Filed electronically with the Securities and Exchange Commission
on November 17, 1998
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. 26 / X /
---
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 28 / /
----
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) 295-1000
--------------
Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On February 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
AARP GROWTH TRUST
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND
AARP U.S. STOCK INDEX FUND
AARP GLOBAL GROWTH FUND
AARP CAPITAL GROWTH FUND
AARP INTERNATIONAL GROWTH AND INCOME FUND
AARP SMALL COMPANY STOCK FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C> <C>
1. Front and Back Cover Pages FRONT AND BACK COVER
2. Risk / Return Summary: INVESTMENT STRATEGY, OTHER INVESTMENTS, RISK MANAGEMENT STRATEGIES,
Investments, Risks and MAIN RISKS
Performance
3. Risk/Return Summary: Fee FEES AND EXPENSES
Table
4. Investment Objectives, GOAL, INVESTMENT STRATEGY, MAIN RISKS
Principal Investment
Strategies and Related Risks
5. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Management, Organization and INVESTMENT ADVISER, PORTFOLIO MANAGERS
Capital Structure
7. Shareholder Information YOUR ACCOUNT
8. Distribution Arrangements TAX CONSIDERATIONS AND DISTRIBUTIONS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information
Cross Reference - Page 1
<PAGE>
AARP GROWTH TRUST
CROSS-REFERENCE SHEET
(continued)
Items Required By Form N-1A
---------------------------
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
-------- ------------ ----------------------------------------------
10. Cover Page and Table COVER PAGE
of Contents TABLE OF CONTENTS
11. Fund History TRUST ORGANIZATION
MANAGEMENT OF THE FUNDS
12. Description of the THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and Risks
13. Management of the Fund TRUSTEES AND OFFICERS
REMUNERATION
14. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities
15. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION - Experts, Other Information
16. Brokerage Allocation BROKERAGE COMMISSIONS
and Other Practices PURCHASES
PORTFOLIO TURNOVER
17. Capital Stock and TRUST ORGANIZATION
Other Securities DIVIDENDS AND YIELD
TAXES
18. Purchase, Redemption PURCHASES
and Pricing of Shares REDEMPTIONS
EXCHANGES
NET ASSET VALUE
19. Taxation of the Fund TAXES
20. Underwriters DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data
</TABLE>
22. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 2
<PAGE>
Prospectus
AARP Investment
Program from Scudder
A family of no-load mutual funds pursuing competitive returns while actively
seeking to manage downside risk.
February 1, 1999
AARP MONEY FUNDS AARP GROWTH FUNDS
High Quality Money Fund Capital Growth Fund
High Quality Tax Free Money Fund Small Company Stock Fund
Premium Money Fund
AARP GLOBAL FUNDS
AARP INCOME FUNDS Global Growth Fund
High Quality Short Term Bond Fund International Growth and Income Fund
GNMA and U.S. Treasury Fund
Insured Tax Free General Bond Fund AARP MANAGED INVESTMENT PORTFOLIOS
Bond Fund for Income Diversified Income with Growth Portfolio
Diversified Growth Portfolio
AARP GROWTH AND INCOME FUNDS
Balanced Stock and Bond Fund
Growth and Income Fund
U.S. Stock Index Fund
The Securities and Exchange Commission does not not make any judgments as to
whether any mutual fund is a good investment. Nor does it judge the accuracy or
completeness of any mutual fund prospectus. It is a federal offense to suggest
otherwise.
<PAGE>
Table of Contents
Individual Fund Descriptions
This section includes main investment and risk management strategies, main risks
and summaries of past performance and expenses for the purpose of comparison.
Funds are presented in order from conservative to aggressive (with the exception
of the Managed Investment Portfolios).
2 AARP MONEY FUNDS
4 High Quality Money Fund
8 High Quality Tax Free Money Fund
12 Premium Money Fund
16 AARP INCOME FUNDS
18 High Quality Short Term Bond Fund
22 GNMA and U.S. Treasury Fund
26 Insured Tax Free General Bond Fund
30 Bond Fund for Income
34 AARP GROWTH AND INCOME FUNDS
36 Balanced Stock and Bond Fund
40 Growth and Income Fund
44 U.S. Stock Index Fund
48 AARP GROWTH FUNDS
50 Capital Growth Fund
54 Small Company Stock Fund
58 AARP GLOBAL FUNDS
60 Global Growth Fund
64 International Growth and Income Fund
68 AARP MANAGED INVESTMENT PORTFOLIOS
70 Diversified Income with Growth Portfolio
74 Diversified Growth Portfolio
<PAGE>
Shareholder Information
Here you will find information relating to account policies, the investment
adviser and fund performance.
78 YOUR ACCOUNT
This section shows how to open and maintain an account in these funds,
including transaction policies.
79 Opening an AARP Mutual Fund Account
82 Making Exchanges and Redemptions
85 Tax Considerations and Distributions
86 How to Reach Us
87 The AARP Investment Program's Educational Commitment
88 FUND DETAILS
A description of the investment adviser and additional performance data
on the funds are covered here.
88 Investment Adviser
92 Financial Highlights
Back Cover WHERE TO GET MORE INFORMATION
<PAGE>
AARP Money Funds
High Quality Money Fund
High Quality Tax Free Money Fund
Premium Money Fund
These funds seek current income and stability of principal. They all
invest in high-quality short-term securities and distribute income, if
any, to shareholders monthly. Their performance is most affected by
changes in short-term interest rates. In making your choice from the
three available funds, consider how much you can invest, what your
checkwriting needs may be, and whether tax-free income makes sense for
you.
Money funds are not insured or guaranteed by the FDIC or any other
government agency. Although each fund strives to maintain a $1 share
price, it is conceivable that you could lose money in these funds.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Money Funds 2
<PAGE>
Are Money Funds Right for You?
Money funds may be a good choice for you if:
o you want to avoid loss of principal almost entirely
o you want some checkwriting privileges
o you plan to invest for less than three years
o you are looking for a fund for the cash portion of your overall
portfolio
AARP Money Funds 3
<PAGE>
AARP High Quality Money Fund
Goal
The fund seeks to provide current income and liquidity, consistent with
stability and safety of principal, while maintaining a constant share
price of $1. Educating shareholders who are planning for the later
stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing principally in short-term debt
securities issued by:
o U.S. corporations and financial institutions
o the U.S. government and its agencies
The fund generally invests only in securities with independent credit
ratings in the two highest categories (or their unrated equivalents).
The fund maintains an average dollar-weighted maturity of 90 days or
less.
In managing its portfolio, the fund emphasizes corporate securities and
conducts thorough credit analysis to identify what appear to be the
safest investments. From this group, the fund then selects individual
securities based on the managers' perception of monetary conditions, the
available supply of appropriate investments, and the managers'
projections for short-term interest rate movements.
High Quality Money Fund 4
<PAGE>
Other Investments
The fund may use repurchase agreements (contracts to sell and
subsequently buy back a security at a specified date and price) and
invest in floating-rate securities (issues whose interest rates are tied
to a benchmark and vary with it).
Risk Management Strategies
The fund manages credit risk by investing only in very high quality
securities, whose issuers are considered unlikely to default. The fund
also diversifies its portfolio across industry sectors and issuers.
Main Risks
As with most money market funds, the major factor affecting this fund's
performance is short-term interest rates. If short-term interest rates
fall, the fund's yield is also likely to fall. The fund management
team's strategy or choice of specific investments may not perform as
expected. This fund may have lower returns than other funds that invest
in lower-quality securities. It is also possible that securities in the
fund's portfolio could be downgraded in credit rating or go into
default.
High Quality Money Fund 5
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
??? Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse
molestie consequat, vel illum dolore te feugait nulla facilisi.
High Quality Money Fund 6
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Frank J. Rachwalski, Jr. has been lead portfolio manager for this fund
since January 1998. He has been in the investment business since 1973.
John W. Steube is a portfolio manager of this fund. He joined the
adviser in 1979.
High Quality Money Fund 7
<PAGE>
AARP High Quality Tax Free Money Fund
Goal
The fund seeks to provide liquidity and current income that is free from
federal income tax, consistent with stability and safety of principal,
while maintaining a constant share price of $1. Educating shareholders
who are planning for the later stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing at least 80% of assets in
tax-exempt, short-term municipal securities. All of the fund's
investments have independent credit ratings within the two highest
categories. The fund maintains an average dollar-weighted maturity of 90
days or less.
In managing its portfolio, the fund conducts thorough credit analysis to
identify what appear to be the safest investments. From this group, the
fund then selects individual securities based on the managers'
perception of monetary conditions, the available supply of appropriate
investments, and the managers' projections for short-term interest rate
movements.
High Quality Tax Free Money Fund 8
<PAGE>
Other Investments
The fund may invest up to 20% of assets in U.S. government securities or
in repurchase agreements (contracts to sell and subsequently buy back a
security at a specified date and price) based on U.S. government
securities, both of which are taxable. Normally, however, the fund
expects to be fully invested in tax-exempt securities.
Risk Management Strategies
The fund manages credit risk by investing only in very high quality
securities, whose issuers are considered unlikely to default. The fund
also diversifies its portfolio across industry sectors and issuers.
As an extreme defensive measure, the fund may
temporarily invest more than 20% of assets in taxable short-term
securities. In such a case, the fund would not be pursuing its goal.
Main Risks
As with most money market funds, the major factor affecting this fund's
performance is short-term interest rates. If short-term interest rates
fall, the fund's yield is also likely to fall. The fund management
team's strategy or choice of specific investments may not perform as
expected. This fund may have lower returns than other funds that invest
in lower-quality securities. It is also possible that securities in the
fund's portfolio could be downgraded in credit rating or go into
default.
To the extent that the fund invested in taxable securities, a portion of
its income would be taxable. The fund's other investment strategies
entail other risks. The use of derivatives could magnify gains or
losses.
High Quality Tax Free Fund 9
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
??? Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse
molestie consequat, vel illum dolore te feugait nulla facilisi.
High Quality Tax Free Fund 10
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Frank J. Rachwalski, Jr. has been lead portfolio manager for this fund
since January 1998. He has been in the investment business since 1973.
Jerri I. Cohen is a portfolio manager of this fund. She has been in the
investment business since 1981.
High Quality Tax Free Fund 11
<PAGE>
AARP Premium
Money Fund
Goal
The fund seeks to provide high current income and
liquidity, consistent with stability and safety of principal, while
maintaining a constant share price of $1. Educating shareholders who are
planning for the later stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing in short-term debt securities
issued by:
o U.S. corporations
o the U.S. government and its agencies
The fund generally invests only in securities with independent credit
ratings in the top three categories. The fund maintains an average
dollar-weighted maturity of 90 days or less.
In managing its portfolio, the fund emphasizes corporate securities and
conducts thorough credit analysis to identify what appear to be the
safest investments. From this group, the fund then selects individual
securities based on the managers' perception of monetary conditions, the
available supply of appropriate investments, and the managers'
projections for short-term interest rate movements.
The fund's relatively high minimum initial investment ($10,000), minimum
balance ($7,500) and minimum check ($1,000) requirements are expected to
reduce transaction and fund expenses, thereby generating a higher yield.
Premium Money Fund 12
<PAGE>
Other Investments
The fund may also use repurchase agreements (contracts to sell and
subsequently buy back a security at a specified date and price).
Risk Management Strategies
The fund manages credit risk by investing only in very high quality
securities, whose issuers are considered unlikely to default. The fund
also diversifies its portfolio across industry sectors and issuers.
Main Risks
As with most money market funds, the major factor affecting this fund's
performance is short-term interest rates. If short-term interest rates
fall, the fund's yield is also likely to fall. The fund management
team's strategy or choice of specific investments may not perform as
expected. This fund may have lower returns than other funds that invest
in lower-quality securities. It is also possible that securities in the
fund's portfolio could be downgraded in credit rating or go into
default.
Premium Money Fund 13
<PAGE>
Past Performance
As this is a new fund, no past performance data is available.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares
Index
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
Premium Money Fund 14
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
Expense Reimbursement 0.00
Net Expenses 0.00
Expenses will be capped at X% through 1/31/2000.
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Frank J. Rachwalski, Jr. has been lead portfolio manager for this fund
since January 1998. He has been in the investment business since 1973.
John W. Steube is a portfolio manager of this fund. He joined the
adviser in 1979.
Premium Money Fund 15
<PAGE>
AARP Income Funds
High Quality Short Term Bond Fund
GNMA and U.S. Treasury Fund
Insured Tax Free General Bond Fund
Bond Fund for Income
These funds seek high current income by investing primarily in bonds.
They all invest at least 65% of their assets in investment-grade debt
securities, and distribute income, if any, to shareholders monthly.
Their performance is most affected by changes in interest rates. When
interest rates rise, bond prices usually fall, and bonds with long
maturities suffer the most.
Duration, a measurement based on the estimated payback period or
duration of a bond (or portfolio of bonds) is the most widely used gauge
of sensitivity to interest rate change. Like maturity, duration is
expressed in years. The longer a fund's duration, the more sharply its
price is likely to rise or fall when interest rates change.
Income funds are generally less risky investments than growth funds. At
the same time, they provide generally lower long-term returns than
growth funds.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Income Funds 16
<PAGE>
Are Income Funds Right for You?
Income funds may be a good choice for you if:
o you want a source of regular monthly income
o you are building an asset allocation portfolio with an income component
o you can invest for at least three years
o you can handle some ups and downs in performance
AARP Income Fund 17
<PAGE>
AARP High Quality
Short Term Bond Fund
Goal
The fund seeks to produce a high level of current income while actively
seeking to reduce downside risk as compared with other short-term bond
funds. Educating shareholders who are planning for the later stages of
life is also a goal.
Investment Strategy
The fund pursues its goal by investing principally in short-term debt
securities. It maintains a weighted average portfolio duration of less
than three years. These securities may be issued by U.S. corporations or
by the U.S. government and its agencies. The fund may invest in bonds
with independent credit ratings of Aaa/AAA through Baa/BBB, of which 65%
must be in the two highest rating categories.
In managing its portfolio, the manager analyzes economic trends to
identify market sectors (such as financial services) and types of bonds
that appear likely to outperform the short-term bond market as a whole.
The fund has tended to favor asset-backed and mortgage-backed
securities, both of which represent part ownership in pools of specific
loans, such as car loans and mortgages. In choosing individual
securities, the fund researches the issuer's creditworthiness and the
terms connected with repayment, among other factors.
Other Investments
The fund may invest in foreign debt securities that are traded in U.S.
dollars. It may also invest up to 20% of assets in bonds that are traded
in foreign currencies but has not done so in the past.
High Quality Short Term Bond Fund 18
<PAGE>
Risk Management Strategies
Exposure to credit risk is low because all of the fund's securities are
investment-grade, and their issuers are considered unlikely to default.
While the fund emphasizes certain market sectors and types of bonds, it
nonetheless diversifies its portfolio across sectors and issuers. The
fund normally seeks out bonds with "call protection," which limits
issuers' ability to pay off their loans early and reduces downside risk
when interest rates fall. The fund may also use certain derivatives
(investments whose value is based on indices or other securities).
The fund's primary defensive strategy is to reduce its average duration
to as little as one year. As an extreme defensive measure, the fund may
temporarily invest up to 100% of assets in cash or cash equivalents. In
such a case, the portfolio would not be pursuing its goal.
Main Risks
As with most bond funds, the major factor affecting this fund's
performance is interest rates. If interest rates drop significantly,
holders of the mortgages represented by mortgage-backed securities are
more likely to refinance, thus prepaying their obligations and
potentially forcing the fund to reinvest in securities that pay lower
interest.
If certain sectors or investments don't perform as the fund manager
expects, the fund could substantially underperform its peers or lose
money. The fund's attempts to manage downside risk may also reduce
performance in a strong market. It is also possible that bonds in the
fund's portfolio could be downgraded in credit rating or go into
default.
The fund's other investment strategies entail other risks:
o Foreign investments carry added risks due to inadequate or inaccurate
financial information about companies, potential political
disturbances and fluctuations in currency exchange rates.
o The use of derivatives could magnify gains or losses.
o The fund expects to trade securities actively. This
strategy could increase transaction costs and reduce performance.
High Quality Short Term Bond Fund 19
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers
Aggregate Bond
Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index of U.S.
corporate and government debt securities.
High Quality Short Term Bond Fund 20
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Stephen A. Wohler, lead portfolio manager, joined the adviser in 1979
and has managed pension, foundation, insurance and mutual fund assets.
Robert Cessine, a portfolio manager, joined the adviser in 1993.
High Quality Short Term Bond Fund 21
<PAGE>
AARP GNMA and
U.S. Treasury Fund
Goal
The fund seeks to produce a high level of income while actively seeking
to reduce downside risk as compared with other GNMA mutual funds.
Educating shareholders who are planning for the later stages of life is
also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in high-quality GNMA
and U.S. Treasury securities. GNMA, also known as Ginnie Mae, stands for
the Government National Mortgage Association, and GNMA securities
represent part ownership in a pool of U.S. government-guaranteed
mortgage loans.
In managing its portfolio, the fund considers the relative merits of
investing in GNMA or U.S. Treasuries securities -- particularly yield
and availability -- in determining how it will allocate its investment
between the two. The fund seeks to maximize income and manage risk by
investing in securities of varying maturities.
GNMA and U.S. Treasury Fund 22
<PAGE>
Risk Management Strategies
Exposure to credit risk is low because most of the fund's securities are
issued or guaranteed by the U.S. government. This guarantee, however,
does not apply to shares of this fund. The fund may also make use of
repurchase agreements (contracts to sell and subsequently buy back a
security at a specified date and price) and certain derivatives
(investments whose value is based on other securities or indices).
The fund's primary defensive strategy is to reduce its average duration
to as little as one year. As an extreme defensive measure, the fund may
temporarily invest up to 100% of assets in cash or cash equivalents. In
such a case, the fund would not be pursuing its goal.
Main Risks
As with most bond funds, the major factor affecting this fund's
performance is interest rates. If interest rates drop significantly,
holders of the mortgages represented by GNMA securities are more likely
to refinance, thus prepaying their obligations and potentially forcing
the fund to reinvest in less profitable securities. The use of
derivatives could magnify gains or losses.
GNMA and U.S. Treasury Fund 23
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers
Mortgage
GNMA Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Mortgage GNMA Index is an unmanaged index of all
GNMA-backed securities.
GNMA and U.S. Treasury Fund 24
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Richard L. Vandenberg has been the lead portfolio manager of this fund
since 1998 and has more than 25 years of experience in fixed income
investing.
Scott E. Dolan has been a portfolio manager since 1993. He joined the
adviser in 1989 and began his investment career more than nine years
ago.
GNMA and U.S. Treasury Fund 25
<PAGE>
AARP Insured Tax Free
General Bond Fund
Goal
The fund seeks to produce a high level of income that
is free from federal income taxes while actively seeking to reduce
downside risk as compared with other insured tax-free bond funds.
Educating shareholders who are planning for the later stages of life is
also a goal.
Investment Strategy
The fund pursues its goal by investing at least 80% of its assets in
high-quality, tax-exempt municipal securities, most of which carry
insurance that would pay the principal and interest in the event of
default.
In managing its portfolio, the fund analyzes economic trends to identify
market sectors (such as healthcare or energy) and types of bonds that
appear likely to outperform the tax-free bond market as a whole. In
choosing individual securities, the fund researches the issuer's
creditworthiness and the terms connected with repayment, among other
factors. The fund seeks to maximize income and manage risk by investing
in securities of varying maturities, primarily in the intermediate
range.
Other Investments
The fund may invest up to 20% of assets in U.S. government securities or
repurchase agreements based on these securities, both of which are
taxable. Repurchase agreements are contracts to sell and subsequently
buy back a security at a specified date and price. Normally, however,
the fund expects to be fully invested in tax-exempt securities.
Insured Tax Free General Bond Fund 26
<PAGE>
Risk Management Strategies
The fund manages its exposure to interest rate risk by adjusting its
duration. The fund minimizes its exposure to default risk because at
least 65% of its securities are privately insured. However, this
insurance does not prevent this fund's share price from falling. The
fund may also use certain derivatives (investments whose value is based
on other securities or indices) and other investment techniques to
manage risk.
As an extreme defensive measure, the fund may
temporarily invest more than 20% of assets in taxable short-term
securities. In such a case, the fund would not be pursuing its goal.
Main Risks
As with most bond funds, the major factor affecting this fund's
performance is interest rates. When interest rates rise, the prices of
bonds (and bond funds) typically fall in proportion to their duration.
This fund may have lower returns than other funds that invest in
lower-quality securities. It is also possible that bonds in the fund's
portfolio could be downgraded in credit rating or go into default.
The fund's other investment strategies entail other risks:
o If certain sectors or investments don't perform as the fund manager
expects, it could substantially underperform in comparison with its
peers or lose money.
o Yields on privately insured securities could lag those of uninsured
securities significantly.
o The use of certain derivatives could magnify gains or losses.
Insured Tax Free General Bond Fund 27
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers
Municipal
Bond Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds with maturities of at least two years.
Insured Tax Free General Bond Fund 28
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Philip G. Condon is the lead portfolio manager of this fund. He joined
the adviser in 1983 and has more than 21 years of municipal investment
experience.
M. Ashton Patton, a portfolio manager, began her investment career in
1986.
Insured Tax Free General Bond Fund 29
<PAGE>
AARP Bond Fund
for Income
Goal
The fund seeks to produce a high level of current income while actively
seeking to reduce downside risk as compared with other long-term bond
funds. Educating shareholders who are planning for the later stages of
life is also a goal.
Investment Strategy
The fund pursues its goal by investing at least 65% of its assets in
high-quality bonds of any maturity with independent credit ratings of
Aaa/AAA through Baa/BBB (and their unrated equivalents). The fund may
also invest in bonds rated Ba/BB or B, which are below investment-grade.
These high-yield, lower-quality bonds may represent up to 35% of the
fund's assets.
The fund primarily focuses on corporate bonds, although it also invests
in other types of securities. In managing its portfolio, the fund
analyzes economic trends to identify market sectors (such as media or
financial services) and types of bonds that appear likely to outperform
the long-term bond market as a whole. In choosing individual securities,
the fund researches the issuer's creditworthiness and the terms
connected with repayment, among other factors.
Bond Fund for Income 30
<PAGE>
Risk Management Strategies
The fund manages its exposure to interest rate risk by adjusting its
duration. The fund also diversifies its portfolio across sectors and
issuers. The fund normally seeks out bonds with "call protection," which
limits issuers' ability to pay off their loans early and reduces
downside risk when interest rates fall. The fund may also make limited
use of certain derivatives (investments whose value is based on indices
or other securities).
As an extreme defensive measure, the fund may temporarily invest up to
100% of assets in cash or cash equivalents. In such a case, the fund
would not be pursuing its goal.
Main Risks
As with most bond funds, the most significant factor affecting this
fund's performance is interest rates. When interest rates rise, the
price of bonds (and bond funds) typically fall in proportion to their
duration. If certain sectors or investments don't perform as the fund
manager expects, it could substantially underperform its peers or lose
money. It is also possible that bonds in the fund's portfolio could be
downgraded in credit rating or go into default.
Issuers whose bonds are just below investment-grade
are often in somewhat shaky financial health and may
be affected by stock market shifts. The prices of their bonds,
therefore, tend to change based on stock market movements to a greater
degree than investment-grade bond prices.
The fund's other investment strategies entail other risks:
o The use of derivatives could magnify gains or losses.
o The fund expects to trade securities actively. This
strategy could increase transaction costs and reduce performance.
Bond Fund for Income 31
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers
Aggregate
Bond Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index of U.S.
corporate and government debt securities.
Bond Fund for Income 32
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
Expense Reimbursement 0.00
Net Expenses 0.00
Expenses will be capped at 0.50% through 1/31/2000.
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Stephen A. Wohler, lead portfolio manager, joined the adviser in 1979
and has managed pension, foundation, insurance and mutual fund assets.
Kelly D. Babson, a portfolio manager, joined the adviser in 1994. She
has 17 years of experience in fixed-income investing.
Robert Cessine, a portfolio manager, joined the adviser in 1993.
Bond Fund for Income 33
<PAGE>
AARP Growth and
Income Funds
Balanced Stock and Bond Fund
Growth and Income Fund
U.S. Stock Index Fund
These funds all seek a combination of capital growth and income and make
distributions, if any, to shareholders quarterly. All of these funds
emphasize investments (whether stocks or bonds) in companies that offer
above-average dividend yields. Each fund has its own goal, investment
strategy and risk profile.
The advantages of growth and income funds are: opportunities for capital
growth and current income in a single investment; potentially less
volatility than purely growth-oriented investments; and potentially
strong long-term growth. At the same time, growth and income funds are
not likely to perform quite as well over the long term as purely
growth-oriented investments.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Growth and Income Funds 34
<PAGE>
Are Growth and Income Funds Right
for You?
Growth and income funds may be a good choice for you if:
o you want long-term growth with less risk than a purely growth-oriented
investment
o you can invest for at least three to five years in Balanced Stock and
Bond Fund, or for at least five years in the other funds
o you can handle some ups and downs in performance
o you are building an asset allocation portfolio with a
few core investments
AARP Growth and Income Funds 35
<PAGE>
AARP Balanced Stock
and Bond Fund
Goal
The fund seeks to provide long-term capital growth and income while
actively seeking to reduce downside risk as compared with other balanced
mutual funds. Educating shareholders who are planning for the later
stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing in a diversified mix of stocks
with above-average dividend yields, high-quality bonds and cash
reserves.
The fund may invest up to 70% of its assets in stocks. The remainder of
the fund's assets will be invested in investment-grade debt securities
or cash. In managing its portfolio, the fund does not attempt to time
the market. When changes in the overall financial climate -- interest
rates, cash flows, inflation -- warrant action, the fund managers will
generally make incremental adjustments to the fund's asset allocation.
In selecting stocks, the fund seeks out companies with a history of
paying regular dividends that also appear to offer opportunities for
growth in earnings and capital. Typically, companies that meet these
criteria are large. The fund invests primarily in U.S. companies, but
may also invest in foreign equity securities.
All of the fund's bond investments must be investment-grade at the time
of purchase, and 75% of these must be rated within the three highest
credit categories of independent ratings agencies (and their unrated
equivalents). Inside these bounds, the fund may invest in bonds of any
maturity issued by U.S. and foreign governments or corporations. The
fund generally selects individual bonds based on maturities and yields,
with an emphasis on corporate bonds.
Balanced Stock and Bond Fund 36
<PAGE>
Risk Management Strategies
The fund manages risk in its stock allocation by diversifying widely
among industries and companies. Stocks that pay high dividends can
provide a "cushion" of steady income during periods of high market
volatility. Its bond investments are diversified by maturity, credit
quality and industry. The fund may also make limited use of certain
derivatives (investments whose value is based on indices or other
securities).
As an extreme defensive measure, the fund may temporarily invest up to
100% of assets in cash or cash equivalents. In such a case, the fund
would not be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance is stock market
movements. If certain sectors or investments don't perform as the fund
manager expects, it could substantially underperform its peers or lose
money. To the extent that the fund invests in bonds, the most
significant risk is that interest rates will rise, and the prices of
bonds held by the fund will fall in proportion to their duration. It is
also possible that bonds in the fund's portfolio could be downgraded in
credit rating or go into default.
The fund's asset allocation could prove to be less appropriate to market
conditions than other balanced mutual funds, and the fund's attempts to
manage downside risk may also reduce performance in a strong market.
The fund's other investment strategies entail other risks:
o Prepayment of loans is a possibility with the fund's mortgage-backed
and asset-backed securities.
o The use of derivatives could magnify gains or losses.
Balanced Stock and Bond Fund 37
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers
Aggregate
Bond Index^2 00.00 00.00 00.00
S&P 500 Stock Price
Index^3 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index of U.S.
corporate and government debt securities.
3 The S&P 500 Stock Price Index is an unmanaged index of 500 large-cap
U.S. companies.
Balanced Stock and Bond Fund 38
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Robert T. Hoffman is lead portfolio manager for this fund. He joined the
adviser in 1990 and has more than 12 years of experience.
Stephen A. Wohler, a portfolio manager, has managed the bond portion of
this portfolio since the fund's inception in 1994. He joined the adviser
in 1979.
Lori J. Ensinger, a portfolio manager, joined the adviser in 1993 and
has worked as a portfolio manager since 1983.
Balanced Stock and Bond Fund 39
<PAGE>
AARP Growth and
Income Fund
Goal
The fund seeks to provide long-term capital growth
and income while actively seeking to reduce downside risk as compared
with other growth and income funds. Educating shareholders who are
planning for the later stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in common stocks.
In managing its portfolio, the fund employs a "relative yield"
discipline, meaning that it focuses its investments on companies whose
dividend yields are 20% higher than the average derived from a benchmark
index such as the S&P 500 Index. The fund will sell securities if their
dividend yields fall below 80% of the benchmark average. In addition to
above-average yield, companies must appear to offer opportunities for
growth in capital and earnings. Typically, companies that meet these
criteria are large. The fund invests primarily in U.S. companies, but
may also invest in foreign equity securities.
Other Investments
The fund may invest in debt securities that can be converted into common
stocks, also known as convertibles. It may also invest in preferred
stocks and futures contracts.
Growth and Income Fund 40
<PAGE>
Risk Management Strategies
The fund manages risk by diversifying widely among industries and
companies. It also invests in high dividend-paying stocks, which have
tended to fall less in down markets. Derivatives (investments whose
value is based on indices or other securities) may be used to a limited
extent as well.
As an extreme defensive measure, the fund may temporarily invest up to
100% of assets in cash or cash equivalents. In such a case, the fund
would not be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance
is stock market movements. In addition, if any of the companies held by
the fund decrease or stop dividend payments, the fund will generate less
income, and overall performance is likely to suffer.
The relative yield strategy used by the fund or specific investments may
not perform as well as expected. The fund's attempts to manage downside
risk may also reduce performance in a strong market.
The fund's other investment strategies entail other risks:
o Convertible debt securities are subject to some of the same interest
rate risk as bonds; that is, their prices tend to drop when interest
rates rise.
o The use of derivatives could magnify gains or losses.
Growth and Income Fund 41
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
S&P 500 Stock Price
Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The S&P 500 Stock Price Index is an unmanaged index of 500 large-cap
U.S. companies.
Growth and Income Fund 42
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Robert T. Hoffman has been lead portfolio manager for this fund since
1991. He joined the adviser in 1990 and has more than 13 years of
investment experience.
Benjamin W. Thorndike, a portfolio manager, joined the adviser in 1986
and has more than 17 years of investment experience.
Kathleen T. Millard, a portfolio manager, joined the adviser in 1991 and
began her investment career in 1983.
Lori J. Ensinger, a portfolio manager, joined the adviser in 1993 and
has worked as a portfolio manager since 1983.
Growth and Income Fund 43
<PAGE>
AARP U.S. Stock
Index Fund
Goal
The fund seeks to provide long-term capital growth while actively
seeking to reduce downside risk as compared with other S&P 500 index
funds. Educating shareholders who are planning for the later stages of
life is also a goal.
Investment Strategy
The fund pursues its goal by investing at least 95% of its assets in
stocks of companies in the S&P 500 Index, or in securities based on
those stocks. Using a proprietary computer model, the fund screens the
companies in the index to identify those that pay above-average
dividends. By giving more weight to these companies in the portfolio,
the fund expects to temper volatility somewhat.
The fund expects to come close to the capitalization weights of the S&P
500. To enhance yield and liquidity, and to reduce transaction costs,
the fund will not exactly replicate the portfolio weights of the S&P 500
and will typically hold between 400 and 470 of the 500 stocks within
that index.
The total return will generally track the S&P 500 within 1%, before
expenses, on an annualized basis. (A tracking error of 0% would indicate
returns identical to the index.)
U.S. Stock Index Fund 44
<PAGE>
Risk Management Strategies
The fund focuses on stocks that pay high dividends, which can provide a
"cushion" of steady income during periods of high market volatility. The
fund may also invest up to 20% of assets in futures contracts based on
S&P 500 stocks in order to invest cash, maintain liquidity or minimize
trading costs.
Main Risks
The primary factor affecting this fund's performance is stock market
movements. The fund manager's strategy of emphasizing high-dividend
companies in the S&P 500 index might not perform as expected, and the
fund's performance could be lower than that of the index. The use of
derivatives could magnify gains or losses.
U.S. Stock Index Fund 45
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
S&P 500 Stock Price
Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The S&P 500 Stock Price Index is an unmanaged index of 500 large-cap
U.S. companies.
U.S. Stock Index Fund 46
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
Expense Reimbursement 0.00
Net Expenses 0.00
Expenses will be capped at 0.50% through 1/31/2000.
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Bankers Trust Company, the subadviser will handle investment and trading
functions for the fund. The subadviser has managed stock index
investments since 1977.
Philip S. Fortuna is lead portfolio manager and directs the adviser's
quantitative group. He joined the adviser in 1986.
James M. Eysenbach, a portfolio manager, joined the adviser in 1991 and
has more than 11 years of investment experience.
U.S. Stock Index Fund 47
<PAGE>
AARP Growth Funds
Capital Growth Fund
Small Company Stock Fund
These funds seek long-term growth of principal by investing in
portfolios of stocks. Each fund has its own goal, investment strategy
and risk profile.
Funds that focus on stocks have historically offered the highest
long-term returns. Depending on their goals, stock funds can provide
exposure to companies of all sizes in every industry and geographic
region. But growth funds alone should not be used as the core of your
personal portfolio because stock markets are too volatile.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Growth Funds 48
<PAGE>
Are Growth Funds Right for You?
Growth funds may be a good choice for you if:
o you want long-term growth of principal
o you are not looking for a source of regular income
o you can invest for at least five years
o you can handle potentially large ups and downs
in performance
o you are looking for a fund for the growth portion
of your overall portfolio
AARP Growth Funds 49
<PAGE>
AARP Capital
Growth Fund
Goal
The fund seeks to provide long-term capital growth while actively
seeking to reduce downside risk as compared with other growth funds.
Educating shareholders who are planning for the later stages of life is
also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in the common stocks of
established medium- to large-sized companies with potential for
long-term capital growth. The fund considers businesses with market
capitalizations (total market value of shares) above $3 billion to be
medium-sized.
In managing its portfolio, the fund concentrates on stock selection.
During an initial screen of companies with market capitalizations of $3
billion and over, the fund looks for companies with sustained past
growth and potential for continued growth as well as sound financial
condition. Companies must also have strong competitive positions; if
they are not the market leaders, they should be gaining market share.
Finally, the fund uses a sophisticated computer model to identify stocks
that are attractively priced relative to their industries and to the
market as a whole.
Other Investments
The fund may invest in debt securities that can be converted into common
stocks, also known as convertibles. It may also invest in preferred
stocks and futures contracts. Although the fund typically invests in
U.S. companies, it may also invest in foreign securities.
Capital Growth Fund 50
<PAGE>
Risk Management Strategies
The fund manages risk by diversifying widely among industries and
companies. It generally does not invest more than 3.5% of its assets in
any single company. The fund may also use certain derivatives
(investments whose value is based on indices or other securities).
As an extreme defensive measure, the fund may temporarily invest up to
100% of assets in cash or cash equivalents. In such a case, the fund
would not be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance is stock market
movements. If certain sectors or investments don't perform as the fund
manager expects, it could substantially underperform its peers or lose
money. The fund's attempts to manage downside risk may also reduce
performance in a strong market.
The fund's other investment strategies entail other risks:
o Convertible debt securities are subject to some of the same interest
rate risk as bonds; that is, their prices tend to drop when interest
rates rise.
o Foreign investments carry added risks due to inadequate or inaccurate
financial information about companies, potential political
disturbances and fluctuations in currency exchange rates.
o The use of derivatives could magnify gains or losses.
Capital Growth Fund 51
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
BAR CHART TITLE
ANNUAL TOTAL RETURNS (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
AVERAGE ANNUAL RETURNS^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
S&P 500 Stock Price
Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The S&P 500 Stock Price Index is an unmanaged index of 500 large-cap
U.S. companies.
Capital Growth Fund 52
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
FEE TABLE (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
EXPENSES ON A $10,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
William F. Gadsden has been lead portfolio manager since 1994 and has
been on the fund management team since 1989. He has 17 years of
investment experience.
Bruce F. Beaty, a portfolio manager, joined the adviser in 1991 and has
18 years of investment experience.
Capital Growth Fund 53
<PAGE>
AARP Small Company Stock Fund
Goal
The fund seeks to provide long-term capital growth while actively
seeking to reduce downside risk as compared with other small company
stock funds. Educating shareholders who are planning for the later
stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in stocks of small U.S.
companies with potential for above-average long-term capital growth.
Small companies are generally defined as businesses with market
capitalizations (total market value of shares) below $1.25 billion.
In managing its portfolio, the fund uses a proprietary computer model to
identify attractively valued stocks -- those selling at low prices
relative to their earnings and assets. The fund also favors
dividend-paying companies. By emphasizing these companies in the
portfolio, the fund expects to take advantage of the growth
opportunities offered by small companies while tempering the volatility
that is also associated with these investments.
Other Investments
The fund may also invest in other types of securities, including up to
20% of assets in U.S. government securities.
Small Company Stock Fund 54
<PAGE>
Risk Management Strategies
The fund manages risk by focusing on undervalued stocks with an emphasis
on those paying dividends. Historically, these stocks have tended to
fall less in down markets. The fund also diversifies widely across
individual companies. It generally invests no more than 2% of its assets
in any one company and typically invests in over 150 securities. The
fund may also use certain derivatives (investments whose value is based
on indices or other securities).
As an extreme defensive measure, the fund may invest up to 100% of
assets in cash or cash equivalents. In such a case, the fund would not
be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance is stock market
movements. Small companies can be especially sensitive to market shifts
and isolated business reverses. This is because small companies often
serve niche markets and have limited product lines. They also generally
lack the cash reserves and access to financing that allow larger
companies to weather hard times.
Small companies as a group or individual companies
may not perform as well as expected. Securities of small companies are
often thinly traded and could be harder to value or sell at a fair
price. The fund's attempts to manage downside risk may also reduce
performance in a strong market.
Small Company Stock Fund 55
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
Annual Total Returns (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
Average Annual Returns^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Shares 00.00 00.00 00.00
The Russell 2000 Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Russell 2000 Index is an unmanaged index of approximately 2,000
small U.S. companies.
Small Company Stock Fund 56
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
Fee Table (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
Expense Reimbursement 0.00
Net Expenses 0.00
Expenses will be capped at 1.75% through 1/31/2000.
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
Expenses on a $10,000 Investment
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Philip S. Fortuna is co-lead portfolio manager and director of the
adviser's quantitative group. He joined the adviser in 1986.
James M. Eysenbach, co-lead portfolio manager, joined the adviser in
1991 and has more than 11 years of investment experience.
Calvin S. Young, a portfolio manager, joined the adviser in 1990 and has
nine years of investment management experience.
Small Company Stock Fund 57
<PAGE>
AARP Global Funds
Global Growth Fund
International Growth and Income Fund
These funds seek long-term growth of principal through investments in
securities markets around the world. Although the U.S. market is the
single largest in the world, the global market is three times as large.
Each fund has its own goal, investment strategy and risk profile.
Global funds offer easy access to countries and markets that can be very
difficult for investors to enter on their own. Foreign markets follow
their own economic cycles, so foreign investments can serve to diversify
a portfolio of U.S. investments. At the same time, foreign markets have
been more volatile than the U.S. market. International investments carry
additional risks, including potentially unfavorable currency exchange
rates, political disturbances, and incomplete or inaccurate accounting
information on companies.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Global Funds 58
<PAGE>
Are Global Funds Right for You?
Global funds may be a good choice for you if:
o you have a well-balanced portfolio of domestic investments and
would like to gain some exposure to foreign markets
o you are not looking for a source of regular income
o you can invest for at least five years
o you can handle potentially large ups and downs in performance
AARP Global Funds 59
<PAGE>
AARP Global
Growth Fund
Goal
The fund seeks to provide long-term capital growth while actively
seeking to reduce downside risk as compared with other global growth
funds. Educating shareholders who are planning for the later stages of
life is also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in stocks from the U.S.
and developed countries around the world.
In managing its portfolio, the management team looks for investment
opportunities created by the increasing integration of economies around
the world. The team seeks industries and countries that appear likely to
benefit from promising technologies and changing geopolitical, currency
or economic relationships. In selecting individual stocks, the
management team also studies past performance and financial statements
to identify companies that appear to be attractively priced relative to
their industries and markets.
Other Investments
The fund may also invest in high-quality debt securities with credit
ratings of Aaa/AAA through Baa/BBB (and their unrated equivalents). In
selecting individual bonds, the fund generally seeks out the highest
yields within favored countries and sectors, and within the allowed
credit range.
Global Growth Fund 60
<PAGE>
Risk Management Strategies
The fund manages risk by diversifying widely among regions, market
sectors, and individual companies. The fund avoids emerging markets,
which tend to be more volatile. The fund may also use certain
derivatives (investments whose value is based on indices or other
securities).
As an extreme defensive measure, the fund may invest up to 100% of
assets in U.S. cash or cash equivalents. In such a case, the fund would
not be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance is stock market
movements in the countries in which the fund is invested. Foreign
investments carry added risks due to inadequate or inaccurate financial
information about companies, potential political disturbances and
fluctuations in currency exchange rates. In addition, the fund manager's
choice of countries, market sectors or specific investments may not
perform as well as expected.
The fund's bond investments are affected by interest rates. When
interest rates rise, bond prices typically fall in proportion to their
duration.
The fund's other investment strategies entail other risks:
o The fund's attempts to manage downside risk may also reduce
performance in a strong market.
o Foreign securities are often thinly traded and could be harder
to value or sell at a fair price.
Global Growth Fund 61
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
Annual Total Returns (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
Average Annual Returns^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
The MSCI World Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The MSCI (Morgan Stanley Capital International) World Index is an
unmanaged index of global stock markets, including the U.S.
Global Growth Fund 62
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
Fee Table (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
Expenses on a $10,000 Investment
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
William E. Holzer, lead portfolio manager, joined the adviser in 1980
and has over 22 years of experience in global investing.
Nicholas Bratt, a portfolio manager, joined the adviser in 1976.
Diego Espinosa, a portfolio manager, joined the adviser in 1996 and has
seven years of experience.
Global Growth Fund 63
<PAGE>
AARP International Growth and Income Fund
Goal
The fund seeks to provide long-term capital growth
and income while actively seeking to reduce downside risk as compared
with other international mutual funds. Educating shareholders who are
planning for the later stages of life is also a goal.
Investment Strategy
The fund pursues its goal by investing primarily in common stocks and
bonds from developed countries outside the U.S.
In managing its portfolio, the fund employs a "relative yield"
discipline, meaning that it focuses its investments on companies whose
dividend yields are 20% higher than the average derived from a benchmark
index such as the MSCI World ex-US Index. The fund will sell securities
if their dividend yields fall below 80% of the benchmark average. In
addition to above-average yield, companies must appear to offer
opportunities for growth in capital and earnings. Typically, companies
that meet these criteria are large. In selecting individual bonds, the
fund generally seeks out the highest yields within the allowed credit
range.
Other Investments
Most of the fund's investments will be in stocks, but up to 20% may be
invested in bonds with credit ratings of Aaa/AAA through Baa/BBB (and
their unrated equivalents).
International Growth and Income Fund 64
<PAGE>
Risk Management Strategies
The fund manages its risk by diversifying widely among regions, market
sectors, and individual companies. It also invests in high
dividend-paying stocks, which have tended to fall less in down markets.
In addition, the fund avoids emerging markets, which tend to be highly
volatile. The fund may use certain derivatives (investments whose value
is based on indices or other securities) to manage risk.
As an extreme defensive measure, the fund may invest up to 100% of
assets in U.S. or Canadian cash or cash equivalents. In such a case, the
fund would not be pursuing its goal.
Main Risks
The primary factor affecting this fund's performance is stock market
movements in the countries in which the fund is invested. Foreign
investments carry added risks due to inadequate or inaccurate financial
information about companies, potential political disturbances and
fluctuations in currency exchange rates.
In addition, the relative yield strategy used by the fund or specific
investments may not perform as well as expected. The fund's bond
investments are affected by interest rates. When interest rates rise,
bond prices typically fall in proportion to their duration.
The fund's other investment strategies entail other risks:
o The fund's attempts to manage downside risk may also reduce
performance in a strong market.
o Foreign securities are often thinly traded and could be harder
to value or sell at a fair price.
International Growth and Income Fund 65
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
Annual Total Returns (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
Average Annual Returns^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
The MSCI EAFE Index^2 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The MSCI (Morgan Stanley Capital International) EAFE Index is an
unmanaged index of global stock markets, excluding the U.S.
International Growth and Income Fund 66
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
Fee Table (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
Expense Reimbursement 0.00
Net Expenses 0.00
Expenses will be capped at 1.75% through 1/31/2000.
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
Expenses on a $10,000 Investment
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Sheridan Reilly has been lead portfolio manager for this fund since
1997. He has over 12 years of experience.
Irene Cheng is a portfolio manager and joined the adviser in 1993. She
has 14 years of experience in global and equity investing.
Deborah Chaplin, a portfolio manager, joined the adviser in 1996 and has
more than six years of experience as a securities analyst and portfolio
manager.
International Growth and Income Fund 67
<PAGE>
AARP Managed Investment Portfolios
Diversified Income with Growth Portfolio
Diversified Growth Portfolio
These portfolios invest in a mix of other AARP mutual funds, with the
exception of those that aim to provide tax-free income. They are
intended to provide "one-stop shopping" for investors who want a
professional asset allocation in one investment. Each portfolio has its
own goal, investment strategy and risk profile.
The investment portfolios are designed to address the needs of investors
in the later stages of life. They emphasize stability and moderate
growth. It is important to understand that your optimal personal asset
allocation is likely to shift more toward income investments as you age.
You should periodically review your investment goals to be sure that a
managed investment portfolio fits into your overall portfolio.
The funds' investment goals and strategies may be changed without a vote
of shareholders.
AARP Managed Investment Portfolios 68
<PAGE>
Are Managed Investment Portfolios Right for You?
Managed investment portfolios may be a good choice for you if:
o you would like to build your overall portfolio with only one or
a few investments
o you can invest for at least three years in the Diversified
Income with Growth Portfolio, or for at least five years in the
Diversified Growth Portfolio
o you can handle some ups and downs in performance
AARP Managed Investment Portfolios 69
<PAGE>
AARP Diversified Income with Growth Portfolio
Goal
The portfolio seeks current income with modest long-term appreciation.
Investment Strategy
The portfolio pursues its goal by investing in at least
five AARP mutual funds, with an emphasis on the AARP Income Funds. In
managing its allocation among the AARP funds, the portfolio does not
attempt to time the market. When changes in the overall financial
climate warrant, the portfolio managers will generally make incremental
adjustments to the fund's asset allocation.
Under normal market conditions, the portfolio will
generally allocate its assets within the following ranges:
o AARP bond funds 60-80%
including income
o AARP stock funds 20-40%
including growth, growth
and income, and global
o AARP money funds/cash 0-20%
Due to market movements, the portfolio's actual allocation may sometimes
exceed one or more of the ranges. The portfolio manager may then
reallocate assets.
Diversified Income with Growth Portfolio 70
<PAGE>
Risk Management Strategies
The portfolio manages risk by diversifying widely among AARP mutual
funds. Each underlying AARP fund is also explicitly managed to limit
downside risk in comparison with similar funds.
As an extreme defensive measure, the portfolio may
temporarily invest up to 100% of assets in cash or cash equivalents. In
such a case, the portfolio would not be pursuing its goal.
Main Risks
The portfolio's performance is most significantly affected by the
performance of the underlying AARP Income Funds. And, in general, income
funds respond to the same economic forces as bonds. A rise in interest
rates, therefore, is the most likely to cause bonds, income funds and
portfolios that invest in income funds to lose money. Bond issuers could
prepay their bonds in times of falling interest rates, and it is also
possible that bonds held by the underlying funds could be downgraded in
credit rating or go into default.
To the extent that the portfolio invests in growth funds, the most
significant risk is stock market movements. The portfolio's asset
allocation could prove to be ineffective relative to other multi-fund
portfolios, and the portfolio could lose money.
Diversified Income with Growth Portfolio 71
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
Annual Total Returns (%) as of 12/31 each year
BAR CHART DATA
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
Average Annual Returns^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers Aggregate
Bond Index^2 00.00 00.00 00.00
S&P 500 Stock Price Index^3 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index of U.S.
corporate and government debt securities.
3 The S&P 500 Stock Price Index is an unmanaged index of 500
large-cap U.S. companies.
Diversified Income with Growth Portfolio 72
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
Fee Table (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
Expenses on a $10,000 Investment
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Philip S. Fortuna is lead portfolio manager and director of the
adviser's quantitative group. He joined the adviser in 1986.
Salvatore J. Bruno, a portfolio manager, has over seven years of
investment experience.
Shahram Tajbakhsh, a portfolio manager, has over seven years of
investment experience.
Karla D. Grant, a portfolio manager, joined the adviser in 1997 and has
eight years experience.
Diversified Income with Growth Portfolio 73
<PAGE>
AARP Diversified Growth Portfolio
Goal
The portfolio seeks to provide long-term growth of capital.
Investment Strategy
The portfolio pursues its goal by investing in at least
five AARP mutual funds, with an emphasis on the AARP Growth Funds. In
managing its allocation among the AARP funds, the portfolio does not
attempt to time the market. When changes in the overall financial
climate warrant, the portfolio managers will generally make incremental
adjustments to the fund's asset allocation.
Under normal market conditions, the portfolio will
generally allocate its assets within the following ranges:
o AARP stock funds 60-80%
including growth, growth
and income, and global
o AARP bond funds 20-40%
including income
o AARP money funds/cash 0-20%
Due to market movements, the portfolio's actual allocation may sometimes
exceed one or more of the ranges. The portfolio manager may then
reallocate assets.
Diversified Growth Portfolio 74
<PAGE>
Risk Management Strategies
The portfolio manages risk by diversifying widely among AARP mutual
funds. Each underlying AARP fund is also explicitly managed to limit
downside risk in comparison with similar funds.
As an extreme defensive measure, the portfolio may
temporarily invest up to 100% of assets in cash or cash equivalents. In
such a case, the portfolio would not be pursuing its goal.
Main Risks
The portfolio's performance is most significantly affected by the
performance of the underlying AARP Growth Funds. And, in general, growth
funds respond to the same economic forces as stocks. A market downturn,
therefore, is the most likely to cause stocks, growth funds, and
portfolios that invest in growth funds to lose money.
To the extent that the portfolio invests in AARP Income Funds, the most
significant risk is that a rise in interest rates could lower the prices
of bonds, income funds, and portfolios that invest in income funds. Bond
issuers could prepay their bonds in times of falling interest rates, and
it is also possible that bonds held by could be downgraded in credit
rating or go into default.
The portfolio's asset allocation could prove to be ineffective relative
to other multi-fund portfolios, and the portfolio could lose money.
Diversified Growth Portfolio 75
<PAGE>
Past Performance
The charts below illustrate the variability in the fund's past returns
and give an indication of its associated risk. All mutual funds provide
this information in the same format so that you can make comparisons.
Keep in mind that past performance is no guarantee of future
performance.
The bar chart shows the fund's annual total returns over the last ten
years. Returns for the fund's single best and single worst quarters
during this period suggest how widely performance has varied over the
short term.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE
Annual Total Returns (%) as of 12/31 each year
BAR CHART DATA
00.00 00.0 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
Best Quarter: Xth Quarter `98, up 00.00%
Worst Quarter: Xnd Quarter `90, down 00.00%
The table presents the fund's average annual returns over 1, 5 and 10
years along with those of a broad measure of performance.
Average Annual Returns^1 (%) as of 12/31/98
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Shares 00.00 00.00 00.00
Lehman Brothers Aggregate
Bond Index^2 00.00 00.00 00.00
S&P 500 Stock Price Index^3 00.00 00.00 00.00
1 Average annual returns assume all applicable expenses and reinvestment
of all dividends and distributions.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index of U.S.
corporate and government debt securities.
3 The S&P 500 Stock Price Index is an unmanaged index of 500
large-cap U.S. companies.
Diversified Growth Portfolio 76
<PAGE>
Fees and Expenses
The table below describes the expenses you could expect as an investor
in this fund. "Annual Fund Operating Expenses" are deducted from fund
assets, and therefore reduce the total return.
Fee Table (%)
Shareholder Fees
Redemption Fee 0.00
Annual Fund Operating Expenses
Management Fees 0.00
Distribution (12b-1) Fees 0.00
Other Expenses 0.00
Total Annual Fund Operating Expenses 0.00
The example below shows the expenses that would apply to your investment
in the fund over 1, 3, 5 and 10 years. All mutual funds present this
information so that you can make comparisons. Your actual costs could be
higher or lower than this example.
Expenses on a $10,000 Investment
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
00.00 00.00 00.00 00.00
The example assumes 5% annual returns, current annual operating expenses
and reinvestment of all dividends and distributions.
Portfolio Managers
Philip S. Fortuna is lead portfolio manager and director of the
adviser's quantitative group. He joined the adviser in 1986.
Salvatore J. Bruno, a portfolio manager, has over seven years of
investment experience.
Shahram Tajbakhsh, a portfolio manager, has over seven years of
investment experience.
Karla D. Grant, a portfolio manager, joined the adviser in 1997 and has
eight years experience.
Diversified Growth Portfolio 77
<PAGE>
Your Account
Opening an AARP Mutual Fund Account
Making Exchanges and Redemptions
Tax Considerations and Distributions
How to Reach Us
The AARP Investment Program's Educational Commitment
As a participant in the AARP Investment Program, you have many choices
for opening and managing your account. This section contains charts that
provide the basic directions for buying, exchanging and selling shares.
Supplemental details about transaction policies follow the charts.
Opening an AARP Mutual Fund Account 78
<PAGE>
Opening an AARP Mutual Fund Account
In keeping with our goal of helping people start or expand their personal
portfolios easily, the AARP Investment Program offers among the lowest minimum
investment requirements of any mutual fund family.
Minimum Investment Requirements
AARP Fund Minimum Initial Investment
- --------------------------------------------------------------------------------
Individual Retirement Accounts (IRAs) $250
UGMA/UTMAs $250
Non-Retirement Accounts
GNMA and U.S. Treasury Fund $500
Balanced Stock and Bond Fund $500
Growth and Income Fund $500
All other funds (except Premium Money Fund) $2,000
Premium Money Fund $10,000
<TABLE>
<CAPTION>
WAYS TO OPEN OR ADD TO YOUR ACCOUNT
Open an Account Add to Your Account
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Mail Send completed enrollment Send a personalized
form and check investment slip or short
AARP Investment payable to "AARP note that includes:
Program from Scudder Investment Program." o fund name
P.O. Box 2540 o account number
Boston, MA 02208-2540 For all enrollment forms, o check payable to "AARP
call 800-253-2277. Investment Program."
Automatic Investment Fill in the information Once you specify a
Plan (AIP) required on your enrollment dollar amount (minimum
form and include a $50), investments are
voided check. automatic.
Your bank must be a Call 800-253-2277 for
member of the an enrollment form for
Automated Clearing this service.
House (ACH) system.
Opening an AARP Mutual Fund Account 79
<PAGE>
WAYS TO OPEN OR ADD TO YOUR ACCOUNT (continued)
Open an Account Add to Your Account
- -----------------------------------------------------------------------------------------------------
Wire Send completed enrollment Call your bank for a
form and then call control number.
Note: AARP IRA and an AARP Mutual Fund
AARP Keogh Plan representative at 800-
accounts cannot be 253-2277 to get your
opened by wire. account number.
Instruct your bank to
wire funds to:
State Street Bank &
Trust Company
Boston, MA 02101
ABA: 011000028
AC-99035420
AARP fund
Your name and acct.#
Phone -- Once you have signed
up for telephone services,
call 800-253-2277 to
purchase by transfer
from your bank.
Your bank must be a
member of the
Automated Clearing
House (ACH) system.
Payroll Deduction or Select either of these Once you specify a
Direct Deposit options on your enrollment dollar amount (minimum
form and submit it. $50), investments are
For payroll deduction, You will receive further automatic.
you will need to make instructions by mail.
sure your employer
can accommodate this
service.
</TABLE>
Opening an AARP Mutual Fund Account 80
<PAGE>
How Share Prices Are Calculated
Each fund calculates its net asset value per share (NAV) at the close of regular
trading on the New York Stock Exchange (normally 4PM eastern time) each business
day or at the closing time determined by the Exchange when trading is suspended
before the normal close. The money funds also calculate their NAVs at noon
eastern time each business day. The AARP High Quality Tax Free Money Fund uses
amortized cost to value its securities; the rest of the funds use current market
quotations. When market quotations are not available or the adviser believes
they are unreliable, the funds will use fair value pricing.
Purchase orders received before the regular close of the New York Stock Exchange
will be executed at the offering price calculated at that day's close. Because
foreign securities markets have different business days than the funds, the
value of foreign securities in a fund's portfolio could change on a day when you
are not able to buy or sell fund shares.
Purchases by Personal Check
Checks or money orders should be in U.S. dollars and payable to "AARP Investment
Program." We do not accept checks made out to you and endorsed over to us,
otherwise known as third-party checks.
Checkwriting Privileges
Free checkwriting privileges are available to shareholders in any of the AARP
money funds. You must wait seven business days before writing a check against
any fund shares that were purchased by personal check. Minimum check amounts are
$1,000 for the AARP Premium Money Fund and $100 for the other money funds. You
cannot close out your account by writing checks.
The funds reserve the right to impose a fee or terminate this service upon
notice to shareholders.
Wire Transactions
The AARP Investment Program does not charge any fee for wire transfers from your
bank to the funds. A fee of $5.00 will be charged for each wire sent to your
bank. Be aware that your bank may also charge a fee to send or receive wires,
particularly for international transfers.
Opening an AARP Mutual Fund Account 81
<PAGE>
Making Exchanges and Redemptions
As with purchase orders, redemption requests received before the close of
business of the New York Stock Exchange will be executed at the offering price
calculated at that day's close. Remember that sales and exchanges (transfers
between AARP funds) have the same tax consequences.
<TABLE>
<CAPTION>
Ways to Exchange or Redeem your shares
To Exchange Shares
Between AARP
Mutual Funds To Redeem Shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Phone Call a mutual fund If you want the proceeds
representative at sent to your registered
800-253-2277. address, call the Easy-
Access line at 800-631-
You can also use 4636. A check will be
the automated Easy- mailed to you on the
Access line by calling following business day.
800-631-4636.
You must call 800-253-
2277 for instructions
to have the check sent
anywhere else.
Mail Your instructions should include: Your instructions should include:
o your account number o your account number
AARP Investment o names of the funds o names of the funds
Program from Scudder and number of shares and number of shares
P.O. Box 2540 or dollar amount you or dollar amount you
Boston, MA 02208-2540 want to exchange want to redeem
AARP Keogh Plan shares A signature guarantee is
can only be redeemed required whenever you:
by mail. o redeem more than
$100,000
o want the check payable
to someone else
o want to send proceeds
to a different address
o have changed your
account address within
the last 15 days
Making Exchanges and Redemptions 82
<PAGE>
Ways to Exchange or Redeem your shares
To Exchange Shares
Between AARP
Mutual Funds To Redeem Shares
- -----------------------------------------------------------------------------------------------------------
Fax Fax same instructions Fax same instructions
as you would by mail to as you would by mail to
800-821-6234. 800-821-6234.
Web Site Web access to your Service under
account must first be development
enabled through Easy-
Access (800-631-4636).
Use your Internet browser
to go to http://
aarp.scudder.com. Select
"Account Transactions"
and follow the directions
on screen.
Automatic -- Once you specify a dollar
Withdrawal Plan amount (minimum $50)
and a day, redemptions
Requires $10,000 will be mailed or wired
minimum fund balance automatically each
month.
Direct Distributions -- If you want dividends
and capital gains sent
to your bank account,
call 800-253-2277.
Direct Bill Payment -- Regular bills of a fixed
amount (minimum $50),
Requires $10,000 such as a mortgage or
minimum fund balance lease, will be paid
automatically.
Systematic Retirement -- You define the dollar
Withdrawal Plan amount and interval
(monthly, quarterly,
Applies to AARP IRA annually) for automatic
and AARP Keogh Plans distributions from your
IRA or Keogh Plan account.
</TABLE>
Making Exchanges and Redemptions 83
<PAGE>
Redeeming Shares Purchased by Check
If you open an account by check and put in a request to redeem shares within
seven business days, your request will be processed immediately, but the
proceeds will be held until seven business days after your initial purchase.
Signature Guarantees
A signature guarantee is simply a certification of your signature; it is a
valuable safeguard against fraud. Signature guarantees can be obtained from many
brokers and from some banks, savings institutions and credit unions. A notary
public cannot provide a signature guarantee.
Other Policies
The funds reserve certain rights in administering this investment program.
o Initial investment minimums may be waived or changed at the funds' discretion.
o The funds may suspend redemptions in certain emergencies.
o If your account balance falls below the minimum due to redemptions (as opposed
to market movements), the funds may give you 60 days' notice to bring the
balance back up. If this is not done, the fund may close out the account and
mail you a check for the proceeds.
o The funds may redeem in kind. That is, they may honor redemption requests with
readily marketable fund securities instead of cash. There may be transaction
costs associated with converting these securities to cash.
Making Exchanges and Redemptions 84
<PAGE>
Tax Considerations and Distributions
Whenever you redeem or exchange shares, you are likely to generate a capital
gain, or loss, which will be short- or long-term depending on how long you held
the shares. Each fund pays dividends or distributions, which you can choose to
receive in the form of cash or to reinvest in any of the AARP mutual funds. Your
tax liability is the same either way.
Type of Distribution Federal Tax Status
-------------------------------------------------------------------------------
Dividends from Net Investment Income Ordinary Income
Short-Term Capital Gains Ordinary Income
Long-Term Capital Gains Capital Gain
Tax-Free Dividends Tax-Free
None of the tax-free funds in this prospectus intends to invest in securities
whose income is subject to the alternative minimum tax. These dividends may,
however, be subject to state or local income taxes.
Distributions from the money market funds and income funds are monthly and are
expected to be in the form of ordinary income from dividends. Distributions from
the other funds, if any, are quarterly or annual and expected to be largely in
the form of capital gains. These dates are calculated from each fund's fiscal
year, usually September 30.
The funds issue detailed annual tax information statements for each investor,
recording all distributions and redemptions for the preceding year. Any investor
who does not supply a valid Social Security or taxpayer identification number to
the funds may be subject to federal backup withholding tax. AARP IRA, AARP
SEP-IRA and AARP Keogh Plan accounts are exempt from withholding regulations.
Be aware that if you invest in a fund shortly before an expected taxable
dividend or capital gain distribution, you may end up getting part of your
investment back in the form of taxable income.
You should consult your tax adviser about your particular tax situation.
Retirement Plans
The funds offer regular Individual Retirement Accounts (IRAs), Roth IRAs,
Simplified Employee Pension IRAs (SEP-IRAs), and Keogh Plan accounts. Call an
AARP Mutual Fund representative at 800-253-2277 for an information kit,
including all the necessary forms.
Tax Considerations and Distributions 85
<PAGE>
How to Reach Us
EASY-ACCESS LINE
Call 800-631-4636 24 hours a day, year-round
This automated number provides current information on the funds and your
account. If you have signed up for telephone services, you can also use this
number to exchange and redeem AARP Mutual Fund shares.
WEB SITE
http://aarp.scudder.com
You can review your portfolio and make exchanges online if you have enabled your
Web access. The Learning Center includes online versions of educational
publications and past issues of Financial Focus and Investment Insight, the
Program's newsletters.
AARP MUTUAL FUND REPRESENTATIVES
Call 800-253-2277 8AM-8PM M-F, eastern time
Call this number to speak with a trained representative who can answer your
investing questions and assist you with transaction-related services. You may
also use this number to request a variety of detailed investment guides and
prospectuses.
CONFIDENTIAL FAX LINE
800-821-6234 24 hours a day, year-round
Signed exchange and redemption requests received after 4PM eastern time on a
business day or over a weekend or holiday will be executed the following
business day.
TDD LINE
800-634-9454 9AM-5PM M-F, eastern time
Dial this number with a TDD machine to communicate with registered AARP mutual
fund representatives specially trained to handle services for hearing-impaired
investors.
How to Reach Us 86
<PAGE>
The AARP Investment Program's
Educational Commitment
In addition to its investment goal, each fund in this family has the secondary
goal of educating shareholders who are planning for the later stages of life.
Educational services available to shareholders include:
PUBLICATIONS
o Financial Planning for Women
o Managing Your Money In Retirement
o Planning For Retirement
o What to Do with Your Retirement Plan Distribution
o Are Mutual Funds Right for You?
o A monthly newsletter, Financial Focus, which provides information on wise
investing, Program services, and fund performance updates.
o A quarterly newsletter, Investment Insight, which provides perspectives on
global and domestic markets and economic trends
SERVICES
AARP Lump Sum Service Retirement specialists can help you make decisions about
your lump sum distribution from an employer's 401(k) or pension plan. An
information kit is provided. Call 1-800-565-1310.
AARP Legacy Planning Service This service helps you plan for the orderly
transfer of assets to your intended heirs, and offers assistance to spouses and
heirs in the event of a death. Information kits are provided. Call
1-800-253-2277.
AARP Goal Setting and Asset Allocation Service A guidebook and self-scoring
worksheet are available to help you reach your goals by properly allocating your
assets across types of investments. Call 1-800-253-2277 to speak to a specially
trained representative.
Account Statements and Reports You will receive prompt confirmation statements
for all of your transactions. Your consolidated monthly statement details your
current account status and records all transactions. (AARP IRA and Keogh Plan
investors receive consolidated statements quarterly.)
You will also receive a mid-year report, an annual report, and a
current prospectus each year.
The AARP Investment Program's Educational Commitment 87
<PAGE>
Fund Details
Investment Adviser
The Investment Adviser for all of the AARP Mutual Funds, Scudder Kemper
Investments, Inc., has more than 50 years of mutual fund and investment
management experience.
AARP selected the adviser to develop and manage this investment program
in 1984. In keeping with the organization's mission, the AARP's goal is
to encourage more of its members to plan for retirement and beyond. The
AARP family of mutual funds is specially designed to address the needs
of persons aged 50 and older. While the AARP takes no part in any of the
investment decisions made by the adviser, it does offer a wealth of
experience and information about the requirements of its members. Two
AARP leaders also serve as trustees for the AARP mutual funds.
Adviser Compensation
The adviser manages the funds' business activities and
is ultimately responsible for all investment decisions. In return for
these services, the mutual funds in the AARP Investment Program pay the
adviser an annual fee, which is calculated from a base fee rate that
applies to the Investment Program as a whole and individual fee rates
that vary from fund to fund.
The base fee rate is a percentage of the combined net assets of the
Investment Program and decreases with the size of the program. The fee
for the first $2 billion is always calculated at 0.35%, and additional
assets are assessed fees at successively lower rates as shown in the
following table.
Fund Details 88
<PAGE>
Base Fee rate
Combined Net Assets of
Investment Program Annual Base Fee Rate
------------------------------------------------------------------------
First $2 billion 0.35%
$2-4 billion 0.33%
$4-6 billion 0.30%
$6-8 billion 0.28%
$8-11 billion 0.26%
$11-14 billion 0.25%
Over $14 billion 0.24%
Example
If the combined net assets of the Investment Program were $5 billion,
the base fee would be calculated as:
($2 billion x 0.0035) = $7.0 million
+ ($2 billion x 0.0033) = $6.6 million
+ ($1 billion x 0.0030) = $3.0 million
-----------------------------------------------------------------
$16.6 million
Individual funds also pay an annual fee based on their respective
average daily NAVs, as shown below.
Annual Fund Fee rate
AARP Fund Annual Fund Fee Rate
------------------------------------------------------------------------
Money Market Funds
High Quality Money Fund 0.10%
High Quality Tax Free Money Fund 0.10%
Premium Money Market Fund 0.10%
Income Funds
High Quality Short Term Bond Fund 0.19%
GNMA and U.S. Treasury Fund 0.12%
Insured Tax Free General Bond Fund 0.19%
Bond Fund for Income 0.28%
Investment Adviser 89
<PAGE>
Annual Fund Fee rate (continued)
Growth and Income Funds
Balanced Stock and Bond Fund 0.19%
Growth and Income Fund 0.19%
U.S. Stock Index Fund Variable^1
First $100 Million 0.0007%
$100-$200 Million 0.0003%
Over $200 Million 0.0001%
Growth Funds
Capital Growth Fund 0.32%
Small Company Stock Fund 0.55%
Global Funds
Global Growth Fund 0.55%
International Growth and Income Fund 0.60%
Managed Investment Portfolios
Diversified Income with Growth none
Portfolio
Diversified Growth Portfolio none
1 The fee for the AARP U.S. Stock Index Fund is paid to the subadviser
and calculated quarterly as a percentage of the fund's total assets.
The rate decreases with successive increases in total assets (see
example above). The minimum annual fee is set at $75,000.
The adviser pays a portion of the management fee to AARP Financial
Services Corporation (AFSC) in return for advice and other services
relating to AARP Fund investment by AARP members.
The fee paid to AFSC is calculated on a daily basis as a percentage of
the combined net assets of the Investment Program and decreases with the
size of the program. The fee rate is 0.0007% for the first $6 billion,
0.0006% for the next $10 billion and 0.0005% thereafter. (See example on
page 89 for calculation method.)
Investment Adviser 90
<PAGE>
Year 2000 (Y2K) Readiness
Like other mutual funds and financial and business organizations
worldwide, the AARP funds could be adversely affected if computer
systems on which the funds rely, which primarily include those used by
the adviser, its affiliates or other service providers, are unable to
correctly process date-related information on or after January 1, 2000.
This risk is commonly called the Year 2000 Issue. Failure to
successfully address the Year 2000 Issue could result in interruptions
to and other material adverse effects on the funds' business and
operations. The adviser has commenced a review of the Year 2000 Issue as
it may affect the funds and is taking steps it believes are reasonably
designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can
be no assurances that the Year 2000 Issue will not have an adverse
effect on the companies whose securities are held by the funds or on
global markets or economies generally.
Euro Conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and for the operation of the AARP
funds. The Euro is expected to be introduced on January 1, 1999 by
eleven member countries of the European Economic and Monetary Union
(EMU). The introduction of the Euro will require the redenomination of
European debt and equity securities over a period of time, which may
result in various accounting differences and/or tax treatments. If the
Euro is not introduced as planned, there could also be negative effects,
such as severe currency fluctuations and market disruptions.
The adviser is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps.
At this time, however, no one knows precisely what the degree of impact
will be. To the extent that the market impact or effect on fund holdings
is negative, it could hurt the funds' performance.
Investment Adviser 91
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
funds' financial performance over the past five years. Certain
information reflects financial results for a single fund share. The
total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLC, whose report, along with the
funds' financial statements, is included in the annual report, which is
available upon request.
Financial Highlights 92
<PAGE>
High Quality Money Fund
<TABLE>
<CAPTION>
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights High Quality Money Fund 93
<PAGE>
High Quality Tax Free Money Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.0 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero
eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril
delenit.
Financial Highlights High Quality Tax Free Money Fund 94
<PAGE>
Premium Money Fund
As this is a new fund, no financial highlight data is available.
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities
(both realized and unrealized)
Total from Investment Operations
Less Distributions
Dividends from Net Investment Income
Distributions from Capital Gains
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return (%, annualized)
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets
Ratio of Net Income to Avg. Net Assets
Portfolio Turnover Rate
Net Assets, End of Period ($)
Financial Highlights Premium Money Fund 95
<PAGE>
High Quality Short Term Bond Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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Financial Highlights High Quality Short Term Bond Fund 96
<PAGE>
GNMA and U.S. Treasury Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.0 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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delenit.
Financial Highlights GNMA and U.S. Treasury Fund 97
<PAGE>
Insured Tax Free General Bond Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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delenit.
Financial Highlights Insured Tax Free General Bond Fund 98
<PAGE>
Bond Fund for Income
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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delenit.
Financial Highlights Bond Fund for Income 99
<PAGE>
Balanced Stock and Bond Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights Balanced Stock and Bond Fund 100
<PAGE>
Growth and Income Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights Growth and Income Fund 101
<PAGE>
U.S. Stock Index Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights U.S. Stock Index Fund 102
<PAGE>
Capital Growth Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights Capital Growth Fund 103
<PAGE>
Small Company Stock Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
1 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights Small Company Stock Fund 104
<PAGE>
Global Growth Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
1 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
Financial Highlights Global Growth Fund 105
<PAGE>
International Growth and Income Fund
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
1 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril
delenit.
Financial Highlights International Growth and Income Fund 106
<PAGE>
Diversified Income with Growth Portfolio
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
1 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril
delenit.
Financial Highlights Diversified Income with Growth Portfolio 107
<PAGE>
Diversified Growth Portfolio
Per-share Data ($) 1998^1 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Net Gains or Losses on Securities
(both realized and unrealized) 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total from Investment Operations 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Less Distributions
Dividends from Net Investment Income 00.00 00.00 00.00 00.00 00.00 00.00
Distributions from Capital Gains 00.00 00.00 00.00 00.00 00.00 00.00
Returns of Capital 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Distributions 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 00.00 00.00 00.00 00.00 00.00 00.00
- ------------------------------------------------------------------------------------------------
Total Return (%, annualized) 00.00 00.00 00.00 00.00 00.00 00.00
Ratios/Supplemental data (%) 1998^1 1997 1996 1995 1994 1993
Ratio of Expenses to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Ratio of Net Income to Avg. Net Assets 00.00 00.00 00.00 00.00 00.00 00.00
Portfolio Turnover Rate 00.00 00.00 00.00 00.00 00.00 00.00
Net Assets, End of Period ($) 00.00 00.00 00.00 00.00 00.00 00.00
1 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero
2 Footnote text duis autem vel eum iriure dolor in hendrerit in vulputate velit
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delenit.
</TABLE>
Financial Highlights Diversified Growth Portfolio 108
<PAGE>
Where to Get More Information
Annual and Mid-Year Reports
These include commentary from the fund manager on the market conditions
and investment strategies that significantly affected the fund's
performance, detailed performance data, a complete inventory of the
fund's securities, and a report from the fund's auditor.
Statement of Additional Information (SAI)
The SAI contains more detailed disclosure on features and policies of
the funds. A current SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this document (that is,
it is legally a part of this prospectus).
You can make inquiries and obtain the above documents free of charge
(including a large-print version of this prospectus) by contacting:
AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
800-253-2277
http://aarp.scudder.com
These documents (no large-print versions) are also
available from the SEC:
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-6009
1-800-SEC-0330
http://www.sec.gov
Note: The SEC requires a duplicating fee for paper copies.
SEC File Numbers
811-3650
811-4048
811-4049
811-4050
811-07933
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND
AARP PREMIUM MONEY FUND
AARP Income Trust:
AARP HIGH QUALITY SHORT TERM BOND FUND
AARP GNMA and U.S. TREASURY FUND
AARP BOND FUND FOR INCOME
AARP Tax Free Income Trust:
AARP HIGH QUALITY TAX FREE MONEY FUND
AARP INSURED TAX FREE GENERAL BOND FUND
AARP Growth Trust:
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND
AARP U.S. STOCK INDEX FUND
AARP GLOBAL GROWTH FUND
AARP CAPITAL GROWTH FUND
AARP INTERNATIONAL GROWTH AND INCOME FUND
AARP SMALL COMPANY STOCK FUND
AARP Managed Investment Portfolios Trust:
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the combined Prospectus for all sixteen of the above
funds, dated February 1, 1999, as amended from time to time, copies of which may
be obtained without charge by writing to the AARP INVESTMENT PROGRAM FROM
SCUDDER, P.O. Box 2540, Boston, Massachusetts 02208-2540 or by calling
1-800-253-2277.
<PAGE>
TABLE OF CONTENTS
Page
AARP INVESTMENT PROGRAM FROM SCUDDER.........................................1
Summary of Advantages and Benefits..................................2
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES................................3
AARP Money Funds....................................................3
AARP Income Funds...................................................6
AARP Tax Free Income Funds..........................................9
AARP Growth Funds..................................................14
AARP Managed Investment Portfolios.................................19
Special Investment Policies of the AARP Funds......................20
General Investment Policies of the AARP Funds......................36
Investment Restrictions............................................36
PURCHASES...................................................................37
General Information................................................38
Checks.............................................................38
Wire Transfer of Federal Funds.....................................38
Share Price........................................................39
Share Certificates.................................................39
Direct Deposit Program.............................................39
Other Information..................................................39
REDEMPTIONS.................................................................40
General Information................................................40
Redemption by Telephone............................................40
Redemption by Mail or Fax..........................................41
Redemption by Checkwriting.........................................42
Redemption-in-Kind.................................................42
Other Information..................................................42
EXCHANGES...................................................................42
TRANSACT BY PHONE...........................................................43
Purchasing Shares by Transact by Phone.............................44
Redeeming Shares by Transact by Phone..............................44
FEATURES AND SERVICES OFFERED BY THE FUNDS..................................44
Automatic Dividend Reinvestment....................................44
Distributions Direct...............................................44
Reports to Shareholders............................................44
Consolidated Statements............................................45
RETIREMENT PLANS............................................................45
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")......45
AARP Keogh Plan....................................................46
OTHER PLANS.................................................................47
Automatic Investment...............................................47
Automatic Withdrawal Plan..........................................48
Direct Payment of Regular Fixed Bills..............................48
DIVIDENDS AND YIELD.........................................................48
Performance Information: Computation of Yields and Total Return....50
Taking a Global Approach...........................................56
TRUST ORGANIZATION..........................................................57
MANAGEMENT OF THE FUNDS.....................................................58
Personal Investments by Employees of Scudder.......................64
TRUSTEES AND OFFICERS.......................................................65
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
REMUNERATION................................................................68
DISTRIBUTOR.................................................................70
TAXES.......................................................................71
BROKERAGE AND PORTFOLIO TURNOVER............................................75
Brokerage Commissions..............................................75
Portfolio Turnover.................................................77
NET ASSET VALUE.............................................................77
AARP Money Funds...................................................77
AARP Non-Money Market Funds........................................78
ADDITIONAL INFORMATION......................................................79
Experts............................................................79
Shareholder Indemnification........................................79
Ratings of Corporate Bonds.........................................80
Ratings of Commercial Paper........................................80
Ratings of Municipal Bonds.........................................80
Other Information..................................................81
Tax-Exempt Income vs. Taxable Income...............................83
FINANCIAL STATEMENTS........................................................84
ii
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Investment Program from Scudder (the "Program") was developed
by the American Association of Retired Persons ("AARP") to provide an array of
managed investment options for its members. Today's financial markets present an
enormous, ever-changing selection of investments suited for investors with
varying needs. AARP, a non-profit organization dedicated to improving the
quality of life, independence and dignity of older people, has undertaken to
help its members by designing an investment program which attempts to satisfy
the investment and retirement planning needs of most of its members, whether
they are experienced investors or savers who have never invested at all. As with
any program with the "AARP" name, the Program includes special benefits as
described in the combined prospectus for five trusts -- AARP Cash Investment
Funds, AARP Income Trust, AARP Tax Free Income Trust, AARP Growth Trust, and
AARP Managed Investment Portfolios Trust (the "Trusts"), dated February 1, 1998
(the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder Kemper Investments, Inc., now Scudder Kemper Investments,
Inc., ("the Fund Manager" or "Scudder"), a firm with over 75 years of investment
counseling and management experience. Scudder was selected after an extensive
search among qualified candidates, and provides the Program with continuous and
conservative professional investment management. (See "MANAGEMENT OF THE
FUNDS.")
Each of the Trusts is an open-end, management investment company
authorized to issue its shares of beneficial interest in separate series ("the
Funds"). A total of 16 funds are currently offered by the five Trusts. The
differing investment objectives of the 16 Funds in the Program provide AARP
members with a variety of sensible investment alternatives, and by matching
their own objectives with those of the different AARP Funds, AARP members may
design an investment program to meet their personal needs. Not all your money is
the same. There is short-term money, for example money needed for your regular
budgeting and for emergencies, and there is money which can be invested for the
longer term. It is generally thought that three months of income/expenses should
be set aside in a savings account or money market fund to cover short-term
needs. The Program is designed to offer alternatives to keeping all of your
money in short-term fixed price investments like money market funds, insured
short-term savings accounts and insured six-month certificates of deposit. The
AARP Money Funds provide a taxable and a tax free alternative for short-term
monies and the AARP Income Funds, the AARP Insured Tax Free General Bond Fund
and the AARP Growth Funds provide a range of choices for longer term investment
dollars and the AARP Managed Investment Portfolios provide diversification of
investment by investing in a select mix of AARP Funds.
Scudder Kemper Investments, Inc. (the "Fund Manager"), an investment
counsel firm, acts as investment adviser to the Funds. This organization, the
predecessor of which is Scudder Kemper Investments, Inc., is one of the most
experienced investment counsel firms in the U. S. 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 the Fund Manager introduced Scudder
International Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder Kemper Investments, Inc. ("Scudder") entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which
Scudder and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich Kemper Investments, Inc., a
Zurich subsidiary, became part of Scudder. Scudder's name has been changed to
Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
Master/feeder structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder
<PAGE>
fund level. Based on the premise that certain of the expenses of operating an
investment portfolio are relatively fixed, a larger investment portfolio may
eventually achieve a lower ratio of operating expenses to average net assets. An
existing investment company is able to convert to a feeder fund by selling all
of its investments, which involves brokerage and other transaction costs and
realization of a taxable gain or loss, or by contributing its assets to the
master fund and avoiding transaction costs and, if proper procedures are
followed, the realization of taxable gain or loss.
Summary of Advantages and Benefits
o Experienced Professional Management: Scudder Kemper Investments, Inc.,
provides investment advice to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong, ongoing representation of the members'
interests and to help ensure a high level of service.
o Wide Selection of Investment Objectives: you can emphasize money market
returns and liquidity, income, tax-free income, growth, or any
combination.
o Diversification: you may benefit from investing in one or more large
portfolios of carefully selected securities.
o $2,000 Minimum Starting Investment for 12 of the Funds ($500 Minimum
Starting Investment for AARP Balanced Stock and Bond Fund, AARP Growth
and Income Fund and AARP GNMA and U.S. Treasury Fund and $10,000
Minimum Starting Investment for AARP Premium Money Fund): you may make
additional investments in any amount at any time.
o No Sales Commissions: the AARP Funds are pure no-load(TM), so you pay
no sales charges to purchase, transfer or redeem shares, nor do you pay
Rule 12b-1 (i.e., distribution) fees.
o Investment Flexibility and Exchange: you may exchange among the 16 AARP
Funds in the Program at any time, without charge.
o Dividends: the AARP Money Funds, the AARP Income Funds, the AARP
Insured Tax Free Income Fund all pay dividends monthly, the AARP
Balanced Stock and Bond Fund, the AARP Growth and Income Fund are
expected to pay dividends quarterly and the AARP U.S. Stock Index Fund,
the AARP Global Growth Fund, the AARP Capital Growth Fund, the AARP
International Growth and Income Fund, the AARP Small Company Stock
Fund, the AARP Diversified Income with Growth Portfolio 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 in the AARP High Quality Money Fund or AARP
High Quality Tax Free Money Fund or $1,000 or more on your account in
the AARP Premium Money Fund 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.
2
<PAGE>
o Automatic Withdrawal Plan: with a minimum qualifying balance of $10,000
in one AARP Fund, you may arrange to receive monthly, quarterly or
periodic checks from your account for any designated amount of $50 or
more.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying
balance of $10,000 in one AARP Fund, you may arrange to have your
regular fixed bills that are of fixed amounts, such as rent, mortgage,
or other payments of $50 or more sent directly from your account at the
end of the month.
o Personal Service and Information: professionally trained service
representatives help you whenever you have questions through our
toll-free number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation
statement of each transaction in your account, you receive, without
extra charge, a convenient monthly consolidated statement. (Retirement
Plan statements are mailed quarterly.) This statement contains the
market value of all your holdings and a complete listing of your
transactions for the statement period.
o Shareholder Handbook: the Shareholder Handbook was created to help
answer many of the questions you may have about investing in the
Program.
o IRA Shareholder Handbook: The IRA Shareholder Handbook was created to
help answer many of the questions you may have about investing in the
no-fee AARP IRA.
o A Glossary of Investment Terms: the Glossary defines commonly used
financial and investment terms.
o Newsletter: every month, shareholders receive our newsletter, Financial
Focus (retirement plan shareholders receive a special edition of
Financial Focus on a quarterly basis) which is designed to help keep
you up to date on economic and investment developments, and any new
financial services and features of the Program.
This Statement of Additional Information supplements the Prospectus,
and provides more detailed information about the Trusts and the Funds.
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
AARP Money Funds
(See "AARP High Quality Money Fund," "AARP Premium Money Fund,"
"INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK
FACTORS" in the Prospectus.)
The AARP Funds offer a choice of two taxable and one tax free money
fund for small savers, big savers and people looking for a way to invest. People
who earn a relatively low interest rate in an insured bank savings account, who
have to make withdrawals or deposits in person or whose money isn't easily
accessible may find that the AARP Money Funds can help.
AARP High Quality Money Fund. The Fund is designed to provide current
income. In doing so, the Fund seeks to maintain stability and safety of
principal and a constant net asset value of $1.00 per share while offering
liquidity. There may be circumstances under which this goal cannot be achieved.
The Fund also has an educational objective to help shareholders, especially
individuals planning for and living in retirement, make informed investment
decisions. The AARP High Quality Money Fund is a separate series of AARP Cash
Investment Funds . From investments in high quality securities, the Fund is
designed to provide current income. 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
Corporation ("S&P") or Fitch Investors Service ("Fitch"). In addition, the Fund
3
<PAGE>
Manager seeks through its own credit analysis to limit investments to
high-quality instruments presenting minimal credit risks. If a security ceases
to be rated or is downgraded below the second highest quality rating indicated
above, the Fund will promptly dispose of the security, unless the Trustees
determine that continuing to hold such security is in the best interests of the
Fund. Generally, the Fund will invest in securities rated in the highest quality
rating by at least two of these rating agencies.
Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (i) 1% of its total assets, or (ii) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including bankers'
acceptances, certificates of deposit, deposit notes and time deposits;
obligations of savings and loan institutions; instruments whose credit has been
enhanced by: banks (letters of credit), insurance companies (surety bonds), or
other corporate entities (corporate guarantees); corporate obligations,
including commercial paper, notes, bonds, loans and loan participations;
securities with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities including
notes, bonds and participation interests, either taxable or tax-free, as
described in more detail for the AARP High Quality Tax Free Money Fund;
securities with put features; and repurchase agreements. The Fund may hold cash,
which does not earn interest, to facilitate stabilizing its net asset value per
share and for liquidity purposes.
Commercial paper at the time of purchase will be rated, or judged by
the Fund Manager under the supervision of the Trustees, to be the equivalent of
securities rated A-1 or higher by S&P, Prime-1 or higher by Moody's or F-1 or
higher by Fitch. Investments in other corporate obligations, such as bonds or
notes, will be limited to securities rated, or judged by the Fund Manager to be
the equivalent of securities rated, AA or higher by S&P or Fitch or Aa or higher
by Moody's. Obligations which are the subject of repurchase agreements will be
limited to those of the type described above. Shares of this Fund are not
insured or guaranteed by the U.S. Government.
The Fund may invest in certificates of deposit and bankers' acceptances
of large domestic banks (i.e., banks which at the time of their most recent
annual financial statements show total assets in excess of $1 billion) and their
foreign branches and of smaller banks as described below. These as well as all
other investments of the Fund must be U.S. dollar denominated. The Fund will not
invest in certificates of deposit or bankers' acceptances of foreign banks
without additional consideration by and the approval of the Trustees of the
Trust. Although the Fund recognizes that the size of a bank is important, this
fact alone is not necessarily indicative of its creditworthiness.
Investment in certificates of deposit and bankers' acceptances issued
by foreign branches of domestic banks involves investment risks that are
different in some respects from those associated with investment in obligations
issued by domestic banks. Such investment risks include the possible imposition
of withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations, or other adverse political or economic
developments. In addition, it might be more difficult to obtain and enforce a
judgment against a foreign branch of a domestic bank.
The Fund may also invest in certificates of deposit issued by banks
which had, at the time of their most recent annual financial statements, total
assets of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000
4
<PAGE>
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 Premium Money Fund. The Fund is designed to provide current
income. In doing so, the Fund seeks to maintain stability and safety of
principal and a constant net asset value of $1.00 per share while offering
liquidity. There may be circumstances under which this goal cannot be achieved.
The fund also has an educational objective to help shareholders make informed
investment decisions for the later stages of life. The Fund is designed to offer
monthly income, while maintaining stability and liquidity of principal, on
balances of $10,000 or more. In addition, it provides a convenient way to access
your money through free check writing. Minimum per check is $1,000 to discourage
frequent transactions and help keep fund expenses low thereby increasing the
potential income. The Fund will typically provide a higher level of income than
the AARP High Quality Money Fund, which has lower investment and checkwriting
minimums. 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. The investment policies and restrictions of the Fund are described as
follows:
To provide safety and liquidity, the investments of the AARP Premium
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, S&P or Fitch. In addition, the Fund Manager seeks
through its own credit analysis to limit investments to high-quality instruments
presenting minimal credit risks. If a security ceases to be rated or is
downgraded below the second highest quality rating indicated above, the Fund
will promptly dispose of the security, unless the Trustees determine that
continuing to hold such security is in the best interests of the Fund.
Generally, the Fund will invest in securities rated in the highest quality
rating by at least two of these rating agencies.
Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (i) 1% of its total assets, or (ii) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including bankers'
acceptances, certificates of deposit, deposit notes and time deposits;
obligations of savings and loan institutions; instruments whose credit has been
enhanced by: banks (letters of credit), insurance companies (surety bonds), or
other corporate entities (corporate guarantees); corporate obligations,
including commercial paper, notes, bonds, loans and loan participations;
securities with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities including
notes, bonds and participation interests, either taxable or tax-free, as
described in more detail for the AARP High Quality Tax Free Money Fund;
securities with put features; and repurchase agreements.
5
<PAGE>
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."
The Fund has certain non-fundamental policies designed to maintain
diversification. These policies may be changed without shareholder approval. The
amount of total assets of the Fund that may be invested in the securities of a
single issuer is limited in accordance with federal law.
AARP Income Funds
(See "AARP High Quality Short Term Bond Fund," "AARP GNMA and U.S.
Treasury Fund," "AARP Bond Fund for Income," "INVESTMENT OBJECTIVES AND
POLICIES," and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
Each of the Funds seeks to earn a high level of income consistent with its
investment policies.
AARP High Quality Short Term Bond Fund. The Fund is designed to produce
a high level of current income but with less risk of loss to the Fund's
portfolio than other short-term bond mutual funds, measured by the frequency and
amount by which total return fluctuates downward. The Fund pursues this
investment objective by investing primarily in high-quality, short-term U.S.
Government, corporate and other fixed-income securities. The Fund also has an
educational objective to help shareholders, especially individuals planning for
and living in retirement, make informed investment decisions. 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
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securities, the Fund may have a more variable share price than the AARP GNMA and
U.S. Treasury Fund. It is also possible that the Fund may provide a higher level
of income than the AARP GNMA and U.S. Treasury Fund.
Under normal circumstances the Fund will invest substantially all, and
no less than 65%, of its assets in high quality U.S. Government, corporate and
other fixed-income securities. It may purchase any investments eligible for the
AARP GNMA and U.S. Treasury Fund corporate notes and bonds, and as obligations
of federal agencies that are not backed by the full faith and credit of the U.S.
Government, such as obligations of Federal Home Loan Bank, Farm Credit Banks and
the Federal Home Loan Mortgage Corporation. In addition, it may purchase
obligations of international agencies such as the International Bank for
Reconstruction and Development, the Inter-American Development Bank and the
Asian Development Bank. Other eligible investments include U.S.
dollar-denominated foreign debt securities (such as U.S. dollar denominated debt
securities issued by the Dominion of Canada and its provinces), foreign
government bonds denominated in foreign currencies, trust preferred securities,
mortgage-backed and other asset-backed securities, and money market instruments
such as commercial paper, bankers' acceptances and certificates of deposit
issued by domestic and foreign branches of U.S. banks.
Except for limitations in the Fund's investment restrictions and
percentage limitations on investments on securities denominated in foreign
currencies set forth in the prospectus, 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 Short Term Bond
Fund are designed to provide a portfolio that combines primarily high quality
securities with investments that attempt to reduce its market price risk. 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 (i) are issued or guaranteed by the U.S. Government, (ii) 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 (iii) 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 (ii) above. All of the debt obligations in which the Fund
invests will, at the time of purchase, be rated investment-grade or higher by
Moody's (Aaa, Aa, A, and Baa) or S&P (AAA, AA, A, and BBB) or, if not rated,
will be judged to be of comparable quality by the Fund Manager. At least 65% of
the Fund's assets must be in securities rated in the two highest rating
categories by Moody's or S&P. The Fund may invest up to 20% of its assets in
bonds rated Baa by Moody's or rated BBB by S&P. Securities rated Baa by Moody's
or BBB by S&P are neither highly protected nor poorly secured. These securities
normally pay higher yields and are regarded as having adequate capacity to repay
principal and pay interest but involve potentially greater price variability
than higher-quality securities. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics. The Fund does
not purchase securities rated below investment-grade, commonly known as "junk"
bonds. (See "ADDITIONAL INFORMATION--Ratings of Corporate Bonds.")
Variations of Maturity. In an attempt to capitalize on the differences
in total return from securities of differing maturities, maturities may be
varied according to the structure and level of interest rates, and the Fund
Manager's expectations of changes therein.
Foreign Securities. The AARP High Quality Short Term Bond Fund may
invest, without limit, in U.S. dollar-denominated foreign debt securities
(including U.S. dollar-denominated debt securities issued by the Dominion of
Canada and its provinces and other debt securities which meet the Fund's
criteria applicable to its domestic investments), and in certificates of deposit
issued by foreign branches of United States banks, to any extent deemed
appropriate by the Fund Manager. The Fund may invest up to 20% of total assets
in foreign debt securities denominated in currencies other than the U.S. dollar,
but no more than 5% of the Fund's total assets will be represented by a given
foreign currency.
AARP GNMA and U.S. Treasury Fund. The Fund is designed to produce a high level
of current primarily income but with less risk of loss to the Fund's portfolio
than other GNMA mutual funds, measured by the frequency and amount by which
total return fluctuates downward. The Fund pursues this investment objective by
investing in high-quality Government National Mortgage Association (GNMA)
securities and U.S. Treasury bills, notes and bonds issued or backed by the full
faith and credit of the U.S. Government. The Fund also has an educational
objective to help shareholders, especially individuals planning for and living
in retirement, make informed investment decisions. AARP
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GNMA and U.S. Treasury Fund is designed for investors who are seeking high
current income from high quality securities and who wish to receive a degree of
protection from bond market price risk. The Fund's investment objective is to
produce a high level of current income and to keep the price of its shares more
stable than that of a long-term bond. The Fund pursues this objective by
investing principally in U.S. Government-guaranteed GNMA securities and U.S.
Treasury obligations. The Fund has been designed with the conservative,
safety-conscious investor in mind. Of the three funds in the AARP Income Trust,
the AARP GNMA and U.S. Treasury Fund is the most conservative choice. Although
past performance is no guarantee of future performance, historically, this Fund
offers higher yields than such short-term investments as insured savings
accounts, insured six month certificates of deposit and fixed-price money market
funds.
The Fund invests in U.S. Treasury bills, notes and bonds; other
securities issued or backed by the full faith and credit of the U.S. Government,
including, but not limited to, Government National Mortgage Association ("GNMA")
mortgage-backed securities, Merchant Marine Bonds guaranteed by the Maritime
Administration and obligations of the Export-Import Bank; financial futures
contracts with respect to such securities; options on either such securities or
such financial futures contracts; and bank repurchase agreements. At least 65%
of the Fund's net assets will be directly invested in U.S. Treasury obligations,
including GNMAs. The Fund will make long-term investments but will also attempt
to dampen its price variability in comparison to that of a long-term bond by
including short-term U.S. Treasury securities in its portfolio. The Fund may
also utilize hedging techniques involving limited use of financial futures
contracts and the purchase and writing (selling) of put and call options on such
contracts. Under certain market conditions, these strategies may reduce current
income. At any time the Fund may have a substantial portion of its assets in
securities of a particular type or maturity. The Fund may also write covered
call options on portfolio securities and purchase "when-issued" securities.
GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans,
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool" or group of
such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, a Government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government. This is not, however, a guarantee
related to the Fund's yield or the value of your investment principal.
As mortgage-backed securities, GNMAs differ from bonds in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. GNMAs are called "pass-through" securities
because both interest and principal payments including prepayments are passed
through to the holder of the security (in this case, the Fund).
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
interest. The Fund Manager, in determining the attractiveness of GNMAs relative
to alternative fixed-income securities, and in choosing specific GNMA issues,
will have made assumptions as to the likely speed of prepayment. Actual
experience may vary from this assumption resulting in a higher or lower
investment return than anticipated. When interest rates rise, mortgage
prepayment rates tend to decline, thus lengthening the life of a
mortgage-related security and increasing the price volatility of that security,
affecting the price volatility of the Fund's shares.
Some investors may view the Fund as an alternative to a bank
certificate of deposit (CD). While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the
Fund--unlike a CD--is not locked away for any period, may be redeemed at any
time without incurring early withdrawal penalties, and may provide a higher
yield.
AARP Bond Fund for Income. The Fund is designed to produce a high level
of current income but with less risk of loss to its portfolio than other
long-term bond mutual funds, measured by the frequency and amount by which
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total return fluctuates downward. The Fund pursues this investment objective by
investing primarily in short-, medium- and long-term investment-grade debt
securities. The Fund also has an educational objective to help shareholders,
especially individuals planning for and living in retirement, make informed
investment decisions.
In pursuit of its investment objectives, under normal market
conditions, the Fund invests at least 65% of its assets in investment-grade debt
securities. Investment-grade securities are rated Aaa, Aa, A, or Baa by Moody's
or AAA, AA, A, or BBB by S&P, or, if unrated, are of equivalent quality as
determined by the Fund Manager. The Fund may invest up to 35% of its assets in
securities rated Ba or B by Moody's or BB or B by S&P, but no more than 10% of
the Fund's assets may be invested in securities rated B by Moody's or S&P. These
two grades of securities are considered to be below investment grade. Below
investment-grade securities are considered predominantly speculative with
respect to their capacity to pay interest and repay principal. They generally
involve a greater risk of default and have more price volatility than securities
in higher rating categories.
The Fund may invest in U.S. Treasury and Agency securities, corporate
bonds and notes, trust preferred securities, mortgage-backed and other
asset-backed securities, dollar-denominated debt of international agencies or
investment-grade foreign institutions, and money market instruments such as
commercial paper, bankers' acceptances, and certificates of deposit issued by
domestic and foreign branches of U.S. banks. The Fund may invest up to 20% of
total assets in foreign debt securities denominated in currencies other than the
U.S. dollar, but no more than 5% of the fund's total assets will be represented
by a given foreign currency. The Fund may also purchase "when-issued" securities
and invest in repurchase agreements.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments or invest all or a substantial portion
of its assets in high quality domestic debt securities when the Fund Manager
deems such a position advisable in light of economic or market conditions.
Risks. The Fund can invest a limited portion of assets in below
investment-grade securities, sometimes referred to as "junk" bonds. Investing in
high yielding, lower-quality bonds involves various types of risks including the
risk that issuers of bonds held in the portfolio will not make timely payment of
either interest or principal or may default entirely. This risk of default can
increase with changes in the financial condition of a company or with changes in
the U.S. economy, such as a recession. Compared to investing in higher quality
issues, high yield bond investors may be rewarded for the additional risk of
high yield bonds through higher interest payments and the opportunity for
greater capital appreciation.
AARP Tax Free Income Funds
(See "AARP High Quality Tax Free Money Fund," "AARP Insured Tax Free
General Bond Fund," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT
POLICIES AND RISK FACTORS" in the Prospectus.)
AARP High Quality Tax Free Money Fund. The Fund is designed to provide
current income free from federal income taxes. In doing so, the Fund seeks to
maintain stability and safety of principal and a constant net asset value of
$1.00 per share while offering liquidity. The Fund also has an educational
objective to help shareholders, especially individuals planning for and living
in retirement, make informed investment decisions. 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; 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
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using the same categories as are used for corporate obligations. In addition,
unrated municipal securities will be considered as being within the foregoing
quality ratings if other equal or junior municipal securities of the same issuer
are rated and their ratings are within the foregoing ratings of Fitch, Moody's
or S&P. The Fund may also invest in municipal securities which are unrated if,
in the opinion of the Fund Manager, such securities possess creditworthiness
comparable to those rated securities in which the Fund may invest. For a
description of ratings, please see "Additional Information." Shares of this Fund
are not insured or guaranteed by the U.S. Government.
Subsequent to its purchase by the AARP High Quality Tax Free Money
Fund, an issue of municipal securities may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. The Fund will
dispose of any such security unless the Board of Trustees of the Fund determines
that such disposal would not be in the best interests of the Fund.
As a fundamental policy, under normal circumstances, at least 80% of
the net assets of AARP High Quality Tax Free Money Fund will be invested in
tax-exempt securities. Although the Fund normally intends to ensure that all
income to shareholders will be exempt from federal income tax, there can be no
assurance that this goal will be achieved or that income to shareholders which
is federally tax exempt will be exempt from state and local taxes.
From time to time on a temporary basis or for defensive purposes, the
Fund may, subject to its investment restrictions, hold cash and invest in
taxable investments consisting of: (i) other obligations issued by or on behalf
of municipal or corporate issuers; (ii) U.S. Treasury notes, bills and bonds;
(iii) obligations of agencies and instrumentalities of the U.S. Government; (iv)
money market instruments, such as domestic bank certificates of deposit, finance
company and corporate commercial paper, and banker's acceptances; and (v)
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.
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If at any time it is determined that a deviation exists which may
result in material dilution or other unfair results to investors or existing
shareholders of a Fund, certain corrective actions may be taken, including
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding part or all of
dividends or payment of distributions from capital or capital gains; redeeming
shares in kind; or establishing a net asset value per share by using available
market quotations or equivalents. In addition, in order to stabilize the net
asset value per share at $1.00 the Trustees have the authority (i) to reduce the
number of outstanding shares of a Fund on a pro rata basis, and (ii) to offset
each shareholder's pro rata portion of the deviation between the net asset value
per share and $1.00 from the shareholder's accrued dividend account or from
future dividends. The Funds may hold cash for the purpose of stabilizing their
net asset value per share. Holdings of cash, on which no return is earned, would
tend to lower the yield on the shares of the Funds.
The net income of the Funds is declared as dividends to shareholders
daily and distributed monthly in shares of the Funds unless payment is requested
in cash.
AARP Insured Tax Free General Bond Fund. The Fund is designed to
produce a high level of current income free from federal income taxes but with
less risk of loss to its portfolio than other insured tax-free bond mutual
funds, measured by the frequency and amount by which total return fluctuates
downward. The Fund pursues this investment objective by investing primarily in
high-quality, federally tax-exempt municipal securities that are insured to
protect against default by the municipality. The Fund also has an educational
objective to help shareholders, especially individuals planning for and living
in retirement, make informed investment decisions. The AARP Insured Tax Free
General Bond Fund is a separate series of AARP Tax Free Income Trust. Securities
comprising at least 65% of the total assets held by the Fund are fully insured
as to face value and interest by private insurers. While longer-term securities
such as those in which the Fund may invest have in recent years had higher
yields, they also experience greater price fluctuation than shorter-term
securities. By including short- and medium-term bonds in its portfolio, the Fund
seeks to offer less share price volatility than long-term municipal bonds or
many long-term municipal bond funds, although its yield may be lower. Because
the Fund may trade its securities, it is also free to attempt to take advantage
of opportunities in the market to achieve higher current income. This
opportunity is not available to unit investment trusts, which hold fixed
portfolios of municipal securities.
Under normal circumstances, at least 80% of the Fund's net assets are
invested in tax-exempt securities. For this purpose, private activity bonds, the
interest on which is treated as a preference item for purposes of calculating
alternative minimum tax liability, will not be treated as tax exempt securities.
The Fund does not intend to purchase any such private activity bonds. (See
"TAXES" herein.)
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: (i) 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 (ii) a security not rated within the top three
ratings at the time of issuance but insured to maturity by
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the Fund at the time of purchase if, upon issuance of such insurance, the Fund
Manager is able to determine that the security is now the equivalent of a
security rated within the top three ratings by a nationally recognized rating
agent.
When, in the opinion of the Fund Manager, defensive considerations or
an unusual disparity between the after-tax income on taxable investments and
comparable municipal obligations make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term investments such
as U.S. Treasury notes, bills and bonds and repurchase agreements collateralized
by U.S. Government securities, the interest income from which may be subject to
federal income tax. Notwithstanding the foregoing, the Fund may invest more than
20% of its net assets in such taxable U.S. Treasury securities and repurchase
agreements for temporary defensive purposes.
Insurance. Insurance on at least 65% of the AARP Insured Tax Free
General Bond Fund's total assets will be obtained from nationally recognized
private insurers, including the following: Financial Guaranty Insurance Company
("FGIC") is owned by FGIC Corporation, which in turn is owned by General
Electric Credit Corporation; AMBAC Indemnity Corporation; and Municipal Bond
Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated,
the principal shareholders of which are: The Aetna Life & Casualty Company,
Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and
affiliates of the Continental Insurance Company.
The Fund currently has portfolio insurance provided by FGIC pursuant to
which it may insure securities mutually agreed to between the Fund and FGIC so
long as the security remains in the Fund's portfolio. Pursuant to an irrevocable
commitment, FGIC also provides the Fund with the option to obtain insurance for
any security covered by the FGIC portfolio insurance, which insurance can
continue if the security were to be sold by the Fund. The Fund may procure
portfolio insurance from other insurers.
At least 65% of the Fund's assets are fully insured by private insurers
as to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by the
U.S. Government are purchased and expected to be held for 60 days or more,
insurance will be obtained within 30 days to ensure that 65% of the Fund's
assets are insured by the issuer or arranged for by the Fund. If at least 65% of
its assets are not insured securities, the Fund will obtain insurance for a
portion of its U.S. Government guaranteed or backed securities so that the 65%
standard is achieved.
The Fund requires that insurance with respect to its securities provide
for the unconditional payment of scheduled principal and interest when due. In
the event of a default by the issuer, the insurer will, within 30 days of notice
of such default, provide to its agent or Trustee funds needed to make any such
payments. Such agent or Trustee 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
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interest. Any such securities retained by the Fund would be held until the
default has been cured or the principal and interest have been paid by the
issuer or the insurer.
Premiums for individual insurance may be payable in advance or may be
paid periodically over the term of the security by the party then owning the
security, and the costs will be reflected in the price of the security. The cost
of insurance for longer-term securities, expressed in terms of income on the
security, is likely to reduce such income by from 10 to 60 basis points. Thus, a
security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact
of the cost of the Fund's portfolio insurance on the Fund's net yield is
somewhat less. The cost of insurance for shorter-term securities, which are
generally lower-yielding, is expected to be less. It should be noted that
insurance raises the rating of a municipal security. Lower rated securities
generally pay a higher rate of interest than higher rated securities. Thus,
while there is no assurance that this will always be the case, the Fund may
purchase lower rated securities which, when insured, will bear a higher rating,
and may pay a higher net rate of interest than other equivalently rated
securities which are not insured.
Insurers have certain eligibility standards as to municipal securities
they will insure. Such standards may be more or less strict than standards which
would be applied for purchase of a security for the Fund. To the extent the
insurers apply stricter standards, the Fund will be restricted by such standards
in the purchase and retention of municipal securities.
The Internal Revenue Service has issued revenue rulings indicating that
(i) the fact that municipal obligations are insured will not affect their
tax-exempt status and (ii) 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
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Fund will limit its voluntary short-term trading to the extent necessary to
qualify as a "regulated investment company" under the Internal Revenue Code.
Special Considerations: Income Level and Credit Risk. To the extent
that AARP Insured Tax Free General Bond Fund holds insured municipal
obligations, the income earned on its shares will tend to be less than for an
uninsured portfolio of the same securities. The Fund will amortize as income,
over the life of the respective security issues, any original issue discount on
debt obligations (even where these are acquired in the after-market), and market
discount on short-term U.S. Government securities. The Fund will elect to
amortize the premium paid on acquisition of any premium coupon obligations.
Since such discounts and premiums will be recognized in the Fund's accounts over
the life of the respective security issues and included in the regular monthly
income distributions to shareholders, they will not give rise to taxable capital
gains or losses. However, a capital gain or taxable ordinary income may be
realized upon the sale or maturity and payment of certain obligations purchased
at a market discount.
AARP Growth Funds
(See "AARP Balanced Stock and Bond Fund," "AARP Growth and Income
Fund," "AARP U.S. Stock Index Fund," "AARP Global Growth Fund," "AARP Capital
Growth Fund," "AARP International Growth and Income Fund," "AARP Small Company
Stock Fund," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT
POLICIES AND RISK FACTORS" in the Prospectus.)
AARP Balanced Stock and Bond Fund. The Fund is designed to provide
long-term capital growth and income but with less risk of loss to its portfolio
than other balanced mutual funds, measured by the frequency and amount by which
total return fluctuates downward. The Fund pursues this investment objective by
investing primarily in a diversified mix of stocks with above-average dividend
yields, high-quality bonds, and cash reserves. The Fund also has an educational
objective to help shareholders, especially individuals planning for and living
in retirement, make informed investment decisions.
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
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stock indices for hedging purposes. Subject to applicable regulatory guidelines
and solely to protect against adverse effects of changes in interest rates, the
Fund may make limited use of financial futures contracts.
Equity investments. The Fund can invest up to 70% of its net assets in
equity securities. The Fund's equity investments consist of common stocks,
preferred stocks and securities convertible into common stocks, of companies
that, in the Fund Manager's judgment, will offer the opportunity for capital
growth and growth of earnings while providing dividends. The Fund pursues these
objectives by investing primarily in common stocks and securities convertible
into common stocks. Over time, a stock which produces continued earnings growth
tends to produce higher dividends and stock values.
The Fund invests in a variety of industries and companies. Changes in
the Fund's portfolio securities are made on the basis of investment
considerations and not for trading purposes.
Fixed-income investments. To enhance income and stability, the Fund
will have at least 30% of its net assets invested in fixed-income securities.
The Fund can invest in a broad range of corporate bonds and notes, convertible
bonds, and preferred and convertible preferred securities. It may also purchase
U.S. Government securities and obligations of federal agencies and
instrumentalities that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Banks, Farm Credit
Banks, and the Federal Home Loan Mortgage Corporation. The Fund may also invest
in obligations of international agencies, foreign debt securities (both U.S. and
non-U.S. dollar denominated), trust preferred securities, mortgage-backed and
other asset-backed securities, municipal obligations, zero coupon securities,
and restricted securities issued in private placements.
For liquidity and defensive purposes, the Fund may invest in money
market securities such as commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund may also enter into repurchase agreements with respect to U.S.
Government securities.
All of the Fund's debt securities will be investment grade, that is,
rated Baa or above by Moody's or BBB or above 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. The Fund is designed to provide long-term
capital growth and income but with less risk of loss to its portfolio than other
growth and income mutual funds, measured by the frequency and amount by which
total return fluctuates downward. The Fund pursues this investment objective by
investing primarily in common stocks with above-average dividend yields and
fixed-income securities convertible into common stocks. The Fund also has an
educational objective to help shareholders, especially individuals planning for
and living in retirement, make informed investment decisions.
The Fund invests primarily in common stocks and securities convertible
into common stocks. It also may invest in rights to purchase common stocks of
companies offering the prospect for capital growth and growth of earnings while
paying current dividends. The Fund may also invest in preferred stocks
consistent with the Fund's objective. Over time, continued growth of earnings
tends to produce higher dividends and to enhance capital value. In addition,
since 1945, the overall performance of common stocks has exceeded the rate of
inflation. For temporary defensive purposes, the Fund may also purchase
high-quality money market securities (such as U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances) and repurchase
agreements when the Fund Manager deems such a position advisable in light of
economic or market conditions.
AARP U.S. Stock Index Fund. The Fund is designed to provide long-term
capital growth and income but with less risk of loss to its portfolio than an
S&P 500 Index mutual fund, measured by the frequency and amount by which total
return fluctuates downward. The Fund pursues this investment objective by
emphasizing common stocks with above-average dividend yields, while maintaining
investment characteristics otherwise similar to the S&P 500 Index. The Fund also
has an educational objective to help shareholders, especially individuals
planning for and living in
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retirement, make informed investment decisions.
The Fund attempts to remain fully invested in common stocks of S&P 500
companies. Under normal circumstances, the Fund will invest at least 95% of its
assets in common stocks, futures contracts and options, primarily on the S&P 500
Index. The Fund, using a proprietary computer model, selects common stocks of
S&P 500 companies that are expected to, on average, pay higher dividends than
S&P 500 companies in the aggregate. In managing the Fund this way, the Fund
Manager expects performance will be somewhat less volatile than that of the S&P
500 over time, and the total return will generally track the S&P 500 within 1%
on an annualized basis. A tracking error of 0% would indicate perfect
correlation to the Index. After the Fund's start-up phase, the portfolio will
typically consist of the common stocks of between 400 to 470 of the S&P 500
companies. The Fund expects to come close to the capitalization weights of the
S&P 500. Nonetheless, to enhance the yield and liquidity characteristics of the
Fund and reduce transaction costs, the Fund will not exactly replicate the
portfolio weights of the S&P 500 and will not hold all 500 stocks within that
Index. The investment approach is "passive" in that after the dividend screening
described above, there is no additional financial analysis regarding the
securities held in the Fund. Under normal circumstances, the Fund may invest up
to 5% of its assets in certain short-term fixed income securities including high
quality money market securities such as U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks and bankers' acceptances, although cash or cash
equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may invest up to 20% of its assets in stock futures contracts
and options in order to invest uncommitted cash balances, to maintain liquidity
to meet shareholder redemptions, or to minimize trading costs. The Fund may also
invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs typically trade
like a share of common stock and provide investment results that generally
correspond to the price and yield performance of the component common stocks of
the S&P 500 Index. There can be no assurance that this can be accomplished as it
may not be possible for the trust to replicate and maintain exactly the
composition and relative weightings of the S&P 500 Index securities. SPDRs are
subject to the risks of an investment in a broadly based portfolio of common
stocks, including the risk that the general level of stock prices may decline,
thereby adversely affecting the value of such investment. SPDRs are also subject
to risks other than those associated with an investment in a broadly based
portfolio of common stocks in that the selection of the stocks included in the
trust may affect trading in SPDRs, as compared with trading in a broadly based
portfolio of common stocks. The Fund will not invest in cash reserves, futures
contracts or options as part of a temporary defensive strategy, such as lowering
the Fund's investment in common stocks to protect against potential stock market
declines. Thus the Fund will not take specific steps to minimize losses that
reflect a decline in the S&P 500. In the event that the Fund does not track
within an annualized 1% total return of the S&P 500 for an extended period, the
Fund Manager will consider alternative approaches.
The Fund is neither sponsored by nor affiliated with Standard & Poor's
Corporation.
AARP Global Growth Fund. The Fund is designed to provide long-term
capital growth but with less risk of loss to its portfolio than other global
growth mutual funds, measured by the frequency and amount by which total return
fluctuates downward. The Fund pursues this investment objective by investing
primarily in common stocks of established corporations in a wide variety of
developed countries, including the U.S. The Fund also has an educational
objective to help shareholders, especially individuals planning for and living
in retirement, make informed investment decisions.
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.
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The Fund invests in companies that the Fund Manager believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency,
or economic relationships. The Fund will normally invest at least 65% of its
total assets in securities of at least three different countries. Typically, it
is expected that the Fund will invest in a wide variety of regions and
countries, including both foreign and U.S. issues. The Fund may be invested 100%
in non-U.S. issues, and for temporary defensive purposes may be invested 100% in
U.S. issues, although under normal circumstances it is expected that both
foreign and U.S. investments will be represented in the Fund's portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
AARP Capital Growth Fund. The Fund is designed to provide long-term
capital growth but with less risk of loss to its portfolio than other growth
funds, measured by the frequency and amount by which total return fluctuates
downward. The Fund pursues this investment objective by investing primarily in a
diversified mix of common stocks and fixed-income securities convertible into
common stocks of established medium- and large-sized companies. The Fund also
has an educational objective to help shareholders, especially individuals
planning for and living in retirement, make informed investment decisions.
Through a broadly diversified portfolio consisting primarily of high quality,
medium- to large-sized companies with strong competitive positions in their
industries and reasonable stock market valuation 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.
The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.
AARP International Growth and Income Fund. The Fund is designed to
provide long-term capital growth and income but with less risk of loss to its
portfolio than other international mutual funds, measured by the frequency and
amount by which total return fluctuates downward. The Fund pursues this
investment objective by investing primarily in a diversified portfolio of
foreign common stocks with above-average dividend yields and foreign
fixed-income securities convertible into common stocks. The Fund also has an
educational objective to help shareholders, especially individuals planning for
and living in retirement, make informed investment decisions. 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 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
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Fund may purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or
Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged by the Fund
Manager to be of equivalent quality. Securities rated Baa by Moody's or BBB by
S&P are neither highly protected nor poorly secured. Moody's considers bonds it
rates Baa to have speculative elements as well as investment-grade
characteristics.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as Canadian or U.S. Government obligations or currencies, corporate debt
instruments, and securities of companies incorporated in and having their
principal activities in Canada or the U.S. when the Fund Manager deems such a
position advisable in light of economic or market conditions.
The Fund may make limited use of financial futures contracts and
related options and may also invest in foreign currency exchange contracts. The
Fund may write (sell) covered call options to enhance investment return, and may
purchase and sell options on stock indices for hedging purposes.
AARP Small Company Stock Fund. The Fund is designed to provide
long-term capital growth but with less risk of loss to its portfolio compared to
other small company stock mutual funds, measured by the frequency and magnitude
with which total return fluctuates downward. The Fund pursues this investment
objective by investing primarily in a broadly diversified portfolio of common
stocks of small U.S. companies. The Fund also has an educational objective to
help shareholders, especially individuals planning for and living in retirement,
make informed investment decisions.
Under normal circumstances, the Fund may invest up to 5% of its assets
in certain short-term fixed income securities including high-quality money
market securities such as U.S. Treasury bills, repurchase agreements, commercial
paper, certificates of deposit issued by domestic and foreign branches of U.S.
banks and bankers' acceptances, although cash or cash equivalents are normally
expected to represent less than 1% of the Fund's assets. The Fund may invest up
to 20% of its assets in stock futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet shareholder
redemptions, or to minimize trading costs. The Fund may also invest in Standard
& Poor's Depository Receipts ("SPDRs"). SPDRs typically trade like a share of
common stock and provide investment results that generally correspond to the
price and yield performance of the component common stocks of the S&P 500 Index.
Like most index funds, the Fund will not invest in cash reserves, futures
contracts or options as part of a temporary defensive strategy, such as lowering
the Fund's investment in common stocks to protect against potential stock market
declines. Thus, the Fund will not take specific steps to minimize losses that
reflect a decline in the S&P 500. In the event that the Fund does not track the
Index, before expenses, within an annualized 1% total return of the S&P 500 for
an extended period, the Fund Manager will consider alternative approaches.
The Fund is neither sponsored by nor affiliated with Standard & Poor's.
In pursuing its objective of long-term capital growth, the Fund
normally remains substantially invested in the common stocks of small U.S.
companies. Using a quantitative investment approach developed by the Fund
Manager, the Fund focuses on equity securities of companies with market
capitalization below $1 billion that, as a group, have a dividend yield higher
than the average of those in the Russell 2000 Index(R) and that the Fund Manager
believes are undervalued relative to the stocks in Russell 2000 Index(R). The
Russell 2000 Index(R) is a widely used measure of small stock performance. The
Fund will sell securities of companies that have grown in market capitalization
above this level as necessary to keep the Fund focused on 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 Index(R). After the Fund's start-up phase, it will not be
unusual for it to hold stocks of more than one hundred small companies,
representing a variety of U.S. industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (either convertible
or nonconvertible), rights and warrants. Securities may be listed on national
exchanges or traded over-the-counter. The Fund may invest up to 20% of its
assets in U.S. Treasury, agency and instrumentality obligations, may enter into
repurchase agreements and may make use of financial futures contracts and
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related options. The Fund may purchase and sell options or futures on stock
indices for hedging purposes as a temporary investment to accommodate cash
flows.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as U.S. government obligations and corporate debt instruments when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
AARP Managed Investment Portfolios
The AARP Managed Investment Portfolios are two professionally managed,
diversified portfolios of the AARP Managed Investment Portfolios Trust (the
"Trust"). In pursuit of its investment objective, each Portfolio invests in a
select mix of the AARP Mutual Funds ("Underlying AARP Mutual Funds"). Each
portfolio is designed to serve as a complete investment program or as a core
part of a larger portfolio, with a goal to seek competitive returns but with
less risk of loss to the Fund's portfolio than a comparable mix of stock and
bond funds, measured by the amount and frequency by which total return
fluctuates downward.
AARP Diversified Income With Growth Portfolio. The Diversified Income
with Growth Portfolio seeks current income with modest long-term appreciation.
This investment objective is pursued by diversifying among a mix of AARP bond
mutual funds, and to a lesser degree in AARP stock mutual funds. Each AARP
Mutual Fund is managed to reduce the risk of loss to its portfolio compared to
similar mutual funds.
AARP Diversified Growth Portfolio. The AARP Diversified Growth
Portfolio seeks to provide long-term growth of capital. This investment
objective is pursued by diversifying among a mix of AARP Stock Mutual Funds, and
to a lesser degree in AARP Bond Mutual Funds.
The Funds also have an educational objective to help shareholders,
especially individuals planning for and living in retirement make informed
investment decisions.
Each Portfolio may invest in any of the AARP Mutual Funds, except for
those designed to provide tax-free income.
Under normal market conditions, each of the AARP Investment Portfolios
will invest within the investment ranges as described below:
o The Diversified Income With Growth Portfolio will normally invest
60-80% of total assets in AARP bond mutual funds; and 20-40% of total
assets in AARP stock mutual funds; and 0-20% of total assets in cash or
cash equivalents.
o The Diversified Growth Portfolio will normally invest 60-80% of total
assets in AARP stock mutual funds; and 20-40% of total assets in AARP
bond mutual funds and 0-20% of total assets in cash or cash
equivalents.
If, as a result of appreciation or depreciation, the percentage of each
Portfolio's assets invested in the above categories exceeds or is less than the
applicable range, the Fund Manager will consider, in its discretion, whether to
reallocate the assets of each Portfolio to comply with the stated ranges.
Each Portfolio will purchase or sell shares of underlying AARP mutual
funds to: (i) accommodate purchases and sales of each Portfolio's shares, (ii)
change the percentages of each Portfolio's assets invested in each of the
underlying AARP mutual funds in response to changing market conditions, and
(iii) maintain or modify the allocation of each Portfolio's assets in accordance
with the investment mix described above. To provide for redemptions or for
temporary defensive purposes, each Portfolio may invest without limit in cash or
cash equivalents, including AARP money market funds, repurchase agreements,
commercial paper, bankers' acceptances, and certificates of deposit issued by
domestic and foreign branches of U.S. banks.
For information about the investment objectives of each of the
underlying AARP mutual funds, please refer to the description of each underlying
AARP mutual fund contained in the sections preceding this section.
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Special Investment Policies of the AARP Funds
(See "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)
Dollar Roll Transactions. Each of the Funds in the AARP Income Trust, namely
AARP GNMA and U.S. Treasury Fund, AARP High Quality Short Term Bond Fund and
AARP Bond Fund for Income, may enter into "dollar roll" transactions, which
consist of the sale by the Funds to a bank or broker/dealers (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. The Funds receive a fee from the counterparty
as consideration for entering into the commitment to purchase. Dollar rolls may
be renewed over a period of several months with a different purchase and
repurchase price fixed and a cash settlement made at each renewal without
physical delivery of securities. Moreover, the transaction may be preceded by a
firm commitment agreement pursuant to which the Funds agree to buy a security on
a future date.
The Funds will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. Government securities or other liquid
assets in an amount sufficient to meet their purchase obligations under the
transactions. Each Fund will also maintain asset coverage of at least 300% for
all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls are treated for purposes of the 1940 Act as borrowings of
the Funds because they involve the sale of a security coupled with an agreement
to repurchase. Like all borrowings, a dollar roll involves costs to the Funds.
For example, while the Funds receive a fee as consideration for agreeing to
repurchase the security, the Funds forgo the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Funds, thereby effectively
charging the Funds interest on their borrowing. Further, although the Funds can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of each Fund's borrowing.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Funds' right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Funds are able to purchase them.
Similarly, the Funds may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Funds, the security that the Funds
are required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Funds' use of the cash
that they receive from a dollar roll will provide a return that exceeds
borrowing costs.
The Trustees of the Funds have adopted guidelines to ensure that those
securities received are substantially identical to those sold. To reduce the
risk of default, the Funds will engage in such transactions only with
counterparties selected pursuant to such guidelines.
U.S. Government Securities. U.S. Treasury securities, backed by the
full faith and credit of the U.S. Government, include a variety of securities
which differ in their interest rates, maturities and times of issuance. Treasury
bills have original maturities of one year or less. Treasury notes have original
maturities of one to ten years and Treasury bonds generally have original
maturities of greater than ten years.
U.S. Government agencies and instrumentalities which issue or guarantee
securities include, for example, the Export-Import Bank of the United States,
the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and the
Federal Farm Credit Bank. Obligations of some of these agencies and
instrumentalities, such as the Export-Import Bank, are supported by the full
faith and credit of the United States; others, such as the securities of the
Federal Home Loan Bank, by the ability of the issuer to borrow from the
Treasury; while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. No assurance can be given
that the U.S. Government would provide financial support to the latter group of
U.S. Government instrumentalities, as it is not obligated to do so.
Interest rates on U.S. Government obligations which the AARP Funds may
purchase may be fixed or variable. Interest rates on variable rate obligations
are adjusted at regular intervals, at least annually, according to a formula
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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 or GNMA. There are, of course, a number of
other types of notes issued for different purposes and secured differently than
those described above.
Municipal bonds, which meet longer-term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully-insured, rent-subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt reserve fund.
Lease rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Some issues of municipal bonds are payable from United States Treasury
bonds and notes held in escrow by a Trustee, frequently a commercial bank. The
interest and principal on these U.S. Government securities are sufficient to pay
all interest and principal requirements of the municipal securities when due.
Some escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.
Private activity bonds, although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by an
industrial or other non-governmental user.
Securities purchased for either Fund may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for the
AARP Funds' purposes to mature at the demand date.
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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.
Trust Preferred Securities. AARP Balanced Stock and Bond Fund, AARP
High Quality Short Term Bond Fund and AARP Bond Fund for Income may invest in
Trust Preferred Securities, which are hybrid instruments issued by a special
purpose trust (the "Special Trust"), the entire equity interest of which is
owned by a single issuer. The proceeds of the issuance to the Funds of Trust
Preferred Securities are typically used to purchase a junior subordinated
debenture, and distributions from the Special Trust are funded by the payments
of principal and interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Funds, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Funds receive any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Funds, to sell their holdings.
Tax-exempt custodial receipts. The AARP Tax Free Funds may purchase
tax-exempt custodial receipts (the "Receipts") which evidence ownership in an
underlying bond that is deposited with a custodian for safekeeping. Holders of
the Receipts receive all payments of principal and interest when paid on the
bonds. Receipts can be purchased in an offering or from a financial counterparty
(typically an investment banker). To the extent that any Receipt is illiquid, it
is subject to the Fund's limit on illiquid securities.
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
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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 (i) as required to provide liquidity to the Fund, (ii) to maintain a
high quality investment portfolio or (iii) upon a default under the terms of the
municipal obligation. The selling bank will receive a fee from the Fund in
connection with the arrangement. Neither Fund will purchase participation
interests unless it receives an opinion of counsel or a ruling of the Internal
Revenue Service satisfactory to the Trustees that interest earned by that Fund
on municipal obligations on which it holds participation interests is exempt
from federal income tax.
A municipal lease obligation may take the form of a lease, installment
purchase contract or conditional sales contract which is issued by a state or
local government and authorities to acquire land, equipment and facilities.
Income from such obligations is generally exempt from state and local taxes in
the state of issuance. Municipal lease obligations frequently involve special
risks not normally associated with general obligations or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide
for title in the leased asset to pass eventually to the governmental issuer)
have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis.
In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the
property in the event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in a delay in recovery or the failure to
fully recover a Fund's original investment.
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)
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although stand-by commitments will not be transferable, municipal obligations
purchased subject to such commitments may be sold to a third party at any time,
even though the commitment is outstanding; and (5) their exercise price will be
(i) the Fund's acquisition cost (excluding any accrued interest which the Fund
paid on their acquisition), less any amortized market premium or plus any
amortized original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date.
Each Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund will pay for stand-by commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding stand-by commitments will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
any stand-by commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential
benefit of a stand-by commitment. Therefore, it is expected that the Trustees
will determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security will ordinarily be
valued at such exercise price. Where a Fund has paid for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held.
There is no assurance that stand-by commitments will be available to a
Fund nor does either Fund assume that such commitments would continue to be
available under all market conditions.
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
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the market value of the Obligation becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation, on a
daily basis to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. In the event that a Fund is unsuccessful in seeking to enforce
the contractual obligation to deliver additional securities, and the seller
defaults on its obligation to repurchase, the Fund bears the risk of any drop in
market value of the Obligation(s). In the event that bankruptcy or insolvency
proceedings were commenced with respect to a bank or broker-dealer before its
repurchase of the Obligation, a Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the Obligation. In the case of repurchase agreements, it is not
clear whether a court would consider a repurchase agreement as being owned by
the particular Fund or as being collateral for a loan by the Fund. If a court
were to characterize the transaction as a loan and the Fund had not perfected a
security interest in the Obligation, the Fund could be required to return the
Obligation to the bank's estate and be treated as an unsecured creditor. As an
unsecured creditor, the Fund would be at the risk of losing some or all of the
principal and income involved in that transaction. The Fund Manager seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligations.
Securities subject to a repurchase agreement are held in a segregated
account, and the amount of such securities is adjusted so as to provide a market
value at least equal to the repurchase price on a daily basis.
Real Estate Investment Trusts. Each of the Funds in the AARP Growth
Trust, as well as the AARP High Quality Short Term Bond Fund and the AARP Bond
Fund for Income, may invest in REITs. REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. Investment in
REITs may subject the Fund to risks associated with the direct ownership of real
estate, such as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws,
casualty or condemnation losses, possible environmental liabilities, regulatory
limitations on rent and fluctuations in rental income. Equity REITs generally
experience these risks directly through fee or leasehold interests, whereas
mortgage REITs generally experience these risks indirectly through mortgage
interests, unless the mortgage REIT forecloses on the underlying real estate.
Changes in interest rates may also affect the value of the Fund's investment in
REITs. For instance, during periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, which
prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended and to maintain exemption from the 1940 Act. By investing in
REITs indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs. In addition, REITs depend generally on their ability to
generate cash flow to make distributions to shareholders.
Mortgage-Backed Securities and Mortgage Pass-Through Securities. The
AARP GNMA and U.S. Treasury Fund and the AARP High Quality Short Term Bond Fund,
the AARP Bond Fund for Income, the AARP Balanced Stock and Bond Fund and the
AARP Growth and Income Fund may invest in mortgage-backed securities, which are
interests in pools of mortgage loans, including mortgage loans made by savings
and loan institutions, mortgage bankers, commercial banks and others. The AARP
GNMA and U.S. Treasury Fund invests in mortgage-backed securities guaranteed
primarily by the Government National Mortgage Association. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
AARP High Quality Short Term Bond Fund, the AARP Bond Fund for Income, and the
AARP Balanced Stock and Bond Fund may also invest in debt securities which are
secured with collateral consisting of mortgage-backed securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. Asset-backed securities are subject to the risk or prepayment and
the risk that the underlying loans will
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not be repaid. Because principal may be prepaid at any time, mortgage-backed
securities may involve significantly greater price and yield volatility than
traditional debt securities.
When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of a mortgage-related security and increasing the
price volatility of that security, affecting the price volatility of the Fund's
shares.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Because principal may be prepaid at any
time, mortgage-backed securities may involve significantly greater price and
yield volatility than traditional debt securities. 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 Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Fannie Mae is a government-sponsored corporation
owned entirely by private stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. Fannie Mae 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 Fannie Mae are guaranteed as to timely payment of principal and
interest by Fannie Mae but are not backed by the full faith and credit of the
U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Fund Manager determines that the
securities meet the Fund's quality standards.
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Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Collateralized Mortgage Obligations ("CMOs"). The AARP High Quality Short Term
Bond Fund, the AARP Bond Fund for Income, and the AARP Balanced Stock and Bond
Fund may invest in CMOs which are hybrids between mortgage-backed bonds and
mortgage pass-through securities. Similar to a bond, interest and prepaid
principal are paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or Fannie Mae, 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. The prices of certain CMOs,
depending on their structure and the rate of prepayments, can be volatile. Some
CMOs may also not be as liquid as other securities.
In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the AARP High Quality Short Term Bond Fund's, the
AARP Bond Fund for Income's, and the AARP Balanced Stock and Bond Fund's
investment objectives and policies, the Funds may invest in these and other
types of asset-backed securities that may be developed in the future. In
general, the collateral supporting these securities is of shorter maturity than
mortgage loans and is less likely to experience substantial prepayments with
interest rate fluctuations.
Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables(SM) ("CARS(SM)").
CARS(SM) 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 CARS(SM) 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 CARS(SM) 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.
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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, AARP
Global Growth Fund and AARP Bond Fund for Income may invest in zero coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity. When held to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Funds, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Funds understand that the staff of the SEC no longer considers
such privately stripped obligations to be U.S. Government securities, as defined
in the Investment Company Act of 1940; therefore, the Funds intend to adhere to
this staff position and will not treat such privately stripped obligations to be
U.S. Government securities for the purpose of determining if the Funds are
"diversified" under the 1940 Act.
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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, rated lower than Baa by Moody's or lower than BBB by S&P
(hereinafter referred to as "lower rated securities") or which are unrated, but
deemed equivalent to those rated below investment-grade by the Fund Manager
(commonly referred to as "junk bonds"). The lower the ratings of such debt
securities, the greater their risks. These debt instruments generally offer a
higher current yield than that available from higher grade issues, but typically
involve greater risk. The yields on high yield/high risk bonds will fluctuate
over time. In general, prices of all bonds rise when interest rates fall and
fall when interest rates rise. While less sensitive to changing interest rates
than investment-grade debt, lower-rated securities are especially subject to
adverse changes in general economic conditions and to changes in the financial
condition of their issuers. During periods of economic downturn or rising
interest rates, issuers of these instruments may experience financial stress
that could adversely affect their ability to make payments of principal and
interest and increase the possibility of default.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of these
securities especially in a market characterized by only a small amount of
trading and with relatively few participants. These factors can also limit the
Fund's ability to obtain accurate market quotations for these securities, making
it more difficult to determine the Fund's NAV.
In cases where market quotations are not available, lower rated
securities are valued using guidelines established by the Fund's Board of
Trustees. Perceived credit quality in this market can change suddenly and
unexpectedly, and may not fully reflect the actual risk posed by a particular
lower rated or unrated security.
Loans of Portfolio Securities. Each Fund may lend its portfolio
securities provided: (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or cash equivalents adjusted
daily to have a market value at least equal to the current market value of the
securities loaned; (2) the Fund may at any time call the loan and regain the
securities loaned; (3) the Fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Fund. In
addition, it is anticipated that the Fund may share with the borrower some of
the income received on the collateral for the loan or that it will be paid a
premium for the loan. In determining whether to lend securities, the Fund's
investment adviser considers all relevant factors and circumstances including
the creditworthiness of the borrower. The AARP Funds have no current intention
of lending their portfolio securities.
Securities Purchased on a "Forward Delivery" or "When-Issued" Basis.
Debt securities, including municipal obligations when originally issued, are
frequently offered on a "forward delivery" or "when-issued" basis and may be
purchased on this basis by the AARP Money, Income and Tax Free Funds, and the
AARP Balanced Stock and Bond Fund. When so offered, the price, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase of securities. During the period between purchase and settlement, no
payment is made on behalf of the Fund and no interest accrues to the Fund. To
the extent that assets of the Fund are not invested prior to the settlement of a
purchase of securities, the Fund will earn no income; however, it is the
intention of each Fund to be fully invested to the extent practicable, subject
to the policies stated above. While securities
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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 liquid assets 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 High Quality Short Term Bond Fund, the AARP
GNMA and U.S. Treasury Fund, the AARP Bond Fund for Income, the AARP Insured Tax
Free General Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP Growth
and Income Fund, the AARP U.S. Stock Index Fund, the AARP Global Growth Fund,
the AARP Capital Growth Fund, the AARP International Growth and Income 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 liquid assets 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 liquid assets, and partly with
offsetting positions.
An Index Futures Contract is a contract to buy or sell units of a
particular index of securities at a specified future date at a price agreed upon
when the contract is made. Index Futures Contracts typically specify that no
delivery of the actual securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based on the
difference between the contract price and the actual price on the termination
date of the units of the index.
A Debt Futures Contract is a binding contractual commitment which, if
held to maturity, requires a Fund to make or accept delivery, during a
particular month, of obligations having a standardized face value and rate of
return. By purchasing a Debt Futures Contract, a Fund legally obligates itself
to accept delivery of the underlying security and to pay the agreed price; by
selling a Debt Futures Contract it legally obligates itself to make delivery of
the security against payment of the agreed price. However, positions taken in
the futures markets are not normally held to maturity. Instead they are
liquidated through offsetting transactions which may result in a profit or loss.
While Debt Futures Contract positions taken by a Fund are usually liquidated in
this manner, a Fund may instead make or take delivery of the underlying
securities whenever it appears economically advantageous.
A clearing corporation, associated with the exchange on which futures
contracts are traded, assumes responsibility for close-outs of such contracts
and guarantees that the sale or purchase, if still open, is performed on the
settlement date.
By entering into futures contracts, a Fund seeks to establish more
certainly than would otherwise be possible the effective rate of return on its
portfolio securities. A Fund may, for example, take a "short" position in the
futures markets by selling a Debt Futures Contract for the future delivery of
securities held by the Fund in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of such securities. Or it
might sell an Index Futures Contract based on a group of securities whose price
trends show a significant correlation with those of securities held by the Fund.
When hedging of this character is successful, any depreciation in the value of
portfolio securities is substantially offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long"
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position by purchasing futures contracts. This is done when the Fund is not
fully invested or expects to receive substantial proceeds from the sale of
portfolio securities or of Fund shares, and anticipates the future purchase of
particular securities but expects the rate of return then available in the
securities markets to be less favorable than rates that are currently available
in the futures markets. The Funds expect that, in the normal course, securities
will be purchased upon termination of the long futures position, but under
unusual market conditions, a long futures position may be terminated without a
corresponding purchase of securities.
Debt Futures Contracts, however, currently involve only taxable
obligations and do not encompass municipal securities. The value of Debt Futures
Contracts on taxable securities, as well as Index Futures Contracts, may not
vary in direct proportion with the value of a Fund's securities, limiting the
ability of the Fund to hedge effectively against interest rate risk.
Presently the only available index futures contract in which the AARP
Insured Tax Free General Bond Fund might invest is the Bond Buyer Municipal Bond
Index. The Fund might sell a contract based on this index in anticipation of an
increase in interest rates, to attempt to offset the decrease in market value of
its portfolio securities which could result. Or the Fund might purchase such a
contract in the anticipation of a significant decrease in interest rates to
offset the increased cost of securities it hopes to purchase in the future. No
index futures contracts have yet been developed which are suitable for
investment by the Funds in the AARP Income Trust.
The investment restriction concerning futures contracts does not
specify the types of index-based futures contracts into which the Funds may
enter because it is impossible to foresee what particular indices may be
developed and traded or may prove useful to the Funds in implementing their
overall risk management strategies. For example, price trends for a particular
index-based futures contract may show a significant correlation with price
trends in the securities held by the Funds, or either of them, even though the
securities comprising the index are not necessarily identical to those held by
such Fund or Funds. In any event, the Funds would not enter into a particular
index-based futures contract unless the Fund Manager determined that such a
correlation existed.
Index Futures Contracts and Debt Futures Contracts currently are
actively traded on the Chicago Board of Trade and the International Monetary
Market at the Chicago Mercantile Exchange.
Options on Futures Contracts. To attempt to gain additional protection
against the effects of interest rate fluctuations, each of the AARP Income
Funds, the AARP Insured Tax Free General Bond Fund, the AARP Balanced Stock and
Bond Fund, the AARP Global Growth Fund, the AARP International Growth and Income
Fund, and the AARP Small Company Stock Fund may purchase and write (sell) put
and call options on futures contracts that are traded on a U.S. exchange or
board of trade and enter into related closing transactions. There can be no
assurance that such closing transactions will be available at all times. In
return for the premium paid, such an option gives the purchaser the right to
assume a position in a futures contract at any time during the option period for
a specified exercise price. The AARP U.S. Stock Index Fund invests its assets in
futures contracts in order to invest uncommitted cash balances, to maintain
liquidity or to minimize trading costs.
A Fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.
The purchase of call options on futures contracts is intended to serve
the same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.
A Fund may write (sell) a call option on a futures contract in order to
hedge against a decline in the prices of the index or debt securities underlying
the futures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing (selling) of a put option on a futures contract is similar
to the purchase of the futures contracts, except that, if market price declines,
a Fund would pay more than the market price for the underlying securities or
index units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.
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Limitations on Futures Contracts and Options on Futures Contracts. A
Fund will not engage in transactions in futures contracts or related options for
speculation but only as a hedge against changes resulting from market conditions
in the values of debt securities held in its portfolio or which it intends to
purchase and where the transactions are appropriate to the reduction of the
Fund's risks. The Trustees have adopted policies (which are not fundamental and
may be modified by the Trustees without a shareholder vote) that, immediately
after the purchase for a Fund of a futures contract or a related option, the
value of the aggregate initial margin deposits with respect to all futures
contracts (both for receipt and delivery), and premiums paid on related options,
entered into on behalf of the Fund will not exceed 5% of the fair market value
of the Fund's total assets. Additionally, the value of the aggregate premiums
paid for all put and call options held by a Fund will not exceed 20% of its net
assets. Futures contracts and put options written (sold) by a Fund will be
offset by assets of the Fund held in a segregated account in an amount
sufficient to satisfy obligations under such contracts and options.
AARP Income Trust and AARP Tax Free Income Trust have received from the
CFTC an interpretative letter confirming its opinion that it is not a "commodity
pool" as defined under the Commodity Exchange Act. To ensure that its futures
transactions meet this definition, each Fund will enter into them for the
purposes and with the hedging intent specified in CFTC regulations. It will
further determine that the price fluctuations in the futures contracts used for
hedging are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase, though there can be no assurance this
result will be achieved. The Funds' futures transactions will be entered into
for traditional hedging purposes-- that is, futures contracts will be sold (or
related put options purchased) to protect against a decline in the price of
securities that a Fund owns, or futures contracts (or related call options) will
be purchased to protect the Fund against an increase in the price of securities
it intends to purchase. As evidence of this hedging intent, each Fund expects
that approximately 75% of its long futures positions (purchases of futures
contracts or call options on futures contracts) will be "completed"; that is,
upon sale (or other termination) of these long contracts, the Fund will have
purchased, or will be in the process of, purchasing, equivalent amounts of
related securities in the cash market. However, under unusual market conditions,
a long futures position may be terminated without the corresponding purchase of
securities.
Covered Call Options. Each of the AARP Growth Funds with the exception
of the AARP U.S. Stock Index Fund and each of the AARP Income Funds may write
(sell) covered call options on their portfolio securities in an attempt to
enhance investment performance. The AARP U.S. Stock Index Fund invests its
assets in covered call options in order to invest uncommitted cash balances, to
maintain liquidity or to minimize trading costs. The writing of covered call
options by each Fund is subject to limitations imposed by certain state
securities authorities.
When a Fund writes (sells) a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") at any time during the option
period, generally ranging up to nine months. If the option expires unexercised,
the Fund will realize gain to the extent of the amount received for the option
(the "premium") less any commission paid. If the option is exercised, a decision
over which the Fund has no control, the Fund must sell the underlying security
to the option holder at the exercise price. By writing a covered option, the
Fund forgoes, in exchange for the premium less the commission ("net premium"),
the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price.
When a Fund sells an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked-to-market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction (i.e., the Fund
terminates its obligation as the writer of the option by purchasing a call
option on the same security with the same exercise price and expiration date as
the option previously written), the Fund will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the net premium received when the
option was sold) and the deferred credit related to such option will be
eliminated. If an option is exercised, the Fund will realize a long-term or
short-term gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received.
The writing of covered options may be deemed to involve the pledge of the
securities against which the option is being written. Securities against which
options are written will be segregated on the books of the Fund's custodian.
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Purchasing Options on Stock Indices. To protect the value of their
portfolios against declining stock prices, each of the AARP Growth Funds with
the exception of the AARP U.S. Stock Index Fund may purchase put options on
stock indices. The AARP U.S. Stock Index Fund invests its assets in options on
stock indices in order to invest uncommitted cash balances, to maintain
liquidity or to minimize trading costs. To protect against an increase in the
value of securities that it wants to purchase, a Fund may purchase call options
on stock indices. A stock index (such as the Standard & Poor's 500) assigns
relative values to the common stocks included in the index and the index
fluctuates with the changes in the market values of the common stocks so
included. Options on stock indices are similar to options on stock except that,
rather than giving the purchaser the right to take delivery of stock at a
specified price, an option on a stock index gives the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Gain or loss with respect to options on stock indices depends on price movements
in the stock market generally rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of a stock index option depends upon movements in the
level of the stock index rather than the price of a particular stock, whether a
Fund will realize a gain or loss on the purchase of a put or call option on a
stock index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of both
put and call options on stock indices will be subject to the Fund Manager's
ability to accurately predict movements in the direction of the stock market
generally or of a particular industry. In cases where the Fund Manager's
prediction proves to be inaccurate, a Fund will lose the premium paid to
purchase the option and it will have failed to realize any gain.
In addition, a Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock indices (and therefore
the extent of its gain or loss on such transactions) depends on the degree to
which price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the securities being
hedged will not move in the same amount as the option. This risk will increase
as the composition of a Fund's portfolio diverges from the composition of the
index.
Over-the-counter options ("OTC options") are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. A Fund will only sell OTC options (other than OTC
currency options) that are subject to a buy-back provision permitting a Fund to
require the Counterparty to sell the option back to the Fund at a formula price
within seven days. A Fund expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Fund Manager must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers", or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the
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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 15% 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.
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.
Risks of Futures and Options Investments. A Fund will incur brokerage
fees in connection with its futures and options transactions, and it will be
required to segregate Funds for the benefit of brokers as margin to guarantee
performance of its futures and options contracts. In addition, while such
contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.
The AARP Growth Funds may engage in over-the-counter options
transactions with broker-dealers who make markets in these options. The Fund
Manager will consider risk factors such as their creditworthiness when
determining a broker-dealer with which to engage in options transactions. The
ability to terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The Fund Manager will monitor the creditworthiness of
dealers with whom the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.
Convertible Securities. Each Fund in the AARP Growth Trust, AARP High
Quality Short Term Bond Fund and AARP Bond Fund for Income may invest in
convertible securities. Convertible securities include convertible bonds, notes
and debentures, convertible preferred stocks, and other securities that give the
holder the right to exchange the security for a specific number of shares of
common stock. Convertible securities entail less credit risk than the issuer's
common stock because they are considered to be "senior" to common stock.
Convertible securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Short Term Bond Fund
may invest without limit in U.S. dollar denominated foreign securities and may
invest up to 20% of its assets in foreign bonds denominated in foreign
currencies although no more than 5% of the Fund's total assets will be
represented by a given foreign currency. The AARP Bond Fund for Income may
invest without limit in U.S. dollar denominated investment-grade foreign
securities and may invest up to 20% of its assets in foreign bonds denominated
in foreign currencies. The AARP Money Funds may currently invest in U.S.
dollar-denominated certificates of deposit and bankers' acceptances of foreign
branches of large U.S. banks.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in United States securities and
which may favorably or unfavorably affect the Funds' performance. As foreign
companies are not generally subject to uniform
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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 Short Term Bond Fund and the AARP Bond Fund for
Income may enter into forward foreign currency exchange contracts in connection
with its investments in foreign securities. A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. 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.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any amount
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between banks or currency dealers so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract.
The Funds may enter into foreign currency futures contracts in several
circumstances. First, when the Funds enter into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Funds
anticipates the receipt in a foreign currency of interest and dividend payments
on such a security which it holds, the Funds may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such interest and
dividend payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying transactions, the Funds will attempt
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend payment is declared, and the date on which such
payments are made or received.
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General Investment Policies of the AARP Funds
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.
The AARP Funds 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 (i) 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 (ii) more
than 50% of the outstanding shares of such Fund.
Each Fund has elected to be classified as a diversified series of an
open-end investment company.
(A) In addition, as a matter of fundamental policy, each will not:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(4) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(5) purchase physical commodities or contracts relating to
physical commodities; or
(6) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(B) In addition, as a matter of fundamental policy, each Fund other than
AARP Diversified Income with Growth Portfolio and AARP Diversified
Growth Portfolio will not:
(1) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time (except that
each of AARP High Quality Money Fund, AARP Premium Money Fund
and AARP High Quality Tax Free Money Fund reserves the freedom
of action to concentrate its investments in instruments issued
by domestic banks).
(C) In addition, as a matter of fundamental policy, each of AARP
Diversified Income with Growth Portfolio and AARP Diversified Growth
Portfolio will not:
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(1) concentrate its investments in investment companies, as the
term "concentrate" is used in the Investment Company Act of
1940, as amended and interpreted by regulatory authority
having jurisdiction from time to time; except that the Fund
may concentrate in an underlying fund. However, each
underlying fund in which each Fund will invest may concentrate
its investments in a particular industry.
(D) In addition, as a matter of fundamental policy, each of AARP High
Quality Tax Free Money Fund and AARP Insured Tax Free General Bond Fund
will:
(1) have at least 80% of its net assets invested in securities
that are exempt from Federal income tax during periods of
normal market conditions.
The following restrictions are not fundamental and may be changed by a Fund
without shareholder approval, in compliance with applicable law, regulation or
regulatory policy.
As a matter of non-fundamental policy, each of the following Funds
currently do not intend to:
AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
U.S. Stock Index Fund, AARP Global Growth Fund, AARP Capital Growth
Fund, AARP International Growth and Income Fund, AARP Small Company
Stock Fund, AARP High Quality Short Term Bond Fund, AARP GNMA and U.S.
Treasury Fund, AARP Bond Fund for Income, AARP Diversified Income with
Growth Portfolio, AARP Diversified Growth Portfolio
(1) borrow money in an amount greater than 5% of its total
assets, except for (i) temporary or emergency purposes and
(ii) by engaging in reverse repurchase agreements, dollar
rolls, or other investments or transactions described in the
Trust's registration statement which may be deemed to be
borrowings;
AARP High Quality Money Fund, AARP Premium Money Fund, AARP High
Quality Tax Free Money Fund, AARP Insured Tax Free General Bond Fund
(2) borrow money in an amount greater than 5% of its total
assets, except for temporary or emergency purposes;
AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
U.S. Stock Index Fund, AARP Global Growth Fund, AARP Capital Growth
Fund, AARP International Growth and Income Fund, AARP Small Company
Stock Fund
(3) enter into either of reverse repurchase agreements or
dollar rolls in an amount greater than 5% of its total assets;
AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
U.S. Stock Index Fund, AARP Global Growth Fund, AARP Capital Growth
Fund, AARP International Growth and Income Fund, AARP Small Company
Stock Fund, AARP High Quality Short Term Bond Fund, AARP GNMA and U.S.
Treasury Fund, AARP Bond Fund for Income, AARP High Quality Tax Free
Money Fund, AARP Insured Tax Free General Bond Fund , AARP Premium
Money Fund
(4) purchase securities on margin or make short sales,
except (i) short sales against the box, (ii) in connection
with arbitrage transactions, (iii) for margin deposits in
connection with futures contracts, options or other permitted
investments, (iv) that transactions in futures contracts and
options shall not be deemed to constitute selling securities
short, and (v) that the Fund may obtain such short-term
credits as may be necessary for the clearance of securities
transactions;
(5) purchase options, unless the aggregate premiums paid on
all such options held by the Fund at any time do not exceed
20% of its total assets; or sell put options, if as a result,
the aggregate value of the obligations underlying such put
options would exceed 50% of its total assets;
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(6) enter into futures contracts or purchase options thereon,
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value 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;
(7) purchase warrants if as a result, such securities, taken
at the lower of cost or market value, would represent more
than 5% of the value of the Fund's total assets (for this
purpose, warrants acquired in units or attached to securities
will be deemed to have no value); and
AARP High Quality Money Fund, AARP Premium Money Fund, AARP High
Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury Fund, AARP
Bond Fund for Income, AARP High Quality Tax Free Money Fund, AARP
Insured Tax Free General Bond Fund
(8) lend portfolio securities in an amount greater than 5% of
its total assets.
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.
Wire Transfer of Federal Funds
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, for all funds except
AARP Global Growth Fund, or by Brown Brothers Harriman & Co., for AARP Global
Growth Fund (each the "Custodian", respectively). 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.
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to a Fund prior to the close of regular trading on the New York Stock
Exchange, Inc. (the "Exchange") (normally 4 p.m. eastern time).
The bank sending an investor's 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.
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Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the custodians are not open to receive
such federal funds on behalf of a Fund.
Share Price
Accepted purchases for shares in all the AARP Funds will be filled at
the net asset value next computed after receipt of the application in good
order. Each Fund's net asset value per share is currently determined once daily,
as of the close of regular trading on each day the Exchange is open for trading.
For AARP High Quality Money Fund and AARP High Quality Tax Free Money Fund,
Scudder Fund Accounting Corporation also determines net asset value per share as
of noon Eastern time on each day the Exchange is open for trading. (See "NET
ASSET VALUE," herein for additional information on how the Fund's net asset
value is calculated.) Orders received after the close of regular trading will be
filled at the next day's net asset value per share for the relevant Fund.
There is no sales charge in connection with purchase of shares of any
of the AARP Funds.
Share Certificates
Due to the desire of each Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the AARP
Funds . Share certificates now in a shareholder's possession may be sent to the
AARP Funds' transfer agent for cancellation and credit to such shareholder's
account. Shareholders who prefer may hold the certificates now in their
possession until they wish to exchange or redeem such shares. See "EXCHANGING"
and "ACCESS TO YOUR INVESTMENT" in the Funds' Prospectus.
Direct Deposit Program
Investors can have Social Security or other checks from the U.S.
Government or any other regular income checks such as pension, dividends, and
even payroll checks automatically deposited directly to their accounts.
Investors may allocate a minimum of 25% of their income checks into any AARP
Fund. Information may be obtained by contacting the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, Massachusetts 02208-2540, or by calling toll
free, 1-800-253-2277.
Other Information
All purchase payments will be invested in full and fractional shares.
The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for each Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on a Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between each Fund and
the broker, ordinarily orders will be priced at a Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of a Fund at any time for any reason.
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.
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REDEMPTIONS
(See "ACCESS TO YOUR INVESTMENT" in the Prospectus.)
General Information
If a shareholder redeems all shares in an account after the record date
of a dividend, 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.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares of a Fund and to receive payment may be
suspended at times during which (a) the Exchange is closed, other than customary
weekend and holiday closings, (b) trading on the Exchange is restricted for any
reason, (c) an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or (d)
the SEC may by order permit such a suspension for the protection of a Fund's
shareholders; 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
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original signature guarantee are required for each person in
whose name the account is registered. Signature guarantees by
notaries public are not acceptable.
In addition, if shares to be redeemed were purchased by check, mailing
of the redemption proceeds may be delayed long enough to assure that the
purchase check has cleared.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve wire to the bank account
designated on the application form unless a request is made that the redemption
be mailed to the designated bank account. For each wire redemption, the program
charges a $5.00 fee which is deducted from the proceeds of the redemption.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Trusts and their agents each reserve the right to modify,
interrupt, suspend or terminate the telephone redemption privilege at any time,
without notice. A shareholder may cancel the telephone redemption authorization
upon written notice. Each Trust employs procedures including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Trust does not follow such 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.
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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 for either
the AARP High Quality Money Fund or the AARP High Quality Tax Free Money Fund,
or at least $1,000 for the Premium Money Fund and in any case 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. The
Funds pay the bank charges for this service. However, each Fund will review the
cost of operation periodically and it reserves the right to determine if direct
charges to the persons who avail themselves of this service would be
appropriate. An account cannot be closed using the "free Checkwriting"
privilege. The Trusts, the transfer agent and the custodian each reserve the
right at any time to suspend or terminate the "free Checkwriting" procedure.
Redemption-in-Kind
The AARP Growth Trust and AARP Managed Investment Portfolios Trust
reserve the right to permit the AARP Balanced Stock and Bond Fund, AARP Growth
and Income Fund, the AARP Global Growth Fund, AARP Capital Growth Fund, AARP
International Growth and Income Fund, AARP Small Company Fund, AARP U.S. Stock
Index Fund, AARP Diversified Income With Growth Portfolio and AARP Diversified
Growth Portfolio, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase order by making payment in whole
or in part in readily marketable securities chosen by the Fund and valued as
they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The AARP Growth
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which each Fund of the Trust is 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 the requirements.
The Trustees have established certain amount size requirements. For
AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund and AARP GNMA and
U.S. Treasury Fund, the minimum investment is $500. For AARP Premium Money Fund,
the minimum investment is $10,000. For all other AARP Mutual Funds, the minimum
is $2,000. An account may be opened in any AARP Mutual Fund for $500 if an
Automatic Investment Plan of $100 per month is established. Each Trust reserves
the right to adopt a policy that if transactions at any time reduce a
shareholder's account in a Fund to below the applicable minimum, the shareholder
will be notified that, unless the account is brought up to at least the
applicable minimum the Fund will redeem all shares and close the account by
making payment to the shareholder. The shareholder has sixty days to bring the
account up to the applicable minimum before any action will be taken by the
Fund. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. No transfer from an existing to a new account
may be for less than the minimums set forth above; otherwise the new account may
be redeemed as described above. (This policy applies to accounts of new
shareholders in a particular Fund, but does not apply to Retirement Plan
Accounts.) The Trustees have the authority to increase the minimum account size.
EXCHANGES
The procedure for exchanging shares from one AARP Fund to another AARP
Fund in the Program, when the account in the new AARP Fund is established with
the same registration, telephone option, dividend option and address
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as the present account, is set forth under "EXCHANGING" in the Prospectus. If
the registration data for the account receiving the proceeds of the exchange is
to be different in any respect from the account from which shares are to be
exchanged, the exchange request must be in writing and must contain a signature
guarantee as described under "SIGNATURE GUARANTEES" in the Prospectus. If an
exchange involves an initial investment in the Fund being acquired, the amount
to be exchanged must be at least $2000 for non-retirement plan accounts ($500
for AARP Balanced Stock & Bond Fund, AARP Growth and Income Fund and AARP GNMA
and U.S. Treasury Fund, and $10,000 for AARP Premium Money Fund). For IRA, Keogh
Plan and UGMA/UTMA accounts the amount must be $250. If the exchange is made
into an existing account, there is no minimum requirement, except where the
existing account is in the AARP Premium Money Fund, which requires an exchange
into an existing account to be $1,000 or more.
Only exchange orders received between 8:00 a.m. and 4:00 p.m. Eastern
time on any business day will ordinarily be accomplished at respective net asset
values determined on that day. Exchange orders received after 4:00 p.m. are
processed on the next business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one AARP Fund to an
existing account in another AARP Fund through the AARP Funds' Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trusts and the Transfer Agent
each reserve the right to modify, interrupt, suspend or terminate the privilege
of the Automatic Exchange Program at any time, without notice.
There is no charge to the shareholder for any exchange described above.
An exchange from any AARP Fund other than the AARP Money Funds is likely to
result in recognition of gain or loss to the shareholder.
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 ($1,000 for the AARP
Premium Money Fund). 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.
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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.
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 16 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
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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 Premium Money Fund, AARP
High Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury Fund, AARP Bond
Fund for Income, AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund,
AARP Global Growth Fund, AARP Capital Growth Fund, AARP U.S. Stock Index Fund,
AARP International Growth and Income Fund and AARP Small Company Stock Fund
("Eligible Funds") may be purchased in connection with several types of
tax-deferred retirement plans. These plans were created for members of AARP.
Each plan is briefly described below. The plans provide convenient ways for AARP
members to make investments which may be tax-deductible for their retirement and
have taxes on any income from their investment deferred until their retirement,
when they may be in a lower tax bracket. Additional information on each plan may
be obtained by contacting the AARP Investment Program from Scudder, P.O. Box
2540, Boston, Massachusetts, 02208-2540, or by calling toll free,
1-800-253-2277. Investment professionals and retirement-benefits experts
estimate that prospective retirees will need 70% to 80% of their current
salaries during each year of their retirement, with adjustment for changes in
prices during retirement, to maintain their current life-style. Investment
professionals recommend diversifying investments among stock, bonds and
cash-equivalents when building retirement reserves. It is advisable for an
investor considering any of the plans described below to consult with an
attorney or tax advisor with respect to the terms, suitability requirements and
tax aspects of the plan.
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")
Shares of the Eligible Funds may be purchased as the underlying
investment for an AARP No-Fee IRA which meets the requirements of Section 408(a)
of the Internal Revenue Code. Any AARP member with earned income or wages is
eligible to make annual contributions to the AARP No-Fee IRA before the year the
member attains age 70 1/2. An individual may establish an AARP No-Fee IRA
whether or not he or she is an active participant in another tax-qualified
retirement plan, including a tax-sheltered annuity or government plan.
AARP No-Fee IRA participants may generally contribute to an AARP No-Fee
IRA up to the lesser of $2,000 or 100% of their compensation or earned income.
If both a husband and wife work, each may set up an AARP No-Fee IRA before the
year they attain age 70 1/2, permitting a potential maximum contribution of
$4,000 per year for both persons. Alternatively, if your compensation during the
taxable year exceeds your spouse's and you file a joint income tax return, you
may contribute up to the lesser of $4,000 or 100% of your aggregate income to
separate IRAs for yourself and your spouse, but no more than $2,000 to either
IRA.
An individual will be allowed a full deduction for contributions to an
AARP No-Fee IRA only if (1) neither the individual, nor his or her spouse, if
they file a joint return, is an active participant in an employer-maintained
retirement plan, or (2) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a certain level ($25,050 for a single
individual, with a phase-out of the deduction for adjusted gross income between
$25,050 and $35,000; $40,050 for married individuals filing a joint return, with
a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000). However, an individual not permitted to make a deductible contribution
may nonetheless make a nondeductible contribution to an AARP No-Fee IRA.
Any AARP member who is entitled to receive a qualifying distribution
from a qualified retirement plan (including a tax-sheltered annuity plan) or
another IRA may make a rollover contribution of all or any portion of the
distribution to the AARP No-Fee IRA, either in a direct rollover or within 60
days after receipt of the distribution, whether or not the member has attained
age 70 1/2. If a qualified rollover contribution is made, the distribution will
not
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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.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
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. Five-year averaging has been eliminated for
taxable years beginning after December 31, 1999. If members eligible to join
this Plan choose to roll over pension and profit-sharing distributions from
other tax-qualified retirement plans, they will retain the right to use the
averaging method for such distributions.
The Plans are prototype plans approved by the Internal Revenue Service.
In general, distributions from tax-qualified plans, such as the AARP
Keogh Plan, must begin by April 1st in the year following the year in which the
participant reaches age 70 1/2, or following the year in which the participant
retires,
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if later, unless the participant is a 5% owner, whether or not he or she
continues to be employed. Excise taxes will apply to premature distributions,
and to taxpayers who are required, but fail, to receive a distribution after
reaching age 70 1/2. An additional excise tax may apply to certain excess
retirement accumulations. Special favorable tax treatment for certain
distributions is reduced or phased out, except where grandfathering provisions
apply.
Shares of the Eligible Funds may be purchased also as an investment for
an IRA or tax-qualified retirement plan (including a tax-sheltered annuity plan)
other than those described above, if permitted by the provisions of the relevant
plan.
Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for
an individual Retirement Account which meets the requirements of Section 408A of
the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions from a Roth IRA are taxable
and subject to a 10% tax penalty unless an exception applies. Exceptions to the
10% penalty include: disability, excess medical expenses, the purchase of health
insurance for an unemployed individual and qualified higher education expenses.
An individual with an income $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
OTHER PLANS
(See "INVESTOR SERVICES" in the Prospectus.)
Automatic Investment
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts. The minimum pre-authorized investment amount
is $500. New shareholders who open a Gift to Minors Account pursuant to the
Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA)
and who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 10 month period. Investors may also invest in any AARP mutual fund for
$500 a month if they establish a plan with a minimum automatic investment of at
least $100 per month. This feature is only available to Gifts to Minors Account
investors. The Automatic Investment Plan may be discontinued at any time without
prior notice to a shareholder if any debit from their bank is not paid, or by
written notice to the shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce
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the average price of the shares purchased. However, this investment approach
does not assure a profit or protect against loss. This type of regular
investment program may be suitable for various investment goals such as, but not
limited to, college planning or saving for a home.
Automatic Withdrawal Plan
Shareholders who own or purchase $10,000 or more of shares of a AARP
Fund may establish an Automatic Withdrawal Plan with that Fund. The investor can
then receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. Shareholders may designate which day
they want the automatic withdrawal to be processed. The check amounts may be
based on the redemption of a fixed dollar amount, fixed share amount or percent
of account value or declining balance. The Automatic Withdrawal Plan provides
for income dividends and capital gains distributions, if any, to be reinvested
in additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "TRANSACTION INFORMATION-REDEEMING SHARES-SIGNATURE GUARANTEES"
in the Prospectus. Any such request must be received by the AARP Fund's transfer
agent 10 days prior to the date of the first automatic withdrawal. An Automatic
Withdrawal Plan may be terminated at any time by the shareholder, the AARP Funds
or their agents on written notice, and will be terminated when all shares of the
Funds under the Plan have been liquidated or upon receipt by the Funds of notice
of death of the shareholder. For more information concerning this plan, write to
the AARP Investment Program from Scudder, P.O. Box 2540, Boston, MA 02208-2540
or call, toll-free, 1-800-253-2277.
Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
DIVIDENDS AND YIELD
(See "UNDERSTANDING FUND PERFORMANCE" in the Prospectus.)
AARP Income Funds, AARP Growth Funds, AARP Tax Free General Bond Fund and AARP
Managed Investment Portfolios
Each AARP Fund intends to follow the practice of distributing
substantially all of its investment company taxable income (which includes, for
example, interest, dividends and any excess of net realized short-term capital
gains over net realized long-term capital losses, less deductible expenses), and
its net tax-exempt interest income, if any. Each AARP Fund also intends to
follow the practice of distributing any excess of net realized long-term capital
gains over net realized short-term capital losses after reduction for any
capital loss carryforwards. However, if it appears to be in the best interests
of a Fund and its shareholders, the Fund may retain all or part of such gain for
reinvestment.
AARP U.S. Stock Index Fund, AARP Balanced Stock and Bond Fund and AARP
Growth and Income Fund intend to pay dividends in March, June, September and
December of each year and any net realized capital gains after the September 30
fiscal year end. AARP Small Company Stock Fund, AARP International Growth and
Income Fund, AARP Global Growth Fund and AARP Capital Growth Fund intend to pay
dividends and any realized capital gains over net realized short-term capital
losses after reduction for any capital loss carryforwards in December after the
September 30 fiscal year end. See "TAXES."
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.
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The net income of each of the AARP Income Funds and the AARP Insured
Tax Free General Bond Fund, is determined as of the close of trading on the
Exchange (usually 4:00 p.m. Eastern time) on each day on which the Exchange is
open for business. All of the net income so determined normally will be declared
as a dividend daily to shareholders of record as of 4:00 p.m. on the preceding
day, and distributed monthly. Dividends commence on the next business day after
purchase. Dividends which are not paid by check will be reinvested in additional
shares of the particular Fund at the net asset value per share determined as of
a day selected within five days of the last business day of the month. Checks
will be mailed to shareholders no later than the fourth business day of the
following month, and consolidated statements confirming the month's dividends
will be mailed to shareholders electing to invest dividends in additional
shares. Dividends will ordinarily be invested on the last business day of each
month at the net asset value per share determined as of the close of regular
trading on the Exchange.
AARP Money Funds
The net investment income of the AARP Money Funds is determined as of
the close of regular trading on the Exchange (usually 4:00 p.m. Eastern time) on
each day on which the Exchange is open for business.
All the investment income of the AARP Money Funds so determined
normally will be declared as a dividend to shareholders of record as of
determination of the net asset value at twelve o'clock noon after the purchase
and redemption of shares. Shares purchased as of the determination of net asset
value made as of the close of the Exchange will not participate in that day's
dividend; in such cases dividends commence on the next business day. Checks will
be mailed to shareholders electing to take dividends in cash, and confirmations
will be mailed to shareholders electing to invest dividends in additional shares
for the month's dividends on the fourth business day of the next month.
Dividends will be invested at the net asset value per share, normally $1.00,
determined as of 4 p.m. on the first business day of each month.
Dividends are declared daily on each day on which the Exchange is open
for business. The dividends for a business day immediately preceding a weekend
or holiday will normally include an amount equal to the net income for the
subsequent days on which dividends are not declared. However, no daily dividend
will include any amount of net income in respect of a subsequent semi-annual
accounting period.
Because the net investment income of the AARP Money Funds is declared
as a dividend each time the net income of the Fund is determined, the net asset
value per share of the Fund (i.e., the fair value of the net assets of the Fund
divided by the number of shares of the Fund outstanding) will remain at $1.00
per share immediately after each such determination and dividend declaration,
unless (i) there are unusual or extended fluctuations in short-term interest
rates or other factors, such as unfavorable changes in the creditworthiness of
issuers affecting the value of securities in the Fund's portfolio, or (ii) net
investment income is a negative amount.
Net investment income (from the time of the immediately preceding
determination thereof) consists of (i) all interest income accrued on the
portfolio assets of the Fund less (ii) all actual and accrued expenses. Interest
income included in the daily computation of net income is comprised of original
issue discount earned on discount paper accrued ratably to the date of maturity
as well as accrued interest. Expenses of the AARP Money Funds, including the
management fee payable to the Fund Manager, are accrued each day.
Normally the AARP Money Funds will have a positive net investment
income at the time of each determination thereof. Net investment income may be
negative if an unexpected liability must be accrued or a loss realized. If the
net investment income of the AARP Money Funds determined at any time is a
negative amount, the net asset value per share will be reduced below $l.00
unless one or more of the following steps are taken: the Trustees have the
authority (l) to reduce the number of shares in each shareholder's account, (2)
to offset each shareholder's pro rata portion of negative net investment income
from the shareholder's accrued dividend account or from future dividends, or (3)
to combine these methods in order to seek to maintain the net asset value per
share at $l.00. The AARP Money Funds may endeavor to restore the net asset value
per share to $l.00 by not declaring dividends from net investment income on
subsequent days until restoration, with the result that the net asset value per
share will increase to the extent of positive net investment income which is not
declared as a dividend.
Distributions of realized capital gains, if any, are paid in November
or December of the AARP Money Funds' taxable year although the Fund may make an
additional distribution within three months of the Fund's fiscal year end of
49
<PAGE>
September 30. The AARP Money Funds expect to follow the practice of distributing
all net realized capital gains to shareholders and expect to distribute realized
capital gains at least annually. However, if any realized capital gains are
retained by the AARP Money Funds for reinvestment and federal income taxes are
paid thereon by the Fund, the Fund will elect to treat such capital gains as
having been distributed to shareholders; as a result, shareholders would be able
to claim their share of the taxes paid by the Fund on such gains as a credit
against their individual federal income tax liability.
Should the AARP Money Funds incur or anticipate any unusual or
unexpected significant expense, depreciation or loss which would affect
disproportionately the Fund's income for a particular period, the Trustees of
the Funds or the Executive Committee of the Trustees may at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances in order to ameliorate to the extent
possible the disproportionate effect of such expense or loss on then existing
shareholders. Such expenses may nevertheless result in a shareholder's receiving
no dividends for the period during which the shares are held and in receiving
upon redemption a price per share lower than that which was paid.
Performance Information: Computation of Yields and Total Return
a) The AARP Money Funds
From time to time, quotations of an AARP Money Fund's yield may be
included in advertisements, sales literature or shareholder reports. These yield
figures are calculated in the following manner:
The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent. The current yield of the AARP High Quality
Money Fund and the AARP High Quality Tax Free Money Fund for the seven-day
period ended September 30, ____ 1998, was % and %, respectively. The AARP
Premium Money Fund commenced operations on February 1, 1999.
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,
1998, was % and %, respectively. The AARP Premium Money Fund commenced
operations on February 1, 1999.
As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.
In connection with communicating its current yield and effective yield
to current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual Funds tracked by mutual Fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
b) The AARP Money Funds, AARP Income Funds, AARP Growth Funds, AARP
Insured Tax Free General Bond Fund and AARP Managed Investment
Portfolios
From time to time, quotations of a Fund's total return may be included
in advertisements, sales literature or shareholder reports. This total return
figure is calculated in the following manner:
50
<PAGE>
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
9/30/98 9/30/98 9/30/98(1)
<S> <C> <C> <C>
AARP High Quality Money Fund
AARP High Quality Tax Free Money Fund*
AARP High Quality Short Term Bond
AARP GNMA and U.S. Treasury
AARP Bond Fund for Income+++
AARP Insured Tax Free General Bond
AARP Balanced Stock and Bond Fund
AARP Growth and Income
AARP U.S. Stock Index Fund+++
AARP Global Growth Fund
AARP Capital Growth
AARP International Growth and Income Fund+++
AARP Small Company Stock Fund+++
AARP Diversified Income With Growth Portfolio+++
AARP Diversified Growth Portfolio+++
</TABLE>
(1) For the ten fiscal years ended September 30, 1998 for each of the above
listed Funds except for the period February 1, 1994 (commencement of
operations) to September 30, 1998 for the AARP Balanced Stock and Bond
Fund and for the period February 1, 1996 (commencement of operations)
to September 30, 1998 for the AARP Global Growth Fund.
* Prior to August 1, 1991, the AARP High Quality Tax Free Money Fund
operated as the AARP Insured Tax Free Short Term Fund. The total return
figures for the five and ten years ended September 30, 1998 for the
AARP High Quality Tax Free Money Fund are representative of the Fund
prior to its conversion date except that the figures have been adjusted
to reflect its conversion to a money market fund.
+++ AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Growth and Income Fund, AARP Small Company Stock Fund,
AARP Diversified Income With Growth Portfolio and AARP Diversified
Growth Portfolio commenced operations on February 1, 1997.
AARP Premium Money Fund commenced operations on February 1, 1999 and no
shares were outstanding during these time periods.
In addition to total return described above, the Funds may quote
nonstandard "cumulative total return."
51
<PAGE>
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
9/30/98 9/30/98 9/30/98(1)
<S> <C> <C> <C>
AARP Balanced Stock and Bond Fund
AARP Growth and Income
AARP U.S. Stock Index Fund+++
AARP Global Growth Fund
AARP Capital Growth
AARP International Growth and Income Fund+++
AARP Small Company Stock Fund+++
AARP Diversified Growth Portfolio+++
</TABLE>
(1) For the period February 1, 1994 (commencement of operations) to
September 30, 1997 for the AARP Balanced Stock and Bond Fund and for
the period February 1, 1996 (commencement of operations) to September
30, 1997 for the AARP Global Growth Fund.
+++ AARP U.S. Stock Index Fund, AARP International Growth and Income Fund,
AARP Small Company Stock Fund and AARP Diversified Growth Portfolio
commenced operations on February 1, 1997.
AARP Premium Money Fund commenced operations on February 1, 1999 and no
shares were outstanding during these time periods.
c) The AARP Income Funds, AARP Insured Tax Free General Bond Fund and AARP
Diversified Income With Growth Portfolio
From time to time, quotations of an AARP Fund's yield may be included
in advertisements, sales literature or shareholder reports. This yield is
calculated in the following manner.
The yield is the net annualized SEC yield based on a specified 30-day
(or one month) period assuming semiannual compounding of income. Yield is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
52
<PAGE>
YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the
period, including (except for mortgage or
receivable-backed obligations) the
amortization of market premium or accretion
of market discount. For mortgage or
receivables-backed obligations, this amount
includes realized gains or losses based on
historic cost for principal repayments
received.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
Yield for the 30-day period
Fund ended September 30, 1998
---- ------------------------
AARP High Quality Short Term Bond
AARP GNMA and U.S. Treasury
AARP Bond Fund for Income+++
AARP Insured Tax Free General Bond
AARP Diversified Income With Growth Portfolio+++
+++ AARP Bond Fund for Income and AARP Diversified Income With Growth
Portfolio commenced operations on February 1, 1997.
d) AARP Insured Tax Free General Bond and AARP High Quality Tax Free Money
Fund
The tax equivalent yield is the net annualized after-tax yield based on
a specified seven day period for money market funds or on a specified 30-day
(one month) period for non-money market funds assuming a reinvestment of all
dividends paid during the period, i.e., compounding. Tax equivalent yield is
calculated by dividing that portion of the Fund's yield (as computed in the
yield description above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
<TABLE>
<CAPTION>
Equivalent Taxable Yields
period ended September 30, 1998
-------------------------------
Fund Tax Bracket: 28% 31%
----
<S> <C> <C> <C>
AARP High Quality Tax Free Money
AARP Insured Tax Free General Bond
AARP High Quality Tax Free Money
</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
53
<PAGE>
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:
Dow Jones Industrial Average, Standard & Poor's 500 Composite Stock Price Index
(S&P 500), The Europe/Australia/Far East (EAFE) Index, Russell 2000, Lehman
Brothers Aggregate Bond Index, Merrill Lynch Master Mortgage Index, Morgan
Stanley Capital International World Index, J.P. Morgan Global Traded Bond Index,
and Salomon Brothers World Government Bond Index.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Evaluation of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about these Funds. Sources for AARP Fund
performance information and articles about the AARP Funds may include, but are
not limited to, the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by MasterFund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Federal Reserve Bulletin, a monthly publication that reports domestic and
international financial statistics, including short-term certificate of deposit
interest rates.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
54
<PAGE>
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.
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.
55
<PAGE>
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.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
56
<PAGE>
TRUST ORGANIZATION
(See "FUND ORGANIZATION" in the Prospectus.)
Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP High Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury Fund,
and the AARP Bond Fund for Income are series of AARP Income Trust. AARP High
Quality Tax Free Money Fund and AARP Insured Tax Free General Bond Fund are
series of AARP Tax Free Income Trust which changed its name from AARP Insured
Tax Free Income Trust on August 1, 1991. AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP U.S. Stock Index Fund, AARP Global Growth Fund,
AARP Capital Growth Fund, AARP International Growth and Income Fund and AARP
Small Company Stock Fund are series of AARP Growth Trust. Each of the above
Trusts was established under a separate Declaration of Trust dated June 8, 1984.
AARP High Quality Money Fund and the AARP Premium Money Fund are series of the
AARP Cash Investment Funds, which was established under a Declaration of Trust
dated January 20, 1983. The original name of AARP Cash Investment Funds was
Master Investment Services Fund. That name was changed to AARP Money Fund Trust
on February 6, 1985, and to its present name on May 24, 1985. AARP Diversified
Income With Growth Portfolio and AARP Diversified Growth Portfolio are series of
AARP Managed Investment Portfolios Trust which was established under a
Declaration of Trust on October 21, 1996. Each Trust's shares of beneficial
interest of $.01 (AARP High Quality Tax Free Money Fund $.001) par value per
share are issued in separate series. AARP Cash Investment Funds has two 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 of each Trust 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 each Trust, and are to be
charged with the liabilities of that series. The Trustees have determined that
expenses with respect to all series in a Trust are to be allocated in proportion
to the net asset value, or such other reasonable basis, of the respective series
in that Trust except where allocations of direct expenses can otherwise be more
fairly made. The officers of the Trusts, subject to the general supervision of
the Trustees, have the power to determine which liabilities are allocable to all
the series in a Trust. Each Trust's Declaration of Trust provides that
allocations so made to each series shall be binding on all persons. While each
Declaration of Trust provides that liabilities of a series may be satisfied only
out of the assets of that series, it is possible that if a series were unable to
meet its obligations, a court might find that the assets of other series in the
Trust should satisfy such obligations. In the event of the dissolution or
liquidation of a Trust, the holders of the shares of each series are entitled to
receive as a class the underlying assets of that series available for
distribution to shareholders.
Shareholders are entitled to one vote per share. Separate votes are
taken by each series on all matters except where the 1940 Act requires that a
matter be decided by the vote of shareholders of all series of a Trust voting
together or where a matter affects only one of the series, in which case only
shareholders of that series shall vote thereon. For example, a change in
investment policy for a series would be voted upon only by shareholders of the
series involved. Additionally, approval of each Trust's investment advisory
agreement is a matter to be determined separately by each series in that Trust.
Approval of the agreement by the shareholders of one series in a Trust is
effective as to that series whether or not enough votes are received from the
shareholders of other series in the Trust to approve such agreement as to the
other series.
The Trustees of the Trusts have the authority to establish additional
series and to designate the relative rights and preferences as between the
series. All shares issued and outstanding of each series that is offered by a
Trust will be fully paid and non-assessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.
Each Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with 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
57
<PAGE>
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.)
Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to the Funds.
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 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, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, 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, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
Pursuant to an Agreement between the Fund Manager and AMA Solutions,
Inc., a subsidiary of the American Medical Association (the "AMA"), dated May 9,
1997, Scudder has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by Scudder with respect to assets invested by AMA members in Scudder
funds in connection with the AMA InvestmentLinkSM Program. Scudder will also pay
AMA Solutions, Inc. a general monthly fee, currently in the amount of $833. The
AMA and AMA Solutions, Inc. are not engaged in the business of providing
investment advice and neither is registered as an investment adviser or
broker/dealer under federal securities laws. Any person who participates in the
AMA InvestmentLinkSM Program will be a customer of Scudder (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM is a
service mark of AMA Solutions, Inc.
The Fund Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Fund Manager receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Fund Manager's clients. However, the Fund Manager regards
this information and material as an adjunct to its own research activities.
Scudder's international investment management team travels the world,
researching hundreds of companies. In selecting the securities in which a Fund
may invest, the conclusions and investment decisions of the Fund Manager with
respect to a Fund are based primarily on the analyses of its own research
department.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Fund Manager. Investment decisions for a Fund and 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 client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the 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
58
<PAGE>
amount of the securities purchased or sold by a Fund. Purchase and sale orders
for a Fund may be combined with those of other clients of the Fund Manager in
the interest of achieving the most favorable net results to a Fund.
An investment management agreement dated _________ was approved by the
Trustees of each Trust on ____________ and by the initial shareholder of the
Fund on ____________. Because the transaction between Scudder and Zurich
resulted in the assignment of the Fund's investment management agreement with
Scudder, that agreement was deemed to be automatically terminated at the
consummation of the transaction. In anticipation of the transaction, however, a
new investment management agreement between each Trust on behalf of the Funds
and the Fund Manager was approved by each Trust's Trustees on August 6, 1997. At
the special meeting of the Funds' shareholders held on October 27, 1997, the
shareholders also approved the new investment management agreement. The
investment management agreement became effective as of December 31, 1997. The
investment management agreement is in all material respects on the same terms as
the previous investment management agreement which it supersedes. The Agreement
incorporates conforming changes which promote consistency among all of the funds
advised by the Fund Manager and which permit ease of administration.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Fund Manager) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Funds' existing investment
management agreement with the Fund Manager was deemed to have been assigned and,
therefore, terminated. The Board approved a new investment management agreement
(the "Agreement") with the Fund Manager, which is substantially identical to the
current investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved at special meetings
held in December 1998. The Agreement will continue in effect until September 30,
1999 and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Fund Manager or the Funds, cast in person
at a meeting called for the purpose of voting on such approval, and either by a
vote of each Trust's Trustees or of a majority of the outstanding voting
securities of each Fund. The 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.
Under the Agreement, the Fund Manager regularly provides each Fund with
continuing investment management for each Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of each Fund's
assets shall be held uninvested, subject to each Trust's Declaration of Trust,
By-Laws, the 1940 Act, the Code and to each Fund's investment objective,
policies and restrictions, and subject, further, to such policies and
instructions as the Board of Trustees of each Fund may from time to time
establish. The Fund Manager also advises and assists the officers of the Funds
in taking such steps as are necessary or appropriate to carry out the decisions
of its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of each Fund.
Under the Agreement, the Fund Manager renders significant
administrative services (not otherwise provided by third parties) necessary for
the Funds' operations as open-end investment companies including, but not
limited to, preparing reports and notices to the Trustees and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to a Fund (such as a Fund's transfer agent,
pricing agents, Custodian, accountants and others); preparing and making filings
with the SEC and other regulatory agencies; assisting in the preparation and
filing of a Fund's federal, state and local tax returns; preparing and filing a
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of a Fund under applicable federal
and state securities laws; maintaining a Fund's books and records to the extent
not otherwise maintained by a third party; assisting in establishing accounting
policies of a Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring a Fund's operating budget; processing the payment of
a Fund's bills; assisting a Fund in, and otherwise arranging for, the payment of
distributions and dividends and otherwise assisting a Fund in the conduct of its
business, subject to the direction and control of the Trustees.
59
<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, 1998 were over $ billion.
All AARP Funds pay a flat individual Fund fee monthly based on the net
assets of that Fund, except AARP Diversified Investment Income Portfolio and
AARP Diversified Investment Growth Portfolio.
The individual Fund fees are as follows:
AARP High Quality Money Fund, 10/1200 of 1% (or approximately 0.10 of
1% on an annual basis);
AARP Premium Money Fund, 10/1200 of 1% (or approximately 0.10 of 1% on
an annual basis);
AARP High Quality Short Term Bond Fund, 19/1200 of 1% (or approximately
0.19 of 1% on an annual basis);
AARP GNMA and U.S. Treasury Fund, 12/1200 of 1% (or approximately 0.12
of 1% on an annual basis);
AARP Bond Fund for Income, 28/1200 of 1% (or approximately 0.28 of 1%
on an annual basis);
AARP High Quality Tax Free Money Fund, 10/1200 of 1% (or approximately
0.10 of 1% on an annual basis);
AARP Insured Tax Free General Bond Fund, 19/1200 of 1% (or
approximately 0.19 of 1% on an annual basis);
AARP Balanced Stock and Bond Fund, 19/1200 of 1% (or approximately 0.19
of 1% on an annual basis);
AARP Growth and Income Fund, 19/1200 of 1% (or approximately 0.19 of 1%
on an annual basis);
AARP U.S. Stock Index Fund, 0/1200 of 1% (0 of 1% on an annual basis);
AARP Global Growth Fund, 55/1200 of 1% (or approximately 0.55 of 1% on
an annual basis);
AARP Capital Growth Fund, 32/1200 of 1% (or approximately 0.32 of 1% on
an annual basis);
AARP International Growth and Income Fund, 60/1200 of 1% (or
approximately 0.60 of 1% on an annual basis);
AARP Small Company Stock Fund, 55/1200 of 1% (or approximately 0.55 of
1% on an annual basis);
AARP Diversified Income With Growth Portfolio, n/a; AARP Diversified
Growth Portfolio, n/a.
The advisory fees from the Management Agreement for the three fiscal
years ended September 30, 1996 , 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund
AARP Premium Money Fund*** n/a n/a n/a
60
<PAGE>
1996 1997 1998
---- ---- ----
AARP GNMA and U.S. Treasury Fund
AARP High Quality Short Term Bond Fund
AARP Bond Fund for Income**
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 U.S. Stock Index Fund**
AARP Global Growth Fund*
AARP Capital Growth Fund
AARP International Growth & Income Fund**
AARP Small Company Stock Fund**
AARP Diversified Income with Growth Portfolio** n/a
AARP Diversified Growth Portfolio** n/a
</TABLE>
* AARP Global Growth Fund commenced operations on February 1, 1996.
** AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Growth and Income Fund, AARP Small Company Stock Fund, AARP
Diversified Income With Growth Portfolio and AARP Diversified Growth
Portfolio commenced operations on February 1, 1997.
*** AARP Premium Money Fund commenced operations on February 1, 1999.
Each Management Agreement provides that the Fund Manager will reimburse
the AARP Funds or the Trust for annual expenses, although no payments are
required to be made by the Fund Manager pursuant to this reimbursement provision
in excess of the annual fee paid by the funds of a Trust to the Fund Manager.
Certain expenses such as brokerage commissions, taxes, extraordinary expenses
and interest are excluded from such limitation. The Fund Manager has agreed that
its obligation to reimburse the Funds will not be restricted to the amounts of
the management fees. Such agreement may be modified or withdrawn without
shareholder approval.
The expense ratios, net of voluntary and statutory fee waivers and
reimbursements of expenses, for the periods ended September 30, 1996, 1997 and
1998 were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund
AARP Premium Money Fund*** n/a n/a n/a
AARP High Quality Short Term Bond Fund
AARP GNMA and U.S. Treasury Fund
AARP Bond Fund for Income**
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 U.S. Stock Index Fund**
AARP Global Growth Fund*
AARP Capital Growth Fund
AARP International Growth and Income Fund**
AARP Small Company Stock Fund**
AARP Diversified Income With Growth Portfolio** n/a n/a n/a
AARP Diversified Growth Portfolio** n/a n/a n/a
</TABLE>
* AARP Global Growth Fund commenced operations on February 1, 1996.
** AARP Bond Fund for Income, AARP U.S. Stock Index Fund, AARP
International Growth and Income Fund, AARP Small Company Stock Fund,
AARP Diversified Income With Growth Portfolio and AARP Diversified
Growth Portfolio commenced operations on February 1, 1997.
*** AARP Premium Money Fund commenced operations on February 1, 1999.
61
<PAGE>
For the fiscal year ended September 30, 1997, the reimbursement by the
Fund Manager based on the expense limitation in effect was $____ to AARP Global
Growth Fund, and $____ for the fiscal year ended September 30, 1998.
For the fiscal year ended September 30, 1998, the reimbursement and
expense reductions based on the expense limitation in effect was $____ to AARP
Global Growth Fund.
For the fiscal year ended September 30, 1998, the reimbursement and
expense reductions based on the expense limitation in effect was $____ to AARP
Bond Fund.
For the fiscal year ended September 30, 1998, the reimbursement and
expense reductions based on the expense limitation in effect was $____ to AARP
Small Company Stock Fund.
For the fiscal year ended September 30, 1998, the reimbursement and
expense reductions based on the expense limitation in effect was $____ to AARP
U.S. Stock Index Fund.
For the fiscal year ended September 30, 1998, the reimbursement and
expense reductions based on the expense limitation in effect was $____ to AARP
International Growth and Income Fund.
If reimbursement is required, it will be made as promptly as
practicable after the end of each Fund's fiscal year. However, no fee payment
will be made to the Fund Manager during any fiscal year which will cause
year-to-date expenses to exceed the cumulative pro rata expense limitation at
the time of such payment. The amortization of organizational costs is described
herein under "ADDITIONAL INFORMATION -- Other Information."
Under the Management Agreements, each Trust is responsible for all of
its other expenses including organizational expenses; clerical salaries; fees
and expenses incurred in connection with membership in investment company
organizations; brokers' commissions; any fees for portfolio pricing paid to a
pricing agent; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates, if any, and any other expenses including clerical expenses of
issue, redemption or repurchase of shares; the expenses and fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees of the
Trust who are not affiliated with the Fund Manager, Scudder Kemper Investments,
Inc., AARP Financial Services Corporation or AARP; the cost of preparing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. Each Trust may arrange to have third parties assume all or part
of the expenses of sale, underwriting and distribution of shares of the Trust.
Each Trust is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement for each Trust provides that the custodian shall compute the net asset
value for that Trust.
Each Management Agreement provides that the Fund Manager shall not be
required to pay expenses of distribution of the Funds' shares to the extent that
(i) such distribution expenses are, pursuant to a written contract, to be borne
by a principal underwriter of the Trust ("Scudder Investor Services, Inc." is
principal underwriter for the AARP Trusts), (ii) the Trust shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act ("Rule 12b-1 plan")
providing for the Trust (or the Funds or some other party) to assume some or all
of such expenses, or (iii) such expenses are required to be paid by the Fund
Manager. To the extent such expenses of distribution are not to be borne by a
principal underwriter, or are not permitted to be paid by the Trust (or a Fund
or such other party) pursuant to a Rule 12b-1 plan, they are to be assumed by
the Fund Manager. (The adoption of a Rule 12b-1 plan by a Trust would require
the approval of the Trustees, including a majority of those Trustees who are not
interested persons of the Trust, and of a majority of the outstanding voting
securities of each Fund.)
The Investment Management Agreements for all Funds will remain in
effect until August 31, 1999 and from year to year thereafter only if their
continuance is specifically approved at least annually by the vote of a majority
of those Trustees who are not parties to such Agreements or "interested persons"
of the Fund Manager or the particular Trust cast in person at a meeting called
for the purpose of voting on such approval and either by vote of a majority of
the Trustees or, with respect to each Fund, by a majority of the outstanding
voting securities of that Fund.
62
<PAGE>
Pursuant to a Subadvisory Agreement entered into between the Fund
Manager and Bankers Trust Company on September 7, 1998, Bankers Trust Company
(the "Subadviser") provides subadvisory services relating to the management of
the AARP U.S. Stock Index Fund. The fee paid to the Subadviser is calculated on
a quarterly basis and depends on the level of total assets in the AARP U.S.
Stock Index Fund. The fee rate decreases as the level of total assets for the
Fund increases. The fee rate for each level of assets is: 0.07% of the first
$100 million of average daily net assets, 0.03% of such assets in excess of $100
million, and 0.01% of such assets in excess of $200 million with a minimum
annual fee of $75,000. For the period from February 1, 1997 to February 1, 1998,
the Subadviser has agreed to discount this fee by 15%. Fees paid to the
Subadviser during the fiscal period ended September 30, 1997 totaled $42,323.
Without the discount during that period, such fees would have totaled $75,000.
For the fiscal year ended September 30, 1998, the Subadviser received $_________
in fees.
A Special Servicing Agreement (the "Service Agreement") has been
entered into among the Fund Manager, the Underlying AARP Mutual Funds, Scudder
Service Corporation, Scudder Fund Accounting Corporation, Scudder Investor
Services, Inc. and the AARP Managed Investment Portfolios Trust on February 1,
1997. Under the Service Agreement, the Fund Manager will arrange for all
services pertaining to the operation of the Trust including the services of
Scudder Service Corporation and Scudder Fund Accounting Corporation to act as
Shareholder Servicing Agent and Fund Accounting Agent, respectively, for each
Portfolio. In addition, the Service Agreement will provide that, if the officers
of any Underlying AARP Mutual Fund, at the direction of the Board of Trustees,
determine that the aggregate expenses of a Portfolio are less than the estimated
savings to the Underlying AARP Mutual Fund from the operation of that Portfolio,
the Underlying AARP Mutual Fund will bear those expenses in proportion to the
average daily value of its shares owned by that Portfolio. No Underlying AARP
Mutual Fund will bear such expenses in excess of the estimated savings to it.
Such savings are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been invested directly in
the Underlying AARP Mutual Funds and the resulting reduction in shareholder
servicing costs. In this regard, the shareholder servicing costs to any
Underlying AARP Mutual Fund for servicing one account registered to the Trust
would be significantly less than the cost to that same Underlying AARP Mutual
Fund of servicing the same pool of assets contributed in the typical fashion by
a large group of individual shareholders owning small accounts in each
Underlying AARP Mutual Fund.
Based on actual expense data from the Underlying AARP Mutual Funds and
certain very conservative assumptions with respect to the Trust, the Fund
Manager, the Underlying AARP Mutual Funds, Scudder Service Corporation, Scudder
Investor Services, Inc., Scudder Fund Accounting Corporation, Scudder Trust
Company and the Managed Investment Portfolios anticipate that the aggregate
financial benefits to the Underlying AARP Mutual Funds from these arrangements
will exceed the costs of operating the Portfolios. If such turns out to be the
case, there will be no charge to the Trust for the services under the Service
Agreement. Rather, in accordance with the Service Agreement, such expenses will
be passed through to the Underlying AARP Mutual Funds in proportion to the value
of each Underlying AARP Mutual Fund's shares held by each Portfolio.
In the event that the aggregate financial benefits to the Underlying
AARP Mutual Funds do not exceed the costs of a Portfolio, the Fund Manager will
pay, on behalf of that Portfolio, that portion of costs, as set forth herein,
determined to be greater than the benefits. The determination of whether and the
extent to which the benefits to the Underlying AARP Mutual Funds from the
organization of the Trust will exceed the costs to such funds will be made based
upon the analysis criteria set forth in the Order. This cost-benefit analysis
was initially reviewed by the Trustees of the Underlying AARP Mutual Funds
before participating in the Service Agreement. For future years, there will be
an annual review of the Service Agreement to determine its continued
appropriateness for each Underlying AARP Mutual Fund.
Certain non-recurring and extraordinary expenses will not be paid in
accordance with the Service Agreement including: the fees and costs of actions,
suits or proceedings and any penalties or damages in connection therewith, to
which a Portfolio may incur directly, or may incur as a result of its legal
obligation to provide indemnification to its officers, trustees and agents; the
fees and costs of any governmental investigation and any fines or penalties in
connection therewith; and any federal, state or local tax, or related interest
penalties or additions to tax, incurred, for example, as a result of the
Portfolios' failure to distribute all of its earnings, failure to qualify under
subchapter M of the Internal Revenue Code, or failure to timely file any
required tax returns or other filings. Under unusual circumstances, the parties
to the Service Agreement may agree to exclude certain other expenses.
63
<PAGE>
Each Investment Management Agreement provides that the Fund Manager
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with matters to which the respective
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Fund Manager in the performance of its
duties or from reckless disregard by the Fund Manager of its obligations and
duties under the respective agreement.
In reviewing the terms of each Investment Management Agreement and in
discussions with the Fund Manager concerning such agreements, the Trustees of
each Trust who are not "interested persons" of that Trust have been represented
by independent counsel at the Trust's expense.
Pursuant to a Member Services Agreement with the Fund Manager, dated
September 7, 1998, AARP Financial Services Corp. ("AFSC") provides the Fund
Manager with nondistribution related service and advice primarily concerning
designing and tailoring the AARP Investment Program from Scudder and its Funds
to meet the needs of AARP's members on an ongoing basis. AARP Financial Services
Corp. receives, as compensation for its services, a Monthly Member Services fee.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is 0.07 of 1%
for the first $6 billion, 0.06 of 1% for the next $10 billion and 0.05 of 1%
thereafter.
The Member Services Agreement will remain in effect until August 31,
1999 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 August 4, 1998 and by
shareholders on December 15, 1998. 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.
The Fund Manager may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
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.
64
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
Linda C. Coughlin##* (47) Chairperson of the Managing Director of Scudder Director and Senior
Board and Trustee Kemper Investments, Inc. Vice President
Horace B. Deets+* (60) Vice Chairman and Executive Director, American --
(Trustee of AARP Cash Trustee Association of Retired Persons
Investment Funds, AARP Growth
Trust and AARP Tax Free Income
Trust only)
Carole Lewis Anderson (54) Trustee President, MASDUN Capital --
3616 Reservoir Road, N.W. Advisors; Principal, Suburban
Washington, DC 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 (68) Trustee Consultant, Gerontology --
270-28N Grand Central Parkway Commissioner, County of Nassau,
Floral Park, NY New York, Department of Senior
Citizen Affairs (1971-1991),
Member, NYC Department of Aging
Advisory Council; Chairperson,
Federal Council on Aging
(1981-1986)
Robert N. Butler, M.D. (72) 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)
65
<PAGE>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Esther Canja+* (71) Trustee Vice President, American --
(AARP Managed Investment Portfolios Association of Retired Persons;
and AARP Income Trust only) 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 (69) Trustee Senior Fellow and Economic --
50023 Brogden Counselor, The Conference Board,
Chapel Hill, NC Inc.
Lt. Gen. Eugene P. Forrester (72) Trustee Lt. General (Retired), U.S. --
1101 S. Arlington Ridge Rd. Army; International Trade
Arlington, VA Counselor (1983 to present);
Consultant
George L. Maddox, Jr. (73) 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 (86) 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:
Manufacturers Investment Trust,
Inc.; Member, Prospective
Payment Assessment Commission
(1993-1997)
James H. Schulz (62) 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
66
<PAGE>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
Gordon Shillinglaw (73) Trustee Professor Emeritus of --
115 Live Oak Lane Accounting, Columbia University
Largo, FL Graduate School of Business
Jean Gleason Stromberg (55) Trustee Consultant, Director, Financial
3816 Military Road, NW Institutions Issues, U.S.
Washington, D.C. General Accounting Office
(11/96-9/97); Partner, Fulbright
& Jaworski Law Firm (1978-1996)
William Glavin (40)## Vice President Senior Vice President of Vice President
Scudder Kemper Investments, Inc.
Thomas W. Joseph## (59) Vice President Principal of Scudder Kemper Vice President,
Investments, Inc. Director, Treasurer and
Assistant Clerk
Thomas F. McDonough## (52) Vice President and Principal of Scudder Kemper Clerk
Assistant Secretary Investments, Inc.
James W. Pasman## (46) Vice President Principal of Scudder Kemper --
Investments, Inc.
Kathryn L. Quirk# (46) Vice President, Managing Director of Scudder Director, Senior Vice
Treasurer and Kemper Investments, Inc. President and Assistant
Secretary Clerk
Howard Schneider## (41) Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John Hebble (40)## Assistant Treasurer Senior Vice President, Scudder --
Kemper Investments, Inc.
Cornelia M. Small# (54) President Managing Director of Scudder --
Kemper Investments, Inc.
</TABLE>
* Mr. Deets, Ms. Canja and Ms. Coughlin are Trustees of each of the
Trusts and are considered by the Trusts and their counsel to be persons
who are "interested persons" of the Trusts (within the meaning of the
1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Address: 345 Park Avenue, New York, New York
## Address: Two International Place, Boston, Massachusetts
+ Address: 601 E Street, N.W., Washington, D.C.
As of December 31, 1998, shares in the aggregate, % of the outstanding
shares of AARP Bond Fund for Income were held in the name of State Street Bank
and Trust Company, Custodian for AARP Diversified
67
<PAGE>
income with Growth Portfolio, One Heritage Drive, Quincy, MA 02171, which may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP Bond Fund for Income were held in the name of State
Street Bank and Trust Company, Custodian for AARP Diversified Growth Portfolio,
One Heritage Drive, Quincy, MA 02171, which may be deemed to be the beneficial
owner of certain of these shares, but disclaims any beneficial ownership
therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP U.S. Stock Index Fund were held in the name of
American Association of Retired Persons, AARP Membership Division, 601 E Street
NW, Washington, D.C. 20049, which may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP U.S. Stock Index Fund were held in the name of State
Street Bank and Trust Company, Custodian for AARP Diversified Growth Portfolio,
One Heritage Drive, Quincy, MA 02171, which may be deemed to be the beneficial
owner of certain of these shares, but disclaims any beneficial ownership
therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP U.S. Stock Index Fund were held in the name of State
Street Bank and Trust Company, Custodian for AARP Diversified income with Growth
Portfolio, One Heritage Drive, Quincy, MA 02171, which may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP U.S. Stock Index Fund were held in the name of SS&C
Investment Corporation, 345 Park Avenue, New York, NY 10154, which may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP International Growth & Income Fund were held in the
name of State Street Bank and Trust Company, Custodian for AARP Diversified
Growth Portfolio, One Heritage Drive, Quincy, MA 02171, which may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of December 31, 1998, ____ shares in the aggregate, ____ % of the
outstanding shares of AARP Small Company Stock Fund were held in the name of
State Street Bank and Trust Company, Custodian for AARP Diversified Growth
Portfolio, One Heritage Drive, Quincy, MA 02171, which may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
To the best of each Trust's knowledge, as of December 31, 1998, no
person owned beneficially more than 5% of any Fund's outstanding shares, except
as stated above.
As of December 31, 1998, 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.
REMUNERATION
Several of the officers and Trustees of the Trusts may be officers or
employees of Scudder, Scudder Service Corporation, Scudder Investor Services,
Inc., Scudder Fund Accounting Corp., or Scudder Trust Company and will
participate in the fees received by such entities. No individual affiliated with
AARP will participate directly in any such fees. The Trusts pay no direct
remuneration to any officer of the Trusts. However, each of the Trustees who is
not affiliated with Scudder or AARP will be paid by the Trust(s) for which he or
she serves as Trustee. Until September 30, 1998, each of these unaffiliated
Trustees received an annual retainer of $10,000 plus $175 for each Trustees'
meeting and $80 for each audit committee meeting or meeting held for the purpose
of considering arrangements between the Fund and the Fund Manager or any of its
affiliates attended. Each unaffiliated Trustee also received $100 per nominating
committee meeting, other than an audit committee meeting, and $125 for each
additional committee meeting attended. If any such meetings are held jointly
with meetings of one or more mutual funds advised by the Fund
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Manager, a maximum fee of $800 for meetings of the Board, meetings of the
unaffiliated members of the Board for the purpose of considering arrangements
between the Fund and the Fund Manager or any of its affiliates or the audit
committees of such Funds, and $400 for all other committee meetings or meetings
of the unaffiliated members of the Board is paid, to be divided equally among
the Funds. For the year ended September 30, 1998, the Trustees' fees and
expenses for ____ of the Funds were as follows:
Fund Expense
---- -------
AARP High Quality Money Fund
AARP High Quality Short Term Bond Fund
AARP GNMA and U.S. Treasury 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 Bond Fund for Income
AARP U.S. Stock Index Fund
AARP International Growth and Income Fund
AARP Small Company Stock 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, 1998.
<TABLE>
<CAPTION>
AARP Cash AARP All AARP Trusts+
Investment AARP Tax Free AARP and Scudder
Name Funds+++- Income Trust@- Income Trust# Growth Trust##- Fund Complex
- ---- ------- -------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Carole L. Anderson
(16 funds)
Adelaide Attard
(16 funds)
Robert N. Butler
(16 funds)
Edgar R. Fiedler
(28 funds)
Eugene P. Forrester
(16 funds)
George L. Maddox, Jr.
(16 funds)
Robert J. Myers
(16 funds)
James H. Schulz
(16 funds)
Gordon Shillinglaw
(29 funds)
Jean Gleason Stromberg
(16 funds)
</TABLE>
+++ AARP Cash Investment Funds consisted of Fund during the period: AARP
High Quality Money .
@ AARP Income Trust consists of three Funds: AARP High Quality Short Term
Bond Fund, AARP GNMA and U.S. Treasury Fund, and AARP Bond Fund for
Income.*
# AARP Tax Free Income Trust consists of two Funds: AARP High Quality Tax
Free Money Fund and AARP Insured Tax Free General Bond Fund.
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## AARP Growth Trust consists of seven Funds: AARP Balanced Stock and Bond
Fund, AARP U.S. Stock Index Fund,* AARP Growth and Income Fund, AARP
Global Growth Fund,* AARP Capital Growth Fund, AARP International
Growth and Income Fund,* and AARP Small Company Stock Fund.*
+ AARP Diversified Income With Growth Portfolio and AARP Diversified
Growth Portfolio, series of AARP Managed Investment Portfolios Trust,
commenced operations on February 1, 1997.
* AARP Global Growth Fund commenced operations on February 1, 1996. AARP
Bond Fund for Income, AARP U.S. Stock Index Fund, AARP International
Growth and Income Fund, and AARP Small Company Stock Fund commenced
operations on February 1, 1997.
*** This amount includes $202,580 paid by the liquidation of Scudder
Institutional Fund, Inc., $21,189 incurred in deferred compensation by
Scudder Fund Inc., and $53,205 paid by the remaining Scudder Funds as
compensation for serving on the Boards of those Funds.
- - Amounts include pro rata share of Trustee's fees of AARP Managed
Investment Portfolios Trust paid by each of the Trusts pursuant to the Service
Agreement. See discussion of the Service Agreement under "Management of the
Funds" for further information.
DISTRIBUTOR
Each of the Trusts has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
subsidiary of Scudder, a Delaware corporation. The underwriting agreements for
all of the Trusts except AARP Managed Investment Portfolios Trust dated
September 4, 1985 will remain in effect until August 31, 1999 and from year to
year thereafter only if their continuance is approved annually by a majority of
the members of the Board of Trustees of each Trust who are not parties to such
agreement or interested persons of any such party and either by vote of a
majority of the Board of Trustees of each Trust or a majority of the outstanding
voting securities of each Trust. The underwriting agreement for AARP Managed
Investment Portfolios Trust is dated February 1, 1998 and will remain in effect
until August 31, 1999 and from year to year thereafter.
Under each Trust's principal underwriting agreement, the Trust is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of its registration statement and prospectus
and any amendments and supplements thereto; the registration and qualification
of shares for sale in the various states, including registering the Trust as a
broker or dealer; the fees and expenses of preparing, printing and mailing
prospectuses (see below for expenses relating to prospectuses paid by the
Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of the Trust; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); and the cost of printing and postage of business reply envelopes.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of shares of the
Funds to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Trust.
Note: Although each Trust does not currently have a Rule 12b-1 Plan and
shareholder approval would be required in order to adopt one, the underwriting
agreements provide that the Trust will also pay those fees and expenses
permitted to be paid or assumed by that Trust pursuant to a Rule 12b-1 Plan, if
any, adopted by each Trust, notwithstanding any other provision to the contrary
in the underwriting agreement and each Trust or a third party will pay those
fees and expenses not specifically allocated to the Distributor in the
underwriting agreement.
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.
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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.
The determination of the nature and amount of investment company
taxable income of a Fund will be based solely on the transactions in, and on the
income received and expenses incurred by or allocated to, the Fund. Each AARP
Fund intends to offset any realized net capital gains against any capital loss
carryforward before making capital gains distributions to shareholders.
Distributions of any investment company taxable income (which includes
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss, less expenses) are taxable to shareholders as ordinary
income. If a portion of a Fund's income consists of dividends paid by U.S.
corporations, a portion of the dividends paid by the Fund may be eligible for
the corporate dividends-received deduction.
Generally, each Fund will distribute any net capital gains (the excess
of its net realized long-term capital gain over its net realized short-term
capital loss). If a Fund retains its net capital gains for investment, requiring
Federal income tax to be paid thereon by the Fund, the Fund intends to elect to
treat such capital gains as having been distributed to its shareholders. As a
result, shareholders (a) will be required to include in income for Federal
income tax purposes, as long-term capital gains their proportionate share of
such undistributed amounts and (b) will be entitled to credit their
proportionate share of the Federal income tax paid thereon by the Fund against
their Federal income tax liability. In the case of shareholders whose long-term
capital gains would be taxed at a lower rate, the amount of the credit for tax
paid by a Fund in excess of the shareholder's actual tax on capital gains may be
applied to reduce the net amount of tax otherwise payable by such shareholders
in respect of their other income or, if no tax is payable, the excess may be
refunded. For Federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal to the difference
between its pro rata share of such gains and its tax credit. If a Fund retains
net capital gains, it may not be treated as having met the excise tax
distribution requirement.
Distributions of net capital gains that a Fund designates as capital
gains dividends are taxable to shareholders as long-term capital gains,
regardless of the length of time the shares of the Fund have been held by such
shareholders and are not eligible for the corporate dividends - received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain on
such shares.
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
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<PAGE>
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 may be
eligible for reduced capital gains rates, depending on the length of time the
Fund shares were held. However, if a shareholder realizes a loss on the sale of
a share held at the time of sale for six months or less, such loss will be
treated as long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain during such six-month period. A gain
realized on a redemption, sale or exchange will not be affected by a
reacquisition of shares. A loss realized on a redemption, sale or exchange,
however, will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend in the case of
a lapse or sale of the option on the Fund's holding period for the option and in
the case of an exercise of a put option on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security of the Fund. If a
Fund writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option written by a Fund is
exercised, the character of the gain or loss depends on the holding period of
the underlying security. The exercise of a put option written by a Fund is not a
taxable transaction for the Fund.
Many futures contracts, certain foreign currency forward contracts and
all listed nonequity options (including options on debt securities, options on
futures contracts, options on securities indices and options on broad-based
stock indices) will constitute "section 1256 contracts." Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term capital gain or losses. Also, section 1256 contracts held by the
Funds at the end of each taxable year (and, for purposes of the 4% excise tax,
on October 31) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60% long-term and 40% short-term capital gain or loss. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options, and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income.
Positions of a Fund which consist of at least one security and at least
one option or other position with respect to the security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.
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.
Notwithstanding any of the foregoing, a Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward
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<PAGE>
contracts and short sales) in stock, partnership interests, certain actively
traded trust instruments and certain debt instruments. Constructive sale
treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future regulatories may supply similar treatment to
other transactions with respect to property that becomes substantially
worthless.
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.
A Fund may 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.; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary losses to the extent of any set
mark-to-market gains, included in income in prior years. 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.
The AARP Global Growth Fund and the AARP International Growth and
Income Fund each may qualify for the election permitted under Section 853 of the
Code so that shareholders may (subject to limitations) be able to claim a credit
or deduction on their federal income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes relate
primarily to investment income). The Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities in foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. Furthermore, the
payment of foreign taxes withheld on dividends if the dividend-paying shares or
the shares of the Fund are held by the Fund or the shareholder, as the case may
be, for less than 16 days (46 days in the case of preferred shares) during the
30-day period (90-day period for preferred shares) beginning 15 days (45 days
for preferred shares) before the shares become ex-dividend. In addition, if the
Fund fails to satisfy these holding period requirements, it cannot elect under
Section 853 to pass through to shareholders the ability to claim a deduction for
the related foreign taxes.
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If a Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.
Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount represents interest for Federal income tax purposes and can generally
be defined as the difference between the price at which a security was issued
and its stated redemption price at maturity. Although no cash income is actually
received by the Funds, original issue discount earned in a given year generally
is treated for Federal income tax purposes as income earned by the Funds, and
therefore is subject to the distribution requirements of the Code. The amount of
income earned by the Funds is determined on the basis of a constant yield to
maturity which takes into account at least semi-annual or annual compounding
(depending on the date of the security) of accrued interest. If a Fund invests
in certain high yield original issue discount obligations issued by
corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.
In addition, some of the debt securities may be purchased by the Funds
at a discount which exceeds the original issue discount on such debt securities,
if any. This additional discount represents market discount for Federal income
tax purposes. The gain realized on the disposition of many debt securities,
including tax-exempt securities, having market discount will be treated as
ordinary income to the extent it does not exceed the accrued market discount on
such debt security. Generally, market discount accrues on a daily basis for each
day the debt security is held by the Funds at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Funds, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest.
The Funds will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. All such distributions and proceeds may be subject to
withholding of Federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Funds with their taxpayer identification
numbers and with required certifications regarding their status under Federal
income tax laws. Withholding may also be required if a Fund is notified by the
IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions or proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Investors may wish to consult their tax advisers about the applicability of the
backup withholding provisions.
In addition to Federal taxes, shareholders of the Funds may be subject
to state and local taxes on distributions from the Funds. Under the laws of
certain states, distributions of investment company taxable income are taxable
to shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by the resident of such state, would be exempt from such
state's income tax. Shareholders should consult their own tax advisers with
respect to the tax status of distributions from the Funds in their own state and
localities.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, Trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
31% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her.
Special Information Regarding AARP High Quality Tax Free Money Fund and
AARP Insured Tax Free General Bond Fund: Each of the AARP Tax Free Income Funds
intends to qualify to pay "exempt-interest dividends" to its shareholders. Each
Fund will be so qualified if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of securities of states,
U.S. possessions, their political subdivisions, and the District of Columbia,
the interest on which is exempt from Federal tax. To the extent that the Funds'
dividends distributed to
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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 a maximum 20% or 28%
capital gains rate (depending on the Fund's holding period for the assets giving
rise to the gain) regardless of the length of time the shareholder has owned
Fund shares. However, if a shareholder realizes a loss on the sale of a share
held at the time of sale for six months or less, such loss will be treated as
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period. Furthermore, a loss
realized by a shareholder on the sale of shares of the Funds with respect to
which exempt-interest dividends have been paid will be disallowed if such shares
have been held by the shareholder for six months or less (to the extent of
exempt-interest dividends paid).
Under the Code, a shareholder's interest expense deductions with
respect to indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as either of the AARP
Tax Free Funds, may be limited. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed Funds are considered used for the
purposes of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed Funds even though the borrowed
Funds are not directly traceable to the purchase of shares.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuer. Neither AARP, the Fund Manager, nor Counsel to the Funds
makes any review of proceedings relating to the issuer of municipal securities
or the bases of such opinions.
The foregoing description regarding the AARP Tax Free Funds relates
only to Federal income tax law. Investors should consult with their tax advisers
as to exemption from other state or local law. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
industrial development bonds should consult their tax advisers before purchasing
shares of the Funds.
Special Information Regarding the AARP Managed Investment Portfolios:
Distribution of an underlying AARP Mutual Fund's investment company taxable
income are taxable as ordinary income to an AARP Managed Investment Portfolio
which invests in the Fund. Distribution of the excess of an underlying AARP
Mutual Fund's net long-term capital gain over its net short-term capital loss,
which are properly designated as "capital gain dividends," are reported as 20%
or 28% long-term capital gain by an AARP Managed Investment Portfolio which
invests in the Fund, regardless of how long the Portfolio held the Fund's
shares, and are not eligible for the corporate dividends-received deduction.
Upon the sale or other disposition by an AARP Managed Investment Portfolio of
shares of an underlying AARP Mutual Fund, the Portfolio generally will realize a
capital gain or loss which will be 20% or 28% long-term or short-term, generally
depending upon the Portfolio's holding period for the shares. The AARP Managed
Investment Portfolios will not be eligible to elect to "pass through" to their
shareholders the ability to claim a deduction or credit with respect to foreign
income and similar taxes paid by an underlying AARP Mutual Fund.
BROKERAGE AND PORTFOLIO TURNOVER
Brokerage Commissions
To the maximum extent feasible the AARP Funds' investment adviser will
place orders for portfolio transactions through the Distributor, which in turn
will place orders on behalf of the AARP Funds with other brokers and dealers.
The Distributor receives no commission, fees or other remuneration from the
Funds for this service. Allocation of brokerage is supervised by the Fund
Manager.
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Purchases and sales of fixed-income securities for the AARP Funds are
generally placed by the Fund Manager with primary market makers for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The primary objective of the Fund Manager in placing orders for the
purchase and sale of assets for the AARP Funds' portfolios is to obtain the most
favorable net results, taking into account such factors as price, commission
(which is negotiable in the case of national securities exchange transactions),
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Fund Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the AARP Funds to reported commissions paid by others. The
Fund Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
AARP Diversified Portfolio Investments are made directly in Underlying
AARP Funds with no commissions.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Fund Manager's practice to place such orders
with brokers and dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Funds or the Fund Manager. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and concerning the performance
of accounts. The Fund Manager is authorized, when placing portfolio transactions
for the AARP Funds, except for the AARP Growth Funds, to pay a brokerage
commission in excess of that which another broker might have charged for
executing the same transaction solely on account of the receipt of research,
market or statistical information. The Fund Manager will not place orders with
brokers or dealers on the basis that the broker or dealer has or has not sold
shares of the Funds. Except for implementing the policy stated above, there is
no intention to place portfolio transactions with particular brokers or dealers
or groups thereof. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the AARP Funds and to the Fund Manager, it
is the opinion of the Fund Manager that such information is only supplementary
to its own research effort since the information must still be analyzed,
weighed, and reviewed by the Fund Manager's staff. Such information may be
useful to the Fund Manager in providing services to clients other than the AARP
Funds, and not all such information is used by the Fund Manager in connection
with the AARP Funds. Conversely, such information provided to the Fund Manager
by brokers and dealers through whom other clients of the Fund Manager effect
securities transactions may be useful to the Fund Manager in providing services
to the AARP Funds.
For the fiscal years ended September 30, 1996 , 1997 and 1998 the AARP
Growth and Income Fund paid brokerage commissions ____ of _______ $ , ____ $
____ and ____ $ ____ and ____ the ____ AARP ____ Capital ____ Growth ____ Fund
____ paid brokerage commissions ____ of ______ $ , $ and $ , both ____
respectively. ____ For the ____ fiscal ______ years ended September 30, 1996 ,
1997 and 1998, the AARP Balanced Stock and Bond Fund paid brokerage commissions
of $ , $ 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 $ , and
$________ and $ for the fiscal year ended September 30, ____ 1998. In the fiscal
year ended September 30, 1998, $ ( % 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, 1998, $ ( %) of the
total brokerage commissions paid by AARP Balanced Stock and Bond
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<PAGE>
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, ____ 1998, $
( %) of the total brokerage commissions paid by AARP Global Growth Fund resulted
from orders placed, consistent with the policy of obtaining the most favorable
net results, with brokers and dealers who provided supplementary research
information to the Funds or the Fund Manager. The amount of such transactions
aggregated ____ $ _____ for AARP Global Growth Fund ( % of all brokerage
transactions). The balance of such brokerage was not allocated to any particular
broker or dealer or with regard to the above-mentioned or other special factors.
For the fiscal year ended September 30, 1998, AARP U.S. Stock Index
Fund paid brokerage commissions of $____ , AARP International Growth and Income
Fund paid brokerage commissions of ____ $ , and AARP Small Company Stock Fund
paid brokerage commissions of $ ____________ .
The AARP U.S. Stock Index Fund aggregated ____ $ ( % of all brokerage
transactions), the AARP International Growth and Income Fund aggregated ____ $ (
% of all brokerage transactions), and the AARP Small Company Stock Fund
aggregated $ _____________ ( % of all brokerage transactions.)
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, 1996, 1997, and 1998 for five of the non-money market Funds were:
AARP High Quality Short Term Bond Fund, %, % and %; AARP GNMA and U.S. ____
Treasury ____ Fund, ____ %, ____ ........% and %; ____ AARP ____ Insured ____
Tax Free ____ General ____ Bond Fund, %, ____ % and %; ____ AARP ____ Growth
____ and ____ Income ____ Fund, ____ % and %; ____ AARP ____ Capital ____ Growth
Fund, %, % and %, all respectively. ____ The portfolio turnover rate for the
______ fiscal years ended September 30, 1996 , 1997 and 1998 for the AARP
Balanced Stock and Bond Fund was %, % 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 %, and for the fiscal
____ years ended September 30, 1997 and 1998 was ____% and %, respectively. The
portfolio turnover rates for AARP Bond Fund for Income, AARP U.S. Stock Index
Fund, AARP International Growth and Income Fund, and AARP Small Company Stock
Fund for the period February 1, 1997 (commencement of operations) to September
30, 1997 were _____%, _____%, _____% and %, respectively; and for the fiscal
year ended September 30, 1998 were ___%, ___%, ____% and %, respectively.
NET ASSET VALUE
AARP Money Funds
The net asset value per share of the Funds are computed twice daily as
of twelve o'clock noon and the close of regular trading on the Exchange,
normally 4 p.m. eastern time, on each day when the Exchange is open for trading.
The Exchange is normally closed on the following national holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. Net asset value is determined by dividing the total
assets of the Fund, less all of its liabilities, by the total number of shares
of the Fund outstanding. The AARP High Quality Money Fund and the AARP Premium
Money Fund use 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
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<PAGE>
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 each 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 each Fund made other than as of the close of the Exchange
may employ adjustments for changes in interest rates and other market factors.
The valuation of AARP High Quality Tax Free Money Fund's portfolio
securities is based upon their amortized cost which does not take into account
unrealized securities gains or losses. This method involves initially valuing an
instrument at its cost and thereafter amortizing to maturity any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price AARP High Quality Tax Free Money Fund would
receive if it sold the instrument. During periods of declining interest rates,
the quoted yield on shares of AARP High Quality Tax Free Money Fund may tend to
be higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by AARP High Quality Tax Free Money Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the Fund would be able to
obtain a somewhat higher yield if he purchased shares of the Fund on that day,
than would result from investment in a fund utilizing solely market values, and
existing investors in the Fund would receive less investment income. The
converse would apply in a period of rising interest rates. Other securities and
assets for which market quotations are not readily available are valued in good
faith at fair value using methods determined by the Trustees and applied on a
consistent basis. For example, securities with remaining maturities of more than
60 days for which market quotations are not readily available are valued on the
basis of market quotations for securities of comparable maturity, quality and
type. The Trustees review the valuation of AARP High Quality Tax Free Money
Fund's securities through receipt of regular reports from the Fund Manager at
each regular Trustees' meeting. Determinations of net asset value made other
than as of the close of the Exchange may employ adjustments for changes in
interest rates and other market factors.
AARP Non-Money Market Funds
The net asset value of shares of each Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Martin Luther King, Jr. 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 a Fund, less all liabilities, by the total number of shares
outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. 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") on such exchange as
of the Value Time. 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 will be
valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security is valued at the most recent bid quotation as of
the Value Time. 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 if
there are sales of such security on such market as of the Value Time. Lacking
any sales, the security is valued at the Calculated Mean quotation for such
security as of the Value Time. Lacking a Calculated Mean quotation, the security
is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost , 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 Fund Manager may
calculate the price of that debt security, subject to limitations established by
the Board.
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An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
Trading in securities on foreign securities exchanges is normally
completed before the close of regular trading on the Exchange. Trading on these
foreign exchanges may not take place on all days on which there is regular
trading on the Exchange, or may take place on days on which there is no regular
trading on the Exchange. If events materially affecting the value of a Fund's
portfolio securities occur between the time when these foreign exchanges close
and the time when the Fund's net asset value is calculated, such securities will
be valued at fair value as determined by each Trust's Board of Directors. Shares
of AARP Underlying Funds in which the AARP Diversified Portfolios invest in next
determine net asset value after the order is placed.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial highlights of the AARP Funds included in the AARP Funds'
Propectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLP, One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and given
on the authority of that firm as experts in accounting and auditing. Effective
July 1, 1998, Coopers & Lybrand L.L.P. and Price Waterhouse LLP merged to become
PricewaterhouseCoopers LLP. PricewaterhouseCoopers is responsible for performing
annual and semiannual audits of the financial statements and financial
highlights of the AARP Funds in accordance with generally accepted auditing
standards and the preparation of federal tax returns.
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.
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Ratings of Corporate Bonds
The three highest ratings of Moody's for corporate bonds are Aaa, Aa
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa securities. Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Although factors
giving security to principal and interest on bonds rated A are adequate, other
elements may be present which suggest a susceptibility to impairment sometime in
the future.
The three highest ratings of S&P for corporate bonds are AAA (Prime),
AA (High-grade) and A. Bonds rated AAA have the highest rating assigned by S&P
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rating issues only in small degree. Bonds
rated A have a strong capacity to pay principal and interest, although they are
more susceptible to the adverse effects of changes in circumstances and economic
conditions. Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Ratings of Commercial Paper
The ratings Prime-1 and Prime-2 are the highest commercial paper
ratings assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; 6) trend of
earnings over a period of ten years; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.
Prime-2 ratings are assigned by Moody's to commercial paper issuers
which have a strong capacity for meeting their obligations in a timely fashion.
However, their financial, economic and managerial capacities will be less than
that of Prime-1 borrowers. Financial characteristics such as earnings, coverage
ratios and capitalization will be more affected by external economic factors
than Prime-1 borrowers. Liquidity is still believed to be ample.
The two highest ratings of S&P for commercial paper are A-1 and A-2.
Commercial paper rated A-1 or better by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; the reliability and quality of
management are unquestioned.
S&P will assign an A-2 rating to the commercial paper of companies
which have the capacity for timely payment on issues. However, the relative
degree of safety is less than for issuers rated A-1.
Ratings of Municipal Bonds
The three highest ratings of Moody's for municipal bonds are Aaa, Aa,
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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The three highest ratings of S&P for municipal bonds are AAA (Prime),
AA (High-grade), and A (Good grade). Bonds rated AAA have the highest rating
assigned by S&P to a municipal obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of Funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.
S&P's top ratings for municipal notes are SP-1 and SP-2. The
designation SP-1 indicates a very strong capacity to pay principal and interest.
A "+" is added for those issues determined to possess overwhelming safety
characteristics. An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.
The ratings F-1+ and F-1 are the two highest ratings assigned by Fitch.
Among the factors considered by Fitch in assigning these rating are: (1) the
issuer's liquidity; (2) its standing in the industry; (3) the size of its debt;
(4) its ability to service its debt; (5) its profitability; (6) its return on
equity; (7) its alternative sources of financing; and (8) its ability to access
the capital markets. Analysis of the relative strength or weakness of these
factors and others determines whether an issuer's commercial paper is within
these two ratings.
Other Information
Each AARP Fund has a fiscal year ending on September 30.
The CUSIP for AARP High Quality Money Fund is 000036E-10-7
The CUSIP for AARP GNMA & U.S. Treasury Fund is 00036M-10-9.
The CUSIP for AARP High Quality Short Term Bond Fund is 00036M-20-8.
The CUSIP for AARP Bond Fund for Income Fund is 00036M-30-7.
The CUSIP for AARP Tax Free Money Fund is 00036Q-10-0.
The CUSIP for AARP Insured Tax Free General Bond Fund is 00036Q-20-9.
The CUSIP for AARP Balanced Stock & Bond is 00036J-30-4.
The CUSIP for AARP Growth & Income Fund is 00036J-10-6.
The CUSIP for AARP Capital Growth Fund is 00036J-20-5.
The CUSIP for AARP Global Growth Fund is 00036J-40-3.
The CUSIP for AARP U.S. Stock Index Fund is 00036J-50-2
The CUSIP for AARP International Growth and Income Fund is 00036J-60-1.
The CUSIP for AARP Small Company Stock is 00036J-70-0.
The CUSIP for AARP Diversified Income With Growth Portfolio is 00036W-20-6.
The CUSIP for AARP Diversified Growth Portfolio is 00036W-10-7.
The CUSIP for AARP Premium Money Fund is XXXXXX-XX-X.
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.
The firm of Dechert Price & Rhoads is counsel for the Trusts.
These Trusts also have a shareholder servicing agreement with Scudder
Service Corporation ("SSC"), a subsidiary of the Fund Manager. As shareholder
servicing agent, SSC provides various transfer agent, dividend disbursing, and
shareholder communication functions. The amount for each Fund is shown in the
table below, and is included in Services to shareholders in the Statements of
Operations.
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Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Fund
Manager, is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Funds. The
amount for each Fund is shown in the table below, and is included in Custodian
and accounting fees in the Statements of Operations.
For the period ended September 30 the amounts charged by SSC to the
Funds were as follows:
<TABLE>
<CAPTION>
1998 Amount Total SSC Unpaid 1997 Amount 1996 Amount
Charged to Fund at September 30, Charged to Fund Charged to
Fund by SSC(a) 1998* by SSC Fund by SSC
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund
AARP High Quality Tax Free Money Fund
AARP GNMA and U.S. Treasury Fund
AARP High Quality Short Term Bond Fund
AARP Insured Tax Free General Bond Fund
AARP Bond Fund for Income
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Capital Growth Fund
AARP Small Company Stock Fund
AARP Global Growth Fund
AARP International Growth & Income Fund
</TABLE>
* Total unpaid amounts are included in Other payables and accrued
expenses in the Statements of Assets and Liabilities.
(a) SSC did not impose any or a portion of its fee for the AARP Bond Fund
for Income, AARP U.S. Stock Index Fund, AARP Small Company Stock Fund,
and AARP International Growth & Income Fund amounting to $ , $
__________ , $ __________ , and $ __________ , respectively.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of Scudder Kemper Investments, Inc.,
computes net asset value for each Fund. AARP High Quality Money Fund, AARP
Premium 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 Tax Free General
Bond Fund pays Scudder Fund Accounting an annual fee equal to 0.024% on the
first $150 million of average daily net assets, 0.0070% on such assets in excess
of $150 million up to and including $1 billion, and 0.0040% of such assets in
excess of $1 billion, plus holding and transaction charges for this service.
AARP High Quality Short Term Bond Fund, AARP GNMA and U.S. Treasury Fund and
AARP Bond Fund for Income each pay Scudder Fund Accounting an annual fee equal
to 0.025% of the first $150 million of average daily net assets, 0.0075% of such
assets in excess of $150 million up to and including $1 billion, and 0.0045% of
such assets in excess of $1 billion, plus holding and transaction charges for
this service. AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund,
AARP U.S. Stock Index Fund, AARP Capital Growth Fund and AARP Small Company
Stock Fund each pay Scudder Fund Accounting an annual fee equal to 0.025% on the
first $150 million of average daily net assets, 0.0075% of such assets in excess
of $150 million up to and including $1 billion, and 0.0045% of such assets in
excess of $1 billion, plus holding and transaction charges. AARP Global Growth
Fund and Scudder International Growth and Income Fund each pay Scudder Fund
Accounting Corporation an annual fee equal to 0.065% on the first $150 million
of average daily net assets, 0.0400% of such assets in excess of $150 million up
to and including $1 billion, and 0.0200% of such assets in excess of $1 billion,
plus holding and transaction charges for this service.
Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders. These transactions will reflect investment decisions
made by the Fund Manager in light of the objectives and policies of the Funds,
and such factors as its other portfolio holdings and tax considerations, and
should not be construed as recommendations for similar action by other
investors.
82
<PAGE>
Costs of $13,000 incurred by AARP Bond Fund for Income in conjunction
with its organization are amortized over the five year period beginning February
1, 1997.
Costs of $16,000 incurred by AARP U.S. Stock Index Fund in conjunction
with its organization are amortized over the five year period beginning February
1, 1997.
Costs of $13,000 incurred by AARP International Growth and Income Fund
in conjunction with its organization are amortized over the five year period
beginning February 1, 1997.
Costs of $13,000 incurred by AARP Small Company Stock Fund in
conjunction with its organization are amortized over the five year period
beginning February 1, 1997.
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 ____% 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 1999
calendar year.
<TABLE>
<CAPTION>
1999 Taxable Income To Equal Hypothetical Tax-Free Yields of 5%, 7% and 9%,
Brackets+++ a Taxable Investment Would Have To Earn**
Individual Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
<S> <C> <C> <C> <C>
$0 - $25,350 15.0%
$25,351 - $61,400 28.0%
$61,401 - $128,100 31.0%
$128,101 - $278,450 36.0%
Over $278,450 39.6%
Joint Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
$0 - $42,350 15.0%
$42,351 - $102,300 28.0%
$102,301 - $155,950 31.0%
$155,951 - $278,450 36.0%
Over $278,450 39.6%
</TABLE>
83
<PAGE>
** 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 $124,500 ($62,250 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 $124,500 (for single individuals) or
$186,800 (for married individuals filing jointly). The effective
federal tax rates and equivalent yields for such taxpayers would be
higher than those shown above.
+++ This illustration is based on estimated break points using the IRS'
formula.
Example:*
Based on 1999 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $50,000 would have to earn a
tax-equivalent yield of ____% in order to match a tax-free yield of 5%.
There is no guarantee that a Fund will achieve a specific yield. While
most of the income distributed to the shareholders of each Fund will be exempt
from federal income taxes, portions of such distributions may be subject to
federal income taxes. Distributions may also be subject to state and local
taxes.
* Net amount subject to federal income tax after deductions and
exemptions, exclusive of the alternative minimum tax.
FINANCIAL STATEMENTS
The financial statements and notes, including the investment portfolio,
of each AARP Fund, together with the Report of Independent Accountants and
Supplementary Information are incorporated by reference herein.
84
<PAGE>
AARP Growth Trust
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C> <C>
(a) (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 the Declaration of
Trust. (Previously filed as Exhibit 1(a)(2) to Post-Effective Amendment No.
23 to the Registration Statement)
(a)(3) Certificate of Amendment dated January 25, 1994 to the Declaration of Trust.
(Previously filed as Exhibit 1(a)(3) to Post-Effective Amendment No. 25 to
the Registration Statement)
(a)(4) Amended and Restated Declaration of Trust dated September 13, 1996.
(Previously filed as Exhibit 1(a)(4) to Post-Effective Amendment No. 20 to
the Registration Statement)
(a)(5) Establishment of Series dated November 27, 1984. (Previously filed as
Exhibit 1(b)(1) to Post-Effective Amendment No. 25 to the Registration
Statement)
(a)(6) Establishment and Designation of Series of Beneficial Interest dated
September 22, 1993. (Previously filed as Exhibit 1(b)(2) to Post-Effective
Amendment No. 25 to the Registration Statement)
(a)(7) 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)
(a)(8) Establishment and Designation of Series of Beneficial Interest dated
November 12, 1996. (Previously filed as Exhibit 1(b)(4) to Post-Effective
Amendment No. 20 to the Registration Statement)
(b) (b)(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)
(b)(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)
(b)(3) Certificate as to Resolution of Board Members dated June 24, 1996.
(Previously filed as Exhibit 2(a)(3) to Post-Effective Amendment No. 20 to
the Registration Statement)
(c) Inapplicable
(d) (d)(1) 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. 25 to the
Registration Statement)
Part C - Page 1
<PAGE>
(d)(2) Investment Management Agreement between the Registrant and Scudder, Stevens
& Clark, Inc. dated February 1, 1994 is filed herein.
(d)(3) Supplement to the Investment Management Agreement between the Registrant and
Scudder, Stevens & Clark, Inc., dated February 1, 1996. (Previously filed as
Exhibit 5(a)(2) to Post-Effective Amendment No. 19 to the Registration
Statement)
(d)(4) Supplement to the Investment Management Agreement with respect to AARP U.S.
Stock Index Fund between the Registrant and Scudder, Stevens & Clark, Inc.,
dated February 1, 1997. (Previously filed as Exhibit 5(a)(3) to
Post-Effective Amendment No. 21 to the Registration Statement)
(d)(5) Investment Management Agreement with respect to AARP International Stock
Fund and AARP Small Company Stock Fund between the Registrant and Scudder,
Stevens & Clark, Inc. dated February 1, 1997. (Previously filed as Exhibit
5(a)(4) to Post-Effective Amendment No. 25 to the Registration Statement)
(d)(6) Investment Management Agreement with respect to AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, AARP Global Growth Fund, AARP Growth and
Income Fund, AARP International Growth and Income Fund, and AARP Small
Company Stock Fund between the Registrant and Scudder Kemper Investments,
Inc. dated December 31, 1997 is filed herein.
(d)(7) Investment Management Agreement with respect to AARP U.S. Stock Index Fund
between the Registrant and Scudder Kemper Investments, Inc. dated December
31, 1997 is filed herein.
(d)(8) Investment Management Agreement with respect to AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, AARP Global Growth Fund, AARP Growth and
Income Fund, AARP International Growth and Income Fund, and AARP Small
Company Stock Fund between the Registrant and Scudder, Kemper Investments,
Inc. dated September 7, 1998 is filed herein.
(d)(9) Investment Management Agreement with respect to AARP U.S. Stock Index Fund
between the Registrant and Scudder, Kemper Investments, Inc. dated September
7, 1998 is filed herein.
(d)(10) 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)
(d)(11) Subadvisory Agreement between Scudder, Stevens & Clark, Inc., and Bankers
Trust Company with respect to AARP U.S. Stock Index Fund dated February 1,
1997. (Previously filed as Exhibit 5(c) to Post-Effective Amendment No. 25
to the Registration Statement)
(d)(12) Subadvisory Agreement between Scudder Kemper Investments, Inc., and Bankers
Trust Company with respect to AARP U.S. Stock Index Fund dated December 31,
1997 is filed herein.
(e) (e)(1) Underwriting Agreement between the Registrant and Scudder Fund Distributors,
Inc. dated September 4, 1985. (Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement)
Part C - Page 2
<PAGE>
(e)(2) Underwriting Agreement between the Registrant and Scudder Fund Distributors,
Inc. dated September 7, 1998 is filed herein.
(f) Inapplicable
(g) (g)(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. 25 to the Registration Statement)
(g)(1)(a) Fee Schedule to the Custodian Agreement. (Previously filed as Exhibit
8(a)(2) to Post-Effective Amendment No. 25 to the Registration Statement)
(g)(1)(b) Revised Fee Schedule to the Custodian Agreement. (Previously filed as
Exhibit 8(a)(6) to Post-Effective Amendment No. 17 to the Registration
Statement)
(g)(2) Additional Provision to the 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. 25 to the
Registration Statement)
(g)(3) Amendment dated September 23, 1987 to the 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. 25 to
the Registration Statement)
(g)(4) Amendment dated September 15, 1988 to the 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. 25 to
the Registration Statement)
(g)(5) 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)
(g)(5)(a) Fee Schedule to the Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co. dated February 1, 1996. (Previously filed as Exhibit
8(a)(8) to Post-Effective Amendment No. 18 to the Registration Statement)
(h) (h)(1) Transfer Agency and Service Agreement between the Registrant and Scudder
Service Corporation dated October 2, 1989. (Previously filed as Exhibit 9(a)
to Post-Effective Amendment No. 25 to the Registration Statement)
(h)(2) 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. 25 to the
Registration Statement)
(h)(3) 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. 25 to the Registration Statement)
(h)(4) Member Services Agreement between AARP Financial Services Corp. and
Part C - Page 3
<PAGE>
Scudder Kemper Investments, Inc., dated September 7, 1998 is filed herein.
(h)(4) 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. 25 to the Registration
Statement)
(h)(5) 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. (Previously filed as Exhibit 9(c)(1) to Post-Effective
Amendment No. 20 to the Registration Statement)
(h)(6) 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. 25 to the Registration Statement)
(h)(7) 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. 25 to the Registration Statement)
(h)(8) Fund Accounting Services Agreement between the Registrant, on behalf of AARP
Capital Growth Fund, and Scudder Fund Accounting Corporation dated September
5, 1995. (Previously filed as Exhibit 9(f) to Post-Effective Amendment No.
25 to the Registration Statement)
(h)(9) 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. 25 to the Registration Statement)
(h)(10) 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.
25 to the Registration Statement)
(h)(11) Fund Accounting Services Agreement between the Registrant, on behalf of AARP
Small Company Stock Fund, and Scudder Fund Accounting Corporation dated
February 1, 1997 is filed herein.
(h)(12) Fund Accounting Services Agreement between the Registrant, on behalf of AARP
U.S. Stock Index Fund, and Scudder Fund Accounting Corporation dated
February 1, 1997 is filed herein.
(h)(13) Fund Accounting Services Agreement between the Registrant, on behalf of AARP
International Growth and Income Fund, and Scudder Fund Accounting
Corporation dated February 1, 1997 is filed herein.
(h)(14) COMPASS and TRAK 2000 Service Agreement between Scudder Trust Company and
the Registrant dated February 1, 1997 is filed herein.
(h)(14)(a) Fee Schedule for Exhibit (h)(14) is filed herein.
(i) Inapplicable
Part C - Page 4
<PAGE>
(j) Consent of Independent Accountants to be filed by subsequent amendment.
(k) Inapplicable
(l) Inapplicable
(m) Inapplicable
(n) Financial Data Schedule to be filed by subsequent amendment.
(o) 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 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 incorporated by reference to the Signature Pages of
Post-Effective Amendment No. 21.
Power of Attorney for Jean Gleason Stromberg is incorporated
by reference to Post-Effective Amendment No. 24.
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the 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
Part C - Page 5
<PAGE>
claim or liability. The indemnification and reimbursement
required by the preceding sentence shall be made only out of
the assets of the one or more Series of which the Shareholder
who is entitled to indemnification or reimbursement was a
Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section 4.1
shall not impair any other right to which such Shareholder may
be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance,
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 insure
to the benefit of the heirs, executors,
administrators
Part C - Page 6
<PAGE>
and assigns of such a person. Nothing contained
herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. 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 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Part C - Page 7
<PAGE>
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Part C - Page 8
<PAGE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
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.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President Chairperson and Trustee
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President Vice President
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Part C - Page 9
<PAGE>
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Treasurer
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Vice President, Treasurer
345 Park Avenue Legal Officer and Assistant Clerk and Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
</TABLE>
Part C - Page 10
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemption Brokerage Other
Underwriter Commissions and Repurchase Commissions Compensation
----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. 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 Kemper
Investments Inc.., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 16th day of November, 1998.
AARP GROWTH TRUST
By /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough, Vice President
and 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>
<S> <C> <C>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Linda C. Coughlin
- -------------------------------
Linda C. Coughlin* Chairperson and Trustee November 16, 1998
/s/Carole Lewis Anderson
- -------------------------------
Carole Lewis Anderson* Trustee November 16, 1998
/s/Adelaide Attard
- -------------------------------
Adelaide Attard* Trustee November 16, 1998
/s/Robert N. Butler
- -------------------------------
Robert N. Butler* Trustee November 16, 1998
/s/Horace Deets
- -------------------------------
Horace Deets* Trustee November 16, 1998
/s/Edgar R. Fiedler
- -------------------------------
Edgar R. Fiedler* Trustee November 16, 1998
/s/Eugene P. Forrester
- -------------------------------
Eugene P. Forrester* Trustee November 16, 1998
/s/George L. Maddox, Jr.
- -------------------------------
George L. Maddox, Jr.* Trustee November 16, 1998
/s/Robert J. Myers
- -------------------------------
Robert J. Myers* Trustee November 16, 1998
/s/James H. Schulz
- -------------------------------
James H. Schulz* Trustee November 16, 1998
/s/Gordon Shillinglaw
- -------------------------------
Gordon Shillinglaw* Trustee November 16, 1998
/s/Jean Gleason Stromberg
- -------------------------------
Jean Gleason Stromberg* Trustee November 16, 1998
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Kathryn L. Quirk
- -------------------------------
Kathryn L. Quirk Treasurer November 16, 1998
</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, Post-Effective Amendment No. 20
to the Registration Statement filed
November 18, 1996 and Post-Effective
Amendment No. 24 to the Registration
Statement filed December 2, 1997.
2
<PAGE>
File No. 2-91578
File No. 811-4048
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 26
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 28
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP Growth Trust
<PAGE>
AARP Growth Trust
EXHIBIT INDEX
Exhibit (d)(2)
Exhibit (d)(6)
Exhibit (d)(7)
Exhibit (d)(8)
Exhibit (d)(9)
Exhibit (d)(12)
Exhibit (e)(2)
Exhibit (h)(4)
Exhibit (h)(11)
Exhibit (h)(12)
Exhibit (h)(13)
Exhibit (h)(14)
Exhibit (h)(14)(a)
2
Exhibit (d)(2)
AARP Growth Trust
345 Park Avenue
New York, New York 10154
February 1, 1994
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Dear Sirs:
AARP Growth Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. The Trust's
Declaration of Trust provides that the Trust's Trustees may, from time to time,
determine that the shares of beneficial interests of the Trust ("Shares") shall
be issued in separate series of the Trust ("Series"). There are currently three
Series. Series may be abolished and dissolved, and additional series
established, from time to time by action of the Trustees. The Trust has selected
you to act as the sole investment manager, for each of the three Series of the
Trust and for each Series that may subsequently be authorized by the Trustees
(unless otherwise provided at the time and subject to such conditions and
amendments to this Agreement as shall mutually be agreed upon), and to provide
certain other services, as more fully set forth below, and you have indicated
that you are willing to act as such investment manager and to perform such
services under the terms and conditions hereinafter set forth. Accordingly, the
Trust agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Trust in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus ("Prospectus") and Statement of Additional Information
("SAI") included in the Trust's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement") filed by the Trust under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to you by the Trust. The Trust has also furnished
you with copies properly certified or authenticated of each of the following
additional documents related to the Trust:
(a) Amended and Restated Declaration of Trust, dated November 1,
1984, as amended to date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees and the shareholders selecting you
as investment manager and approving the form of this Agreement.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Trust,
you shall provide to each Series of the Trust continuing investment management
of its assets in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable provisions of
the 1940 Act and the Internal Revenue Code of 1986, as amended (the "Code"),
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Series so that each Series will qualify as a regulated
investment company under Subchapter M of the Code and regulations issued
thereunder. Each Series shall have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
1
<PAGE>
investment advisory clients. In managing the Series in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
act upon the advice of counsel to the Trust or counsel to you. You shall also
make available to the Trust promptly upon request all of the Series' investment
records and ledgers as are necessary to assist the Trust to comply with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by each Series and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
each Series' policies as expressed in the Registration Statement. You shall
determine what portion of each Series' portfolio shall be invested in securities
and other assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of each Series and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of each Series such office space and facilities as each Series may require
for its reasonable needs, and you (or one or more of your affiliates designated
by you) shall render to the Trust administrative services on behalf of each
Series necessary for operating as an investment company and not provided by
persons not parties to this Agreement including, but not limited to, preparing
reports to and meeting materials for the Trust's Board of Trustees and reports
and notices to Series shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
custodians, depositories, transfer and pricing agents, accountants, attorneys,
printers, underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable to Trust or Series operations;
preparing and making filings with the Securities and Exchange Commission (the
"SEC") and other regulatory and self-regulatory organizations, including, but
not limited to, preliminary and definitive proxy materials, post-effective
amendments to the Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by each Series' transfer agent; assisting in the preparation and filing
of each Series' federal, state and local tax returns; preparing and filing each
Series' federal excise tax return pursuant to Section 4982 of the Code;
providing assistance with investor and public relations matters; monitoring the
valuation of portfolio securities, the calculation of net asset value and the
calculation and payment of distributions to Series shareholders; monitoring the
registration of Shares of each Series under applicable federal and state
securities laws; maintaining or causing to be maintained for each Series all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by each Series' custodian or other agents of each Series;
assisting in establishing the accounting policies of each Series; assisting in
the resolution of accounting issues that may arise with respect to each Series'
operations and consulting with each Series' independent accountants, legal
counsel and each Series' other agents as necessary in connection therewith;
establishing and monitoring each Series' operating expense budgets; reviewing
each Series' bills; processing the payment of bills that have been approved by
an authorized person; assisting each Series in determining the amount of
dividends and distributions available to be paid by each Series to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent and the
custodian with such information as is required for such parties to effect the
payment of dividends and distributions; and otherwise assisting the Trust as it
may reasonably request in the conduct of each Series' business, subject to the
direction and control of the Trust's Board of Trustees. Nothing in this
Agreement shall be deemed to shift to you or to diminish the obligations of any
agent of the Series or any other person not a party to this Agreement which is
obligated to provide services to each Series.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including each Series'
share of payroll taxes) who are affiliated persons of you, and you shall make
available or cause to be made available, without expense to the Trust, the
services of such of your directors, officers and employees as may duly be
elected officers of the Trust, subject to their individual consent to serve and
to any limitations imposed by law. You shall provide, or cause to be provided,
at your expense the portfolio management services described in section 2 hereof
and the administrative services described in section 3 hereof. You shall not be
required to pay any expenses of the Trust or a Series other than those
specifically allocated to you in this paragraph 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Trust's Trustees and
2
<PAGE>
officers as are directors, officers or employees of you or of your partners
whose services may be involved, for the following expenses of the Trust or its
Series: organization expenses of the Series (including out-of-pocket expenses,
but not including your overhead or employee costs); fees payable to you and to
any other Series advisers or consultants; legal expenses; auditing and
accounting expenses; maintenance of books and records which are required to be
maintained by each Series' custodian or other agents of the Trust; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by each Series in connection
with membership in investment company trade organizations; fees and expenses of
each Series' custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Series; expenses relating
to investor and public relations; expenses and fees of registering or qualifying
Shares of each Series for sale; interest charges, bond premiums and other
insurance expense; freight, insurance and other charges in connection with the
shipment of the Series' portfolio securities; the compensation and all expenses
(specifically including travel expenses relating to Trust business) of Trustees,
officers and employees of the Trust who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Series; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Series and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of each Series if and to the
extent that (i) such expenses are required to be borne by a principal
underwriter which acts as the distributor of each Series' Shares pursuant to an
underwriting agreement which provides that the underwriter shall assume some or
all of such expenses, or (ii) the Trust on behalf of the Series shall have
adopted a plan in conformity with Rule 12b-1 under the 1940 Act providing that
the Series (or some other party) shall assume some or all of such expenses, or
(iii) such expenses are required to be borne by Scudder pursuant to section 4 of
the Investment Company Services Agreement, dated as of October 9, 1984, among
American Association of Retired Persons, AARP/Scudder Financial Management
Company, and us. You shall be required to pay such of the foregoing sales
expenses as are not required to be paid by the principal underwriter pursuant to
the underwriting agreement or are not permitted to be paid by the Series (or
some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments made and
costs to be assumed by you as provided in paragraphs 2, 3 and 4 hereof, the
Trust shall pay you on the last day of each month the unpaid balance of a fee
composed of an asset charge in two parts.
(a) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the amount computed
in accordance with paragraphs (b) and (c) below. The computation shall be made
for each such day on the basis of net assets as of the close of business of the
full business day one (1) business day prior to the day for which the
computation is being made. In the case of the suspension of the computation of
net asset value, the asset charge for each day during such suspension shall be
computed as of the close of business on the last full business day on which the
net assets were computed. As used herein, "net assets" as of the close of a full
business day shall include all transactions in shares of each Series recorded on
the books of each Series for that day.
(b) The base fee rate part of the fee shall be based on the
average daily net assets of all funds within the AARP Investment Program from
Scudder (the "Program"), including any new fund which may be organized in the
future. The base fee rate will be the percent of Program net assets as set forth
in the following table.
3
<PAGE>
Base Fee Rate
-----------------------------------------------------------------
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
-----------------------------------------------------------------
The portion of the base fee rate which each Series shall bear will be
the same percentage of the base fee rate as its net assets are to the total net
assets of all the Program funds.
(c) The fund fee rate part of the fee shall be 0.19 percent per
annum of net assets of AARP Growth and Income Fund, 0.32 percent per annum of
the net assets of AARP Capital Growth Fund and 0.19 percent per annum of the net
assets of AARP Balanced Stock and Bond Fund.
The value of net assets of the Trust or any Series shall be determined
pursuant to the applicable provisions of the Declaration, By-Laws and
Registration Statement of the Trust. If, pursuant to such provisions, the
determination of net asset value for any Series is suspended for any particular
business day, then for the purposes of this paragraph 5, the value of the net
assets of that series of the Trust as last determined shall be deemed to be the
value of the net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the portfolio of that Series
may lawfully be determined, on that day. If the determination of the net asset
value of the shares of any Series of the Trust has been suspended pursuant to
the Declaration, By-Laws or Registration Statement of the Trust for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Trust as last
determined (whether during or prior to such month). If a Series determines the
net asset value of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 5.
You agree that your gross compensation for any fiscal year shall not be
greater than an amount which, when added to the other expenses of a Series,
shall cause the aggregate expenses of the Series to equal the maximum expenses
under the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares of the Trust may
be qualified for offer and sale. Except to the extent that such amount has been
reflected in reduced payments to you, you shall refund to the Series the amount
of any payment received in excess of the limitation pursuant to this section 5
as promptly as practicable after the end of such fiscal year, provided that you
shall not be required to pay the Trust or Series an amount greater than the fee
paid to you in respect of such year pursuant to this Agreement. As used in this
section 5, "expenses" shall mean those expenses included in the applicable
expense limitation having the broadest specifications thereof, and "expense
limitation" means a limit on the maximum annual expenses which may be incurred
by an investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year. The words ("lowest applicable
expense limitation" shall be construed to result in the largest reduction of
your compensation for any fiscal year of the Trust; provided, however, that
nothing in this Agreement shall limit your fees if not required by an applicable
statute or regulation referred to above in this section 5.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of a Series' expenses, as if
such waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Series, neither you nor any of your partners, directors,
officers or employees will act as a principal or agent or receive any
commission. You or your agent shall arrange for the placing of all orders for
the purchase and sale of portfolio securities and other investments for a
Series' account with brokers or dealers selected by you in accordance with Trust
or Series policies as expressed in the Registration Statement. If any occasion
should arise in which you give any advice to clients of yours concerning the
Shares of a Series, you will act solely as investment counsel for such clients
4
<PAGE>
and not in any way on behalf of a Series. Your services to the Trust and each
Series pursuant to this Agreement are not to be deemed to be exclusive and it is
understood that you may render investment advice, management and other services
to others. In acting under this Agreement, you shall be an independent
contractor and not an agent of the Trust or a Series.
7. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable for any error of judgment or mistake of law or for any
loss suffered by the Trust or its Series in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Trust, each
Series or its shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties or by reason of your reckless disregard of your obligations and duties
hereunder. Any person, even though also employed by you, who may be or become an
employee of and paid by the Trust or a Series shall be deemed, when acting
within the scope of his or her employment by the Trust or Series, to be acting
in such employment solely for the Trust or Series and not as your employee or
agent.
8. Duration and Termination of this Agreement. This Agreement shall
remain in force until August 31, 1995, and with respect to each Series, from
year to year thereafter, but only so long as such continuance is specifically
approved at least annually (i) by the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval and (ii) by the Trustees of the Trust, or, with respect to each Series,
by vote of a majority of the outstanding voting securities of such Series of the
Trust. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may, on 60 days' written notice, be terminated at any
time without the payment of any penalty, by the Trustees, by vote of a majority
of the outstanding voting securities of each Series (or of a Series, with
respect only to that Series), or by you. This Agreement shall automatically
terminate in the event of its assignment, provided that an assignment to a
corporate successor to all or substantially all of your business or to a
wholly-owned subsidiary of such corporate successor which does not result in a
change of actual control or management of your business shall not be deemed to
be an assignment for the purposes of this Agreement.
9. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to any Series until approved by the vote of a majority of
the outstanding securities of that Series and by the Trustees, including a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
10. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "AARP
Growth Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of any
Series of the Trust, or Trustee, officer, employee or agent of the Trust, shall
be subject to claims against or obligations of the Trust or of any Series of the
Trust to any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of any Series of the Trust pursuant to this Agreement shall be
limited in all cases to the Series and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
any Series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of a Series, under the
Declaration are separate and distinct from those of any and all other Series.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their constriction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definition
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"interested person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
5
<PAGE>
This Agreement shall be construed in accordance with and governed by the
laws of New York.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Series.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
AARP GROWTH TRUST
By: /s/Linda Coughlin
-----------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER, STEVENS & CLARK, INC.
By: /s/David S. Lee
--------------------------------
Managing Director
Exhibit (d) (6)
AARP Growth Trust
345 Park Avenue
New York, New York 10154
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Growth and Income Fund
AARP Small Company Stock Fund
Ladies and Gentlemen:
AARP Growth Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds (each a "Fund" and, collectively, the "Funds"). Series may be
abolished and dissolved, and additional series established, from time to time by
action of the Trustees.
The Trust, on behalf of the Funds, has selected you to act as the sole
investment manager of the Funds and for each series that may subsequently be
authorized by the Trustees (unless otherwise provided at the time and subject to
such conditions and amendments to this Agreement as shall be mutually agreed
upon), and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust on behalf of the Funds agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Funds in the manner and in
accordance with the investment objectives, policies and restrictions specified
in the currently effective Prospectus (the "Prospectus") and Statement of
Additional Information (the "SAI") relating to each Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated September 13, 1996, as amended to date.
<PAGE>
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of each Fund
selecting you as investment manager and approving the form of this
Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated November 12, 1996 relating to the Funds.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the
Funds, you shall provide continuing investment management of the assets of the
Funds in accordance with the investment objectives, policies and restrictions
set forth in the Prospectus and SAI; the applicable provisions of the 1940 Act
and the Internal Revenue Code of 1986, as amended (the "Code"), relating to
regulated investment companies and all rules and regulations thereunder; and all
other applicable federal and state laws and regulations of which you have
knowledge; subject always to policies and instructions adopted by the Trust's
Board of Trustees. In connection therewith, you shall use reasonable efforts to
manage each Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Funds shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Funds in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of a
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Funds and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of each Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Funds and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
2
<PAGE>
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of the Funds such office space and facilities in the United States as the
Funds may require for their reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Funds necessary for operating as open-end investment companies
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Funds' transfer agent; assisting in
the preparation and filing of each Fund's federal, state and local tax returns;
preparing and filing each Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities; monitoring the
registration of Shares of each Fund under applicable federal and state
securities laws; maintaining or causing to be maintained for each Fund all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by the Fund's custodian or other agents of the Fund;
assisting in establishing the accounting policies of each Fund; assisting in the
resolution of accounting issues that may arise with respect to each Fund's
operations and consulting with each Fund's independent accountants, legal
counsel and other agents as necessary in connection therewith; establishing and
monitoring each Fund's operating expense budgets; reviewing each Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting each Fund in determining the amount of dividends and distributions
available to be paid by each Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of each Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
deemed to shift to you or to diminish the obligations of any agent of a Fund or
any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including each Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Funds, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 2 hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of a Fund other than
those specifically allocated to you in this section 4. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of a Fund's Trustees
and officers as are directors, officers or employees of you whose services may
be involved, for the following expenses of each Fund: organization expenses of
the Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be
3
<PAGE>
maintained by the Fund's custodian or other agents of the Trust; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by the Fund in connection
with membership in investment company trade organizations; fees and expenses of
the Fund's accounting agent, custodians, subcustodians, transfer agents,
dividend disbursing agents and registrars; payment for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates and, except as
provided below in this section 4, other expenses in connection with the
issuance, offering, distribution, sale, redemption or repurchase of securities
issued by the Fund; expenses relating to investor and public relations; expenses
and fees of registering or qualifying Shares of the Fund for sale; interest
charges, bond premiums and other insurance expense; freight, insurance and other
charges in connection with the shipment of the Fund's portfolio securities; the
compensation and all expenses (specifically including travel expenses relating
to Trust business) of Trustees, officers and employees of the Trust who are not
affiliated persons of you; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of printing and
distributing reports, notices and dividends to shareholders; expenses of
printing and mailing Prospectuses and SAIs of the Fund and supplements thereto;
costs of stationery; any litigation expenses; indemnification of Trustees and
officers of the Trust; costs of shareholders' and other meetings; and travel
expenses (or an appropriate portion thereof) of Trustees and officers of the
Trust who are directors, officers or employees of you to the extent that such
expenses relate to attendance at meetings of the Board of Trustees of the Trust
or any committees thereof or advisors thereto held outside of Boston,
Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of a Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses, or (iii) such expenses
are required to be borne by Scudder pursuant to section 4 of the Investment
Company Services Agreement, dated as of October 8, 1984 among American
Association of Retired Persons, AARP/Scudder Financial Management Company, and
us. You shall be required to pay such of the foregoing sales expenses as are not
required to be paid by the principal underwriter pursuant to the underwriting
agreement or are not permitted to be paid by the Fund (or some other party)
pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 2, 3 and 4 hereof, the
Trust on behalf of the Funds shall pay you on the last day of each month the
unpaid balance of a fee composed of an asset charge in two parts.
(a) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the amount
computed in accordance with paragraphs (b) and (c) below. The computation
shall be made for each such day on the basis of net assets as of the close of
business of the full business day one (1) business day prior to the day for
which the computation is being made. In the case of the suspension of the
computation of net asset value, the asset charge for each day during such
suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net
assets" as of the close of a full business day shall include all transactions
in shares of each Fund recorded on the books of each Fund for that day.
(b) The base fee rate part of the fee shall be based on the average
daily net assets of all funds within the AARP Investment Program from Scudder
(the "Program"), including any new fund which may be organized in the future.
The base fee rate will be the percent of Program net assets as set forth in the
following table.
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Base Fee Rate
----------------------------------------------------------------------
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%
----------------------------------------------------------------------
The portion of the base fee rate which each Fund shall bear will be the
same percentage of the base fee rate as its net assets are to the total net
assets of all the Program funds.
(c) The fund fee rate part of the fee shall be 0.19 percent per annum
of net assets of AARP Balanced Stock and Bond Fund, 0.19 percent per annum of
net assets of AARP Growth and Income Fund, 0.55 percent per annum of net assets
of AARP Global Growth Fund, 0.32 percent per annum of net assets of AARP Capital
Growth Fund, 0.60 percent per annum of the net assets of AARP International
Growth and Income Fund and 0.55 percent per annum of the net assets of AARP
Small Company Stock Fund.
The value of net assets of the Trust or any Fund shall be determined
pursuant to the applicable provisions of the Declaration, By-Laws and
Registration Statement of the Trust. If, pursuant to such provisions, the
determination of net asset value for any Fund is suspended for any particular
business day, then for the purposes of this paragraph 5, the value of the net
assets of that series of the Trust as last determined shall be deemed to be the
value of the net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the portfolio of that Fund may
lawfully be determined, on that day. If the determination of the net asset value
of the shares of any Fund of the Trust has been suspended pursuant to the
Declaration, By-Laws or Registration Statement of the Trust for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Trust as last
determined (whether during or prior to such month). If a Fund determines the net
asset value of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 5.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of a Fund's expenses, as if such
waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for each Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of a Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
5
<PAGE>
Your services to the Trust and each Fund pursuant to this Agreement are
not to be deemed to be exclusive and it is understood that you may render
investment advice, management and services to others. In acting under this
Agreement, you shall be an independent contractor and not an agent of the Trust
or a Fund. Whenever a Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be allocated in accordance
with procedures believed by the Manager to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in a manner
believed by the Manager to be equitable. Each Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with the matters
to which this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect you against any liability to the
Trust, a Fund or its shareholders to which you would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of your duties, or by reason of your reckless disregard of your obligations and
duties hereunder. Any person, even though also employed by you, who may be or
become an employee of and paid by a Fund shall be deemed, when acting within the
scope of his or her employment by the Fund, to be acting in such employment
solely for the Fund and not as your employee or agent.
8. Duration and Termination of This Agreement. This Agreement shall
remain in force until August 31, 1998, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or, with respect to each Fund, by the vote of a
majority of the outstanding voting securities of such Fund of the Trust. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "AARP
Growth Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of any
Fund of the Trust, or Trustee,
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officer, employee or agent of the Trust, shall be subject to claims against or
obligations of the Trust or of any Fund of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of each Fund pursuant to this Agreement shall be limited in
all cases to the applicable Fund and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
the Fund or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights and obligations
of each Fund, or series, under the Declaration are separate and distinct from
those of any and all other series.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause a
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Funds.
7
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
AARP GROWTH TRUST, on behalf of
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Growth and Income Fund
AARP Small Company Stock Fund
By: /s/Cornelia M. Small
--------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
----------------------
Managing Director
Exhibit (d)(7)
AARP Growth Trust
345 Park Avenue
New York, New York 10154
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
AARP U.S. Stock Index Fund
Ladies and Gentlemen:
AARP Growth Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including AARP U.S. Stock Index Fund (the "Fund"). Series may
be abolished and dissolved, and additional series established, from time to time
by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and for each series that may subsequently be
authorized by the Trustees (unless otherwise provided at the time and subject to
such conditions and amendments to this Agreement as shall be mutually agreed
upon), and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust on behalf of the Fund agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration dated September 13, 1996, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
<PAGE>
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated January 31, 1997 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended (the "Code"), relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of a
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for their reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as open-end investment companies
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories,
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<PAGE>
transfer agents and pricing agents, accountants, attorneys, printers,
underwriters, brokers and dealers, insurers and other persons in any capacity
deemed to be necessary or desirable to Fund operations; preparing and making
filings with the Securities and Exchange Commission (the "SEC") and other
regulatory and self-regulatory organizations, including, but not limited to,
preliminary and definitive proxy materials, post-effective amendments to the
Registration Statement, semi-annual reports on Form N-SAR and notices pursuant
to Rule 24f-2 under the 1940 Act; overseeing the tabulation of proxies by the
Fund's transfer agent; assisting in the preparation and filing of the Fund's
federal, state and local tax returns; preparing and filing the Fund's federal
excise tax return pursuant to Section 4982 of the Code; providing assistance
with investor and public relations matters; monitoring the valuation of
portfolio securities; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees. Nothing in this
Agreement shall be deemed to shift to you or to diminish the obligations of any
agent of a Fund or any other person not a party to this Agreement which is
obligated to provide services to the Fund.
4. In rendering the services required under this Agreement, you may,
subject to the legally required approval of the Trust, its shareholders and
Trustees, cause such services to be provided by a registered investment adviser
or bank (together with Bankers Trust Company, the "Subadvisor") exempt from the
registration requirements under the Investment Advisers Act of 1940, as amended,
(the "Advisers Act") and receive other assistance from such Subadvisor pursuant
to an agreement or agreements and may contract with such other parties as you
deem appropriate to obtain information, advice and management services and other
assistance, provided that such services shall not be deemed to render such party
a registered investment adviser, but any fees, compensation or expenses to be
paid to any such party shall be paid by you, and no obligation shall be incurred
on the Trust's behalf in any respect.
5. You hereby acknowledge that the employment of a Subadvisor or other
service providers hereunder shall not relieve you of any of your obligations
under this Agreement, including your obligations under section 9 of this
Agreement. Further, you acknowledge that for purposes of this Agreement, the
acts of such Subadvisor or other service provider shall be deemed to be acts of
you, the Manager.
6. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 6, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 2 hereof and the administrative services described in section 3 hereof.
3
<PAGE>
You shall not be required to pay any expenses of a Fund other than those
specifically allocated to you in this section 6. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of a Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 6, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of a Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses, or (iii) such expenses
are required to be borne by Scudder pursuant to section 6 of the Investment
Company Services Agreement, dated as of October 8, 1984, among American
Association of Retired Persons, AARP/Scudder Financial Management Company, and
us. You shall be required to pay such of the foregoing sales expenses as are not
required to be paid by the principal underwriter pursuant to the underwriting
agreement or are not permitted to be paid by the Fund (or some other party)
pursuant to such a plan.
7. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3 and 6 hereof, the Trust
on behalf of the Fund shall pay you on the last day of each month the unpaid
balance of a fee composed of an asset charge in two parts.
(a) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the amount computed
in accordance with paragraphs (b) and (c) below. The computation shall be made
for each such day on the basis of net assets as of the close of business of the
full business day one (1) business day prior to the day for which the
computation is being made. In the case of the suspension of the computation of
net asset value, the asset charge for each day during such suspension shall be
computed as of the close of business on the last full business day on which the
net assets were computed.
4
<PAGE>
As used herein, "net assets" as of the close of a full business day shall
include all transactions in shares of the Fund recorded on the books of the Fund
for that day.
(b) The base fee rate part of the fee shall be based on the average
daily net assets of all funds within the AARP Investment Program from Scudder
(the "Program"), including any new fund which may be organized in the future.
The base fee rate will be the percent of Program net assets as set forth in the
following table.
Base Fee Rate
----------------------------------------------------------
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%
----------------------------------------------------------
The portion of the base fee rate which the Fund shall bear will be the same
percentage of the base fee rate as its net assets are to the total net assets of
all the Program funds.
(c) The fund fee rate part of the fee shall be 0.00 percent per annum
of the net assets of the Fund.
The value of net assets of the Trust or any Fund shall be determined
pursuant to the applicable provisions of the Declaration, By-Laws and
Registration Statement of the Trust. If, pursuant to such provisions, the
determination of net asset value for any Fund is suspended for any particular
business day, then for the purposes of this paragraph 5, the value of the net
assets of that series of the Trust as last determined shall be deemed to be the
value of the net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the portfolio of that Fund may
lawfully be determined, on that day. If the determination of the net asset value
of the shares of any Fund of the Trust has been suspended pursuant to the
Declaration, By-Laws or Registration Statement of the Trust for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Trust as last
determined (whether during or prior to such month). If a Fund determines the net
asset value of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 7.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of a Fund's expenses, as if such waiver or
limitation were fully set forth herein.
8. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any
5
<PAGE>
advice to clients of yours concerning the Shares of a Fund, you shall act solely
as investment counsel for such clients and not in any way on behalf of the Fund.
Your services to the Trust and the Fund pursuant to this Agreement are not
to be deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust or a Fund.
Whenever a Fund and one or more other accounts or investment companies advised
by the Manager have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures believed
by the Manager to be equitable to each entity. Similarly, opportunities to sell
securities shall be allocated in a manner believed by the Manager to be
equitable. The Fund recognizes that in some cases this procedure may adversely
affect the size of the position that may be acquired or disposed of for the
Fund.
9. Limitation of Liability of Manager. As an inducement to your undertaking
to render services pursuant to this Agreement, the Trust agrees that you shall
not be liable under this Agreement for any error of judgment or mistake of law
or for any loss suffered by a Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, a Fund or
its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
Any person, even though also employed by you, who may be or become an employee
of and paid by a Fund shall be deemed, when acting within the scope of his or
her employment by the Fund, to be acting in such employment solely for the Fund
and not as your employee or agent.
10. Duration and Termination of This Agreement. This Agreement shall remain
in force until August 31, 1998, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or, with respect to the Fund, by the vote of a
majority of the outstanding voting securities of such Fund of the Trust. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
6
<PAGE>
12. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of The Commonwealth of Massachusetts, provides that the name "AARP Growth Trust"
refers to the Trustees under the Declaration collectively as Trustees and not as
individuals or personally, and that no shareholder of any Fund of the Trust, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of any Fund of the Trust to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the applicable Fund and its assets, and you shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the Fund or
any other series of the Trust, or from any Trustee, officer, employee or agent
of the Trust. You understand that the rights and obligations of the Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause a
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
7
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
AARP GROWTH TRUST, on behalf of
AARP U.S. Stock Index Fund
By: /s/Cornelia M. Small
------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
------------------------------
Managing Director
Exhibit (d)(8)
AARP Growth Trust
345 Park Avenue
New York, New York 10154
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Growth and Income Fund
AARP Small Company Stock Fund
Ladies and Gentlemen:
AARP Growth Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds (each a "Fund" and, collectively, the "Funds"). Series may be
abolished and dissolved, and additional series established, from time to time by
action of the Trustees.
The Trust, on behalf of the Funds, has selected you to act as the sole
investment manager of the Funds and for each series that may subsequently be
authorized by the Trustees (unless otherwise provided at the time and subject to
such conditions and amendments to this Agreement as shall be mutually agreed
upon), and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust on behalf of the Funds agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Funds in the manner and in
accordance with the investment objectives, policies and restrictions specified
in the currently effective Prospectus (the "Prospectus") and Statement of
Additional Information (the "SAI") relating to each Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
<PAGE>
(a) The Declaration dated September 13, 1996, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of each Fund
selecting you as investment manager and approving the form of this
Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated November 12, 1996 relating to the Funds.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the
Funds, you shall provide continuing investment management of the assets of the
Funds in accordance with the investment objectives, policies and restrictions
set forth in the Prospectus and SAI; the applicable provisions of the 1940 Act
and the Internal Revenue Code of 1986, as amended (the "Code"), relating to
regulated investment companies and all rules and regulations thereunder; and all
other applicable federal and state laws and regulations of which you have
knowledge; subject always to policies and instructions adopted by the Trust's
Board of Trustees. In connection therewith, you shall use reasonable efforts to
manage each Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Funds shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Funds in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of a
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Funds and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of each Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Funds and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
2
<PAGE>
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of the Funds such office space and facilities in the United States as the
Funds may require for their reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Funds necessary for operating as open-end investment companies
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Funds' transfer agent; assisting in
the preparation and filing of each Fund's federal, state and local tax returns;
preparing and filing each Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of each Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for each Fund all books, records and reports and any other
information required under the 1940 Act, to the extent that such books, records
and reports and other information are not maintained by the Fund's custodian or
other agents of the Fund; assisting in establishing the accounting policies of
each Fund; assisting in the resolution of accounting issues that may arise with
respect to each Fund's operations and consulting with each Fund's independent
accountants, legal counsel and other agents as necessary in connection
therewith; establishing and monitoring each Fund's operating expense budgets;
reviewing each Fund's bills; processing the payment of bills that have been
approved by an authorized person; assisting each Fund in determining the amount
of dividends and distributions available to be paid by each Fund to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of each Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of a Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including each Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Funds, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 2 hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of a Fund other than
those specifically allocated to you in this section 4. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of a Fund's Trustees
and officers as are directors, officers or employees of you whose services may
be involved, for the following expenses of each Fund: organization expenses of
the Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants;
3
<PAGE>
legal expenses; auditing and accounting expenses; maintenance of books and
records which are required to be maintained by the Fund's custodian or other
agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 4, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of a Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses, or (iii) such expenses
are required to be borne by Scudder pursuant to section 4 of the Investment
Company Services Agreement, dated as of October 8, 1984 among American
Association of Retired Persons, AARP/Scudder Financial Management Company, and
us. You shall be required to pay such of the foregoing sales expenses as are not
required to be paid by the principal underwriter pursuant to the underwriting
agreement or are not permitted to be paid by the Fund (or some other party)
pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 2, 3 and 4 hereof, the
Trust on behalf of the Funds shall pay you on the last day of each month the
unpaid balance of a fee composed of an asset charge in two parts.
(a) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the amount computed
in accordance with paragraphs (b) and (c) below. The computation shall be made
for each such day on the basis of net assets as of the close of business of the
full business day one (1) business day prior to the day for which the
computation is being made. In the case of the suspension of the computation of
net asset value, the asset charge for each day during such suspension shall be
computed as of the close of business on the last full business day on which the
net assets were computed. As used herein, "net assets" as of the close of a full
business day shall include all transactions in shares of each Fund recorded on
the books of each Fund for that day.
(b) The base fee rate part of the fee shall be based on the
average daily net assets of all funds within the AARP Investment Program from
Scudder (the "Program"), including any new fund
4
<PAGE>
which may be organized in the future. The base fee rate will be the percent of
Program net assets as set forth in the following table.
Base Fee Rate
----------------------------------------------------------------------
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%
----------------------------------------------------------------------
The portion of the base fee rate which each Fund shall bear will be the
same percentage of the base fee rate as its net assets are to the total net
assets of all the Program funds.
(c) The fund fee rate part of the fee shall be 0.19 percent per annum
of net assets of AARP Balanced Stock and Bond Fund, 0.19 percent per annum of
net assets of AARP Growth and Income Fund, 0.55 percent per annum of net assets
of AARP Global Growth Fund, 0.32 percent per annum of net assets of AARP Capital
Growth Fund, 0.60 percent per annum of the net assets of AARP International
Growth and Income Fund and 0.55 percent per annum of the net assets of AARP
Small Company Stock Fund.
The value of net assets of the Trust or any Fund shall be determined
pursuant to the applicable provisions of the Declaration, By-Laws and
Registration Statement of the Trust. If, pursuant to such provisions, the
determination of net asset value for any Fund is suspended for any particular
business day, then for the purposes of this paragraph 5, the value of the net
assets of that series of the Trust as last determined shall be deemed to be the
value of the net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the portfolio of that Fund may
lawfully be determined, on that day. If the determination of the net asset value
of the shares of any Fund of the Trust has been suspended pursuant to the
Declaration, By-Laws or Registration Statement of the Trust for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Trust as last
determined (whether during or prior to such month). If a Fund determines the net
asset value of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 5.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of a Fund's expenses, as if such
waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for each Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise
5
<PAGE>
in which you give any advice to clients of yours concerning the Shares of a
Fund, you shall act solely as investment counsel for such clients and not in any
way on behalf of the Fund.
Your services to the Trust and each Fund pursuant to this Agreement are
not to be deemed to be exclusive and it is understood that you may render
investment advice, management and services to others. In acting under this
Agreement, you shall be an independent contractor and not an agent of the Trust
or a Fund. Whenever a Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be allocated in accordance
with procedures believed by the Manager to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in a manner
believed by the Manager to be equitable. Each Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with the matters
to which this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect you against any liability to the
Trust, a Fund or its shareholders to which you would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of your duties, or by reason of your reckless disregard of your obligations and
duties hereunder. Any person, even though also employed by you, who may be or
become an employee of and paid by a Fund shall be deemed, when acting within the
scope of his or her employment by the Fund, to be acting in such employment
solely for the Fund and not as your employee or agent.
8. Duration and Termination of This Agreement. This Agreement shall
remain in force until August 31, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or, with respect to each Fund, by the vote of a
majority of the outstanding voting securities of such Fund of the Trust. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
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10. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "AARP
Growth Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of any
Fund of the Trust, or Trustee, officer, employee or agent of the Trust, shall be
subject to claims against or obligations of the Trust or of any Fund of the
Trust to any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of each Fund pursuant to this Agreement shall be limited in
all cases to the applicable Fund and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
the Fund or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights and obligations
of each Fund, or series, under the Declaration are separate and distinct from
those of any and all other series.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause a
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Funds.
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If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
AARP GROWTH TRUST, on behalf of
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Growth and Income Fund
AARP Small Company Stock Fund
By: /s/Thomas F. McDonough
-----------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
-----------------------
Managing Director
Exhibit (d)(9)
AARP Growth Trust
345 Park Avenue
New York, New York 10154
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
AARP U.S. Stock Index Fund
Ladies and Gentlemen:
AARP Growth Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including AARP U.S. Stock Index Fund (the "Fund"). Series may
be abolished and dissolved, and additional series established, from time to time
by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and for each series that may subsequently be
authorized by the Trustees (unless otherwise provided at the time and subject to
such conditions and amendments to this Agreement as shall be mutually agreed
upon), and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust on behalf of the Fund agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated September 13, 1996, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
<PAGE>
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated January 31, 1997 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended (the "Code"), relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of a
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of the Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for their reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as open-end investment companies
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents,
2
<PAGE>
custodians, depositories, transfer agents and pricing agents, accountants,
attorneys, printers, underwriters, brokers and dealers, insurers and other
persons in any capacity deemed to be necessary or desirable to Fund operations;
preparing and making filings with the Securities and Exchange Commission (the
"SEC") and other regulatory and self-regulatory organizations, including, but
not limited to, preliminary and definitive proxy materials, post-effective
amendments to the Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation and filing of
the Fund's federal, state and local tax returns; preparing and filing the Fund's
federal excise tax return pursuant to Section 4982 of the Code; providing
assistance with investor and public relations matters; monitoring the valuation
of portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and other agents as necessary
in connection therewith; establishing and monitoring the Fund's operating
expense budgets; reviewing the Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Trust as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of a Fund or any other person not a party
to this Agreement which is obligated to provide services to the Fund.
4. In rendering the services required under this Agreement, you may,
subject to the legally required approval of the Trust, its shareholders and
Trustees, cause such services to be provided by a registered investment adviser
or bank (together with Bankers Trust Company, the "Subadvisor") exempt from the
registration requirements under the Investment Advisers Act of 1940, as amended,
(the "Advisers Act") and receive other assistance from such Subadvisor pursuant
to an agreement or agreements and may contract with such other parties as you
deem appropriate to obtain information, advice and management services and other
assistance, provided that such services shall not be deemed to render such party
a registered investment adviser, but any fees, compensation or expenses to be
paid to any such party shall be paid by you, and no obligation shall be incurred
on the Trust's behalf in any respect.
5. You hereby acknowledge that the employment of a Subadvisor or other
service providers hereunder shall not relieve you of any of your obligations
under this Agreement, including your obligations under section 9 of this
Agreement. Further, you acknowledge that for purposes of this Agreement, the
acts of such Subadvisor or other service provider shall be deemed to be acts of
you, the Manager.
6. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 6, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to
3
<PAGE>
any limitations imposed by law. You shall provide at your expense the portfolio
management services described in section 2 hereof and the administrative
services described in section 3 hereof.
You shall not be required to pay any expenses of a Fund other than
those specifically allocated to you in this section 6. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of a Fund's Trustees
and officers as are directors, officers or employees of you whose services may
be involved, for the following expenses of the Fund: organization expenses of
the Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 6, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of a Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses, or (iii) such expenses
are required to be borne by Scudder pursuant to section 6 of the Investment
Company Services Agreement, dated as of October 8, 1984, among American
Association of Retired Persons, AARP/Scudder Financial Management Company, and
us. You shall be required to pay such of the foregoing sales expenses as are not
required to be paid by the principal underwriter pursuant to the underwriting
agreement or are not permitted to be paid by the Fund (or some other party)
pursuant to such a plan.
7. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 2, 3 and 6 hereof, the
Trust on behalf of the Fund shall pay you on the last day of each month the
unpaid balance of a fee composed of an asset charge in two parts.
(a) The asset charge for each calendar day of each year shall be equal
to the total of 1/365th (1/366th in each leap year) of the amount computed in
accordance with paragraphs (b) and (c) below.
4
<PAGE>
The computation shall be made for each such day on the basis of net assets as of
the close of business of the full business day one (1) business day prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the asset charge for each day during such
suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Fund recorded on the books of the Fund for that day.
(b) The base fee rate part of the fee shall be based on the average
daily net assets of all funds within the AARP Investment Program from Scudder
(the "Program"), including any new fund which may be organized in the future.
The base fee rate will be the percent of Program net assets as set forth in the
following table.
Base Fee Rate
----------------------------------------------------------------------
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%
----------------------------------------------------------------------
The portion of the base fee rate which the Fund shall bear will be the
same percentage of the base fee rate as its net assets are to the total net
assets of all the Program funds.
(c) The fund fee rate part of the fee shall be 0.00 percent per annum
of the net assets of the Fund.
The value of net assets of the Trust or any Fund shall be determined
pursuant to the applicable provisions of the Declaration, By-Laws and
Registration Statement of the Trust. If, pursuant to such provisions, the
determination of net asset value for any Fund is suspended for any particular
business day, then for the purposes of this paragraph 5, the value of the net
assets of that series of the Trust as last determined shall be deemed to be the
value of the net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the portfolio of that Fund may
lawfully be determined, on that day. If the determination of the net asset value
of the shares of any Fund of the Trust has been suspended pursuant to the
Declaration, By-Laws or Registration Statement of the Trust for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Trust as last
determined (whether during or prior to such month). If a Fund determines the net
asset value of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 7.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of a Fund's expenses, as if such
waiver or limitation were fully set forth herein.
8. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of a Fund, neither you nor
5
<PAGE>
any of your directors, officers or employees shall act as a principal or agent
or receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities and other
investments for the Fund's account with brokers or dealers selected by you in
accordance with Fund policies as expressed in the Registration Statement. If any
occasion should arise in which you give any advice to clients of yours
concerning the Shares of a Fund, you shall act solely as investment counsel for
such clients and not in any way on behalf of the Fund.
Your services to the Trust and the Fund pursuant to this Agreement are
not to be deemed to be exclusive and it is understood that you may render
investment advice, management and services to others. In acting under this
Agreement, you shall be an independent contractor and not an agent of the Trust
or a Fund. Whenever a Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be allocated in accordance
with procedures believed by the Manager to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in a manner
believed by the Manager to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
9. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with the matters
to which this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect you against any liability to the
Trust, a Fund or its shareholders to which you would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of your duties, or by reason of your reckless disregard of your obligations and
duties hereunder. Any person, even though also employed by you, who may be or
become an employee of and paid by a Fund shall be deemed, when acting within the
scope of his or her employment by the Fund, to be acting in such employment
solely for the Fund and not as your employee or agent.
10. Duration and Termination of This Agreement. This Agreement shall
remain in force until August 31, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or, with respect to the Fund, by the vote of a
majority of the outstanding voting securities of such Fund of the Trust. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this
6
<PAGE>
Agreement shall be effective until approved in a manner consistent with the 1940
Act and rules and regulations thereunder and any applicable SEC exemptive order
therefrom.
12. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "AARP
Growth Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of any
Fund of the Trust, or Trustee, officer, employee or agent of the Trust, shall be
subject to claims against or obligations of the Trust or of any Fund of the
Trust to any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of the Fund pursuant to this Agreement shall be limited in
all cases to the applicable Fund and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
the Fund or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights and obligations
of the Fund, or series, under the Declaration are separate and distinct from
those of any and all other series.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause a
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
7
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
AARP GROWTH TRUST, on behalf of
AARP U.S. Stock Index Fund
By: /s/Thomas F. McDonough
----------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
----------------
Managing Director
Exhibit (d)(12)
SUBADVISORY AGREEMENT
AGREEMENT made as of the 31st day of December, 1997, between Scudder Kemper
Investments, Inc., a Delaware corporation (hereinafter called the "Manager"),
and Bankers Trust Company, a New York corporation (hereinafter called the
"Subadviser").
WITNESSETH:
WHEREAS AARP Growth Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Manager desires to utilize the services of the Subadviser as
investment counsel with respect to certain portfolio assets of the Trust; and
WHEREAS, the Subadviser is willing to perform such services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
it is agreed as follows:
1. The Subadviser's Services. The Subadviser will serve the Manager as
investment counsel with respect to the investment portfolio of AARP U.S. Stock
Index Fund (the "Series"), being one of the portfolio series of the Trust, which
is under the management of the Manager pursuant to an Investment Management
Agreement between the Manager and the Trust dated December 31, 1997.
The Subadviser is hereby authorized and directed and hereby agrees, subject
to the stated investment policies and restrictions of the Series as set forth in
the current Prospectus and Statement of Additional Information of the Trust
(including amendments) and in accordance with the Fund's Declaration of Trust,
as amended, and By-laws governing the offering of its shares and subject to such
resolutions as from time to time may be adopted by the Fund's Trustees and
furnished to the Subadviser, to develop, recommend and implement such investment
program and strategy for the Series as may from time to time be most appropriate
to the achievement of the investment objectives of the Series as stated in the
aforesaid Prospectus, to provide research and analysis relative to the
investment program and investments of the Series, to determine what securities
should be purchased and sold and to monitor on a continuing basis the
performance of the portfolio securities of the Series. In addition, the
Subadviser will place orders for the purchase and sale of portfolio securities
and, subject to the provisions of the following paragraph, will take reasonable
steps to assure that portfolio transactions are effected to the best price and
execution available. The Subadviser will advise the Fund's custodian and the
Manager on a prompt basis of each purchase and sale of a portfolio security
specifying the name of the issuer, the description and amount or number of
shares of the security purchased, the market price, commission and gross or net
price, trade date, settlement date and identity of the effecting broker or
dealer. From time to time as the Trustees of the Trust or the Manager may
reasonably request, the Subadviser will furnish to the Manager, Trust's officers
and to each of its Trustees reports on portfolio transactions and reports on
assets held in the Series, all in such detail as the Trust or the Manager may
reasonably request. The Subadviser will also inform the Manager, Trust's
officers and Trustees on a current basis of changes in investment strategy or
tactics. The Subadviser will make its officers and employees available to meet
with the Manager, Trust's officers and Trustees at least quarterly on due notice
to review the investments and investment performance of the Series in the light
of the Trust's investment objectives and policies and market
<PAGE>
conditions. Additionally, the Manager will provide the Subadviser with a list of
tobacco producing companies that are subject to the stated restrictions of the
Series.
In using its best efforts to obtain for the Series the most favorable price
and execution available, the Subadviser, bearing in mind the Series' best
interests at all times, shall consider all factors it deems relevant, including,
by way of illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker or dealer involved and the
quality of service rendered by the broker or dealer in other transactions.
Subject to such policies as the Trustees of the Trust may determine, the
Subadviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Series to pay an unaffiliated broker or dealer that provides
brokerage and research services to the Subadviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Subadviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Subadviser's overall responsibilities with respect
to the clients.
It shall be the duty of the Subadviser to furnish to the Trustees of the
Trust such information as may reasonably be requested in order for such Trustees
to evaluate this Agreement or any proposed amendments thereto for the purposes
of casting a vote pursuant to Section 9 hereof.
In the performance of its duties hereunder, the Subadviser is and shall be
an independent contractor and except as otherwise expressly provided herein or
otherwise authorized in writing, shall have no authority to act for or represent
the Trust, the Series or the Manager in any way or otherwise be deemed to be an
agent of the Trust, the Series or the Manager.
In furnishing the services under this Agreement, the Subadviser will comply
with the requirements of the 1940 Act applicable to it, and the regulations
promulgated thereunder.
2. Delivery of Documents to Subadviser. The Manager will furnish to the
Subadviser copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Subadviser as subadviser to the Series and approving the form of this
agreement;
(d) The resolutions of the Trustees selecting the Manager as investment
manager to the Trust and approving the form of the Investment Management
Agreement with the Trust, on behalf of the Series;
(e) The Investment Management Agreement with the Trust, on behalf of
the Series;
(f) The Code of Ethics of the Trust and of the Manager as currently in
effect; and
(g) Current copies of the Series' Prospectus and Statement of Additional
Information.
The Manager will furnish the Subadviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any. Such amendments or supplements as to Items
(a) though (g) above will be provided within 30 days of the time such materials
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became available to the Manager and until so provided the Subadviser may
continue to rely on those documents previously provided.
During the term of this Agreement, the Manager also will furnish to the
Subadviser prior to use thereof copies of all Trust documents, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Series or the public that refer in any way
to the Subadviser, and will not use such material if the Subadviser reasonably
objects in writing within five business days (or such other time period as may
be mutually agreed) after receipt thereof. However, the Manager and the
Subadviser may agree amongst themselves that certain of the above-mentioned
documents do not need to be furnished to the Subadviser prior to the document's
use.
In the event of termination of this Agreement, the Trust will continue to
furnish to the Subadviser copies of any of the above-mentioned materials that
refer in any way to the Subadviser. The Trust shall furnish or otherwise make
available to the Subadviser such other information relating to the business
affairs of the Trust as the Subadviser at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
3. Delivery of Documents to the Manager. The Subadviser has furnished the
Manager with copies of each of the following documents:
(a) The Subadviser's most recent balance sheet;
(b) Separate lists of persons who the Subadviser wishes to have
authorized to give written and/or oral instructions to Custodians and
the fund accounting agent of Trust assets for the Series; and
(c) The Code of Ethics of the Subadviser as currently in effect.
The Subadviser will furnish the Manager from time to time with copies,
properly certified or otherwise authenticated, of all material amendments of or
supplements to the foregoing, if any. Additionally, the Subadviser will provide
to the Manager such other documents relating to its services under this
Agreement as the Manager may reasonably request on a periodic basis. Such
amendments or supplements as to items (a) through (c) above will be provided
within 30 days of the time such materials became available to the Subadviser.
4. Other Agreements, etc. It is understood that any of the shareholders,
Trustees, officers and employees of the Trust or the Series may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the Subadviser, any interested person of the Subadviser, any organization in
which the Subadviser may have an interest or any organization which may have an
interest in the Subadviser, any such interested person or any such organization
may have an interest in the Trust or the Series. It is also understood that the
Subadviser, the Manager and the Trust may have advisory, management, service or
other contracts with other individuals or entities, and may have other interests
and businesses. When a security proposed to be purchased or sold for the Series
is also to be purchased or sold for other accounts managed by the Subadviser at
the same time, the Subadviser shall make such purchases or sales on a pro-rata,
rotating or other equitable basis so as to avoid any one account's being
preferred over any other account.
The Subadviser may give advice and take action with respect to other funds
or clients, or for its own account (collectively, "Other Accounts") which may
differ from the advice or the timing or nature of action taken with respect to
the Series.
Nothing in this Agreement shall be implied to prevent the (i) Manager
from engaging other subadvisers to provide investment advice and other services
in relation to portfolios of the Trust for which the Subadviser does not provide
such services, or to prevent the Manager from providing such services
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itself in relation to such portfolios; or (ii) the Subadviser from providing
investment advice and other services to other funds or clients.
5. Fees, Expenses and Other Charges.
(a) For its services hereunder, the Subadviser shall be paid a
management fee by the Trust according to the fee schedule attached
hereto as Schedule A.
(b) The Subadviser, at its expense, will furnish all necessary
investment facilities, including salaries of personnel required for it
to execute its duties faithfully.
6. Confidential Treatment. It is understood that any information or
recommendation supplied by the Subadviser in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Manager, the Trust or such persons as the Manager may designate in
connection with the Series. It is also understood that any information supplied
to the Subadviser in connection with the performance of its obligations
hereunder, particularly, but not limited to, any list of securities which, on a
temporary basis, may not be bought or sold for the Series, is to be regarded as
confidential and for use only by the Subadviser in connection with its
obligation to provide investment advice and other services to the Series.
7. Representations and Covenants of the Parties. The Subadviser hereby
acknowledges that it is a "bank" as defined in Section 202(a)(2) of the
Investment Advisers Act of 1940 and neither it nor any "affiliated person" of
it, as defined in the 1940 Act, is subject to any disqualification that would
make the Subadviser unable to serve as an investment adviser to a registered
investment company under Section 9 of the 1940 Act. The Subadviser covenants
that it will carry out appropriate compliance procedures necessary to the
operation of the Series as the Subadviser and the Manager may agree. The
Subadviser also covenants that it will manage the Series so that the Trust will
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code.
8. Reports by the Subadviser and Records of the Series. The Subadviser
shall furnish the Manager monthly, quarterly and annual reports concerning
transactions and performance of the Series, including information required to be
disclosed in the Trust's registration statement, in such form as may be mutually
agreed, to review the Series and discuss the management of it. The Subadviser
shall permit the financial statements, books and records with respect to the
Series to be inspected and audited by the Trust, the Manager or their agents at
all reasonable times during normal business hours. The Subadviser shall
immediately notify and forward to both the Manager and legal counsel for the
Trust any legal process served upon it on behalf of the Manager or the Trust.
The Subadviser shall promptly notify the Manager of any changes in any
information concerning the Subadviser of which the Subadviser becomes aware that
would be required to be disclosed in the Trust's registration statement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Subadviser agrees that all records it maintains for the Trust are the property
of the Trust and further agrees to surrender promptly to the Trust or the
Manager any such records upon the Trust's or the Manager's request. The
Subadviser further agrees to maintain for the Trust the records the Trust is
required to maintain under Rule 31a-1(b) insofar as such records relate to the
investment affairs of the Trust. The Subadviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains
for the Trust.
9. Continuance and Termination. This Agreement shall remain in full force
and effect through August 31, 1998, and is renewable annually thereafter by
specific approval of the Board of Trustees of the Trust or by the affirmative
vote of a majority of the outstanding voting securities of the Series. Any such
renewal shall be approved by the vote of a majority of the Trustees of the Trust
who are not interested persons under the 1940 Act, cast in person at a meeting
called for the purpose of voting on such renewal. This agreement may be
terminated without penalty at any time by the Trustees, by vote of a majority of
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the outstanding voting securities of the Series, or by the Manager or by the
Subadviser upon 60 days written notice, and will automatically terminate in the
event of its assignment by either party to this Agreement, as defined in the
1940 Act, or (provided Subadviser has received prior written notice thereof)
upon termination of the Manager's Investment Management Agreement with the
Trust.
10. Voting Rights. The Manager shall be responsible for exercising any
voting rights of any securities of the Series.
11. Indemnification. The Subadviser agrees to indemnify and hold harmless
the Manager, any affiliated person within the meaning of Section 2(a)(3) of the
1940 Act ("affiliated person") of the Manager and each person, if any who,
within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"),
controls ("controlling person") the Manager, against any and all losses, claims
damages, liabilities or litigation (including reasonable legal and other
expenses), to which the Manager or such affiliated person or controlling person
may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any
other statute, at common law or otherwise, arising out of Subadviser's
responsibilities as portfolio manager of the Series (1) to the extent of and as
a result of the willful misconduct, bad faith, or gross negligence by the
Subadviser, any of the Subadviser's employees or representatives or any
affiliate of or any person acting on behalf of the Subadviser, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or statement of additional information covering the
Series or the Trust or any amendment thereof or any supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished by the Subadviser to the Manager, the Trust or any affiliated person
of the Manager or the Trust expressly for use in the Trust's registration
statement, or upon verbal information confirmed by the Subadviser in writing
expressly for use in the Trust's registration statement or (3) to the extent of,
and as a result of, the failure of the Subadviser to execute, or cause to be
executed, portfolio transactions according to the standards and requirements of
the 1940 Act; provided, however, that in no case is the Subadviser's indemnity
in favor of the Manager or any affiliated person or controlling person of the
Manager deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The Manager agrees to indemnify and hold harmless the Subadviser, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Subadviser and each person, if any who, within the
meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Subadviser, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which the
Subadviser or such affiliated person or controlling person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Manager's responsibilities as
investment manager of the Series (1) to the extent of and as a result of the
willful misconduct, bad faith, or gross negligence by the Manager, any of the
Manager's employees or representatives or any affiliate of or any person acting
on behalf of the Manager, or (2) as a result of any untrue statement or alleged
untrue statement of a material fact contained in a prospectus or statement of
additional information covering the Series or the Trust or any amendment thereof
or any supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if such a statement or omission was made by the Trust
other than in reliance upon written information furnished by the Subadviser, or
any affiliated person of the Subadviser, expressly for use in the Trust's
registration statement or other than upon verbal information confirmed by the
Subadviser in writing expressly for use in the Trust's registration statement;
provided, however, that in no case is the Manager's indemnity in favor of the
Subadviser or any affiliated person or controlling person of the Subadviser
deemed to protect such person against any liability to which any such person
would otherwise be subject by reason of willful misconduct, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
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12. Certain Definitions. For the purposes of this Agreement, the "vote of a
majority of the outstanding voting securities of the Series" means the
affirmative vote, at a duly called and held meeting of shareholders of the
Series, (a) of the holders of 67% or more of the shares of the Series present
(in person or by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Series entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Series entitled to vote at such meeting,
whichever is less.
For the purposes of this Agreement, the terms "interested person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
For the purposes of this Agreement, the terms "assets", "net assets",
"securities", "portfolio securities" or "investments" of the Series shall mean,
respectively, such assets, net assets, securities, portfolio securities or
investments which are from time to time under the management of the Subadviser
pursuant to this Agreement.
13. Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered or sent by
pre-paid first class letter post to the following addresses or to such other
address as the relevant addressee shall hereafter notify for such purpose to the
others by notice in writing and shall be deemed to have been given at the time
of delivery.
If to the Manager: SCUDDER KEMPER INVESTMENTS, INC.
345 Park Avenue
New York, NY 10154
Attention: Lisa A. Sheeler
If to the Trust: AARP GROWTH TRUST
AARP U.S. STOCK INDEX FUND
Two International Place
Boston, MA 02110
Attention: Linda C. Coughlin
If to the Subadviser: BANKERS TRUST COMPANY
Global Investment Management
One Bankers Trust Plaza
New York, New York 10006
Attention: Frank R. Salerno
14. Instructions. The Subadviser is authorized to honor and act on any
notice, instruction or confirmation given by the Trust or Manager in writing
signed or sent by one of the persons whose names, addresses and specimen
signatures will be provided by the Trust or Manager from time to time.
15. Law. This Agreement is governed by and shall be construed in accordance
with the laws of the State of New York in a manner not in conflict with the
provisions of the 1940 Act.
16. Limitation of Liability of the AARP Mutual Funds, Trustees, and
Shareholders. It is understood and expressly stipulated that none of the
trustees, officers, agents, or shareholders of any AARP Mutual Fund shall be
personally liable hereunder. It is understood and acknowledged that all persons
dealing with any AARP Mutual Fund must look solely to the property of such AARP
Mutual Fund for the enforcement of any claims against such AARP Mutual Fund as
neither the trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of any AARP Mutual Fund. No
AARP Mutual Fund shall be liable for the obligations or liabilities of any other
AARP Mutual Fund. No series of any AARP Mutual Fund, if any, shall be liable for
the obligations of any other series.
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17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this instrument to
be signed in duplicate on its behalf by the officer designated below thereunto
duly authorized.
SCUDDER KEMPER INVESTMENTS, INC.
Attest: By
----------------- -----------------
Name:
Title:
BANKERS TRUST COMPANY
Attest: By
----------------- -----------------
Name:
Title:
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Schedule A to the Subadvisory Agreement
for the AARP U.S. Stock Index Fund (the "Series")
dated as of December 31, 1997 between Scudder Kemper Investments, Inc.
and Bankers Trust Company
FEE SCHEDULE
As compensation for its services described herein, Bankers Trust Company shall
receive a fee based on a percentage of average net assets calculated according
to the following annualized fee schedule:
Series Assets Annualized Rate
------------- ---------------
On the first $100 million 0.07 of 1%
On the next $100 million 0.03 of 1%
On the balance over $200 million 0.01 of 1%
Minimum annual fee: $75,000
The above fees exclude all custody charges. Valuations are made based on the
market value of assets held in the Account at the end of each calendar month,
and fees are charged quarterly in arrears based on one-fourth of the annual fee.
Fees will be prorated appropriately if Bankers Trust Company does not perform
services for a full quarter.
To assist Scudder and the AARP Investment Program in maintaining an appropriate
and competitive level of fund expenses during the Series' start-up phase,
Bankers Trust Company will apply a 15% discount to the above stated fee schedule
for the first 12 months of management. After this 12 month period expires, the
stated (standard) fees will be charged.
8
Exhibit (e)(2)
AARP GROWTH TRUST
Two International Place
Boston, MA 02110
September 7, 1998
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Underwriting Agreement
----------------------
Dear Ladies and Gentlemen:
AARP Growth Trust (hereinafter called the "Trust") is a business trust
organized under the laws of Massachusetts and is engaged in the business of an
investment company. The authorized capital of the Trust consists of shares of
beneficial interest, with par value of $0.01 per share ("Shares"), currently
divided into two portfolios ("Portfolio"); however, shares may be divided into
additional Portfolios of the Trust and the Portfolios may be terminated from
time to time. The Trust has selected you to act as principal underwriter (as
such term is defined in Section 2(a)(29) of the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Shares and you are willing to act as such
principal underwriter and to perform the duties and functions of underwriter in
the manner and on the terms and conditions hereinafter set forth. Accordingly,
the Trust hereby agrees with you as follows:
1. Delivery of Documents. The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, dated September 12, 1996, as
amended to date.
(b) By-Laws of the Trust as in effect on the date hereof.
<PAGE>
(c) Resolutions of the Board of Trustees of the Trust selecting you as
principal underwriter and approving this form of Agreement.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
The Trust will furnish you promptly with properly certified or
authenticated copies of any registration statement filed by it with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
(the "1933 Act") or the 1940 Act, together with any financial statements and
exhibits included therein, and all amendments or supplements thereto hereafter
filed.
2. Registration and Sale of Additional Shares. The Trust will from time
to time use its best efforts to register under the 1933 Act such number of
Shares not already so registered as you may reasonably be expected to sell on
behalf of the Trust. You and the Trust will cooperate in taking such action as
may be necessary from time to time to comply with requirements applicable to the
sale of Shares by you or the Trust in any states mutually agreeable to you and
the Trust, and to maintain such compliance. This Agreement relates to the issue
and sale of Shares that are duly authorized and registered under the 1933 Act
and available for sale by the Trust, including redeemed or repurchased Shares if
and to the extent that they may be legally sold and if, but only if, the Trust
sees fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7
hereof and to such minimum purchase requirements as may from time to time be
currently indicated in the Trust's prospectus or statement of additional
information, you are authorized to sell as agent on behalf of the Trust Shares
authorized for issue and registered under the 1933 Act. You may also purchase as
principal Shares for resale to the public. Such sales will be made by you on
behalf of the Trust by accepting unconditional orders to purchase Shares placed
with you by investors and such purchases will be made by you only after
acceptance by you of such orders. The sales price to the public of Shares shall
be the public offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by
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the Trust and registered under the 1933 Act, provided that you may in your
discretion refuse to accept orders for Shares from any particular applicant.
5. Sale of Shares by the Trust. Unless you are otherwise notified by
the Trust, any right granted to you to accept orders for Shares or to make sales
on behalf of the Trust or to purchase Shares for resale will not apply to (i)
Shares issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or otherwise,
of all or substantially all of the assets of any investment company or
substantially all the outstanding shares of any such company, and (ii) to Shares
that may be offered by the Trust to shareholders of the Trust by virtue of their
being such shareholders.
6. Public Offering Price. All Shares sold to investors by you will be
sold at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined, in the manner
provided in the Trust's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Trust reserves the
right to suspend sales and your authority to accept orders for Shares on behalf
of the Trust if, in the judgment of a majority of the Board of Trustees or a
majority of the Executive Committee of such Board, if such body exists, it is in
the best interests of the Trust to do so, such suspension to continue for such
period as may be determined by such majority; and in that event, no Shares will
be sold by you on behalf of the Trust while such suspension remains in effect
except for Shares necessary to cover unconditional orders accepted by you before
you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the
Trust may be bought or sold by or through you and you may participate directly
or indirectly in brokerage commissions or "spread" in respect to transactions in
portfolio securities of any Portfolio of the Trust; provided, however, that all
sums of money received by you as a result of such purchases and sales or as a
result
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of such participation must, after reimbursement of your actual expenses in
connection with such activity, be paid over by you to or for the benefit of the
Trust.
9. Expenses. (a) The Trust will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing
of any registration statement (including a prospectus and
statement of additional information) under the 1933 Act or the
1940 Act, or both, and any amendments or supplements thereto
that may be made from time to time;
(2) in connection with the registration and qualification of
Shares for sale, or compliance with other conditions
applicable to the sale of Shares in the various jurisdictions
in which the Trust shall determine it advisable to sell such
Shares (including registering the Trust as a broker or dealer
or any officer of the Trust or other person as agent or
salesman of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any
notice, proxy statement, report, prospectus or other
communication to shareholders of the Trust in their capacity
as such;
(4) of preparing, setting in type, printing and mailing
prospectuses annually, and any supplements thereto, to
existing shareholders;
(5) in connection with the issue and transfer of Shares resulting
from the acceptance by you of orders to purchase Shares placed
with you by investors, including the expenses of printing and
mailing confirmations of such purchase orders and the expenses
of printing and mailing a prospectus included with the
confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this paragraph 9;
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(8) of wiring funds in payment of Share purchases or in
satisfaction of redemption or repurchase requests, unless such
expenses are paid for by the investor or shareholder who
initiates the transaction;
(9) of the cost of printing and postage of business reply
envelopes sent to Trust shareholders;
(10) of one or more CRT terminals connected with the computer
facilities of the transfer agent other than the portion
allocated to you in this paragraph 9;
(11) permitted to be paid or assumed by the Trust pursuant to a
plan ("12b-1 Plan"), if any, adopted by the Trust in
conformity with the requirements of Rule 12b-1 under the 1940
Act ("Rule 12b-1") or any successor rule, notwithstanding any
other provision to the contrary herein;
(12) of the expense of setting in type, printing and postage of the
periodic newsletter to shareholders other than the portion
allocated to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you as
shareholder representatives other than the portion allocated
to you in this paragraph 9.
b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports
prepared for your use in connection with the offering of
Shares to the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of
Shares to the public;
(3) of advertising in connection with the offering of Shares to
the public;
(4) incurred in connection with your registration as a broker or
dealer or the registration or qualification of your officers,
trustees, agents or representatives under Federal and state
laws;
(5) of that portion of WATS (or equivalent) telephone lines,
allocated to you on the basis of use by investors (but not
shareholders) who request information or prospectuses;
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(6) of that portion of the expenses of setting in type, printing
and postage of the periodic newsletter to shareholders
attributable to promotional material included in such
newsletter at your request concerning investment companies
other than the Trust or concerning the Trust to the extent you
are required to assume the expense thereof pursuant to
paragraph 9(b)(8), except such material which is limited to
information, such as listings of other investment companies
and their investment objectives, given in connection with the
exchange privilege as from time to time described in the
Trust's prospectus;
(7) of that portion of the salaries and overhead of persons
employed by you as shareholder representatives attributable to
the time spent by such persons in responding to requests from
prospective investors and shareholders for information about
the Trust;
(8) of any activity which is primarily intended to result in the
sale of Shares, unless a 12b-1 Plan shall be in effect which
provides that the Trust shall bear some or all of such
expenses, in which case the Trust shall bear such expenses in
accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with
the computer facilities of the transfer agent attributable to
your use of such terminal(s) to gain access to such of the
transfer agent's records as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
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11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Trust in the performance of your duties hereunder. You shall be responsible
for your own conduct and the employment, control and conduct of your agents and
employees and for injury to such agents or employees or to others through your
agents or employees. You assume full responsibility for your agents and
employees under applicable statutes and agree to pay all employee taxes
thereunder.
12. Indemnification. You agree to indemnify and hold harmless the Trust
and each of its trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which the Trust or such trustees, officers, or controlling person
may become subject under such Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by you or any of your employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement
(including a prospectus or statement of additional information) covering Shares
or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such statement or
omission was made in reliance upon information furnished to the Trust by you, or
(iii) may be incurred or arise by reason of your acting as the Trust's agent
instead of purchasing and reselling Shares as principal in distributing the
Shares to the public, provided, however, that in no case (i) is your indemnity
in favor of a trustee or officer or any other person deemed to protect such
trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) are
you to be liable under your indemnity agreement contained in this paragraph with
respect to any claim made against the Trust or any person indemnified unless the
Trust or such person, as the case may be, shall have notified you in writing
within a reasonable time after the summons or other first legal process giving
7
<PAGE>
information of the nature of the claims shall have been served upon the Trust or
upon such person (or after the Trust or such person shall have received notice
of such service on any designated agent), but failure to notify you of any such
claim shall not relieve you from any liability which you may have to the Trust
or any person against whom such action is brought otherwise than on account of
your indemnity agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so elect, to assume
the defense of any suit brought to enforce any such liability, but if you elect
to assume the defense, such defense shall be conducted by counsel chosen by you
and satisfactory to the Trust, to its officers and trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the event
that you elect to assume the defense of any such suit and retain such counsel,
the Trust, such officers and trustees or controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but, in case you do not elect to assume the
defense of any such suit, you will reimburse the Trust, such officers and
trustees or controlling person or persons, defendant or defendants in such suit
for the reasonable fees and expenses of any counsel retained by them. You agree
promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
The Trust agrees to indemnify and hold harmless you and each of your
trustees and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such trustees, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Trust or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement (including a prospectus or statement
of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
8
<PAGE>
information furnished to you by the Trust; provided, however, that in no case
(i) is the Trust's indemnity in favor of you, a trustee or officer or any other
person deemed to protect you, such trustee or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claims made against you or any
such trustee, officer or controlling person unless you or such trustee, officer
or controlling person, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon you or
upon such trustee, officer or controlling person (or after you or such trustee,
officer or controlling person shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Trust will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if the Trust elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to you,
your trustees, officers, or controlling person or persons, defendant or
defendants in the suit. In the event that the Trust elects to assume the defense
of any such suit and retain such counsel, you, your trustees, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, it will
reimburse you or such trustees, officers or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Trust agrees promptly to notify you of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any Shares.
13. Authorized Representations. The Trust is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained
9
<PAGE>
in a registration statement (including a prospectus or statement of additional
information) covering Shares, as such registration statement and prospectus may
be amended or supplemented from time to time.
You are not authorized to give any information or to make any
representations on behalf of the Trust or in connection with the sale of Shares
other than the information and representations contained in a registration
statement (including a prospectus or statement of additional information)
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
underwriter (as such term is defined in the 1940 Act) for the Trust.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon the date first written above and will remain in effect
until August 31, 1999 and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the trustees who are not interested persons of you or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval, and by
vote of the Board of Trustees or of a majority of the outstanding voting
securities of the Trust. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty, by the Board of
Trustees of the Trust, by a vote of a majority of the outstanding voting
securities of the Trust, or by you. This Agreement will automatically terminate
in the event of its assignment. In interpreting the provisions of this paragraph
14, the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person", "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Trust should at any time deem it
necessary or advisable in the best interests of the Trust that any amendment of
this Agreement be made in order to comply with the recommendations or
10
<PAGE>
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Trust may terminate this
Agreement forthwith. If you should at any time request that a change be made in
the Trust's Declaration of Trust or By-laws or in its methods of doing business,
in order to comply with any requirements of federal law or regulations of the
Securities and Exchange Commission or of a national securities association of
which you are or may be a member relating to the sale of shares of the Trust,
and the Trust should not make such necessary change within a reasonable time,
you may terminate this Agreement forthwith.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Very truly yours,
AARP GROWTH TRUST
By: /s/Thomas F. McDonough
-----------------------
Thomas F. McDonough
Vice President
11
<PAGE>
The foregoing agreement is hereby accepted as of the foregoing date
thereof.
SCUDDER INVESTOR SERVICES, INC.
By: /s/Daniel Pierce
----------------
Daniel Pierce
Vice President
12
Exhibit (h)(4)
SCUDDER KEMPER INVESMENTS, INC.
Two International Place
Boston, MA 02110
September 7, 1998
AARP Financial Services Corp.
c/o American Association of Retired Persons
601 E Street, N.W.
Washington, DC 20049
Member Services Agreement
Dear Sirs:
Reference is made to the Omnibus Agreement, dated as of October 9,
1984, between American Association of Retired Persons ("AARP") and us; the
Partnership Agreement, dated as of October 9, 1984, between you and us; and the
Investment Company Service Agreement (the "ICS Agreement"), dated as of October
9, 1984, among AARP, AARP/Scudder Financial Management Company (the
"Partnership") and us. Capitalized terms used herein without definition shall
have the meanings assigned thereto in the ICS Agreement.
This Agreement constitutes the agreement required to be entered into by
you and us pursuant to Section 5 of the ICS Agreement and referred to as the
"Member Services Agreement" therein.
This Agreement supersedes all prior Member Services Agreements entered
into between you and the Partnership.
We hereby agree with you as follows:
1. You agree to provide us with such advice and services relating to
investments by members of AARP in the AARP Cash Investment Funds, the AARP
Growth Trust, the AARP Income Trust, and the AARP Tax Free Income Trust, each
established as a Massachusetts business trust to engage in the business of an
investment management company (each a "Fund" and, collectively, the "Funds"),
and any separate portfolios of the Funds, created from time to time by action of
the Trustees (each a "Portfolio" and, collectively, the "Portfolios"), as we
shall from time to time reasonably request, including advice and services as to
product design of the Funds and Portfolios, the development of new products and
services for the Funds and Portfolios and such other information as will assist
us in tailoring the Funds and Portfolios best to meet the investment objectives
and needs of the AARP membership, based upon your analysis thereof. You agree to
contribute or cause to be contributed certain resources to the Funds and
Portfolios to assist in the organization and operation of the Funds and
Portfolios, including "seed money" for the Funds and assistance in monitoring
our activities and the services provided by Scudder and other agents of the
Funds and Portfolios. You agree to make available certain of your directors,
officers and staff to assist in the operation of the Funds and Portfolios, and,
subject to their individual consent, to serve as directors and officers of the
Funds. You also agree to facilitate communications with and the provision of
services to the AARP membership by analyzing the needs of AARP members of
recommending the appropriate services and methods of communication for the
purpose of disseminating information and providing services relating to the
Account and the Services. For this purpose, you will arrange that there be made
available to us, in
<PAGE>
accordance with AARP's policies and practices, membership lists of AARP and of
AARP's publications and access to advertising space in AARP publications.
Further, AARP and we have agreed to grant to the Partnership the right and
license to do business under the name "AARP/Scudder Financial Management
Company," and each of AARP and we have agreed to grant to the Funds a license to
use certain of our respective service marks.
2. We agree to pay you, as compensation for the services to be rendered
by you hereunder, a monthly fee equal to the Monthly Member Services Fee. The
Monthly Member Services Fee shall be a monthly fee calculated for each calendar
day of each year in an amount equal to the sum of: 1/365 (1/366 in each leap
year) of .07 of 1% of the average daily net assets as defined below of all
Portfolios within the AARP Investment Program from Scudder, including any new
fund or portfolio which may be organized in the future, for such month; provided
that, for any calendar month during which the average of such values exceed $6
billion, the fee payable for that month based on the portion of the average of
such values in excess of $6 billion shall be 1/365 (1/366 in each leap year) of
.06 of 1% of such portion; provided that, for any calendar month during which
the average of such values exceed $16 billion, the fee payable for that month
based on the portion of the average of such values in excess of $16 billion
shall be 1/365 (1/366 in each leap year) of .05 of 1% of such portion. The value
of the average daily net assets of the Portfolios shall be determined in the
manner set forth in the respective Investment Management Agreements dated as of
September 7, 1998, between us and each Fund.
3. Nothing herein shall be construed as constituting you as an agent of
us or of the Funds.
4. This Agreement shall become effective as of the date hereof and
shall remain in effect, with respect to each Portfolio of each Fund, until
August 31, 1999 and shall continue in effect thereafter with respect to each
Portfolio so long as such continuance is specifically approved at least annually
by the affirmative vote of (i) a majority of the members of the Trustees of each
Fund who are not interested persons of such Fund, you or us, cast in person at a
meeting called for the purpose of voting on such approval; and (ii) the Trustees
of each Fund or, with respect to each Portfolio of such Fund, the holders of a
majority of the outstanding voting securities of such Portfolio. In the event
that the Trustees or security holders of fewer than all of the Portfolios of a
Fund, fail to approve this Agreement in the manner described in the preceding
sentence, this Agreement shall remain in effect only with respect to such
Portfolio as do so approve this Agreement. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any penalty by
us, or, as to a particular Fund, by the Trustees to such Fund or by vote of
holders of a majority of the outstanding voting securities of each Portfolio, as
to a Fund, or the Portfolio, as to that Portfolio, or by you.
5. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by either party hereto. It may be amended as to
any Portfolio by mutual agreement, but only after authorization of such
amendment by the affirmative vote of (i) the holders of a majority of the
outstanding voting securities of such Portfolio; and (ii) the Trustees of each
Fund, including a majority of the Trustees of such Fund who are not interested
persons of such Fund, the Partnership, you or us, cast in person at a meeting
called for the purpose of voting on such approval.
6. This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the Investment Company Act of 1940, as amended. As used
herein the terms "interested persons," "assignments" and
2
<PAGE>
"vote of a majority of the outstanding voting securities" shall have the
meanings set forth in the Investment Company Act of 1940, as amended.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart hereof and return the same to us.
Very truly yours,
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
-----------------
Managing Director
The foregoing Agreement is
hereby accepted as of the date
first written above.
AARP FINANCIAL SERVICES CORP.
By: /s/Linda Coughlin
-----------------
Title:
Accepted:
AARP CASH INVESTMENT FUNDS
By: /s/Thomas F. McDonough
----------------------
Vice President
AARP GROWTH TRUST
By: /s/Thomas F. McDonough
----------------------
Vice President
AARP INCOME TRUST
By: /s/Thomas F. McDonough
----------------------
Vice President
3
<PAGE>
AARP TAX FREE INCOME TRUST
By: /s/Thomas F. McDonough
----------------------
Vice President
4
Exhibit (h)(11)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 1st day of February, 1997 between AARP Growth
Trust (the "Fund"), on behalf of AARP Small Company Stock Fund (hereinafter
called the "Portfolio"), a registered open-end management investment company
with its principal place of business in Boston, Massachusetts and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
<PAGE>
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated October 21,
1996 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
<PAGE>
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund.
FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of
any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP Small Company Stock Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP Small Company Stock Fund
By:/s/Cornelia M. Small
----------------------------------------
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela G. McGrath
----------------------------------------
Vice President
Exhibit (h)(12)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 1st day of February, 1997 between AARP Growth
Trust (the "Fund"), on behalf of AARP U.S. Stock Index Fund (hereinafter called
the "Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
<PAGE>
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated October 21,
1996 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
<PAGE>
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund.
FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of
any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP U.S. Stock Index Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP U.S. Stock Index Fund
By:/s/Cornelia M. Small
-----------------------------------------
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela G. McGrath
-----------------------------------------
Vice President
<PAGE>
Exhibit (h)(13)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 1st day of February, 1997 between AARP Growth
Trust (the "Fund"), on behalf of AARP International Stock Fund (hereinafter
called the "Portfolio"), a registered open-end management investment company
with its principal place of business in Boston, Massachusetts and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily
dividend rates and money market yields, in accordance with
Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset
value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in shares of beneficial interest.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
<PAGE>
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
<PAGE>
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, dated October 21,
1996 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
<PAGE>
FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund.
FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of
any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: AARP Growth Trust -
AARP International Stock Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
AARP GROWTH TRUST, on behalf of
AARP International Stock Fund
By:/s/Cornelia M. Small
------------------------------------------------
President
SCUDDER FUND ACCOUNTING CORPORATION
By:/s/Pamela G. McGrath
------------------------------------------------
Vice President
<PAGE>
Exhibit (h)(14)
DRAFT
COMPASS AND TRAK 2000 SERVICE AGREEMENT
THIS AGREEMENT is made as of this 1st day of February, 1997, by and between
SCUDDER TRUST COMPANY, a New Hampshire banking corporation ("Trust Company") and
AARP GROWTH TRUST, a Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, Trust Company is engaged in the business of providing certain
recordkeeping and other services in connection with the COMPASS and TRAK 2000
systems and is willing to provide certain order processing services as agent for
the Trust for certain omnibus accounts maintained with the Trust; and
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Terms of Appointment; Performance of Duties.
1.1. Appointment. Subject to the terms and conditions set forth in this
Agreement, the Trust hereby employs and appoints Trust Company (i) to act as,
and Trust Company agrees to act as, recordkeeping agent with respect to the
authorized and issued shares of beneficial interest of the Trust ("Shares") or
units representing such Shares ("Units"), and (ii) to act as an agent of the
Trust for the purpose of receiving requests for the purchase and redemption of
Shares or Units (collectively, "Shares") and communicating such requests to the
Trust's transfer agent ("Transfer Agent"), in connection with certain retirement
and employee benefit plans established under the Internal Revenue Code of 1986
including but not limited to defined contribution plans, Section 403(b) plans,
individual retirement accounts and deferred compensation plans (each a "Plan" or
collectively the "Plans"), utilizing the Comprehensive Participant Accounting
Services ("COMPASS") or TRAK 2000 system, and established by plan
administrators, employers, trustees, custodians and other persons (each
individually an "Administrator" or collectively the "Administrators") on behalf
of employers (each individually an "Employer" or collectively the "Employers")
and individuals for certain participants in such Plans (each individually a
"Participant" or collectively the "Participants").
1.2. Recordkeeping. Trust Company agrees that it will perform the following
recordkeeping services in connection with the COMPASS and TRAK 2000 systems in
accordance with procedures established from time to time by agreement between
the Trust and Trust Company. Subject to instructions from the Administrators,
Trust Company shall:
(i) receive from Administrators instructions for the purchase of
Shares of the Trust, confirm compliance with such instructions and, as agent of
the respective Administrators, deliver within a reasonable time such
instructions and any appropriate documentation therefor to the Transfer Agent of
the Trust duly appointed by the Trustees of the Trust (the "Transfer Agent");
<PAGE>
(ii) record the purchase by Plans of the appropriate number of Shares
or Units and within a reasonable time allocate such Shares or Units among the
Participants' accounts;
(iii) record dividends and capital gains distributions on behalf of
Participants;
(iv) receive from Administrators instructions for redemption and
repurchase requests and directions, confirm compliance with such instructions
and as agent of the respective Administrators deliver within a reasonable time
such instructions and any appropriate documentation therefor to the Transfer
Agent;
(v) record the redemption or repurchase by Plans of the appropriate
number of Shares or Units and within a reasonable time make the appropriate
adjustments among the Participants' accounts;
(vi) certify to the Trust no less frequently than annually the number
of Participants accounts for which records are maintained hereunder;
(vii) maintain records of account for and advise the Trust and
Administrators and Participants, when appropriate, as to the foregoing;
(viii) maintain all Plan and Participant accounts other than accounts
maintained by the Transfer Agent; and
(ix) maintain and mail administrative reports and Participant
statements.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Trust and Trust Company.
1.3. Order Processing.
(a) In addition to the recordkeeping to be performed in accordance
with Section 1.02 above, the Trust hereby appoints Trust Company, and Trust
Company agrees to act, as the Trust's agent for the purpose of receiving
requests for the purchase and redemption of Shares or Units and communicating
such requests to the Trust's Transfer Agent, subject to and in accordance with
the terms of this Agreement, and as follows:
(i) Trust Company shall receive from the Plans, Plan
participants, Plan sponsors, authorized Plan committees or Plan trustees,
according to Trust Company's agreement with each Plan, by the close of regular
trading on the New York Stock Exchange (the "Close of Trading") each business
day that the New York Stock Exchange is open for business ("Business Day")
instructions for the purchase and redemption of Shares (together,
"Instructions"). Instructions received by Trust Company after the Close of
Trading on any Business Day shall be treated as received on the next Business
Day.
(ii) In connection with the COMPASS system, Trust Company shall
compute net purchase requests or net redemption requests for Shares of the Trust
for each Plan based on Instructions received each Business Day.
(iii) Trust Company shall communicate purchase and redemption
requests for Shares of the Trust, netted in accordance with (ii) above in the
case of COMPASS ("Orders"), to the Transfer Agent, for acceptance by the Trust
or its agents, in the manner specified herein, and promptly deliver, or instruct
2
<PAGE>
the Plans (or the Plans' trustees as the case may be) to deliver, appropriate
documentation and, in the case of purchase requests, payment therefor to the
Transfer Agent. Orders shall be based solely on Instructions received by Trust
Company from the Plans, Plan participants, Plan sponsors, authorized Plan
committees or Plan trustees.
(b) Trust Company shall maintain adequate records related to, and
advise the Transfer Agent as to, the foregoing, as instructed by the Trust, or
by the Transfer Agent or other person designated to act on the Trust's behalf.
To the extent required under the 1940 Act and rules thereunder, Trust Company
agrees that such records maintained by it hereunder will be preserved,
maintained and made available in accordance with the provisions of the 1940 Act
and rules thereunder, and copies or, if required, originals will be surrendered
promptly to the Trust, Transfer Agent or other person designated to act on the
Trust's behalf, on and in accordance with its request. Records surrendered
hereunder shall be in machine readable form, except to the extent that Trust
Company has maintained such records only in paper form. This provision shall
survive the termination of this Agreement.
(c) Trust Company shall perform its duties hereunder subject to the
terms and conditions of the Trust's current prospectus; the Trust and the Trust
Company may establish such additional procedures for order processing not
inconsistent with the terms of this Agreement as they reasonably determine to be
necessary or advisable from time to time.
(d) Trust Company acknowledges that it is not authorized by the Trust
to register the transfer of the Trust's Shares or to transfer record ownership
of the Trust's Shares, and that only the Transfer Agent is authorized to perform
such activities.
1.4. Agents of Trust Company. Trust Company may engage one or more
individuals, corporations, partnerships, trusts or other entities (including
affiliates of Trust Company) to act as its subcontractor(s) or agent(s)
("Agents") in providing the services contemplated hereunder. Any such Agent
shall be required to comply with the terms of this Agreement applicable to the
performance of such services it is performing as though it were the Trust
Company. Further, the Trust Company shall be solely responsible for, and assumes
all liability for, the actions and inactions of such Agents in connection with
their performance of such services.
2. Fees and Expenses.
2.1. Fees. For performance by Trust Company of services pursuant to this
Agreement, the Trust agrees to pay Trust Company an annual maintenance fee for
each Participant account as set out in the fee schedule, as amended from time to
time. Such fee schedule and out-of-pocket expenses and advances identified under
Section 2.2 below may be changed from time to time by mutual agreement between
the Trust and Trust Company. The parties hereto acknowledge that the fees
payable hereunder are for administrative and recordkeeping services only and do
not constitute payment in any manner for investment advisory or distribution
services.
2.2. Expenses. In addition to the fee paid under Section 2.1 above, the
Trust agrees to reimburse Trust Company for out-of-pocket expenses or advances
incurred by Trust Company for the items set out in the fee schedule. In
addition, any other expenses incurred by Trust Company, at the request or with
the consent of the Trust, will be reimbursed by the Trust. The Trust agrees to
pay all fees and reimbursable expenses promptly. Postage and the cost of
materials for mailing of administrative reports, Participant statements and
other mailings to all Employer accounts or Participants shall be advanced to
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Trust Company by the Trust at least two (2) days prior to the mailing date of
such materials or paid within two (2) days of the receipt by the Trust of a bill
therefor.
3. Representations and Warranties of Trust Company.
Trust Company represents and warrants to the Trust that:
(i) It is a banking corporation duly organized and existing and in good
standing under the laws of The State of New Hampshire.
(ii) It has the legal power and authority to carry on its business in any
jurisdiction where it does business.
(iii) It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
(v) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Trust.
The Trust represents and warrants to Trust Company that:
(i) It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
(ii) It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
(iii) All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
(iv) It is an investment company registered under the Investment Company
Act of 1940, as amended (the "Act").
(v) It makes available its Shares in connection with certain Plans.
(vi) A majority of the Trustees of the Trust who are not interested persons
have made findings to the effect that:
(a) the Agreement is in the best interest of the Trust and its
shareholders;
(b) the services to be performed pursuant to the Agreement are
services required for the operation of the Trust;
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(c) Trust Company can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and
(d) the fees charged by Trust Company for such services are fair and
reasonable in the light of the usual and customary charges made by others for
services of the same nature and quality.
(vii) A registration statement under the Securities Act of 1933, as
amended, has been filed and has become effective, and appropriate state
securities law filings have been made with respect to all Shares of the Trust
being offered for sale. The Trust shall notify Trust Company (i) if such
registration statement or any state securities registration or qualification has
been terminated or a stop order has been entered with respect to the Shares or
(ii) if such registration statement shall have been amended to cover Shares of
any additional Series (as hereinafter defined in Section 8.1).
5. Indemnification.
5.1. By Trust. Trust Company shall not be responsible for, and the Trust
shall indemnify and hold Trust Company harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of Trust Company or its agents required to be taken
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust hereunder.
(c) The reliance on or use by Trust Company or its agents of
information, records and documents which (i) are received by Trust Company or
its agents and furnished to it by or on behalf of the Trust, and (ii) have been
prepared and/or maintained by the Trust or any other person or firm (except
Trust Company) on behalf of the Trust.
(d) The reliance on or the carrying out by Trust Company or its agents
of any written instructions or requests of the Trust or any person acting on
behalf of the Trust.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such state, or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.2. By Trust Company. Trust Company shall indemnify and hold the Trust
harmless from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable to Trust
Company's refusal or failure to comply with the terms of this Agreement, or
which arise out of Trust Company's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
Trust Company hereunder.
5.3. Reliance. At any time Trust Company may apply to any officer of the
Trust for instructions, and may consult with legal counsel (which may also be
legal counsel for the Trust) with respect to any matter arising in connection
with the services to be performed by Trust Company under this Agreement, and
Trust Company shall not be liable and shall be indemnified by the Trust for any
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action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. Trust Company and its agents shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Trust, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided Trust Company or its agents by telephone, in person,
machine-readable input, telex, CRT data entry or other similar means authorized
by the Trust, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Trust.
5.4. Acts of God. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.5. Procedures. In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. Covenants of the Trust and Trust Company.
6.1. Adequate Facilities. Trust Company hereby agrees to establish and
maintain facilities, personnel, and computer and other facilities and procedures
reasonably acceptable to the Trust for safekeeping of records, for the
preparation or use, and for keeping account of, such records, and for order
processing.
6.2. Insurance. Trust Company shall at all times maintain insurance
coverage which is reasonable and customary in light of its duties hereunder and
its other obligations and activities, and shall notify the Trust of any changes
in its insurance coverage unless the Trust is covered by the same policy and
such change is also applicable to the Trust.
6.3. Records. Trust Company shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable.
6.4. Confidentiality. Trust Company and the Trust agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.5. Inspection. In case of any requests or demands for the inspection of
the records relating to Plan accounts and Participant accounts with the Trust,
Trust Company will endeavor to notify the Trust and to secure instructions from
an authorized officer of the Trust as to such inspection. Trust Company reserves
the right, however, to exhibit such records to any person whenever it is
reasonably advised by counsel to the Trust that it may be held liable for the
failure to exhibit such records to such person.
6.6. Laws Applicable to Trust. Trust Company acknowledges that the Trust,
as a registered investment company under the Act, is subject to the provisions
of the Act and the rules and regulations thereunder, and that the offer and sale
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of the Trust's Shares are subject to the provisions of federal and state laws
and regulations applicable to the offer and sale of securities. The Trust
acknowledges that Trust Company is not responsible for the Trust's compliance
with such laws, rules and regulations. If the Trust advises Trust Company that a
procedure of Trust Company related to the discharge of its obligations hereunder
has or may have the effect of causing the Trust to violate any of such laws or
regulations, Trust Company shall use its best efforts to develop an alternative
procedure which does not have such effect.
6.7. Relationship to Plans. Trust Company acknowledges to the Trust that,
as the offeror of COMPASS and TRAK 2000, Trust Company does not act as a plan
administrator or as a fiduciary under the Employee Retirement Income Security
Act of 1974, as amended from time to time, with respect to any Plan. Trust
Company shall not be responsible for determining whether the terms of a
particular Plan or the Shares of the Trust are appropriate for the Plan or
Participant and does not guarantee the performance of the Trust.
7. Termination of Agreement.
This Agreement may be terminated by either party on the last day of the
month next commencing after thirty (30) days written notice to the other party.
Upon termination of this Agreement, the Trust shall pay to Trust Company such
fees and expenses as may be due as of the date of such termination. Should the
Trust exercise its right to terminate this Agreement, Trust Company reserves the
right to charge for any other reasonable expenses associated with such
termination.
8. Additional Funds of the Trust.
8.1. Establishment of Series. Shares of the Trust are of a single class;
however, Shares may be divided into additional series ("Series") that may be
established from time to time by action of the Trustees of the Trust. If the
context requires and unless otherwise specifically provided herein, the term
"Trust" as used in this Agreement shall mean in addition each separate Fund
currently existing or subsequently created, and the term "Shares" shall mean all
shares of beneficial interest of the Trust, whether of a single class or divided
into separate Fund of the Trust currently existing or hereinafter created.
8.2. Notice to Trust Company. In the event that the Trust establishes one
or more or additional Series of Shares in addition to the original Series with
respect to which it desires to have Trust Company render services as
recordkeeping agent under the terms hereof, it shall so notify Trust Company in
writing, and upon the effectiveness of a registration statement under the
Securities Act of 1933, as amended, relating to such Series of Shares and unless
Trust Company objects in writing to providing such services, such Series shall
be subject to this Agreement.
8.3. Suspension. In the event that the Trust suspends the offering of
Shares of any one or more Series, it shall so notify Trust Company in writing to
such effect.
9. Assignment.
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
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10. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
12. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto.
13. Correspondence.
Trust Company will answer correspondence from Administrators relating to
Plan and Plan participant accounts and such other correspondence as may from
time to time be mutually agreed upon and notify the Trust of any correspondence
which may require an answer from the Trust.
14. Further Actions.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
15. Interpretive Provisions.
In connection with the operation of this Agreement, Trust Company and the
Trust may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by the parties and annexed hereto, but no
such provisions shall contravene any applicable federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
16. Miscellaneous.
The name AARP Growth Trust is the designation of the Trustees for the time
being under a Declaration of Trust dated November 8, 1984, as amended, and all
persons dealing with the Trust must look solely to the Trust property for the
enforcement of any claims against the Trust as neither the Trustees, officers,
agents nor shareholders assume any personal liability for obligations entered
into on behalf of the Trust. No Fund of the Trust shall be liable for any claims
against any other Fund of the Trust.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
SCUDDER TRUST COMPANY
By: /s/Benjamin W. Thorndike
----------------------------
Title: Vice President-Treasurer
AARP GROWTH TRUST
By: /s/Cornelia M. Small
------------------------
Title: President
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Exhibit (h)(14)(a)
SCUDDER TRUST COMPANY
FEE INFORMATION FOR SERVICES PROVIDED UNDER
COMPASS AND TRAK 2000 SERVICE AGREEMENT
AARP Investment Program
Annual service charge for each participant's account in a retirement and
employee benefit plan:
Each Account or
---------------
Sub Account
-----------
Money Market Funds $ 28.00
Non-Money Market Funds 23.50
Closed Account 5.00
Information Access:
o VRU Access Charge per Call 0.20
o Internet To be determined
1/12th of the annual service charge shall be charged and payable each month. It
will be charged for any account or subaccount which at any time during the month
had a share or unit account balance in the fund.
Out of pocket expenses shall be paid by the Fund directly to the Vendor. Such
expenses include but are not limited to the following:
Supplies:
Stationery and envelopes in connection with participant statements and
administrative
Reports
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Microfilm and Microfiche
Checks
On behalf of the Funds listed on
Attachment A: Scudder Trust Company
By:_________________________ By:_____________________
Dennis M. Cronin, Jr.
President Senior Vice President and Treasurer
Date: Date:
<PAGE>
ATTACHMENT A
COMPASS and TRAK 2000 SERVICE AGREEMENT
MONEY MARKET FUND SERVICE ACCOUNT
Money Market Accounts
AARP High Quality Money Fund
NON-MONEY MARKET FUND SERVICE ACCOUNT
Monthly Income Funds
AARP Diversified Income Portfolio
AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Bond Fund for Income
Quarterly Distribution Funds
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
Annual Distribution Funds
AARP Blue Chip Index Fund
AARP Diversified Growth Portfolio
AARP Global Growth Fund
AARP Capital Growth Fund
AARP International Stock Fund
AARP Small Company Stock Fund
dated as of February 1, 1997
