investment strategy since 1994 and has been part of the Fund's day-to-day
management since 1989. He has 15 years of investment industry experience
and joined Scudder in 1983. Bruce F. Beaty, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. He has 16 years of investment industry
experience and joined Scudder in 1991.
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AARP INTERNATIONAL STOCK FUND
Fund Objective:
The Fund seeks to offer long-term capital growth from a diversified
portfolio of foreign equity securities, and to keep the value of its shares
more stable than other international equity funds.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors who want to add international stock market opportunities to
their portfolio in a convenient, low-cost way. The Fund is designed for
investors seeking long-term growth of their principal. Investors should
invest for the longer term (at least 5 years or more) and be comfortable
with the value of their principal fluctuating up and down. The Fund is also
available for AARP IRA and other retirement plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal from a
professionally managed portfolio of securities selected from developed
foreign stock markets. It also offers the opportunity for investors to
further diversify their investment portfolios, which could help to lower
their overall risk. Unlike the AARP Global Growth Fund, which invests in
both U.S. and foreign markets, the AARP International Stock Fund will
invest solely in foreign markets.
One reason that some investors may wish to invest overseas is that certain
foreign economies may grow more rapidly than the U.S. economy and may offer
opportunities for achieving investment returns superior to those available
from investing in a fund which invests primarily in domestic equity
securities. Another reason is that foreign markets do not always move in
step with each other or with the U.S. market. A portfolio invested in a
number of markets worldwide will be better diversified than a portfolio
that is restricted to a single market.
Another benefit of the Fund is that it eliminates the complications and
extra costs associated with direct investment in individual foreign
securities. Individuals investing directly in foreign stocks may find it
difficult to make purchases and sales, to obtain current information, to
hold securities in safekeeping, and to convert the value of their
investments from foreign currencies into U.S. dollars. The Fund manages
these tasks for the investor. With a single investment, the investor has a
diversified international investment portfolio, which is actively managed
by experienced professionals. The Fund Manager has had long experience in
dealing in foreign markets and with brokers and custodian banks around the
world. The Fund Manager also has the benefit of an established information
network and believes the Fund affords a convenient and cost-effective
method of investing internationally.
In pursuing long-term growth, the Fund typically will have more share price
fluctuation than other AARP Funds. See "What are the risks?" below. Growth
will come primarily from possible appreciation in the value of shares. The
Fund is not expected to provide regular income.
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What does the Fund invest in?
The Fund generally invests in equity securities of established
dividend-paying companies listed on foreign exchanges within developed
foreign markets. The Fund does not invest in emerging markets, but instead,
focuses its investments on the 21 developed foreign countries included in
the Morgan Stanley Capital International World ex-USA Index. The Fund will
normally invest at least 65% of its total assets in securities of at least
three different countries.
When the Fund Manager believes that it is appropriate, the Fund may invest
up to 20% of its total assets in investment-grade foreign debt securities.
Such debt securities include debt of foreign governments, supranational
organizations and private issuers, including bonds denominated in the
European Currency Unit (ECU). Debt investments will be selected on yield,
credit quality, and the outlooks for currency and interest rates in
different parts of the globe, taking into account the ability to hedge a
degree of currency or local bond price risk. The Fund may purchase
investment-grade bonds, which are those rated Aaa, Aa, A or Baa by Moody's
or AAA, AA, A or BBB by S&P or, if unrated, judged by the Fund Manager to
be of equivalent quality. Securities rated Baa by Moody's or BBB by S&P are
neither highly protected nor poorly secured. Moody's considers bonds it
rates Baa to have speculative elements as well as investment-grade
characteristics.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as Canadian or U.S. government obligations or currencies,
corporate debt instruments, and securities of companies incorporated in and
having their principal activities in Canada or the U.S. when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
The Fund may make limited use of financial futures contracts and related
options and may also invest in foreign currency exchange contracts. The
Fund may write (sell) covered call options to enhance investment return,
and may purchase and sell options on stock indices for hedging purposes.
See "Other Investment Policies and Risk Factors."
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced the first mutual fund available in
the U.S. investing internationally in securities of issuers in several
foreign countries. Today, Scudder manages over $__ billion in assets
invested in foreign markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through international investing. International investing
involves economic and political considerations not typically found in U.S.
financial markets.
Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory
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taxes, possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities
may be less liquid and more volatile than comparable domestic securities,
and there is less government regulation of stock exchanges, brokers, listed
companies and banks than in the U.S. Purchases of foreign securities are
usually made in foreign currencies and, as a result, the Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in foreign
stocks, changes in the Fund's share value may be quite different than
movements in the U.S. stock markets. The Fund's share price will reflect
the movements of the different markets in which it is invested and the
currencies in which the investments are denominated. The strength or
weakness of the U.S. dollar against foreign currencies may account for part
of the Fund's investment performance. Investors should focus on the longer
term (at least 5 years or more) and be comfortable with fluctuation in the
value of their principal. Because of the Fund's international approach and
its associated risks, investment in shares of the Fund should be considered
as part of a broadly-diversified portfolio. See "Other Investment Policies
and Risk Factors."
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 53 for additional information on distributions and taxes.
Who at Scudder manages my investment?
To Be Determined.
AARP SMALL COMPANY STOCK FUND
Fund Objective:
From investments primarily in the stocks of small U.S. companies, the Fund
seeks to provide long-term capital growth, and to keep the value of its
shares more stable than other small company stock funds.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1997, is suitable
for investors seeking high long-term growth of their principal. Investors
should invest for the longer term (at least 5 years or more) and be
comfortable with the value of their principal fluctuating up and down. The
Fund is also available for AARP IRA and other retirement plan accounts.
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What does the Fund offer to investors?
AARP Small Company Stock Fund combines the long-term growth potential of
small company stocks with the conservative nature of a value-oriented,
growth and income approach to investing. The Fund focuses primarily on U.S.
small capitalization stocks. These securities may be out of favor or not
closely followed by investors, yet, in the opinion of the Fund Manager, may
reward investors with substantial returns over time. The stocks held by the
Fund will have a higher average dividend yield than the small
capitalization stock segment of the market as a whole. U.S. small
capitalization stocks have outperformed large capitalization stocks over
time, although with greater volatility in returns. Since the Fund involves
both above-average performance opportunity and risk, it is suitable for
those individuals who are investing for a long-term goal, such as
accumulating assets for retirement. The Fund should be considered as part
of a diversified portfolio, since it is not, by itself, a complete
investment program. Nonetheless, it can help round out an investment
portfolio already holding other types of stock and fixed-income
investments.
The Fund offers low-cost, convenient access to a part of the U.S. stock
market in which investors might otherwise find it difficult to participate.
On their own, individual investors might find it a challenge to analyze
data on small companies, receive complete, up-to-date financial
information, and buy and sell securities at favorable prices. The Fund's
management team assumes these responsibilities for investors.
What does the Fund invest in?
In pursuing its objective of long-term growth of principal, the Fund
normally invests at least 80% of its assets in the common stocks of small
U.S. companies. Using a quantitative investment approach developed by the
Fund Manager, the Fund focuses on undervalued securities of companies with
market capitalization below $1 billion that have dividend yields higher
than the average of those in the Index and that the Fund Manager believes
are undervalued relative to the stocks in that Index. The Fund will sell
securities of companies that have grown in market capitalization above this
level as necessary to keep the Fund focused on smaller companies.
The Fund takes a diversified approach to investing in small capitalization
stocks which overall have dividend yields above the average yield of the
Russell 2000 IndexR. It will not be unusual for the Fund to hold stocks of
more than one hundred small companies, representing a variety of U.S.
industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either
convertible or nonconvertible), rights and warrants. Securities may be
listed on national exchanges or traded over-the-counter. The Fund may
invest up to 20% of its assets in U.S. Treasury, agency and instrumentality
obligations, may enter into repurchase agreements and may make use of
financial futures contracts and related options. The Fund may purchase and
sell options or futures on stock indices for hedging purposes or as a
temporary investment to accommodate cash flows. See "Other Investment
Policies and Risk Factors."
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
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agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as U.S. government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through investing in small company stocks. Investors
should focus on the longer term (at least 5 years or more) and be
comfortable with fluctuation in the value of their principal which may be
considerable at times. See "Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
While the Fund involves above-average stock market risk, the Fund is
designed to lessen volatility of its share price relative to other small
company stock funds. It does this by using a highly systematic investment
style that focuses on value-oriented, small capitalization issues which may
pay dividends. Risk is further managed by diversifying among a large number
of stocks, and by using specialized portfolio management and trading
techniques.
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
gain typically will be distributed annually after September 30. See page 53
for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager James M. Eysenbach has responsibility for setting
the Fund's investment strategy and for overseeing the Fund's day-to-day
management. Mr. Eysenbach joined Scudder in 1991 as a senior quantitative
analyst and is currently director of quantitative research for Scudder. Mr.
Eysenbach has more than nine years investment research and management
experience. Philip S. Fortuna, Portfolio Manager, joined Scudder in 1986 as
manager of institutional equity accounts. He became director of
quantitative research in 1987 and served as director of investment
operations from 1993 to 1994.
AARP MANAGED INVESTMENT PORTFOLIOS:
DIVERSIFIED INCOME PORTFOLIO
DIVERSIFIED GROWTH PORTFOLIO
The AARP Managed Investment Portfolios are two professionally managed,
diversified portfolios of the AARP Managed Investment Portfolios Trust (the
"Trust"). In pursuit of its investment objective, each Portfolio invests in a
select mix of AARP mutual funds ("underlying mutual funds"), including AARP
money market, bond and stock mutual funds. The Diversified Growth Portfolio
attempts to keep the price of its shares more stable than a growth mutual fund.
The Diversified Income Portfolio attempts to keep the price of its shares more
stable than a ____ mutual fund.
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Portfolio Objectives:
o The Diversified Income Portfolio seeks to provide current income with
modest long-term appreciation by investing primarily in AARP bond mutual
funds.
o The Diversified Growth Portfolio seeks long-term growth of capital by
investing primarily in AARP stock mutual funds.
For whom are the Portfolios designed?
The AARP Managed Investment Portfolios are designed for individuals who prefer
to have asset allocation decisions made by professional money managers and
appreciate the advantages of broad diversification.
o The Diversified Income Portfolio may be appropriate for conservative
investors nearing retirement or investors enjoying retirement, who are
looking for income with some appreciation potential (Investors should be
prepared to invest for 3 to 5 years or more).
o The Diversified Growth Portfolio may be appropriate for long-term investors
planning for retirement or more aggressive retired investors with a longer
investment time horizon (at least 5 years or more).
What do the Portfolios offer to investors?
Both Portfolios offer investors a simple means to allocate their assets to
pursue a certain goal. Each Portfolio can serve as a complete investment
program, or as a core part of a larger portfolio.
o The Diversified Income Portfolio offers investors the opportunity for
income and some share price appreciation by investing in a diversified
portfolio consisting primarily of AARP bond mutual funds, and secondarily,
stock and money market mutual funds.
o The Diversified Growth Portfolio offers investors the opportunity for
long-term growth of principal by investing in a diversified portfolio
comprised primarily of AARP stock mutual funds, and secondarily, bond and
money market mutual funds.
o Both portfolios offer shareholders an investment choice that is broadly
diversified.
o No additional management fees are charged for allocation among the AARP
mutual funds.
What does each Portfolio invest in?
Each Portfolio may invest in any of the AARP mutual funds, except for those
designed to provide tax-free income. Both Portfolios will avoid taking extreme
investment positions in an effort to "time the market." Rather, shifts among
AARP stock and bond mutual funds are expected to occur only periodically and in
generally small increments.
Under normal market conditions, each of the AARP Managed Investment Portfolios
will invest within the investment ranges described below:
o The Diversified Income Portfolio will normally invest 60-80% of total
assets in AARP bond mutual funds; and 20-40% of total assets in AARP stock
mutual funds; and 0-20% of total assets in cash or equivalents.
o The Diversified Growth Portfolio will normally invest 60-80% of total
assets in stock oriented AARP Mutual Funds; and 20-40% of total assets in
bond oriented AARP Mutual Funds and/or cash equivalents.
If, as a result of appreciation or depreciation, the percentage of the
Portfolios' assets invested in the above categories exceeds or is less than the
applicable range, the Fund Manager will consider whether to reallocate the
assets of the Portfolio to comply with the stated ranges.
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Each Portfolio will purchase or sell shares of underlying AARP mutual funds to:
(a) accommodate purchases and sales of each Portfolio's shares, (b) change the
percentages of each Portfolio's assets invested in each of the underlying AARP
mutual funds in response to changing market conditions, and (c) maintain or
modify the allocation of each Portfolio's assets in accordance with the
investment mix described above. To provide for redemptions or for temporary
defensive purposes, each Portfolio may invest without limit in cash or cash
equivalents, including repurchase agreements, commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S.
banks.
What are the risks?
Each Portfolio's risks are determined by the nature of the securities held by
the underlying AARP mutual funds as well as the proportion of investment in each
underlying AARP mutual fund that, in turn, reflects the portfolio management
strategies used by the Fund Manager. The following are descriptions of certain
risks related to investments in each Portfolio.
o As the investments in each Portfolio are oriented within a group of
underlying AARP mutual funds, the performance of a Portfolio is directly
related to the investment performance of these underlying AARP mutual
funds. The ability of a Portfolio to meet its investment objective is
directly related to the ability of the underlying AARP mutual funds to meet
their objectives as well as the allocation among those underlying AARP
mutual funds by the portfolio management team.
o Each Portfolio's share price and yield will fluctuate in response to
various market and economic factors related to both the stock and bond
markets. Certain of the underlying AARP mutual funds invest in debt
securities making them subject to credit risk, interest rate risk and
pre-payment risk. Other underlying AARP mutual funds invest in equity
securities that will fluctuate in value with changing stock market
conditions and related factors. Also, each Portfolio can invest in
underlying AARP mutual funds that are, in turn, invested in international
securities and thus are subject to additional risks of these investments
including changes in foreign currency exchange rates and political risk.
For information about the investment techniques and the risks involved in the
underlying AARP mutual funds, please refer to each underlying Fund's description
elsewhere in this prospectus and "Other Investment Policies and Risk Factors."
How do the Portfolios seek to manage risk?
The Portfolios seek to manage risk through active portfolio management and
diversification. Each Portfolio will invest in at least five underlying AARP
mutual funds, all of which are managed for reduced share price volatility.
When are distributions paid?
Dividends on the Diversified Income Portfolio will be declared daily and
distributed monthly to investors. Any dividends on the Diversified Growth
Portfolio will be distributed in December. Any net realized capital gain for the
Portfolios typically will be distributed after September 30. See page 53 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Benjamin W. Thorndike, who has 17 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has
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served as a portfolio manager for AARP Growth and Income Fund. Mr. Thorndike
develops portfolio strategy utilizing the research, analysis and guidance
provided by other members of the investment team. Cornelia Small, Portfolio
Manager, is Director of Global Equity Investments and Chairman of the Capital
Markets Group, and has also served as Director of Global Equity Research.
Margaret Hadzima, Portfolio Manager, is Director of Scudder's Institutional
Group, which includes a focus on asset allocation strategy. Ms. Hadzima has 23
years of experience in fixed-income investing during which she has served as
Director of Global Bond Research and Chairman of Global Bond Strategy. Philip S.
Fortuna, Portfolio Manager, joined Scudder in 1986 as Manager of Institutional
Equity accounts. He became Director of Quantitative Research in 1987 and served
as Director of Investment Operations from 1993 to 1994. Maureen Allyn, Portfolio
Manager, is Scudder's Chief Economist, a position she has held since 1989, and
is responsible for analyzing both the world and U.S. economies.
Description of the Underlying AARP Mutual Funds
Details on the investment objectives and policies of the underlying AARP mutual
funds are included in this prospectus. As with any investment, there is no
guarantee that the AARP Investment Portfolios or the underlying AARP mutual
funds will successfully meet their investment objectives.
The Portfolios may invest in the following AARP money market mutual funds which
is designed to provide stability of principal and income:
AARP High Quality Money Fund see page 18
The Portfolios may invest in the following AARP mutual funds which are designed
to provide current income:
AARP GNMA and U.S. Treasury Fund see page 22
AARP High Quality Bond Fund see page 24
AARP Bond Fund for Income see page 26
The Portfolios may invest in the following AARP mutual funds designed to provide
long-term growth of capital:
AARP Balanced Stock and Bond Fund see page 30
AARP Growth and Income Fund see page 32
AARP Blue Chip Index Fund see page 34
AARP Global Growth Fund see page 35
AARP Capital Growth Fund see page 38
AARP International Stock Fund see page 40
AARP Small Company Stock Fund see page 42
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
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in accordance with a rule of the Securities and Exchange Commission (SEC) that
requires all assets to be cash, cash items, and high-quality U.S.
dollar-denominated investments having a remaining maturity of generally not more
than 397 calendar days from the date of purchase. The AARP High Quality Money
Fund, however, may invest in U.S. Government securities having maturities of up
to 762 calendar days. The SEC also requires that the average dollar-weighted
maturity of these Funds not exceed 90 days.
When-Issued Securities
All AARP Mutual Funds, except the AARP Growth and Income Fund, the AARP Blue
Chip Index Fund, the AARP Global Growth Fund, the AARP Capital Growth Fund, the
AARP International Stock Fund, and the AARP Small Company Stock Fund, may
purchase securities on a when-issued or forward delivery basis. That means
payment and delivery of the security will be at a later date. The price and
yield are generally fixed on the date of commitment to purchase. The Fund does
not earn interest before delivery of the security. At the time of settlement,
the market value of the security may be more or less than the purchase price.
Repurchase Agreements
This is an agreement under which a Fund may buy one or more U.S. Government
obligations which the seller simultaneously agrees to repurchase at a specified
time and price. The Fund can earn income for periods as short as overnight. Such
an agreement may enhance liquidity since it is normally a short-term commitment.
If the seller under a repurchase agreement becomes insolvent, the Fund's right
to sell the securities may be restricted. Also, the value of such securities may
decline before the Fund can sell them. The Fund might also incur transaction
costs by selling the securities.
Each of the AARP Mutual Funds may enter into repurchase agreements only with
Federal Reserve member banks or broker-dealers recognized as reporting
government securities dealers.
Mortgage and other asset-backed securities
The AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond Fund, the AARP
Bond Fund for Income, and the AARP Balanced Stock and Bond Fund may invest in
mortgage-backed securities, which are securities representing interests in pools
of mortgage loans. These securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of a Fund's shares. When interest
rates rise, mortgage prepayment rates decline, thus lengthening the life of a
mortgage-related security and increasing the price volatility of that security,
affecting the price volatility of the Fund's shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. In addition, the AARP High Quality Bond Fund and the AARP
Balanced Stock and Bond Fund may invest in mortgage-backed securities issued by
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other issuers, such as the Federal National Mortgage Association (FNMA), which
are not guaranteed by the U.S. Government. Moreover, the Funds may invest in
debt securities which are secured with collateral consisting of mortgage-backed
securities and in other types of mortgage-related securities.
The AARP High Quality Bond Fund, the AARP Bond Fund for Income, and the AARP
Balanced Stock and Bond Fund may also invest in securities representing
interests in pools of certain other consumer loans, such as automobile loans or
credit card receivables. In some cases, principal and interest payments are
partially guaranteed by a letter of credit from a financial institution.
Zero Coupon Securities
The AARP Balanced Stock and Bond Fund, AARP Bond Fund for Income and the AARP
Global Growth Fund may invest in zero coupon securities which pay no cash income
and are issued at substantial discounts from their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
cash distributions of interest.
High Yield/High Risk Securities
AARP Bond Fund for Income may invest a limited amount of assets in debt
securities which are rated below investment-grade (hereinafter referred to as
"lower rated securities") or which are unrated, but deemed equivalent to those
rated below investment-grade by the Fund Manager. The lower the ratings of such
debt securities, the greater their risks. These debt instruments generally offer
a higher current yield than that available from higher grade issues, but
typically involve greater risk. The yields on high yield/high risk bonds will
fluctuate over time. In general, prices of all bonds rise when interest rates
fall and fall when interest rates rise. While less sensitive to changing
interest rates than investment-grade debt, lower rated securities are especially
subject to adverse changes in general economic conditions and to changes in the
financial condition of their issuers. During periods of economic downturn or
rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities
especially in a market characterized by only a small amount of trading and with
relatively few participants. These factors can also limit the Fund's ability to
obtain accurate market quotations for these securities, making it more difficult
to determine the Funds' net asset value.
In cases where market quotations are not available, lower rated securities are
valued using guidelines established by the Fund's Board of Trustees. Perceived
credit quality in this market can change suddenly and unexpectedly, and may not
fully reflect the actual risk posed by a particular lower rated or unrated
security.
Foreign Securities
Each of the Funds in the AARP Growth Trust, and the AARP High Quality Bond Fund
and the AARP Bond Fund for Income may invest without limit in foreign
securities.
Investments in foreign securities may benefit a Fund by providing access to
different markets and opportunities. It may also help to reduce risk by
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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 Mutual Funds may invest.
Forward Foreign Currency Exchange Contracts
Each of the Funds in the AARP Growth Trust, and the AARP High Quality Bond Fund
and the AARP Bond Fund for Income may enter into forward foreign currency
exchange contracts. These contracts, which involve costs, permit the funds to
purchase or sell a specific amount of a particular currency at a specified price
on a specified future date. They may be used by a Fund only to hedge against
possible variations in exchange rates of currencies in countries in which it may
invest.
A Fund will realize a benefit only to the extent that the relevant currencies
move as anticipated. If the currencies do not move as anticipated, the use of
these contracts may result in losses greater than if they had not been used.
Options Transactions
In an attempt to enhance investment returns, Funds in the AARP Growth Trust and
the AARP Income Trust may each write covered call options. These are agreements
to sell a particular security in the Fund's portfolio at a specified price on or
before the expiration date of the option. Covered call options may be written on
portfolio securities worth up to 25% of the Fund's net assets.
There are risks associated with writing covered options. These include the
possible inability to make closing transactions at favorable prices or because
an exercise notice has been received. The Funds also risk giving up appreciation
on the underlying security in excess of the exercise price.
Each of the Funds in the AARP Growth Trust may purchase and sell exchange-traded
options on stock indices. In addition, these Funds may engage in
over-the-counter options transactions with broker-dealers who make markets in
these options. Over-the-counter options may be more difficult to terminate than
exchange-traded options. They are frequently illiquid, and involve counterparty
credit risk. The Fund Manager will engage in such transactions to hedge against
unfavorable price movements which can adversely affect the value of the Fund's
securities or securities the Fund intends to buy. These transactions involve
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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, the AARP
Global Growth Fund, the AARP International Stock Fund, AARP Blue Chip Index
Fund, and the AARP Small Company Stock Fund may enter into financial futures
contracts including futures contracts on securities indices, may purchase and
write related put and call options, and may engage in related closing
transactions. These techniques are used to attempt to protect against adverse
effects of interest rates changes or currency changes in the case of the AARP
High Quality Bond Fund, the AARP Bond Fund for Income, the AARP Global Growth
Fund, and the AARP International Stock Fund. For example, a particular
index-based futures contract may be used when the Fund Manager believes that
correlation exists between price movements in an index-based futures contract
and securities in a Fund's portfolio. Such correlation is not likely to be
perfect. That is because a Fund's portfolio is not likely to contain the same
securities used in the index.
The margin deposits for futures contracts and premiums paid for related options
may not be more than 5% of a Fund's total assets. These transactions require a
Fund to segregate assets (such as liquid securities and cash) to cover contracts
that would require it to purchase securities. These transactions also result in
brokerage costs.
These techniques involve some risk. A Fund may be precluded from realizing a
benefit from favorable price movements in the related portfolio position of the
Fund and could lose the expected benefit of the transactions if interest rates
or currency changes in the case of AARP High Quality Bond Fund, AARP Bond Fund
for Income, AARP Global Growth Fund, or AARP International Stock Fund, move in
an unanticipated manner. To the extent that the Fund Manager's view of market
movements is incorrect, the use of such instruments may result in losses greater
than if they had not been used. In addition, if the AARP Insured Tax Free
General Bond Fund purchases futures contracts on taxable securities or indices
of such securities, their value may not fluctuate in proportion to the value of
the Fund's securities. This would limit that Fund's ability to hedge effectively
against interest rate risk. Further, while a Fund buys a futures contract only
if there appears to be a liquid secondary market for such contracts, there can
be no assurance that a Fund will be able to close out any particular futures
contract.
Segregated Accounts
Each Fund may be required to segregate assets (such as cash, U.S. Government
securities and other high grade debt obligations) or otherwise provide coverage
consistent with applicable regulatory policies. This would be in respect to the
Fund's permissible obligations under the call and put options it writes, the
forward foreign currency exchange contracts it enters into and the futures
contracts it enters into.
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Convertible Securities
Convertible securities include convertible bonds, notes and debentures,
convertible preferred stocks, and other securities that give the holder the
right to exchange the security for a specific number of shares of common stock.
Convertible securities entail less credit risk than the issuer's common stock
because they are considered to be "senior" to common stock. Convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
Demand Obligations
Each of the AARP Mutual Funds may purchase demand obligations. Demand
obligations permit the holder to demand payment of a specified amount prior to
maturity. The holder's right to payment depends upon the issuer's ability to pay
principal and interest on demand. A Fund will purchase demand notes only to
enhance liquidity. The Fund Manager will continuously monitor the
creditworthiness of issuers of such obligations.
Stand-by Commitments
The AARP Tax Free Funds may enter into stand-by commitments (also known as puts)
to facilitate liquidity. Stand-by commitments permit a Fund to resell municipal
securities to the original seller at a specified price and generally involve no
cost. Costs, in any event, are limited to .5% of a Fund's total assets. To
minimize the risk that the seller may not be able to repurchase the security,
the Fund Manager will monitor the creditworthiness of the seller.
"Put" Bonds
The AARP Tax Free Funds may also purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution. This
allows the Funds to tender (or "put") bonds to the institution at specified
intervals and receive the face value of them. For the AARP High Quality Tax Free
Money Fund, an interval can not exceed 397 calendar days. These third party puts
are available in several different forms. They may be custodial receipts or
trust certificates, and may be combined with other features such as interest
rate swaps.
Tax-exempt Participation Interests
The AARP Tax Free Funds may purchase tax-exempt participation interests from a
bank representing a fully-insured portion of the bank's holdings of municipal
securities. The Fund will obtain an irrevocable letter of credit or guarantee
from the bank and will have, under certain circumstances, the right to resell
the participation to the bank on 7 days' notice. To the extent any participation
interest is illiquid, it is subject to the Fund's limit on restricted and not
readily marketable securities.
Municipal Lease Obligations
The AARP Tax Free Funds may also invest in municipal lease obligations generally
as a participation interest in a municipal obligation from a bank or other
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
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prove costly to dispose of. In deciding which contracts to invest in, the Fund
Manager evaluates the likelihood of the governmental issuer discontinuing
appropriation for the leased property.
Portfolio Turnover
Each of the AARP Funds may buy and sell securities to take advantage of
investment opportunities. The Fund Manager will do so to improve overall
investment return consistent with that Fund's objectives. These transactions
involve transaction costs in the form of spreads or brokerage commissions.
Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the AARP High Quality Bond
Fund. A higher rate involves greater transaction costs to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed.
In the case of AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund, it is anticipated,
under normal investment conditions, that the Fund's portfolio turnover rate will
not exceed 75% for the initial fiscal year. In the case of AARP Diversified
Income Portfolio and AARP Diversified Growth Portfolio, it is anticipated, under
normal investment conditions, that the Fund's portfolio turnover rate will not
exceed 50% for the initial fiscal year. However, economic and market conditions
may necessitate more active trading, resulting in a higher portfolio turnover
rate.
INVESTMENT RESTRICTIONS
To help reduce investment risk, each of the AARP Mutual Funds has adopted
certain investment policies. Only the shareholders can approve changes to the
following policies:
o A Fund may not make loans. (A purchase of a debt security is not a loan
for this purpose.) However, the Fund may lend its portfolio securities
and enter into repurchase agreements.
o A Fund may borrow money only for temporary or emergency purposes.
A complete description of these and other policies and restrictions is contained
in the Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES
Are taxes withheld?
Generally, taxes are not withheld on purchases, redemptions, or distributions.
However, federal tax law requires the AARP Mutual Funds to withhold 31% of
taxable dividends, capital gain distributions and redemption or exchange
proceeds for accounts without a certified social security or tax identification
number, or other certified information. To avoid this withholding, make sure you
complete and sign the Signature and Investor Information Section of your
Enrollment Form. AARP IRA, AARP SEP-IRA and AARP Keogh Plan accounts are exempt
from withholding regulations.
The AARP Mutual Funds reserve the right to reject Enrollment Forms or close
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accounts without a certified Social Security or tax identification number. In
such cases, Enrollment Forms received without this information will be returned
to the investor with a check for the amount invested.
What else should I know about distributions and taxes?
o You can receive your dividend and capital gain distributions in one of
three ways:
1. You can have a check sent to your address or to your bank;
2. You can reinvest them in additional shares of an AARP Mutual
Fund; or
3. You can invest them in shares of another AARP Mutual Fund.
o If your investment is in the form of an AARP IRA, AARP SEP-IRA or AARP
Keogh Plan account, all distributions are automatically reinvested.
o If you reinvest your dividends and capital gains, you will be
purchasing shares at the current share price.
o All taxable dividends from net investment income are taxable to you as
ordinary income. This is so whether you receive dividends as cash or
additional shares.
o Capital gains distributions are also currently taxable, whether
received in cash or reinvested.
o Distributions of short-term capital gains by all the AARP Mutual Funds
are taxable as ordinary income.
o Distributions of long-term capital gains are taxable for federal income
tax purposes as long-term capital gains regardless of the length of
time you have owned shares. Any capital gain distributed by the AARP
Tax Free Funds are generally taxable in the same manner as
distributions by other Funds.
o The AARP Tax Free Funds are managed to pay you dividends free from
federal income taxes, including the Alternative Minimum Tax (AMT).
However, these dividends may be subject to state and local income
taxes. Also, these dividends are taken into account in determining
whether your income is large enough to subject a portion of your Social
Security benefits and certain Railroad Retirement benefits, if any, to
federal income taxes.
o If you are a shareholder in the AARP Global Growth Fund or the AARP
International Stock Fund, you may be able to claim a credit or
deduction on your income tax return for your pro rata portion of
qualified taxes paid by the Fund to foreign countries.
o Each AARP Mutual Fund annually sends you detailed tax information about
the amount and type of its distributions.
o A redemption involves a sale of shares and may result in a capital gain
or loss for federal income tax purposes. Exchanges are treated as
redemptions for federal income tax purposes. Exchanges occur when you
sell shares in one AARP Mutual Fund and purchase shares in another AARP
Mutual Fund.
o The AARP Mutual Funds reserve the right to make extra distributions for
tax purposes.
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FUND ORGANIZATION
The AARP Investment Program Trusts
The 15 mutual fund portfolios described in this prospectus are organized as five
Massachusetts business trusts--AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust, AARP Growth Trust and AARP Managed Investment
Portfolios Trust. Each trust is a diversified, open-end management investment
company registered under the Investment Company Act of 1940. The AARP Cash
Investment Fund was organized in January 1983, the AARP Income Trust, the AARP
Tax Free Income Trust and the AARP Growth Trust were organized in June 1984. The
AARP Tax Free Income Trust (formerly the AARP Insured Tax Free Income Trust) was
renamed effective August 1, 1991. The AARP Managed Investment Portfolios Trust
was organized in __________________.
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 Mutual Funds. The Trustees supervise each Trust's activities. The
shareholders elect the Trustees and may remove them. Shareholders have one vote
per share held on matters on which they are entitled to vote.
The Trusts are not required to hold annual shareholder meetings and have no
current intention to do so. There may be special meetings for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment advisory contract. The Fund Manager will help shareholders to
communicate with other shareholders in connection with removing a Trustee as if
Section 16(c) of the Investment Company Act of 1940 applied.
Since the Trusts use a combined prospectus, it is possible that one Trust or
AARP Mutual Fund might become liable for a misstatement in this prospectus
regarding another Trust or AARP Mutual Fund. The Trustees of each Trust
considered this risk when approving the use of a combined prospectus.
The right of the Trusts and AARP Mutual Funds to use the AARP name will end upon
termination of the member services agreement with the Fund Manager unless AARP
otherwise agrees to let the AARP Mutual Funds continue to use the AARP name.
Management Fees
Each AARP Mutual Fund, except for the AARP Managed Investment Portfolios, pays
the Fund Manager a fee for management and administrative services. The
management fee consists of two elements: a Base Fee and an Individual Fund Fee.
The Base Fee is calculated as a percentage of the combined net assets of all of
the AARP Mutual Funds. Each AARP Mutual Fund, except for the AARP Managed
Investment Portfolios, pays, as its portion of the Base Fee, an amount equal to
the ratio of its daily net assets to the daily net assets of all of the AARP
Mutual Funds. The table below shows the annual Base Fee Rate at specified levels
of Program assets:
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Annual Base Fee Rate Program Assets
-------------------------------------------------------------
.350% First $2 billion
.330% Next $2 billion
.300% Next $2 billion
.280% Next $2 billion
.260% Next $3 billion
.250% Next $3 billion
.240% Thereafter
In addition to the Base Fee Rate, each AARP Mutual Fund, except for the AARP
Managed Investment Portfolios, pays a flat Individual Fund Fee based on the net
assets of that Fund. This fee rate is not linked to the total assets of the
Program. The Individual Fee Rate recognizes the different characteristics of
each AARP Mutual Fund, the varying levels of complexity of investment research
and securities trading required to manage each Fund, as well as the relative
value that can be, and has been, added by the Fund Manager. The table below
shows the Individual Fund Fee Rate for each of the AARP Mutual Funds:
Fund Individual Fee Rate
-----------------------------------------------------------------------------
AARP High Quality Money Fund .10%
AARP High Quality Tax Free Money Fund .10%
AARP GNMA and U.S. Treasury Fund .12%
AARP High Quality Bond Fund .19%
AARP Bond Fund for Income
AARP Insured Tax Free General Bond Fund .19%
AARP Balanced Stock and Bond Fund .19%
AARP Growth and Income Fund .19%
AARP Blue Chip Index Fund
AARP Global Growth Fund .55%
AARP Capital Growth Fund .32%
AARP International Stock Fund
AARP Small Company Stock Fund
Under this fee structure, the combined Base Fee and the Individual Fund Fee,
called the "Effective Management Fee Rate," would be reduced if total Program
assets increase to certain levels, regardless of whether an individual AARP
Mutual Fund's assets increase or decrease. The converse is also true--if assets
decrease to certain levels, the Effective Management Fee Rate increases,
regardless of any increase or decrease in assets of an individual AARP Fund. For
the fiscal year ended September 30, 1996, fees paid to the Fund Manager totaled
___ of 1% of the average daily net assets of the AARP High Quality Money Fund,
___ of 1% of the AARP High Quality Tax Free Money Fund, ___ of 1% of the AARP
GNMA and U.S. Treasury Fund, ___ of 1% of the AARP Capital Growth Fund, ___ of
1% 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
and ________ for the AARP Global Growth Fund.
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The Fund Manager pays a portion of the management fee to AARP Financial Services
Corporation (AFSC). AFSC provides the Fund Manager with advice and other
services relating to AARP Fund investment by AARP members.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
Under the Investment Management Agreements with the Fund Manager, the Funds are
responsible for all of their expenses, including fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and executive employees of the Trusts who are not affiliated
with the Fund Manager; the cost of printing and distributing reports and notices
to shareholders; and the fees and disbursements of custodians.
Special Servicing Agreement for the AARP Managed Investment Portfolios
All the expenses of the AARP Managed Investment Portfolios will be paid for in
accordance with a Special Servicing Agreement (the "Agreement") entered into by
the Fund Manager, the underlying AARP mutual funds, Scudder Service Corporation,
Scudder Fund Accounting Corporation, Scudder Investor Services, Inc. and each
Portfolio. Under each Agreement, the Fund Manager will arrange for all services
pertaining to each operation of each Portfolio including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolio. If
the Trustees of an underlying AARP mutual fund determine that the aggregate
expenses of a Portfolio are less than the estimated savings to the underlying
AARP mutual fund from the operation of the Portfolio, the underlying AARP mutual
fund will bear those expenses in proportion to the average daily value of its
shares owned by the Portfolio. Consequently, no underlying AARP fund will be
expected to carry expenses that are in excess of the estimate of savings to it.
The estimated savings are expected to result from the reduction of shareholder
servicing costs due to the elimination of separate shareholder accounts which
either currently are or have potential to be invested in the underlying AARP
mutual funds. The estimated savings produced by the operation of a Portfolio
will most likely suffice to offset most, if not all, the expenses incurred by
the Portfolio.
In the event that the aggregate financial benefits to the underlying AARP mutual
funds do not exceed the costs of a Portfolio, the Fund Manager will pay, on
behalf of the Portfolio, that portion of costs determined to be greater than the
benefits.
All expenses of each Portfolio, excluding certain non-recurring and
extraordinary expenses, will be paid for in accordance with the Agreement,
including fees and expenses incurred in connection with membership in investment
company organizations; fees and expenses of the Portfolio's accounting agent;
brokers' commissions; legal, auditing and accounting expenses; taxes and
governmental fees; the fees and expenses of the transfer agent; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Portfolio who are not
affiliated with the Fund Manager; the cost of printing and distributing reports
and notices to shareholders; and the fees and disbursements of custodians.
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UNDERSTANDING FUND PERFORMANCE
Performance of an AARP Mutual Fund may be included in advertisements, sales
literature or shareholder reports. Important components of performance are
yield, total return and cumulative total return. These components vary based on
changes in market conditions, the level of interest rates and the level of the
Fund's expenses. Yield, total return, and cumulative total return are based on
historical earnings and are not intended to indicate future performance.
What is Yield?
For the AARP High Quality Money Fund, the AARP Income Funds 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, the "SEC yield" is an
annualized expression of net investment income generated by the investments in
the fund over a specified 30-day period. This income is then annualized and then
expressed as a percentage. This yield is calculated according to methods
required by the SEC, and may not equate to the level of income paid to
shareholders. For money market funds, yield refers to the net investment income
generated by the fund over a specified 7-day period. This income is then
annualized and expressed as a percentage. For the money market funds, effective
yield is expressed similarly but, when annualized, the income earned by an
investment in the fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
For GNMA securities, net investment income includes realized gains or losses
based on historic cost for principal repayments received. For other securities,
net investment income includes the amortization of market premium or market
discount.
What is Total Return?
The total return of a mutual fund refers to the average annual percentage change
in value of an investment in the fund assuming that the investment has been held
for the stated period. Total return quotations are expressed in terms of average
annual compound rates of return for all periods quoted and assume that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is Cumulative Total Return?
Cumulative total return of a mutual fund represents the cumulative change in
value of an investment in a fund for various periods. It assumes that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is meant by Tax-Equivalent Yield and how is it calculated?
To determine if tax-free investing is right for you, it is helpful to convert a
yield from a tax-free mutual fund to its equivalent taxable yield. The
tax-equivalent yields of the AARP Tax Free Funds, which may be quoted from time
to time, let you determine the yield you would have to receive from a fully
PROSPECTUS
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taxable investment to produce an after-tax yield equivalent to a tax-free fund.
The calculation is as follows:
Tax-Free Yield = Tax-Equivalent Yield
---------------------
100% -- your tax rate
Example: If a tax-free mutual fund has a 30-day average annualized yield of
5.30% and you are in the 31% tax bracket, the calculation would be:
5.30% = 7.68%
-----------
100% -- 31%
You would need to earn 7.68% with a taxable investment to equal the 5.30% yield
of a tax-free fund. The tax-equivalent yield will vary depending upon your
income tax bracket.
UNDERSTANDING SHARE PRICE
How is a Fund's share price determined?
Share price is based on a Fund's net assets. It is calculated by dividing the
current market value (amortized cost in the case of the AARP High Quality Tax
Free Money Fund) of total fund assets, less all liabilities, by the total number
of shares outstanding. Scudder Fund Accounting Corporation, a subsidiary of the
Fund Manager, determines net asset value per share of each Fund as of the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern
time on each day the Exchange is open for trading. 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 Mutual Fund or Funds which meets your needs. Then fill out,
sign and return your Enrollment Form with your check in the postage paid
envelope provided. Once your Enrollment Form is received, an account number will
be assigned to you. Your check should only be drawn on a U.S. bank and be
payable to the AARP Investment Program.
If you don't want to send your check through the mail, you can send a bank wire.
Simply fill out and return your Enrollment Form in the mail. Then, before you
send the wire, call an AARP Mutual Fund Representative. The Representative will
set up the account and contact you to provide you with your account number and
further wiring instructions. To complete the wire transfer, follow the special
wire transfer instructions below. Please note you cannot open AARP IRA or AARP
Keogh Plan accounts by wire.
What is the minimum investment?
The minimum 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
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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.
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WIRE TRANSFER INSTRUCTIONS
o To open an account (mail Enrollment Form first and make sure to call a
Representative to obtain an account number--AARP IRA and AARP Keogh Plan
accounts cannot be opened by wire)
o To add to your account
Contact your bank with the following information:
1) the 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 following name and address: State Street Bank and Trust Company,
Boston MA 02101;
5) the routing numbers ABA Number 011000028 and AC-99035420.
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Can I add another AARP Mutual Fund to my account?
You can open another AARP Mutual Fund at any time. The new investment must meet
the minimum initial investment described above. Your new AARP Mutual Fund will
have the same account number and registration as your existing one(s). You can
open a new AARP Mutual Fund in a number of ways:
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-------------------------------------------------------------------------------
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 62.
an AARP Fund
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Telephone Transactions
When you open an account you automatically become eligible to exchange shares by
telephone and to redeem by telephone up to $100,000 to your registered address.
You may also request by telephone that redemption proceeds be wired to a bank
account you select. When exchange or redemption requests are made over the
telephone, procedures are in place to give reasonable assurance that telephone
instructions are genuine, including recording telephone calls, testing a
caller's identity and sending written confirmation of such transactions. If an
AARP Mutual Fund does not follow such procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. The Trusts and their
agents each reserve the right to modify, interrupt, suspend, or terminate any of
the telephone services at any time, without notice.
ADDING TO YOUR INVESTMENT
How do I add to my investment?
After your account is opened, you can add to your AARP Fund investment in any
amount in the following ways:
-------------------------------------------------------------------------------
Mail your request Send your check with a personalized investment slip
or with a letter naming your account number and AARP
Mutual Fund.
-------------------------------------------------------------------------------
Call Toll-Free If you selected the Transact By Phone service, you'lL be
able to call and have money transferred from your checking
account to cover the purchase. See page 65.
-------------------------------------------------------------------------------
Wire the purchase Have your account number ready and follow the wire
instructions on page 60.
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Exchange from an See Exchanging below.
AARP Fund
-------------------------------------------------------------------------------
Invest See page 66 for information on the Automatic Investment
Automatically Plan.
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EXCHANGING
What is an exchange?
You make an exchange when you sell shares in one AARP Mutual Fund to purchase
shares in another. This is technically two transactions, a sale and a purchase
of shares. If the value of the shares sold in the exchange was higher or lower
than your original purchase price, you may have a capital gain or loss. This is
important to note for tax planning purposes. You may exchange all or part of
your shares in one AARP Mutual Fund for shares in another AARP Mutual Fund.
Exchanges between existing AARP Mutual Funds can be for any amount. Exchanges
that open a new AARP Mutual Fund must meet the minimum balance.
How can I exchange shares?
There are several ways to exchange, including:
------------------------------------------------------------------------------
Mail or fax your Tell us the AARP Mutual Fund from which to take the money
request and the AAR Mutual Fund to exchange to. Include your
account number, registered name(s) and address, and either
the dollar amount or number of shares you want to exchange.
Be sure to sign your name(s) exactly as it appears on the
account statement.
-------------------------------------------------------------------------------
Call Toll-Free Call us before 4:00 p.m. Eastern time to exchange by close
of business the same day.
-------------------------------------------------------------------------------
Call the You can exchange shares through this automated toll-free
Easy-Access line. It isavailable 24 hours a day, 7 days a week. Simply
Line call toll-free and follow the recorded voice instructions.
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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.
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<PAGE>
-------------------------------------------------------------------------------
Mail or Fax your Tell us the name of the AARP Mutual Fund and the number
request 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 64). Sign the letter exactly as it appears on
your account statement. If your request requires a
Signature Guarantee, you must mail the request instead
of faxing it.
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Call Toll-Free Call before 4:00 p.m. Eastern time business days and redeem
up to $100,000 per AARP Fund. The proceeds will be mailed
to your registered address or to your bank (unless you
declined the Telephone Redemption to your Bank
feature on your Enrollment Form). The proceeds can also
be wired to your bank if it is a member of the Federal
Reserve System. A $5.00 fee will be charged for each wire
to your bank. Your bank may also charge you for receiving
a wire. In the event that you are unable to reach us by
telephone, you should write to the AARP Investment Program;
see "Service Information" for the address. If you elected
the Transact by Phone option on your Enrollment Form, you
can have the proceeds sent electronically to your checking
account. See page 65 for more information on Transact
By Phone.
-------------------------------------------------------------------------------
Call the You can redeem shares through this automated toll-free
Easy-Access Line line. Initiate redemptions any time--24 hours a day.
Simply call toll-free and follow the recorded voice
instructions.
-------------------------------------------------------------------------------
Sell See page 66 for information on the Automatic Withdrawal
Automatically Plan or Systematic Withdrawal Plan for AARP IRA or
AARP Keogh Plan accounts.
-------------------------------------------------------------------------------
When are redemptions processed?
Any redemption request received in good order prior to 4:00 p.m. Eastern time
during normal business operations will be processed on that day. The request
will be processed at that night's closing share price. Normally, requests
received in good order after 4:00 p.m. Eastern time will be processed on the
next business day.
Shares redeemed from Funds in the AARP Income Trust, AARP Tax Free Income Trust,
AARP Diversified Income Portfolio or the AARP High Quality Money Fund will earn
a dividend on the day of redemption.
Normally, proceeds of your redemption will be sent on the business day following
a redemption request in good order. In any event, the AARP Mutual Funds may take
no more than 7 calendar days to send your redemption proceeds.
When can I expect to receive my money?
We will mail your redemption proceeds promptly. If you purchase shares by check
or by telephone and then redeem them by letter within 7 business days of the
purchase, the redemption proceeds may be held until the purchase check has
cleared the banking system. When the check has cleared, we will mail your
redemption proceeds promptly.
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We will not accept redemption requests by telephone or by checkwriting prior to
the expiration of the 7 business day period. You may avoid this delay by
purchasing shares by wire.
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Purchase Restrictions
You should make purchases and sales for long-term investment purposes only. The
AARP Mutual Funds do not permit a pattern of frequent purchases and sales in
response to short-term changes in share price.
When such a pattern occurs, the AARP Mutual Funds and Scudder Investor
Services, Inc. reserve the right to reject purchases or exchanges for any
reason. This restriction does not apply to the AARP money funds. This right
extends to individual purchasers or groups of related purchasers.
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SIGNATURE GUARANTEES
What is a "Signature Guarantee"?
A "Signature Guarantee" is a certification of your signature. We require this
for your protection and to prevent fraudulent redemptions. In effect, the
appropriate institution (see below) guarantees that you are authorized to make
certain requests.
When do I need one?
A "Signature Guarantee" from each person on the account registration is needed
for the following redemption requests:
1) Redemptions of more than $100,000;
2) When redemption proceeds are payable to someone other than the
registered shareholder(s);
3) When redemption proceeds are to be sent to an address other than the
registered address; or
4) If the account's registered address has changed during the last 15
days.
Transactions requiring signature guarantees cannot be faxed.
Where can I get one?
You can get your signature guaranteed through most banks, credit unions or
savings associations, or from broker-dealers, government securities
broker-dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the Securities and
Exchange Commission. Signature Guarantees by notary publics are not acceptable.
INVESTOR SERVICES
To make investing simpler and more convenient there are many free investor
services available to you.
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<PAGE>
Easy-Access Line
-------------------------------------------------------------------------------
o Exchange between AARP Mutual Funds
CALL TOLL-FREE
o Exchange to open a new AARP Mutual Fund 1-800-631-4636
24 HOURS A DAY
o Redeem money to your registered address 7 DAYS A WEEK
o Get current performance information
o Get current account balance information
o Confirm your last transaction
-------------------------------------------------------------------------------
With the Easy-Access Line you can get performance, and account information. If
you have a touch-tone phone, you can also exchange or redeem shares worth up to
$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
-------------------------------------------------------------------------------
o Add to an AARP Mutual Fund by transfer from
your bank checking or NOW account CALL TOLL-FREE
1-800-253-2277
o Redeem and send the proceeds to your
checking or NOW account
-------------------------------------------------------------------------------
Transact By Phone allows you to call toll-free to purchase and redeem shares.
The money will be automatically transferred to or from your bank checking
account. Your bank must be a member of the Automated Clearing House for you to
take advantage of this service.
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Buying Shares Call us before 4:00 p.m. Eastern time, business days, when
through Trans- you want to buy additional shares, and money will be
act By Phone: transferred from your bank account to your AARP Mutual Fund
account to cover the purchase. Purchases must be for at least
$250 but not more than $250,000. Your purchase will generally
be completed in 2 business days at the closing share price
on the day of your call. Requests received after 4:00
p.m. will be purchased at the next business day's closing
price. Shares purchased in this manner will not be
redeemable for a period of up to 7 business days.
-------------------------------------------------------------------------------
Selling Shares Call us before 4:00 p.m. Eastern time, business days, when
through Trans- you want to sell shares. We'll sell your shares and
act By Phone: 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.
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Free Checkwriting
Shareholders in the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund have free checkwriting privileges. There is no charge to
shareholders for this service, but the AARP Mutual Funds reserve the right to
impose a charge in the future. To enroll, you must fill out a signature card on
the Enrollment Form. If shares were purchased by your personal check, you may
only write checks against your purchase 7 business days from the day that the
PROSPECTUS
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<PAGE>
purchase took place. Keep in mind that you cannot close your account by writing
a check. This service may be suspended or terminated at any time upon notice to
shareholders.
Distributions Direct
You may choose to have dividend and capital gain distributions automatically
deposited into your bank checking or NOW account. To enroll in this service,
your bank must be a member of the Automated Clearing House (ACH) network. Once
you enroll, your dividends and capital gains will be automatically deposited
into your personal bank account within 3 business days of the distribution date.
You'll receive a statement confirming the amount.
There is no charge to shareholders for the service.
Systematic Plans
Several other investor services are available. These include:
o Automatic Investment Plan: Arrange for regular investments into your
AARP Mutual Fund through automatic deductions from your bank checking
account. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is
not paid, or by written notice to the shareholder at least thirty days
prior to the next scheduled payment to the Automatic Investment Plan.
o Direct Deposit: At your direction, your Social Security, U.S.
Government or any regular income checks (pension, dividend, interest or
payroll) will be automatically deposited into your AARP Mutual Fund.
o Automatic Withdrawal Plan: At your direction, we will automatically
send a monthly redemption of $50 or more directly to you when you have
at least $10,000 or more in an AARP Mutual Fund.
o Direct Payment of Fixed Bills: With $10,000 or more in an AARP Mutual
Fund, you can arrange for us to automatically pay regular bills of a
fixed amount. Pay your rent, mortgage or other payments of $50 or more.
o Systematic Retirement Withdrawal Plan: You can receive periodic
distributions from an AARP IRA or AARP Keogh Plan account.
STATEMENTS AND REPORTS
What kinds of statements do I receive?
You will receive a prompt confirmation statement for your transactions. You will
also receive a monthly Consolidated Statement. AARP IRA or AARP Keogh Plan
accounts will receive a quarterly Consolidated Statement.
The Consolidated Statement details the market value of all the AARP Mutual Funds
in your account. It also includes a listing of recent transactions. You should
keep these statements for your records.
What other reports do I get?
Each year, you will receive a current prospectus, mid year report and annual
report. To reduce the volume of mail, we will only send one copy of most reports
to a household (same surname, same address). Please contact us if you wish to
receive additional reports.
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<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
subsidiary of Scudder) is principal underwriter of the AARP Mutual Funds.
Scudder Investor Services, Inc. offers for sale and confirms as agent all
purchases of shares of the AARP Mutual Funds.
Custodians
Brown Brothers Harriman & Co., Boston, MA
State Street Bank and Trust Company, Boston, MA
Fund Accounting Agent
Scudder Fund Accounting Corporation, Two International Place, Boston, MA (a
subsidiary of Scudder) is responsible for determining the daily net asset value
per share and maintaining the general accounting records of the AARP Mutual
Funds.
Transfer and Dividend-Disbursing Agent
Scudder Service Corporation, P.O. Box 2540, Boston, MA 02208-2540 (a subsidiary
of Scudder)
Investment Adviser
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York is
investment adviser for the AARP Funds.
Subadviser
- --------------------------------------------------------------------------------
- -----------.
TRUSTEES AND OFFICERS
CAROLE LEWIS ANDERSON, Trustee, President, MASDUN Capital Advisors; Formerly
Principal, Suburban Capital Markets, Inc.; Director, VICORP Restaurants, Inc.;
Member of the Board, Association for Corporate Growth of Washington, D.C.;
Trustee, Hasbro Children's Foundation and Mary Baldwin College.
ADELAIDE ATTARD, Trustee, Consultant, Gerontology; Commissioner, County of
Nassau, New York, Department of Senior Citizen Affairs (1971-1991); Chairperson,
Federal Council on Aging (1981-1986).
CYRIL F. BRICKFIELD, Trustee, Honorary President and Special Counsel, American
Association of Retired Persons.
ROBERT N. BUTLER, M.D., Trustee, Director, International Longevity Center and
Professor of Geriatrics and Adult Development; Chairman, Henry L. Schwartz
Department of Geriatrics and Adult Development, Mount Sinai Medical Center;
Formerly Director, National Institute on Aging, National Institute of Health.
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<PAGE>
ESTHER CANJA, Trustee, Vice President, American Association of Retired Persons;
Trustee and Chair, AARP Group Health Insurance Plan; Board Liaison, National
Volunteer Leadership Network Advisory Committee; Chair, Board Operations
Committee; AARP State Director of Florida (1990-1992).
LINDA C. COUGHLIN, President and Trustee, Managing Director, Scudder, Stevens &
Clark, Inc., Director and Senior Vice President, Scudder Investor Services,
Inc.*
HORACE B. DEETS, Vice Chairman and Trustee, Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.
EDGAR R. FIEDLER, Trustee, Vice President and Economic Counselor, The Conference
Board, Inc.
CUYLER W. FINDLAY, Chairman and Trustee, Managing Director, Scudder, Stevens &
Clark, Inc.*
EUGENE P. FORRESTER, Trustee, Lt. General (Retired) U.S. Army; International
Trade Counselor; Consultant.
WAYNE F. HAEFER, Trustee, Director, Membership Division of AARP; Formerly
Secretary, Employee's Pension and Welfare Trusts of AARP and Retired Persons
Services, Inc.; Formerly Director, Administration and Data Management Division
of AARP.
GEORGE L. MADDOX, JR., Trustee, Professor Emeritus and Director, Long Term Care
Resources Program, Duke University Medical Center; Professor Emeritus of
Sociology, Departments of Sociology and Psychiatry, Duke University.
ROBERT J. MYERS, Trustee, Actuarial Consultant; Formerly Executive Director,
National Commission on Social Security Reform; Formerly Chairman, Commission on
Railroad Retirement Reform.
JAMES H. SCHULZ, Trustee, Professor of Economics and Kirstein Professor of Aging
Policy, Policy Center on Aging, Florence Heller School, Brandeis University.
GORDON SHILLINGLAW, Trustee, Professor Emeritus of Accounting, Columbia
University Graduate School of Business.
THOMAS W. JOSEPH*, Vice President
DAVID S. LEE*, Vice President and Assistant Treasurer
THOMAS F. McDONOUGH*, Vice President and Assistant Secretary
PAMELA A. McGRATH*, Vice President and Treasurer
EDWARD J. O'CONNELL*, Vice President and Assistant Treasurer
JAMES W. PASMAN*, Vice President
KATHRYN L. QUIRK*, Vice President and Secretary
HOWARD SCHNEIDER*, Vice President
CORNELIA M. SMALL*, Vice President
*Scudder, Stevens & Clark, Inc.
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<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND
AARP Income Trust:
AARP GNMA and U.S. TREASURY FUND
AARP HIGH QUALITY BOND FUND
AARP BOND FUND FOR INCOME
AARP Tax Free Income Trust:
AARP HIGH QUALITY TAX FREE MONEY FUND
AARP INSURED TAX FREE GENERAL BOND FUND
AARP Growth Trust:
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND
AARP BLUE CHIP INDEX FUND
AARP GLOBAL GROWTH FUND
AARP CAPITAL GROWTH FUND
AARP INTERNATIONAL STOCK FUND
AARP SMALL COMPANY STOCK FUND
AARP Managed Investment Portfolios Trust:
AARP DIVERSIFIED INCOME PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
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STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
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This Statement of Additional Information is not a prospectus and should
be read in conjunction with the combined Prospectus for all fifteen of the above
Funds, dated February 1, 1997, as amended from time to time, copies of which may
be obtained without charge by writing to the AARP INVESTMENT PROGRAM FROM
SCUDDER, P.O. Box 2540, Boston, Massachusetts 02208-2540 or by calling
1-800-253-2277.
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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............................................................................9
AARP Growth Funds...........................................................................................12
AARP Managed Investment Portfolios..........................................................................16
Special Investment Policies of the AARP Funds...............................................................16
General Investment Policies of the AARP Funds...............................................................31
Investment Restrictions.....................................................................................31
PURCHASES............................................................................................................37
General Information.........................................................................................37
Checks......................................................................................................37
Share Price.................................................................................................37
Share Certificates..........................................................................................37
Direct Deposit Program......................................................................................37
Wire Transfers..............................................................................................38
Holidays....................................................................................................38
Other Information...........................................................................................38
REDEMPTIONS..........................................................................................................38
General Information.........................................................................................38
Redemption by Telephone.....................................................................................39
Redemption by Mail or Fax...................................................................................40
Redemption by Checkwriting..................................................................................40
Redemption-in-Kind..........................................................................................40
Other Information...........................................................................................41
EXCHANGES............................................................................................................41
TRANSACT BY PHONE....................................................................................................42
Purchasing Shares by Transact by Phone......................................................................42
Redeeming Shares by Transact by Phone.......................................................................42
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................43
Automatic Dividend Reinvestment.............................................................................43
Distributions Direct........................................................................................43
Reports to Shareholders.....................................................................................43
Consolidated Statements.....................................................................................43
RETIREMENT PLANS.....................................................................................................43
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")...............................................44
AARP Keogh Plan.............................................................................................45
OTHER PLANS..........................................................................................................45
Automatic Investment........................................................................................45
Automatic Withdrawal Plan...................................................................................46
Direct Payment of Regular Fixed Bills.......................................................................46
DIVIDENDS AND YIELD..................................................................................................46
Performance Information: Computation of Yields and Total Return.............................................47
Taking a Global Approach....................................................................................53
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TRUST ORGANIZATION...................................................................................................53
MANAGEMENT OF THE FUNDS..............................................................................................54
Personal Investments by Employees of Scudder................................................................60
TRUSTEES AND OFFICERS................................................................................................61
REMUNERATION.........................................................................................................64
DISTRIBUTOR..........................................................................................................65
TAXES 66
BROKERAGE AND PORTFOLIO TURNOVER.....................................................................................70
Brokerage Commissions.......................................................................................70
Portfolio Turnover..........................................................................................71
NET ASSET VALUE......................................................................................................72
AARP Money Funds............................................................................................72
AARP Non-Money Market Funds.................................................................................72
ADDITIONAL INFORMATION...............................................................................................73
Experts.....................................................................................................73
Shareholder Indemnification.................................................................................73
Ratings of Corporate Bonds..................................................................................73
Ratings of Commercial Paper.................................................................................74
Ratings of Municipal Bonds..................................................................................74
Other Information...........................................................................................75
Tax-Exempt Income vs. Taxable Income........................................................................76
FINANCIAL STATEMENTS.................................................................................................77
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AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Investment Program from Scudder (the "Program") was developed
by the American Association of Retired Persons ("AARP") to provide an array of
conservatively managed investment options for its members. Today's financial
markets present an enormous, ever-changing selection of investments suited for
investors with varying needs. AARP, a non-profit organization dedicated to
improving the quality of life, independence and dignity of older people, has
undertaken to help its members by designing an investment program which attempts
to satisfy the investment and retirement planning needs of most of its members,
whether they 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,
1997 (the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder, Stevens & Clark, Inc. ("the Fund Manager" or "Scudder"),
a firm with over 75 years of investment counseling and management experience.
Scudder, Stevens & Clark, Inc. was selected after an extensive search among
qualified candidates, and provides the Program with continuous and conservative
professional investment management. (See "MANAGEMENT OF THE FUNDS.")
The Program consists of five Trusts-- AARP Cash Investment Funds, AARP
Income Trust, AARP Tax Free Income Trust, AARP Growth Trust, and AARP Managed
Investment Portfolios Trust (the "Trusts"). Each of the Trusts is an open-end,
management investment company authorized to issue its shares of beneficial
interest in separate series ("the AARP Funds"). A total of 15 Funds are
currently offered by the five Trusts. The differing investment objectives of the
15 Funds in the Program provide AARP members with a variety of sensible
investment alternatives, and by matching their own objectives with those of the
different AARP Funds, AARP members may design an investment program to meet
their personal needs. Not all your money is the same. There is short-term money,
for example money needed for your regular budgeting and for emergencies, and
there is money which can be invested for the longer term. It is generally
thought that three months of income/expenses should be set aside in a savings
account or money market fund to cover short-term needs. The Program is designed
to offer alternatives to keeping all of your money in short-term fixed price
investments like money market funds, insured short-term savings accounts and
insured six-month certificates of deposit. The AARP Money Funds provide a
taxable and a tax free alternative for short-term monies and the AARP Income
Funds, the AARP Insured Tax Free General Bond Fund, the AARP Growth Funds
provide a range of choices for longer term investment dollars and the AARP
Managed Investment Portfolios provide diversification of investment by investing
in a select mix of AARP Funds.
The Program includes functions performed by AARP Member Services; the
AARP Funds; Scudder Investor Services, Inc., the AARP Funds' "underwriter";
Scudder Service Corporation ("SSC"), the AARP Funds' "transfer agent"; and Brown
Brothers Harriman & Co. and State Street Bank and Trust Company, the AARP Funds'
"custodians."
Summary of Advantages and Benefits
o Experienced Professional Management: Scudder, Stevens & Clark, Inc.,
investment counsel since 1919 and mutual Fund managers since 1928, provides
investment advice to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong ongoing representation of the members'
interests and to help ensure a high level of service.
o Wide Selection of Investment Objectives: you can emphasize money market
returns and liquidity, income, tax-free income, growth, or any combination.
o Diversification: you benefit from investing in one or more large portfolios
of carefully selected securities.
o $500 Minimum Starting Investment for 13 of the Funds ($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 15 AARP
Funds in the Program at any time without charge.
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o Dividends: the AARP Money Funds, the AARP Income Funds, the AARP Insured
Tax Free Income Fund and the AARP Diversified Income Portfolio all pay
dividends monthly, the AARP Balanced Stock and Bond Fund, the AARP Growth
and Income Fund and the AARP Blue Chip Index Fund are expected to pay
dividends quarterly and the AARP Global Growth Fund, the AARP Capital
Growth Fund, the AARP International Stock Fund, the AARP Small Company
Stock Fund and the AARP Diversified Growth Portfolio pay dividends, if any,
annually.
o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.
o Readily Available Account, Price, Yield and Total Return Information: the
yield for the AARP Money Funds is quoted weekly and the net asset value of
each other Fund is quoted daily in the financial pages of leading
newspapers. You may also dial our automated Easy-Access Line, toll-free,
1-800-631-4636 for recorded account information, share price, yield and
total return information, 7 days a week.
o Convenience and Efficiency: simplified investment procedures save you time
and help your money work harder for you.
o Liquidity: on any business day (subject to a 7 day waiting period for
investment checks to clear), you may request redemption of your shares at
the next determined net asset value, and, in the case of the AARP Money
Funds, you may elect free Checkwriting and write checks for $100 or more on
your account to make payments to any person or business.
o Direct Deposit Program: you may have your Social Security or other checks
from the U.S. Government or any other regular income checks, such as
pension, dividend, interest, and even payroll checks automatically
deposited directly to your account.
o Automatic Withdrawal Plan: with a minimum qualifying balance of $10,000 in
one AARP Fund, you may arrange to receive monthly, quarterly or periodic
checks from your account for any designated amount of $50 or more.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying balance of
$10,000 in one AARP Fund, you may arrange to have your regular fixed bills
that are of fixed amounts, such as rent, mortgage, or other payments of $50
or more sent directly from your account at the end of the month.
o Personal Service and Information: professionally trained service
representatives help you whenever you have questions through our toll-free
number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation statement
of each transaction in your account, you receive, without extra charge, a
convenient monthly consolidated statement. (Retirement Plan statements are
mailed quarterly.) This statement contains the market value of all your
holdings and a complete listing of your transactions for the statement
period.
o Shareholder Handbook: the Shareholder Handbook was created to help answer
many of the questions you may have about investing in the Program.
o IRA Shareholder Handbook: The IRA Shareholder Handbook was created to help
answer many of the questions you may have about investing in the no-fee
AARP IRA.
o A Glossary of Investment Terms: the Glossary defines commonly used
financial and investment terms.
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.
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This Statement of Additional Information supplements the Prospectus, and
provides more detailed information about the Trusts and the Funds.
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
AARP Money 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. Amendments have been proposed
to the federal rules regulating quality, maturity and diversification
requirements of money market funds, like the Fund. If the amendments are adopted
the Fund intends to comply with such new requirements.
Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (1) 1% of its total assets, or (2) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
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
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other corporate entities (corporate guarantees); corporate obligations,
including commercial paper, notes, bonds, loans and loan participations;
securities with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities including
notes, bonds and participation interests, either taxable or tax-free, as
described in more detail for the AARP High Quality Tax Free Money Fund;
securities with put features; and repurchase agreements. The Fund may hold cash,
which does not earn interest, to facilitate stabilizing its net asset value per
share and for liquidity purposes.
Commercial paper at the time of purchase will be rated, or judged by
the Fund Manager under the supervision of the Trustees, to be the equivalent of
securities rated, A-1 or higher by S&P, Prime-1 or higher by Moody's or F-1 or
higher by Fitch. Investments in other corporate obligations, such as bonds or
notes, will be limited to securities rated, or judged by the Fund Manager to be
the equivalent of securities rated, AA or higher by S&P or Fitch or Aa or higher
by Moody's. Obligations which are the subject of repurchase agreements will be
limited to those of the type described above. Shares of this Fund are not
insured or guaranteed by the U.S. Government.
The Fund may invest in certificates of deposit and bankers' acceptances
of large domestic banks (i.e., banks which at the time of their most recent
annual financial statements show total assets in excess of $1 billion) and their
foreign branches and of smaller banks as described below. These as well as all
other investments of the Fund must be U.S. dollar denominated. The Fund will not
invest in certificates of deposit or bankers' acceptances of foreign banks
without additional consideration by and the approval of the Trustees of the
Trust. Although the Fund recognizes that the size of a bank is important, this
fact alone is not necessarily indicative of its creditworthiness.
Investment in certificates of deposit and bankers' acceptances issued
by foreign branches of domestic banks involves investment risks that are
different in some respects from those associated with investment in obligations
issued by domestic banks. Such investment risks include the possible imposition
of withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations, or other adverse political or economic
developments. In addition, it might be more difficult to obtain and enforce a
judgment against a foreign branch of a domestic bank.
The Fund may also invest in certificates of deposit issued by banks
which had, at the time of their most recent annual financial statements, total
assets of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's net assets (taken at current value) are invested in
certificates of deposit and bankers' acceptances of banks having total assets
not in excess of $1 billion.
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System whose creditworthiness has been determined by the Fund
Manager to be equal to that of issuers of commercial paper rated within the two
highest grades. See "Repurchase Agreements" under "Special Investment Policies
of the AARP Funds."
AARP 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
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the opinion of the Fund Manager, such securities possess creditworthiness
comparable to those rated securities in which the Fund may invest. For a
description of ratings, please see "Additional Information." Shares of this Fund
are not insured or guaranteed by the U.S. Government.
Subsequent to its purchase by the AARP High Quality Tax Free Money
Fund, an issue of municipal securities may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. The Fund will
dispose of any such security unless the Board of Trustees of the Fund determines
that such disposal would not be in the best interests of the Fund.
As a fundamental policy, under normal circumstances, at least 80% of
the net assets of AARP High Quality Tax Free Money Fund will be invested in
tax-exempt securities. Although the Fund normally intends to ensure that all
income to shareholders will be exempt from federal income tax, there can be no
assurance that this goal will be achieved or that income to shareholders which
is federally tax exempt will be exempt from state and local taxes.
From time to time on a temporary basis or for defensive purposes, the
Fund may, subject to its investment restrictions, hold cash and invest in
taxable investments consisting of: (1) other obligations issued by or on behalf
of municipal or corporate issuers; (2) U.S. Treasury notes, bills and bonds; (3)
obligations of agencies and instrumentalities of the U.S. Government; (4) money
market instruments, such as domestic bank certificates of deposit, finance
company and corporate commercial paper, and banker's acceptances; and (5)
repurchase agreements (agreements under which the seller agrees at the time of
sale to repurchase the security at an agreed time and price) with respect to any
of the obligations which the Fund is permitted to purchase. The Fund will not
invest in instruments issued by banks or savings and loan associations unless at
the time of investment such issuers have total assets in excess of $1 billion
(as of the date of their most recently published financial statements).
Commercial paper investments will be limited to commercial paper rated A1+ and
A1 by S&P, Prime-1 by Moody's or F-1 by Fitch. The Fund may hold cash or invest
temporarily in taxable investments due, for example, to market conditions or
pending investment of proceeds of subscriptions for shares of the Fund or
proceeds from the sale of portfolio securities or in anticipation of
redemptions. However, the Fund expects to invest such proceeds in municipal
securities as soon as practicable. Interest income from temporary investments
may be taxable to shareholders as ordinary income.
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
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selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding part or all of
dividends or payment of distributions from capital or capital gains; redeeming
shares in kind; or establishing a net asset value per share by using available
market quotations or equivalents. In addition, in order to stabilize the net
asset value per share at $1.00 the Trustees have the authority (1) to reduce the
number of outstanding shares of a Fund on a pro rata basis, and (2) to offset
each shareholder's pro rata portion of the deviation between the net asset value
per share and $1.00 from the shareholder's accrued dividend account or from
future dividends. The Funds may hold cash for the purpose of stabilizing their
net asset value per share. Holdings of cash, on which no return is earned, would
tend to lower the yield on the shares of the Funds.
The net income of the Funds is declared as dividends to shareholders
daily and distributed monthly in shares of the Funds unless payment is requested
in cash.
AARP Income Funds
(See "AARP GNMA and U.S. Treasury Fund," "AARP High Quality Bond Fund,"
"AARP Bond Fund for Income," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER
INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.) Each of the Funds
seeks to earn a high level of income consistent with its investment policies.
AARP GNMA and U.S. Treasury Fund. AARP GNMA and U.S. Treasury Fund is
designed for investors who are seeking high current income from high quality
securities and who wish to receive a degree of protection from bond market price
risk. The Fund's investment objective is to produce a high level of current
income and to keep the price of its shares more stable than that of a long-term
bond. The Fund pursues this objective by investing principally in U.S.
Government-guaranteed GNMA securities and U.S. Treasury obligations. The Fund
has been designed with the conservative, safety-conscious investor in mind. Of
the 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).
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The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
interest. The Fund Manager, in determining the attractiveness of GNMAs relative
to alternative fixed-income securities, and in choosing specific GNMA issues,
will have made assumptions as to the likely speed of prepayment. Actual
experience may vary from this assumption resulting in a higher or lower
investment return than anticipated. When interest rates rise, mortgage
prepayment rates decline, thus lengthening the life of a mortgage-related
security and increasing the price volatility of that security, affecting the
price volatility of the Fund's shares.
Some investors may view the Fund as an alternative to a bank
certificate of deposit (CD). While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the
Fund--unlike a CD--is not locked away for any period, may be redeemed at any
time without incurring early withdrawal penalties, and may provide a higher
yield.
AARP High Quality Bond Fund. Consistent with investments primarily in
high quality securities, the Fund seeks to provide a high level of income and to
keep the value of its shares more stable than that of a long-term bond. By
including short- and medium-term bonds in its portfolio, the Fund seeks to offer
less share price volatility than long-term bonds or many long-term bond funds,
although its yield may be lower. Due to the greater market price risk of its
securities, the Fund may have a more variable share price than the AARP GNMA and
U.S. Treasury Fund. It is also possible that the Fund may provide a higher level
of income than the AARP GNMA and U.S.
Treasury Fund.
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), foreign
government bonds denominated in foreign currencies, mortgage-backed and other
asset-backed securities, and money market instruments such as commercial paper,
bankers' acceptances and certificates of deposit issued by domestic and foreign
branches of U.S. banks. The Fund invests in a broad range of short-,
intermediate-, and long-term securities. Proportions among maturities and types
of securities may vary depending upon the prospects for income related to the
outlook for the economy and the securities markets, the quality of available
investments, the level of interest rates, and other factors.
Except for limitations in the Fund's investment restrictions, there is
no limit as to the proportions of the Fund which may be invested in any of the
eligible investments. However, it is a policy of the Fund that its
non-governmental investments will be spread among a variety of companies and
will not be concentrated in any industry. (See "Investment Restrictions,"
herein.)
Portfolio Quality. The policies of AARP High Quality Bond Fund are
designed to provide a portfolio that combines primarily high quality securities
with investments that attempt to reduce its market price risk.
The portfolio of the AARP High Quality Bond Fund is primarily 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 investment-grade or
higher by Moody's (Aaa, Aa, A, and Baa) or S&P (AAA, AA, A, and BBB) or, if not
rated, will be judged to be of comparable quality by the Fund Manager. The Fund
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may invest up to 20% of its assets in bonds rated Baa by Moody's or rated BBB by
S&P. Securities rated Baa by Moody's or BBB by S&P are neither highly protected
nor poorly secured. These securities normally pay higher yields and are regarded
as having adequate capacity to repay principal and pay interest but involve
potentially greater price variability than higher-quality securities. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The Fund does not purchase securities rated
below investment-grade, commonly known as "junk" bonds. (See "ADDITIONAL
INFORMATION--Ratings of Corporate Bonds.")
Variations of Maturity. In an attempt to capitalize on the differences
in total return from securities of differing maturities, maturities may be
varied according to the structure and level of interest rates, and the Fund
Manager's expectations of changes therein.
Foreign Securities. The AARP High Quality Bond Fund may invest, without
limit, in U.S. dollar-denominated foreign debt securities (including U.S.
dollar-denominated debt securities issued by the Dominion of Canada and its
provinces and other debt securities which meet the Fund's criteria applicable to
its domestic investments), and in certificates of deposit issued by foreign
branches of United States banks, to any extent deemed appropriate by the Fund
Manager. The Fund may invest up to 20% of total assets in foreign debt
securities denominated in currencies other than the U.S. dollar, but no more
than 5% of the Fund's total assets will be represented by a given foreign
currency.
AARP Bond Fund for Income. The Fund seeks to provide a high level of
current income consistent with investments primarily in investment-grade debt
securities, and to keep the price of its shares more stable than that of a
long-term bond.
In pursuit of its investment objectives, under normal market
conditions, the Fund invests at least 65% of its assets in investment-grade debt
securities. Investment-grade securities are rated Aaa, Aa, A, or Baa by Moody's
or AAA, AA, A, or BBB by S&P, or, if unrated, are of equivalent quality as
determined by the Fund Manager. The Fund may invest up to 35% of its assets in
securities rated Ba or B by Moody's or BB or B by S&P, but no more than 10% of
the Fund's assets may be invested in securities rated B by Moody's or S&P. These
two grades of securities are considered to be below investment grade. Below
investment-grade securities are considered predominantly speculative with
respect to their capacity to pay interest and repay principal. They generally
involve a greater risk of default and have more price volatility than securities
in higher rating categories.
The Fund may invest in U.S. Treasury and Agency securities, corporate
bonds and notes, mortgage-backed and other asset-backed securities,
dollar-denominated debt of international agencies or investment-grade foreign
institutions, and money market instruments such as commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks. The Fund may invest up to 20% of total assets in foreign debt
securities denominated in currencies other than the U.S. dollar, but no more
than 5% of the fund's total assets will be represented by a given foreign
currency. The Fund may also purchase "when-issued" securities and invest in
repurchase agreements.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments or invest all or a substantial portion
of its assets in high quality domestic debt securities when the Fund Manager
deems such a position advisable in light of economic or market conditions.
Risks. The Fund can invest a limited portion of assets in below
investment-grade securities, sometimes referred to as "junk" bonds. Investing in
high yielding, lower-quality bonds involves various types of risks including the
risk that issuers of bonds held in the portfolio will not make timely payment of
either interest or principal or may default entirely. This risk of default can
increase with changes in the financial condition of a company or with changes in
the U.S. economy, such as a recession. Compared to investing in higher quality
issues, high yield bond investors may be rewarded for the additional risk of
high yield bonds through higher interest payments and the opportunity for
greater capital appreciation.
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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
by U.S. Government securities, the interest income from which may be subject to
federal income tax. Notwithstanding the foregoing, the Fund may invest more than
20% of its net assets in such taxable U.S. Treasury securities and repurchase
agreements for temporary defensive purposes.
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Insurance. Insurance on at least 65% of the AARP Insured Tax Free
General Bond Fund's total assets will be obtained from nationally recognized
private insurers, including the following: Financial Guaranty Insurance Company
("FGIC") is owned by FGIC Corporation, which in turn is owned by General
Electric Credit Corporation; AMBAC Indemnity Corporation; and Municipal Bond
Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated,
the principal shareholders of which are: The Aetna Life & Casualty Company,
Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and
affiliates of the Continental Insurance Company.
The Fund currently has portfolio insurance provided by FGIC pursuant to
which it may insure securities mutually agreed to between the Fund and FGIC so
long as the security remains in the Fund's portfolio. Pursuant to an irrevocable
commitment, FGIC also provides the Fund with the option to obtain insurance for
any security covered by the FGIC portfolio insurance, which insurance can
continue if the security were to be sold by the Fund. The Fund may procure
portfolio insurance from other insurers.
At least 65% of the Fund's assets are fully insured by private insurers
as to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by the
U.S. Government are purchased and expected to be held for 60 days or more,
insurance will be obtained within 30 days to ensure that 65% of the Fund's
assets are insured by the issuer or arranged for by the Fund. If at least 65% of
its assets are not insured securities, the Fund will obtain insurance for a
portion of its U.S. Government guaranteed or backed securities so that the 65%
standard is achieved.
The Fund requires that insurance with respect to its securities provide
for the unconditional payment of scheduled principal and interest when due. In
the event of a default by the issuer, the insurer will, within 30 days of notice
of such default, provide to its agent or Trustee funds needed to make any such
payments. Such agent or Trustee will bear the responsibility of seeing that such
funds are used to make such payments to the appropriate parties. Such insurance
will not guarantee the market value of a security. Insurance on the Fund's
securities will in some cases continue in the event the securities are sold by
the Fund, while in other cases it may not.
To the extent the Fund's insured municipal securities do not equal 65%
of its total assets, the Fund will obtain insurance on such amount of its U.S.
Government guaranteed or backed securities as is necessary to have 65% of the
Fund's total assets insured at all times. This type of insurance will terminate
when the security is sold and will involve an added cost to the Fund while not
increasing the quality rating of the security.
Insurance on individual securities, whether obtained by the issuer or
the Fund, is non-cancelable and runs for the life of the security. Securities
covered under the Fund's portfolio insurance are insured only so long as they
are held by the Fund, though the Fund has the option to procure individual
secondary market insurance which would continue to cover any such security after
its sale by the Fund. Such guaranteed renewable insurance continues so long as
premiums are paid by the Fund and, in the judgment of the Fund Manager, coverage
should be continued. Non-payment of premiums on the portfolio insurance will,
under certain circumstances result in the cancellation of such insurance and
will also permit FGIC to take action against the Fund to recover premiums due
it. In the case of securities which are individually insured, default by the
issuer is not expected to affect the market value of the security relative to
other insured securities of the same maturity value and coupon and covered by
the same insurer. In the case of a security covered by the Fund's portfolio
insurance, the market value of such a security in the event of such default
might be less unless the Fund elected to purchase secondary market insurance for
it. It is the intention of the Fund Manager either to procure individual
secondary market insurance for, or retain in the Fund's portfolio, securities
which are insured by the Fund under portfolio insurance and which are in default
or significant risk of default in the payment of principal or interest. Any such
securities retained by the Fund would be held until the default has been cured
or the principal and interest have been paid by the issuer or the insurer.
Premiums for individual insurance may be payable in advance or may be
paid periodically over the term of the security by the party then owning the
security, and the costs will be reflected in the price of the security. The cost
of insurance for longer-term securities, expressed in terms of income on the
security, is likely to reduce such income by from 10 to 60 basis points. Thus, a
security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact
of the cost of the Fund's portfolio insurance on the Fund's net yield is
somewhat less. The cost of insurance for shorter-term securities, which are
generally lower-yielding, is expected to be less. It should be noted that
insurance raises the rating of a municipal security. Lower rated securities
generally pay a higher rate of interest than higher rated securities. Thus,
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<PAGE>
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
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
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<PAGE>
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 Blue Chip Index Fund," "AARP Global Growth Fund," "AARP Capital
Growth Fund," "AARP International Stock Fund," "AARP Small Company Stock Fund,"
"INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK
FACTORS" in the Prospectus.)
AARP Balanced Stock and Bond Fund. The AARP Balanced Stock and Bond
Fund's investment objective is to seek to provide long-term growth of capital
and income while attempting to keep the value of its shares more stable than
other balanced mutual funds. The Fund pursues these objectives by investing in a
combination of stocks, bonds, and cash reserves.
The Fund is intended to provide--through a single investment--access to
a wide variety of income-oriented stocks and investment-grade bond investments.
Common stocks and other equity investments provide long-term growth potential to
help offset the effect of inflation on an investor's purchasing power. Bonds and
other fixed-income investments provide current income and may, over time, help
reduce fluctuations in the Fund's share price.
In seeking a balance of growth and income, as well as long-term
preservation of capital, the Fund invests in a diversified portfolio of equity
and fixed-income securities. At least 30% of the Fund's assets will be in
fixed-income securities, with the remainder of its net assets in common stocks
and securities convertible into common stocks. For temporary defensive purposes,
the Fund may invest without limit in cash and in other money market and
short-term instruments when the Fund Manager deems such a position advisable in
light of economic or market conditions.
The Fund will, on occasion, adjust its mix of investments among equity
securities, bonds, and cash reserves. In reallocating investments, the Fund
Manager weighs the relative values of different asset classes and expectations
for future returns. In doing so, the Fund Manager analyzes, on a global basis,
the level and direction of interest rates, capital flows, inflation
expectations, anticipated growth of corporate profits, monetary and fiscal
policies around the world, and other related factors.
The Fund does not take extreme investment positions as part of an
effort to "time the market." Shifts between stocks and fixed-income investments
are expected to occur in generally small increments within the guidelines
adopted in the prospectus and this Statement of Additional Information. The Fund
is designed as a conservative long-term investment.
While the Fund emphasizes U.S. equity and debt securities, it may
invest without limit in foreign securities, including depositary receipts. The
Fund's foreign holdings will meet the criteria applicable to its domestic
investments. Foreign securities are intended to increase diversification, thus
reducing risk, while providing the opportunity for higher returns.
In addition, the Fund may invest in securities on a when-issued or
forward delivery basis and may write (sell) covered call options on the equity
securities it holds to enhance investment return and may purchase and sell
options on stock indices for hedging purposes. Subject to applicable regulatory
guidelines and solely to protect against adverse effects of changes in interest
rates, the Fund may make limited use of financial futures contracts.
Equity investments. The Fund can invest up to 70% of its net assets in
equity securities. The Fund's equity investments consist of common stocks,
preferred stocks and securities convertible into common stocks, of companies
that, in the Fund Manager's judgment, will offer the opportunity for capital
growth and growth of earnings while providing dividends. The Fund pursues these
objectives by investing primarily in common stocks and securities convertible
into common stocks. Over time, a stock which produces continued earnings growth
tends to produce higher dividends and stock values.
The Fund invests in a variety of industries and companies. Changes in
the Fund's portfolio securities are made on the basis of investment
considerations and not for trading purposes.
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Fixed-income investments. To enhance income and stability, the Fund
will have at least 30% of its net assets invested in fixed-income securities.
The Fund can invest in a broad range of corporate bonds and notes, convertible
bonds, and preferred and convertible preferred securities. It may also purchase
U.S. Government securities and obligations of federal agencies and
instrumentalities that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Banks, Farm Credit
Banks, and the Federal Home Loan Mortgage Corporation. The Fund may also invest
in obligations of international agencies, foreign debt securities (both U.S. and
non-U.S. dollar denominated), mortgage-backed and other asset-backed securities,
municipal obligations, zero coupon securities, and restricted securities issued
in private placements.
For liquidity and defensive purposes, the Fund may invest in money
market securities such as commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund may also enter into repurchase agreements with respect to U.S.
Government securities.
All of the Fund's debt securities will be investment grade, that is,
rated Baa or above by Moody's or BBB by S&P. Moreover, at least 75% of these
securities will be high grade, that is, rated within the three highest quality
ratings of Moody's (Aaa, Aa and A) or S&P (AAA, AA and A), or, if unrated,
judged to be of equivalent quality as determined by the Fund Manager at the time
of purchase. Securities must also meet credit standards applied by the Fund
Manager. Moreover, the Fund does not purchase debt securities rated below Baa by
Moody's or BBB by S&P. Should the rating of a portfolio security be downgraded
the Fund Manager will determine whether it is in the best interest of the Fund
to retain or dispose of the security.
AARP Growth and Income Fund. From investments primarily in common
stocks and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth and income, and to keep the value of its shares more
stable than other growth and income mutual funds.
The Fund invests primarily in common stocks and securities convertible
into common stocks. It also may invest in rights to purchase common stocks of
companies offering the prospect for capital growth and growth of earnings while
paying current dividends. The Fund may also invest in preferred stocks
consistent with the Fund's objective. Over time, continued growth of earnings
tends to produce higher dividends and to enhance capital value. In addition,
since 1945, the overall performance of common stocks has exceeded the rate of
inflation. For temporary defensive purposes, the Fund may also purchase
high-quality money market securities (such as U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances) and repurchase
agreements when the Fund Manager deems such a position advisable in light of
economic or market conditions.
AARP Blue Chip Index Fund. Taking an indexing approach to investing in
common stocks, the Fund seeks to provide long-term capital growth and income,
and to keep the value of its shares more stable than a S&P 500 Index fund. The
Fund seeks these dual objectives by emphasizing higher dividend stocks while
maintaining investment characteristics otherwise similar to the S&P 500 Index.
The Fund attempts to remain fully invested in common stocks of S&P 500
companies. Under normal circumstances, the Fund will invest at least 95% of its
assets in common stocks, futures contracts and options, primarily on the S&P 500
Index. The Fund, using a proprietary model, selects common stocks of S&P 500
companies that are expected to, on average, pay higher dividends than S&P 500
companies in the aggregate. After the Fund's start-up phase, the portfolio will
typically consist of the common stocks of between 400 to 470 of the S&P 500
companies. The investment approach is "passive" in that after the dividend
screening described above, there is no additional financial analysis regarding
the securities held in the Fund. Under normal circumstances, the Fund may invest
up to 5% of its assets in certain short-term fixed income securities including
high quality money market securities such as U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks and bankers' acceptances, although cash or cash
equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may invest up to 20% of its assets in stock futures contracts
and options in order to invest uncommitted cash balances, to maintain liquidity
to meet shareholder redemptions, or to minimize trading costs. The Fund will not
invest in cash reserves, futures contracts or options as part of a temporary
defensive strategy, such as lowering the Fund's investment in common stocks to
protect against potential stock market declines.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
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AARP Global Growth Fund. From investments primarily in equity
securities of corporations worldwide, the Fund seeks to offer long-term capital
growth in a globally diversified portfolio, and to keep the value of its shares
more stable than other global equity funds. The Fund invests on a worldwide
basis in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It may also invest in the debt securities of U.S. and foreign
issuers. Income is an incidental consideration.
The management of the Fund believes that there is substantial
opportunity for long-term capital growth from a professionally managed portfolio
of securities selected from the U.S. and foreign equity markets. Global
investing takes advantage of the investment opportunities created by the growing
integration of economies around the world. The world has become highly
integrated in economic, industrial and financial terms. Companies increasingly
operate globally as they purchase raw materials, produce and sell their
products, and raise capital. As a result, international trends such as movements
in currency and trading relationships are becoming more important to many
industries than purely domestic influences. To understand a company's business,
it is frequently more important to understand how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global perspective in deciding where to operate, so
too may an investor benefit from looking globally in deciding which industries
are growing, which producers are efficient and which companies' shares are
undervalued. The Fund affords the investor access to opportunities wherever they
arise, without being constrained by the location of a company's headquarters or
the trading market for its shares.
The Fund invests in companies that the Fund Manager believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency,
or economic relationships. The Fund will normally invest at least 65% of its
total assets in securities of at least three different countries. Typically, it
is expected that the Fund will invest in a wide variety of regions and
countries, including both foreign and U.S. issues. The Fund may be invested 100%
in non-U.S. issues, and for temporary defensive purposes may be invested 100% in
U.S. issues, although under normal circumstances it is expected that both
foreign and U.S. investments will be represented in the Fund's portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
AARP Capital Growth Fund. From investments primarily in common stocks
and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth, and to keep the value of its shares more stable than
other capital growth mutual funds. Through a broadly diversified portfolio
consisting primarily of high quality, medium- to large-sized companies with
strong competitive positions in their industries the Fund seeks to offer less
share price volatility than many growth funds. It may also invest in rights to
purchase common stocks, the growth prospects of which are greater than most
stocks but which may also have above-average market risk. The Fund may also
invest in preferred stocks consistent with the Fund's objective. The securities
in which the Fund may invest are described under "AARP Capital Growth Fund" in
the Prospectus.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly-traded equity securities.
Thus, the search for equity investments for the Fund may encompass any sector of
the market and companies of all sizes. In addition, since 1945, the overall
performance of common stocks has exceeded the rate of inflation. It is a
fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares (see "Investment Restrictions",
herein, for majority voting requirements), that the Fund will not concentrate
its investments in any particular industry. However, the Fund reserves the right
to invest up to 25% of its total assets (taken at market value) in any one
industry.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
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AARP International Stock Fund. The Fund seeks to offer long-term
capital growth from a diversified portfolio of foreign equity securities, and to
keep the value of its shares more stable than other international equity funds.
The Fund generally invests in equity securities of established
dividend-paying companies listed on foreign exchanges within developed foreign
markets. The Fund does not invest in emerging markets, but instead focuses its
investments on the 21 developed foreign countries included in the Morgan Stanley
Capital International World ex USA Index. The Fund will normally invest at least
65% of its total assets in securities of at least three different countries.
When the Fund Manager believes that it is appropriate, the Fund may
invest up to 20% of its total assets in investment-grade foreign debt
securities. Such debt securities include debt securities of foreign governments,
supranational organizations and private issuers, including bonds denominated in
the European Currency Unit (ECU). Debt investments will be selected on yield,
credit quality, and the outlooks for currency and interest rates trends in
different parts of the globe, taking into account the ability to hedge a degree
of currency or local bond price risk. The Fund may purchase "investment-grade"
bonds, which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB
by S&P or, if unrated, judged by the Fund Manager to be of equivalent quality.
Securities rated Baa by Moody's or BBB by S&P are neither highly protected nor
poorly secured. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as Canadian or U.S. government obligations or currencies, corporate debt
instruments, and securities of companies incorporated in and having their
principal activities in Canada or the U.S. when the Fund Manager deems such a
position advisable in light of economic or market conditions.
The Fund may make limited use of financial futures contracts and
related options and may also invest in foreign currency exchange contracts. The
Fund may write (sell) covered call options to enhance investment return, and may
purchase and sell options on stock indices for hedging purposes.
AARP Small Company Stock Fund. From investments primarily in the stocks
of small U.S. companies, the Fund seeks to provide long-term capital growth, and
to keep the value of its shares more stable than other small company stock
funds.
In pursuing its objective of long-term growth of principal, the Fund
normally invests, at least 80% of its assets in the common stocks of small U.S.
companies with market capitalization below $750 million. Using a quantitative
investment approach developed by the Fund Manager, the Fund focuses on
securities of companies that are similar in size to those in the Russell 2000(R)
Index of small stocks that have dividend yields higher than the average of those
in the Index and that the Fund Manager believes are undervalued relative to the
stocks in that Index. The Fund will sell securities of companies that have grown
in market capitalization above the maximum of this level as necessary to keep
the Fund focused on small companies.
The Fund takes a diversified approach to investing in small
capitalization stocks which overall have dividend yields above the average yield
of the Russell 2000(R) Index. It will not be unusual for the Fund to hold stocks
of more than one hundred small companies, representing a variety of U.S.
industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either convertible
or nonconvertible), rights and warrants. Securities may be listed on national
exchanges or traded over-the-counter. The Fund may invest up to 20% of its
assets in U.S. Treasury, agency and instrumentality obligations, may enter into
repurchase agreements and may make use of financial futures contracts and
related options. The Fund may purchase and sell options or futures on stock
indices for hedging purposes as a temporary investment to accommodate cash
flows.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
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such as U.S. government obligations and corporate debt instruments when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
AARP Managed Investment Portfolios
AARP Diversified Income Portfolio. AARP Diversified Income Portfolio
seeks to provide current income with modest long-term appreciation potential by
investing primarily in underlying AARP bond mutual funds.
AARP Diversified Growth Portfolio. The Portfolio seeks long-term growth
of capital by investing primarily in underlying AARP stock mutual funds.
Each Portfolio may invest in any of the AARP Mutual Funds, except for
those designed to provide tax-free income.
Under normal market conditions, each of the AARP Investment Portfolios
will invest within the investment ranges as described below:
The Diversified Income Portfolio will normally invest 60-80% of total
assets in bond oriented AARP Mutual Funds; and 20-40% of total assets
in AARP stock mutual funds; and 0-20% of total assets in cash or
equivalents.
The Diversified Growth Portfolio will normally invest 60-80% of total
assets in stock oriented AARP Mutual Funds; and 20-40% of total assets
in AARP bond mutual funds and/or cash equivalents.
If, as a result of appreciation or depreciation, the percentage of each
Portfolio's assets invested in the above categories exceeds or is less than the
applicable range, the Fund Manager will consider, in its discretion, whether to
reallocate the assets of each Portfolio to comply with the stated ranges.
Each Portfolio will purchase or sell shares of underlying AARP mutual
funds to: (a) accommodate purchases and sales of each Portfolio's shares, (b)
change the percentages of each Portfolio's assets invested in each of the
underlying AARP mutual funds in response to changing market conditions, and (c)
maintain or modify the allocation of each Portfolio's assets in accordance with
the investment mix described above. To provide for redemptions or for temporary
defensive purposes, each Portfolio may invest without limit in cash or cash
equivalents, including repurchase agreements, commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks.
For information about the investment objectives of each of the
underlying AARP mutual funds, please refer to the description of each underlying
AARP mutual fund contained in the sections preceding this section.
Special Investment Policies of the AARP Funds
(See "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
U.S. Government Securities. U.S. Treasury securities, backed by the
full faith and credit of the U.S. Government, include a variety of securities
which differ in their interest rates, maturities and times of issuance. Treasury
bills have original maturities of one year or less. Treasury notes have original
maturities of one to ten years and Treasury bonds generally have original
maturities of greater than ten years.
U.S. Government agencies and instrumentalities which issue or guarantee
securities include, for example, the Export-Import Bank of the United States,
the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and the
Federal Farm Credit Bank. Obligations of some of these agencies and
instrumentalities, such as the Export-Import Bank, are supported by the full
faith and credit of the United States; others, such as the securities of the
Federal Home Loan Bank, by the ability of the issuer to borrow from the
Treasury; while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. No assurance can be given
that the U.S. Government would provide financial support to the latter group of
U.S. Government instrumentalities, as it is not obligated to do so.
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Interest rates on U.S. Government obligations which the AARP Funds may
purchase may be fixed or variable. Interest rates on variable rate obligations
are adjusted at regular intervals, at least annually, according to a formula
reflecting then current specified standard rates, such as 91-day U.S. Treasury
bill rates. These adjustments tend to reduce fluctuations in the market value of
the securities.
Municipal Obligations. Municipal obligations held by AARP High Quality
Tax Free Money Fund and AARP Insured Tax Free General Bond Fund are issued by or
on behalf of states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on these
obligations is generally exempt from federal income tax in the hands of most
investors. The two principal classifications of municipal obligations are
"notes" and "bonds." Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the FHA under "Fannie Mae" (the Federal National Mortgage Association)
or GNMA. There are, of course, a number of other types of notes issued for
different purposes and secured differently than those described above.
Municipal bonds, which meet longer-term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully-insured, rent-subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt reserve fund.
Lease rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Some issues of municipal bonds are payable from United States Treasury
bonds and notes held in escrow by a Trustee, frequently a commercial bank. The
interest and principal on these U.S. Government securities are sufficient to pay
all interest and principal requirements of the municipal securities when due.
Some escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.
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Private activity bonds, although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by an
industrial or other non-governmental user.
Securities purchased for either Fund may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for the
AARP Funds' purposes to mature at the demand date.
There are, in addition, a variety of hybrid and special types of
municipal obligations as well as numerous differences in the security of
municipal obligations both within and between the two principal classifications
(i.e., notes and bonds) discussed above.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as the AARP Funds. Thus, such an
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale unless an
exemption from such registration is available, municipal obligations which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for municipal obligations which have not been publicly offered initially.
Obligations purchased for a Fund are subject to the limitations on holdings of
securities which are not readily marketable based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its recorded
value. The AARP Funds believe that the quality standards applicable to their
investments enhance marketability. In addition, stand-by commitments,
participation interests and demand obligations also enhance marketability.
For the purpose of the AARP Funds' investment restrictions, the
identification of the "issuer" of municipal obligations which are not general
obligation bonds is made by the Fund Manager on the basis of the characteristics
of the obligation as described above, the most significant of which is the
source of funds for the payment of principal and interest on such obligations.
Municipal Lease Obligations and Participation Interests. Participation
interests represent undivided interests in municipal leases, installment
purchase contracts, conditional sales contracts or other instruments. These are
typically issued by a Trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or contracts.
Each AARP Tax Free Fund may purchase from banks participation interests
in all or part of specific holdings of municipal obligations, provided the
participation interest is fully insured. Each participation is backed by an
irrevocable letter of credit or guarantee of the selling bank that the AARP
Funds' investment adviser has determined meets the prescribed quality standards
of the Fund. Thus either the credit of the issuer of the municipal obligation or
the selling bank, or both, will meet the quality standards of the particular
Fund. Each Fund has the right to sell the participation back to the bank after
seven days' notice for the full principal amount of the Fund's interest in the
municipal obligation plus accrued interest, but only (1) as required to provide
liquidity to the Fund, (2) to maintain a high quality investment portfolio or
(3) upon a default under the terms of the municipal obligation. The selling bank
will receive a fee from the Fund in connection with the arrangement. Neither
Fund will purchase participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service satisfactory to the Trustees
that interest earned by that Fund on municipal obligations on which it holds
participation interests is exempt from Federal income tax.
A municipal lease obligation may take the form of a lease, installment
purchase contract or conditional sales contract which is issued by a state or
local government and authorities to acquire land, equipment and facilities.
Income from such obligations is generally exempt from state and local taxes in
the state of issuance. Municipal lease obligations frequently involve special
risks not normally associated with general obligations or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide
for title in the leased asset to pass eventually to the governmental issuer)
have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
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payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis.
In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the
property in the event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in a delay in recovery or the failure to
fully recover a Fund's original investment.
Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of a Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by a Fund may be determined by the Fund Manager to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Fund Manager will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace trades. In
addition, the Fund Manager will consider factors unique to particular lease
obligations and participation interests affecting the marketability thereof.
These include the general creditworthiness of the issuer, the importance to the
issuer of the property covered by the lease and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by a Fund.
A Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide a Fund with the right to a pro rata undivided interest in
the underlying municipal lease obligations. In addition, such participations
generally provide a Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of such Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. Each Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Fund Manager,
the interest from such participations is exempt from regular federal income tax
and state income tax for each state specific fund.
Stand-by Commitments. Pursuant to an exemptive order from the SEC, each
AARP Tax Free Fund may acquire "stand-by commitments," which will enable the
Fund to improve its portfolio liquidity by making available same-day settlements
on sales of its securities. A stand-by commitment is a right acquired by a Fund,
when it purchases a municipal obligation from a broker, dealer or other
financial institution ("seller"), to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a specified price.
Stand-by commitments are also known as "puts." Each Fund's investment policies
permit the acquisition of stand-by commitments solely to facilitate portfolio
liquidity and not to protect against changes in the market price of the Fund's
portfolio securities. The exercise by a Fund of a stand-by commitment is subject
to the ability of the other party to fulfill its contractual commitment.
Stand-by commitments acquired by a Fund will have the following
features: (1) they will be in writing and will be physically held by the Fund's
custodian; (2) a Fund's right to exercise them will be unconditional and
unqualified; (3) they will be entered into only with sellers which in the Fund
Manager's opinion present a minimal risk of default; (4) although stand-by
commitments will not be transferable, municipal obligations purchased subject to
such commitments may be sold to a third party at any time, even though the
commitment is outstanding; and (5) their exercise price will be (i) the Fund's
acquisition cost (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized original
issue discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date.
Each Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund will pay for stand-by commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding stand-by commitments will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
any stand-by commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential
benefit of a stand-by commitment. Therefore, it is expected that the Trustees
will determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security will ordinarily be
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valued at such exercise price. Where a Fund has paid for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held.
There is no assurance that stand-by commitments will be available to a
Fund nor does either Fund assume that such commitments would continue to be
available under all market conditions.
Third Party Puts. The AARP Tax Free Funds may also purchase long-term
fixed rate bonds that have been coupled with an option granted by a third party
financial institution allowing a Fund at specified intervals (not exceeding 397
calendar days in the case of AARP High Quality Tax Free Money Fund) to tender
(or "put") the bonds to the institution and receive the face value thereof (plus
accrued interest). These third party puts are available in several different
forms, may be represented by custodial receipts or Trust certificates and may be
combined with other features such as interest rate swaps. The Fund receives a
short-term rate of interest (which is periodically reset), and the interest rate
differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the weighted average maturity of the Fund's portfolio would be
adversely affected.
These bonds coupled with puts may present the same tax issues as are
associated with Stand-By Commitments discussed above. As with any Stand-By
Commitments acquired by the Funds, each Fund intends to take the position that
it is the owner of any municipal obligation acquired subject to a third-party
put, and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the
Internal Revenue Service will agree with such position in any particular case.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the treatment of tender fees and swap payments, in
relation to various regulated investment company tax provisions is unclear.
However, the Fund Manager intends to manage the Funds' portfolios in a manner
designed to minimize any adverse impact from these investments.
Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with any member bank of the Federal Reserve System and any
broker-dealers which are recognized as a reporting government securities dealer,
whose creditworthiness has been determined by the Fund Manager to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by any of the nationally-recognized rating services including Moody's
and S&P, two of the most widely recognized rating services for the types of
securities in which a Fund invests. A repurchase agreement, which provides a
means for a Fund to earn income on monies for periods as short as overnight, is
an arrangement under which the purchaser (i.e., the Fund) acquires a security
("Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. The repurchase price may be higher
than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Fund at the time of repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. For purposes of
the Investment Company Act of 1940, as amended, ("1940 Act") a repurchase
agreement is deemed to be a loan to the seller of the Obligation and is
therefore covered by each Fund's investment restriction applicable to loans.
Each repurchase agreement entered into by a Fund requires that if the market
value of the Obligation becomes less than the repurchase price (including
interest), a Fund will direct the seller of the Obligation, on a daily basis to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. In the
event that a Fund is unsuccessful in seeking to enforce the contractual
obligation to deliver additional securities, and the seller defaults on its
obligation to repurchase, the Fund bears the risk of any drop in market value of
the Obligation(s). In the event that bankruptcy or insolvency proceedings were
commenced with respect to a bank or broker-dealer before its repurchase of the
Obligation, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. In the case of repurchase agreements, it is not clear whether a
court would consider a repurchase agreement as being owned by the particular
Fund or as being collateral for a loan by the Fund. If a court were to
characterize the transaction as a loan and the Fund had not perfected a security
interest in the Obligation, the Fund could be required to return the Obligation
to the bank's estate and be treated as an unsecured creditor. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in that transaction. The Fund Manager seeks to minimize the
risk of loss through repurchase agreements by analyzing the creditworthiness of
the obligor, in this case the seller of the Obligations.
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Securities subject to a repurchase agreement are held in a segregated
account, and the amount of such securities is adjusted so as to provide a market
value at least equal to the repurchase price on a daily basis.
Each of the AARP Income Funds has adopted a policy, which may be
changed without the vote of the shareholders of those funds, not to invest more
than 50% of its total assets in repurchase agreements. In addition, none of the
AARP Funds may invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days. (See "Investment Restrictions", herein,
regarding requirements for a majority vote.)
Mortgage-Backed Securities and Mortgage Pass-Through Securities. The AARP High
Quality Bond Fund, the AARP Bond Fund for Income, and the AARP Balanced Stock
and Bond Fund may invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. The AARP GNMA and
U.S. Treasury Fund invests in mortgage-backed securities guaranteed primarily by
the Government National Mortgage Association. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
AARP High Quality Bond Fund, the AARP Bond Fund for Income, and the AARP
Balanced Stock and Bond Fund may also invest in debt securities which are
secured with collateral consisting of mortgage-backed securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.
When interest rates rise, mortgage prepayment rates decline, thus
lengthening the life of a mortgage-related security and increasing the price
volatility of that security, affecting the price volatility of the Fund's
shares.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages. These guarantees, however, do not apply to the market
value or yield of mortgage-backed securities or to the value of Fund shares.
Also, GNMA securities often are purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
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FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Fund Manager determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMO"s). The AARP High Quality Bond Fund,
the AARP Bond Fund for Income, and the AARP Balanced Stock and Bond Fund may
invest in CMOs which are hybrids between mortgage-backed bonds and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the AARP High Quality Bond Fund's, the AARP Bond Fund
for Income's, and the AARP Balanced Stock and Bond Fund's investment objectives
and policies, the Funds may invest in these and other types of asset-backed
securities that may be developed in the future. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments with interest rate
fluctuations.
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Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile ReceivablesSM ("CARSSM"). CARSSM
represent undivided fractional interests in a trust ("Trust") whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the Trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The Fund will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
The Funds may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 (the "1933 Act") may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require the Funds to dispose of any then existing holdings of such
securities.
Zero Coupon Securities. The AARP Balanced Stock and Bond Fund and the
AARP Global Growth Fund may invest in zero coupon securities which pay no cash
income and are sold at substantial discounts from their value at maturity. When
held to maturity, their entire income, which consists of accretion of discount,
comes from the difference between the issue price and their value at maturity.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon securities which are
convertible into common stock offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.
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Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the 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 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES" herein).
High Yield/High Risk Securities. AARP Bond Fund for Income may invest a
limited amount of assets in debt securities which are rated below
investment-grade (hereinafter referred to as "lower rated securities") or which
are unrated, but deemed equivalent to those rated below investment-grade by the
Fund Manager. The lower the ratings of such debt securities, the greater their
risks. These debt instruments generally offer a higher current yield than that
available from higher grade issues, but typically involve greater risk. The
yields on high yield/high risk bonds will fluctuate over time. In general,
prices of all bonds rise when interest rates fall and fall when interest rates
rise. While less sensitive to changing interest rates than investment-grade
debt, lower-rated securities are especially subject to adverse changes in
general economic conditions and to changes in the financial condition of their
issuers. During periods of economic downturn or rising interest rates, issuers
of these instruments may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of these
securities especially in a market characterized by only a small amount of
trading and with relatively few participants. These factors can also limit the
Fund's ability to obtain accurate market quotations for these securities, making
it more difficult to determine the Fund's NAV.
In cases where market quotations are not available, lower rated
securities are valued using guidelines established by the Fund's Board of
Trustees. Perceived credit quality in this market can change suddenly and
unexpectedly, and may not fully reflect the actual risk posed by a particular
lower rated or unrated security.
Loans of Portfolio Securities. Each Fund may lend its portfolio
securities provided: (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or cash equivalents adjusted
daily to have a market value at least equal to the current market value of the
securities loaned; (2) the Fund may at any time call the loan and regain the
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securities loaned; (3) the Fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Fund. In
addition, it is anticipated that the Fund may share with the borrower some of
the income received on the collateral for the loan or that it will be paid a
premium for the loan. In determining whether to lend securities, the Fund's
investment adviser considers all relevant factors and circumstances including
the creditworthiness of the borrower. The AARP Funds have no current intention
of lending their portfolio securities.
Securities Purchased on a "Forward Delivery" or "When-Issued" Basis.
Debt securities, including municipal obligations when originally issued, are
frequently offered on a "forward delivery" or "when-issued" basis and may be
purchased on this basis by the AARP Money, Income and Tax Free Funds, and the
AARP Balanced Stock and Bond Fund. When so offered, the price, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase of U.S. Government obligations. During the period between purchase and
settlement, no payment is made on behalf of the Fund and no interest accrues to
the Fund. To the extent that assets of the Fund are not invested prior to the
settlement of a purchase of securities, the Fund will earn no income; however,
it is the intention of each Fund to be fully invested to the extent practicable,
subject to the policies stated above. While securities purchased on a forward
delivery or when-issued basis may be sold prior to the settlement date, each of
the above Funds intends to purchase such securities with the purpose of actually
acquiring them for its portfolio unless a sale appears desirable for investment
reasons. At the time the commitment to purchase a debt security on a forward
delivery or when-issued basis is made, the transaction will be recorded and the
value of the security will be reflected in determining its net asset value. The
market value of the when-issued or forward delivery securities may be more or
less than the purchase price payable at settlement date. The Funds do not
believe that their net asset value or income will be adversely affected by their
purchase of debt securities on a when-issued or forward delivery basis. Each
Fund will establish with its custodian a segregated account in which it will
maintain cash, U.S. Government securities and other high-quality debt
obligations equal in value to commitments for when-issued or forward delivery
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date.
Futures Contracts. The AARP Income Funds, the AARP Insured Tax Free
General Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP Global Growth
Fund, the AARP International Stock Fund, the AARP Blue Chip Index Fund and the
AARP Small Company Stock Fund may each enter into financial futures contracts.
Such contracts may be either based on indices of particular groups or varieties
of securities ("Index Futures Contracts") or be for the purchase or sale of debt
obligations ("Debt Futures Contracts"). Such futures contracts are traded on
exchanges licensed and regulated by the Commodity Futures Trading Commission.
Each Fund enters into futures contracts to gain a degree of protection against
anticipated changes in interest rates that would otherwise have an adverse
effect upon the economic interests of the Fund. However, the costs of and
possible losses from futures transactions reduce the Funds' yield from interest
on its holdings of debt securities. Income from futures transactions constitutes
taxable gain.
For each Fund, the custodian places cash, U.S. government securities
and other high grade debt obligations into a segregated account in an amount
equal to the value of the total assets committed to the consummation of futures
positions. If the value of the securities placed in the segregated account
declines, additional cash or securities are required to be placed in the account
on a daily basis so that the value of the account equals the amount of a Fund's
commitments with respect to such contracts. Alternatively, a Fund may cover such
positions by purchasing offsetting positions, or covering such positions partly
with cash, U.S. government securities and other high grade debt obligations, and
partly with offsetting positions.
An Index Futures Contract is a contract to buy or sell units of a
particular index of securities at a specified future date at a price agreed upon
when the contract is made. Index Futures Contracts typically specify that no
delivery of the actual securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based on the
difference between the contract price and the actual price on the termination
date of the units of the index.
A Debt Futures Contract is a binding contractual commitment which, if
held to maturity, requires a Fund to make or accept delivery, during a
particular month, of obligations having a standardized face value and rate of
return. By purchasing a Debt Futures Contract, a Fund legally obligates itself
to accept delivery of the underlying security and to pay the agreed price; by
selling a Debt Futures Contract it legally obligates itself to make delivery of
the security against payment of the agreed price. However, positions taken in
the futures markets are not normally held to maturity. Instead they are
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liquidated through offsetting transactions which may result in a profit or loss.
While Debt Futures Contract positions taken by a Fund are usually liquidated in
this manner, a Fund may instead make or take delivery of the underlying
securities whenever it appears economically advantageous.
A clearing corporation, associated with the exchange on which futures
contracts are traded, assumes responsibility for close-outs of such contracts
and guarantees that the sale or purchase, if still open, is performed on the
settlement date.
By entering into futures contracts, a Fund seeks to establish more
certainly than would otherwise be possible the effective rate of return on its
portfolio securities. A Fund may, for example, take a "short" position in the
futures markets by selling a Debt Futures Contract for the future delivery of
securities held by the Fund in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of such securities. Or it
might sell an Index Futures Contract based on a group of securities whose price
trends show a significant correlation with those of securities held by the Fund.
When hedging of this character is successful, any depreciation in the value of
portfolio securities is substantially offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long" position by
purchasing futures contracts. This is done when the Fund is not fully invested
or expects to receive substantial proceeds from the sale of portfolio securities
or of Fund shares, and anticipates the future purchase of particular securities
but expects the rate of return then available in the securities markets to be
less favorable than rates that are currently available in the futures markets.
The Funds expect that, in the normal course, securities will be purchased upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.
Debt Futures Contracts, however, currently involve only taxable
obligations and do not encompass municipal securities. The value of Debt Futures
Contracts on taxable securities, as well as Index Futures Contracts, may not
vary in direct proportion with the value of a Fund's securities, limiting the
ability of the Fund to hedge effectively against interest rate risk.
Presently the only available index futures contract in which the AARP
Insured Tax Free General Bond Fund might invest is the Bond Buyer Municipal Bond
Index. The Fund might sell a contract based on this index in anticipation of an
increase in interest rates, to attempt to offset the decrease in market value of
its portfolio securities 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, the AARP Global Growth Fund, the AARP International Stock Fund, the
AARP Blue Chip Index Fund and the AARP Small Company Stock Fund may purchase and
write (sell) put and call options on futures contracts that are traded on a U.S.
exchange or board of trade and enter into related closing transactions. There
can be no assurance that such closing transactions will be available at all
times. In return for the premium paid, such an option gives the purchaser the
right to assume a position in a futures contract at any time during the option
period for a specified exercise price.
A Fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.
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The purchase of call options on futures contracts is intended to serve
the same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.
A Fund may write (sell) a call option on a futures contract in order to
hedge against a decline in the prices of the index or debt securities underlying
the futures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing (selling) of a put option on a futures contract is similar
to the purchase of the futures contracts, except that, if market price declines,
a Fund would pay more than the market price for the underlying securities or
index units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
Limitations on Futures Contracts and Options on Futures Contracts. A
Fund will not engage in transactions in futures contracts or related options for
speculation but only as a hedge against changes resulting from market conditions
in the values of debt securities held in its portfolio or which it intends to
purchase and where the transactions are appropriate to the reduction of the
Fund's risks. The Trustees have adopted policies (which are not Fundamental and
may be modified by the Trustees without a shareholder vote) that, immediately
after the purchase for a Fund of a futures contract or a related option, the
value of the aggregate initial margin deposits with respect to all futures
contracts (both for receipt and delivery), and premiums paid on related options,
entered into on behalf of the Fund will not exceed 5% of the fair market value
of the Fund's total assets. Additionally, the value of the aggregate premiums
paid for all put and call options held by a Fund will not exceed 20% of its net
assets. Futures contracts and put options written (sold) by a Fund will be
offset by assets of the Fund held in a segregated account in an amount
sufficient to satisfy obligations under such contracts and options.
Each Fund has received from the CFTC an interpretative letter
confirming its opinion that it is not a "commodity pool" as defined under the
Commodity Exchange Act. To ensure that its futures transactions meet this
definition, each Fund will enter into them for the purposes and with the hedging
intent specified in CFTC regulations. It will further determine that the price
fluctuations in the futures contracts used for hedging are substantially related
to price fluctuations in securities held by the Fund or which it expects to
purchase, though there can be no assurance this result will be achieved. The
Funds' futures transactions will be entered into for traditional hedging
purposes-- that is, futures contracts will be sold (or related put options
purchased) to protect against a decline in the price of securities that a Fund
owns, or futures contracts (or related call options) will be purchased to
protect the Fund against an increase in the price of securities it intends to
purchase. As evidence of this hedging intent, each Fund expects that
approximately 75% of its long futures positions (purchases of futures contracts
or call options on futures contracts) will be "completed"; that is, upon sale
(or other termination) of these long contracts, the Fund will have purchased, or
will be in the process of, purchasing, equivalent amounts of related securities
in the cash market. However, under unusual market conditions, a long futures
position may be terminated without the corresponding purchase of securities.
Covered Call Options. Each of the AARP Growth Funds and each of the
AARP Income Funds may write (sell) covered call options on their portfolio
securities in an attempt to enhance investment performance. The writing of
covered call options by each Fund is subject to limitations imposed by certain
state securities authorities. The Funds have been advised that, under the most
restrictive of such limitations currently in effect, no more than 25% of a
Fund's net assets may be subject to covered options. Further, such states advise
that, unless an exception is granted with respect to certain transactions in
debt securities and related options, such options and the securities underlying
the call must both be listed on national securities exchanges.
When a Fund writes (sells) a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") at any time during the option
period, generally ranging up to nine months. If the option expires unexercised,
the Fund will realize gain to the extent of the amount received for the option
(the "premium") less any commission paid. If the option is exercised, a decision
over which the Fund has no control, the Fund must sell the underlying security
to the option holder at the exercise price. By writing a covered option, the
Fund forgoes, in exchange for the premium less the commission ("net premium"),
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the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price.
When a Fund sells an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked-to-market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction (i.e., the Fund
terminates its obligation as the writer of the option by purchasing a call
option on the same security with the same exercise price and expiration date as
the option previously written), the Fund will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the net premium received when the
option was sold) and the deferred credit related to such option will be
eliminated. If an option is exercised, the Fund will realize a long-term or
short-term gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received.
The writing of covered options may be deemed to involve the pledge of the
securities against which the option is being written. Securities against which
options are written will be segregated on the books of the Fund's custodian.
Purchasing Options on Stock Indices. To protect the value of their
portfolios against declining stock prices, each of the AARP Growth Funds may
purchase put options on stock indices. To protect against an increase in the
value of securities that it wants to purchase, a Fund may purchase call options
on stock indices. A stock index (such as the Standard & Poor's 500) assigns
relative values to the common stocks included in the index and the index
fluctuates with the changes in the market values of the common stocks so
included. Options on stock indices are similar to options on stock except that,
rather than giving the purchaser the right to take delivery of stock at a
specified price, an option on a stock index gives the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Gain or loss with respect to options on stock indices depends on price movements
in the stock market generally rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of a stock index option depends upon movements in the
level of the stock index rather than the price of a particular stock, whether a
Fund will realize a gain or loss on the purchase of a put or call option on a
stock index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of both
put and call options on stock indices will be subject to the Fund Manager's
ability to accurately predict movements in the direction of the stock market
generally or of a particular industry. In cases where the Fund Manager's
prediction proves to be inaccurate, a Fund will lose the premium paid to
purchase the option and it will have failed to realize any gain.
In addition, a Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock indices (and therefore
the extent of its gain or loss on such transactions) depends on the degree to
which price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the securities being
hedged will not move in the same amount as the option. This risk will increase
as the composition of a Fund's portfolio diverges from the composition of the
index.
Over-the-counter options ("OTC options") are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. A Fund will only sell OTC options (other than OTC
currency options) that are subject to a buy-back provision permitting a Fund to
require the Counterparty to sell the option back to the Fund at a formula price
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within seven days. A Fund expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Fund Manager must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers", or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing no
more than 10% of its assets in illiquid securities.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
Risks of Futures and Options Investments. A Fund will incur brokerage
fees in connection with its futures and options transactions, and it will be
required to segregate Funds for the benefit of brokers as margin to guarantee
performance of its futures and options contracts. In addition, while such
contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.
The AARP Growth Funds may engage in over-the-counter options
transactions with broker-dealers who make markets in these options. The Fund
Manager will consider risk factors such as their creditworthiness when
determining a broker-dealer with which to engage in options transactions. The
ability to terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The Fund Manager will monitor the creditworthiness of
dealers with whom the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.
Convertible Securities. Convertible securities include convertible
bonds, notes and debentures, convertible preferred stocks, and other securities
that give the holder the right to exchange the security for a specific number of
shares of common stock. Convertible securities entail less credit risk than the
issuer's common stock because they are considered to be "senior" to common
stock. Convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
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Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Bond Fund may invest
without limit in U.S. dollar denominated foreign securities and may invest up to
20% of its assets in foreign bonds denominated in foreign currencies although no
more than 5% of the Fund's total assets will be represented by a given foreign
currency. The AARP Bond Fund for Income may invest without limit in U.S. dollar
denominated investment-grade foreign securities and may invest up to 20% of its
assets in foreign bonds denominated in foreign currencies. The AARP Money Funds
may currently invest in U.S. dollar-denominated certificates of deposit and
bankers' acceptances of foreign branches of large U.S. banks.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in United States securities and
which may favorably or unfavorably affect the Funds' performance. As foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity, have
substantially less volume than the U.S. market, and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than in the
United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on some foreign securities exchanges and bid to
asked spreads in foreign bond markets are generally higher than commissions on
bid to asked spreads on U.S. markets, although the Funds will endeavor to
achieve the most favorable net results on their portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S. It may be more difficult for the
Funds' agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks such as possible
currency blockages or transfer restrictions, and the difficulty of enforcing
rights in other countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, to the
extent investments in foreign securities involve currencies of foreign
countries, the Funds may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversion between currencies.
Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
The possibility of revolution and the dependence on foreign economic assistance
may be greater in these countries than in developed countries. The management of
each Fund seeks to mitigate the risks associated with these considerations
through diversification and active professional management.
Forward Foreign Currency Exchange Contracts. Each of the AARP Growth
Funds and the AARP High Quality Bond Fund and the AARP Bond Fund for Income may
enter into forward foreign currency exchange contracts in connection with its
investments in foreign securities. A forward foreign currency exchange contract
("forward contract") involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any amount
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between banks or currency dealers so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract.
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The Funds may enter into foreign currency futures contracts in several
circumstances. First, when the Funds enter into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Funds
anticipates the receipt in a foreign currency of interest and dividend payments
on such a security which it holds, the Funds may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such interest and
dividend payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying transactions, the Funds will attempt
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend payment is declared, and the date on which such
payments are made or received.
The Funds' activities involving forward contracts may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.
General Investment Policies of the AARP Funds
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.
The AARP Funds have no present intention of acquiring restricted
securities, though they have limited authority to do so (see "Investment
Restrictions").
The AARP Funds cannot guarantee a gain or eliminate the risk of loss.
The net asset value of a non-money market Fund's shares will increase or
decrease with changes in the market prices of the Fund's investments and there
is no assurance that a Fund's objective(s) will be achieved.
Except where otherwise indicated, the objectives and policies stated
above may be changed by the Trustees without a vote of the shareholders.
Investment Restrictions
The following restrictions may not be changed with respect to a Fund
without the approval of a majority of the outstanding voting securities of such
Fund which, under the 1940 Act and the rules thereunder and as used in this
Statement of Additional Information, means the lesser of (1) 67% of the shares
of such Fund present at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (2) more
than 50% of the outstanding shares of such Fund.
(A) Neither AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund may:
(1) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that a Fund maintains asset coverage of 300% for
all borrowings;
(2) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of a Fund;
(3) make loans to other persons, except to the extent that the entry into
repurchase agreements in accordance with its investment objectives and
investment policies may be deemed to be loans;
(4) purchase or sell real estate (except that a Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and
(ii) securities secured by real estate or interests therein, and that
a Fund reserves freedom of action to hold and to sell real estate
acquired as a result of a Fund's ownership of securities); and
(5) purchase or sell physical commodities or contracts relating to
physical commodities.
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(B) Neither AARP Diversified Income Portfolio nor AARP Diversified Growth
Portfolio may:
(1) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that a Portfolio maintains asset coverage of 300%
for all borrowings;
(2) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of a Portfolio;
(3) make loans to other persons, except to the extent that the entry into
repurchase agreements in accordance with its investment objectives and
investment policies may be deemed to be loans;
(4) purchase or sell real estate (except that an Underlying Scudder Fund
may invest in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or interests
therein, and that an Underlying Scudder Fund reserves freedom of
action to hold and to sell real estate acquired as a result of an
Underlying Scudder Fund's ownership of securities); and
(5) purchase or sell physical commodities or contracts relating to
physical commodities.
(C) Neither AARP High Quality Money Fund, AARP GNMA and U.S. Treasury Fund,
AARP High Quality Bond Fund, AARP High Quality Tax Free Money Fund, AARP
Insured Tax Free General Bond Fund, AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Global Growth Fund nor AARP Capital Growth
Fund may:
(1) borrow money, except for temporary or emergency purposes and not for
investment purposes or except in connection with reverse repurchase
agreements; provided that a Fund maintains asset coverage of 300% for
all borrowings;
(2) underwrite any securities issued by other persons, except that it may
be deemed an underwriter in connection with the disposition of
portfolio securities of the Fund;
(3) purchase or sell real estate, but this shall not prevent a Fund from
investing in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or interests
therein, and that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership of
securities;
(4) purchase or sell physical commodities, or contracts relating to
physical commodities;
(5) make loans to other persons, except (i) loans of portfolio securities,
and (ii) except to the extent that the entry into repurchase
agreements and the purchase of debt securities in accordance with its
investment objective and investment policies may be deemed to be
loans;
(6) issue senior securities except as appropriate to evidence indebtedness
which it is permitted to incur and except for shares of the separate
classes or series of the 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; and
(7) with respect to 75% of each Fund's total assets, purchase more than
10% of the voting securities of any one issuer or invest more than 5%
of the value of the total assets of the Fund in the securities of any
one issuer (except for investments in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, cash and
cash equivalents and securities of other investment companies),
provided that the amount of the total assets of each of the AARP High
Quality Money Fund and AARP High Quality Tax Free Money Fund, that may
be invested in the securities of any one issuer will, instead, be
limited in accordance with federal law, regulation and regulatory
interpretation applicable to money market funds, as amended from time
to time.
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(D) Neither the AARP High Quality Money Fund, the AARP GNMA and U.S.
Treasury Fund, the AARP High Quality Bond Fund, the AARP Bond Fund for
Income, the AARP Growth and Income Fund, the AARP Global Growth Fund
nor the AARP Capital Growth Fund may:
(1) purchase any securities which would cause more than 25% of the
market value of the total assets of the Fund at the time of
such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry (for this purpose, telephone companies are considered
to be a separate industry from gas and electric public
utilities, and wholly-owned finance companies are considered
to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents),
provided that there is no limitation in respect to investments
in the U.S. Government or its agencies or instrumentalities
or, in the case of AARP High Quality Money Fund, in
certificates of deposit or bankers' acceptances or, in the
case of the AARP Growth and Income Funds, to municipal
securities other than pollution control and industrial
development bonds.
(E) Neither the AARP High Quality Tax Free Money Fund nor the AARP Insured Tax
Free General Bond Fund may:
(1) purchase (i) private activity bonds or (ii) securities which
are neither municipal bonds nor securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry. For this
purpose, telephone companies are considered to be a separate
industry from gas and electric public utilities and
wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily
related to financing the activities of their parents provided
that, in the case of the AARP High Quality Tax Free Money
Fund, there is no limitation in respect to investments in the
U.S. Government or its agencies or instrumentalities, or in
certificates of deposit or bankers' acceptances.
(F) AARP High Quality Tax Free Money Fund may not:
(1) purchase securities which are not municipal obligations if
such purchase would cause more than 20% of the Fund's total
assets to be invested in such securities, except, for
temporary defensive purposes, that the Fund may invest more
than 20% of its total assets in such securities prior to the
time normal operating conditions have been achieved and during
other than normal market conditions.
The following restrictions are not fundamental and may be changed by a Fund
without shareholder approval, in compliance with applicable law, regulation or
regulatory policy.
Neither AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP International
Stock Fund and AARP Small Company Stock Fund, AARP Diversified Income Portfolio
nor AARP Diversified Growth Portfolio may:
(a) invest in companies for the purpose of exercising management or
control; and
(b) borrow money in excess of 5% of total assets (taken at market value)
except for temporary or emergency purposes or borrow other than from
banks.
Neither AARP High Quality Money Fund, AARP GNMA and U.S. Treasury Fund, AARP
High Quality Bond Fund, AARP High Quality Tax Free Money Fund, AARP Insured Tax
Free General Bond Fund, AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP Global Growth Fund nor AARP Capital Growth Fund may:
(a) make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary
for the clearance of transactions; and, in the case of the
AARP Income Funds and AARP Insured Tax Free General Bond Fund
in connection with entering into futures contracts and related
options;
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(b) purchase or retain for a Fund the securities of any issuer if those
officers and Trustees of a Trust, or partners and officers of its
investment adviser, who individually own more than 1/2 of 1% of the
outstanding securities of such issuer, together own more than 5% of
such outstanding securities;
(c) purchase from or sell to any of the officers and Trustees of a Trust,
its investment adviser, its principal underwriter or the officers,
directors, and partners of its investment adviser or principal
underwriter, portfolio securities of a Fund;
(d) purchase restricted securities (for these purposes restricted security
means a security with a legal or contractual restriction on resale in
the principal market in which the security is traded), including
repurchase agreements maturing in more than seven days and securities
which are not readily marketable if as a result more than 10% of the
net assets (valued at market at purchase) would be invested in such
securities;
(e) purchase securities of any issuer with a record of less than three
years continuous operation, including predecessors, and equity
securities of issuers that are not readily marketable, except
obligations issued or guaranteed by the U.S. Government or its
agencies (or, in the case of the AARP Tax-Free Income Funds, municipal
securities rated by a recognized municipal bond rating service), if
such purchase would cause the investments of that Fund in all such
issuers to exceed 5% of the value of the total assets of that Fund;
(f) invest its assets in securities of other open-end investment
companies, but may invest in closed-end investment companies when such
purchases are made in the open market where no commission or profit to
a sponsor or dealer result from such purchase other than the customary
broker's commission, if after such purchase (a) a Fund would own no
more than 3% of the total outstanding voting stock of such investment
company, (b) no more than 5% of a Fund's total assets would be
invested in the securities of any single investment company, (c) no
more than 10% of a Fund's total assets would be invested in the
securities of investment companies in the aggregate, or (d) all the
investment companies advised by the Fund Manager would own no more
than 10% of the total outstanding voting stock of any closed-end
company; provided that this restriction shall not preclude acquisition
of investment company securities by dividend, exchange offer or
reorganization. To the extent that a Fund invests in shares of other
investment companies, additional fees and expenses may be deducted
from such investments in addition to those incurred by a Fund. Except
in the case of the AARP Insured Tax Free Income Funds, for purposes of
this limitation, foreign banks or their agencies or subsidiaries are
not considered investment companies;
(g) invest in other companies for the purpose of exercising control or
management;
(h) purchase or sell real estate and real estate limited partnership
interests, but this shall not prevent a Fund from investing in
securities secured by real estate or interest therein; and
(i) purchase or sell commodities, commodities contracts (except, in the
case of the AARP Income Funds, the AARP Insured Tax Free General Bond
Fund and the AARP Global Growth Fund, contracts for the future
delivery of debt obligations and contracts based on debt indices) or
oil, gas or other mineral exploration or development programs or
leases (although it may invest in issuers which own or invest in such
interests).
AARP High Quality Money Fund may not:
(j) purchase or sell any put or call options or any combination thereof;
or
(k) purchase warrants, unless attached to other securities in which the
Fund is permitted to invest.
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Neither the AARP High Quality Money Fund nor the AARP High Quality Tax Free
Money Fund may:
(l) pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (A) (1) above, it may pledge
securities having a value at the time of pledge not exceeding 15% of
the cost of the Fund's total assets.
Neither the AARP GNMA and U.S. Treasury Fund nor the AARP High Quality Bond Fund
may:
(m) purchase warrants of any issuer, except that AARP High Quality Bond
Fund can purchase warrants on a limited basis. As a result of such
purchases by the Fund, no more than 2% of the value of the total
assets of the Fund may be invested in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange, and no
more than 5% of the value of the total assets of the Fund may be
invested in warrants whether or not so listed, such warrants in each
case to be valued at the lesser of cost or market, but assigning no
value to warrants acquired by the Fund in units with or attached to
debt securities;
(n) purchase or sell any put or call options or any combination thereof,
except that the Fund may write and sell national exchange-listed
covered call option contracts on national exchange-listed securities
and, to the extent permitted by applicable state regulatory limits, on
other debt securities owned by the Fund up to, but not in excess of,
25% of the value of the Fund's net assets at the time such option
contracts are written. The Fund may also purchase call options for the
purpose of terminating its outstanding obligations with respect to
securities upon which covered call option contracts have been written
(i.e., "closing purchase transaction"). In connection with ---- the
writing of covered call options, the Fund may pledge assets to an
extent not greater than 25% of the value of its net assets at the time
such options are written. The Fund also may purchase and write options
on futures contracts in the manner described under "The Funds'
Investment Objectives and Policies";
(o) pledge, mortgage or hypothecate its assets, (a) except to the extent
that the writing of covered call options may be deemed to involve the
pledge of securities against which the option is being written, (b)
except to the extent that margin deposits on futures contracts and
related options may be deemed to involve a pledge of assets to
guarantee the performance of the futures obligations, and (c) except
to secure borrowings permitted by subparagraph (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.
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(s) pledge, mortgage or hypothecate its assets, except to the extent that
margin deposits on futures contracts and related options may be deemed
to be a pledge of assets to guarantee performance of such obligations,
and except that, to secure borrowings permitted by subparagraph (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;
Neither AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
Global Growth Fund nor AARP Capital Growth Fund may:
(t) purchase or sell any put or call options or any combination thereof,
except that the Funds may each purchase and sell options on stock
indices in accordance with the requirements of applicable regulations.
The Funds may write (sell) covered call option contracts on securities
owned by the Fund up to, but not in excess of, 25% of the value of the
Fund's net assets at the time such option contracts are written. The
Funds may also purchase call options for the purpose of terminating
their outstanding obligations with respect to securities upon which
covered call option contracts have been written (i.e., "closing
purchase transactions"). In connection with the writing of ----
covered call options, the Funds may pledge assets to an extent not
greater than 25% of the value of its net assets at the time such
options are written;
(u) purchase securities if, as a result thereof, more than 5% of the value
of the net assets would be invested in restricted securities (for
these purposes restricted security means a security with a legal or
contractual restriction on resale in the principal market in which the
security is traded).
(v) purchase warrants of any issuer if, as a result more than 2% of the
value of the total assets of the Fund would be invested in warrants
which are not listed on the New York Stock Exchange or the American
Stock Exchange, or more than 5% of the value of the total assets of
the Fund would be invested in warrants acquired by the Fund in units
with or attached to debt securities.
Neither the AARP Growth and Income Fund nor the AARP Capital Growth Fund may:
(w) pledge, mortgage or hypothecate its assets, except as provided in
subparagraph (t), above, and except that, to secure borrowings
permitted by subparagraph (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
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(bb) borrow money, including reverse repurchase agreements, in
excess of 5% of its total assets (taken at market value)
except for temporary or emergency purposes, or borrow other
than from banks.
"Value" for the purposes of the above fundamental and non-fundamental
investment policies shall mean the value used in determining a Fund's net asset
value.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, the restricted
activity or, in the case of AARP High Quality Money Fund and the AARP Income
Funds, an acquisition or encumbrance of securities or assets of, or borrowings
by, the Fund.
PURCHASES
(See "OPENING AN ACCOUNT" and "ADDING TO YOUR INVESTMENT" in the Prospectus.)
General Information
Confirmations of each transaction will be sent following the
transaction by Scudder Investor Services, Inc., as the AARP Funds' agent. By
retaining year-to-date confirmations, an investor will have an historical record
of the account activity.
Checks
A certified check is not necessary, but checks are accepted subject to
collection at full face value in United States Funds and must be drawn on a
United States financial institution.
If shares are purchased by a check which proves to be uncollectible,
the Trusts reserve the right to cancel the purchase immediately and the
purchaser will be responsible for any loss incurred by the Fund or the principal
underwriter by reason of such cancellation. Each Trust has the authority, as
agent of the shareholder, to redeem shares in the account to reimburse the Fund
or the principal underwriter for any loss incurred. Investors whose orders have
been canceled may be prohibited from or restricted in placing future orders in
any of the Funds in the Program or in other Funds advised by the AARP Funds'
investment adviser or an affiliate.
Share Price
Accepted purchases for shares in all the AARP Funds will be filled at
the net asset value next computed after receipt of payment by check or other
means. Each Fund's net asset value per share is currently determined once daily,
as of the close of regular trading on the New York Stock Exchange (the
"Exchange") (usually 4:00 p.m. Eastern time), on each day the Exchange is open
for trading. (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.
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Investors may allocate a minimum of 25% of their income checks into any AARP
Fund. Information may be obtained by contacting the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, Massachusetts 02208-2540, or by calling toll
free, 1-800-253-2277.
Wire Transfers
In the case of wire purchases, failure to receive timely and complete
account information will delay investment and subsequent accrual of dividends
and will result in the federal funds being returned to the sender on the day
following receipt by State Street Bank and Trust Company (the "custodian").
Unlike shareholders subscribing by check, purchasers who wire funds will be able
to redeem shares so purchased by any method without any limitation as to the
period of time such shares have been on a Fund's books.
The bank sending federal funds by bank wire may charge for the service.
Presently, Scudder Investor Services, Inc. or the AARP Funds pay a fee for
receipt by the custodian of "wired funds," but the right to charge investors for
this service is reserved.
Holidays
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the 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
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its net assets, or (d) when the SEC permits a suspension of the right of
redemption; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.
The Trustees may suspend or terminate the offering of shares of a Fund
at any time.
Redemption by Telephone
Redemption by telephone is not available for shares for which share
certificates have been issued. Redemptions of such shares must be requested by
mail as explained in the section entitled "Redemption by Mail" below.
For other investors, the following procedures are available.
TO ADDRESS OF RECORD: New investors automatically receive the option,
without having to elect it, to redeem by telephone to their address of record
for any amount up to $100,000 per Fund. Telephone Redemption to Address of
Record may be used as long as the account registration address has not changed
within the last 15 days. In order to decline this feature, the shareholder must
notify the Program in writing. Any shareholder who refuses Telephone Redemption
to Address of Record can later establish the feature with a signature guaranteed
written request. This request must be done prior to utilizing this service for
the first time.
TO YOUR BANK--BY MAIL OR BY WIRE: In order to request redemptions by
telephone to their bank, shareholders must have completed the telephone
redemption authorization included in the enrollment form and have sent the
authorization to the Program. This authorization requires designation of a bank
account to which the redemption payment is to be sent. The proceeds will be
mailed or wired only to the designated bank account.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section on
the enrollment form, and send it to the Program.
(b) EXISTING SHAREHOLDERS who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption payments should either
enter the new information on the "Telephone Option Form" which may be
obtained by calling the Program, or send a signature guaranteed letter
identifying the account and specifying the exact information to be
changed. In each case, the letter must be signed exactly as the
shareholder's name(s) appears on the account. All requests for
telephone redemption should be accompanied by a voided check from the
designated bank account. All signatures will require a guarantee,
which can be obtained from most banks, credit unions or savings
associations, or from broker/dealers, government securities
broker/dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the SEC. An
original signature and an original signature guarantee are required
for each person in whose name the account is registered. Signature
guarantees by notaries public are not acceptable.
In addition, if shares to be redeemed were purchased by check, mailing
of the redemption proceeds may be delayed long enough to assure that the
purchase check has cleared.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve wire to the bank account
designated on the application form unless a request is made that the redemption
be mailed to the designated bank account. For each wire redemption, the program
charges a $5.00 fee which is deducted from the proceeds of the redemption.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
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.
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The Trusts and their agents each reserve the right to modify,
interrupt, suspend or terminate the telephone redemption privilege at any time,
without notice. A shareholder may cancel the telephone redemption authorization
upon written notice. Each Trust employs procedures including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that 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.
Redemption by Mail or Fax
Any shareholder may redeem his or her shares by writing to the Program.
All written requests must be signed by at least one person on the account's
registration exactly as registered. In addition, for the protection of the
shareholder and to prevent fraudulent redemptions, a signature guarantee is
required on all written redemption requests for over $100,000. A signature
guarantee is also required on written redemption requests for any amount if the
check is made payable to someone other than the registered shareholder, if the
proceeds are to be forwarded to an address other than the address of record, or
if the address of record has changed in the last 15 days. In order to ensure
proper authorization before redeeming shares, the Program may request additional
documents such as, but not restricted to, stock powers, Trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority and waivers of tax required in some states when settling estates.
Redemption to Address of Record for up to $100,000 without a signature
guarantee is an automatic feature of any AARP Fund account unless it has been
declined by the shareholder in writing. Any shareholder who refuses this feature
can later establish it with a written request containing a signature guarantee.
This request must be made prior to utilizing the feature for the first time.
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with the signature(s) guaranteed as explained
above. It is suggested that the shareholders holding certificated shares or
shares registered in other than individual names contact the Program prior to
requesting a redemption to ensure that all necessary documents accompany the
request. When shares are held in the name of a corporation, trust, fiduciary or
partnership, the transfer agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to help ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within seven (7) days after receipt of a request
for redemption that complies with the above requirements. Delays of more than
seven (7) days for payment for shares tendered for repurchase or redemption may
result but only until the purchase check has cleared.
Redemption by Checkwriting
All new investors in the AARP Money Funds and existing shareholders of
these Funds who apply to State Street Bank and Trust Company for checks may use
them to pay any person, provided that each check is for at least $100 and not
more than $1,000,000. By using one of these checks, the shareholder will receive
daily dividend credit on his or her shares in either Fund until the check has
cleared the banking system. Investors who purchased shares by check may write
checks against those shares only after they have been on the Fund's books for 7
days. Shareholders who use this service may also use other redemption
procedures. Both Funds pay the bank charges for this service. However, each Fund
will review the cost of operation periodically and it reserves the right to
determine if direct charges to the persons who avail themselves of this service
would be appropriate. An account cannot be closed using the "free Checkwriting"
privilege. The Trusts, the transfer agent and the custodian each reserve the
right at any time to suspend or terminate the "free Checkwriting" procedure.
Redemption-in-Kind
The AARP Growth Trust reserves the right to permit the AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, the AARP Global Growth Fund,
AARP Capital Growth Fund, AARP International Stock Fund, AARP Small Company Fund
and AARP Blue Chip Index 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
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and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The AARP Growth
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which each Fund of the Trust is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of such Fund at the
beginning of the period.
Other Information
The value of shares redeemed or repurchased may be more or less than
the shareholder's cost depending on the net asset value at the time of
redemption or repurchase. The Funds do not impose a redemption or repurchase
charge. Redemptions of shares, including redemptions undertaken to effect an
exchange for shares of another Fund in the Program, may result in tax
consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding (see "TAXES").
Shareholders who wish to redeem shares from Retirement Plans (see
"RETIREMENT PLANS," below) should contact the Trustee or custodian of the Plan
for information on proper procedures.
The Trustees have established certain amount size requirements. For 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 $_____ ($_____ for AARP Investment Portfolios)
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 modify, interrupt, suspend or terminate the privilege
of the Automatic Exchange Program at any time, without notice.
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There is no charge to the shareholder for any exchange described above.
An exchange from any AARP Fund other than the AARP Money Funds is likely to
result in recognition of gain or loss to the shareholder.
Investors currently receive the exchange privilege automatically
without having to elect it. The Trusts and the AARP Funds' distributor, Scudder
Investor Services, Inc., reserve the right to suspend or terminate the exchange
privilege at any time. Telephone exchange may be initiated by anyone able to
identify the registration of an account, but the proceeds will only be invested
in another AARP Fund with the same registration. The AARP Funds employ
procedures to give reasonable assurance that telephone instructions are genuine,
including recording telephone calls, testing a caller's identity and sending
written confirmation of such transactions. If an AARP Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
All the AARP Funds in the Program into which investors may make an
exchange are described in the combined Prospectus and in this Statement of
Additional Information. Before making an exchange, shareholders should read the
information in the Prospectus regarding the Fund into which the exchange is
being contemplated.
TRANSACT BY PHONE
(See "INVESTOR SERVICES--TRANSACT BY PHONE" in the
Prospectus.)
Shareholders, whose bank of record is a member of the Automated
Clearing House Network (ACH) and who have enrolled in the "Transact by Phone"
option, may purchase or redeem shares by telephone. Shareholders may purchase
shares valued at up to $250,000 but not less than $250. Shareholders may redeem
shares in an amount not less than $250.
In order to utilize the Transact by Phone service, shareholders must
have completed the Transact by Phone authorization. This authorization requires
designation of a bank account from which the purchase payment will be debited or
to which the redemption payment will be credited. New investors wishing to
establish the Transact by Phone service can do so by completing the appropriate
section on the enrollment form. Existing shareholders who wish to establish
Transact by Phone will need to complete a Transact by Phone Enrollment Form. If
a shareholder has previously elected the "Telephone Redemption to Bank of
Record" and/or the "Automatic Investment Plan" services, the banking information
must be identical for all of these services for each of the shareholder's Funds.
After sending in their enrollment forms, shareholders should allow 15 days for
the service to be activated. The Trusts and their agents each reserve the right
to modify, interrupt, suspend or terminate the Transact by Phone service at any
time, without notice.
Purchasing Shares by Transact by Phone
To purchase shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time. Shares will be purchased at that
night's closing share price. The shareholder's bank account will be debited on
the first business day following the purchase request. Requests received after
4:00 p.m. will be purchased at the next business day's closing price.
Redeeming Shares by Transact by Phone
To redeem shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time to receive that night's closing
share price. Requests received after 4:00 p.m. will be sold at the next business
day's closing price. The shareholder's bank account will be credited with
redemption proceeds on the second or third business day following the redemption
request.
The AARP Funds employ procedures to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of such transactions. If an
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
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FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "STATEMENTS AND REPORTS," "EXCHANGING"
and "INVESTOR SERVICES" in the Prospectus.)
Automatic Dividend Reinvestment
Investors may elect on their enrollment form whether they wish to
receive any dividends from net investment income or any distributions from
realized capital gains in cash or to reinvest such dividends and distributions
in additional shares of the Fund paying the dividend or distribution. They may
also elect to have these payments invested in shares of any other AARP Fund in
the Program in which they have an account. If no election is made, dividends and
distributions will be reinvested in additional shares. A change of instructions
for the method of payment may be given to the Program at any time prior to a
record date.
Each distribution, whether by check or reinvested in a Fund, will
include a brief explanation of the source of the distribution.
Distributions Direct
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through the AARP Funds'
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-253-2277. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Reports to Shareholders
The AARP Funds send to shareholders at least semiannually financial
statements, which are examined at least annually by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets, and financial highlights.
Investors receive a brochure entitled Your Guide to Simplified
Investment Decisions when they order an investment kit for the 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 Bond Fund for Income, AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, AARP Global Growth Fund, AARP
Capital Growth Fund, AARP Blue Chip Index Fund, AARP International Stock Fund
and AARP Small Company Stock Fund ("Eligible Funds") may be purchased in
connection with several types of tax-deferred retirement plans. These plans were
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created for members of AARP. Each plan is briefly described below. The plans
provide convenient ways for AARP members to make investments which may be
tax-deductible for their retirement and have taxes on any income from their
investment deferred until their retirement, when they may be in a lower tax
bracket. Additional information on each plan may be obtained by contacting the
AARP Investment Program from Scudder, P.O. Box 2540, Boston, Massachusetts,
02208-2540, or by calling toll free, 1-800-253-2277. Investment professionals
and retirement-benefits experts estimate that prospective retirees will need 70%
to 80% of their current salaries during each year of their retirement, with
adjustment for changes in prices during retirement, to maintain their current
life-style. Investment professionals recommend diversifying investments among
stock, bonds and cash-equivalents when building retirement reserves. It is
advisable for an investor considering any of the plans described below to
consult with an attorney or tax advisor with respect to the terms, suitability
requirements and tax aspects of the plan.
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")
Shares of the Eligible Funds may be purchased as the underlying
investment for an AARP No-Fee IRA which meets the requirements of Section 408(a)
of the Internal Revenue Code. Any AARP member with earned income or wages is
eligible to make annual contributions to the AARP No-Fee IRA before the year the
member attains age 70 1/2. An individual may establish an AARP No-Fee IRA
whether or not he or she is an active participant in another tax-qualified
retirement plan, including a tax-sheltered annuity or government plan.
AARP No-Fee IRA participants may generally contribute to an AARP No-Fee
IRA up to the lesser of $2,000 or 100% of their compensation or earned income.
If both a husband and wife work, each may set up an AARP No-Fee IRA before the
year they attain age 70 1/2, permitting a potential maximum contribution of
$4,000 per year for both persons. If one spouse has no earnings, each spouse may
have an AARP No-Fee IRA and the total maximum contributions will be $4,000 with
no more than $2,000 going to either AARP No-Fee IRA.
An individual will be allowed a full deduction for contributions to an
AARP No-Fee IRA only if (1) neither the individual, nor his or her spouse, if
they file a joint return, is an active participant in an employer-maintained
retirement plan, or (2) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a certain level ($25,050 for a single
individual, with a phase-out of the deduction for adjusted gross income between
$25,050 and $35,000; $40,050 for married individuals filing a joint return, with
a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000). However, an individual not permitted to make a deductible contribution
may nonetheless make a nondeductible contribution to an AARP No-Fee IRA.
Any AARP member who is entitled to receive a qualifying distribution
from a qualified retirement plan (including a tax-sheltered annuity plan) or
another IRA may make a rollover contribution of all or any portion of the
distribution to the AARP No-Fee IRA, either in a direct rollover or within 60
days after receipt of the distribution, whether or not the member has attained
age 70 1/2. If a qualified rollover contribution is made, the distribution will
not be subject to Federal income tax until distributed from the AARP No-Fee IRA;
however, distributions not directly rolled over might be subject to automatic
20% federal tax withholding.
AARP Mutual Fund Representatives are available to help you transfer
your IRA to the AARP No-Fee IRA. You pay no transfer fees for this service. An
AARP Mutual Fund Representative can help you with the paperwork, contact your
present IRA custodian, help to transfer your funds to the AARP No-Fee IRA, and
send you a confirmation when your transfer is complete.
Earnings on the AARP No-Fee IRA are not subject to current Federal
income tax until distributed; distributions are taxed as ordinary income.
Withdrawals attributable to nondeductible contributions are not taxable
(however, early withdrawals of such amounts are subject to penalty). The assets
in an AARP 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.)
44
<PAGE>
<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>
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)
45
<PAGE>
and who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 10 month period. This feature is only available to Gifts to Minors
Account investors. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is not paid,
or by written notice to the shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.
Automatic Withdrawal Plan
Shareholders who own or purchase $10,000 or more of shares of a AARP
Fund may establish an Automatic Withdrawal Plan with that Fund. The investor can
then receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. Payments are mailed at the end of each
month. The check amounts may be based on the redemption of a fixed dollar
amount, fixed share amount or percent of account value or declining balance. The
Automatic Withdrawal Plan provides for income dividends and capital gains
distributions, if any, to be reinvested in additional shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "SIGNATURE GUARANTEES" in
the Prospectus. Any such request must be received by the AARP Fund's transfer
agent by the 15th of the month in which such change is to take effect. An
Automatic Withdrawal Plan may be terminated at any time by the shareholder, the
AARP Funds or their agents on written notice, and will be terminated when all
shares of the Funds under the Plan have been liquidated or upon receipt by the
Funds of notice of death of the shareholder. For more information concerning
this plan, write to the AARP Investment Program from Scudder, P.O. Box 2540,
Boston, MA 02208-2540 or call, toll-free, 1-800-253-2277.
Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
DIVIDENDS AND YIELD
(See "UNDERSTANDING FUND PERFORMANCE" in the
Prospectus.)
Each AARP Fund intends to follow the practice of distributing
substantially all of its investment company taxable income (which includes, for
example, interest, dividends and any excess of net realized short-term capital
gains over net realized long-term capital losses, less deductible expenses), and
its net tax-exempt interest income, if any. Each AARP Fund also intends to
follow the practice of distributing any excess of net realized long-term capital
gains over net realized short-term capital losses after reduction for any
capital loss carryforwards. However, if it appears to be in the best interests
of a Fund and its shareholders, the Fund may retain all or part of such gain for
reinvestment.
AARP Blue Chip Index Fund, AARP Balanced Stock and Bond Fund and AARP
Growth and Income Fund intend to pay dividends in March, June, September and
December of each year and any net realized capital gains after the September 30
fiscal year end. AARP Small Company Stock Fund, AARP International Stock Fund,
AARP Global Growth Fund and AARP Capital Growth Fund intend to pay dividends and
any realized capital gains over net realized short-term capital losses after
reduction for any capital loss carryforwards in December after the September 30
fiscal year end. AARP Bond Fund for Income intends to pay dividends monthly and
any net realized capital gains after the September 30 fiscal year end. See
"TAXES."
Both types of distributions will be made in shares of the respective
AARP Fund and confirmations will be mailed to each shareholder unless a
shareholder has elected to receive cash, in which case a check will be sent.
46
<PAGE>
The net income of each AARP Money Fund, each of the AARP Income Funds
and the AARP Insured Tax Free General Bond Fund, is determined as of the close
of trading on the Exchange (usually 4:00 p.m. Eastern time) on each day on which
the Exchange is open for business. All of the net income so determined normally
will be declared as a dividend daily to shareholders of record as of 4:00 p.m.
on the preceding day, and distributed monthly. Dividends commence on the next
business day after purchase. Dividends which are not paid by check will be
reinvested in additional shares of the particular Fund at the net asset value
per share determined as of a day selected within five days of the last business
day of the month. Checks will be mailed to shareholders no later than the fourth
business day of the following month, and consolidated statements confirming the
month's dividends will be mailed to shareholders electing to invest dividends in
additional shares. Dividends will ordinarily be invested on the last business
day of each month at the net asset value per share determined as of the close of
regular trading on the Exchange.
Should the AARP Money Funds incur or anticipate any unusual or
unexpected significant expense, depreciation or loss which would affect
disproportionately the Fund's income for a particular period, the Trustees of
such Fund or the Executive Committee of the Trustees may at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances in order to ameliorate to the extent
possible the disproportionate effect of such expense or loss on then existing
shareholders. Such expenses may nevertheless result in a shareholder's receiving
no dividends for the period during which the shares are held and in receiving
upon redemption a price per share lower than that which was paid.
Similarly, should the AARP High Quality Money Fund incur or anticipate
any unusual or unexpected significant income, appreciation or gain which would
affect disproportionately the Fund's income for a particular period, the
Trustees or the Executive Committee of the Trustees may consider whether to
adhere to the dividend policy described above or to revise it in the light of
the then prevailing circumstances in order to ameliorate to the extent possible
the disproportionate effect of such income, appreciation or gain on the dividend
received by existing shareholders. Such actions may reduce the amount of the
daily dividend received by existing shareholders.
Performance Information: Computation of Yields and Total Return
a) The AARP Money Funds
From time to time, quotations of an AARP Money Fund's yield may be
included in advertisements, sales literature or shareholder reports. These yield
figures are calculated in the following manner:
The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent. The current yield of the AARP High Quality
Money Fund and the AARP High Quality Tax Free Money Fund for the seven-day
period ended September 30, 1996 respectively, were 4.67% and 3.01%.
The effective yield is the net annualized yield for a specified 7
calendar-days assuming a reinvestment in Fund shares of all dividends during the
period, i.e., compounding. Effective yield is calculated by using the same
base-period return used in the calculation of current yield except that the
base-period return is compounded by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1.
The effective yield of the AARP High Quality Money Fund and the AARP
High Quality Tax Free Money Fund for the seven-day period ended September 30,
1996 respectively, were 4.78% and 3.06%.
As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.
47
<PAGE>
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
capital gains distributions during the respective periods were reinvested in
Fund shares. Total return is calculated by finding the average annualized
compound rates of return of a hypothetical investment over such periods,
according to the following formula (total return is then expressed as a
percentage):
T = (ERV/P)^1/n - 1
Where:
T = average annualized compound total rate of return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
<TABLE>
<CAPTION>
Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/96 9/30/96 9/30/96(1)
<S> <C> <C> <C>
AARP High Quality Money Fund
AARP High Quality Tax Free Money Fund * *
AARP GNMA and U.S. Treasury
AARP High Quality Bond
AARP Bond Fund for Income+ n.a. n.a. n.a.
AARP Insured Tax Free General Bond
AARP Balanced Stock and Bond Fund n.a.
AARP Growth and Income
AARP Blue Chip Index Fund+ n.a. n.a. n.a.
AARP Global Growth Fund n.a. n.a. n.a.
AARP Capital Growth
AARP International Stock Fund+ n.a. n.a. n.a.
AARP Small Company Stock Fund+ n.a. n.a. n.a.
</TABLE>
(1) For the ten fiscal years ended September 30, 1996 for each of the above
listed Funds except for the period February 1, 1994 (commencement of
operations) to September 30, 1996 for the AARP Balanced Stock and Bond
Fund.
* Prior to August 1, 1991, the AARP High Quality Tax Free Money Fund
operated as the AARP Insured Tax Free Short Term Fund. The total return
figures for the five and ten years ended September 30, 1996 for the
AARP High Quality Tax Free Money Fund are representative of the Fund
prior to its conversion date except that the figures have been adjusted
to reflect its conversion to a money market fund.
+ AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund commenced
operations on February 1, 1997.
48
<PAGE>
In addition to total return described above, the Funds may quote
nonstandard "cumulative total return."
The cumulative total return is the rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the rates of
return of a hypothetical investment over such periods, according to the
following formula. (Cumulative total return is then expressed as a percentage):
C = (ERV/P) -1
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/96 9/30/96 9/30/96(1)
<S> <C> <C> <C>
AARP Balanced Stock and Bond Fund n.a.
AARP Growth and Income
AARP Blue Chip Index Fund n.a. n.a. n.a.
AARP Global Growth Fund n.a. n.a. n.a.
AARP Capital Growth
AARP International Stock Fund n.a. n.a. n.a.
AARP Small Company Stock Fund n.a. n.a. n.a.
</TABLE>
(1) For the period February 1, 1994 (commencement of operations) to September
30, 1996 for the AARP Balanced Stock and Bond Fund.
c) The AARP Income Funds and AARP Insured Tax Free General Bond Fund
From time to time, quotations of an AARP Fund's yield may be included
in advertisements, sales literature or shareholder reports. This yield is
calculated in the following manner.
The yield is the net annualized SEC yield based on a specified 30-day
(or one month) period assuming semiannual compounding of income. Yield is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
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.
49
<PAGE>
Yield for the 30-day period
Fund ended September 30, 1996
--------------------------------------------------------
AARP GNMA and U.S. Treasury 6.54%
AARP High Quality Bond 5.96
AARP Bond Fund for Income n.a.
AARP Insured Tax Free General Bond 4.72
d) AARP Insured Tax Free General Bond and AARP High Quality Tax
Free Money Fund
The tax equivalent yield is the net annualized after-tax yield based on
a specified seven day period for money market funds or on a specified 30-day
(one month) period for non-money market funds assuming a reinvestment of all
dividends paid during the period, i.e., compounding. Tax equivalent yield is
calculated by dividing that portion of the Fund's yield (as computed in the
yield description above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
<TABLE>
<CAPTION>
Equivalent Taxable Yields
period ended September 30, 1996
Fund Tax Bracket: 28% 31%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
AARP High Quality Tax Free Money 4.18% 4.36%
AARP Insured Tax Free General Bond 6.56% 6.84%
</TABLE>
(e) General Performance Information
Quotations of an AARP Fund's performance are based on historical
earnings and are not intended to indicate future performance of the Fund. An
investor's shares when redeemed may be worth more or less than their original
cost. Performance of a Fund will vary based on changes in market conditions and
the level of the Fund's expenses. In periods of declining interest rates a
Fund's quoted yield and 30-day current yield will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates a Fund's
quoted yield and 30-day current yield will tend to be somewhat lower.
Comparison of non-standard performance data of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
From time to time, in marketing and other AARP Fund literature, these
AARP Funds' performances may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations, such as Lipper Analytical Services, Inc. ("Lipper"), Investment
Company Data, Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA"), Value
Line Mutual Fund Survey, Morningstar, Inc. and other independent organizations.
For instance, AARP Growth Funds will be compared to funds in the growth fund
category; and so on. In similar fashion, the performance of the AARP GNMA and
U.S. Treasury Fund will be compared to that of certificates of deposit.
Evaluations of AARP Fund performance made by independent sources or independent
experts may also be used in advertisements concerning the AARP Funds, including
reprints of, or selections from, editorials or articles about these Funds.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to unmanaged
indices which may assume reinvestment of dividends or interest but generally do
not reflect deductions for administrative and management costs. Indices with
which the Fund may be compared include but are not limited to, the following:
Standard & Poor's 500 Stock Index (S&P 500), The Europe/Australia/Far East
(EAFE) Index, Morgan Stanley Capital International World Index, J.P. Morgan
Global Traded Bond Index, and Salomon Brothers World Government Bond Index.
50
<PAGE>
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Evaluation of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about these Funds. Sources for AARP Fund
performance information and articles about the AARP Funds may include, but are
not limited to, the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by MasterFund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Federal Reserve Bulletin, a monthly publication that reports domestic and
international financial statistics, including short-term certificate of deposit
interest rates.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity, and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
51
<PAGE>
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter published by Sheldon Jacobs that
includes mutual fund performance data and recommendations for the mutual Fund
investor.
No-Load Fund X, a monthly newsletter published by DAL Investment Company, Inc.
that reports on mutual fund performance, rates funds, and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
52
<PAGE>
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S.
investments strike the best balance between risk and reward.
TRUST ORGANIZATION
(See "FUND ORGANIZATION" in the
Prospectus.)
Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP GNMA and U.S. Treasury Fund, AARP High Quality Bond Fund, and the
AARP Bond Fund for Income are series of AARP Income Trust. AARP High Quality Tax
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 Blue Chip Index Fund, AARP Global Growth Fund, AARP Capital
Growth Fund, AARP International Stock Fund and AARP Small Company Stock Fund are
series of AARP Growth Trust. Each of the above Trusts was established under a
separate Declaration of Trust dated June 8, 1984. AARP High Quality Money Fund
is a separate series of the AARP Cash Investment Funds, which was established
under a Declaration of Trust dated January 20, 1983. The original name of AARP
Cash Investment Funds was Master Investment Services Fund. That name was changed
to AARP Money Fund Trust on February 6, 1985, and to its present name on May 24,
1985. AARP Diversified Income Portfolio and AARP Diversified Growth Portfolio
are series of AARP Managed Investment Portfolios Trust which was established
under a Declaration of Trust on ________________. 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
53
<PAGE>
three series in addition to AARP High Quality Money Fund that are not currently
offered. None of the other Trusts has an existing series which is not currently
being offered. Other series may be established and/or offered by the Trusts in
the future. Each share of a series represents an interest in that series which
is equal to each other share of that series.
The assets received for the issue or sale of the shares of each series
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are specifically allocated to that series and constitute
the underlying assets of that series. The underlying assets of each series are
segregated on the books of account of the Trust, and are to be charged with the
liabilities of that series. The Trustees have determined that expenses with
respect to all series in a Trust are to be allocated in proportion to the net
asset value, or such other reasonable basis, of the respective series in that
Trust except where allocations of direct expenses can otherwise be more fairly
made. The officers of each Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to all the
series in a Trust. Each Trust's Declaration of Trust provides that allocations
so made to each series shall be binding on all persons. While each Declaration
of Trust provides that liabilities of a series may be satisfied only out of the
assets of that series, it is possible that if a series were unable to meet its
obligations, a court might find that the assets of other series in the Trust
should satisfy such obligations. In the event of the dissolution or liquidation
of a Trust, the holders of the shares of each series are entitled to receive as
a class the underlying assets of that series available for distribution to
shareholders.
Shareholders are entitled to one vote per share. Separate votes are
taken by each series on all matters except where the 1940 Act requires that a
matter be decided by the vote of shareholders of all series of a Trust voting
together or where a matter affects only one of the series, in which case only
shareholders of that series shall vote thereon. For example, a change in
investment policy for a series would be voted upon only by shareholders of the
series involved. Additionally, approval of each Trust's investment advisory
agreement is a matter to be determined separately by each series in that Trust.
Approval of the agreement by the shareholders of one series in a Trust is
effective as to that series whether or not enough votes are received from the
shareholders of other series in the Trust to approve such agreement as to the
other series.
The Trustees of each Trust have the authority to establish additional
series and to designate the relative rights and preferences as between the
series. All shares issued and outstanding of each series that is offered by a
Trust will be fully paid and non-assessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.
Each Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against litigation in which they may be involved because of their
offices with the Trust except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in any of the Declarations of Trust protects or indemnifies a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
MANAGEMENT OF THE FUNDS
(See "FUND ORGANIZATION" in the
Prospectus.)
Each Trust, except AARP Managed Investment Portfolios Trust, has
retained Scudder, Stevens & Clark, Inc., a Delaware corporation (the "Fund
Manager"), to perform management and investment advisory services for the Funds
pursuant to Investment Management and Advisory Agreements with each Trust
("Management Agreement") dated February 1, 1994. AARP Managed Investment
Portfolios Trust has retained the Fund Manager to perform management and
investment advisory services for the Portfolios pursuant to a Special Servicing
Agreement dated ____________.
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.
54
<PAGE>
The Fund Manager assumes responsibility for the compensation and
expenses of all officers and executive employees of each Trust and makes
available or causes to be made available, without expense to the Trusts, the
services of such of its partners, directors, officers and employees as may duly
be elected officers or Trustees of a Trust, subject to their individual consent
to serve and to any limitations imposed by law, and pays the Trusts' office rent
and provides, or causes to be provided, investment advisory, research and
statistical facilities and related clerical services. For these services the
AARP Funds pay the Fund Manager a monthly fee consisting of a base fee and an
individual Fund fee. The base fee is based on average daily net assets of all
Funds in the AARP Investment Program, as follows:
Program Assets Annual Rate at Each
(Billions) Asset Level
---------- -----------
First $2 0.35%
Next $2 0.33
Next $2 0.30
Next $2 0.28
Next $3 0.26
Next $3 0.25
Over $14 0.24
Total program assets as of September 30, 1996 were over $___ billion.
All AARP Funds pay a flat individual Fund fee based on the net assets
of that Fund, except AARP Diversified Investment Income Portfolio and AARP
Diversified Investment Growth Portfolio.
The individual Fund fees are as follows:
AARP High Quality Money Fund, 10/1200 of 1% (or approximately .10 of 1%
on an annual basis);
AARP GNMA and U.S. Treasury Fund, 12/1200 of 1% (or approximately .12 of
1% on an annual basis);
AARP High Quality Bond Fund, 19/1200 of 1% (or approximately .19 of 1%
on an annual basis);
AARP Bond Fund for Income,
AARP High Quality Tax Free Money Fund, 10/1200 of 1% (or approximately
.10 of 1% on an annual basis);
AARP Insured Tax Free General Bond Fund, 19/1200 of 1% (or approximately
.19 of 1% on an annual basis);
AARP Balanced Stock and Bond Fund, 19/1200 of 1% (or approximately .19
of 1% on an annual basis);
AARP Growth and Income Fund, 19/1200 of 1% (or approximately .19 of 1%
on an annual basis);
AARP Blue Chip Index Fund, AARP Global Growth Fund, 55/1200 of 1% (or
approximately .55 of 1% on an annual basis);
AARP Capital Growth Fund, 32/1200 of 1% (or approximately .32 of 1% on
an annual basis).
AARP International Stock Fund,
AARP Small Company Stock Fund,
AARP Diversified Income Portfolio, n/a.
AARP Diversified Growth Portfolio, n/a.
The advisory fees from October 1, 1993 to January 31, 1994 under the
previous Investment Management and Advisory Agreements and under the present
Investment Management Agreement from February 1, 1994 to September 30, 1994 and
for the two fiscal years ended September 30, 1996 were as follows:
55
<PAGE>
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund $ 1,244,322 $ 1,492,545
AARP GNMA and U.S. Treasury Fund 26,198,841 22,095,173
AARP High Quality Bond Fund 2,952,999 2,600,629
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund 568,107 493,693
AARP Insured Tax Free General Bond Fund 9,944,429 8,813,051
AARP Balanced Stock and Bond Fund@ 365,435 960,412
AARP Growth and Income Fund 9,533,476 12,406,325
AARP Blue Chip Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a.
AARP Capital Growth Fund 4,184,437 3,988,023
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
Each Management Agreement provides that the Fund Manager will reimburse
the AARP Funds or the Trust for annual expenses in excess of the lowest expense
limitation imposed by the states in which the Funds of the particular Trust are
at the time offering their shares for sale, although no payments are required to
be made by the Fund Manager pursuant to this reimbursement provision in excess
of the annual fee paid by the funds of a Trust to the Fund Manager. 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, 1994, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
AARP High Quality Money Fund 1.13% .98%
AARP GNMA and U.S. Treasury Fund .66 .67
AARP High Quality Bond Fund .95 .95
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund .90 .87
AARP Insured Tax Free General Bond Fund .68 .69
AARP Balanced Stock and Bond Fund@ 1.31 1.01
AARP Growth and Income Fund .76 .72
AARP Blue Chip Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a.
AARP Capital Growth Fund .97 .95
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
56
<PAGE>
For the fiscal years ended September 30, 1994, 1995 and 1996, the
reimbursements by the Fund Manager based on the expense limitation then in
effect were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
AARP High Quality Money Fund -- --
AARP GNMA and U.S. Treasury Fund -- --
AARP High Quality Bond Fund -- --
AARP Bond Fund for Income** n.a. n.a. n.a.
AARP High Quality Tax Free Money Fund $8,083 --
AARP Insured Tax Free General Bond Fund -- --
AARP Balanced Stock and Bond Fund@ -- --
AARP Growth and Income Fund -- --
AARP Blue Chip Index Fund** n.a. n.a. n.a.
AARP Global Growth Fund* n.a. n.a.
AARP Capital Growth Fund -- --
AARP International Stock Fund** n.a. n.a. n.a.
AARP Small Company Stock Fund** n.a. n.a. n.a.
AARP Diversified Income Portfolio** n.a. n.a.. n.a.
AARP Diversified Growth Portfolio** n.a. n.a. n.a.
</TABLE>
@ AARP Balanced Stock and Bond Fund commenced operations on February 1, 1994.
* AARP Global Growth Fund commenced operations on February 1, 1996.
** AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP International
Stock Fund, AARP Small Company Stock Fund, AARP Diversified Income
Portfolio and AARP Diversified Growth Portfolio commenced operations on
February 1, 1997.
If reimbursement is required, it will be made as promptly as
practicable after the end of each Trust's fiscal year. However, no fee payment
will be made to the Fund Manager during any fiscal year which will cause
year-to-date expenses to exceed the cumulative pro rata expense limitation at
the time of such payment. The amortization of organizational costs is described
herein under "ADDITIONAL INFORMATION-- Other Information."
Under the Management Agreements, each Trust is responsible for all of
its other expenses including organizational expenses; clerical salaries; fees
and expenses incurred in connection with membership in investment company
organizations; brokers' commissions; any fees for portfolio pricing paid to a
pricing agent; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates, if any, and any other expenses including clerical expenses of
issue, redemption or repurchase of shares; the expenses and fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees of the
Trust who are not affiliated with the Fund Manager, Scudder, Stevens & Clark,
Inc., AARP Financial Services Corporation or AARP; the cost of preparing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. Each Trust may arrange to have third parties assume all or part
of the expenses of sale, underwriting and distribution of shares of the Trust.
Each Trust is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement for each Trust provides that the custodian shall compute the net asset
value for that Trust.
Each Management Agreement provides that the Fund Manager shall not be
required to pay expenses of distribution of the Funds' shares to the extent that
(i) such distribution expenses are, pursuant to a written contract, to be borne
by a principal underwriter of the Trust ("Scudder Investor Services, Inc." is
principal underwriter for the AARP Trusts), (ii) the Trust shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act ("Rule 12b-1 plan")
providing for the Trust (or the Funds or some other party) to assume some or all
of such expenses, or (iii) such expenses are required to be paid by Scudder,
Stevens & Clark, Inc. To the extent such expenses of distribution are not to be
borne by a principal underwriter, or are not permitted to be paid by the Trust
(or a Fund or such other party) pursuant to a Rule 12b-1 plan, they are to be
assumed by the Fund Manager. (The adoption of a Rule 12b-1 plan by a Trust would
require the approval of the Trustees, including a majority of those Trustees who
are not interested persons of the Trust, and of a majority of the outstanding
voting securities of each Fund.)
57
<PAGE>
The Management Agreements for all Funds except AARP Global Growth Fund,
AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP International Stock
Fund, and AARP Small Company Stock Fund will remain in effect until August 31,
1997 and from year to year thereafter only if their continuance is specifically
approved at least annually by the vote of a majority of those Trustees who are
not parties to such Agreements or "interested persons" of the Fund Manager,
Scudder, Stevens & Clark, Inc. or the particular Trust cast in person at a
meeting called for the purpose of voting on such approval and either by vote of
a majority of the Trustees or, with respect to each Fund, by a majority of the
outstanding voting securities of that Fund. The Supplement to Investment
Management Agreement for the AARP Global Growth Fund will remain in effect until
August 31, 1997 and from year to year thereafter only if its continuance is
specifically approved at least annually by the vote of a majority of those
Trustees who are not parties to such Agreement or "interested persons" of the
Fund Manager, Scudder, Stevens & Clark, Inc. or the particular Trust cast in
person at a meeting called for the purpose of voting on such approval and either
by vote of a majority of the Trustees or, by a majority of the outstanding
voting securities of the AARP Global Growth Fund. The Supplement to Investment
Management Agreement for the AARP Bond Fund for Income, AARP Blue Chip Index
Fund, AARP International Stock Fund, and AARP Small Company Stock Fund will
remain in effect until _____________ and from year to year thereafter only if
its continuance is specifically approved at least annually by the vote of a
majority of those Trustees who are not parties to such Agreement or "interested
persons" of the Fund Manager, Scudder, Stevens & Clark, Inc. or the particular
Trust cast in person at a meeting called for the purpose of voting on such
approval and either by vote of a majority of the Trustees or, by a majority of
the outstanding voting securities of the particular AARP Fund. In the event a
Management Agreement is approved by the shareholders of one of the Funds but not
by the shareholders of the other Fund, the Management Agreement will continue in
effect as to the former Fund but not the latter. The Management Agreements for
all Funds except AARP Global Growth Fund were last approved by the Trustees
(including a majority of the Trustees who are not "interested persons") on June
18, 1996 and by the shareholders on January 13, 1994. The Supplement to
Investment Management Agreement for AARP Global Growth Fund dated February 1,
1996 was approved by the Trustees on December 13, 1995 and by the initial
shareholder on January 24, 1996. The Supplement to Investment Management
Agreement for the AARP Bond Fund for Income, AARP Blue Chip Index Fund, AARP
International Stock Fund and AARP Small Company Stock Fund, dated ____________
was approved by the Trustees on ______________ and by the initial shareholder of
each Fund on ____________. Each Agreement may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
A Special Servicing Agreement (the "Service Agreement") has been
entered into among the Fund Manager, the Underlying AARP Mutual Funds, Scudder
Service Corporation, Scudder Fund Accounting Corporation, Scudder Investor
Services, Inc. and the AARP Managed Investment Portfolios Trust on
_____________. Under the Service Agreement, the Fund Manager will arrange for
all services pertaining to the operation of the Trust including the services of
Scudder Service Corporation and Scudder Fund Accounting Corporation to act as
Shareholder Servicing Agent and Fund Accounting Agent, respectively, for each
Portfolio. In addition, the Service Agreement will provide that, if the officers
of any Underlying AARP Mutual Fund, at the direction of the Board of Trustees,
determine that the aggregate expenses of a Portfolio are less than the estimated
savings to the Underlying AARP Mutual Fund from the operation of that Portfolio,
the Underlying AARP Mutual Fund will bear those expenses in proportion to the
average daily value of its shares owned by that Portfolio. No Underlying AARP
Mutual Fund will bear such expenses in excess of the estimated savings to it.
Such savings are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been invested directly in
the Underlying AARP Mutual Funds and the resulting reduction in shareholder
servicing costs. In this regard, the shareholder servicing costs to any
Underlying AARP Mutual Fund for servicing one account registered to the Trust
would be significantly less than the cost to that same Underlying AARP Mutual
Fund of servicing the same pool of assets contributed in the typical fashion by
a large group of individual shareholders owning small accounts in each
Underlying AARP Mutual Fund.
Based on actual expense data from the Underlying AARP Mutual Funds and
certain very conservative assumptions with respect to the Trust, the Fund
Manager, the Underlying AARP Mutual Funds, Scudder Service Corporation, Scudder
Investor Services, Inc., Scudder Fund Accounting Corporation, Scudder Trust
Company and the Series anticipate that the aggregate financial benefits to the
Underlying AARP Mutual Funds from these arrangements will exceed the costs of
operating the Portfolios. If such turns out to be the case, there will be no
charge to the Trust for the services under the Service Agreement. Rather, in
accordance with the Service Agreement, such expenses will be passed through to
the Underlying AARP Mutual Funds in proportion to the value of each Underlying
AARP Mutual Fund's shares held by each Portfolio.
58
<PAGE>
In the event that the aggregate financial benefits to the Underlying
AARP Mutual Funds do not exceed the costs of a Portfolio, the Fund Manager will
pay, on behalf of that Portfolio, that portion of costs, as set forth herein,
determined to be greater than the benefits. The determination of whether and the
extent to which the benefits to the Underlying AARP Mutual Funds from the
organization of the Trust will exceed the costs to such funds will be made based
upon the analysis criteria set forth in the Order. This cost-benefit analysis
was initially reviewed by the Trustees of the Underlying AARP Mutual Funds
before participating in the Service Agreement. For future years, there will be
an annual review of the Service Agreement to determine its continued
appropriateness for each Underlying AARP Mutual Fund.
Certain non-recurring and extraordinary expenses will not be paid in
accordance with the Service Agreement including: the fees and costs of actions,
suits or proceedings and any penalties or damages in connection therewith, to
which a Portfolio may incur directly, or may incur as a result of its legal
obligation to provide indemnification to its officers, trustees and agents; the
fees and costs of any governmental investigation and any fines or penalties in
connection therewith; and any federal, state or local tax, or related interest
penalties or additions to tax, incurred, for example, as a result of the
Portfolios' failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file any
required tax returns or other filings. Under unusual circumstances, the parties
to the Service Agreement may agree to exclude certain other expenses.
Scudder, Stevens & Clark, Inc. is one of the most experienced
investment management firms in the United States. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual Fund to the public. In 1953, Scudder introduced Scudder International
Fund, the first Fund available in the U.S. investing internationally in
securities of issuers in several foreign countries. The principal source of the
Fund Manager's income is professional fees received from providing continuous
investment advice, and the firm derives no income from banking, brokerage or
underwriting of securities. Today, it provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder Portfolio Trust, Scudder
Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free Money Fund,
Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life
Investment Fund, Scudder World Income Opportunities Fund, Inc., The Argentina
Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund,
Inc., The Japan Fund, Inc., and The Latin America Dollar Income Fund, Inc. Some
of the foregoing companies or trusts have two or more series.
The Fund Manager maintains a large research department, which conducts
continuous studies of the factors that affect the condition of various
industries, companies and individual securities. In this work, the Fund Manager
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and for clients of the Fund Manager, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.
Certain investments may be appropriate for more than one Fund and also
for other clients advised by the Fund Manager. Investment decisions for each
Fund and for other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
Fund or client or in different amounts and at different times for more than one
but less than all Funds or other clients. Likewise, a particular security may be
bought for one or more Funds or clients when one or more other Funds or clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more Funds or clients on the same date. In such event
such transactions will be allocated among the Funds and/or clients in a manner
believed by the Fund Manager to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined
with those of other Funds or clients of the Fund Manager in the interest of most
favorable net results to the particular Fund.
59
<PAGE>
Each Management Agreement provides that the Fund Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with matters to which the respective agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund Manager in the performance of its duties or from
reckless disregard by the Fund Manager of its obligations and duties under the
respective agreement.
In reviewing the terms of each Management Agreement and in discussions
with the Fund Manager concerning such agreements, the Trustees of each Trust who
are not "interested persons" of that Trust have been represented by independent
counsel at the Trust's expense. Dechert Price & Rhoads acts as general counsel
for the Trusts.
Pursuant to a Member Services Agreement with the Fund Manager, dated
February 1, 1994, AARP Financial Services Corp. ("AFSC") provides the Fund
Manager with nondistribution related service and advice primarily concerning
designing and tailoring the AARP Investment Program from Scudder and its Funds
to meet the needs of AARP's members on an ongoing basis. AARP Financial Services
Corp. receives, as compensation for its services, a Monthly Member Services fee.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
The Member Services Agreement will remain in effect until August 31,
1997 and from year to year thereafter only if its continuance is specifically
approved at least annually by the vote of a majority of those Trustees who are
not "interested persons" of the Fund Manager, AFSC, or the Funds cast in person
at a meeting called for the purpose of voting on such approval and either by
vote of a majority of the Trustees or, with respect to each Fund, by a majority
of the outstanding voting securities of that Fund. The continuance of the Member
Services Agreement was last approved by the Trustees (including a majority of
the Trustees who are not such "interested persons") on June 18, 1996 and by
shareholders on January 13, 1994. The Member Services Agreement may be
terminated at any time without payment of penalty by the Funds on sixty days'
written notice, or by AFSC upon six months' notice to the Funds and to the Fund
Manager, and automatically terminates in the event of its assignment or the
assignment of the Management Agreement.
Pursuant to a Service Mark License Agreement, dated March 20, 1996
among the Trusts, except for AARP Managed Investment Portfolios Trust, the Fund
Manager and AARP, use of the AARP service marks by a Trust and its Funds will be
terminated, unless otherwise agreed to by AARP, upon termination of that Trust's
Management Agreement.
Officers and employees of the Fund Manager from time to time may have
transactions with various banks, including the AARP Funds' custodian bank. It is
the Fund Manager's opinion that the terms and conditions of those transactions
which have occurred were not influenced by existing or potential custodial or
other Fund relationships.
None of the officers or Trustees of a Trust may have dealings with that
Trust as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.
Personal Investments by Employees of Scudder
Employees of Scudder are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in Scudder's
Code of Ethics. The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between personal
investment activities and the interests of investment advisory clients such as
the Funds. Among other things, the Code of Ethics, which generally complies with
standards recommended by the Investment Company Institute's Advisory Group on
Personal Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions may not be
made in certain securities, and requires the submission of duplicate broker
confirmations and monthly reporting of securities transactions. Additional
restrictions apply to portfolio managers, traders, research analysts and others
involved in the investment advisory process. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate personnel.
60
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cuyler W. Findlay#* (63) Chairman of the Managing Director of Scudder, --
Board and Trustee Stevens & Clark, Inc.
Horace B. Deets+* (58) Vice Chairman and Executive Director, American --
Trustee Association of Retired Persons
Linda Coughlin#* (45) President and Managing Director of Scudder, Director and Senior
Trustee Stevens & Clark, Inc. Vice President
Carole Lewis Anderson (52) Trustee President, MASDUN Capital --
3616 Reservoir Road, N.W. Advisors; Formerly Principal,
Washington, DC Suburban Capital Markets, Inc.;
Director, VICORP Restaurants,
Inc.; Member of the Board,
Association for Corporate Growth
of Washington, D.C.; Trustee,
Hasbro Children's Foundation and
Mary Baldwin College
Adelaide Attard (66) Trustee Gerontology Consultant; Member, --
270-28N Grand Central Parkway New York City Department of
Floral Park, NY Aging Advisory Council--
Appointed by Mayor (1995); Board
Member, American Association on
International Aging (1981 to
present); Commissioner, County
of Nassau, New York, Dept. of
Senior Citizen Affairs
(1971-1991); Chairperson,
Federal Council on Aging
(1981-1986)
Cyril F. Brickfield+* (78) Trustee Honorary President and Special --
Counsel, American Association of
Retired Persons
Robert N. Butler, M.D. (70) Trustee Director, International --
211 Central Park West Longevity Center and Professor
Apt. 7F of Geriatrics and Adult
New York, NY Development; Chairman, Henry L.
Schwartz Department of
Geriatrics and Adult
Development, Mount Sinai Medical
Center (1982 to present);
Formerly Director, National
Institute on Aging, National
Institute of Health (1976-1982)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Esther Canja+* (69) Trustee Vice President, American --
Association of Retired Persons;
Trustee and Chair, AARP Group
Health Insurance Plan; Board
Liaison, National Volunteer
Leadership Network Advisory
Committee; Chair, Board
Operations Committee; AARP State
Director of Florida (1990-1992)
Edgar R. Fiedler (67) Trustee Vice President and Economic --
845 Third Ave. Counselor, The Conference Board,
New York, NY Inc.
Lt. Gen. Eugene P. Forrester (70) Trustee Lt. General (Retired), U.S. --
1101 S. Arlington Ridge Rd. Army; International Trade
Arlington, VA Counselor (1983 to present);
Consultant
Wayne F. Haefer* (60) Trustee Director, Membership Division of --
AARP; Formerly Secretary,
Employee's Pension and Welfare
Trusts of AARP and Retired
Persons Services, Inc.
George L. Maddox, Jr. (71) Trustee Professor Emeritus and Director, --
P.O. Box 2920 Long Term Care Resources
Duke Univ. Medical Center Program, Duke University Medical
Durham, NC Center; Professor Emeritus of
Sociology, Departments of
Sociology and Psychiatry, Duke
University
Robert J. Myers (84) Trustee Actuarial Consultant (1983- --
9610 Wire Ave. present); Formerly Chairman,
Silver Spring, MD Commission on Railroad
Retirement Reform (1988-90);
Deputy Commissioner, Social
Security Administration
(1981-1982); Member, National
Commission on Social Security
(1978-1981); Formerly Executive
Director, National Commission on
Social Security Reform
(1982-1983); Director: NASL
Series Trust, Inc. and North
American Funds, Inc.; Member,
Prospective Payment Assessment
Commission.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James H. Schulz (60) Trustee Professor of Economics and --
158 Scruton Pond Road Kirstein Professor of Aging
Barrington, NH Policy, Policy Center on Aging,
Florence Heller School, Brandeis
University
Gordon Shillinglaw (71) Trustee Professor Emeritus of --
196 Villard Ave. Accounting, Columbia University
Hastings-on-Hudson, NY Graduate School of Business
Thomas W. Joseph## (57) Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer and
Assistant Clerk
David S. Lee## (63) Vice President and Managing Director of Scudder, President, Assistant
Assistant Treasurer Stevens & Clark, Inc. Treasurer and Director
Thomas F. McDonough## (50) Vice President and Principal of Scudder, Stevens & Clerk
Assistant Secretary Clark, Inc.
Pamela A. McGrath## (43) Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell# (51) Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
James W. Pasman## (44) Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Kathryn L. Quirk# (44) Vice President and Managing Director of Scudder, Senior Vice President
Secretary Stevens & Clark, Inc.
Howard Schneider# (39) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Cornelia M. Small# (52) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
</TABLE>
* Messrs. Brickfield, Deets, Findlay, Haefer and Ms. Canja and Ms. Coughlin
are Trustees of each of the Trusts and are considered by the Trusts and
their counsel to be persons who are "interested persons" of the Trusts
(within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
# Address: 345 Park Avenue, New York, New York
## Address: Two International Place, Boston, Massachusetts
+ Address: 601 E Street, N.W., Washington, D.C.
63
<PAGE>
As of December 31, 1996, all Trustees and officers of the Funds as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the outstanding shares of each Fund. To
the best of the Trusts' knowledge as of December 31, 1996 no person owned
beneficially more than 5% of the outstanding shares of any of the Trusts.
REMUNERATION
Several of the officers and Trustees of the Trusts may be officers or
employees of Scudder, Stevens & Clark, Inc., Scudder Service Corporation,
Scudder Investor Services, Inc., or Scudder Trust Company and will participate
in the fees received by such entities. No individual affiliated with AARP will
participate directly in any such fees. The Trusts pay no direct remuneration to
any officer of the Trusts. However, each of the Trustees who is not affiliated
with Scudder, Stevens & Clark, Inc. or AARP will be paid by the Trust(s) for
which he or she serves as Trustee. Until September 30, 1996, each of these
unaffiliated Trustees received an annual fee of $2000 from each Fund for which
he or she serves plus $270 for each Trustees' meeting and $200 for each audit
committee meeting or meeting held for the purpose of considering arrangements
between the Fund and the Fund Manager or any of its affiliates attended. Each
unaffiliated Trustee also received $100 per committee meeting, other than an
audit committee meeting, attended. If any such meetings are held jointly with
meetings of one or more mutual funds advised by the Fund Manager, a maximum fee
of $800 for meetings of the Board, meetings of the unaffiliated members of the
Board for the purpose of considering arrangements between the Fund and the Fund
Manager or any of its affiliates or the audit committees of such Funds, and $400
for all other committee meetings or meetings of the unaffiliated members of the
Board is paid, to be divided equally among the Funds. Effective October 1, 1996,
each unaffiliated Trustee will receive an annual retainer of $10,000 for serving
as a Trustee of the AARP Investment Program. In addition, each Trustee will
receive for each Fund on which they serve, a fee of $175 for attending each
Trustees' meeting; $150 for attending each audit and contract committee meeting;
$100 for attending each nominating committee meeting; and $125 for attending
each additional committee meeting. For the year ended September 30, 1996, the
Trustees' fees and expenses for nine of the Funds were as follows:
Fund Expense
------------------------------------
AARP High Quality Money Fund AARP GNMA and U.S. Treasury Fund AARP High Quality
Bond Fund AARP High Quality Tax Free Money Fund AARP Insured Tax Free General
Bond Fund AARP Balanced Stock and Bond Fund AARP Growth and Income Fund AARP
Global Growth Fund AARP Capital Growth Fund
The following table shows the aggregate compensation received by each
unaffiliated Trustee from each Trust and from all AARP Trusts and Scudder Fund
complex for the year ended December 31, 1996.
<TABLE>
<CAPTION>
AARP Cash AARP Income AARP Tax Free All AARP Trusts and
Investment Fund Trust Income Trust AARP Scudder
Name Growth Trust Fund Complex
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carole L. Anderson (__ funds)
Adelaide Attard (__ funds)
Robert N. Butler (__ funds)
Mary Johnston Evans (__ funds)
Edgar R. Fiedler (__ funds)
Eugene P. Forrester (__ funds)
William B. Macomber (__ funds)
George L. Maddox, Jr. (__ funds)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
AARP Cash AARP Income AARP Tax Free All AARP Trusts and
Investment Fund Trust Income Trust AARP Scudder
Name Growth Trust Fund Complex
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert J. Myers (__ funds)
James H. Schulz (__ funds)
Gordon Shillinglaw (__ funds)
+ AARP Diversified Investment Income Portfolio and AARP Diversified Investment Growth Portfolio, series of AARP
Investment Portfolio Trust, commenced operations on February 1, 1997.
AARP Cash Investment Fund consists of one Fund: AARP High Quality Money Fund.
AARP Income Trust consists of three Funds: AARP GNMA and U.S. Treasury Fund, AARP High Quality Bond Fund, and
AARP Bond Fund for Income.*
AARP Tax Free Income Trust consists of two Funds: AARP High Quality Tax Free Money Fund and AARP Insured Tax
Free General Bond Fund.
AARP Growth Trust consists of seven Funds: AARP Balanced Stock and Bond Fund, AARP Blue Chip Index Fund,* AARP
Growth and Income Fund, AARP Global Growth Fund,* AARP Capital Growth Fund, AARP International Stock Fund,* and
AARP Small Company Stock Fund.*
* AARP Global Growth Fund commenced operations on February 1, 1996. AARP Bond Fund for Income, AARP Blue Chip Index
Fund, AARP International Stock Fund, and AARP Small Company Stock Fund commenced operations on February 1, 1997.
** Mr. Fiedler received $______ through a deferred compensation program. As of December 31, 1996, Mr. Fiedler had
a total of $______ accrued in a deferred compensation program for serving on the Board of Directors of Scudder
Institutional Fund, Inc. and Scudder Fund, Inc.
</TABLE>
DISTRIBUTOR
Each of the Trusts has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
subsidiary of Scudder, Stevens & Clark, Inc., a Delaware corporation. The
underwriting agreements dated September 4, 1985 will remain in effect until
August 31, 1997 and from year to year thereafter only if their continuance is
approved annually by a majority of the members of the Board of Trustees of each
Trust who are not parties to such agreement or interested persons of any such
party and either by vote of a majority of the Board of Trustees of each Trust or
a majority of the outstanding voting securities of each Trust.
Under each Trust's principal underwriting agreement, the Trust is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of its registration statement and prospectus
and any amendments and supplements thereto; the registration and qualification
of shares for sale in the various states, including registering the Trust as a
broker or dealer; the fees and expenses of preparing, printing and mailing
prospectuses (see below for expenses relating to prospectuses paid by the
Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of the Trust; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); and the cost of printing and postage of business reply envelopes.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of shares of the
Funds to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Trust.
Note: Although each Trust does not currently have a Rule 12b-1 Plan and
shareholder approval would be required in order to adopt one, the underwriting
agreements provide that the Trust will also pay those fees and expenses
permitted to be paid or assumed by that Trust pursuant to a Rule 12b-1 Plan, if
65
<PAGE>
any, adopted by each Trust, notwithstanding any other provision to the contrary
in the underwriting agreement and each Trust or a third party will pay those
fees and expenses not specifically allocated to the Distributor in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Funds to
investors in all states. Each underwriting agreement provides that the
Distributor accepts orders for shares at net asset value because no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of any of the Funds.
TAXES
(See "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" in the Prospectus.)
Each AARP Fund has qualified and intends to elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code (the "Code"), as amended, since its inception and intends to
continue to so qualify. (Such qualification does not involve supervision of
management or investment practices or policies by a government agency.) In any
year in which a Fund so qualifies and distributes at least 90% of its investment
company taxable income, and at least 90% of its net tax-exempt income, if any,
the Fund generally is not subject to Federal income tax to the extent that it
distributes to shareholders its investment company taxable income and net
realized capital gains in the manner required under the Code.
Each AARP Fund must distribute its taxable income according to a
prescribed formula and will be subject to a 4% nondeductible excise tax on
amounts not so distributed. The formula requires a Fund to distribute each
calendar year at least 98% of its ordinary income (excluding tax-exempt income)
for the calendar year, at least 98% of the excess of its capital gains over
capital losses (adjusted for certain ordinary losses) realized during the
one-year period ending October 31 of such year, and any ordinary income and
capital gains for prior years that was not previously distributed.
To qualify under Subchapter M, gains from the sale of stock, securities
and certain options, futures and forward contracts held for less than three
months must be limited to less than 30% of each Fund's annual gross income.
Moreover, short-term gains (i.e., gains from the sale of securities held for one
year or less) are taxed as ordinary income when distributed to shareholders.
Options, futures and forward activities of the AARP Funds may increase the
amount of the short-term gains and gains that are subject to the 30% limitation.
The determination of the nature and amount of investment company
taxable income of a Fund will be based solely on the transactions in, and on the
income received and expenses incurred by or allocated to, the Fund. Each AARP
Fund intends to offset any realized net capital gains against any capital loss
carryforward before making capital gains distributions to shareholders.
Distributions of any investment company taxable income (which includes
interest, dividends and the excess of net short-term capital gain over net
66
<PAGE>
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
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.
67
<PAGE>
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures contract, foreign currency forward
contract or nonequity option governed by Section 1256 which substantially
diminishes the Fund's risk of loss with respect to such other position will be
treated as a "mixed straddle." Although mixed straddles are subject to the
straddle rules of Section 1092 of the Code, certain tax elections exist for them
which reduce or eliminate the operation of these rules. Each Fund will monitor
its transactions in options and futures and may make certain tax elections in
connection with these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which may allow the Fund to make
an election to mark to market its shares of these foreign investment companies
in lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
and gain on dispositions as ordinary income which is not subject to a Fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by those countries.
Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount represents interest for Federal income tax purposes and can generally
be defined as the difference between the price at which a security was issued
and its stated redemption price at maturity. Although no cash income is actually
received by the Funds, original issue discount earned in a given year generally
is treated for Federal income tax purposes as income earned by the Funds, and
therefore is subject to the distribution requirements of the Code. The amount of
income earned by the Funds is determined on the basis of a constant yield to
maturity which takes into account at least semi-annual or annual compounding
(depending on the date of the security) of accrued interest.
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.
68
<PAGE>
The Funds will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. All such distributions and proceeds may be subject to
withholding of Federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Funds with their taxpayer identification
numbers and with required certifications regarding their status under Federal
income tax laws. Withholding may also be required if a Fund is notified by the
IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions or proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Investors may wish to consult their tax advisers about the applicability of the
backup withholding provisions.
In addition to Federal taxes, shareholders of the Funds may be subject
to state and local taxes on distributions from the Funds. Under the laws of
certain states, distributions of investment company taxable income are taxable
to shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by the resident of such state, would be exempt from such
state's income tax. Shareholders should consult their own tax advisers with
respect to the tax status of distributions from the Funds in their own state and
localities.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, Trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
31% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her.
Special Information Regarding AARP High Quality Tax Free Money Fund and
AARP Insured Tax Free General Bond Fund: Each of the AARP Tax Free Income Funds
intends to qualify to pay "exempt-interest dividends" to its shareholders. Each
Fund will be so qualified if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of securities of states,
U.S. possessions, their political subdivisions, and the District of Columbia,
the interest on which is exempt from Federal tax. To the extent that the Funds'
dividends distributed to shareholders are derived from earnings on interest
income exempt from Federal tax and are designated as "exempt-interest dividends"
by the Funds, they will be excludable from a shareholder's gross income for
Federal income tax purposes. "Exempt-interest dividends," however, must be taken
into account by shareholders in determining whether their total incomes are
large enough to result in taxation of up to 85% of their Social Security
benefits. In addition, interest on certain municipal obligations (private
activity bonds) will be treated as a preference item for purposes of calculating
the alternative minimum tax for individuals and for corporations. Similarly,
income distributed by the Funds, including exempt-interest dividends, may
constitute an adjustment to alternative minimum taxable income of corporate
shareholders. The Funds do not intend to purchase any private activity bonds.
The Funds will inform shareholders annually as to the portion of the
distributions from the Funds which constituted "exempt-interest dividends."
To the extent that the Funds' dividends are derived from interest on
their temporary taxable investments or from an excess of net short-term capital
gain over net long-term capital loss, they are considered ordinary taxable
income for Federal income tax purposes. Distributions, if any, of net long-term
capital gains from the sale of securities are taxable at long-term capital gain
rates regardless of the length of time the shareholder has owned Fund shares.
However, if a shareholder realizes a loss on the sale of a share held at the
time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. Furthermore, a loss realized by a
shareholder on the sale of shares of the Funds with respect to which
exempt-interest dividends have been paid will be disallowed if such shares have
been held by the shareholder for six months or less (to the extent of
exempt-interest dividends paid).
Under the Code, a shareholder's interest expense deductions with
respect to indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as either of the AARP
Tax-Free Funds, may be limited. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed Funds are considered used for the
purposes of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed Funds even though the borrowed
Funds are not directly traceable to the purchase of shares.
69
<PAGE>
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuer. Neither AARP, the Fund Manager, nor Counsel to the Funds
makes any review of proceedings relating to the issuer of municipal securities
or the bases of such opinions.
The foregoing description regarding the AARP Tax-Free Funds relates
only to Federal income tax law. Investors should consult with their tax advisers
as to exemption from other state or local law. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
industrial development bonds should consult their tax advisers before purchasing
shares of the Funds.
BROKERAGE AND PORTFOLIO TURNOVER
Brokerage Commissions
To the maximum extent feasible the AARP Funds' investment adviser will
place orders for portfolio transactions through the Distributor, which in turn
will place orders on behalf of the AARP Funds with other brokers and dealers.
The Distributor receives no commission, fees or other remuneration from the
Funds for this service.
Allocation of brokerage is supervised by the Fund Manager.
Purchases and sales of fixed-income securities for the AARP Funds are
generally placed by the Fund Manager with primary market makers for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The primary objective of the Fund Manager in placing orders for the
purchase and sale of assets for the AARP Funds' portfolios is to obtain the most
favorable net results, taking into account such factors as price, commission
(which is negotiable in the case of national securities exchange transactions),
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Fund Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the AARP Funds to reported commissions paid by others. The
Fund Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
AARP Diversified Portfolio Investments are made directly in Underlying
AARP Funds with no commission.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Fund Manager's practice to place such orders
with brokers and dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Funds or the Fund Manager. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and concerning the performance
of accounts. The Fund Manager is not authorized, when placing portfolio
transactions for the AARP Funds, except for the AARP Growth Funds, to pay a
brokerage commission in excess of that which another broker might have charged
for executing the same transaction solely on account of the receipt of research,
market or statistical information. The Fund Manager will not place orders with
brokers or dealers on the basis that the broker or dealer has or has not sold
shares of the Funds. Except for implementing the policy stated above, there is
no intention to place portfolio transactions with particular brokers or dealers
or groups thereof. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Subject to obtaining the most favorable results, the Fund Manager may
place particular transactions through the Distributor, with the net commission
or fee being credited against the fee payable to the Fund Manager. The
Distributor, however, does not intend to engage in a general brokerage business.
Also subject to obtaining the most favorable net results, the Fund Manager may
place brokerage transactions with Bear, Stearns & Co.
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Although certain research, market and statistical information from
brokers and dealers can be useful to the AARP Funds and to the Fund Manager, it
is the opinion of the Fund Manager that such information is only supplementary
to its own research effort since the information must still be analyzed,
weighed, and reviewed by the Fund Manager's staff. Such information may be
useful to the Fund Manager in providing services to clients other than the AARP
Funds, and not all such information is used by the Fund Manager in connection
with the AARP Funds. Conversely, such information provided to the Fund Manager
by brokers and dealers through whom other clients of the Fund Manager effect
securities transactions may be useful to the Fund Manager in providing services
to the AARP Funds.
For the fiscal years ended September 30, 1994, 1995 and 1996 the AARP
Growth and Income Fund paid brokerage commissions of $2,319,113, $1,690,604 and
$___________ and the AARP Capital Growth Fund paid brokerage commissions of
$1,156,320, $2,636,662, and $___________, both respectively. For the fiscal
period ended September 30, 1994, and for the fiscal years ended September 30,
1995 and 1996, the AARP Balanced Stock and Bond Fund paid brokerage commissions
of $152,376, $149,816, and $__________, respectively. For the fiscal period
February 1, 1996 (commencement of operations) until September 30, 1996, the AARP
Global Growth Fund paid brokerage commissions of $__________. In the fiscal year
ended September 30, 1996, $__________ (___%) of the total brokerage commissions
paid by AARP Growth and Income Fund and $____________ (___%) by AARP Capital
Growth Fund resulted from orders placed, consistent with the policy of obtaining
the most favorable net results, with brokers and dealers who provided
supplementary research information to the Funds or the Fund Manager. The amount
of such transactions aggregated $_____________ for the AARP Capital Growth Fund,
(___% of all brokerage transactions) and $____________ (___%) of all brokerage
transactions) for the AARP Growth and Income Fund. The balance of such brokerage
was not allocated to any particular broker or dealer or with regard to the
above-mentioned or other special factors. For the fiscal year ended September
30, 1996, $________ (___%) of the total brokerage commissions paid by AARP
Balanced Stock and Bond Fund resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research information to the Funds or the Fund Manager.
The amount of such transactions aggregated $_____________ for AARP Balanced
Stock and Bond Fund, (___% of all brokerage transactions). For the fiscal period
ended September 30, 1996, $________ (___%) of the total brokerage commissions
paid by AARP Global Growth Fund resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research information to the Funds or the Fund Manager.
The balance of such brokerage was not allocated to any particular broker or
dealer or with regard to the above-mentioned or other special factors.
The Trustees review from time to time whether the recapture for the
benefit of the Funds of some portion of the brokerage commissions or similar
fees paid by the Funds on portfolio transactions is legally permissible and
advisable. To date, no recapture has been effected.
Portfolio Turnover
Fund securities may be sold to take advantage of investment
opportunities arising from changing market levels or yield relationships.
Although such transactions involve additional costs in the form of spreads or
commissions, they will be undertaken in an effort to improve the overall
investment return of a Fund, consistent with that Fund's objectives. The
portfolio turnover rate of a Fund is defined in a Rule of the SEC as the lesser
of the value of securities purchased or securities sold during the year,
excluding all securities whose maturities at the time of acquisition were one
year or less, divided by the average monthly value of such securities owned
during the year. The portfolio turnover rates for the fiscal years ended
September 30, 1994, 1995, and 1996 for five of the non-money market Funds were:
AARP GNMA and U.S. Treasury Fund, 114.54%, 70.35%, and ______%; AARP High
Quality Bond Fund, 63.75%, 201.07%, and ______%; AARP Insured Tax Free General
Bond Fund, 38.39%, 17.45%, and ______%; AARP Growth and Income Fund, 31.82%,
31.26%, and ______%; AARP Capital Growth Fund, 79.65%, 98.44%, and ______%, all
respectively. The portfolio turnover rate for the period ended September 30,
1994 and for the fiscal years ended September 30, 1995 and 1996 for the AARP
Balanced Stock and Bond Fund was 49.32%, 63.77%, and ______%, respectively. The
portfolio turnover rate for AARP Global Growth Fund for the period February 1,
1996 (commencement of operations) to September 30, 1996 was ______%. Under
normal investment conditions, it is anticipated that the AARP Bond Fund for
Income's, the AARP Blue Chip Index Fund's, the AARP International Stock Fund's
or the AARP Small Company Stock Fund's annual portfolio turnover rate will not
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exceed 75% for the initial fiscal year. It is also anticipated that the annual
portfolio turnover rate for AARP Diversified Growth Portfolio and AARP
Diversified Income Portfolio will not exceed 50% for the initial fiscal year.
NET ASSET VALUE
AARP Money Funds
The net asset value per share of the Fund is computed twice daily as of
twelve o'clock noon and the close of regular trading on the Exchange, normally 4
p.m. eastern time, on each day when the Exchange is open for trading. The
Exchange is normally closed on the following national holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. Net asset value is determined by dividing the total
assets of the Fund, less all of its liabilities, by the total number of shares
of the Fund outstanding. The Fund uses the 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.
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.
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If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
Trading in securities on foreign securities exchanges is normally
completed before the close of regular trading on the Exchange. Trading on these
foreign exchanges may not take place on all days on which there is regular
trading on the Exchange, or may take place on days on which there is no regular
trading on the Exchange. If events materially affecting the value of a Fund's
portfolio securities occur between the time when these foreign exchanges close
and the time when the Fund's net asset value is calculated, such securities will
be valued at fair value as determined by each Trust's Board of Directors. Shares
of AARP Underlying Funds in which the AARP Diversified Portfolios invest in next
determine net asset value after the order is placed.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial statements of the AARP Funds included in the Annual
Report to shareholders dated September 30, 1996, have been examined by Price
Waterhouse LLP, independent accountants, and are incorporated by reference into
this Statement of Additional Information in reliance upon the accompanying
report of said firm, which report is given upon their authority as experts in
accounting and auditing.
Shareholder Indemnification
Each of the Trusts is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. Each Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. Each Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Trust itself would be unable to meet its
obligations. No series of one Trust is liable for the obligations of another
series in the AARP Complex.
Ratings of Corporate Bonds
The three highest ratings of Moody's for corporate bonds are Aaa, Aa
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa securities. Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Although factors
giving security to principal and interest on bonds rated A are adequate, other
elements may be present which suggest a susceptibility to impairment sometime in
the future.
The three highest ratings of S&P for corporate bonds are AAA (Prime),
AA (High-grade) and A. Bonds rated AAA have the highest rating assigned by S&P
to a debt obligation. Capacity to pay interest and repay principal is extremely
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
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rated A have a strong capacity to pay principal and interest, although they are
more susceptible to the adverse effects of changes in circumstances and economic
conditions. Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Ratings of Commercial Paper
The ratings Prime-1 and Prime-2 are the highest commercial paper
ratings assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; 6) trend of
earnings over a period of ten years; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.
Prime-2 ratings are assigned by Moody's to commercial paper issuers
which have a strong capacity for meeting their obligations in a timely fashion.
However, their financial, economic and managerial capacities will be less than
that of Prime-1 borrowers. Financial characteristics such as earnings, coverage
ratios and capitalization will be more affected by external economic factors
than Prime-1 borrowers. Liquidity is still believed to be ample.
The two highest ratings of S&P for commercial paper are A-1 and A-2.
Commercial paper rated A-1 or better by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; the reliability and quality of
management are unquestioned.
S&P will assign an A-2 rating to the commercial paper of companies
which have the capacity for timely payment on issues. However, the relative
degree of safety is less than for issuers rated A-1.
Ratings of Municipal Bonds
The three highest ratings of Moody's for municipal bonds are Aaa, Aa,
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
The three highest ratings of S&P for municipal bonds are AAA (Prime),
AA (High-grade), and A (Good grade). Bonds rated AAA have the highest rating
assigned by S&P to a municipal obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of Funds for their servicing or by established and
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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 except AARP Global Growth Fund
are held separately, pursuant to a custodian agreements with each Trust, by
State Street Bank and Trust Company of Boston as Custodian.
Portfolio securities of AARP Global Growth Fund are held separately,
pursuant to a custodian agreement with AARP Growth Trust on behalf of AARP
Global Growth Fund, by Brown Brothers Harriman & Co. of Boston as Custodian.
Each Trust has shareholder servicing agreements with Scudder Service
Corporation ("SSC"), a subsidiary of Scudder, Stevens & Clark, Inc. SSC is the
transfer agent, dividend disbursing and shareholder service agent for each Fund.
Shareholder service expenses charged by SSC were for AARP High Quality Money
Fund, $__________; 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, 1996.
Shareholder service expenses charged by SSC for AARP Global Growth Fund were
$____________ for the period February 1, 1996 (commencement of operations) to
September 30, 1996. Not all of these fees were paid in full at the fiscal year
end.
The firm of Dechert Price & Rhoads of Washington, D.C. is counsel for
the Trusts.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of Scudder, Stevens & Clark, Inc.,
computes net asset value for each Fund. AARP High Quality Money Fund and AARP
High Quality Tax Free Money Fund each pay Scudder Fund Accounting an annual fee
equal to 0.020% on the first $150 million of average daily net assets, 0.0060%
of such assets in excess of $150 million, up to and including $1 billion and
0.0035% of such assets in excess of $1 billion, plus holding and transaction
charges for this service. AARP Insured Tax Free General Bond Fund pays Scudder
Fund Accounting an annual fee equal to 0.024% on the first $150 million of
average daily net assets, 0.0070% on such assets in excess of $150 million up to
and including $1 billion, and 0.0040% of such assets in excess of $1 billion,
plus holding and transaction charges for this service. AARP GNMA and U.S.
Treasury Fund, AARP High Quality Bond Fund and AARP Bond Fund for Income each
pay Scudder Fund Accounting an annual fee equal to 0.025% of the first $150
million of average daily net assets, 0.0075% of such assets in excess of $150
million up to and including $1 billion, and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges for this service. AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, AARP Blue Chip Index Fund,
AARP Capital Growth Fund and AARP Small Company Stock Fund each pay Scudder Fund
Accounting an annual fee equal to 0.025% on the first $150 million of average
daily net assets, 0.0075% of such assets in excess of $150 million up to and
including $1 billion, and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges. AARP Global Growth Fund and Scudder
International Stock Fund each pay Scudder Fund Accounting Corporation an annual
fee equal to 0.065% on the first $150 million of average daily net assets,
0.0400% of such assets in excess of $150 million up to and including $1 billion,
and 0.0200% of such assets in excess of $1 billion, plus holding and transaction
charges for this service.
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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 1996
calendar year.
<TABLE>
<CAPTION>
1996 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> <C>
$0 - $23,350 15.0% 5.88% 8.24% 10.59%
$23,351 - $56,550 28.0% 6.94% 9.72% 12.50%
$56,551 - $117,950 31.0% 7.25% 10.14% 13.04%
$117,951 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%
Joint Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $39,000 15.0% 5.88% 8.24% 10.59%
$39,001 - $94,250 28.0% 6.94% 9.72% 12.50%
$94,251 - $143,600 31.0% 7.25% 10.14% 13.04%
$143,601 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%
** These illustrations assume the Federal alternative minimum tax is not applicable, that an individual is not
a "head of household" and claims one exemption and that taxpayers filing a joint return claim two
exemptions. Note also that these federal income tax brackets and rates do not take into account the effects
of (i) a reduction in the deductibility of itemized deductions for taxpayers whose federal adjusted gross
income exceeds $114,700 ($57,350 in the case of a married individual filing a separate return), or of (ii)
the gradual phaseout of the personal exemption amount for taxpayers whose federal adjusted gross income
exceeds $114,700 (for single individuals) or $172,050 (for married individuals filing jointly). The
effective federal tax rates and equivalent yields for such taxpayers would be higher than those shown above.
</TABLE>
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Example:*
Based on 1996 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $40,000 would have to earn a
tax-equivalent yield of 6.94% in order to match a tax-free yield of 5%.
There is no guarantee that a Fund will achieve a specific yield. While
most of the income distributed to the shareholders of each Fund will be exempt
from federal income taxes, portions of such distributions may be subject to
federal income taxes. Distributions may also be subject to state and local
taxes.
* Net amount subject to federal income tax after deductions and
exemptions, exclusive of the alternative minimum tax.
FINANCIAL STATEMENTS
The financial statements and notes, including the investment portfolio,
of each AARP Fund, together with the Report of Independent Accountants and
Supplementary Information are incorporated by reference.
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AARP GROWTH TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for AARP Growth and
Income Fund and AARP Capital Growth Fund for
the ten fiscal years ended September 30,
1995 and for the six months ended March 31,
1996. (Incorporated by reference to
Post-Effective Amendment No. 19.)
Financial Highlights for AARP Balanced Stock
and Bond Fund for the period February 1,
1994 (commencement of operations) to
September 30, 1994, for the fiscal year
ended September 30, 1995 and for the six
month period ended March 31, 1996.
(Incorporated by reference to Post-Effective
Amendment No. 19.)
Financial Highlights for AARP Global Growth
Fund for the period February 1, 1996
(commencement of operations) to March 31,
1996. (Incorporated by reference to
Post-Effective Amendment No. 19.)
Financial Highlights for AARP Growth and
Income Fund and AARP Capital Growth Fund for
the ten fiscal years ended September 30,
1996 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 two fiscal
years ended September 30, 1996 to be filed
by amendment.
Financial Highlights for AARP Global Growth
Fund for the period February 1, 1996
(commencement of operations) to September
30, 1996 to be filed by amendment.
Financial Highlights for AARP Blue Chip
Index Fund, AARP International Stock Fund
and AARP Small Company Stock 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 March 31, 1996
Statement of Assets and Liabilities as of
March 31, 1996
Statement of Operations for the six month
period ended March 31, 1996
Statements of Changes in Net Assets for the
fiscal year ended September 30, 1995 and for
the six month period ended March 31, 1996
Financial Highlights for the five fiscal
years ended September 30, 1995 and for the
six month period ended March 31, 1996
Notes to Financial Statements (Incorporated
by reference to Post-Effective Amendment No.
19 to the Registration Statement.)
Part C - Page 1
<PAGE>
For AARP Balanced Stock and Bond Fund:
List of Investments as of March 31, 1996
Statement of Assets and Liabilities as of
March 31, 1996
Statement of Operations for the six month
period ended March 31, 1996
Statements of Changes in Net Assets for the
fiscal year ended September 30, 1995 and for
the six month period ended March 31, 1996
Financial Highlights for the period February
1, 1994 (commencement of operations) to
September 30, 1994, for the fiscal year
ended September 30, 1995 and for the six
month period ended March 31, 1996
Notes to Financial Statements
(Incorporated by reference to Post-Effective
Amendment No. 19 to the Registration
Statement.)
For AARP Global Growth Fund:
Statement of Assets and Liabilities as of
January 24, 1996 and related notes
List of Investments as of March 31, 1996
Statement of Assets and Liabilities as of
March 31, 1996
Statement of Operations for the period
February 1, 1996 (commencement of
operations) to March 31, 1996
Statement of Changes in Net Assets for the
period February 1, 1996 (commencement of
operations) to March 31, 1996
Financial Highlights for the period February
1, 1996 (commencement of operations) to
March 31, 1996
Notes to Financial Statements
(Incorporated by reference to Post-Effective
Amendment No. 19 to the Registration
Statement.)
For AARP Growth and Income Fund and AARP Capital
Growth Fund:
List of Investments as of September 30, 1996
Statement of Assets and Liabilities as of
September 30, 1996
Statement of Operations for the fiscal year
ended September 30, 1996
Statements of Changes in Net Assets for the
two fiscal years ended September 30, 1996
Financial Highlights for the five fiscal
years ended September 30, 1996
Notes to Financial Statements
(To be filed by amendment.)
For AARP Balanced Stock and Bond Fund:
List of Investments as of September 30, 1996
Statement of Assets and Liabilities as of
September 30, 1996
Statement of Operations for the fiscal year
ended September 30, 1996
Statements of Changes in Net Assets for the
two fiscal years ended September 30, 1996
Financial Highlights for the period February
1, 1994 (commencement of operations) to
September 30, 1994 and for the two fiscal
years ended September 30, 1996
Notes to Financial Statements
(To be filed by amendment.)
Part C - Page 2
<PAGE>
For AARP Blue Chip Index Fund:
Statement of Assets and Liabilities as of
___________________ and related notes to be
filed by amendment.
For AARP International Stock Fund:
Statement of Assets and Liabilities as of
___________________ and related notes to be
filed by amendment.
For AARP Small Company Stock 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.
<TABLE>
<CAPTION>
b. Exhibits:
<S> <C> <C>
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.)
(a)(4) Amended and Restated Declaration of Trust dated September 13, 1996
is filed herein.
(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.)
(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. 4 to the Registration Statement.)
(b)(3) Establishment and Designation of Series of Beneficial Interest
dated November 17, 1995.
(Previously filed as Exhibit 1(b)(3) to Post-Effective Amendment
No. 18 to the Registration Statement.)
(b)(4) Establishment and Designation of Series of Beneficial Interest
dated ________________, is filed herin.
Part C - Page 3
<PAGE>
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.)
(a)(3) Certificate as to Resolution of Board Members dated June 24, 1996
is filed herein.
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.)
(a)(2) Supplement to Investment Management Agreement between the
Registrant and Scudder, Stevens & Clark, Inc. dated February 1,
1996.
(Incorporated by reference to Exhibit 5(a)(2) to Post-Effective
Amendment No. 19 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.)
Part C - Page 4
<PAGE>
(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.)
(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).
(Previously filed as Exhibit 8(a)(6) to Post-Effective Amendment
No. 17 to the Registration Statement.)
(a)(7) Custodian Agreement between the Registrant on behalf of AARP Global
Growth Fund and Brown Brothers Harriman & Co. dated February 1,
1996.
(Previously filed as Exhibit 8(a)(7) to Post-Effective Amendment
No. 19 to the Registration Statement.)
(a)(8) Fee schedule for Exhibit 8(a)(7) dated February 1, 1996.
(Previously filed as Exhibit 8(a)(8) to Post-Effective Amendment
No. 18 to the Registration Statement.)
9. (a) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Previously filed as Exhibit 9(a) to the Post-Effective Amendment
No. 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.)
Part C - Page 5
<PAGE>
(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.)
(c)(1) Service Mark License Agreement among Scudder, Stevens & Clark,
Inc., American Association of Retired Persons, the Registrant,
AARP Cash Investment Funds, AARP Income Trust and AARP Tax Free
Income Trust dated March 20, 1996 is filed herein.
(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.
(Previously filed as Exhibit 9(e) to Post-Effective Amendment No. 17
to the Registration Statement.)
(f) Fund Accounting Services Agreement between the Registrant,
on behalf of AARP Capital Growth Fund and Scudder Fund Accounting
Corporation dated November 10, 1995.
(Previously filed as Exhibit 9(f) to Post-Effective
Amendment No. 17 to the Registration Statement.)
(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.
(Previously filed as Exhibit 9(g) to Post-Effective Amendment No. 17
to the Registration Statement.)
(h) Fund Accounting Services Agreement between the Registrant,
on behalf of AARP Global Growth Fund and Scudder Fund Accounting
Corporation dated February 1, 1996.
(Previously filed as Exhibit 9(h) to Post-Effective Amendment
No. 19 to the Registration Statement.)
10. Inapplicable.
11. Inapplicable.
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.)
Part C - Page 6
<PAGE>
(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.
</TABLE>
Power of Attorney for Cuyler W. Findlay, Adelaide Attard, Cyril F. Brickfield,
Robert N. Butler, Robert J. Myers, James H. Schulz and Gordon Shillinglaw is
incorporated by reference to the Signature Page of Post-Effective Amendment No.
8.
Power of Attorney for Linda C. Coughlin, Horace Deets and Wayne F. Haefer is
incorporated by reference to the Signature Page of Post-Effective Amendment No.
18.
Power of Attorney for Carole Lewis Anderson, Esther Canja, Edgar R. Fiedler,
Eugene P. Forrester and George L. Maddox, Jr. is filed herein.
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of September 30, 1996).
- -------- -----------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
<S> <C> <C>
Shares of beneficial interest
with par value of $.01
AARP Balanced Stock and Bond Fund 50,912
AARP Growth and Income Fund 269,917
AARP Global Growth Fund 18,670
AARP Capital Growth Fund 82,535
AARP Blue Chip Index Fund 0
AARP International Stock Fund 0
AARP Small Company Stock Fund 0
</TABLE>
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 7
<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;
Part C - Page 8
<PAGE>
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in paragraph
(b)(i) resulting in a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office;
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and shall inure to the
benefit of the heirs, executors, administrators and assigns of such a
person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4.3 shall be advanced by the Trust prior
to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this
Section 4.3 provided that either:
(i) such undertaking is secured by a surety bond or some
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances: or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Part C - Page 9
<PAGE>
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
President, The Japan Fund, Inc. (investment company)**
Director, Sovereign High Yield Investment Company (investment company)+
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporation oo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
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)**
Part C - Page 10
<PAGE>
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
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 Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
Part C - Page 11
<PAGE>
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Vice President & Assistant Secretary, Scudder Realty Holdings Corporation (a
real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder International Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Equity Trust (investment company)**
Vice President & Assistant Secretary, Scudder Securities Trust (investment company)*
Vice President & Assistant Secretary, Scudder Funds Trust (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Part C - Page 12
<PAGE>
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Director, Vice President & Secretary, Scudder Fund Accounting Corporation
(in-house fund accounting agent)*
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
* 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
Part C - Page 13
<PAGE>
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder 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 Managed Investment Portfolios Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Part C - Page 14
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Linda Coughlin Director and Senior Vice President President and Trustee
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk None
Two International Place
Boston, MA 02110
Paul J. Elmlinger Senior Vice President None
345 Park Avenue
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer Vice President
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Vice President and
Two International Place Treasurer Assistant Treasurer
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Senior Vice President Vice President and
345 Park Avenue Secretary
New York, NY 10154
Part C - Page 15
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Edmund J. Thimme Director and Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, Massachusetts
02110-4103. Records relating to the duties of the custodian of
AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund
and AARP Capital Growth Fund are maintained by State Street
Bank and Trust Company, Heritage Drive, North Quincy,
Massachusetts. Records relating to the duties of the custodian
of AARP Global Growth Fund are maintained by Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts.
Records relating to the duties of the Registrant's transfer
agent are maintained by Scudder Service Corporation, Two
International Place, Boston, Massachusetts 02110-4103.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
The Registrant hereby undertakes to file post-effective
amendments, using reasonably current financial statements of
AARP Blue Chip Index Fund, AARP International Stock Fund, and
AARP Small Company Stock Fund, within four to six months from
the effectiveness date of the Registrant's Registration
Statement under the 1933 Act.
Part C - Page 16
<PAGE>
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of a Fund's latest
annual report to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the question of
removal of a Trustee or Trustees when requested to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being controlling precedent, to
a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Part C - Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
15 day of November, 1996.
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
/s/Carole Lewis Anderson
Carole Lewis Anderson* Trustee November 15, 1996
/s/Adelaide Attard
Adelaide Attard* Trustee November 15, 1996
/s/Cyril F. Brickfield
Cyril F. Brickfield* Trustee November 15, 1996
/s/Robert N. Butler
Robert N. Butler* Trustee November 15, 1996
/s/Esther Canja
Esther Canja* Trustee November 15, 1996
/s/Linda C. Coughlin
Linda C. Coughlin* President and Trustee November 15, 1996
/s/Horace Deets
Horace Deets* Vice Chairman and Trustee November 15, 1996
/s/Edgar R. Fiedler
Edgar R. Fiedler* Trustee November 15, 1996
/s/Eugene P. Forrester
Eugene P. Forrester* Trustee November 15, 1996
/s/Wayne F. Haefer
Wayne F. Haefer* Trustee November 15, 1996
/s/George L. Maddox, Jr.
George L. Maddox, Jr.* Trustee November 15, 1996
/s/Robert J. Myers
Robert J. Myers* Trustee November 15, 1996
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/James H. Schulz
James H. Schulz* Trustee November 15, 1996
/s/Gordon Shillinglaw
Gordon Shillinglaw* Trustee November 15, 1996
/s/Pamela A. McGrath
Pamela A. McGrath Vice President and Treasurer November 15, 1996
(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 pages of Post-Effective Amendment No. 8 to the Registration
Statement filed December 4, 1987, Post-Effective Amendment No. 18 to
the Registration Statement filed January 26, 1996 and Post-Effective
Amendment No. 20 to the Registration Statement filed herein.
2
<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,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 15 day of November, 1996.
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. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Carole Lewis Anderson
Carole Lewis Anderson Trustee November 15, 1996
</TABLE>
3
<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,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 15 day of November, 1996.
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. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Esther Canja
Esther Canja Trustee November 15, 1996
</TABLE>
4
<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,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 15 day of November, 1996.
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. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Edgar R. Fiedler
Edgar R. Fiedler Trustee November 15, 1996
</TABLE>
5
<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,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 15 day of November, 1996.
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. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Eugene P. Forrester
Eugene P. Forrester Trustee November 15, 1996
</TABLE>
6
<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,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 15 day of November, 1996.
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. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/George L. Maddox, Jr.
George L. Maddox, Jr. Trustee November 15, 1996
</TABLE>
7
<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. 20
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 22
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP GROWTH TRUST
<PAGE>
AARP GROWTH TRUST
EXHIBIT INDEX
Exhibit 1(a)(4)
Exhibit 1(b)(4)
Exhibit 2(a)(3)
Exhibit 9(c)(1)
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AARP GROWTH TRUST
DATED: September 13, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I
NAME AND DEFINITIONS.....................................................................................1
Section 1.1. Name............................................................................1
Section 1.2. Definitions.....................................................................1
ARTICLE II
TRUSTEES ................................................................................................3
Section 2.1. General Powers................................................................3
Section 2.2. Investments...................................................................4
Section 2.3. Legal Title...................................................................5
Section 2.4. Issuance and Repurchase of Shares.............................................5
Section 2.5. Delegation; Committees........................................................6
Section 2.6. Collection and Payment........................................................6
Section 2.7. Expenses......................................................................6
Section 2.8. Manner of Acting; By-laws.....................................................6
Section 2.9. Miscellaneous Powers..........................................................6
Section 2.10. Principal Transactions........................................................7
Section 2.11. Number of Trustees............................................................7
Section 2.12. Election and Term.............................................................7
Section 2.13. Resignation and Removal.......................................................7
Section 2.14. Vacancies.....................................................................8
Section 2.15. Delegation of Power to Other Trustees.........................................8
CONTRACTS................................................................................................8
Section 3.1. Distribution Contract.........................................................8
Section 3.2. Advisory or Management Contract...............................................9
Section 3.3. Affiliations of Trustees or Officers, Etc.....................................9
Section 3.4. Compliance with 1940 Act......................................................9
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS...........................................10
Section 4.2. Non-Liability of Trustees, Etc...............................................10
Section 4.3. Mandatory Indemnification....................................................10
Section 4.4. No Bond Required of Trustees.................................................12
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc...................12
Section 4.6. Reliance on Experts, Etc.....................................................12
i
<PAGE>
ARTICLE V
SHARES OF BENEFICIAL INTEREST...........................................................................13
Section 5.1. Beneficial Interest..........................................................13
Section 5.2. Rights of Shareholders.......................................................13
Section 5.3. Trust Only...................................................................13
Section 5.4. Issuance of Shares...........................................................13
Section 5.5. Register of Shares...........................................................14
Section 5.6. Transfer of Shares...........................................................14
Section 5.7. Notices, Reports.............................................................14
Section 5.8. Treasury Shares..............................................................15
Section 5.9. Voting Powers................................................................15
Section 5.10. Meetings of Shareholders.....................................................15
Section 5.11. Series Designation...........................................................15
Section 5.12. Assent to Declaration of Trust...............................................17
Section 5.13. Class Designation............................................................17
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES.....................................................................18
Section 6.1. Redemption of Shares.........................................................18
Section 6.2. Price........................................................................19
Section 6.3. Payment......................................................................19
Section 6.4. Effect of Suspension of Determination of Net Asset Value.....................19
Section 6.5. Repurchase by Agreement......................................................19
Section 6.6. Redemption of Shareholder's Interest.........................................19
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding....................................19
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula..........................................................20
Section 6.9. Suspension of Right of Redemption............................................20
ARTICLE VII
DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS..........................................21
Section 7.1. Net Asset Value..............................................................21
Section 7.2. Distributions to Shareholders................................................21
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares..............................................22
Section 7.4. Allocation Between Principal and Income......................................23
Section 7.5. Power to Modify Foregoing Procedures.........................................23
ARTICLE VIII
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.................................................23
Section 8.1. Duration.....................................................................23
Section 8.2. Termination of Trust.........................................................23
Section 8.3. Amendment Procedure..........................................................24
Section 8.4. Merger, Consolidation and Sale of Assets.....................................24
Section 8.5. Incorporation................................................................25
ii
<PAGE>
ARTICLE IX
REPORTS TO SHAREHOLDERS.................................................................................25
ARTICLE X
MISCELLANEOUS...........................................................................................25
Section 10.1. Filing.......................................................................25
Section 10.2. Governing Law................................................................26
Section 10.3. Counterparts.................................................................26
Section 10.4. Reliance by Third Parties....................................................26
Section 10.5. Provisions in Conflict with Law or Regulations...............................26
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AARP GROWTH TRUST
DATED: September 13, 1996
AMENDED AND RESTATED DECLARATION OF TRUST made September 13, 1996 by a
majority of the Trustees of AARP Growth Trust (together with all other persons
from time to time duly elected, qualified and serving as Trustees in accordance
with the provisions of Article II hereof, the "Trustees").
WHEREAS, the undersigned, being duly elected and qualified Trustees of
AARP Growth Trust (the "Trust"), a business trust organized under the laws of
the Commonwealth of Massachusetts, pursuant to an Amended and Restated
Declaration of Trust dated September 13, 1996, as amended, do hereby certify
that at a meeting of the Shareholders of the Trust, by favorable vote on
September 13, 1996, of a majority of the shares issued and entitled to vote, the
Shareholders adopted the Amended and Restated Declaration of Trust as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby, until and
unless changed by the Trustees as provided in Section 8.3(a) hereof, is the
"AARP Growth Trust."
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
(b) "Class" means the two or more Classes as may be established and
designated from time to time by the Trustees pursuant to Section 5.13 hereof.
(c) The term "Commission" has the meaning given it in the 1940 Act. The
term "Interested Person" has the meaning given it in the 1940 Act, as modified
by any applicable order or orders of the Commission. Except as otherwise defined
by the Trustees in conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares outstanding and entitled to vote"
<PAGE>
shall have the same meaning as the term "vote of a majority of the outstanding
voting securities" given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(e) "Declaration" means this Amended and Restated Declaration of Trust,
as further amended from time to time. Reference in this Declaration of Trust to
"Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer to
this Declaration rather than exclusively to the article or section in which such
words appear.
(f) "Distributor" means the party, other than the Trust, to the
contract described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as the
masculine, genders.
(h) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on behalf of
states, territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(k) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(l) "Series" individually or collectively means the two or more Series
as may be established and designated from time to time by the Trustees pursuant
to Section 5.11 hereof. Unless the context otherwise requires, the term "Series"
shall include Classes into which shares of the Trust, or of a Series, may be
divided from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series and Classes which may be established
by the Trustees, and includes fractions of Shares as well as whole Shares.
"Outstanding Shares" means those Shares shown from time to time on the books of
the Trust or its Transfer Agent as then issued and outstanding, but shall not
include Shares which have been redeemed or repurchased by the Trust and which
are at the time held in the treasury of the Trust.
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(o) "Transfer Agent" means any one or more Persons other than the Trust
who maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(p) The "Trust" means AARP Growth Trust.
(q) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or have signed
this Declaration, so long as he or they shall continue in office in accordance
with the terms hereof, and all other persons who may from time to time or be
duly qualified and serving as Trustees in accordance with the provisions of
Article II hereof, and reference herein to a Trustee or the Trustees shall refer
to such person or persons in this capacity or their capacities as trustees
hereunder.
Section 1.3. Principal Place of Business. The principal place of
business of the Trust shall be Two International Place, Boston, Massachusetts.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
be the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
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Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the
conduct of such operations.
(b) To invest in, hold for investment, or reinvest in,
securities, including common and preferred stocks; warrants; bonds,
debentures, bills, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political
subdivision thereof, or any governmental or quasi-governmental agency
or instrumentality; and money market instruments including bank
certificates of deposit, finance paper, commercial paper, bankers
acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization
however established, and of any country, state, municipality or other
political subdivision, or any governmental or quasi-governmental agency
or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to acquire any rights or options to
purchase or sell, to sell or otherwise dispose of, to lend, and to
pledge any such securities and to enter into repurchase agreements and
forward foreign currency exchange contracts, to purchase and sell
futures contracts on securities, securities indices and foreign
currencies, to purchase or sell options on such contracts, foreign
currency contracts and foreign currencies and to engage in all types of
hedging and risk management transactions, as determined appropriate by
the Trustees.
(d) To exercise all rights, powers and privileges of ownership
or interest in all securities, repurchase agreements, future contracts
and options and other assets included in the Trust Property, including
the right to vote thereon and otherwise act with respect thereto and to
do all acts for the preservation, protection, improvement and
enhancement in value of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise) any
property, real or personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by mortgaging,
pledging or otherwise subjecting as security the Trust Property; to
endorse, guarantee, or undertake the performance of any obligation or
engagement of any other Person and to lend Trust Property.
(g) To aid by further investment any corporation, company,
trust, association or firm, any obligation of or interest in which is
included in the Trust Property or in the affairs of which the Trustees
have any direct or indirect interest; to do all acts and things
designed to protect, to preserve, improve or enhance the value of such
obligation or interest, and to guarantee or become surety on any or all
of the contracts, stocks, bonds, notes, debentures and other
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obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or indirectly any
activity which is primarily intended to result in the sale of Shares.
(i) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do everything
necessary, suitable or proper for the accomplishment of any purpose or
the attainment of any object or the furtherance of any power
hereinbefore set forth, either alone or in association with others, and
to do every other act or thing incidental or appurtenant to or growing
out of or connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property,
including the property of any Series of the Trust, shall be vested in the
Trustees as joint tenants except that the Trustees shall have power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine, provided that the interest
of the Trust therein is deemed appropriately protected. The right, title and
interest of the Trustees in the Trust Property and the property of each Series
of the Trust shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property or the property of any Series of the
Trust, and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the particular series of the
Trust with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts governing business corporations.
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Section 2.5. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. Subject to Section 5.11, hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the
Trust; (b) enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
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arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not
permitted by the 1940 Act or rules and regulations adopted by the Commission,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust to, any Trustee or officer of the
Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with the Investment Adviser, Distributor or
Transfer Agent or with any Interested Person of such Person; and the Trust may
employ any such Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, Transfer Agent, dividend disbursing
agent or custodian upon customary terms.
Section 2.11. Number of Trustees. The number of Trustees shall
initially be one (1), and thereafter shall be such number as shall be fixed from
time to time by a written instrument signed by a majority of the Trustees.
Section 2.12. Election and Term. Except for the Trustees named herein
or appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees
shall be elected by the Shareholders owning of record a plurality of the Shares
voting at a meeting of Shareholders called pursuant to the provisions of Section
16(a) of the 1940 Act. Such a meeting shall be held on a date fixed by the
Trustees. Except in the event of resignation or removals pursuant to Section
2.13 hereof, each Trustee shall hold office until the next such meeting of
Shareholders and until his successor is duly elected and qualified.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees. Any Trustee may be removed
at any meeting of Shareholders by vote of two thirds of the Outstanding Shares.
The Trustees shall promptly call a meeting of the shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees when
requested in writing to do so by the holders of not less than ten percent (10%)
of the Outstanding Shares, and in that connection, the Trustees will assist
shareholder communications to the extent provided for in Section 16(c) under the
1940 Act. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
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Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property or property of any series of the Trust
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.14. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted to
the Trustees under this Declaration except as herein otherwise expressly
provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
distribution contract or contracts providing for the sale of Shares at a price
based on the net asset value of a Share, whereby the Trustees may either agree
to sell the Shares to the other party to the contract or appoint such other
party their sales agent for the Shares, and in either case on such terms and
conditions, if any, as may be prescribed in the By-laws; and such further terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article III or of the By-laws; and such
contract may also provide for the repurchase of the Shares by such other party
as agent of the Trustees.
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Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract or separate advisory contracts with respect to one or more Series
whereby the other party to such contract shall undertake to furnish to the Trust
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions as the Trustees may in their discretion determine, including the
grant of authority to such other party to determine what securities shall be
purchased or sold by the Trust and what portion of its assets shall be
uninvested, which authority shall include the power to make changes in the
investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser or distributor of or for any partnership, corporation,
trust, association or other organization or of or for any parent or
affiliate of any organization, with which a contract of the character
described in Sections 3.1 or 3.2 above or for services as Custodian,
Transfer Agent or disbursing agent or for related services may have
been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder of or has an interest in
the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent
or disbursing agent or for related services may have been or may
hereafter be made also has any one or more of such contracts with one
or more other partnerships, corporations, trusts, associations or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into
pursuant to Sections 3.1 or 3.2 shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act (including any amendment thereof or
other applicable act of Congress hereafter enacted), as modified by any
applicable order or orders of the Commission, with respect to its continuance in
effect, its termination and the method of authorization and approval of such
contract or renewal thereof.
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ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event which gave rise to
the claim against or liability of said Shareholder. The rights accruing to a
Shareholder under this Section 4.1 shall not impair any other right to which
such Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the fullest extent permitted
by law against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the settlement
thereof;
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(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees (as defined below)
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter), or
(y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors, administrators
and assigns of such a person. Nothing contained herein shall affect any rights
to indemnification to which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to a 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:
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(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who (i)
is not an Interested Person of the Trust, as defined under ss.2(a)(19) of the
1940 Act (including anyone who has been exempted from being an Interested Person
by any rule, regulation or order of the Commission), and (ii) is not involved in
the claim, action, suit or proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under this Declaration or
in their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees may recite that the same is
executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust under any such instrument are
not binding upon any of the Trustees or Shareholders individually, but bind only
the trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
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consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest, all
of one class, except as provided in Section 5.11 and Section 5.13 hereof, par
value $.01 per share. The number of Shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust
Property and the property of each Series of the Trust of every description and
the right to conduct any business hereinbefore described are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall have no right
to call for any partition or division of any property, profits, rights or
interests of the Trust nor can they be called upon to share or assume any losses
of the Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights
specifically set forth in this Declaration. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights,
except as the Trustees may determine with respect to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury, and Shares may be issued in
separate Series as provided in Section 5.11 hereof. The Trustees may from time
to time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust, or any
Series. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or integral multiples
thereof.
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Section 5.5. Register of Shares. A register shall be kept at the
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use.
Section 5.6. Transfer of Shares. Except as otherwise provided by the
Trustees, shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor any transfer
agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports. Any and all notices to which any
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register of the Trust. A
notice of a meeting, an annual report and any other communication to
Shareholders need not be sent to a Shareholder (i) if an annual report and a
proxy statement for two consecutive shareholder meetings have been mailed to
such Shareholder's address and have been returned as undeliverable, (ii) if all,
and at least two, checks (if sent by first class mail) in payment of dividends
on Shares during a twelve-month period have been mailed to such Shareholder's
address and have been returned as undeliverable or (iii) in any other case in
which a proxy statement concerning a meeting of security holders is not required
to be given pursuant to the Commission's proxy rules as from time to time in
effect under the Securities Exchange Act of 1934. However, delivery of such
proxy statements, annual reports and other communications shall resume if and
when such Shareholder delivers or causes to be delivered to the Trust written
notice setting forth such Shareholder's then current address.
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Section 5.8. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.12; (ii) for the
removal of Trustees as provided in Section 2.13; (iii) with respect to any
investment advisory or management contract entered into pursuant to Section 3.2;
(iv) with respect to termination of the Trust as provided in Section 8.2; (v)
with respect to any amendment of this Declaration to the extent and as provided
in Section 8.3; (vi) with respect to any merger, consolidation or sale of assets
as provided in Section 8.4; (vii) with respect to incorporation of the Trust or
any Series to the extent and as provided in Section 8.5; (viii) to the same
extent as the stockholders of Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class hereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); (ix) with respect to
any plan adopted pursuant to Rule 12b-1 (or any successor rule) under the 1940
Act; and (x) with respect to such additional matters relating to the Trust as
may be required by this Declaration, the By-laws or any registration of the
Trust as an investment company under the 1940 Act with the Commission (or any
successor agency) or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that the Trustees may, in conjunction with the
establishment of any Series or Class of Shares, establish or reserve the right
to establish conditions under which the several Series or Classes shall have
separate voting rights or, if a Series or Class would not, in the sole judgment
of the Trustees, be materially affected by a proposal, no voting rights. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders' votes
and meetings and related matters.
Section 5.10. Meetings of Shareholders. Meetings of Shareholders may be
called at any time by the President, and shall be called by the President and
Secretary at the request in writing or by resolution, of a majority of Trustees,
or at the written request of the holder or holders of ten percent (10%) or more
of the total number of Shares then issued and outstanding of the Trust entitled
to vote at such meeting. Any such request shall state the purpose of the
proposed meeting.
Section 5.11. Series Designation. The Trustees, in their discretion,
may authorize the division of Shares into two or more Series, and the different
Series shall be established and designated, and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different Series as
to investment objective, purchase price, allocation of expenses, right of
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redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
Series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context requires
otherwise.
(b) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously
issued and reacquired of any Series into one or more Series that may be
established and designated from time to time. The Trustees may hold as
treasury Shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Series reacquired by the Trust at their discretion from
time to time.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to that Series for all
purposes, subject only to the rights of creditors of such Series and
except as may otherwise be required by applicable laws, and shall be so
recorded upon the books of account of the Trust. In the even that there
are any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any
particular Series, the Trustees shall allocate them among any one or
more of the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair
and equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series and
all expenses, costs, charges and reserves attributable to that Series,
and any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any
particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series established and designated from
time to time in such manner and on such basis as the Trustees in their
sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for
all purposes. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items are
capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders. The assets for a particular Series
of the Trust shall, under no circumstances, be charged with
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liabilities attributable to any other Series of the Trust. All persons
extending credit to, or contracting with or having any claim
against a particular Series of the Trust shall look only to the
assets of that particular Series for payment of such credit, contract
or claim. No Shareholder or former Shareholder of any Series shall
have any claim on or right to any assets allocated or belonging to
any other Series.
(e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each holder of
Shares of a Series shall be entitled to receive his pro rata share of
distributions of income and capital gains made with respect to such
Series. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a
Shareholder of a Series, such shareholder shall be paid solely out of
the funds and property of such Series of the Trust. Upon liquidation or
termination of a Series of the Trust, Shareholders of such Series shall
be entitled to receive a pro rata share of the net assets of such
Series. A Shareholder of a particular Series of the Trust shall not be
entitled to participate in a derivative or class action on behalf of
any other Series or the Shareholders of any other Series of the Trust.
The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each Series or
Class of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust. Every Shareholder, by
virtue of having become a shareholder, shall be held to have expressly assented
and agreed to the terms hereof and to have become a party hereto.
Section 5.13. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other Shares of the Trust or the same
Series, as the case may be, except that there may be variations between
different classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Classes shall have separate voting rights.
All references to Shares in this Declaration shall be deemed to be Shares of any
or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust of any Series into
two or more Classes, the following provisions shall be applicable:
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All provisions herein relating to the Trust, or any Series of
the Trust, shall apply equally to each Class of Shares of the Trust or
of any Series of the Trust, except as the context requires otherwise.
The number of Shares of each Class that may be issued
shall be unlimited. The Trustees may classify or reclassify any
unissued Shares of the Trust or any Series or any Shares previously
issued and reacquired of any Class of the Trust or of any Series into
one or more Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some
other Class), reissue for such consideration on such terms as they may
determine, or cancel any Shares of any Class reacquired by the Trust at
their discretion from time to time.
Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses that
should properly be allocated to, the Shares of a particular Class may
be charged to and borne solely by such Class and the bearing of
expenses solely by a Class of Shares may be appropriately reflected (in
a manner determined by the Trustees) and cause differences in the net
asset value attributable to, and the dividend, redemption and
liquidation rights of, the Shares of different Classes. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Classes
for all purposes.
The establishment and designation of any Class of
Shares shall be effective upon the execution of a majority of the then
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such Class, or
as otherwise provided in such instrument. The Trustees may, by an
instrument executed by a majority of their number, abolish any Class
and the establishment and designation thereof. Each instrument referred
to in this paragraph shall have the status of an amendment to this
Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified
written application of the record holder thereof (or upon such other form of
request as the Trustees may determine) at such office or agency as may be
designated from time to time for that purpose in the Trust's then effective
registration statement under the Securities Act of 1933. The Trustees may from
time to time specify additional conditions, not inconsistent with the 1940 Act,
regarding the redemption of Shares in the Trust's then effective registration
statement under the Securities Act of 1933.
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Section 6.2. Price. Shares shall be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or
in property out of the assets of the relevant Series for the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement under the Securities Act of 1933,
subject to the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of
the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 6.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on deposit.
The redemption price of Shares for which redemption applications have not been
revoked shall be the net asset value of such Shares next determined as set forth
in Section 7.1 after the termination of such suspension, and payment shall be
made within seven (7) days after the date upon which the application was made
plus the period after such application during which the determination of net
asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have
the right at any time without prior notice to the shareholder to redeem Shares
of any shareholder for their then current net asset value per Share if at such
time the shareholder owns Shares having an aggregate net asset value of less
than an amount set from time to time by the Trustees subject to such terms and
conditions as the Trustees may approve, and subject to the Trust's giving
general notice to all shareholders of its intention to avail itself of such
right, either by publication in the Trust's registration statement, if any, or
by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify any Series of the Trust as a regulated
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investment company under the Internal Revenue Code, then the Trustees shall have
the power by lot or other means deemed equitable by them (i) to call for
redemption by any such Person a number, or principal amount, of Shares or other
securities of the Trust sufficient to maintain or bring the direct or indirect
ownership of Shares or other securities of the Trust into conformity with the
requirements of such qualification and (ii) to refuse to transfer or issue
Shares or other securities of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust in question would result in
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of Outstanding Shares
pursuant to the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
Shareholders of the Trust by order permit suspension of the right of redemption
or postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of the Trust or
any Series of the Trust shall be determined by appraisal of the securities of
the Trust or allocated to such Series, such appraisal to be on the basis of such
method as shall be deemed to reflect the fair value thereof, determined in good
faith by or under the direction of the Trustees. From the total value of said
assets, there shall be deducted all indebtedness, interest, taxes, payable or
accrued, including estimated taxes on unrealized book profits, expenses and
management charges accrued to the appraisal date, net income determined and
declared as a distribution and all other items in the nature of liabilities
attributable to the Trust or such Series or Class thereof which shall be deemed
appropriate. The net asset value of a Share shall be determined by dividing the
net asset value of the Class, or if no Class has been established, of the
Series, or, if no Series has been established, of the Trust, by the number of
Shares of that Class, or Series, or of the Trust, as applicable, outstanding.
The net asset value of Shares of the Trust or any Class or Series of the Trust
shall be determined pursuant to the procedure and methods prescribed or approved
by the Trustees in their discretion and as set forth in the most recent
Registration Statement of the Trust as filed with the Securities and Exchange
Commission pursuant to the requirement of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and the Rules
thereunder. The net asset value of the Shares shall be determined at least once
on each business day, as of the close of trading on the New York Stock Exchange
or as of such other time or times as the Trustees shall determine.
The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Custodian, the Transfer Agent or
such other Person as the Trustees may determine by resolution or by approving a
contract which delegates such duty to another Person. The Trustees may suspend
the daily determination of net asset value to the extent permitted by the 1940
Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from
time to time distribute ratably among the Shareholders of the Trust or a Series
such proportion of the net profits, surplus (including paid-in surplus),
capital, or assets of the Trust or such Series held by the Trustees as they may
deem proper. Such distributions may be made in cash or property (including
without limitation any type of obligations of the Trust or such Series or any
assets thereof), and the Trustees may distribute ratably among the Shareholders
additional Shares of the Trust or such Series issuable hereunder in such manner,
at such times, and on such terms as the Trustees may deem proper. Such
distributions may be among the Shareholders of record at the time of declaring a
distribution or among the Shareholders of record at such other date or time or
dates or times as the Trustees shall determine. The Trustees may in their
discretion determine that, solely for the proposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date the distribution is declared or on
the next preceding day if the distribution is declared as of a day on which
Boston banks are not open for business, all as described in the registration
statement under the Securities Act of 1933. The Trustees may always retain
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from the net profits such amounts they may deem necessary to pay the debts or
expenses of the Trust or the Series or to meet obligations of the Trust or the
series, or as they may retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Trust or any Series shall be determined in such manner as the Trustees
shall provide by resolution. Expenses of the Trust or a Series, including the
advisory or management fee, shall be accrued each day. Such net income may be
determined by or under the direction of the Trustees as of the close of trading
on the New York Stock Exchange on each day on which such Exchange is open or as
of such other time or times as the Trustees shall determine, and, except as
provided herein, all the net income of the Trust or any Series, as so
determined, may be declared as a dividend on the Outstanding Shares of the Trust
or such Series. If, for any reason, the net income of the Trust or any Series,
determined at any time is a negative amount, the Trustees shall have the power
with respect to the Trust or such Series (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, or (ii) to reduce the number of Outstanding Shares of the Trust or
such Series by reducing the number of Shares in the account of such Shareholder
by that number of full and fractional Shares which represents the amount of such
excess negative net income, or (iii) to cause to be recorded on the books of the
Trust or such Series an asset account in the amount of such negative net income,
which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust or such Series with respect to the
Trust or such Series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the outstanding Shares of the Trust or such Series on
the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per Share
of the Trust or such Series to remain at a constant amount per Outstanding Share
immediately after each such determination and declaration. The Trustees shall
also have the power to fail to declare a dividend out of net income for the
purpose of causing the net asset value per Share to be increased to a constant
amount. The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend the practice of maintaining the net asset value per Share
of the Trust or a Series at a constant amount.
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Section 7.4. Allocation Between Principal and Income. The Trustees
shall have full discretion to determine whether any cash or property received
shall be treated as income or as principal and whether any item of expense shall
be charged to the income or the principal account, and their determination made
in good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much, if any, of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust or the Series of the Trust shall
continue without limitation of time but subject to the provisions of this
Article VIII.
Section 8.2. Termination of Trust or the Series of the Trust. (a) The
Trust or any Series of the Trust may be terminated by an instrument in writing
signed by a majority of the Trustees or by the affirmative vote of the holders
of a majority of the Shares outstanding and entitled to vote, at any meeting of
Shareholders. Upon the termination of the Trust or any Series,
(i) the Trust or any Series shall carry on no business
except for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust or Series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or Series
shall have been wound up, including the power to fulfill or discharge
the contracts of the Trust or Series, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property or property of the Series to one or more
persons at public or private sale for consideration which may consist
in whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business;
(iii) after paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property or property of the
Series, in cash or in kind or partly each, among the Shareholders of
the Trust or Series according to their respective rights.
23
<PAGE>
(b) After termination of the Trust or any Series and distribution to
the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust or the Series of the Trust an
instrument in writing setting forth the fact of such termination, and the
Trustees shall thereupon be discharged from all further liabilities an duties
hereunder, and the rights and interests of all Shareholders of the Trust or
Series shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended
by a vote of the holders of a majority of the Shares outstanding and entitled to
vote or by any instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of a majority of the Shares
outstanding and entitled to vote. Amendments shall be effective upon the taking
of action as provided in this section or at such later time as shall be
specified in the applicable vote or instrument. The Trustees may also amend this
Declaration without the vote or consent of Shareholders if they deem it
necessary to conform this Declaration to the requirements of applicable federal
or state laws or regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code (including those provisions of
such Code relating to the retention of the exemption from federal income tax
with respect to dividends paid by the Trust out of interest income received on
Municipal Bonds), but the Trustees shall not be liable for failing to do so. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary or desirable to change the name of the
Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or to make any other changes in the
Declaration which do not materially adversely affect the rights of Shareholders
hereunder.
(b) No amendment may be made under this Section 8.3 which would change
any rights with respect to any Shares of the Trust or Series by reducing the
amount payable thereon upon liquidation of the Trust or Series or by diminishing
or eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of the Trust or Series
outstanding and entitled to vote. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as the
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
24
<PAGE>
all of the Trust Property or the property of any Series, including its good
will, upon such terms and conditions and for such consideration when and as
authorized at any meeting of Shareholders of the Trust or Series called for the
purpose by the affirmative vote of the holders of a majority of the Shares of
the Trust or Series.
Section 8.5. Incorporation. With the approval of the holders of a
majority of the Shares of the Trust or any Series outstanding and entitled to
vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus, of
the transactions of the Trust, including financial statements which shall at
least annually be certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. This Declaration and any amendment hereto shall
be filed in the Office of the Secretary of the Commonwealth of Massachusetts and
in such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
25
<PAGE>
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the internal laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the internal laws of said State without regard to the choice of law
rules thereof.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
26
<PAGE>
IN WITNESS WHEREOF, the undersigned, pursuant to Article VIII, Section
8.3(c) hereof, have executed this instrument this 13th day of September, 1996.
/s/Cuyler W. Findlay
Cuyler W. Findlay
/s/Linda C. Coughlin
Linda C. Coughlin
/s/Carole Lewis Anderson
Carole Lewis Anderson
/s/Adelaide Attard
Adelaide Attard
---------------------------
Cyril F. Brickfield
/s/Robert N. Butler, M.D.
Robert N. Butler, M.D.
/s/Esther Canja
Esther Canja
/s/Horace B. Deets
Horace Deets
/s/Edgar R. Fiedler
Edgar R. Fiedler
/s/Eugene P. Forrester
Eugene P. Forrester
/s/Wayne F. Haefer
Wayne F. Haefer
/s/George L. Maddox, Jr.
George L. Maddox, Jr.
/s/Robert J. Myers
Robert J. Myers
/s/James H. Schulz
James H. Schulz
27
<PAGE>
/s/Gordon Shillinglaw
Gordon Shillinglaw
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk September 13, 1996
Then personally appeared the above-named individuals, who each
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
/s/signature
Notary Public
My commission expires: 4/8/99
28
AARP GROWTH TRUST
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 (the "Trust"),
acting pursuant to Section 5.11 of the Amended and Restated Declaration of Trust
of the Trust dated September 13, 1996 (the "Declaration of Trust"), hereby
divide the shares of beneficial interest of the Trust into seven 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 Blue Chip Index Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Stock Fund
AARP Small Company Stock Fund
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 with respect to 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, AARP Global Growth Fund, and AARP Growth and Income Fund,
respectively.
<PAGE>
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, AARP Global Growth Fund, and AARP Growth and
Income Fund and, hereafter, 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 Blue Chip Index Fund, AARP
International Stock Fund, and AARP Small Company Stock 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.
/s/Carole Lewis Anderson
- ------------------------------------
Carole Lewis Anderson, as Trustee
/s/Adelaide Attard
- ------------------------------
Adelaide Attard, as Trustee
Cyril F. Brickfield, as Trustee
/s/Robert N. Butler
- -------------------------------
Robert N. Butler, as Trustee
Esther Canja, as Trustee
2
<PAGE>
/s/Linda C. Coughlin
- --------------------------------
Linda C. Coughlin, as Trustee
Horace B. Deets, as Trustee
/s/Edgar R. Fiedler
- -------------------------------
Edgar R. Fiedler, as Trustee
/s/Cuyler W. Findlay
- --------------------------------
Cuyler W. Findlay, as Trustee
/s/Eugene P. Forrester
- ----------------------------------
Eugene P. Forrester, as Trustee
Wayne F. Haefer, as Trustee
/s/George L. Maddox, Jr.
- ------------------------
George L. Maddox, Jr., as Trustee
/s/Robert J. Myers
- ------------------
Robert J. Myers, as Trustee
/s/James H. Schulz
- ------------------
James H. Schulz, as Trustee
/s/Gordon Shillinglaw
- ---------------------
Gordon Shillinglaw, as Trustee
Dated: November ___, 1996
3
AARP CASH INVESTMENT FUNDS
AARP High Quality Money Fund
AARP GROWTH TRUST
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income 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
Certificate as to Resolution
of
Board Members
The undersigned certifies that he is the Assistant Secretary of each of AARP
Cash Investment Funds ("CASH"), AARP Growth Trust ("GROWTH"), AARP Income Trust
("INCOME") and AARP Tax Free Income Trust ("TAX FREE") (each a "Trust"), and
that, as such, he is authorized to execute this Certificate on behalf of each
Trust, and further certifies that the following is a complete and correct copy
of a resolution duly adopted by the duly elected Members of the Board at a
meeting duly called, convened and held on June 18, 1996, at which a quorum was
present and acting throughout, and that such resolution has not been amended and
is in full force and effect.
RESOLVED, that, pursuant to the provision of Article XI of the
Trust's By-Laws, the first sentence of Article III, Sections 2
and 3 of the Trust's By-Laws is hereby amended to read as
follows (additions underlined, deletions struck out):
Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the
meeting, shall be given by the Trustees by mail to each
Shareholder at his/her address as recorded on the register of
the Trust mailed at least ten (10) days and not more than
ninety (90) sixty (60) days before the meeting.
Section 3. Record Date for Meetings and Other Purposes. For
the purpose of determining the Shareholders who are entitled
to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for
such period, not exceeding thirty (30) days, as the Trustees
may determine; or without closing the transfer books the
<PAGE>
Trustees may fix a date not more than ninety (90) sixty (60)
days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the
determinations of the persons to be treated as Shareholders of
record for such purposes, except for dividend payments which
shall be governed by the Declaration.
IN WITNESS WHEREOF, I hereunto set my hand this 24th day of June, 1996.
/s/Thomas F. McDonough
Assistant Secretary
2
Service Mark License Agreement
------------------------------
SERVICE MARK LICENSE AGREEMENT, dated as of March 20, 1996
among each of Scudder, Stevens & Clark, Inc. ("Scudder"), American
Association of Retired Persons ("AARP"), on the one hand, and each of AARP Cash
Investment Funds, AARP Growth Trust, AARP Income Trust, and AARP Tax Free Income
Trust (individually, a "Trust", and collectively, the "Trusts"), on the other
hand.
W I T N E S S E T H :
WHEREAS, Scudder and AARP Financial Services Corp., a
wholly-owned subsidiary corporation of AARP, are general partners of
AARP/Scudder Financial Services Company (the "Partnership"), pursuant to a
partnership agreement, dated as of October 9, 1984 (the "Partnership
Agreement");
WHEREAS, Scudder, AARP and the Partnership have entered into
an investment company service agreement, dated as of October 9, 1984 (the
"Investment Company Service Agreement");
WHEREAS, Scudder and each Trust have entered into an
Investment Management Agreement dated as of February 1, 1994 (collectively, the
"Management Agreements");
WHEREAS, Scudder has assigned all of its right, title and
interest in the "Scudder" and "Scudder, Stevens & Clark" names and marks
(hereinafter being referred to both individually and collectively as the
"Scudder Marks"), to Scudder Trust Company ("STC"), a subsidiary of Scudder,
which are now being used in connection with a wide variety of investment
management and advisory services performed by Scudder and with investment
company activities conducted by investment companies advised and managed by
Scudder;
<PAGE>
WHEREAS, STC has granted an exclusive license to Scudder to
use and sublicense the Scudder Marks;
WHEREAS, AARP is the owner of various service marks including
but not limited to "The American Association of Retired Persons" and "AARP"
(hereinafter being referred to both individually and collectively as the "AARP
Marks"), which are now being used in connection with a wide variety of services
sponsored by AARP and offered by AARP to its membership;
WHEREAS, each of the Trusts wishes to use the Scudder Marks
and AARP Marks in connection with its business as an investment company in
connection with various financial services and financial products (the
"Business") throughout the United States of America (the "Territory"), and is
willing to comply with Scudder's and AARP's quality standards and other
conditions hereinafter set forth; and
WHEREAS, Scudder and AARP are respectively willing to grant to
each of the Trusts the non-exclusive right to use the Scudder Marks and AARP
Marks upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and conditions contained herein, it is agreed as follows:
ARTICLE I
---------
Subject to the conditions herein set forth, each of Scudder
and AARP hereby grants to each of the Trusts a royalty-free, non-exclusive and
non-transferable license to use, respectively, the Scudder Marks and AARP Marks
as service marks in connection with the Business in the Territory. In the case
of the Scudder Marks, the license granted herein is a sublicense as permitted by
STC. The licenses granted hereby do not include the right to sub-license.
2
<PAGE>
ARTICLE II
----------
Each of the Trusts acknowledges the exclusive right of Scudder
as exclusive licensee, and the exclusive ownership by STC and AARP, of the
Scudder Marks and AARP Marks, respectively, and the validity of the Scudder
Marks and AARP Marks and of any registrations obtained respectively by Scudder
or AARP therefor. Each of the Trusts agrees that it will never contest, either
directly or indirectly, the exclusive rights of Scudder as exclusive licensee,
and exclusive ownership by STC and AARP, of the Scudder Marks or AARP Marks. To
the extent, if any, that any rights to the Scudder Marks or AARP Marks might
otherwise be deemed to accrue to any of the Trusts by operation of law by virtue
of such Trust's use of the Scudder Marks or AARP Marks while this license shall
be in effect (or for any other reason), it is hereby agreed that all such rights
will revert respectively to STC and AARP on termination of this Agreement. Each
of the Trusts agrees that it will not use or encourage its representatives,
agents or shareholders to use any word or symbol confusingly similar to the
Scudder Marks or AARP Marks or make use of the Scudder Marks or AARP Marks other
than in accordance with the provisions of this Agreement. Each of the Trusts
acknowledges that it has no rights in the Scudder Marks or AARP Marks or any
goodwill associated therewith, other than those set forth herein. All uses to be
made by the Trusts of the Scudder Marks and AARP Marks in the Territory shall
inure to the benefit of STC and AARP, respectively.
ARTICLE III
-----------
All rights granted to each of the Trusts under this Agreement
are subject to the condition that each of Scudder and AARP be reasonably
satisfied at all times that such Trust is conforming to high standards of
ethics, prudence and integrity in the operation of its business as an investment
company and to such other reasonable standards and specifications as may be set
3
<PAGE>
by Scudder and AARP, with respect to the Scudder Marks and AARP Marks,
respectively, and communicated to each of the Trusts from time to time.
ARTICLE IV
----------
Each of the Trusts shall use the Scudder Marks and AARP Marks
only in accordance with recognized good service mark and trademark practice and
shall not use them in such a manner as to affect adversely the validity of the
registrations or applications for registration of the Scudder Marks or AARP
Marks, as the case may be, or the exclusive rights of Scudder as exclusive
licensee, or exclusive ownership by STC and AARP thereof or so as to depreciate
the goodwill attached thereto. Each of the Trusts agrees that it shall at its
expense include notices of the rights of STC and AARP, respectively, to the
Scudder Marks or AARP Marks or any other information or notices that may be
required by law or by Scudder or AARP on any document or other item bearing any
of the Scudder Marks or AARP Marks over which such Trust has control. Each of
the Trusts agrees at its expense to take all measures which Scudder or AARP may
require to avoid any confusion of the Scudder Marks or AARP Marks with any other
trademarks or service marks owned or used by such Trust.
Each of the Trusts shall submit to Scudder and AARP,
respectively, upon their written request, free of charge, and in the manner
specified by them, representative samples of any agreements, stationery, forms,
advertisements, brochures, documents or any other items of any nature whatsoever
which bear any of the Scudder Marks or AARP Marks and which are used by such
Trust.
ARTICLE V
---------
Each of the Trusts shall promptly notify Scudder or AARP, as
the case may be, of any charge of service or trademark infringement, unfair
trade competition or service or trademark dilution made against such Trust or
4
<PAGE>
its representatives as the result of the use respectively of the Scudder Marks
or AARP Marks licensed herein, and Scudder or AARP, as the case may be, will
assume the defense and expense of proceedings pursuant to any such charge. Each
of the Trusts agrees to cooperate with Scudder and AARP in any such proceedings,
including without limitation, allowing Scudder or AARP, as the case may be, to
carry on litigation in such Trust's name on behalf of Scudder or AARP, as the
case may be.
ARTICLE VI
----------
Each of Scudder and AARP may assign its respective rights and
obligations under this Agreement with respect to any or all of the Scudder Marks
or AARP Marks to any party to which it assigns, respectively, any of its rights
in the Scudder Marks or AARP Marks. No Trust shall assign any of its respective
rights or obligations under this Agreement, and any attempt to assign shall be
void.
ARTICLE VII
-----------
This Agreement shall terminate upon the termination of any of
the Management Agreements, the Partnership Agreement or the Investment Company
Service Agreement, or if STC terminates Scudder's license to the Scudder Marks.
Each of the Trusts, within 60 days after receipt of notice of any such
termination, unless otherwise agreed to by Scudder as to the Scudder Marks or by
AARP as to the AARP Marks, shall cease making any further use of any of the
Scudder Marks or AARP Marks or any mark confusingly similar thereto and shall,
at its expense, delete the Scudder Marks and AARP Marks from all media,
including forms, advertisements, stationery, brochures and documents, in which
they appear, within such 60 day period.
5
<PAGE>
ARTICLE VIII
------------
Neither of Scudder or AARP makes any warranties in connection
with the Scudder Marks or AARP Marks. Each of Scudder and AARP in its sole
discretion may cease its use of, and terminate its rights to, one or more of,
respectively, the Scudder Marks or AARP Marks without penalty, and each of
Scudder and AARP agree to promptly notify each of the Trusts of its respective
intention to do so. Each of Scudder and AARP in its sole discretion may adopt
new service marks.
ARTICLE IX
----------
This Agreement shall be governed by the laws of the State of
New York. The parties hereto agree that all matters of dispute that are to be
settled by litigation, negotiation or arbitration at any time by reason of the
terms of this Agreement shall be negotiated, tried, litigated, conducted and/or
arbitrated, as the case may be, in New York, New York.
ARTICLE X
---------
This instrument shall constitute the entire agreement between
the parties with respect to the use of the Scudder Marks and AARP Marks.
Modifications of this Agreement may be effected only by a written instrument
signed by all parties.
IN WITNESS WHEREOF, Scudder, AARP and each of the Trusts have
caused this Agreement to be executed by their duly authorized officers or
representatives.
SCUDDER, STEVENS & CLARK, INC.
By /s/David S. Lee
Title: Managing Director
6
<PAGE>
AMERICAN ASSOCIATION OF RETIRED PERSONS
By /s/Horace B. Deets
Horace B. Deets
Title: Executive Director
AARP CASH INVESTMENT FUNDS
By /s/Linda C. Coughlin
Title: President
AARP GROWTH TRUST
By /s/Linda C. Coughlin
Title: President
AARP INCOME TRUST
By /s/Linda C. Coughlin
Title: President
AARP TAX FREE INCOME TRUST
By /s/Linda C. Coughlin
Title: President
7
