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001 A000000 AARP TAX FREE INCOME TRUST
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007 C020100 AARP HIGH QUALITY TAX FREE MONEY FUND
007 C030100 N
007 C010200 2
007 C020200 AARP INSURED TAX FREE GENERAL BOND FUND
007 C030200 N
007 C010300 3
007 C010400 4
007 C010500 5
007 C010600 6
007 C010700 7
007 C010800 8
007 C010900 9
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008 A00AA01 SCUDDER KEMPER INVESTMENTS, INC.
008 B00AA01 A
008 C00AA01 801-22973
008 D01AA01 NEW YORK
008 D02AA01 NY
008 D03AA01 10154
010 A00AA01 SCUDDER FUND ACCOUNTING CORPORATION
010 C01AA01 BOSTON
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010 C03AA01 02110
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014 A00AA01 SCUDDER INVESTOR SERVICES, INC.
014 B00AA01 8-298
014 A00AA02 KEMPER DISTRIBUTORS, INC.
<PAGE> PAGE 2
014 B00AA02 8-47765
014 A00AA03 GRUNTAL SECURITIES, INC.
014 B00AA03 8-31022
014 A00AA04 THE GMS GROUP, INC.
014 B00AA04 8-23936
014 A00AA05 ZURICH CAPITAL MARKETS
014 B00AA05 8-49827
014 A00AA06 BANK HANDLOWY
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015 A00AA01 STATE STREET BANK AND TRUST COMPANY
015 B00AA01 C
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015 E01AA01 X
015 A00AA02 BANKERS TRUST COMPANY
015 B00AA02 S
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
070 K020100 N
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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SIGNATURE THOMAS F. MCDONOUGH
TITLE VICE PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
High Quality Tax Free Money Fund Annual Report for the fiscal year ended 9/30/98
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> AARP High Quality Tax Free Money Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 96,565,000
<INVESTMENTS-AT-VALUE> 96,565,000
<RECEIVABLES> 784,545
<ASSETS-OTHER> 404,731
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97,754,276
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158,042
<TOTAL-LIABILITIES> 158,042
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,354,676
<SHARES-COMMON-STOCK> 97,601,942
<SHARES-COMMON-PRIOR> 102,619,379
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (758,442)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 97,596,234
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,602,900
<OTHER-INCOME> 0
<EXPENSES-NET> 829,546
<NET-INVESTMENT-INCOME> 2,773,354
<REALIZED-GAINS-CURRENT> (222)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,773,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,773,354)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,796,782
<NUMBER-OF-SHARES-REDEEMED> (39,052,688)
<SHARES-REINVESTED> 2,238,469
<NET-CHANGE-IN-ASSETS> (5,017,659)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (836,922)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 380,516
<INTEREST-EXPENSE> 606
<GROSS-EXPENSE> 829,546
<AVERAGE-NET-ASSETS> 99,748,641
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
AARP Insured Tax Free General Bond Fund Annual Report for the fiscal year ended
9/30/98 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> AARP Insured Tax Free General Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,520,266,054
<INVESTMENTS-AT-VALUE> 1,717,569,698
<RECEIVABLES> 19,532,308
<ASSETS-OTHER> 219,551
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,737,321,557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,541,360
<TOTAL-LIABILITIES> 5,541,360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,576,683,867
<SHARES-COMMON-STOCK> 91,878,322
<SHARES-COMMON-PRIOR> 92,944,577
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38,355,651)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 193,451,981
<NET-ASSETS> 1,731,780,197
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 91,369,157
<OTHER-INCOME> 0
<EXPENSES-NET> 10,624,278
<NET-INVESTMENT-INCOME> 80,744,879
<REALIZED-GAINS-CURRENT> (10,723,118)
<APPREC-INCREASE-CURRENT> 54,722,106
<NET-CHANGE-FROM-OPS> 124,743,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (80,744,879)
<DISTRIBUTIONS-OF-GAINS> (4,608,507)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,709,199
<NUMBER-OF-SHARES-REDEEMED> (10,523,858)
<SHARES-REINVESTED> 2,748,404
<NET-CHANGE-IN-ASSETS> 19,772,029
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (23,167,336)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,035,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,624,278
<AVERAGE-NET-ASSETS> 1,706,347,280
<PER-SHARE-NAV-BEGIN> 18.42
<PER-SHARE-NII> 0.88
<PER-SHARE-GAIN-APPREC> 0.48
<PER-SHARE-DIVIDEND> (0.88)
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.85
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of AARP Tax Free Income Trust:
In planning and performing our audit of the financial statements and financial
highlights (hereinafter referred to as "financial statements") of AARP High
Quality Tax Free Money Fund and AARP Insured Tax Free General Bond Fund
(hereinafter referred to as the "Funds"), constituting AARP Tax Free Income
Trust, for the year ended September 30, 1998, we considered its internal
control, including control activities for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion on
the financial statements and to comply with the requirements of Form N-SAR, not
to provide assurance on internal control.
The management of the AARP Tax Free Income Trust is responsible for establishing
and maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of controls. Generally, controls that are relevant to an audit
pertain to the entity's objective of preparing financial statements for external
purposes that are fairly presented in conformity with generally accepted
accounting principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use, or disposition.
Because of inherent limitations in internal control, error or fraud may occur
and not be detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that it may become inadequate because of
changes in conditions or that the effectiveness of the design and operation may
deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level the
risk that misstatements caused by error or fraud in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
internal control and its operation, including controls for safeguarding
securities, that we consider to be material weaknesses as defined above as of
September 30, 1998.
This report is intended solely for the information and use of management, the
Trustees of AARP Tax Free Income Trust, and the Securities and Exchange
Commission.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 9, 1998
AARP Tax Free Income Trust
345 Park Aven
New York, New York 10154
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
Ladies and Gentlemen:
AARP Tax Free Income 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 High Quality Tax Free Money Fund and AARP
Insured Tax Free General Bond Fund (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.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
<PAGE>
(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 June 26, 1991 relating to AARP High Quality Money Fund.
(e) Establishment and Designation of Series of Shares of Beneficial Interest
dated November 27, 1984 relating to AARP Insured Tax Free General Bond
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
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.
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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 Funds.
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 Funds' 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
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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 Funds in connection with membership in investment company trade
organizations; fees and expenses of the Funds' 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 Funds; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Funds for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Funds' 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 Funds; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Funds 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.
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(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 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 0.10 percent per
annum of net assets of AARP High Quality Tax Free Money Fund and 0.19 percent
per annum of net assets of AARP Insured Tax Free General Bond 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
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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 Tax
Free Income 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 TAX FREE INCOME TRUST, on behalf of
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond 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
AARP TAX FREE INCOME 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 Tax Free Income 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
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<PAGE>
of such purchases and sales or as a result of such participation must, after
reimbursement of your actual expenses in connection with such activity, be paid
over by you to or for the benefit of the Trust.
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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<PAGE>
(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
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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
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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
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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 TAX FREE INCOME TRUST
By:
--------------------------------
Thomas F. McDonough
Vice President
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The foregoing agreement is hereby accepted as of the foregoing date
thereof.
SCUDDER INVESTOR SERVICES, INC.
By:
--------------------------------
Daniel Pierce
Vice President
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