<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
AARP CASH INVESTMENT FUNDS
AARP GROWTH TRUST
AARP INCOME TRUST
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP TAX FREE INCOME TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
October , 1998
AARP CASH INVESTMENT FUNDS
AARP GROWTH TRUST
AARP INCOME TRUST
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP TAX FREE INCOME TRUST
IMPORTANT NEWS
FOR AARP FUND SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement, here's a brief overview of some matters affecting your Fund that will
be the subject of a shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q: WHAT IS HAPPENING?
A: Zurich Insurance Company ("Zurich"), which is the majority owner of your
Fund's investment manager, Scudder Kemper Investments, Inc. ("Scudder
Kemper"), has combined its businesses with the financial services businesses
of B.A.T Industries p.l.c. ("B.A.T") The resulting company, Zurich Financial
Services ("Zurich Financial Services"), has become Zurich's parent company.
Although this transaction will have virtually no effect on the operations of
Scudder Kemper or your Fund, we are asking the Fund's shareholders to
approve a new investment management agreement to assure that there is no
interruption in the services Scudder Kemper provides to your Fund. The
following pages give you additional information about Zurich Financial
Services, the new investment management agreement and certain other matters.
THE BOARD MEMBERS OF YOUR FUND, INCLUDING THOSE WHO ARE NOT AFFILIATED WITH
THE FUND, SCUDDER KEMPER OR ZURICH, RECOMMEND THAT YOU VOTE FOR APPROVAL OF
THE NEW INVESTMENT MANAGEMENT AGREEMENT.
Q: WHY AM I BEING ASKED TO VOTE ON THE NEW INVESTMENT MANAGEMENT AGREEMENT?
A: As a result of the Zurich-B.A.T transaction, the former shareholders of
B.A.T indirectly own a 43% interest in Zurich through a new holding company,
Allied Zurich p.l.c. This change in ownership of Zurich may be deemed to
have caused a "change in control" of Scudder Kemper, even though Scudder
Kemper's operations will not change as a result. The Investment Company Act
of 1940, which regulates investment companies such as your Fund, requires
that fund shareholders approve a new investment management agreement
whenever there is a change in control of a fund's investment manager (even
in the most technical sense). Pursuant to an
<PAGE> 3
exemptive order issued by the Securities and Exchange Commission, your Fund
entered into a new investment management agreement, subject to receipt of
shareholder approval within 150 days. Accordingly, we are seeking
shareholder approval of the new investment management agreement with your
Fund.
Q: HOW WILL THE ZURICH-B.A.T TRANSACTION AFFECT ME AS A FUND SHAREHOLDER?
A: We do not expect the transaction to affect you as a Fund shareholder. Your
Fund and your Fund's investment objectives will not change. You will still
own the same shares in the same Fund. The new investment management
agreement is substantially identical to the former investment management
agreement, except for the dates of execution and termination and the
addition of a provision requiring the Investment Manager to monitor the
calculation of net asset value. Similarly, the other service arrangements
between your Fund and Scudder Kemper or affiliates of Scudder Kemper will
not be affected. If shareholders do not approve the new investment
management agreement, the agreement will terminate and the Board Members of
your Fund will take such action as they deem to be in the best interests of
your Fund and its shareholders.
Q: WILL THE INVESTMENT MANAGEMENT FEES INCREASE?
A: No, the investment management fee rates paid by your Fund will remain the
same.
Q: WHAT OTHER MATTERS AM I BEING ASKED TO VOTE ON?
A: Shareholders are also being asked to vote for approval of a new Member
Services Agreement between Scudder Kemper Investments, Inc. and AARP
Financial Services Corp. on the same terms as the former Member Services
Agreement. In addition, shareholders of AARP U.S. Stock Index Fund are being
asked to vote for approval of a new sub-advisory agreement on the same terms
as the former sub-advisory agreement. Lastly, in order to save your Fund the
expense of a subsequent meeting, a vote is also being sought for a revision
of your Fund's fundamental lending policy to give the Board of your Fund
discretionary authority to permit your Fund to enter into interfund lending
arrangements, subject to Securities and Exchange Commission approval.
Q: HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?
A: After careful consideration, the Board Members of your Fund, including those
who are not affiliated with the Fund, Scudder Kemper or Zurich, recommend
that you vote FOR the Proposals on the enclosed proxy card(s).
<PAGE> 4
Q: WILL THE FUND PAY FOR THIS PROXY SOLICITATION?
A: No, Zurich or its affiliates will bear these costs.
Q: WHOM DO I CALL FOR MORE INFORMATION?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-733-8481, ext. 429.
<PAGE> 5
AARP CASH INVESTMENT FUNDS
AARP GROWTH TRUST
AARP INCOME TRUST
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP TAX FREE INCOME TRUST
Two International Place
Boston, Massachusetts 02110
October , 1998
Dear Shareholders:
Zurich Insurance Company, the majority owner of Scudder Kemper Investments,
Inc., has combined its businesses with the financial services businesses of
B.A.T Industries p.l.c. The resulting company, Zurich Financial Services, has
become the parent company of Zurich and the majority owner of Scudder Kemper. As
a result of this transaction, we are asking the shareholders of each of the
funds for which Scudder Kemper acts as investment manager, including your Fund,
to approve a new investment management agreement with Scudder Kemper.
The Zurich-B.A.T transaction should not affect you as a Fund shareholder.
Your Fund shares will not change, the advisory fee rates and expenses paid by
your Fund will not increase, the investment objectives of your Fund will remain
the same, and, as is now the case, you will not pay sales loads on purchases of
shares of your Fund.
Shareholders are also being asked to approve certain other matters that
have been set forth in the Notice of Meeting. AFTER CAREFUL REVIEW, THE MEMBERS
OF YOUR FUND'S BOARD HAVE APPROVED THE NEW INVESTMENT MANAGEMENT AGREEMENT. THE
BOARD MEMBERS OF YOUR FUND BELIEVE THAT EACH OF THE PROPOSALS SET FORTH IN THE
NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND RECOMMEND THAT YOU READ THE
ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR ALL PROPOSALS.
Because all of the funds for which Scudder Kemper acts as investment
manager are holding shareholder meetings, if you own shares of more than one
fund, you will receive more than one proxy card. Please sign and return each
proxy card you receive.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If we do not receive
your executed proxy card(s) after a reasonable amount of time, you
<PAGE> 6
may receive a telephone call from our proxy solicitor, Shareholder
Communications Corporation, reminding you to vote.
Respectfully,
/s/ Linda C. Coughlin
Linda C. Coughlin
Chairperson
/s/ Cornelia M. Small
Cornelia M. Small
President
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
<PAGE> 7
AARP CASH INVESTMENT FUNDS
AARP GROWTH TRUST
AARP INCOME TRUST
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP TAX FREE INCOME TRUST
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
Please take notice that Special Meetings of Shareholders (each a "Special
Meeting") of each AARP Trust listed above (each Trust is a "Trust,"
collectively, the "Trusts"), or, if applicable, each of its series that is
listed on Appendix 1 to the Proxy Statement (each such series is referred to
herein as a "Fund" and, collectively, where applicable, with those Trusts that
do not have any series, the "Funds"), will be held jointly at the offices of
Scudder Kemper Investments, Inc., 13th Floor, Two International Place, Boston,
Massachusetts 02110, on December 15, 1998, at 10:00 a.m., Eastern time, for the
following purposes:
PROPOSAL 1: To approve a new investment management agreement for each
Fund with Scudder Kemper Investments, Inc.;
PROPOSAL 2: (For shareholders of AARP U.S. Stock Index Fund only) to
approve a new subadvisory agreement for the Fund between
Scudder Kemper Investments, Inc. and Bankers Trust
Corporation;
PROPOSAL 3: To approve a new Member Services Agreement between AARP
Financial Services Corp. and Scudder Kemper Investments,
Inc.; and
PROPOSAL 4: To approve the revision of each Fund's fundamental
lending policy.
The appointed proxies will vote in their discretion on any other business
as may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of each Fund at the close of business on
October 19, 1998 are entitled to vote at the Special Meeting and at any
adjournments thereof.
<PAGE> 8
In the event that the necessary quorum to transact business or the vote
required to approve a Proposal is not obtained at the Special Meeting with
respect to one or more Funds, the persons named as proxies may propose one or
more adjournments of the Special Meeting in accordance with applicable law, to
permit further solicitation of proxies. Any such adjournment as to a matter will
require the affirmative vote of the holders of a majority of the concerned
Fund's shares present in person or by proxy at the Special Meeting. The persons
named as proxies will vote in favor of such adjournment those proxies which they
are entitled to vote in favor of the Proposals and will vote against any such
adjournment those proxies to be voted against the Proposals.
By Order of the Boards of Trustees,
[KATHRYN L. QUIRK SIGNATURE TO COME]
Kathryn L. Quirk
Secretary
October , 1998
IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN IT
IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS INTENDED FOR
YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) MAY SAVE THE
NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM AT THE SPECIAL
MEETINGS. IF YOU CAN ATTEND THE SPECIAL MEETINGS AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE> 9
AARP CASH INVESTMENT FUNDS
AARP GROWTH TRUST
AARP INCOME TRUST
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP TAX FREE INCOME TRUST
Two International Place
Boston, Massachusetts 02110
JOINT PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees (the "Board") of each of the AARP Trusts listed
above (each Trust is a "Trust," collectively, the "Trusts") for use at the
Special Meetings of Shareholders of each Trust, or its series that are listed on
Appendix 1 hereto (each such series is referred to herein as a "Fund" and,
collectively, the "Funds"), to be held jointly at the offices of Scudder Kemper
Investments, Inc. ("Scudder Kemper"), 13th Floor, Two International Place,
Boston, Massachusetts 02110, on December 15, 1998 at 10:00 a.m., Eastern time,
and at any and all adjournments thereof (the "Special Meeting").
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean investment companies or series thereof in general, and not the
Funds whose proxy statement this is. In addition, in this Proxy Statement, for
simplicity, actions are described as being taken by a Fund that is a series of a
Trust, although all actions are actually taken by the respective Trust on behalf
of the applicable series.
This Proxy Statement, the Notice of Special Meeting and the proxy cards are
first being mailed to shareholders on or about October 19, 1998 or as soon as
practicable thereafter. Any shareholder giving a proxy has the power to revoke
it by mail (addressed to the Secretary at the principal executive office of the
Funds, c/o Scudder Kemper Investments, Inc., at Two International Place, Boston,
Massachusetts 02110) or in person at the Special Meeting, by executing a
superseding proxy or by submitting a notice of revocation to the Fund. All
properly executed proxies received in time for the Special Meeting will be voted
as specified in the proxy or, if no specification is made, in favor of the
Proposals referred to in the Proxy Statement.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of a majority of the shares of a Fund entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Special Meeting with respect to
one or more Funds, the persons named as proxies may propose one or more
adjournments of the Special Meeting in accordance with applicable law to permit
further solicitation of proxies with respect to the Proposal that did not
receive the vote
<PAGE> 10
necessary for its passage or to obtain a quorum. Any such adjournment as to a
matter will require the affirmative vote of the holders of a majority of the
concerned Fund's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies which they are entitled to vote in favor of that Proposal and will vote
against any such adjournment those proxies to be voted against that Proposal.
For purposes of determining the presence of a quorum for transacting business at
the Special Meeting, abstentions and broker "non-votes" will be treated as
shares that are present but which have not been voted. Broker non-votes are
proxies received by a Fund from brokers or nominees when the broker or nominee
has neither received instructions from the beneficial owner or other persons
entitled to vote nor has discretionary power to vote on a particular matter.
Accordingly, shareholders are urged to forward their voting instructions
promptly.
Each Proposal requires the affirmative vote of a "majority of the
outstanding voting securities" of a Fund. The term "majority of the outstanding
voting securities," as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), and as used in this Proxy Statement, means: the affirmative
vote of the lesser of (1) 67% of the voting securities of each Fund present at
the meeting if more than 50% of the outstanding voting securities of the Fund
are present in person or by proxy or (2) more than 50% of the outstanding voting
securities of each Fund.
Abstentions will have the effect of a "no" vote on each Proposal. Broker
non-votes will have the effect of a "no" vote on each Proposal, each of which
requires the approval of a specified percentage of the outstanding shares of
each Fund, if such vote is determined on the basis of obtaining the affirmative
vote of more than 50% of the outstanding voting securities of the Fund. Broker
non-votes will not constitute "yes" or "no" votes, and will be disregarded in
determining the voting securities "present" if such vote is determined on the
basis of the affirmative vote of 67% of the voting securities of the Fund
present at the Special Meeting with respect to each Proposal.
Shareholders of each Fund will vote separately with respect to each
Proposal.
Holders of record of the shares of each Fund at the close of business on
October 19, 1998 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. The table provided in Appendix 2 hereto sets forth the number
of shares outstanding for each Fund as of June 30, 1998.
Appendix 3 sets forth the beneficial owners of at least 5% of a Fund's
shares. To the best of each Trust's knowledge, as of June 30, 1998, no person
owned beneficially more than 5% of any Fund's outstanding shares, except as
stated in Appendix 3.
<PAGE> 11
Appendix 4 hereto sets forth the number of shares of each Fund owned
directly or beneficially by the Trustees of the relevant Board.
Each Fund provides periodic reports to all of its shareholders which
highlight relevant information, including investment results and a review of
portfolio changes. You may receive an additional copy of the most recent annual
report for each Fund and a copy of any more recent semi-annual report, without
charge, by calling 800-225-5163 or writing the Fund, c/o Scudder Kemper
Investments, Inc., at Two International Place, Boston, Massachusetts 02110.
PROPOSAL 1: APPROVAL OF NEW
INVESTMENT MANAGEMENT AGREEMENT
INTRODUCTION
Scudder Kemper acts as the investment manager to each Fund pursuant to
investment management agreements entered into by each Fund and Scudder Kemper.
The investment management agreement in effect between each Fund and Scudder
Kemper prior to the consummation of the transaction between Zurich Insurance
Company ("Zurich") and B.A.T Industries p.l.c. ("B.A.T") (the "Zurich-B.A.T
Transaction" or the "Transaction"), which is described below, is referred to in
this Proxy Statement as a "Former Investment Management Agreement,"
collectively, the "Former Investment Management Agreements." The investment
management agreement currently in effect between each Fund and Scudder Kemper
was executed as of the consummation of the Zurich-B.A.T Transaction and is
referred to in this Proxy Statement as a "New Investment Management Agreement,"
collectively, the "New Investment Management Agreements" and, together with the
Former Investment Management Agreements, the "Investment Management Agreements."
(Scudder Kemper is sometimes referred to in this proxy statement as the
"Investment Manager.")
On June 26, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") entered into
an agreement with 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. ("Kemper"), a Zurich subsidiary, became part
of Scudder. Scudder's name was changed to Scudder Kemper Investments, Inc. The
transaction between Scudder and Zurich (the "Scudder-Zurich Transaction")
resulted in the termination of each Fund's investment management agreement with
Scudder. Consequently, the Former Investment Management Agreement between each
Fund and Scudder Kemper was approved by each Trust's Board and by each Fund's
shareholders.
The Zurich-B.A.T Transaction. On December 22, 1997, Zurich and B.A.T
entered into a definitive agreement (the "Merger Agreement") pursuant to which
businesses of Zurich (including Zurich's almost 70% ownership interest in
Scudder Kemper) were to be combined with the financial services businesses of
B.A.T. On October 12, 1997, Zurich and B.A.T had confirmed that they were
<PAGE> 12
engaged in discussions concerning a possible business combination; on October
16, 1997, Zurich and B.A.T announced that they had entered into an Agreement in
Principle, dated as of October 15, 1997 (the "Agreement in Principle") to merge
B.A.T's financial services businesses with Zurich's businesses. The Merger
Agreement superseded the Agreement in Principle.
In order to effect this combination, Zurich and B.A.T first reorganized
their respective operations. Zurich became a subsidiary of a new Swiss holding
company, Zurich Allied AG, and Zurich shareholders became Zurich Allied AG
shareholders. At the same time, B.A.T separated its financial services business
from its tobacco-related businesses by spinning off to its shareholders a new
British company, Allied Zurich p.l.c., which held B.A.T's financial services
businesses.
Zurich Allied AG then contributed its interest in Zurich, and Allied Zurich
p.l.c. contributed the B.A.T financial services businesses, to a jointly owned
company, Zurich Financial Services ("Zurich Financial Services"), in each case
in exchange for shares of Zurich Financial Services. These transactions were
completed on September 7, 1998. As a result, upon the completion of the
Transaction, the former Zurich shareholders became the owners (through Zurich
Allied AG) of 57% of the voting stock of Zurich Financial Services, and former
B.A.T shareholders initially became the owners (through Allied Zurich p.l.c.) of
43% of the voting stock of Zurich Financial Services. Zurich Financial Services
now owns Zurich and the financial services businesses previously owned by B.A.T.
<PAGE> 13
Below is a simplified chart showing the corporate structure of Zurich
Financial Services after these transactions:
[SCUDDER FLOW CHART]
Corporate Governance. At the closing of the Zurich-B.A.T Transaction, the
parties entered into a Governing Agreement that establishes the corporate
governance structure for Zurich Allied AG, Allied Zurich p.l.c. and Zurich
Financial Services.
The Board of Directors of Zurich Financial Services consists of ten
members, five of whom were initially selected by Zurich and five by B.A.T. Mr.
Rolf Huppi, Zurich's Chairman and Chief Executive Officer, became Chairman and
Chief Executive Officer of Zurich Financial Services. In addition to his vote by
virtue of
<PAGE> 14
his position on the Board of Directors, as Chairman, Mr. Huppi will have a tie-
breaking vote on all matters except recommendations of the Audit Committee,
recommendations of the Remuneration Committee in respect of the remuneration of
the Chairman and the CEO, appointment and removal of the Chairman and CEO,
appointments to the Nominations, Audit and Remuneration Committees and
nominations to the Board of Directors not made through the Nominations
Committee.
The Group Management Board of Zurich Financial Services has been given
responsibility by the Board of Directors for the executive management of Zurich
Financial Services and has wide authority for such purpose. Of the 11 initial
members of the Group Management Board, eight were members of the Corporate
Executive Board of Zurich (including Mr. Edmond D. Villani, CEO of Scudder
Kemper, who is responsible for Global Asset Management for Zurich Financial
Services), and three were B.A.T executives.
The Board of Directors of Zurich Allied AG initially consists of 11
members, eight of whom were Zurich directors and three of whom were proposed by
B.A.T. The Board of Directors of Allied Zurich p.l.c. also initially consists of
11 members, eight of whom were B.A.T directors and three of whom were proposed
by Zurich. The parties have agreed that, as soon as possible, the Boards of
Directors of Zurich Financial Services, Zurich Allied AG and Allied Zurich
p.l.c. will have identical membership.
Shareholder resolutions of Zurich Financial Services in general require
approval by at least 58% of all shares outstanding.
The Governing Agreement also contains provisions relating to dividend
equalization and provisions intended to ensure equal treatment of Zurich Allied
AG and Allied Zurich p.l.c. shareholders in the event of a takeover bid for
either company.
The B.A.T financial services businesses, which, since the closing of the
Transaction, are owned by Zurich Financial Services, include: the Farmers Group
of Insurance companies; the Eagle Star Insurance business, primarily in the
U.K.; Allied-Dunbar, one of the leading U.K. unit-linked life insurance and
pensions companies; and Threadneedle Asset Management, which was formed
initially to manage the investment assets of Eagle Star and Allied-Dunbar, and
which, at December 31, 1997, had $58.8 billion under management. Overall, at
year-end 1997, the financial services businesses of B.A.T had $79 billion in
assets under management, including $18 billion in third party assets.
Zurich has informed the Funds that the financial services businesses of
B.A.T do not include any of B.A.T's tobacco businesses and that, after careful
review, Zurich has concluded that the tobacco-related liabilities connected with
B.A.T's tobacco business should not adversely affect Zurich or the present
Zurich subsidiaries, including Scudder Kemper.
<PAGE> 15
Governance arrangements that were put in place at the time of the
acquisition of Zurich's 70% interest in Scudder Kemper (which are discussed
below under "Investment Manager") remain unaffected by the Transaction. These
arrangements preclude the making of certain major decisions affecting Scudder
Kemper without the approval of Scudder Kemper directors elected by the
non-Zurich shareholders of Scudder Kemper.
Consummation of the Zurich-B.A.T Transaction may be deemed to have
constituted an "assignment," as that term is defined in the 1940 Act, of each
Fund's Former Investment Management Agreement with Scudder Kemper. As required
by the 1940 Act, each of the Former Investment Management Agreements provided
for its automatic termination in the event of its assignment. Accordingly, a New
Investment Management Agreement between each Fund and Scudder Kemper was
approved by the Board members of each Fund and are now being proposed for
approval by shareholders of each Fund. Scudder Kemper has received an exemptive
order from the Securities and Exchange Commission (the "SEC" or the
"Commission") permitting each Fund to obtain shareholder approval of its New
Investment Management Agreement within 150 days after the consummation of the
Transaction, which occurred on September 7, 1998 (and, consequently, within 150
days after the termination of its Former Investment Management Agreement),
instead of before the consummation of the Transaction. Pursuant to the exemptive
order, each Fund's investment management fees are being held in escrow until the
earlier of shareholder approval of the Fund's New Investment Management
Agreement or the expiration of the 150 day period. A copy of the master form of
the New Investment Management Agreement is attached hereto as Exhibit A. THE NEW
INVESTMENT MANAGEMENT AGREEMENT FOR EACH FUND IS SUBSTANTIALLY IDENTICAL TO THE
CORRESPONDING FORMER INVESTMENT MANAGEMENT AGREEMENT, EXCEPT FOR THE DATES OF
EXECUTION AND TERMINATION AND THE ADDITION OF A PROVISION REQUIRING THE
INVESTMENT MANAGER TO MONITOR THE CALCULATION OF NET ASSET VALUE. In addition,
the portfolio managers for each Fund will not change as a result of the
Transaction. The material terms of the Investment Management Agreements are
described under "Description of the Investment Management Agreements" below.
BOARD'S RECOMMENDATION
On August 4, 1998, the Board of each Trust met and the Board members of
each Trust, including the Board Members who are not parties to such agreement or
"interested persons" (as defined under the 1940 Act) (the "Non-Interested
Trustees" or "Non-Interested Board members") of any such party, voted to approve
the New Investment Management Agreements and to recommend approval to the
shareholders of each applicable Fund.
<PAGE> 16
For information about the Boards' deliberations and the reasons for their
recommendation, please see "Board's Evaluation" below.
BOARD'S EVALUATION
The Non-Interested Board members of each Trust have been aware of the
proposed Zurich-B.A.T Transaction since the announcement of the Agreement in
Principle on October 16, 1997. The Board members of each Trust were informed by
Scudder Kemper of significant subsequent developments regarding the Transaction,
including the execution of the Merger Agreement on December 22, 1997 and the
receipt of necessary regulatory approvals.
Scudder Kemper subsequently furnished the Non-Interested Trustees with
additional information regarding the proposed Transaction, including extensive
written information regarding the terms of the proposed Transaction and
information regarding the Zurich and B.A.T. organizations. This information was
in addition to information furnished by Scudder Kemper, AARP and Bankers Trust
to the Non-Interested Trustees of each Trust during the year in connection with
meetings and discussions relating to the consideration by the Non-Interested
Trustees of each Board of the existing contractual relationships between the
Funds, AARP and Scudder Kemper and its affiliates, as well as information
regarding the New Investment Management Agreements. Presentations regarding the
proposed Transaction were made to the Non-Interested Trustees on June 24, 1998
and August 4, 1998 by Scudder Kemper representatives. The Non-Interested
Trustees had the opportunity to consider this information with the assistance of
their counsel and to ask questions of Scudder Kemper representatives. In the
course of theses deliberations, Scudder Kemper advised the Non-Interested
Trustees that the proposed Transaction would not have a material effect on the
operations of the Funds or on their shareholders.
The Board of each Trust was advised that Zurich intends to rely on Section
15(f) of the 1940 Act, which provides a non-exclusive safe harbor for an
investment adviser to an investment company or any of the investment adviser's
affiliated persons (as defined under the 1940 Act) to receive any amount or
benefit in connection with a change in control of the investment adviser so long
as two conditions are met. First, for a period of three years after the
transaction, at least 75% of the board members of the investment company must
not be "interested persons" of the investment company's investment adviser or
its predecessor adviser. On or prior to the consummation of the Transaction,
each of the Boards was in compliance with this provision of Section 15(f).
Second, an "unfair burden" must not be imposed upon the investment company as a
result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
transaction whereby the investment adviser, or any interested person of any such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide
<PAGE> 17
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company (other than bona fide ordinary compensation as principal
underwriter for such investment company). No such compensation agreements are
contemplated in connection with the Transaction. Zurich or its affiliates will
pay the costs of preparing and distributing proxy materials to, and of holding
the meeting of, the Funds' shareholders as well as other fees and expenses in
connection with the Transaction, including the fees and expenses of legal
counsel and consultants to the Funds and the Non-Interested Trustees.
During the course of their deliberations, the Non-Interested Trustees
considered a variety of factors, including the nature, quality and extent of the
services furnished by Scudder Kemper to the Trusts and their Funds; the
necessity of Scudder Kemper's maintaining and enhancing its ability to retain
and attract capable personnel to serve the Trusts and their Funds; the
investment record of Scudder Kemper in managing the Trusts and their Funds; the
increased complexity of the domestic and international securities markets;
Scudder Kemper's profitability from advising the Trusts and their Funds;
possible economies of scale; comparative data as to investment performance,
advisory fees and other fees, including administrative fees, and expense ratios;
the risks assumed by Scudder Kemper; the advantages and possible disadvantages
to the Trusts and their Funds of having an adviser of the Funds which also
serves other investment companies as well as other accounts; possible benefits
to Scudder Kemper from serving as manager to the Funds and from affiliates of
Scudder Kemper serving the Funds in various other capacities; current and
developing conditions in the financial services industry, including the entry
into the industry of large and well-capitalized companies which are spending and
appear to be prepared to continue to spend substantial sums to engage personnel
and to provide services to competing investment companies; the financial
resources of Scudder Kemper and the continuance of appropriate incentives to
assure that Scudder Kemper will continue to furnish high quality services to the
Trusts and their Funds. The Non-Interested Board members of each Trust
considered the foregoing factors with respect to each of the applicable Funds.
In addition, with respect to the AARP U.S. Stock Index Fund, the Non-Interested
Trustees of AARP Growth Trust considered similar factors regarding Bankers Trust
to the extent applicable.
In addition to the foregoing factors, the Non-Interested Trustees gave
careful consideration to the likely impact of the Transaction on the Scudder
Kemper organization. In this regard, the Non-Interested Trustees considered,
among other things, the fact that the Transaction does not appear to alter in
any material respect the substantial autonomy afforded to Scudder Kemper
executives over Scudder Kemper's operations, the equity participation and
incentives for many Scudder Kemper employees, or Zurich's strategy for the
development of its asset management business through Scudder Kemper. Based on
the foregoing, the Non-Interested Trustees concluded that the Transaction should
cause no reduction in the quality of services provided to the Funds and to the
<PAGE> 18
Investment Program. The Non-Interested Trustees of each Board considered the
foregoing factors with respect to the Funds and the Investment Program as
applicable.
On August 4, 1998, the Trustees of each Trust, including the Non-Interested
Trustees of each Trust, approved the New Investment Management Agreements.
DESCRIPTION OF THE INVESTMENT MANAGEMENT AGREEMENTS
Except as disclosed below, all Former and New Investment Management
Agreements are substantially identical. Under the Investment Management
Agreements, Scudder Kemper provides each Fund with continuing investment
management services. The Investment Manager also determines which securities
should be purchased, held, or sold, and what portion of each Fund's assets
should be held uninvested, subject to each Trust's Charter, By-Laws, investment
policies and restrictions, the provisions of the 1940 Act, and such policies and
instructions as the Trustees may have determined.
Each Investment Management Agreement provides that the Investment Manager
will provide portfolio management services, place portfolio transactions in
accordance with policies expressed in each Fund's registration statement, pay
each Fund's office rent, and render significant administrative services on
behalf of each Fund (not otherwise provided by third parties) necessary for each
Fund's operating as an open-end investment company, including, but not limited
to, preparing reports to and meeting materials for each Trust's Board and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of
various third-party and affiliated service providers to each Fund (such as each
Fund's transfer and pricing agents, fund accounting agent, custodian,
accountants and others) and other persons in any capacity deemed necessary or
desirable to Fund operations; preparing and making filings with 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
Fund's 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 returns pursuant to Section 4982 of the Internal Revenue Code of
1986, as amended; 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 such books, records and reports and other information are not
maintained by each Fund's custodian or other agents of each Fund; assisting in
establishing 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
<PAGE> 19
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 each Fund in the conduct of its business, subject to the direction and
control of each Trust's Board. The New Investment Management Agreement also
provides that the administrative services provided by the Investment Manager
include monitoring the calculation of net asset value.
The Investment Management Agreement for the Funds in AARP Managed
Investment Portfolios Trust also provides that the Investment Manager is not
required to pay any expenses of the Funds except those expenses specifically
allocated to the Investment Manager in the Investment Management Agreement and
under the Special Servicing Agreement ("Service Agreement") among the Investment
Manager, the Trust, AARP Financial Services Corp. ("AFSC"), Scudder Fund
Accounting Corporation, Scudder Service Corporation, Scudder Trust Company,
Scudder Investor Services, Inc., and the various funds in which the Trust's
Funds may invest ("Underlying Funds"). Under the Service Agreement, the
Investment Manager is responsible for arranging 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 Fund of the Trust.
Each Investment Management Agreement also provides that the Investment
Manager is not required to pay any expenses of any activity primarily intended
to result in the sale of Fund securities if and to the extent that (i) the
expenses are to be borne by a principal underwriter acting as the distributor;
(ii) the Fund has adopted a Rule 12b-1 Plan providing for the assumption of some
or all of those expenses; or (iii) the expenses are required to be borne by
Scudder Kemper pursuant to the Investment Company Services Agreement dated
October 9, 1984 among the American Association of Retired Persons, AARP/Scudder
Financial Management Company and the Investment Manager. Under each Investment
Management Agreement, each Fund is responsible for other expenses, including
organizational expenses (including out-of-pocket expenses, but not including the
Investment Manager's overhead or employee costs); brokers' commissions or other
costs of acquiring or disposing of any portfolio securities of each Fund; legal,
auditing and accounting expenses; payment for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if any;
taxes and governmental fees; the fees and expenses of each Fund's transfer
agent; expenses of preparing share certificates and any other expenses,
including clerical expenses, of issuance, offering, distribution, sale,
redemption or repurchase of shares; the expenses of and fees for register-
<PAGE> 20
ing or qualifying securities for sale; the fees and expenses of Non-Interested
Trustees; the cost of printing and distributing reports, notices and dividends
to current shareholders; and the fees and expenses of each Fund's custodians,
subcustodians, accounting agent, dividend disbursing agents and registrars. Each
Fund may arrange to have third parties assume all or part of the expenses of
sale, underwriting and distribution of shares of each Fund. Each Fund is also
responsible for expenses of shareholders' and other meetings and its expenses
incurred in connection with litigation and the legal obligation it may have to
indemnify officers and Trustees of each Trust with respect thereto. Each Fund is
also responsible for the maintenance of books and records which are required to
be maintained by each Fund's custodian or other agents of each Trust; telephone,
telex, facsimile, postage and other communications expenses; any fees, dues and
expenses incurred by each Fund in connection with membership in investment
company trade organizations; expenses of printing and mailing prospectuses and
statements of additional information of each Fund and supplements thereto to
current shareholders; costs of stationery; fees payable to the Investment
Manager and to any other Fund advisors or consultants; expenses relating to
investor and public relations; interest charges, bond premiums and other
insurance expense; freight, insurance and other charges in connection with the
shipment of each Fund's portfolio securities; and other expenses.
The Investment Manager is responsible for the payment of the compensation
and expenses of all Trustees, officers and executive employees of each Fund
(including each Fund's share of payroll taxes) affiliated with the Investment
Manager and making available, without expense to each Fund, the services of such
Trustees, officers and employees as may duly be elected officers of each Trust,
subject to their individual consent to serve and to any limitations imposed by
law. Each Fund is responsible for the fees and expenses (specifically including
travel expenses relating to Fund business) of Trustees not affiliated with the
Investment Manager. Under each Investment Management Agreement, the Investment
Manager also pays each Fund's share of payroll taxes, as well as expenses, such
as travel expenses (or an appropriate portion thereof), of Trustees and officers
of each Trust who are directors, officers or employees of the Investment
Manager, except to the extent that such expenses relate to attendance at
meetings of the Board of each Trust, or any committees thereof or advisers
thereto, held outside Boston, Massachusetts or New York, New York. During each
Fund's most recent fiscal year, no compensation, direct or otherwise (other than
through fees paid to the Investment Manager), was paid or became payable by each
Trust to any of its officers or Trustees who were affiliated with the Investment
Manager.
The Investment Manager does not receive a fee for its services from any
Fund under the Investment Management Agreement for AARP Managed Investment
Portfolios Trust, since it expects to receive additional compensation under
investment management agreements currently in effect between the Investment
Manager and the Underlying Funds due to growth in the assets of the Underlying
<PAGE> 21
Funds resulting from investment in the Underlying Funds by the Funds in AARP
Managed Investment Portfolios Trust.
Each Investment Management Agreement provides that the Fund pays the
Investment Manager a fee for management and administrative services. The
management fee consists of two elements: a Base Fee and an Individual Fund Fee.
The Base Fee is calculated as a percentage of the combined net assets of all of
the AARP Funds. Each Fund pays as its portion of the Base Fee an amount equal to
the ratio of its daily net assets to the daily net assets of all of the AARP
Funds. Specifically, for the first $2 billion in assets, the annual base fee
rate is 0.35%; for the next $2 billion, 0.33%; for the next $2 billion, 0.30%;
for the next $2 billion, 0.28%; for the next $3 billion, 0.26%; for the next $3
billion, 0.25%; and thereafter, 0.24%.
In addition to the Base Fee, each Fund pays an Individual Fund Fee based on
its net assets. The Individual Fund Fee recognizes the different characteristics
of each Fund, the varying levels of complexity of investment research and
securities trading required to manage each Fund, as well as the relative value
added by the Investment Manager. Each Fund's Individual Fund Fee is set forth in
Appendix 5 hereto. As of the end of each Fund's last fiscal year, each Fund had
net assets and paid an aggregate management fee to the Investment Manager during
such period as also set forth in Appendix 5 hereto.
Each Investment Management Agreement further provides that the Investment
Manager shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with matters to which such agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard by the Investment Manager of its obligations
and duties under such agreement. Each Investment Management Agreement also
provides that purchase and sale opportunities, which are suitable for more than
one client of the Investment Manager, will be allocated by the Investment
Manager in an equitable manner. In addition, each Investment Management
Agreement contains a provision stating that it supersedes all prior agreements.
There is also a Member Services Agreement between AFSC and Scudder Kemper
providing for payment by Scudder Kemper to AFSC of a monthly member services fee
based on net assets of the Funds. That agreement is addressed separately in this
proxy statement under Proposal 3.
Under the Investment Management Agreement for AARP U.S. Stock Index Fund,
the Investment Manager may retain the services of a subadviser, but at no
additional cost to the Fund in connection with its services to the Fund.
Each Investment Management Agreement may be terminated without penalty upon
sixty (60) days' written notice by either party. Each Fund may agree to
terminate its Investment Management Agreement either by the vote of a majority
of the outstanding voting securities of the Fund, or by a vote of the
<PAGE> 22
Board. As stated above, each Investment Management Agreement automatically
terminates in the event of its assignment.
Scudder Kemper or one of its predecessors has acted as the Investment
Manager for each Fund since each Fund commenced operations as shown in Appendix
6 hereto. Also shown in Appendix 6 is the date of each Former Investment
Management Agreement, the date when each Former Investment Management Agreement
was last approved by the shareholders of each Fund, the date when each New
Investment Management Agreement was last approved by the Trustees of each Fund
and the date to which each New Investment Management Agreement was last
continued. Each Former Investment Management Agreement was last submitted to
shareholders prior to its becoming effective, as required by the 1940 Act, in
connection with the Scudder-Zurich Transaction.
THE NEW INVESTMENT MANAGEMENT AGREEMENTS
The New Investment Management Agreement for each Fund is dated the date of
the consummation of the Transaction, which occurred on September 7, 1998. Each
New Investment Management Agreement will be in effect for an initial term ending
on August 31, 1999, and may continue thereafter from year to year only if
specifically approved at least annually by the vote of "a majority of the
outstanding voting securities" of each Fund, or by the Board and, in either
event, the vote of a majority of the Non-Interested Trustees, cast in person at
a meeting called for such purpose. In the event that shareholders of a Fund do
not approve the New Investment Management Agreement, it will terminate. In such
event, each Board will take such action as it deems to be in the best interests
of the Fund and its shareholders.
DIFFERENCES BETWEEN THE FORMER AND NEW INVESTMENT MANAGEMENT AGREEMENTS
The New Investment Management Agreements are substantially identical to the
Former Investment Management Agreements, except for the dates of execution and
termination and except that the New Investment Management Agreement provides
that the Investment Manager shall monitor the calculation of net asset value.
INVESTMENT MANAGER
Scudder Kemper, which resulted from the combination of the businesses of
Scudder and Kemper, an indirect subsidiary of Zurich, in connection with the
Scudder-Zurich Transaction, is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established in 1919
as a partnership and was restructured as a Delaware corporation in 1985. Scudder
launched its first fund in 1928. Kemper launched its first fund in 1948. Since
December 31, 1997, Scudder Kemper has served as investment adviser to Scudder,
Kemper and AARP funds. As of , 1998, Scudder Kemper has more than
$ billion in assets under management. The principal source of
<PAGE> 23
Scudder Kemper's income is professional fees received from providing continuing
investment advice. Scudder Kemper provides investment counsel for many
individuals and institutions, including insurance companies, endowments,
industrial corporations and financial and banking organizations.
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. Zurich owns approximately 70% of the Investment Manager, with the
balance owned by the Investment Manager's officers and employees.
As stated above, Scudder Kemper is a Delaware corporation. Rolf Huppi* is
the Chairman of the Board and Director, Edmond D. Villani(#) is the President,
Chief Executive Officer and Director, Stephen R. Beckwith(#) is the Treasurer
and Chief Financial Officer, Kathryn L. Quirk(#) is the General Counsel, Chief
Compliance Officer and Secretary, Lynn S. Birdsong(#) is a Corporate Vice
President and Director, Cornelia M. Small(#) is a Corporate Vice President and
Director, Laurence Cheng* is a Director and Marcus Rohrbasser* is a Director of
the Investment Manager. The principal occupation of each of Edmond D. Villani,
Stephen R. Beckwith, Kathryn L. Quirk, Lynn S. Birdsong and Cornelia M. Small is
serving as a Managing Director of the Investment Manager; the principal
occupation of each of Rolf Huppi and Marcus Rohrbasser is serving as an officer
of Zurich; the principal occupation of Laurence Cheng is serving as a senior
partner of Capital Z Partners, an investment fund. The Executive Committee
members are Messrs. Birdsong, Cheng, Rohrbasser and Villani (Chairman).
The outstanding voting securities of the Investment Manager are held of
record 36.63% by Zurich Holding Company of America ("ZHCA"), a subsidiary of
Zurich; 32.85% by ZKI Holding Corp. ("ZKIH"), a subsidiary of Zurich; 20.86% by
Stephen R. Beckwith, Lynn S. Birdsong, Kathryn L. Quirk, Cornelia M. Small and
Edmond D. Villani, in their capacity as representatives (the "Management
Representatives") of the Investment Manager's management holders and retiree
holders pursuant to a Second Amended and Restated Security Holders Agreement
(the "Security Holders Agreement") among the Investment Manager, Zurich, ZHCA,
ZKIH, the Management Representatives, the management holders, the retiree
holders and Edmond D. Villani, as trustee of Scudder Kemper Investments, Inc.
Executive Defined Contribution Plan Trust (the "Plan Trust"); and 9.66% by the
Plan Trust. There are no outstanding non-voting securities of the Investment
Manager.
- ------------------------------
* Mythenquai 2, Zurich Switzerland.
(#) 345 Park Avenue, New York, New York
<PAGE> 24
Pursuant to the Security Holders Agreement (which was entered into in
connection with the Scudder-Zurich Transaction), the Board of Directors of the
Investment Manager consists of four directors designated by ZHCA and ZKIH and
three directors designated by Management Representatives.
The Security Holders Agreement requires the approval of a majority of the
Scudder-designated directors for certain decisions, including changing the name
of Scudder Kemper, effecting an initial public offering before April 15, 2005,
causing Scudder Kemper to engage substantially in non-investment management and
related business, making material acquisitions or divestitures, making material
changes in Scudder Kemper's capital structure, dissolving or liquidating Scudder
Kemper, or entering into certain affiliated transactions with Zurich. The
Security Holders Agreement also provides for various put and call rights with
respect to Scudder Kemper stock held by persons who were employees of Scudder at
the time of the Scudder-Zurich Transaction, limitations on Zurich's ability to
purchase other asset management companies outside of Scudder Kemper, rights of
Zurich to repurchase Scudder Kemper stock upon termination of employment of
Scudder Kemper personnel, and registration rights for stock held by stockholders
of Scudder continuing after the Scudder-Zurich Transaction.
Directors, officers and employees of Scudder Kemper from time to time may
enter into transactions with various banks, including each Fund's custodian
bank. It is Scudder Kemper's opinion that the terms and conditions of those
transactions will not be influenced by existing or potential custodial or other
Fund relationships.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder
Kemper, computes net asset value for each Fund. Scudder Service Corporation
("SSC"), also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of each Fund. Scudder Trust
Company ("STC"), an affiliate of Scudder Kemper, provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. The table provided in Appendix 7 sets forth for each
Fund the respective fees paid to SFAC, SSC and STC during the last fiscal year
of each Fund.
SFAC, SSC and STC will continue to provide fund accounting, transfer
agency, subaccounting and recordkeeping services to the Funds, as described
above, under the current arrangements if the New Investment Management
Agreements are approved.
Exhibit B sets forth (as of each fund's last fiscal year end, unless
otherwise noted) the fees and other information regarding investment companies
advised by Scudder Kemper that have similar investment objectives to any of the
Funds. (See Appendix 5 for information regarding the management fee rate, net
assets and aggregate management fee paid for each Fund.)
<PAGE> 25
BROKERAGE COMMISSIONS ON PORTFOLIO TRANSACTIONS
To the maximum extent feasible, Scudder Kemper places orders for portfolio
transactions through Scudder Investor Services, Inc. ("SIS"), Two International
Place, Boston, Massachusetts 02110, which in turn places orders on behalf of the
Funds with issuers, underwriters or other brokers and dealers. SIS is a
corporation registered as a broker/dealer and a subsidiary of Scudder Kemper. In
selecting brokers and dealers with which to place portfolio transactions for a
Fund, Scudder Kemper will not consider sales of shares of funds currently
advised by Scudder Kemper as a decision-making factor, although it may place
such transactions with brokers and dealers that sell shares of funds currently
advised by Scudder Kemper. When it can be done consistently with the policy of
obtaining the most favorable net results, Scudder Kemper may place such orders
with brokers and dealers who supply research, market and statistical information
to a Fund or to Scudder Kemper. SIS does not receive any commissions, fees or
other remuneration from the Funds for this service. Allocation of portfolio
transactions is supervised by Scudder Kemper.
THE BOARD MEMBERS OF EACH TRUST RECOMMEND THAT THE SHAREHOLDERS OF EACH
FUND VOTE IN FAVOR OF THIS PROPOSAL 1.
PROPOSAL 2: APPROVAL OR DISAPPROVAL OF
SUBADVISORY AGREEMENT WITH BANKERS TRUST CORPORATION
(FOR SHAREHOLDERS OF AARP U.S. STOCK INDEX FUND ONLY)
Scudder Kemper has retained Bankers Trust Corporation ("Bankers Trust") as
subadviser for the AARP U.S. Stock Index Fund ("Index Fund"), a series of AARP
Growth Trust, pursuant to a Subadvisory Agreement dated December 31, 1997. Prior
to the consummation of the Scudder-Zurich Transaction, Bankers Trust provided
investment management services for Index Fund pursuant to a subadvisory
agreement dated February 1, 1997, which agreement terminated upon the
consummation of the Scudder-Zurich Transaction. Prior to such termination, the
Board of AARP Growth Trust and the shareholders of Index Fund each approved a
subadvisory agreement between Scudder Kemper and Bankers Trust (the "Former
Subadvisory Agreement"), which became effective on December 31, 1997.
The Former Subadvisory Agreement provided that it shall automatically
terminate in the event of the termination (due to assignment or otherwise) of
Index Fund's currently effective investment management agreement. As discussed
in Proposal 1, consummation of the Transaction may be deemed to have constituted
an "assignment," as that term is defined in the 1940 Act, of Index Fund's Former
Investment Management Agreement and may therefore have caused a termination of
the Former Subadvisory Agreement. (See Proposal 1 for more information regarding
Index Fund's Former Investment Management Agreement.) Accordingly, a new
subadvisory agreement between Scudder Kemper and Bankers Trust with respect to
Index Fund (the "New Subadvisory
<PAGE> 26
Agreement" and, together with the Former Subadvisory Agreement, the "Subadvisory
Agreements") was approved by the Board members of AARP Growth Trust and is now
being proposed for approval by shareholders of Index Fund.
As with Index Fund's New Investment Management Agreement, prior to approval
by Index Fund shareholders of the New Subadvisory Agreement, any payments
otherwise due under the New Subadvisory Agreement will be held in escrow subject
to shareholder approval.
THE NEW SUBADVISORY AGREEMENT IS SUBSTANTIALLY IDENTICAL TO THE FORMER
SUBADVISORY AGREEMENT, EXCEPT FOR THE DATES OF EXECUTION AND TERMINATION. The
material terms of the Subadvisory Agreements are fully described under
"Subadvisory Agreements". A copy of the New Subadvisory Agreement is attached
hereto as Exhibit C and descriptions of that agreement in this section are
qualified in their entirety by reference to Exhibit C.
The Board of AARP Growth Trust met on August 4, 1998 and the Board,
including a majority of its Non-Interested Trustees, voted to approve the New
Subadvisory Agreement. In considering whether to approve the agreement, the
Board considered similar factors to those it considered in approving each Fund's
New Investment Management Agreement, to the extent applicable. (See Proposal 1
for more information regarding each Board's Evaluation.)
DESCRIPTION OF SUBADVISORY AGREEMENTS
Under the Subadvisory Agreements, Bankers Trust is responsible for
exercising any voting rights of any securities of Index Fund.
Under the terms of the Subadvisory Agreements, Bankers Trust provides
day-to-day portfolio management of Index Fund's assets, including developing and
implementing an investment program and strategy appropriate for Index Fund to
meet its stated investment objective and placing orders for execution of Index
Fund's portfolio transactions. Bankers Trust is required to provide transaction
reports to Scudder Kemper and must report to the AARP Growth Trust Board of
Trustees and Scudder Kemper upon request and at the time of any change in
investment strategy or tactics. In placing orders for portfolio transactions on
behalf of Index Fund, Bankers Trust is authorized to cause Index Fund to pay to
an unaffiliated broker or dealer commissions that may be higher than those that
might be charged by another broker or dealer if such higher commissions are
considered by Bankers Trust to be reasonable in relation to the value of the
research and brokerage services obtained.
The fees payable to Bankers Trust by the Trust on behalf of Index Fund
under the Subadvisory Agreements are at an annual rate of 0.07% of the first
$100 million of Index Fund's average net assets, 0.03% of the next $100 million
of such assets, and 0.01% of such average net assets in excess of $200 million.
For the period from February 1, 1997 to February 1, 1998, Bankers Trust agreed
<PAGE> 27
to discount this fee by 15%. Fees paid to Bankers during Index Fund's fiscal
period ended September 30, 1997 totaled $42,323. Without the discount during
that period, such fees would have totaled $75,000.
The New Subadvisory Agreement was reviewed and approved by the Trustees,
including a majority of the Non-Interested Trustees of AARP Growth Trust, to
continue until August 31, 1999, at their meeting on August 4, 1998. In
determining to approve the New Subadvisory Agreement and to recommend it for
approval by shareholders of Index Fund, the Trustees considered information and
factors they deemed relevant, including information concerning the growth and
performance of Index Fund since its inception February 1, 1997, as well as
information on Bankers Trust's historic performance in managing index funds
compared to other comparable index funds and its strategy in designing and
managing Index Fund. They also considered the fees payable by Index Fund for
investment advisory and subadvisory services relative to those paid by other
comparable funds.
THE NEW SUBADVISORY AGREEMENT
The New Subadvisory Agreement is dated the date of the consummation of the
Transaction, which occurred on September 7, 1998. The New Subadvisory Agreement
will be in effect for an initial term ending on August 31, 1999, and may
continue thereafter from year to year only if specifically approved at least
annually by the vote of "a majority of the outstanding voting securities" of
Index Fund, or by the Board and, in either event, the vote of a majority of the
Non-Interested Trustees, cast in person at a meeting called for such purpose. In
the event that shareholders of Index Fund do not approve the New Subadvisory
Agreement, it will terminate. In such event, the Board of AARP Growth Trust will
take such action as it deems to be in the best interests of Index Fund and its
shareholders.
DIFFERENCES BETWEEN THE FORMER AND NEW SUBADVISORY AGREEMENTS
The New Subadvisory Agreement is substantially identical to the Former
Subadvisory Agreement, except for the dates of execution and termination.
INFORMATION CONCERNING BANKERS TRUST
Bankers Trust is a New York banking corporation with principal offices at
130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, and is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market. Bankers Trust is one of the largest managers of indexed
assets in the U.S. and, with affiliates, provides both active and passive
management for over $330 billion in assets globally.
<PAGE> 28
Following is information concerning Bankers Trust's principal executive
officer and directors:
<TABLE>
<CAPTION>
POSITION WITH BANKERS PRINCIPAL OCCUPATION AND
NAME AND AGE TRUST CORPORATION OTHER INFORMATION
- ------------ --------------------- ------------------------
<S> <C> <C>
George B. Beitzel Director Director of various corporations;
Age: 68 retired senior vice president and
director of International Business
Machines Corporation; director of
Computer Tax Group, Phillips
Petroleum Company, Caliber Systems,
Inc. (formerly Roadway Services,
Inc.), Rohm and Haas Company and TIG
Holdings; chairman emeritus of
Amherst College; and chairman of the
Colonial Williamsburg Foundation.
Phillip A. Griffiths Director Director of Institute for Advanced
Age: 58 Study; Chairman of Committee on
Science, Engineering and Public
Policy of the National Academies of
Sciences and Engineering & the
Institute of Medicine; member of
National Academy of Sciences,
American Academy of Arts and
Sciences and American Philosophical
Society; member and chairman of the
Nominations Committee and Committee
on Science and Engineering
Indicators, National Science Board;
and trustee of North Carolina School
of Science and Mathematics and the
Woodward Academy; former member of
the board of directors, Research
Triangle Institute.
William R. Howell Director Chairman Emeritus of J.C. Penney
Age: 61 Company, Inc.; and a director of
Exxon Corporation, Hallburton
Company, Warner-Lambert Company, The
Williams Companies, Inc. and the
National Retail Federation.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
POSITION WITH BANKERS PRINCIPAL OCCUPATION AND
NAME AND AGE TRUST CORPORATION OTHER INFORMATION
- ------------ --------------------- ------------------------
<S> <C> <C>
Vernon E. Jordan, Jr. Director Senior Partner of Akin, Gump,
Age: 61 Strauss, Hauer & Feld, LLP,
Attorneys-at-Law, Washington, D.C.
and Dallas, Texas; former president
of National Urban League, Inc.;
director of American Express
Company, Dow-Jones, Inc., J.C.
Penney Company, Inc., Revlon Group
Incorporated,, Ryder System, Inc.,
Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation;
and a trustee of Brookings
Institute, The Ford Foundation and
Howard University.
Hamish Maxwell Director Retired Chairman and Chief Executive
Age: 70 Officer of Phillip Morris Companies
Inc.; director of The News
Corporation Limited and Sola
International Inc., and chairman of
WPP Group plc.
Frank N. Newman Chairman of the Board, Chairman of the Board, Chief
Age: 54 Chief Executive Officer, Executive Officer and President of
President and Director the Corporation; former deputy
secretary of the United States
Treasury and former vice chairman of
the board and director of
BankAmerica Corporation and Bank of
America NT&AS; and director of
Dow-Jones, Inc. and Carnegie Hall.
N.J. Nicholas, Jr. Director Investor; former co-chief executive
Age: 57 officer of Time Warner Inc.; and
director of Boston Scientific
Corporation and Xerox Corporation.
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
POSITION WITH BANKERS PRINCIPAL OCCUPATION AND
NAME AND AGE TRUST CORPORATION OTHER INFORMATION
- ------------ --------------------- ------------------------
<S> <C> <C>
Russell E. Palmer Director Chairman and Chief Executive Officer
Age: 62 of The Palmer Group; former Dean of
The Wharton School, University of
Pennsylvania; former chief executive
officer of Touche Ross & Co. (now
Deloitte & Touche); director of
Allied-Signal Inc., Federal Home
Loan Mortgage Corporation, GTE
Corporation, The May Department
Stores Company and Safeguard
Scientifics, Inc.; member of
advisory board of the Controller
General of the United States; and a
trustee of the University of
Pennsylvania.
Donald L. Staheli Director Chairman of the Board and Chief
Age: 68 Executive Officer of Continental
Grain Company; director of
Continental Corporation, Prudential
Life Insurance Company of America,
Fresenius Medical Care, A.g.,
America-China Society, National
Committee on United States-China
Relations and the New York City
Partnership; chairman of the
U.S.-China Business Council, Council
on Foreign Relations and the
National Advisory Council of Brigham
Young University's Marriott School
of Management; vice chairman of The
Points of Light Foundation; and a
trustee of the American Graduate
School of International Management.
Patricia Carry Director Former Vice President of The Edna
Stewart McConnell Clark Foundation (a
Age: 69 charitable foundation); director of
CVS Corporation and the Community
Foundation for Palm Beach and Martin
College; and a trustee Emirata of
Cornell University.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
POSITION WITH BANKERS PRINCIPAL OCCUPATION AND
NAME AND AGE TRUST CORPORATION OTHER INFORMATION
- ------------ --------------------- ------------------------
<S> <C> <C>
George J. Vojta Vice Chairman and Vice Chairman of the Corporation;
Age: 61 Director director of Allicorp S.A., Northwest
Airlines, Private Export Funding
Corp., the New York State Banking
Board and St. Lukes-Roosevelt
Hospital Center; a partner of New
York City Partnership; and chairman
of Wharton Financial Services
Center.
Paul A. Volcker Director Director of various corporations;
Age: 69 former Chairman and Chief Executive
Officer of Wolfensohn & Co., Inc.;
former Chairman of the Board of
Governors of the Federal Reserve
System; director of the American
Stock Exchange, Nestle S.A.,
Prudential Insurance Company and UAL
Corporation; chairman of Group of
30; North American Chairman of the
Trilateral Commission; co-chairman
of Bretton Woods Committee and
U.S./Hong Kong Economic Cooperation
Committee; director of American
Council on Germany, the Aspen
Institute, Council on Foreign
Relations and The Japan Society;
trustee of The American Assembly;
and member of Senior Advisory Board
of The Arthritis Foundation.
Lee A. Ault, III Director Director of BT Alex. Brown
Age: 60 Incorporated; Chief Executive
Officer of Telecredit, Inc., Los
Angeles (merged in 1990 with
Equifax, Inc.) (since 1974);
Director of Equifax; Director of
Sunrise Medical Inc. and Viking
Office Products, Inc.
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
POSITION WITH BANKERS PRINCIPAL OCCUPATION AND
NAME AND AGE TRUST CORPORATION OTHER INFORMATION
- ------------ --------------------- ------------------------
<S> <C> <C>
Neil R. Austrian Director Director of BT Alex. Brown
Age: 56 Incorporated; President and Chief
Operating Officer of the National
Football League (since 1991); past
Managing Director of Dillon, Read &
Co., Chairman and Chief Executive
Officer of Showtime/The Movie
Channel, and President and Chief
Executive Officer of Doyle Dane
Bernbach.
G. Richard Thoman Director President and Chief Operating
Age: 53 Officer of the Xerox Corporation and
a member of its Board of Directors
(since 1997); past Senior Vice
President and Chief Financial
Officer of the IBM Corporation.
</TABLE>
The investment objective of each of the funds advised or subadvised by
Bankers Trust Corporation listed below is to attempt to track the performance of
the S&P 500 Composite Stock Price Index.
<TABLE>
<CAPTION>
FEES PAYABLE TO
BTC BEFORE
STRUCTURE/ ASSETS 3/31/97 REIMBURSEMENT/ TOTAL EXPENSE
FUND RELATIONSHIP ($MM) WAIVERS(%) CAP(%)
- ---- ------------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
S&P Index Funds Master portfolio 2,065.5 0.15(1) 0.08
Equity 500 Index not available for
Portfolio direct purchase
BT Institutional Feeder fund 1,301.4 0.08(2) 0.10(3)
Equity 500 Index Fund available to
institutional
investors through
BTC
BT Pyramid Investment Feeder fund 475.9 0.08(2) 0.25(3)
Equity 500 Index available to retail
investors through
BTC
USAA S&P 500 Index Feeder fund 287.1 0.08(2) 0.18(3)
available to
customers of USAA
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
FEES PAYABLE TO
BTC BEFORE
STRUCTURE/ ASSETS 3/31/97 REIMBURSEMENT/ TOTAL EXPENSE
FUND RELATIONSHIP ($MM) WAIVERS(%) CAP(%)
- ---- ------------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Amer AADV; S&P Feeder funds 1.1 0.08(2) 0.50(3)
500-AMR Class available to
customers of
American Airlines
</TABLE>
- ------------------------------
(1) Includes advisory fees of 0.10% and administrative fees of 0.05% which
cover custody, transfer agent and fund accounting expenses.
(2) Management fees are not charged at the feeder level; amount reflects fee
charged by the master portfolio.
(3) Reflects both master and feeder level expenses.
THE BOARD MEMBERS OF AARP GROWTH TRUST RECOMMEND THAT THE SHAREHOLDERS OF AARP
U.S. STOCK INDEX FUND VOTE IN FAVOR OF THIS PROPOSAL 2.
PROPOSAL 3: APPROVAL OR DISAPPROVAL OF NEW MEMBER
SERVICES AGREEMENT
AFSC provides services to the Trusts and the Funds pursuant to a Member
Services Agreement with Scudder Kemper, dated December 31, 1997. The agreement
in effect prior to the consummation of the Transaction is referred to herein as
the "Former Member Agreement" and the agreement in effect subsequent to the
consummation of the Transaction is referred to herein as the "New Member
Agreement" (together with the Former Member Agreement, the "Member Agreements").
The Former Member Agreement was approved by shareholders of each Fund at a
meeting held on October 22, 1997, in connection with the Scudder-Zurich
Transaction. By its terms, each Member Agreement has become applicable to
subsequently-established Funds of the Trusts, as well.
Each Member Agreement provides that it may not be assigned by either party,
and it may be amended only with approval by a majority of the Trustees, a
majority of the Non-Interested Trustees and a majority of the outstanding voting
securities of each Fund. The Transaction described in Proposal 1 may be deemed
to have resulted in an assignment of the Former Member Agreement by Scudder
Kemper. Accordingly, a New Member Agreement between AFSC and Scudder Kemper was
approved by the Board members of each Fund and is now being proposed for
approval by shareholders of each Fund.
THE NEW MEMBER AGREEMENT IS SUBSTANTIALLY IDENTICAL TO THE FORMER MEMBER
AGREEMENT, EXCEPT FOR THE DATES OF EXECUTION AND TERMINATION. The material terms
of the Member Agreements are fully described below. A copy of the New Member
Agreement is attached hereto as Exhibit D and the description of its terms in
this section is qualified in its entirety by reference to Exhibit D.
<PAGE> 34
TERMS OF THE AGREEMENT
Under the Member Agreements, AFSC provides advice and services to Scudder
Kemper aimed at assuring that the Funds and the various products and services
offered by the Funds are tailored to the needs of the AARP membership. AFSC's
services include: providing "seed money" for the Funds; making AARP directors,
officers and staff available to assist in operating the Trusts and to serve as
Trustees and officers of the Trusts; and facilitating communications with the
AARP membership by, among other things, providing Scudder Kemper with AARP
membership lists and access to AARP publications for advertising.
The Agreements provide that Scudder Kemper shall pay AFSC a fee, calculated
daily and payable monthly, at an annual rate of .07 of 1% of the average daily
net assets of all Funds up to $6 billion. For any month in which those assets
are in excess of $6 billion, the fee with respect to such excess assets will be
at an annual rate of .06 of 1%, while for any month in which assets exceed $16
billion, the rate will drop to .05 of 1% with respect to such assets in excess
of $16 billion. Fees paid to AFSC for the Trusts' fiscal periods ended September
30, 1997 were $9,623,468.60.
Each Member Agreement provides that it will continue in effect from year to
year with respect to any particular Fund provided it is approved at least
annually by a majority of the Non-Interested Trustees with respect to that Fund
and by a majority of the Trustees or of that Fund's outstanding voting
securities. If the Member Agreement is not approved with respect to a particular
Fund, it will not take effect with respect to that Fund, but will take effect
with respect to those Funds for which it is approved. Each Member Agreement may
be terminated, on 60 days' written notice and without penalty, by AFSC, Scudder
Kemper, by the Trustees, or, with respect to any Fund or Trust, by vote of a
majority of the outstanding voting securities of that Fund or of each Fund of
the Trust, as applicable.
In determining to approve the New Member Agreement and recommend that
shareholders of the Funds also approve it, the Trustees reviewed the nature and
quality of services provided to the Trusts by AFSC and the value of those
services to the Trusts. In evaluating the level of fees paid and payable under
the New Member Agreement, they also considered that benefits, in addition to the
fees, might flow to AFSC from its association with the Trusts. They reviewed
factors that had led them to recommend the Former Member Agreement to
shareholders for approval at the Funds' shareholders meeting held on October 22,
1997 and to reapprove the Former Member Agreement annually, and they considered
whether any additional matters should be reviewed, in light of subsequent
experience.
THE BOARD MEMBERS OF EACH TRUST RECOMMEND THAT THE SHAREHOLDERS OF EACH
FUND VOTE IN FAVOR OF THIS PROPOSAL 3.
<PAGE> 35
PROPOSAL 4: APPROVAL OF THE REVISION OF EACH FUND'S
FUNDAMENTAL LENDING POLICY
This Proposal seeks shareholder approval of a change to each Fund's
fundamental lending policy. The 1940 Act requires an investment company to adopt
policies with respect to certain activities, including the making of loans by
the fund, which can be changed only by a shareholder vote (i.e., "fundamental"
policies). The proposed change would permit each Fund to engage in lending in a
manner and to the extent permitted by applicable law. The proposed change would,
therefore, permit each Fund, subject to the receipt of any necessary regulatory
approval and Board authorization, to enter into lending arrangements, including
lending agreements under which the funds advised by Scudder Kemper could for
temporary purposes lend money directly to and borrow money directly from each
other through a credit facility ("Interfund Lending Arrangements"). Each of the
Funds believes that the flexibility provided by this policy change could
possibly reduce substantially the Fund's borrowing costs and enhance its ability
to earn higher rates of interest on short-term lendings in the event that the
Board determines that such arrangements are warranted in light of the Fund's
circumstances. Certain other fund groups have obtained the exemptive relief
necessary to permit the funds to engage in lending and borrowing among the funds
advised by the same adviser. Approval of the revision to each Fund's lending
policy requires the affirmative vote of a majority of the outstanding voting
securities, as defined above, of that Fund. If the shareholders of any Fund fail
to approve the proposed fundamental policy, that Fund's current policy will
remain in effect. The Board members of each Trust recommend that the
shareholders of each Fund vote in favor of the Proposal. The proposed change to
each Fund's fundamental lending policy is discussed in detail below.
LENDING POLICY
The current policy of each Fund prohibits the making of loans, except loans
of portfolio securities and to the extent the entry into repurchase agreements
and the purchase of debt securities or interests in indebtedness in accordance
with the Fund's investment objectives and policies are deemed to be loans. The
proposed policy, unlike the current policy, does not specify the particular
types of lending in which each Fund is permitted to engage; instead, the
proposed policy permits each Fund to lend only in a manner and to an extent in
accordance with applicable law. Accordingly, each Fund's fundamental lending
policy would be revised as follows (with additions to the policy underscored and
deletions to the policy struck through):
As a matter of fundamental policy, the Fund may not make
loans 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. [to other
persons, except (i) loans of portfolio securities, and]
<PAGE> 36
[(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 objectives and policies
may be deemed to be loans.]
DISCUSSION
Management believes that there may be advantages to these Interfund Lending
Arrangements as compared with other arrangements currently in place for some of
the Funds. Currently, some of the Funds, in effect, lend money to banks and
broker-dealers by entering into repurchase agreements or purchasing other
short-term instruments. Other Funds borrow money from the same or other banks
for temporary purposes to satisfy redemption requests or to cover other
unanticipated cash shortfalls. Many of the Funds have entered into uncommitted
lines of credit with banks under which the banks may, but are not required to,
lend money to the Funds to meet the Funds' temporary cash needs. If a Fund were
to borrow money from a bank under its current line of credit agreement, the Fund
would pay interest on the borrowed cash at a rate that would be significantly
higher than the rate that would be earned by other (non-borrowing) Funds on
investments in repurchase agreements and other short-term instruments of the
same maturity as the bank loan. The Funds believe this differential represents
the bank's profit for serving as "middleman" between borrower and lender. Other
bank loan arrangements, such as committed lines of credit into which certain
Funds have entered, require the Funds to pay substantial commitment fees in
addition to the interest rate to be paid by the borrowing Fund.
The 1940 Act generally prohibits one fund from lending money or other
property to or borrowing money or other property from another fund having the
same investment adviser (currently, in order to be able to participate in these
lending or borrowing arrangements, a fund must first receive an exemptive order
from the SEC). If the revised policy is adopted, each Board would have
discretion to request an order from the SEC to permit the Funds to enter into
Interfund Lending Arrangements consistent with their respective investment
objectives and policies. Each Fund's current borrowing policy would permit the
Fund to engage in the contemplated Interfund Lending Arrangements; thus no
corresponding revision of that policy is being sought. Each Fund currently has a
non-fundamental policy, which may be changed without a shareholder vote,
limiting borrowings in certain circumstances that, unless changed by Board
action, restrict a Fund's ability to borrow through Interfund Lending
Arrangements. The Funds anticipate that the Interfund Lending Arrangements may
provide a borrowing Fund with savings when the Fund's cash position is
insufficient to meet temporary cash requirements arising, for example, when
redemptions exceed anticipated volumes. When a Fund is forced to liquidate
portfolio securities to meet redemption requests, the proceeds of which are
normally paid the next day after receipt of the request immediately, the Fund
often does not receive payment in settlement for up to three days (or longer,
<PAGE> 37
when a Fund sells foreign securities). The Interfund Lending Arrangements would
provide a source of immediate, short-term liquidity pending settlement of the
sale of portfolio securities. In addition, Funds making short-term cash loans
directly to other Funds would earn interest at a higher rate than they otherwise
could obtain from investing their cash through repurchase agreements. Although
Interfund Lending Arrangements may reduce the Funds' borrowing costs, enhance
their ability to earn higher rates of interest on short-term lendings, and
substantially reduce the Funds' need to borrow from banks, the Funds may also
continue to maintain uncommitted or committed lines of credit or other borrowing
arrangements with banks as an added measure of safety and liquidity.
THE BOARD MEMBERS OF EACH TRUST RECOMMEND THAT THE
SHAREHOLDERS OF EACH FUND VOTE IN FAVOR OF THIS PROPOSAL 4.
ADDITIONAL INFORMATION
GENERAL
The cost of preparing, printing and mailing the enclosed proxy card and
proxy statement and all other costs incurred in connection with the solicitation
of proxies, including any additional solicitation made by letter, telephone or
telegraph, will be paid by Zurich or its affiliates. In addition to solicitation
by mail, certain officers and representatives of each Trust, officers and
employees of Scudder Kemper and certain financial services firms and their
representatives, who will receive no extra compensation for their services, may
solicit proxies by telephone, telegram or personally.
Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies. As the Special Meeting date approaches, certain
shareholders of each Fund may receive a telephone call from a representative of
SCC if their votes have not yet been received. Authorization to permit SCC to
execute proxies may be obtained by telephonic or electronically transmitted
instructions from shareholders of each Fund. Proxies that are obtained
telephonically will be recorded in accordance with the procedures set forth
below. The Trustees believe that these procedures are reasonably designed to
ensure that the identity of the shareholder casting the vote is accurately
determined and that the voting instructions of the shareholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card, and ask for the shareholder's instructions on
the Proposals. The SCC representative, although he or she is permitted to answer
<PAGE> 38
questions about the process, is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the proxy
statement. SCC will record the shareholder's instructions on the card. Within 72
hours, the shareholder will be sent a letter or mailgram to confirm his or her
vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Special Meeting, but does not
wish to give a proxy by telephone, the shareholder may still submit the proxy
card originally sent with the proxy statement or attend in person. Should
shareholders require additional information regarding the proxy or replacement
proxy cards, they may contact SCC toll-free at 1-800-733-8481, ext. 429. Any
proxy given by a shareholder, whether in writing or by telephone, is revocable
until voted at the Special Meeting.
PROPOSALS OF SHAREHOLDERS
Shareholders wishing to submit proposals for inclusion in a proxy statement
for a shareholder meeting subsequent to the Special Meeting, if any, should send
their written proposals to the Secretary of the Trust, c/o Scudder Kemper
Investments, Inc., at Two International Place, Boston, Massachusetts 02110,
within a reasonable time before the solicitation of proxies for such meeting.
The timely submission of a proposal does not guarantee its inclusion.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
No Board Member is aware of any matters that will be presented for action
at the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest of
each Trust and/or Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Boards of Trustees,
[Kathryn L. Quirk signature]
Kathryn L. Quirk
Secretary
<PAGE> 39
EXHIBIT A
MASTER FORM OF
NEW INVESTMENT MANAGEMENT AGREEMENT
[NAME OF TRUST]
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
SEPTEMBER 7, 1998
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110
INVESTMENT MANAGEMENT AGREEMENT
[NAME OF FUND]
LADIES AND GENTLEMEN:
AARP __________ 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 [Name of Fund] (the "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 Fund[s], has selected you to act as the sole
investment manager of the Fund[s] 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[s] agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund[s] 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[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
A-1
<PAGE> 40
has also furnished you with copies properly certified or authenticated of
each of the following additional documents related to the Trust and
the[each] Fund:
(a) The Declaration dated ________ , 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[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 __________ relating to [Name of Fund(s)].
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[s], you shall provide continuing investment management of the assets
of the Fund[s] 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[each] Fund so
that it will qualify as a regulated investment company under Subchapter M
of the Code and regulations issued thereunder. The Fund[s] 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[s] 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 the[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.
A-2
<PAGE> 41
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[s] 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 [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 Fund[s] 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[s] such office space and facilities in the United States as the
Fund[s] 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[s] 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
Fund[s]' transfer agent; assisting in the preparation and filing of the[each]
Fund's federal, state and local tax returns; preparing and filing the[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 the[each] Fund under applicable federal and state
securities laws; maintaining or causing to be maintained for the[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 the[each] Fund; assisting
in the resolution of accounting issues that may arise with respect to the[each]
Fund's operations and consulting with the[each] Fund's independent accountants,
legal counsel and other agents as
A-3
<PAGE> 42
necessary in connection therewith; establishing and monitoring the[each] Fund's
operating expense budgets; reviewing the[each] Fund's bills; processing the
payment of bills that have been approved by an authorized person; assisting
the[each] Fund in determining the amount of dividends and distributions
available to be paid by the[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 the[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 the[a] Fund or any other person not a party to this Agreement which is
obligated to provide services to the Fund[s].
4. [FOR AARP U.S. STOCK INDEX FUND ONLY: 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
Corporation, 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[11] 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 4[6], you shall pay the compensation and expenses of
all Trustees, officers and executive employees of the Trust (including the[each]
Fund's share of payroll taxes) who are affiliated persons of you, and you shall
make available, without expense to the Fund[s], 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.
A-4
<PAGE> 43
You shall not be required to pay any expenses of the[a] Fund other than
those specifically allocated to you in this section 4[6] [FOR FUNDS IN AARP
MANAGED INVESTMENT PORTFOLIOS TRUST ONLY: and under the terms of the Special
Servicing Agreement dated February 1, 1997 ("Special Servicing Agreement") among
you, the Trust, AARP Financial Services Corp., Scudder Fund Accounting
Corporation, Scudder Service Corporation, Scudder Trust Company, Scudder
Investor Services, Inc. and the various funds in which the Portfolios may invest
(the "Underlying Funds")]. 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[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[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 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[s] 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[6], other expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Fund[s]; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the Fund[s]
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[s]; expenses of printing and distributing reports, notices and dividends to
shareholders; expenses of printing and mailing Prospectuses and SAIs of the
Fund[s] 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.
[FOR FUNDS IN AARP MANAGED INVESTMENT PORTFOLIOS TRUST ONLY: Except as
provided in the Special Servicing Agreement, you] [FOR ALL OTHER AARP FUNDS:
You] shall not be required to pay expenses of any activity which is primarily
A-5
<PAGE> 44
intended to result in sales of Shares of the[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 Kemper pursuant to section 4[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.
5. Management Fee. [FOR FUNDS IN AARP MANAGED INVESTMENT PORTFOLIOS TRUST
ONLY: As you expect to receive additional compensation under the investment
management agreements currently between you and the Underlying Funds due to
growth in the assets of the Underlying Funds resulting from investments in the
Underlying Funds by the Portfolios, you shall not be paid a fee for services
described in sections 2 and 3 hereof.] [FOR ALL OTHER AARP FUNDS: 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[6] hereof, the Trust on behalf of the Fund[s]
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 the[each] Fund recorded on the books
of the[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
A-6
<PAGE> 45
base fee rate will be the percent of Program net assets as set forth in the
following table.
BASE FEE RATE
<TABLE>
<CAPTION>
PROGRAM ASSETS
(BILLIONS) ANNUAL RATE AT EACH ASSET LEVEL
-------------- -------------------------------
<S> <C>
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
</TABLE>
The portion of the base fee rate which the[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 _ 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 the[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[FOR AARP
U.S. STOCK INDEX FUND: 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 the[a] Fund's expenses, as if such
waiver or limitation were fully set forth herein.]
A-7
<PAGE> 46
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other
investments for the account of the[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[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 the[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[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 the[a] Fund. Whenever the[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[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 the[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, the[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 the[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
A-8
<PAGE> 47
such approval, and (b) by the Trustees of the Trust, or, with respect to
the[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 the[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
[Name of 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[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 the[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.
A-9
<PAGE> 48
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
the[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[s].
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,
[Name of Trust], on behalf of
[Name of Fund]
By:
------------------------------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By:
------------------------------------------------------------
Managing Director
A-10
<PAGE> 49
EXHIBIT B
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS NOT INCLUDED IN THIS PROXY STATEMENT AND
ADVISED BY SCUDDER KEMPER INVESTMENTS, INC.
SCUDDER FUNDS+
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
MONEY MARKET FUNDS
Government Money Market High level of current income 0.250% of net assets++ $ 83,870,139
Series consistent with preservation
of capital and liquidity.
Money Market Series High level of current income 0.250% of net assets++ $1,041,528,715
consistent with preservation
of capital and liquidity.
Scudder Cash Investment Trust Stability of capital while 0.500% to $250 million $1,182,012,567
maintaining liquidity of 0.450% next $250 million
capital and providing current 0.400% next $500 million
income. 0.350% thereafter++
Scudder U.S. Treasury Money Safety, liquidity, and 0.500% of net assets++ $ 388,528,203
Fund stability of capital and,
consistent therewith, current
income.
TAX FREE MONEY MARKET FUNDS
Scudder California Tax Free Stability of capital and the 0.500% of net assets $ 218,236
Money Fund maintenance of a constant net
asset value of $1.00 per share
while providing California
taxpayers income exempt from
both California personal and
regular federal income tax.
Scudder New York Tax Free Stability of capital while 0.500% of net assets++ $ 92,514,040
Money Fund providing New York taxpayers
income exempt from New York
state and New York City
personal income taxes and
regular federal income tax.
Scudder Tax Free Money Fund Income exempt from regular 0.500% to $500 million $ 283,055,833
federal income tax and 0.480% thereafter++
stability of principal through
investments in municipal
securities.
Tax Free Money Market Series High level of current income 0.250% of net assets++ $ 270,225,034
exempt from federal income
tax, consistent with
preservation of capital and
liquidity, exempt from federal
income tax.
TAX FREE FUNDS
Scudder California Tax Free To provide California 0.625% to $200 million $ 324,448,844
Fund taxpayers with income exempt 0.600% thereafter
from both California personal
income tax and regular federal
income tax primarily through
investment in California
municipal securities.
</TABLE>
B-1
<PAGE> 50
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder High Yield Tax Free High level of income, exempt 0.650% to $300 million $ 336,690,734
Fund from regular federal income 0.600% thereafter
tax, from an actively managed
portfolio consisting primarily
of investment-grade municipal
securities.
Scudder Limited Term Tax Free As high a level of income 0.600% of net assets++ $ 116,876,371
Fund exempt from regular federal
income tax as is consistent
with a high degree of
principal stability.
Scudder Managed Municipal Income exempt from regular 0.550% to $200 million $ 728,308,005
Bonds federal income tax primarily 0.500% next $500 million
through investments in high- 0.475% thereafter
grade, long term municipal
securities.
Scudder Massachusetts Limited As high a level of income 0.600% of net assets++ $ 79,526,656
Term Tax Free Fund exempt from Massachusetts
state personal income tax and
regular federal income tax as
is consistent with a high
degree of price stability
through investments primarily
in investment-grade municipal
securities.
Scudder Massachusetts Tax To provide Massachusetts 0.600% to $400 million $ 373,905,826
Free Fund taxpayers income exempt from 0.525% thereafter*
both Massachusetts personal
income tax and regular federal
income tax through investment
primarily in investment-grade
municipal securities with long
term maturities.
Scudder Medium Term Tax Free High level of income free from 0.600% to $500 million $ 656,951,039
Fund regular federal income taxes 0.500% thereafter
and limited principal
fluctuation through investment
primarily in high-grade,
intermediate term municipal
bonds.
Scudder New York Tax Free To provide New York taxpayers 0.625% to $200 million $ 195,731,396
Fund income exempt from New York 0.600% thereafter
state and New York City
personal income taxes and
regular federal income tax
through investment primarily
in New York municipal
securities.
Scudder Ohio Tax Free Fund To provide Ohio taxpayers 0.600% of net assets++ $ 94,450,782
income exempt from both Ohio
personal income tax and
regular federal income tax
through investment primarily
in investment-grade municipal
securities.
</TABLE>
B-2
<PAGE> 51
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Pennsylvania Tax Free To provide Pennsylvania 0.600% of net assets++ $ 78,695,405
Fund taxpayers income exempt from
both Pennsylvania personal
income tax and regular federal
income tax through investment
primarily in investment-grade
municipal securities.
U.S. INCOME FUNDS
Scudder Corporate Bond Fund A high level of current income 0.650% of net assets N/A**
through investment primarily
in investment-grade corporate
debt securities.
Scudder GNMA Fund High current income primarily 0.650% to $200 million $ 392,444,820
from U.S. Government 0.600% next $300 million
guaranteed mortgage-backed 0.550% thereafter
Ginnie Mae securities.
Scudder High Yield Bond Fund A high level of current income 0.700% of net assets++ $ 176,221,237
and, secondarily, capital
appreciation through
investment primarily in below
investment-grade domestic debt
securities.
Scudder Income Fund A high level of income, 0.650% to $200 million $ 695,255,717
consistent with the prudent 0.600% next $300 million
investment of capital, through 0.550% thereafter
a flexible investment program
emphasizing high-grade bonds.
Scudder Short Term Bond Fund High level of income 0.600% to $500 million $1,165,531,162
consistent with a high degree 0.500% next $500 million
of principal stability by 0.450% next $500 million
investing primarily in high 0.400% next $500 million
quality short-term bonds 0.375% next $1 billion
0.350% thereafter
Scudder Zero Coupon 2000 Fund As high an investment return 0.600% of net assets++ $ 20,453,972
over a selected period as is
consistent with investment in
U.S. Government securities and
the minimization of
reinvestment risk.
GLOBAL INCOME FUNDS
Scudder Emerging Markets High current income and, 1.000% of net assets $ 323,628,082
Income Fund secondarily, long term capital
appreciation by investing
primarily in high-yielding
debt securities issued by
governments and corporations
in emerging markets.
Scudder Global Bond Fund Total return with an emphasis 0.750% to $1 billion $ 135,113,465
on current income by investing 0.700% thereafter++
primarily in high-grade bonds
denominated in foreign
currencies and the U.S.
dollar. As a secondary
objective, the Fund will seek
capital appreciation.
</TABLE>
B-3
<PAGE> 52
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder International Bond Income primarily by investing 0.850% to $1 billion $ 145,818,767
Fund in a managed portfolio of 0.800% thereafter++
high-grade international bonds
and, secondarily, protection
and possible enhancement of
principal value by actively
managing currency, bond market
and maturity exposure and by
security selection.
ASSET ALLOCATION FUNDS
Scudder Pathway Balanced Balance of growth and income There will be no fee as $ 192,145,173
Portfolio by investing in a mix of the Manager will receive
Scudder money market, bond and a fee from the
equity mutual funds. underlying funds.
Scudder Pathway Conservative Current income and, There will be no fee as $ 16,971,681
Portfolio secondarily, long term growth the Manager will receive
of capital by investing a fee from the
substantially in Scudder bond underlying funds.
mutual funds, but will have
some exposure to Scudder
equity mutual funds.
Scudder Pathway Growth Long term growth of capital by There will be no fee as $ 49,574,256
Portfolio investing predominantly in the Manager will receive
Scudder equity mutual funds a fee from the
designed to provide long term underlying funds.
growth.
Scudder Pathway International Maximize total return, There will be no fee as $ 11,728,045
Portfolio consisting of capital the Manager will receive
appreciation plus dividend a fee from the
income and interest by underlying funds.
investing in a select mix of
established international and
global Scudder Funds.
U.S. GROWTH AND INCOME FUNDS
Scudder Balanced Fund A balance of growth and income 0.700% of net assets++ $ 158,711,908
from a diversified portfolio
of equity and fixed-income
securities and long term
preservation of capital
through a quality-oriented
investment approach designed
to reduce risk.
Scudder Dividend & Growth High current income and long 0.750% of net assets N/A**
Fund term growth of capital through
investment in income paying
equity securities.
Scudder Growth and Income Long term growth of capital, 0.600% to $500 million $6,833,584,122
Fund current income and growth of 0.550% next $500 million
income. 0.500% next $500 million
0.475% next $500 million
0.450% next $1 billion
0.425% next $1.5 billion
0.405% next 1.5 billion
0.3875% next $4 billion
0.370% over $10 billion*
</TABLE>
B-4
<PAGE> 53
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
U.S. GROWTH FUNDS
Classic Growth Fund Long term growth of capital 0.700% of net assets++ $ 53,225,783
with reduced share price
volatility compared to other
growth mutual funds.
Scudder 21st Century Growth Long term growth of capital by 1.000% of net assets++ $ 23,296,176
Fund investing primarily in the
securities of emerging growth
companies poised to be leaders
in the 21st century.
Scudder Development Fund Long term growth of capital by 1.000% to $500 million $ 845,405,075
investing primarily in 0.950% next $500 million
securities of small and medium 0.900% thereafter
size growth companies.
Scudder Financial Services Long term growth of capital by 0.750% of net assets++ $ 36,926,469@
Fund investing primarily in common
stocks and other equity
securities of companies in a
group of related industries.
Scudder Health Care Fund Long term growth of capital by 0.850% of next assets++ $ 40,923,873@
investing primarily in common
stocks and other equity
securities of companies in a
group of related industries.
Scudder Large Company Growth Long term growth of capital 0.700% of net assets $ 288,064,975
Fund (formerly Scudder through investment primarily
Quality Growth Fund) in the equity securities of
seasoned, financially strong
U.S. growth companies.
Scudder Large Company Value Maximize long term capital 0.750% to $500 million $2,212,733,138
Fund (formerly Scudder appreciation through a value 0.650% next $500 million
Capital Growth Fund) driven investment program. 0.600% next $500 million
0.550% next $500 million
0.500% next $1.0 billion*
Scudder Micro Cap Fund Long term growth of capital by 0.750% of net assets $ 91,627,404
investing primarily in a
diversified portfolio of U.S.
micro-cap common stocks.
Scudder Real Estate Long term capital growth and 0.800% of net assets++ $ 20,435,489
Investment Fund current income by investing
primarily in equity securities
of companies in the real
estate industry.
Scudder S&P 500 Index Fund Investment results that, 0.100% of net assets++ $ 16,912,276
before expenses, correspond to
the total return of common
stocks publicly traded in the
United States, as represented
by the Standard & Poor's 500
Composite Stock Price Index.
Scudder Small Company Value Long term growth of capital by 0.750% of net assets $ 123,398,822
Fund investing primarily in
undervalued stocks of small
U.S. companies.
</TABLE>
B-5
<PAGE> 54
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Technology Fund Long term growth of capital by 0.850% of net assets++ $ 37,159,344@
investing primarily in common
stocks and other equity
securities of companies in a
group of related industries.
Value Fund Long term growth of capital 0.700% to $500 million $ 297,979,779
through investment in 0.650% over $500
undervalued equity securities. million*
GLOBAL GROWTH FUNDS
Global Discovery Fund Above-average capital 1.100% of net assets $ 349,121,954
appreciation over the long
term by investing primarily in
the equity securities of small
companies located throughout
the world.
Scudder Emerging Markets Long term growth of capital 1.25% of net assets++ $ 219,624,481
Growth Fund primarily through equity
investment in emerging markets
around the globe.
Scudder Global Fund Long term growth of capital 1.000% to $500 million $1,766,207,742
through a diversified 0.950% next $500 million
portfolio of marketable 0.900% next $500 million
securities, primarily equity 0.850% over $1.5 billion
securities, including common
stock, preferred stocks and
debt securities convertible
into common stocks.
Scudder Gold Fund Maximum return (principal 1.000% of net assets $ 132,131,545
change and income) consistent
with investing in a portfolio
of gold-related equity
securities and gold.
Scudder Greater Europe Growth Long term growth of capital 1.00% to $1 billion $ 195,514,335
Fund through investments primarily 0.90% thereafter*
in the equity securities of
European companies.
Scudder International Fund Long term growth of capital 0.900% to $500 million $2,884,919,345
primarily from foreign equity 0.850% next $500 million
securities. 0.800% next $1 billion
0.750% next $1 billion
0.700% thereafter
Scudder International Growth Long term growth of capital 1.000% of net assets++ $ 48,880,164
and Income Fund and current income primarily
from foreign equity
securities.
Scudder International Growth Long term capital appreciation 1.000% of net assets N/A**
Fund through investment primarily
in the equity securities of
foreign companies with high
growth potential.
Scudder International Value Long term capital appreciation 1.000% of net assets N/A**
Fund through investment primarily
in undervalued foreign equity
securities.
</TABLE>
B-6
<PAGE> 55
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Latin America Fund Long term capital appreciation 1.250% to $1 billion $ 882,555,049
through investment primarily 1.150% thereafter
in the securities of Latin
American issuers.
Scudder Pacific Opportunities Long term growth of capital 1.100% of net assets $ 147,276,692
Fund primarily through investment
in the equity securities of
Pacific Basin companies,
excluding Japan.
The Japan Fund, Inc. Long term capital appreciation 0.850% to $100 million $ 265,181,931
through investment primarily 0.750% next $200 million
in equity securities, 0.700% next $300 million
(including American Depository 0.650% thereafter
Receipts of Japanese
companies).
CLOSED-END FUNDS
The Argentina Fund, Inc. Long term capital appreciation Adviser: $ 135,327,320
through investment primarily 1.100% of net assets
in equity securities of Sub-Adviser:
Argentine issuers. Paid by Adviser. 0.100%
of net assets
The Brazil Fund, Inc. Long term capital appreciation 1.200% to $150 million $ 429,429,751
through investment primarily 1.050% next $150 million
in equity securities of 1.000% next $200 million
Brazilian issuers. 0.900% thereafter
Administrator: Receives
an annual fee of $50,000
The Korea Fund, Inc. Long term capital appreciation Adviser: $ 406,244,000
through investment primarily 1.150% to $50 million
in equity securities of Korean 1.100% next $50 million
companies. 1.000% next $250 million
0.950% next $400 million
0.900% thereafter
Sub-Adviser -- Daewoo:
Paid by Adviser.
0.2875% to $50 million
0.275% next $50 million
0.250% next $250 million
0.2375% next $400
million
0.225% thereafter
Montgomery Street Income High level of current income 0.500% to $150 million $ 207,315,702
Securities, Inc. consistent with prudent 0.450% next $50 million
investment risks through a 0.400% thereafter
diversified portfolio
primarily of debt securities.
Scudder Global High Income High level of current income 1.200% of net assets $ 80,721,844
Fund, Inc. (formerly The and, secondarily, capital
Latin America Dollar Income appreciation through
Fund, Inc.) investment principally in
dollar-denominated Latin
American debt instruments.
Scudder New Asia Fund, Inc. Long term capital appreciation 1.250% to $75 million $ 98,866,168
through investment primarily 1.150% next $125 million
in equity securities of Asian 1.100% thereafter
companies.
</TABLE>
B-7
<PAGE> 56
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder New Europe Fund, Inc. Long term capital appreciation 1.250% to $75 million $ 320,293,393
through investment primarily 1.150% next $125 million
in equity securities of 1.100% thereafter
companies traded on smaller or
emerging European markets and
companies Inc. that are viewed
as likely to benefit from
changes and developments
throughout Europe.
Scudder Spain and Portugal Long term capital appreciation Adviser: $ 112,909,567
Fund, Inc. through investment primarily 1.000% of net assets
in equity securities of Administrator:
Spanish & Portuguese issuers. 0.200% of net assets
INSURANCE PRODUCTS
Scudder Variable Life Balance of growth and income, 0.475% of net assets $ 118,373,215
Investment Fund Balanced as well as long term
Portfolio preservation of capital, from
a diversified portfolio of
equity and fixed income
securities.
Scudder Variable Life High level of income from a 0.475% of net assets $ 81,387,032
Investment Fund Bond high quality portfolio of
Portfolio bonds.
Scudder Variable Life Maximize long term capital 0.475% to $500 million $ 676,317,582
Investment Fund Capital growth from a portfolio 0.450% thereafter
Growth Portfolio consisting primarily of equity
securities.
Scudder Variable Life Above-average capital 0.975% of net assets++ $ 20,115,141
Investment Fund Global appreciation over the long
Discovery Portfolio term by investing primarily in
the equity securities of small
companies located throughout
the world.
Scudder Variable Life Long term growth of capital, 0.475% of net assets $ 163,603,606
Investment Fund Growth and current income and growth of
Income Portfolio income from a portfolio
consisting primarily of common
stocks and securities
convertible into common
stocks.
Scudder Variable Life Long term growth of capital 0.875% to $500 million $ 427,237,880
Investment Fund principally from a diversified 0.725% thereafter
International Portfolio portfolio of foreign equity
securities.
Scudder Variable Life Stability of capital and 0.370% of net assets $ 102,576,377
Investment Fund Money current income from a
Market Portfolio portfolio of money market
instruments.
</TABLE>
- ------------------------------
+ The information provided below is shown as of the end of each Fund's last
fiscal year, unless otherwise noted.
++ Subject to waivers and/or expense limitations.
* The addition of this breakpoint is effective 9/30/98.
** Fee information is not available for Scudder Dividend & Growth Fund, which
commenced operations on June 1, 1998; Scudder Corporate Bond Fund, which
commenced operations on August 31, 1998; or Scudder International Growth
Fund and Scudder International Value Fund, each of which commenced
operations on September 1, 1998.
@ Net asset information is provided for the semi-annual period ended May 31,
1998.
B-8
<PAGE> 57
KEMPER FUNDS+
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
EQUITY/GROWTH STYLE FUNDS
Kemper Aggressive Growth Capital appreciation through 0.650% of net assets $ 11,609,000
Fund the use of aggressive plus or minus an
investment techniques. incentive fee based on
the performance of the
Standard & Poor's 500
Stock Index, which may
result in a fee ranging
from 0.450 of 1.000% to
0.850 of 1.000% of net
assets
Kemper Blue Chip Fund Growth of capital and income. 0.580% to $250 million $ 446,891,000
0.550% next $750 million
0.530% next $1.5 billion
0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Growth Fund Growth of capital through 0.580% to $250 million $2,827,565,000
professional management and 0.550% next $750 million
diversification of investment 0.530% next $1.5 billion
securities having potential 0.510% next $2.5 billion
for capital appreciation. 0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Quantitative Equity Growth of capital and 0.580% to $250 million $ 11,217,000
Fund reduction of risk through 0.550% next $750 million
professional management of a 0.530% next $1.5 billion
diversified portfolio of 0.510% next $2.5 billion
equity securities. 0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Small Capitalization Maximum capital appreciation. 0.650% of net assets $1,095,478,000
Equity Fund plus or minus an
incentive fee based on
the performance of the
Standard & Poor's 500
Stock Index, which may
result in a fee ranging
from 0.350 of 1.000% to
0.950 of 1.000% of net
assets
Kemper Technology Fund Growth of capital. 0.580% to $250 million $1,209,723,000
0.550% next $750 million
0.530% next $1.5 billion
0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
</TABLE>
B-9
<PAGE> 58
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Total Return Fund The highest total return, a 0.580% to $250 million $3,241,383,000
combination of income and 0.550% next $750 million
capital gain, consistent with 0.530% next $1.5 billion
reasonable risk. 0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Value + Growth Fund Growth of capital through 0.720% to $250 million $ 97,741,000
professional management of 0.690% next $750 million
growth and value stocks. 0.660% next $1.5 billion
0.640% next $2.5 billion
0.600% next $2.5 billion
0.580% next $2.5 billion
0.560% next $2.5 billion
0.540% thereafter
EQUITY/VALUE STYLE FUNDS
Kemper Contrarian Fund Long-term capital 0.750% to $250 million $ 178,115,000
appreciation and, 0.720% next $750 million
secondarily, current income. 0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
Kemper Small Cap Relative Long-term capital 0.750% to $250 million N/A*
Value Fund appreciation. 0.720% next $750 million
0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter**
Kemper Small Cap Value Fund Long-term capital 0.750% to $250 million $1,263,144,000
appreciation 0.720% next $750 million
0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
Kemper U.S. Growth and Long-term growth of capital, 0.600% to $250 million $ 3,864,000***
Income Fund current income and growth of 0.570% next $750 million
income. 0.550% next $1.5 billion
0.530% thereafter
Kemper-Dreman Financial Long-term capital 0.750% to $250 million N/A*
Services Fund appreciation by investing 0.720% next $750 million
primarily in common stocks 0.700% next $1.5 billion
and other equity securities 0.680% next $2.5 billion
of companies in the financial 0.650% next $2.5 billion
services industry believed by 0.640% next $2.5 billion
the Fund's investment manager 0.630% next $2.5 billion
to be undervalued. 0.620% thereafter**
</TABLE>
B-10
<PAGE> 59
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper-Dreman High Return High total rate of return. 0.750% to $250 million N/A*
Equity Fund 0.720% next $750 million
0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
GLOBAL AND INTERNATIONAL FUNDS
Kemper Asian Growth Fund Long-term capital growth by 0.850% to $250 million $ 6,398,000
investing in a diversified 0.820% next $750 million
portfolio of Asian equity 0.800% next $1.5 billion
securities. 0.780% next $2.5 billion
0.750% next $2.5 billion
0.740% next $2.5 billion
0.730% next $2.5 billion
0.720% thereafter**
Kemper Emerging Markets Long-term growth of capital 1.250% of net assets** $ 1,147,000@
Growth Fund primarily through equity
investment in emerging
markets around the globe.
Kemper Emerging Markets High current income and, 1.000% of net assets** $ 5,616,000@
Income Fund secondarily, long-term
capital appreciation.
Kemper Europe Fund Long-term capital growth by 0.750% to $250 million $ 23,910,000
investing in a diversified 0.720% next $750 million
portfolio of European equity 0.700% next $1.5 billion
securities. 0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
Kemper Global Blue Chip Fund Long-term growth of capital 1.000% to $250 million $ 3,663,000@
through a diversified 0.950% next $750 million
worldwide portfolio of 0.900% thereafter**
marketable securities,
primarily equity securities.
Kemper Global Income Fund High current income 0.750% to $250 million $ 99,054,000
consistent with prudent total 0.720% next $750 million
return asset management by 0.700% next $1.5 billion
investing in a portfolio of 0.680% next $2.5 billion
investment grade foreign and 0.650% next $2.5 billion
domestic fixed income 0.640% next $2.5 billion
securities. 0.630% next $2.5 billion
0.620% thereafter
Kemper International Fund Total return, a combination 0.750% to $250 million $ 588,069,000
of capital growth and income, 0.720% next $750 million
principally through an 0.700% next $1.5 billion
internationally diversified 0.680% next $2.5 billion
portfolio of equity 0.650% next $2.5 billion
securities. 0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
Kemper International Growth Long-term growth of capital 1.000% of net assets** $ 1,556,000@
and Income Fund and income, primarily from
foreign equity securities.
</TABLE>
B-11
<PAGE> 60
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Latin America Fund Long-term capital 1.250% to $250 million $ 1,441,000@
appreciation through 1.200% next $750 million
investment primarily in the 1.150% thereafter**
securities of Latin American
issuers.
ASSET ALLOCATION FUNDS
Kemper Horizon 10+ Portfolio A balance between growth of 0.580% to $250 million $ 106,339,000
capital and income, 0.550% next $750 million
consistent with moderate 0.530% next $1.5 billion
risk. 0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Horizon 20+ Portfolio Growth of capital and, 0.580% to $250 million $ 110,076,000
secondarily, income. 0.550% next $750 million
0.530% next $1.5 billion
0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper Horizon 5 Portfolio Income consistent with 0.580% to $250 million $ 55,335,000
preservation of capital and, 0.550% next $750 million
secondarily, growth of 0.530% next $1.5 billion
capital. 0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
INCOME FUNDS
Kemper Adjustable Rate U.S. High current income 0.550% to $250 million $ 81,967,000
Government Fund consistent with low 0.520% next $750 million
volatility of principal. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
Kemper Diversified Income High current return. 0.580% to $250 million $ 861,543,000
Fund 0.550% next $750 million
0.530% next $1.5 billion
0.510% next $2.5 billion
0.480% next $2.5 billion
0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
Kemper High Yield Fund The highest level of current 0.580% to $250 million $4,939,302,000
income from a professionally 0.550% next $750 million
managed, diversified 0.530% next $1.5 billion
portfolio of fixed income 0.510% next $2.5 billion
securities consistent with 0.480% next $2.5 billion
reasonable risk. 0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% thereafter
</TABLE>
B-12
<PAGE> 61
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper High Yield Total return through high 0.650% to $250 million $ 16,188,000
Opportunity Fund current income and capital 0.620% next $750 million
appreciation. 0.600% next $1.5 billion
0.580% next $2.5 billion
0.550% next $2.5 billion
0.530% next $2.5 billion
0.510% next $2.5 billion
0.490% thereafter
Kemper Income and Capital As high a level of current 0.550% to $250 million $ 613,470,000
Preservation Fund income as is consistent with 0.520% next $750 million
preservation of capital. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
Kemper Short-Intermediate High current income and 0.550% to $250 million $ 171,400,000
Government Fund preservation of capital, with 0.520% next $750 million
equal emphasis, from a 0.500% next $1.5 billion
portfolio primarily 0.480% next $2.5 billion
consisting of short-and 0.450% next $2.5 billion
intermediate-term U.S. 0.430% next $2.5 billion
Government securities. 0.410% next $2.5 billion
0.400% thereafter
Kemper U.S. Government High current income, 0.450% to $250 million $3,642,027,000
Securities Fund liquidity and security of 0.430% next $750 million
principal. 0.410% next $1.5 billion
0.400% next $2.5 billion
0.380% next $2.5 billion
0.360% next $2.5 billion
0.340% next $2.5 billion
0.320% thereafter
Kemper U.S. Mortgage Fund Maximum current return from 0.550% to $250 million $2,497,825,000
U.S. Government securities. 0.520% next $750 million
0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
TAX-FREE INCOME FUNDS
Kemper California Tax-Free High level of current income 0.550% to $250 million $1,007,907,000
Income Fund exempt from federal and 0.520% next $750 million
California income taxes 0.500% next $1.5 billion
through a portfolio of 0.480% next $2.5 billion
municipal securities. 0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
Kemper Florida Tax-Free High level of current income 0.550% to $250 million $ 103,845,000
Income Fund that is exempt from income 0.520% next $750 million
taxes through a diversified 0.500% next $1.5 billion
portfolio of municipal 0.480% next $2.5 billion
securities. 0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
</TABLE>
B-13
<PAGE> 62
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Intermediate As high a level of current 0.550% to $250 million $ 21,889,000
Municipal Bond Fund income, exempt from federal 0.520% next $750 million
income taxes, as is 0.500% next $1.5 billion
consistent with preservation 0.480% next $2.5 billion
of capital through a 0.450% next $2.5 billion
diversified portfolio of 0.430% next $2.5 billion
municipal securities. 0.410% next $2.5 billion
0.400% thereafter**
Kemper Michigan Tax-Free High level of current income 0.550% to $250 million $ 3,091,000
Income Fund exempt from federal and 0.520% next $750 million
Michigan income taxes through 0.500% next $1.5 billion
a non-diversified portfolio 0.480% next $2.5 billion
of municipal securities. 0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter**
Kemper Municipal Bond Fund As high a level of current 0.450% to $250 million $3,216,221,000
income, exempt from federal 0.430% next $750 million
income taxes, as is 0.410% next $1.5 billion
consistent with preservation 0.400% next $2.5 billion
of capital though a 0.380% next $2.5 billion
professionally managed 0.360% next $2.5 billion
portfolio of municipal 0.340% next $2.5 billion
securities. 0.320% thereafter
Kemper New Jersey Tax-Free High level of current income 0.550% to $250 million $ 5,304,000
Income Fund exempt from federal and New 0.520% next $750 million
Jersey income taxes through a 0.500% next $1.5 billion
professionally managed non- 0.480% next $2.5 billion
diversified portfolio of 0.450% next $2.5 billion
municipal securities. 0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter**
Kemper New York Tax-Free High level of current income 0.550% to $250 million $ 285,934,000
Income Fund that is exempt from federal, 0.520% next $750 million
New York and New York city 0.500% next $1.5 billion
income taxes through a 0.480% next $2.5 billion
professionally managed non- 0.450% next $2.5 billion
diversified portfolio of 0.430% next $2.5 billion
municipal securities. 0.410% next $2.5 billion
0.400% thereafter
Kemper Ohio Tax-Free Income High level of current 0.550% to $250 million $ 39,468,000
Fund interest income exempt from 0.520% next $750 million
federal and state of Ohio 0.500% next $1.5 billion
income taxes through a 0.480% next $2.5 billion
professionally managed 0.450% next $2.5 billion
non-diversified portfolio of 0.430% next $2.5 billion
municipal securities. 0.410% next $2.5 billion
0.400% thereafter
Kemper Pennsylvania Tax- High level of current income 0.550% to $250 million $ 6,304,000
Free Income Fund exempt from federal and state 0.520% next $750 million
of Pennsylvania income taxes 0.500% next $1.5 billion
through a professionally 0.480% next $2.5 billion
managed non-diversified 0.450% next $2.5 billion
portfolio of municipal 0.430% next $2.5 billion
securities. 0.410% next $2.5 billion
0.400% thereafter**
</TABLE>
B-14
<PAGE> 63
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Texas Tax-Free Income A high level of current 0.550% to $250 million $ 12,469,000
Fund interest income exempt from 0.520% next $750 million
federal income taxes through 0.500% next $1.5 billion
a professionally managed non- 0.480% next $2.5 billion
diversified portfolio of 0.450% next $2.5 billion
municipal securities. 0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
CLOSED-END FUNDS
The Growth Fund of Spain, Long-term capital 1.000% of net assets $ 315,059,000
Inc. appreciation by investing
primarily in equity
securities of Spanish
companies.
Kemper High Income Trust Highest current income 0.850% of net assets $ 222,919,000
obtainable consistent with
reasonable risk with capital
gains secondary.
Kemper Intermediate High current income 0.800% of net assets(1) $ 267,218,000
Government Trust consistent with preservation
of capital by investing in
U.S. and foreign government
securities.
Kemper Multi-Market Income High current income 0.850% of net assets(2) $ 217,508,000
Trust consistent with prudent total
return asset management by
investing in a diversified
portfolio of investment grade
tax-exempt securities.
Kemper Municipal Income High level of current income 0.550% of net assets(2) $ 686,179,000
Trust exempt from federal income
tax.
Kemper Strategic Income Fund High current income by 0.850% of net assets(2) $ 53,129,000
investing its assets in a
combination of lower-rated
corporate fixed-income
securities, fixed-income
securities of emerging market
and other foreign issuers
and, fixed-income securities
of the U.S. Government and
its agencies and
instrumentalities and private
mortgage-backed issuers.
Kemper Strategic Municipal High level of current income 0.600% of net assets(2) $ 130,895,000
Income Trust exempt from federal income
tax by investing in a
diversified portfolio of
tax-exempt municipal
securities.
ANNUITY PRODUCTS
Kemper Blue Chip Portfolio Growth of capital and income. 0.650% of net assets $ 18,421,000
Kemper Contrarian Value High rate of return. 0.750% of net assets $ 162,380,000
Portfolio
</TABLE>
B-15
<PAGE> 64
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Global Blue Chip Long-term growth of capital 1.000% to $250 million N/A*
Portfolio through diversified worldwide 0.950% next $750 million
portfolio of marketable 0.900% thereafter
securities, primarily equity
securities.
Kemper Global Income High current income 0.750% of net assets $ 2,145,000
Portfolio consistent with prudent total
return asset management.
Kemper Government Securities High current income 0.550% of net assets $ 86,682,000
Portfolio consistent with preservation
of capital from a portfolio
consisting primarily of U.S.
Government securities.
Kemper Growth Portfolio Maximum appreciation of 0.600% of net assets $ 563,016,000
capital.
Kemper High Yield Portfolio High level of current income 0.600% of net assets $ 391,664,000
by investing in fixed income
securities.
Kemper Horizon 10+ Portfolio A balance between growth of 0.600% of net assets $ 22,553,000
capital and income consistent
with moderate risk.
Kemper Horizon 20+ Portfolio Growth of capital and, 0.600% of net assets $ 16,659,000
secondarily, income.
Kemper Horizon 5 Portfolio Income consistent with 0.600% of net assets $ 14,258,000
preservation of capital, and
secondarily, growth.
Kemper International Growth Long-term growth of capital 1.000% of net assets N/A*
and Income Portfolio and current income, primarily
from foreign equity
securities.
Kemper International Total return, a combination 0.750% of net assets $ 200,046,000
Portfolio of capital growth and income,
principally through an
internationally diversified
portfolio of equity
securities.
Kemper Investment Grade Bond High current income by 0.600% of net assets $ 15,504,000
Portfolio investing primarily in a
diversified portfolio of
investment grade debt
securities.
Kemper Money Market Maximum current income to the 0.500% of net assets $ 100,143,000
Portfolio extent consistent with
stability of principal from a
portfolio of high quality
money market instruments.
Kemper Small Cap Growth Maximum capital appreciation 0.650% of net assets $ 137,415,000
Portfolio from a portfolio primarily
consisting of growth stocks
of small companies.
Kemper Small Cap Value Long-term capital 0.750% of net assets $ 76,108,000
Portfolio appreciation from a portfolio
primarily of value stocks of
smaller companies.
Kemper Total Return High total return through a 0.550% of net assets $ 786,996,000
Portfolio combination of income and
capital appreciation.
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Value+Growth Growth of capital through 0.750% of net assets $ 69,094,000
Portfolio professional management of a
portfolio of growth and value
stocks.
Kemper-Dreman Financial Long-term capital 0.750% to $250 million N/A*
Services Portfolio appreciation by investing 0.720% next $750 million
primarily in common stocks 0.700% next $1.5 billion
and other equity securities 0.680% next $2.5 billion
of companies in the financial 0.650% next $2.5 billion
services industry believed by 0.640% next $2.5 billion
the investment manger to be 0.630% next $2.5 billion
undervalued. 0.620% thereafter
Kemper-Dreman High Return High rate of total return. 0.750% to $250 million N/A*
Equity Portfolio 0.720% next $750 million
0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
MONEY MARKET FUNDS
Government Securities Maximum current income to the 0.220% to $500 million $ 810,001,000
Portfolio (Cash Account extent consistent with 0.200% next $500 million
Trust) stability of capital from a 0.175% next $1 billion
portfolio of U.S. Government 0.160% next $1 billion
obligations. 0.150% thereafter(1)**
Government Securities Maximum current income to the 0.220% to $500 million $ 391,861,000
Portfolio (Cash Equivalent extent consistent with 0.200% next $500 million
Fund) stability of capital from a 0.175% next $1 billion
portfolio of U.S. Government 0.160% next $1 billion
obligations. 0.150% thereafter(1)
Government Securities Maximum current income to the 0.150% of net $ 312,194,000
Portfolio (Investors Cash extent consistent with assets(1)**
Trust) stability of capital by
investing in U.S. Government
obligations and repurchase
agreements.
Investors Florida Municipal Maximum current income exempt 0.220% to $500 million $ 7,611,000
Cash Fund from federal income taxes to 0.200% next $500 million
the extent consistent with 0.175% next $1 billion
stability of capital. 0.160% next $1 billion
0.150% thereafter(1)**
Investors Michigan Municipal Maximum current income exempt 0.22% to $500 million N/A*
Cash Fund from federal and Michigan 0.20% next $500 million
income taxes to the extent 0.175% next $1 billion
consistent with stability of 0.16% next $1 billion
capital 0.15% thereafter
Investors New Jersey Maximum current income exempt 0.220% to $500 million $ 4,665,000
Municipal Cash Fund from federal and New Jersey 0.200% next $500 million
income taxes to the extent 0.175% next $1 billion
consistent with stability of 0.160% next $1 billion
capital. 0.150% thereafter(3)**
Investors Pennsylvania Maximum current income exempt 0.220% to $500 million $ 3,195,000
Municipal Cash Fund from federal and Pennsylvania 0.200% next $500 million
income taxes to the extent 0.175% next $1 billion
consistent with stability of 0.160% next $1 billion
capital. 0.150% thereafter(3)**
</TABLE>
B-17
<PAGE> 66
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Kemper Cash Reserves Fund Maximum current income to the 0.400% to $250 million $ 339,655,000
extent consistent with 0.380% next $750 million
stability of principal from a 0.350% next $1.5 billion
portfolio of high quality 0.320% next $2.5 billion
money market instruments. 0.300% next $2.5 billion
0.280% next $2.5 billion
0.260% next $2.5 billion
0.250% thereafter
Money Market Portfolio (Cash Maximum current income to the 0.220% to $500 million $2,004,420,000
Account Trust) extent consistent with 0.200% next $500 million
stability of capital from a 0.175% next $1 billion
portfolio primarily of 0.160% next $1 billion
commercial paper and bank 0.150% thereafter(1)**
obligations.
Money Market Portfolio (Cash Maximum current income to the 0.220% to $500 million $ 851,592,000
Equivalent Fund) extent consistent with 0.200% next $500 million
stability of capital from a 0.175% next $1 billion
portfolio primarily of 0.160% next $1 billion
commercial paper and bank 0.150% thereafter(4)
obligations.
Tax-Exempt Portfolio (Cash Maximum current income exempt 0.220% to $500 million $ 370,036,000
Account Trust) from federal income taxes to 0.200% next $500 million
the extent consistent with 0.175% next $1 billion
stability of capital from a 0.160% next $1 billion
portfolio of municipal 0.150% thereafter(1)**
securities.
Tax-Exempt Portfolio (Cash Maximum current income that 0.220% to $500 million $ 333,427,000
Equivalent Fund) is exempt from federal income 0.200% next $500 million
taxes to the extent 0.175% next $1 billion
consistent with stability of 0.160% next $1 billion
capital from a portfolio of 0.150% thereafter
municipal securities.
Treasury Portfolio Maximum current income to the 0.150% of net $ 74,290,000
(Investors Cash Trust) extent consistent with assets(5)**
stability of capital by
investing in U.S. Government
obligations and repurchase
agreements.
Zurich Government Money Fund Maximum current income to the 0.500% to $215 million $ 686,871,000
extent consistent with 0.375% next $335 million
stability of principal from a 0.300% next $250 million
portfolio of U.S. Government 0.250% thereafter(6)
obligations.
Zurich Money Market Fund Maximum current income to the 0.500% to $215 million $4,538,627,000
extent consistent with 0.375% next $335 million
stability of principal from a 0.300% next $250 million
portfolio primarily 0.250% thereafter(6)
consisting of commercial
paper and bank obligations.
</TABLE>
B-18
<PAGE> 67
<TABLE>
<CAPTION>
TRUST/FUND OBJECTIVE FEE RATE ASSETS
---------- --------- -------- ------
<S> <C> <C> <C>
Zurich Tax-Free Money Fund Maximum current income to the 0.500% to $215 million $ 815,894,000
extent consistent with 0.375% next $335 million
stability of principal from a 0.300% next $250 million
portfolio of municipal 0.250% thereafter(6)
securities.
Zurich YieldWise Money Fund Maximum current income to the 0.500% to $215 million $1,071,728,000
extent consistent with 0.375% next $335 million
stability of principal by 0.300% next $250 million
investing in high-quality 0.250% thereafter**
short-term money market
instruments
Tax-Exempt New York Money Maximum current income exempt 0.220% to $500 million $ 104,198,000
Market Fund from federal, New York State 0.200% next $500 million
and New York City income 0.175% next $1 billion
taxes to the extent 0.160% next $1 billion
consistent with stability of 0.150% thereafter(3)**
capital.
Tax-Exempt California Money Maximum current income exempt 0.220% to $500 million $ 117,432,000
Market Fund from federal and California 0.200% next $500 million
income taxes to the extent 0.175% next $1 billion
consistent with stability of 0.160% next $1 billion
capital. 0.150% thereafter
</TABLE>
- ------------------------------
+ The information provided below is shown as of the end of each Fund's last
fiscal year, unless otherwise noted.
* Fee information is not available for Kemper-Dreman Financial Services Fund,
which commenced operations on March 9, 1998; Investors Michigan Municipal
Cash Fund, which commenced operations on April 6, 1998; Kemper-Dreman High
Return Equity Portfolio, which commenced operations on May 1, 1998;
Kemper-Dreman Financial Services Portfolio, which commenced operations on
May 4, 1998; Kemper Global Blue Chip Portfolio and Kemper International
Growth and Income Portfolio, each of which commenced operations on May 5,
1998; or Kemper Small Cap Relative Value Fund, which commenced operations on
May 6, 1998.
** Subject to waivers and/or reimbursements.
*** Net asset information is provided for the semi-annual period ended April
30, 1998.
@ Net asset information is provided for the semi-annual period ended March 31,
1998.
(1) Payable in the aggregate for each of the Government Securities Portfolio,
Money Market Portfolio and Tax-Exempt Portfolio series of Cash Account
Trust.
(2) Based on average weekly net assets.
(3) Payable in the aggregate for each of the Investors Florida Municipal Cash
Fund, Investors New Jersey Municipal Cash Fund, Investors Pennsylvania
Municipal Cash Fund and Tax-Exempt New York Money Market Fund series of
Investors Municipal Cash Fund.
(4) Payable in the aggregate for each of the Government Securities Portfolio
and Money Market Portfolio series of Cash Equivalent Fund.
(5) Payable in the aggregate for each of the Government Securities Portfolio
and Treasury Portfolio series of Investors Cash Trust.
(6) Payable in the aggregate for each of the Zurich Government Money Fund,
Zurich Money Market Fund and Zurich Tax-Free Money Fund series of Zurich
Money Funds.
B-19
<PAGE> 68
EXHIBIT C
NEW SUBADVISORY AGREEMENT
AGREEMENT made as of the 7th day of September, 1998, between Scudder Kemper
Investments, Inc., a Delaware corporation (hereinafter called the "Manager"),
and Bankers Trust Corporation, 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 September 7, 1998, as
supplemented .
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
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<PAGE> 69
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 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.
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<PAGE> 70
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
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.
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<PAGE> 71
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 (i) the 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 itself in
relation to such portfolios; or (ii) the Subadviser from providing investment
advice and other services to other funds or clients.
C-4
<PAGE> 72
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
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<PAGE> 73
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, 1999, 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
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
C-6
<PAGE> 74
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.
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
C-7
<PAGE> 75
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.
<TABLE>
<S> <C>
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 CORPORATION
Global Investment Management
One Bankers Trust Plaza
New York, New York 10006
Attention: Frank R. Salerno
</TABLE>
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
C-8
<PAGE> 76
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.
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:
------------------------------------------------
Title:
BANKERS TRUST COMPANY
Attest:
By:
------------------------------------------------
Title:
C-9
<PAGE> 77
SCHEDULE A TO THE SUBADVISORY AGREEMENT
FOR THE AARP U.S. STOCK INDEX FUND (THE "SERIES")
DATED AS OF SEPTEMBER 7, 1998
BETWEEN SCUDDER KEMPER INVESTMENTS, INC.
AND BANKERS TRUST CORPORATION
FEE SCHEDULE
As compensation for its services described herein, Bankers Trust
Corporation shall receive a fee based on a percentage of average net assets
calculated according to the following annualized fee schedule:
<TABLE>
<CAPTION>
SERIES ASSETS ANNUALIZED RATE
------------- ---------------
<S> <C> <C>
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%
</TABLE>
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 Corporation
does not perform services for a full quarter.
C-10
<PAGE> 78
EXHIBIT D
NEW MEMBER SERVICES AGREEMENT
SCUDDER KEMPER INVESTMENTS, 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
Ladies and Gentlemen:
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.
We hereby agree with you as follows:
1. You agree to provide us with such advice and services relating to
investment by members of AARP in the AARP Cash Investment Funds, AARP
Growth Trust AARP Income Trust, AARP Managed Investment Portfolios Trust
And AARP Tax Free Income Trust established as a Massachusetts business
trust to engage in the business of an investment management company (the
"Fund"), and any separate portfolios of the Fund, 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 Fund and Portfolios, the
development of new products and services for the Fund and Portfolios and
such other information as will assist us in tailoring the Fund 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 Fund and Portfolios to
assist in the organization and operation of the Fund and Portfolios,
including "seed money" for the Fund and assistance in monitoring our
activities and the services provided by Scudder Kemper Investments, Inc.
D-1
<PAGE> 79
and other agents of the Fund and Portfolios. You agree to make available
certain of your directors, officers and staff to assist in the operation of
the Fund and Portfolios, and, subject to their individual consent, to serve
as directors and officers of the Fund. You also agree to facilitate
communications with and the provision of services to the AARP membership by
analyzing the needs of AARP members and 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 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
Fund a license to use certain of our respective service marks.
2. As you expect to receive additional compensation under the Member
Services Agreement currently between you and the Underlying Funds, you
shall not be paid a fee for services described in Section 1 hereof.
3. Nothing herein shall be construed as constituting you as an agent
of us or of the Fund.
4. This Agreement shall become effective as of the date hereof and
shall remain in effect, with respect to each Portfolio of the 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 the Fund who are not interested persons of the Fund, you or
us, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) the Trustees of the Fund or, with respect to each
Portfolio of the 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 by the
Trustees to the 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
the Fund, including a majority of the Trustees of the Fund who
D-2
<PAGE> 80
are not interested persons of the 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
"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:
-----------------------------------
Managing Director
The foregoing Agreement is hereby accepted as of the date first written
above.
AARP FINANCIAL SERVICES CORP.
By:
-----------------------------------
Title:
Accepted:
----------------------------------
AARP CASH INVESTMENT FUNDS
By:
-----------------------------------
Title: President
AARP GROWTH TRUST
By:
-----------------------------------
Title: President
D-3
<PAGE> 81
AARP INCOME TRUST
By:
-----------------------------------
Title: President
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
By:
-----------------------------------
Title: President
AARP TAX FREE INCOME TRUST
By:
-----------------------------------
Title: President
D-4
<PAGE> 82
APPENDIX 1
AARP TRUSTS AND Series
AARP CASH INVESTMENT FUNDS
AARP High Quality Money Fund
AARP INCOME TRUST
AARP Bond Fund for Income
AARP GNMA and U.S. Treasury Fund
AARP High Quality Short Term Bond Fund
AARP TAX FREE INCOME TRUST
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP GROWTH TRUST
AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund
AARP International Growth and Income Fund
AARP Small Company Stock Fund
AARP U.S. Stock Index Fund
AARP MANAGED INVESTMENT PORTFOLIOS TRUST
AARP Diversified Growth Portfolio
AARP Diversified Income with Growth Portfolio
<PAGE> 83
APPENDIX 2
FUND SHARES OUTSTANDING
Holders of record of the shares of each Fund at the close of business on
October 19, 1998 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. The table below sets forth the number of shares outstanding for
each Fund as of June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OUTSTANDING
FUND AS OF JUNE 30, 1998
---- -------------------
<S> <C>
AARP Balanced Stock and Bond Fund 36,704,814.227
AARP Bond Fund for Income 9,030,323.339
AARP Capital Growth Fund 24,132,125.338
AARP Diversified Growth Portfolio 7,007,441.713
AARP Diversified Income with Growth Portfolio 5,155,836.142
AARP Global Growth Fund 8,057,180.335
AARP GNMA and U.S. Treasury Fund 295,042,936.810
AARP Growth and Income Fund 133,062,248.228
AARP High Quality Money Fund 495,170,398.389
AARP High Quality Short Term Bond Fund 26,884,862.036
AARP High Quality Tax Free Money Fund 97,892,607.405
AARP Insured Tax Free General Bond Fund 91,612,816.182
AARP International Growth and Income Fund 2,147,032.142
AARP Small Company Stock Fund 5,623,762.486
AARP U.S. Stock Index Fund 4,555,215.124
</TABLE>
<PAGE> 84
APPENDIX 3
BENEFICIAL OWNERS OF 5% OR MORE OF FUND SHARES
As of June 30, 1998, 1,667,754 shares in the aggregate, 18.46% of the
outstanding shares of AARP BOND FUND FOR INCOME were held in the name of State
Street Bank & Trust Co., Custodian for AARP Managed Investment Portfolio
Diversified Income, One Heritage Drive, Quincy, MA 02171, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of June 30, 1998, 1,617,295 shares in the aggregate, 17.90% of the
outstanding shares of AARP BOND FUND FOR INCOME were held in the name of State
Street Bank & Trust Co., Custodian of AARP Managed Investment Portfolio
Diversified Growth, One Heritage Drive, Quincy, MA 02171, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of June 30, 1998, 458,185 shares in the aggregate, 21.34% of the
outstanding shares of AARP INTERNATIONAL GROWTH & INCOME FUND were held in the
name of State Street Bank & Trust Co., Custodian for AARP Managed Investment
Portfolio Diversified Growth, One Heritage Drive, Quincy, MA 02171, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of June 30, 1998, 642,849 shares in the aggregate, 11.40% of the
outstanding shares of AARP SMALL COMPANY STOCK FUND were held in the name of
State Street Bank & Trust Co., Custodian for AARP Managed Investment Portfolio
Diversified Growth, One Heritage Drive, Quincy, MA 02171, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of June 30, 1998, 789,760 shares in the aggregate, 17.33% of the
outstanding shares of AARP U. S. STOCK INDEX FUND were held in the name of State
Street Bank & Trust Co., Custodian for AARP Managed Investment Portfolio
Diversified Growth, One Heritage Drive, Quincy, MA 02171, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
<PAGE> 85
APPENDIX 4
FUND SHARES OWNED BY TRUSTEES
TO BE PROVIDED
<PAGE> 86
APPENDIX 5
INDIVIDUAL FUND FEE RATE, NET ASSETS
AND AGGREGATE MANAGEMENT FEES
<TABLE>
<CAPTION>
AGGREGATE
MANAGEMENT MANAGEMENT
FUND FISCAL YEAR NET ASSETS FEE RATE+ FEE PAID
---- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AARP Balanced Stock and Bond Fund 9/30/97 $ 638,356,257 0.19% $ 2,455,813
AARP Bond Fund for Income 9/30/97 $ 58,324,146 0.28% 0
AARP Capital Growth Fund 9/30/97 $1,228,379,954 0.32% $ 6,053,108
AARP Diversified Growth Portfolio 9/30/97 $ 61,796,818 N/A N/A
AARP Diversified Income with Growth 9/30/97 $ 43,446,418 N/A N/A
Portfolio
AARP Global Growth Fund 9/30/97 $ 148,029,373 0.55% $ 857,229
AARP GNMA and U.S Treasury Fund 9/30/97 $4,583,980,460 0.12% $19,228,620
AARP Growth and Income Fund 9/30/97 $6,606,012,897 0.19% $25,101,044
AARP High Quality Money Fund 9/30/97 $ 471,310,867 0.10% $ 1,760,550
AARP High Quality Short Term Bond 9/30/97 $ 454,869,518 0.19% $ 2,287,683
Fund
AARP High Quality Tax Free Money 9/30/97 $ 102,613,893 0.10% $ 410,859
Fund
AARP Insured Tax Free General Bond 9/30/97 $1,712,008,168 0.19% $ 8,224,295
Fund
AARP International Growth and 9/30/97 $ 20,259,062 0.60% 0++
Income Fund
AARP Small Company Stock Fund 9/30/97 $ 50,271,473 0.55% 0++
AARP U.S. Stock Index Fund 9/30/97 $ 38,085,073 0.00% 0++
</TABLE>
- ------------------------------
+The management fee rates shown are for each Fund's most recently completed
fiscal year, unless otherwise noted.
++After waivers and/or expense limitation.
<PAGE> 87
APPENDIX 6
DATES RELATING TO
FORMER AND NEW INVESTMENT MANAGEMENT AGREEMENTS
<TABLE>
<CAPTION>
TERMINATION
FORMER DATE
INVESTMENT NEW (UNLESS
DATE OF MANAGEMENT INVESTMENT CONTINUED)
FORMER AGREEMENT MANAGEMENT FOR NEW
COMMENCEMENT INVESTMENT LAST AGREEMENT INVESTMENT
OF MANAGEMENT APPROVED BY LAST APPROVED MANAGEMENT
FUND OPERATIONS AGREEMENT SHAREHOLDERS BY TRUSTEES AGREEMENT
---- ------------ ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
AARP Balanced Stock and Bond 2/1/94 12/31/97 10/22/97 8/4/98 8/31/99
Fund
AARP Bond Fund for Income 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
AARP Capital Growth Fund 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
AARP Diversified Growth 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
Portfolio
AARP Diversified Income with 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
Growth Portfolio
AARP Global Growth Fund 2/1/96 12/31/97 10/22/97 8/4/98 8/31/99
AARP GNMA and U.S Treasury 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
Fund
AARP Growth and Income Fund 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
AARP High Quality Money Fund 7/22/85 12/31/97 10/22/97 8/4/98 8/31/99
AARP High Quality Short Term 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
Bond Fund
AARP High Quality Tax Free 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
Money Fund
AARP Insured Tax Free General 11/30/84 12/31/97 10/22/97 8/4/98 8/31/99
Bond Fund
AARP International Growth and 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
Income Fund
AARP Small Company Stock Fund 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
AARP U.S. Stock Index Fund 2/1/97 12/31/97 10/22/97 8/4/98 8/31/99
</TABLE>
<PAGE> 88
APPENDIX 7
FEES PAID TO SFAC, SSC AND STC
<TABLE>
<CAPTION>
AGGREGATE FEE AGGREGATE FEE AGGREGATE FEE
FUND FISCAL YEAR PAID TO SFAC PAID TO SSC PAID TO STC
---- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AARP Balanced Stock and Bond Fund 9/30/97 $ 95,386 $1,357,972 N/A
AARP Bond Fund for Income 9/30/97 $ 0 $ 0 N/A
AARP Capital Growth Fund 9/30/97 $110,317 $1,889,072 N/A
AARP Diversified Growth Portfolio 9/30/97 N/A N/A M/A
AARP Diversified Income with Growth Portfolio 9/30/97 N/A N/A N/A
AARP Global Growth Fund 9/30/97 $ 95,221 $ 558,504 N/A
AARP GNMA and U.S Treasury Fund 9/30/97 $480,845 $6,732,169 N/A
AARP Growth and Income Fund 9/30/97 $323,033 $6,853,791 N/A
AARP High Quality Money Fund 9/30/97 $ 54,052 $1,505,677 N/A
AARP High Quality Short Term Bond Fund 9/30/97 $ 82,859 $1,455,652 N/A
AARP High Quality Tax Free Money Fund 9/30/97 $ 30,023 $ 256,965 N/A
AARP Insured Tax Free General Bond Fund 9/30/97 $162,915 $1,741,482 N/A
AARP International Growth and Income Fund 9/30/97 0 0 N/A
AARP Small Company Stock Fund 9/30/97 $ 25,445 $ 93,941 N/A
AARP U.S. Stock Index Fund 9/30/97 $ 0 $ 0 N/A
</TABLE>
<PAGE> 89
For more information, please call Shareholder Communications Corporation,
your Fund's information agent, at 1-800-733-8481, ext. 429.
<PAGE> 90
PROXY [AARP ] PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 15, 1998
The undersigned hereby appoints Bruce H. Goldfarb, Kathryn L. Quirk, Thomas
F. McDonough and Daniel Pierce and each of them, the proxies of the undersigned,
with the power of substitution to each of them, to vote all shares of the Fund
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Fund to be held at the offices of Scudder Kemper Investments, Inc., Two
International Place, Boston Massachusetts 02110, on Tuesday, December 15, 1998
at 10:00 a.m., eastern time, and at any adjournments thereof.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S VOTE
WILL BE CAST FOR EACH NUMBERED ITEM LISTED BELOW.
The Board members of your Fund, including those who are not affiliated with
the Fund, Scudder Kemper Investments, Inc. or AARP, recommend that you vote FOR
each item.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the new Member Services Agreement between AARP Financial Services
Corporation and Scudder Kemper Investments, Inc.;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the revision of the Fund's fundamental lending policy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 91
The proxies are authorized to vote in their discretion on any other business
which may properly come before the meeting and any adjournments thereof.
Please sign exactly as your name or
names appear. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as such.
-----------------------------------
(Signature of Shareholder)
-----------------------------------
(Signature of joint owner, if any)
Dated _______ , 1998
PLEASE SIGN AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
<PAGE> 92
PROXY AARP U.S. STOCK INDEX FUND PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 15, 1998
The undersigned hereby appoints Bruce H. Goldfarb, Kathryn L. Quirk, Thomas
F. McDonough and Daniel Pierce and each of them, the proxies of the undersigned,
with the power of substitution to each of them, to vote all shares of the Fund
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Fund to be held at the offices of Scudder Kemper Investments, Inc., Two
International Place, Boston Massachusetts 02110, on Tuesday, December 15, 1998
at 10:00 a.m., eastern time, and at any adjournments thereof.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S VOTE
WILL BE CAST FOR EACH NUMBERED ITEM LISTED BELOW.
The Board members of your Fund, including those who are not affiliated with
the Fund, Scudder Kemper Investments, Inc. or AARP, recommend that you vote FOR
each item.
1(A). To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
1(B). To approve the new subadvisory agreement for the Fund between Banker's
Trust Company and Scudder Kemper Investments, Inc.;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the new Member Services Agreement between AARP Financial
Services Corporation and Scudder Kemper Investments, Inc.;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the revision of the Fund's fundamental lending policy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 93
The proxies are authorized to vote in their discretion on any other business
which may properly come before the meeting and any adjournments thereof.
Please sign exactly as your name
or names appear. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as such.
-----------------------------------
(Signature of Shareholder)
-----------------------------------
(Signature of joint owner, if any)
Dated _______ , 1998
PLEASE SIGN AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
